An Act respecting insurance (R.S.Q., chapter A-32) (the “Act”) prescribes that every insurer must adhere to sound and prudent management practices.”1 Moreover, under the Act, guidelines pertaining notably to the adequacy of capital may be given to insurers.
The objective of these guidelines is essentially to increase the transparency and predictability of the criteria used by the Autorité des marchés financiers the “AMF”) in assessing the quality and prudence of the management practices of the financial institutions for which those criteria are intended. The ability of these institutions to meet their obligations toward investors and policyholders is key to achieving this objective. This principle is reflected in the capital adequacy requirements for property and casualty (P&C) insurers (“damage insurers” in Québec) set forth in this guideline.
This guideline outlines the capital framework, using a risk-based formula for minimum capital required, and defines the capital that is available to meet the minimum standard. The Minimum Capital Test (MCT) determines the minimum capital required and not necessarily the optimum capital required.
