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.
Comment Due Date: August 16, 2019
Effective Date: 2020 (expected)
Keywords: Americas, Canada, Insurance, Reinsurance, Guideline B-3, Counterparty Risk, Reinsurance Practices, OSFI
Previous ArticleEC Amends Regulation on Supervisory Disclosures Under CRD IV
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.