There would be no need for Ontario to maintain a separate and duplicative solvency regime for the few such companies that remain in the province under a Financial Services Commission of Ontario (FSCO) proposal.
FSCO’s consultation paper, Improving Solvency Supervision of Insurance in Ontario, includes the proposal to align Ontario’s solvency standards with international standards.
The alignment proposal is consistent with the efforts of insurance supervisors around the world, including the federal Office of the Superintendent of Financial Institutions (OSFI), to close gaps in solvency supervision regimes that were exposed by the 2008 financial crisis.
Historically, provincial regulators have harmonized their solvency standards with those of OSFI. OSFI is a member of the International Association of Insurance Supervisors (IAIS), a standard-setting organization that recently established common standards for solvency assessment of insurers worldwide.
The standards “form the basis for evaluation of insurers’ supervisory systems by the International Monetary Fund under its Financial Sector Assessment Program (FSAP).” Canada will be assessed under FSAP within the next year, and every five years thereafter.
“The only way to maintain a stable insurance market that protects the interests of Ontario policyholders is to ensure that every company undertaking the business of insurance in Ontario is subject to the same solvency standards,” FSCO reports.
Proposals that will ensure continued consumer protection while eliminating the need for Ontario to maintain a separate and duplicative solvency regime are as follows:
- cease providing for the provincial incorporation of new insurers;
- require as a condition of licensing that insurers (except farm mutuals) be incorporated federally or in a jurisdiction where the company is subject to solvency supervision that meets the new IAIS solvency standards; and
- provide a transition period for the few remaining companies incorporated in Ontario (other than farm mutuals) to transfer their incorporation to a jurisdiction that meets international standards.
As for farm mutuals, these have access to the reinsurance market through their own reinsurer and maintain their own guarantee fund in the event of a farm mutual insolvency, the paper notes. Both FSCO and the Fund currently have solvency responsibilities over farm mutuals under Ontario’s Insurance Act, but amendments are needed to clarify that the fund is solely responsible for solvency examination of farm mutuals.
Interested parties are invited to submit comments on policy proposals by July 9, 2012. A link to the consultation paper is noted below: