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
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.
The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.