The Office of the Superintendent of Financial Institutions (OSFI) released its Reinsurance Framework Discussion Paper in June 2018, in which the government agency proposed to substantially increase the amount of capital required to operate in Canada, especially for companies with large global operations that cover significant commercial risks in Canada.
OSFI’s proposals have come under fire by many in the Canadian insurance industry. Don Forgeron, president and CEO of the Insurance Bureau of Canada (IBC) – the national industry association representing 90% of the Canadian property and casualty (P&C) insurance market – described OSFI’s proposals as “a very serious problem.” He said the potential changes would “make it uneconomical to implement the global risk management model endorsed by the OECD and utilized by reinsurers and global insurers alike.”
The IBC has encouraged OSFI to slow things down and take the time to conduct a thorough review of the potential business and economic impacts of their proposed changes, which the industry body believes will be “widespread” and “significant.”
“It’s important to remember that global commercial insurers operating in Canada have choices to make when it comes to deploying their capital,” said Forgeron. “We want to be in the business of encouraging global companies to invest in Canada – to build and expand their operations here, to help increase the market capacity, and to spread the risk around the world rather than concentrate it here in Canada.
“More than that, we need global reinsurers and commercial writers to be active in Canada if we are to maintain a financial system that can withstand the impact of a major disaster. Let’s remember, global reinsurers were responsible for paying out close to 80% of the claims as a result of the Fort McMurray fire. At a time when natural disasters like flood and wildfire are a growing threat, we need global insurers and reinsurers to be active in Canada to help us cover substantial claims and deal with the financial aftermath of a major event.”
The OSFI recommendations are complex and technical. In addition to the capital requirement piece, the proposals include enhancements to OSFI’s guidance on sound reinsurance practices and procedures, and changes to the administration of the statutory requirement to obtain the Superintendent’s approval to reinsure with an unregistered reinsurer.
“OSFI’s recommendations aren’t going to send the average Canadian running into the street with a microphone and a protest sign … but there may be some insurance professionals who are on the verge of doing that,” Forgeron commented. “Let’s be absolutely clear about their impact. The changes will challenge global players who are in the Canadian marketplace. This could mean reduced competition and higher costs, and it could undermine our efforts to engage government and industry alike in developing plans to cope with [natural disasters]. Right now, we should all be concerned about where this is heading.”