OSFI Proposes Revisions to Guideline on Sound Reinsurance Practices
OSFI proposed the draft guideline B-3 that sets out OSFI expectations on sound reinsurance practices and procedures. OSFI requests comments on the proposal by August 16, 2019 and intends to release the final guideline in 2020. The final guideline will be effective on the date of its issuance in 2020. OSFI also issued an impact analysis statement on the guideline.
OSFI, in June 2018, had issued a discussion paper on a reinsurance framework and the paper included proposals to enhance and clarify the OSFI expectations for prudent reinsurance practices. The Annex to the letter proposing the draft guideline summarizes comments received regarding the June 2018 proposals, along with the responses of OSFI. The revisions to the guideline reflect these proposals as well as comments received in response to the discussion paper. Key changes to the guideline encourage insurers to better identify and manage risks arising from the use of reinsurance, particularly counterparty risk. Revisions also clarify the OSFI 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.
Guideline B-3 applies to all federally regulated insurers that are party to reinsurance cessions, retrocessions and, where applicable, to assumption reinsurance transactions. This guideline is complementary to, and should be read in conjunction with other OSFI guidance, including Guideline A on life insurance capital adequacy test, guideline on corporate governance, and Guideline E-17 on background checks on directors and senior management.
OSFI noted some that federally regulated insurers are making greater use of reinsurance and have larger and more concentrated exposures to reinsurers. In addition, the federally regulated insurers are not consistently interpreting and applying some of the OSFI expectations for prudent reinsurance risk management. Consequently, some federally regulated insurers may have more risk associated with their reinsurance programs than appropriate. Hence, the objective of the OSFI reinsurance review is to ensure that the regulatory framework for reinsurance remains effective and appropriate.
Related Links
Comment Due Date: August 16, 2019
Effective Date: 2020 (expected)
Keywords: Americas, Canada, Insurance, Reinsurance, Guideline B-3, Counterparty Risk, Reinsurance Practices, OSFI
Previous Article
EC Amends Regulation on Supervisory Disclosures Under CRD IVRelated Articles
OSFI Issues Results of Pilot on Climate Risk Scenario Analysis
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
ECB Issues Opinions on Green Bonds Standard and CRR Proposals
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
ESRB Explores Policy Response to Risks Arising from Digitalization
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
HKMA Consults on FIRO Code, Revises Policy on Foreign Exchange Risk
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.
FI Publishes Multiple Regulatory and Reporting Updates
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
