OSFI taking a closer look at reinsurance

THE OFFICE OF the Superintendent of Financial Institutions is planning to release a public discussion paper addressing the reinsurance sector.
Neville Henderson, assistant superintendent of OSFI’s insurance supervision sector, said at the recent National Insurance Conference of Canada that recent catastrophic weather events highlight the importance of adequate reinsurance.

“We are really concerned about catastrophic coverage and reinsurance,” he said. “Recent events are getting increasingly more common, they will fluctuate over the years but there is clearly a trend (and) that is a big concern for us.”

He said OSFI has found that it doesn’t have a “deep understanding” of reinsurance, which is why it is taking a closer look at it now.

The discussion paper, to be published early next year, will likely include recommendations and clarifications.

“We are having discussions at the executive level at OSFI (and the paper) will talk to the issues we have uncovered,” he said.

“There will be recommended changes (because) one of the things we found is some of the companies don’t really understand some of the guidance so they are not following it.”

Overall, OSFI wants insurers to take a look at their own reinsurance protection, specific to the context of their business, by undertaking stress testing to reveal vulnerabilities.

“(Insurers) need to understand when they buy reinsurance what the counter-party risk is going to be, which means they need to have a deeper understanding of how reinsurance operates.”

Mr. Henderson said OSFI has noticed that some companies hold high retentions or issue limits in Canada but don’t have capital here to back the liability. And when significant international claims happen, various jurisdictions will lay claim to the capital, which would in turn negatively affect Canadian insurers’ capabilities to pay policyholders here.

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