Canadian proposals to limit reinsurance use would triple capital requirements and concentrate risk

Proposals by the Canadian Superintendent of Financial Institutions (OSFI) to limit the ability of insurers to use reinsurance would require firms operating in Canada to more than triple their current capital base.

 

This would significantly increase the cost of insurance in Canada and reduce overall insurance capacity, according to a letter from the Global Federation of Insurance Associations (GFIA), which expressed serious concerns about a discussion paper on the OFSI’s reinsurance framework.

 

Global insurance and reinsurance groups that currently serve Canadian customers have expressed alarm at the proposals. When groups tested the effect of the policy limit rule recently, at OSFI’s request, it became clear that the rule would create an estimated $21-$30 billion CAD capital gap.

 

In addition, counter to OSFI’s stated philosophy of avoiding too much concentration of reinsurance risks in one place or in one reinsurer, the proposed capital requirements could potentially result in a heavier concentration of reinsurance risk within Canada.

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