OSFI clarifies expectations for reinsurance guidelines

Published: November 30, 2017

Updated: July 24, 2018

Author: Luke Jones

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The Office of the Superintendent of Financial Institutions (OSFI) admits its guideline on reinsurance needs clarifying. The regulatory body says it expects insurance companies to adhere to the guideline, but “this guidance was not always well-understood by the industry and [has] identified opportunities to clarify our expectations.”

FRIs use reinsurance to manage insurance risks, but reinsurance is capable of bringing its own risk, like credit issues and legal risks.

Speaking to Canadian Underwriter, OSFI says it wants FRIs to “understand and prudently manage” all risks that come with reinsurance, as detailed in its guidelines: Sound Reinsurance Practices and Procedures guideline.

FRI are expected to carry out an “appropriate level of due diligence on its reinsurance counterparty.”

Additionally, OSFI wants due diligence for current and possible future reinsurance agreements. This includes unregistered reinsurance.

“This expected due diligence should include an assessment of counterparty risk and, for unregistered reinsurance, a consideration of the regulatory and supervisory regime, and the legal and insolvency frameworks of the unregistered reinsurer’s home jurisdiction,” OSFI said.

Speaking at the KMG Annual Insurance Conference this week, OSFI’s Neville Henderson, assistant superintendent of insurance supervision admitted that “we (OSFI) noticed that a lot of companies really don’t understand the reinsurance coverage very well.”