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The Office of the Superintendent of Financial Institutions (OSFI) has announced immediate changes to the Life Insurance Capital Adequacy Test (LICAT) Guideline, aiming to incentivize life insurers to invest in Canadian domestic infrastructure projects. The Capital Adequacy Guidelines outline the minimum amount of capital insurers must hold to ensure they can absorb potential losses from their investment risks.
Under the new framework, life insurers can reduce the capital needed for Canadian domestic infrastructure debt investments from 6% to 3%. On domestic infrastructure equity investments, the capital risk charge was lowered from 40% to 30%.
These changes apply to all federally regulated life insurers, including to Canadian branches of foreign life insurance societies, regulated life insurance holding companies and non-operating life insurance companies.
To qualify for the capital risk charge reduction, the investee infrastructure entities must meet the criteria of "permitted infrastructure entity" established in the Investments in Permitted Infrastructure Entities Regulations. The Regulation provides a list of "infrastructure assets," which includes oil and gas pipelines, pumping stations, oil and gas storage tanks, power plants, transmission and distribution, hydrogen production facilities, energy storage, battery storage, carbon capture, information technology, data centres, ports, terminals and rail and air infrastructure, water supply, waste disposal, agriculture, flood protection, healthcare, housing and education.
An insurance company may only make these investments if the infrastructure entity or its assets involve a public body, including the government, Indigenous councils, regulatory bodies, international treaty-based organizations or non-profits where a public body appoints its board members. An infrastructure asset is considered to "involve" a public body if the body either owns at least 10% of the asset, buys most of its output, leases most of it, guarantees its revenue, sets its prices or controls its access or use.
This measure forms part of a broader OSFI strategy of ensuring regulatory efficiency to better enable financial institutions to take risks to grow the Canadian economy. In the context of proposed Bill S-243 (Climate-Aligned Finance Act) which ended with the previous Canadian parliament in early 2025, and which would have required institutions like OSFI to develop policy to incentivize investments that support climate commitments and disincentivize those inconsistent with climate commitments, the breadth of eligible infrastructure assets covered by the new Capital Adequacy Guidelines illustrate a different strategy.
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