Regulator issues revised guidelines on reinsurance practices

the Office of the Superintendent of Financial Institutions (OSFI) has completed its review of reinsurance practices in Canada and issued revised versions of Guidelines B-3 and B-2. These versions reflect changes in industry practice over the past ten years and will come into effect on January 1, 2025.

OSFI advises that it will hold information sessions for industry authorities over the next few months to provide them with details on its expectations and the approach it intends to adopt in terms of supervision.

In Guideline B-3, sound reinsurance practices and procedures, OSFI defines its expectations in order to encourage federal insurers “to better identify and better manage the risks arising from the use of reinsurance, in particular counterparty risk”. And under Guideline B-2, Large Exposures and Investment Concentration of P&C Companies, “Federal P&C companies must be able to cover the maximum loss on a single insurance exposure for any policy they issue, assuming the default of the largest unregistered reinsurer for that exposure,” OSFI says.

“The operations of federal insurers must remain compliant with versions of the B-3 and B-2 guidelines that are in effect until January 1, 2025. The nearly three-year transition period will allow federal insurers to properly adapt their business practices in order to comply with the new instructions before they come into effect,” writes OSFI. This marks the end of Phase II of OSFI’s review of reinsurance practices announced in 2018 in its Reinsurance Framework Discussion Paper.

OSFI adds that these changes “mainly constitute clarifications, but they could highlight the need for certain insurers to adjust certain aspects of their reinsurance programs”.

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