OSFI to grant six-month extension in implementing new guidelines on reinsurance best practices, security agreements

The Office of the Superintendent of Financial Institutions (OSFI) is poised to give the reinsurance industry a six-month reprieve in following the federal solvency regulator’s proposed new guidelines on sound reinsurance practices and reinsurance security agreements.
“What we have in mind now is July 1 [2011],” OSFI director of legislation and policy initiatives Philipe Sarrazin announced to delegates attending the Insurance Bureau of Canada (IBC)’s 10th annual regulatory affairs symposium in Toronto on Nov. 4.
Sarrazin said the proposed new July 1, 2011 implementation date would be discussed with OSFI senior executives over the next couple of days.
“Jan. 1 [2011] is very much off the map,” he confirmed. “I have concurrence of senior executives on this one. So you are looking at a bit more breathing room and a better Christmas time”
OSFI released a draft of Guideline B-3-Sound Reinsurance Practices and Procedures on Aug. 6, 2010. The guideline outlines four key principles for reviewing the practices and processes of reinsurers, including 1) a sound risk management plan, 2) a sufficient level of due diligence, 3) clear terms and conditions in reinsurance contracts and 4) taking care to ensure policyholders are not adversely affected by the terms and conditions of a reinsurance contract.
OSFI also released in August 2010 its Draft Guidance for Reinsurance Security Agreements. This document establishes the new regime for obtaining a capital/asset credit in connection with unregistered reinsurance.
Both guidelines were to be implemented as of Jan. 1, 2011.
Sarrazin’s announcement of the deadline extension preceded – and pre-empted – a critique of the timeline by fellow presenter Gordon E. Thompson, executive vice president and general counsel at Zurich Canada.
Thompson’s presentation included a number of concerns about the draft guidelines. The first concern on his list appears on a slide as “timing of implementation.”