The Office of the Superintendent of Financial Institutions (OSFI) has concluded its review of reinsurance practices in Canada and has issued final revised versions of Guideline B-3 and Guideline B-2 to reflect changes in industry practices over the last 10 years. The changes come into effect on January 1, 2025.
OSFI says it will hold industry information sessions in the coming months to provide additional clarity regarding its expectations and the supervisory approach it intends to take.
Guideline B-3, Sound Reinsurance Practices and Procedures, sets out OSFI’s expectations for federally regulated insurers (FRIs) “to better identify and manage risk arising from the use of reinsurance, particularly counterparty risk.” Guideline B-2, Property and Casualty Large Insurance Exposures and Investment Concentration, will require property and casualty FRIs to be able to cover the maximum loss related to a single insurance exposure on any policy it issues, if the largest unregistered reinsurer on that exposure defaults, OSFI states.
“Federally regulated insurers’ existing insurance business should continue to comply with the Guideline B-3 and Guideline B-2 currently in force until January 1, 2025. This nearly three-year transition period permits FRIs time to effectively adjust their business practices to comply with the new guidelines before they come into force,” they write. “This brings to a conclusion, Phase II of OSFI’s review of reinsurance practices, launched in 2018 through the Reinsurance Framework Discussion Paper.”
“These changes are primarily clarifications but may highlight the need for some FRIs to adjust aspects of their reinsurance programs,” they add.