The Office of the Superintendent of Financial Institutions is initiating a review of the regulatory and supervisory framework for the reinsurance industry.

OSFI published a discussion paper on the issue Friday. The purpose of the paper is to outline OSFI’s current regulatory and supervisory approach to reinsurance, to identify a number of OSFI initiatives underway in this area and to consult the industry on the overall policy direction of reinsurance regulation and supervision in Canada.

The regulator notes that it has conducted various consultations with individual companies (or sectors) on specific reinsurance issues in the past few years, but this paper represents an effort to assess the framework at a broader level and to consult more widely.

OSFI says it recognizes that its discussion paper cannot possibly address all of the technical complexities and nuances of the reinsurance business. “However, the views of all stakeholders on these issues and others related to reinsurance, whether addressed or not addressed in this paper, would be appreciated,” it says.

“Recent developments in global markets have served as a stern reminder that insurers can face severe financial difficulties resulting from the business risks they assume,” it adds. “It has become increasingly clear that the regulation and supervision of insurers and reinsurers — whether operating in Canada directly or underwriting Canadian risks from abroad — should be balanced to reflect these risks.”

The paper also notes that the International Association of Insurance Supervisors recently published a paper that initiated the discussion on possible mutual recognition arrangements for reinsurance supervision. The IAIS aims to provide further guidance on this idea in the near future.

Comments are due by March 6, 2009.

IE