Proposals by Canada’s Office of the Superintendent of Financial Institutions (OSFI) to restrict the use of foreign reinsurers are “drastic” and would create a CA$21 billion – CA$30 billion capital gap, according to the Global Federation of Insurance Associations (GFIA).
A gap of that size would force insurers to more than triple their current capital base, the GFIA warns.
The GFIA adds that global re/insurers currently serving Canadian customers are alarmed by the proposals, and that such a move would increase the cost of insurance in Canada and reduce overall capacity.
Furthermore, the OSFI’s proposal would significantly reduce the return on capital relative to opportunities which may be available to groups globally, thus disincentivising groups from offering re/insurance or investing in Canada.
The GFIA considers it inevitable that such a move would discourage participation in the Canadian market and could result in a heavier and potentially detrimental concentration of reinsurance risk within Canada.
The GFIA adds that each insurer is unique and its reinsurance arrangements may encompass many forms of reinsurance, all of which have a legitimate role.
“Consistent with OSFI’s desire for a principles-based regime, the decision as to what reinsurance structure works best should be left to the Canadian registered insurer to determine, based on optimal arrangements for its own business operations,” the GFIA concludes.
