(Adds more details of announced measures)
By Nichola Saminather
TORONTO, April 9 (Reuters) - Canada’s financial regulator announced on Thursday it was easing constraints on insurers related to payment deferrals on loans and premiums and increasing liquidity for banks, adding to measures in place to fight the impact of the COVID-19 outbreak.
Insurers do not have to assign more risk to loans and policies subject to payment and premium deferrals due to the pandemic, the Office of the Superintendent of Financial Institutions (OSFI) said in a letter.
For a maximum of six months, the loans will continue to be treated as performing assets and policies on which premium deferrals have been approved will not be subject to higher credit risk factors, the letter to insurers said.
Lenders and insurers have said they will allow clients affected by the outbreak of COVID-19, the potentially lethal respiratory illness caused by the novel coronavirus, to pause loan payments for six months.
The measures are similar to the changes to the treatment of loans subject to payment deferrals at Canadian banks announced earlier.
In a separate letter to banks, the OSFI said deposit-taking institutions can temporarily exclude central bank reserves and sovereign-issued securities from their leverage ratio exposure measure until April 30, 2021.
“Capital freed up through this measure should not be distributed (e.g., as dividends or bonus payments) but should be used to support lending and financial intermediation activities,” the agency said in the letter.
A bank’s leverage ratio is the ratio of capital to total assets, which include reserves and securities. An increase in reserves, which typically results from quantitative easing, would lower the leverage ratio, according to analysts.
Banks generally offset the decline by reducing other assets such as loans, a scenario authorities are keen to avoid.
OSFI added that it will provide guidance on unwinding temporary measures at the appropriate time. (Reporting by Nichola Saminather Editing by Paul Simao and Jonathan Oatis)