OSFI Eases Part XIII Transition

Terri Goveia | June 25, 2009

The Office of the Superintendent of Financial Institutions is taking steps to ease insurers’ transition to impending insurance regulation changes.

Changes to Part XIII of the Insurance Companies Act take effect in 2010, and the switch may affect compliance with reinsurance regulations that put a 25% limit on non-approved or unregistered reinsurance for some insurers and fraternal benefit societies, according to a June 19 OSFI notice.

To make the transition easier, the regulatory agency has announced several relief measures: it will consider premiums paid to “registered reinsurers” as “registered reinsurance” up to and on December 31, 2009; and in calculating their year-end percentage of “unregistered” reinsurance, insurers will still be able to exclude premiums paid before or on December 31, 2009 that had been previously excluded. According to the OSFI notice, the second measure “covers situations where the underlying risks, insured by the cedant prior to the implementation of the Part XIII amendments, were not in Canada and, hence, not reported in the cedant’s regulatory filings.  As of January 1, 2010, however, these same risks will need to be reported to the extent they were reinsured in Canada.”

However, the regulator notes that companies taking advantage of the measures won’t be able to cede additional risks on an “unregistered” basis—under reinsurance regulations—until their ratio of unregistered reinsurance drops below the 25% limit. It also addresses particular reinsurance agreements with the Export Development Corporation (EDC), adding that agreements made between companies and the EDC after June 19 will be considered “registered” for the purposes of the 25% limit calculations.

The new measures won’t affect OSFI’s ongoing reinsurance review, according to the notice.