OSFI announces proposed reforms to reinsurance supervisory and regulatory framework

The Office of the Superintendent of Financial Institutions (OSFI) will recommend that the 25% limit on unregistered reinsurance be repealed as part of a set of reforms of its reinsurance supervisory and regulatory framework.
“Although the 25% limit has appeal from a prudential perspective, it does not provide the incentive for ceding companies to scrutinize their risks with respect to the financial condition/capacity of an unregistered reinsurer or other relevant factors (e.g. legal and insolvency framework of the jurisdiction in which the reinsurer is operating),” OSFI said.
“Further, because reinsurers themselves are not subject to the 25% limit, it does not necessarily act as an absolute bar to companies gaining exposure to additional unregistered reinsurance.”
OSFI will recommend the repeal of the limit once regulatory and supervisory safeguards are in place.
These include:
•    Guideline B-3 (to be renamed Guideline on Sound Reinsurance Practices and Procedures) is bolstered and reinstituted so that, among other things, insurance companies are explicitly required to consider the likelihood of recoverability of reinsurance claims, from registered and unregistered cessions, as part of its overall risk management program;
•    Insurance companies are required to report to OSFI, if requested, a description of all their reinsurance arrangements, including the levels of reinsurance and the proportion of registered and unregistered cessions.
A complete list and description of the reforms can be found at www.osfi-bsif.gc.ca.