OSFI releases draft guideline on reinsurance governance framework

The Office of the Superintendent of Financial Institutions (OSFI) has issued its proposed revision of Guideline B-3, formerly known as the Guideline on Unregistered Reinsurance, for consultation.
The new draft of Guideline B-3 would change the reinsurance governance framework from a rules-based approach to a principles-based approach. The document is based on the following four principles:
• Financial institutions should have a sound and comprehensive reinsurance risk management plan, subject to the financial institution’s board of directors and senior management;
• Financial institutions should perform an adequate level of due diligence on their reinsurance counterparties on an ongoing basis;
• The terms and conditions of the reinsurance contract should provide clarity and certainty in reinsurance coverage (including obtaining contractually binding summary documents prior to the date of reinsurance coverage); and
• A ceding company, its policyholders and its creditors should not be adversely affected by the terms and conditions of a reinsurance contract. This would include requiring so-called “insolvency clauses,” which clarify that reinsurers should continue to make full payments to an insolvent insurer without any reduction based on the insurer’s insolvency.
The full draft guideline is available on OSFI’s Web site at:
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3887
OSFI said it is targeting the release of a final version of Guideline B-3 in the fall of 2010. Guideline B-3 is intended to be effective on Jan. 1,2011.