Federal insurance regulators say that they are anticipating reforms that will likely change the way that firms run, capitalize, and govern their businesses.
The Office of the Superintendent of Financial Institutions (OSFI) released an overview of regulatory initiatives that it will be focusing on over the next few years (through 2016) to address issues such as corporate governance and risk management, regulatory capital requirements, and transparency. The paper outlines how the regulatory framework will evolve in the coming years to give life insurance companies, their clients, and others, insight into the likely changes.
It spells out some of the reforms that OSFI is planning, including: developing a revised corporate governance guideline and other new guidance to detail how companies should approach their risk and solvency assessments; revised regulatory capital requirements that will incorporate new risks, link risk measures to the quality of capital available to absorb losses, and take into account the interaction between risks, among other changes; and, enhanced disclosure.
As a result of these planned initiatives, OSFI indicates that insurers’ boards of directors may need to be augmented with a broader set of skills and better equipped to hold management accountable for their risk-taking activities; and companies may have to increase the resources they devote to governance and risk management.
Additionally, it says that capital levels may change, and that regulatory capital may be reallocated to various risks or business lines, which may have implications for business models and strategies. The quality of capital will also improve, in terms of its ability to absorb losses, it notes.
For policyholders, creditors, and others, OSFI suggests that these changes should bolster confidence in the industry, while also improving their ability to conduct their own assessments of a company’s risk-taking, and help them hold companies accountable.
“In laying out OSFI’s initiatives, we hope to encourage discussion and strong participation by industry stakeholders in our regulatory development process,” said Mark Zelmer, assistant superintendent, regulation sector. “By issuing the regulatory framework at this time, OSFI hopes it will help life insurers and industry stakeholders in their planning processes.”