OSFI report outlines life insurers’ key concerns

External research firm The Strategic Counsel conducted the confidential consultation on OSFI’s behalf in the fall of 2013 with life insurance companies, to explore industry perception of OSFI’s performance.

Overall, the industry’s impression of OSFI is very positive in most areas, the regulator reports. However, there are areas where the industry suggests OSFI could be doing a better job. For example, in evaluating OSFI’s regulation and guidance, the report indicates that there’s a concern that OSFI tends to take a one-size fits-all approach to the application of guidance. “Particularly among smaller companies, some believe that OSFI is not taking a case-by-case approach in its response to company-specific concerns regarding the implementation of guidance,” it says.

There’s also a worry that OSFI’s approach to regulation of the life insurance sector is too often informed by its work in the bank sector. In particular, there are concerns about both current and future capital requirements for life insurers.

“Many of the life insurance companies express concerns about OSFI’s review of the capital regime and its implication for the [capital rules],” the report says. “Smaller companies, in particular, believe that what they perceive to be ever-increasing capital requirements have a disproportionately negative effect on their ability to compete effectively in the Canadian insurance marketplace compared to larger companies.”

Among both large and small companies, there is also a concern that OSFI is adopting international regulatory initiatives in advance of other jurisdictions. “Canadian companies are believed to be at risk of being disadvantaged internationally as a result,” the report notes, adding that some firms also believe that “unnecessarily high capital requirements imposed by OSFI are negatively affecting the ability of Canadian life insurance companies to develop and offer a broader range of products.”

Some firms also worry that OSFI is “simply adopting international regulatory thinking and initiatives without sufficient consideration of whether they are appropriate in the Canadian framework.” There’s a hope that global initiatives will be effectively tailored to the Canadian market.

In general, the report also found that some firms are worried about the pace of regulatory reform. The report notes that there is a perception that the insurance industry may be more susceptible to unintended risk due to all of the changes that are taking place, which is creating its own form of regulatory risk.

“In tandem with this concern is the perception, particularly among smaller companies, that the industry is suffering from regulatory overburden,” the report says. And, small firms also worry about excess turnover in their relationship managers with OSFI.

Additionally, International Financial Reporting Standards (IFRS), and concerns about its potential negative impact on the Canadian Life insurance sector, is cited one of the key themes emerging from the consultation. “In fact, in response to the consultation question probing the risk areas upon which participants believe OSFI should focus over the next couple of years, IFRS is mentioned more often than any other issue,” the report says.

Notwithstanding these various worries, the report indicates that the industry generally approves of OSFI’s work, saying that it is generally fair and reasonable to deal with; that it is focusing on appropriate areas of risk; and, that it is willing to engage in dialogue with both individual companies and the industry. OSFI’s guidance is considered to be effective, and it is seen as effective in monitoring and supervising companies.