In the News
Canada’s Proposed Reinsurance Rule Changes Raise Concerns

• David Pilla
• November 2019
• 

Reinsurers and brokers are keeping a close eye on the progress of proposed reinsurance rule changes unveiled last year by Canada's financial services regulator amid concerns it would put Canadian companies at a disadvantage compared with global competitors. The proposal may increase capital requirements of affected companies by up to C$30 billion (US$22.61 billion) if implemented.

In June 2018, the Office of the Superintendent of Financial Institutions announced what it called “a broad review of the reinsurance framework applicable to federally regulated insurers,” which the regulator said at the time it had last done a decade earlier. A year later, in June 2019, the OSFI said it issued proposed revisions, reflecting its proposals along with comments received in response to its 2018 discussion paper.

“Key changes to the guideline encourage insurers to better identify and manage risks arising from the use of reinsurance, particularly counterparty risk,” the OSFI said in a statement. “Revisions also clarify OSFI's expectation that reinsurance payments flow directly to a cedant insurer in Canada, and reaffirm OSFI's principles-based expectation that an insurer not cede substantially all of its risks. These changes are primarily clarifications, but may highlight the need for some insurers to adjust aspects of their reinsurance programs.”

The proposed changes would “reform the framework of reinsurance in this country, severely affecting the industry at large and most significantly commercial consumers,” said Don Forgeron, the Insurance Bureau of Canada's chief executive officer, in a recent speech at the 2019 National Insurance Conference of Canada in Montreal. The Global Federation of Insurance Associations said in a recent letter to the OSFI's Reinsurance Review Committee it “takes the view that the proposals, and in particular the policy limit rule, would have a detrimental effect on global commercial insurers operating in Canada and their policyholders.”

The GFIA said under the proposed rule, “OSFI is asking P&C insurers to be fully capitalized” against “extremely remote loss scenarios.” According to the GFIA, property/casualty insurers in Canada have tested the outcome of the proposed rule “and concluded that, if implemented, OSFI would require an additional C$21 billion to $30 billion in excess capital raised by large commercial writers or excess collateral from global reinsurers to bridge the gap.”

David Pilla is news editor, BestWeek. He can be reached at  david.pilla@ambest.com.