Canada's federal insurance regulator will now let property and casualty insurers use natural catastrophe bonds as reinsurance to cut their capital requirements - with approval.
The Office of the Superintendent of Financial Institutions issued the change on July 20, 2026, in a regulatory notice that takes effect immediately. It applies to every federally regulated property and casualty insurer in the country, with one exception: mortgage insurers.
Here is the short version. The Minimum Capital Test guideline - the rulebook that sets how much capital an insurer must hold - already lets companies claim credit for reinsurance. Section 4.3 spells out which reinsurance counts and how. What it never mentioned was catastrophe bonds. OSFI has now folded them in.
So what qualifies? A natural catastrophe bond, as the notice defines it, is an insurance-linked security built for one job: shifting natural-hazard risk from an insurer, reinsurer, or sponsor onto the capital markets. Think earthquakes, hurricanes, severe convective storms, floods, and wildfires. The regulator draws a hard line around anything man-made. Terrorism, war, industrial accidents, pollution, human-caused nuclear events, and cyberattacks are all out.
The capital treatment comes with strings. OSFI is classing these bonds as unregistered reinsurance carrying no margin requirement. It expects the bond to have an indemnity trigger, with collateral invested in high-quality assets. That collateral has to sit in Canada and be fully paid in under a reinsurance security agreement. Miss any of those marks, and the regulator says it simply will not count the bond for capital purposes.
None of it happens automatically. Insurers have to get OSFI's sign-off before using a catastrophe bond to reduce required capital, and applications go to a company's lead supervisor.
The paperwork is heavy. The notice's appendix lays out what a file needs to contain: the reinsurance program structure, the bond contract itself, the offering documents shown to investors, and any inter-company agreements tied to the special purpose vehicle. Insurers also have to confirm that a default on the bond will not trigger cross-defaults elsewhere in their books, and to hand over stress-testing and modeling reports along with the collateral details.
OSFI is treating this as interim guidance. It plans to bake the changes into the next version of the Minimum Capital Test guideline, and once that lands, this notice will be rescinded.
The full text of the regulatory notice is available at https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/regulatory-notice-using-natural-catastrophe-bonds-minimum-capital-test-guideline?utm_source=web&utm_medium=email&utm_campaign=osfi-bsif-email.
