Canada: Financial Sector Assessment Program-Impact on the Insurance Sector of a Low Interest Rate Environment-Technical Note
IMF Staff Country Reports, March 7, 2014
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- Canada: Financial Sector Assessment Program-Impact on the Insurance Sector of a Low Interest Rate Environment-Technical Note
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Bibliographic details
- Published: March 7, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484330272.002
Key findings on low interest rate impact
- Actuarial standards on valuation of liabilities require that assumed reinvestment rates take increasing account of current market rates.
- As low rates persisted, the increased use of current market rates in assumptions led to higher reported liabilities.
- Canadian accounting and actuarial standards require that further increases in liabilities need to be recognized in the short term.
Implications for insurers and financial stability
- Persistently low interest rates raise measured liabilities for life insurers through lower assumed reinvestment rates.
- Short-term recognition requirements under Canadian standards can amplify balance sheet impacts when market rates decline.
- The note highlights potential broader risks to the financial sector stemming from these valuation and recognition effects.
Policy responses noted
- Policy measures have been undertaken by the Office of the Superintendent of Financial Institutions (OSFI) in the banking sector to address broader risks.
- The technical note discusses implications for supervisory and regulatory approaches to ensure resilience of insurance companies in a low interest rate environment.