The purpose of this letter is to advise you that an updated BAAT Guideline and reporting forms are now available on OSFI’s Web site at http://www.osfi-bsif.gc.ca. As you may recall, we released the “final” version of the BAAT in January 2002, with compliance scheduled for 2003, to allow insurers time to incorporate BAAT requirements in their business plans.

The updated documents include additional items for clarification. The primary addition is a description of OSFI’s supervisory target level approach, which was established after consultations with the Insurance Bureau of Canada (IBC). Another clarification relates to Appendix A of the Guideline on the treatment of Accident and Sickness Business, where additional information has been added to assist insurers in completing the test. The remaining changes to the Guideline and supporting documents, with the exception of permitting a portion of Other Recoverables on Unpaid Claims in Available Assets, are editorial.

Implementation of the BAAT on a compliance basis will be effective January 1, 2003. Beginning with 2003 reporting, OSFI’s supervisory assessment process will relate to the BAAT Guideline.

Please note that the Deposit Adequacy Test (DAT) remains in place for the full 2002 reporting period on the same filing schedule. We ask that you file your 2002 year-end trial BAAT results with your Annual Returns (P&C-2;), as a separate file. Beginning in 2003, vested asset transaction approvals will be based on the most recent BAAT filed. The 2002 year-end trial BAAT is acceptable for this purpose until the first quarterly Interim Return, which includes the BAAT, is filed.

The BAAT will be integrated with the P&C-2; Interim and Annual returns for 2003. An updated version of PricewaterhouseCoopers’ software will be available in time to support these filing requirements. The P&C-2; filing schedule is unchanged under the BAAT.

In changing our supervisory focus to the BAAT in 2003, OSFI will consider transitional arrangements for companies that have a DAT margin of 10% or more at year-end 2002, but do not meet the BAAT supervisory target level. Please contact your relationship manager if you wish to discuss transitional arrangements.

If you have any questions on the BAAT please contact Brian Ludlow at (613) 990-7827.