OSFI calls for global insurance capital standards

Global insurance capital standards would prevent the possibility of companies taking advantage of differences between capital charges across regulatory jurisdictions, according to Canada’s solvency regulator.
Julie Dickson, superintendent of the Office of the Superintendent of Financial Institutions (OSFI), made the observation in a speech to the International Insurance Society 47th Annual Seminar in Toronto on June 21.
“At this moment, we have no international agreement on some key aspects of insurance regulation, nor do we have a road map to get there,” Dickson said. “In fact, there is no international agreement on basic issues, such as specific capital standards on diversifiable risks.”
Dickson said she hoped the ComFrame Project of the International Association of Insurance Supervisors (IAIS) – which generally seeks to foster global convergence of regulatory and supervisory approaches – might address the lack of a global capital standard. “But at present their intentions on a capital accord are unclear,” she said.
Meanwhile, OSFI is hearing stories about “regulatory arbitrage” occurring in the insurance industry. This is when a company has a capital charge for a risk, and is able to reinsure it with another company that has a lower capital requirement for the same risk.
“Sometimes you can see this practice allowed within the same conglomerate, most notably through the captive insurance structure,” Dickson said. “This is not something we condone.
“Those who defend the practice suggest that such arrangements are a workaround to address deficient capital rules in one jurisdiction versus another. I would suggest that the better route would be to fix the rules directly….
“Better convergence of the insurance standards would eliminate this issue.”