OSFI publishes implementation instructions for Part XIII of Insurance Companies Act

The Office of the Superintendent of Financial Institutions has outlined the type of notice a ceding company can expect to receive from a reinsurer that experiences a change in status as a result of OSFI’s changes to Part XIII of the Insurance Companies Act (effective Jan. 1, 2010).
OSFI’s amendments are intended to clarify that the licensing regime is based on ‘location of business.’ As a result, some foreign companies that do not conduct sufficient activities in Canada may be considered as not reinsuring in Canada, OSFI says in a Part XIII Q&A published on its Web site.
In situations in which the amendments result in a change of a reinsurer’s status from registered to unregistered, the ceding federally regulated insurer would no longer qualify for a capital/asset credit unless it holds funds as specified in the capital/asset adequacy guideline.
OSFI’s Implementation Instructions, now posted on its Web site, will require that a foreign company wishing to remove some or all of the liabilities reported on the books of its Canadian branch must notify, in writing, the federally regulated cedant that:
•    it considers the liabilities in respect of those risks to have been reinsured outside Canada;
•    it intends to request OSFI’s approval to remove the liabilities from its Canadian books so that no assets will be vested in Canada for the benefit of the ceding federally regulated insurer;
•    if the request is approved, OSFI will then consider the company to be an unregistered reinsurer;
•    it requests the ceding company to raise any objections with the foreign company within 30 days of receiving the notification.