Canada’s financial regulator has revised its guidelines regarding the use of reinsurance in order to encourage insurers to better manage risks and re-evaluate their views of maximum losses.
This week, the Office of the Superintendent of Financial Institutions (OSFI) concluded its review of reinsurance practices by issuing final revised versions of Guideline B-3, Sound Reinsurance Practices and Procedures, and Guideline B-2, Property and Casualty Large Insurance Exposures and Investment Concentration.
The revised guidelines, which will not come into effect until January 2025, are said to reflect changes in industry practices over the past 10 years.
The revised Guideline B-3 sets out OSFI’s expectations for federally regulated insurers (FRIs) to better identify and manage risks arising from the use of reinsurance, particularly counterparty risk.
The revised Guideline B-2, meanwhile will require property and casualty FRIs to be able to cover the maximum loss related to a single insurance exposure on any policy it issues, assuming the default of its largest unregistered reinsurer on that exposure.
The OSFI says the nearly three-year transition period should permit insurers adequate time to effectively adjust their business practices to comply with the new guidelines before they come into force.
“OSFI’s suite of regulatory and prudential tools must continuously evolve to keep pace with industry practices,” said Ben Gully, Assistant Superintendent, Regulation.
“The refinements to Guidelines B-3 and B-2 do just that, and will help ensure that federally regulated insurance providers continue to have the necessary resources to meet their commitments to policyholders.”
