November 29, 2019 by Greg Meckbach
The federal insurance regulator – silent during the election campaign on proposed changes to reinsurance – plans to talk to the industry after the holidays, a senior official with the federal Office of the Superintendent of Financial Institutions (OSFI) said Thursday.
“We are re-looking at some of the changes in the paper and after Christmas we intend to go back to the industry for more public discussion around the changes we are contemplating, so we will see what happens,” said Neville Henderson (pictured, right), the assistant superintendent of OSFI who runs the insurance supervision sector, during a “fireside chat” at the Metro Toronto Convention Centre with Chris Cornell (pictured, left), KPMG Canada’s national sector leader for insurance.
Henderson was referring to draft revised Guideline B-3: Sound Reinsurance Practices and Procedures, released this past June by OSFI.
If implemented with no changes, the guideline would substantially increase the amount of capital some insurers would have to hold in Canada, Insurance Bureau of Canada says.
“I don’t think we ever produced a document that was so well read,” Henderson said at KPMG Canada’s 28th annual insurance conference.
OSFI had been keeping quiet on the proposed new reinsurance guideline during the federal election campaign.
Cornell asked Henderson for his view on Guideline B3 and whether Henderson could address concerns from property and casualty insurance professionals attending KPMG’s annual one-day conference, held Nov. 28.
Several things drove OSFI’s decision to release a new draft guideline.
“The reinsurance guideline had not been looked at for over a decade, so things age and there had been huge changes in the industry,” said Henderson. “All of a sudden we saw very significant increases in certain categories without an increase in the capital retained in Canada to match the liabilities and no discussion of the counter-party risk associated with that.”
OSFI officials said earlier the regulator has been concerned about insurers rapidly increasing the amount of commercial risk they cover, and ceding a substantial portion of that risk offshore to reinsurers not registered in Canada. In situations like these, the carriers’ exposures are rising without a corresponding increase of capital in Canada. So OSFI is concerned about a scenario where the unregistered non-Canadian reinsurer fails.
“Smaller companies transfer a lot of their risks to the reinsurer and we allow them to transfer risk to third parties, but what we require is comprehensive understanding of the counter party risk,” Henderson said Thursday at the KPMG Insurance Conference.
OSFI’s proposed guideline would have required some insurers to triple their capital base in Canada, IBC CEO Don Forgeron said this past September at the National Insurance Conference of Canada.
This past Thursday, Forgeron noted OSFI plans to re-evaluate its proposal.
“We expect the focus will be narrower. We hope the demands will be less onerous,” Forgeron said at the Commercial Insurance Symposium, a separate event held Nov. 28 by IBC at the Toronto Region Board of Trade.
“We appreciate the willingness of OSFI to re-examine their proposal – and we look forward to continuing to work together,” Forgeron said.
Meanwhile, at the KPMG Insurance Conference, Henderson said OSFI is looking for input from the industry on reinsurance rules.
“We put a line in the sand – ‘This is what we are going to do so give us the information and convince us otherwise,’” Henderson said of Guideline B3. “It has had a significant reaction and I suspect there is some veracity to the issues they are raising. That’s fine. We need to understand them and we are pleased to discuss it with the industry.”
KPMG Canada normally includes a one-on-one with OSFI’s point person for insurance at its annual conference
“We are trying to figure out how many times Neville has been on this stage,” Cornell said Thursday. “I think on Saturday Night Live, if you host five times, you get a special jacket or something so I think next year will be five, so we will think of something to give you,” Cornell told Henderson.