OSFI shelves mutual recognition of international reinsurance regulation

The Office of the Superintendent of Financial Institutions (OSFI) has rejected the notion of mutual recognition of international regimes for the purpose of regulating the use of unlicensed reinsurance.
Instead, look for OSFI to maintain its collateral regime for unregistered reinsurance.
“It would be premature to consider a full ‘mutual recognition’ framework,” OSFI assistant superintendent Mark E. White told the 2010 IBC Financial Affairs Symposium in Toronto. “There is wide variation in insurance regulation worldwide and Canada has, we believe, one of the most robust insurance regimes, so our obligation is not to give up our protections lightly.”
Under a system of mutual recognition, a supervisor or regulator in one jurisdiction agrees to abide by the standards of a regulator in a jurisdiction where the parent company of a global reinsurer resides — and vice versa.
Proponents say mutual recognition would allow global reinsurers to transfer capital across jurisdictions quickly, making money available at a moment’s notice to pay claims on a balanced, global and diverse portfolio of risks.
But while OSFI included the topic in a discussion paper on reinsurance last year, it doesn’t plan on picking up the idea anytime soon.
White said in truth, the international community of insurance regulators is “a very long way from harmonizing global insurance regulatory and supervisory standards, and realistically, this is a precondition for effective mutual recognition.
“Countries like Canada are not likely to accept a lower or unknown standard due to mutual recognition.”
Currently, OSFI requires unregistered reinsurers to maintain enough collateral to cover 100% of ceded liabilities and to post collateral in Canada.
White said maintaining Canada’s collateral regime is all the more important now that OSFI is proposing to eliminate its 25% limit on unregistered cessions. In this context, “protecting ceding companies and their policyholders from weak unregistered reinsurers becomes even more important,” he said.