Common capital standards for insurers gaining momentum: OSFI head

“It is a global industry, and I think investors will increasingly start to demand it,” Dickson said.

Whereas the push for common standards in the banking industry was expedited by the financial crisis, the insurance business has been slower to arrive at the same conclusion, Dickson said.

“Because the banks are so interconnected to one another, there’s been a long held view that you need all banks around the world, global banks, playing by the same set of rules,” she said. “It’s a much less accepted philosophy in the insurance world.”

However, she pointed out that efforts to identify whether there are any global systemically important insurers could change this way of thinking. “That would be another reason for the world to say, if there are [global systemically important insurers], we really do need a globalized standard so that we can have a better understanding of the capital position of these players.”

Added Dickson: “I think that ultimately, people will get there.”

If regulators do move to adopt a global set of capital requirements, it’s unclear which set would be adopted, Dickson said. “That’s anybody’s guess.”

Regardless of which rule is adopted, Dickson said she doesn’t believe Canadian insurers would have trouble meeting a new standard.

“I don’t think that is keeping Canadian insurers up at night,” she said, “because I think Canada already has a good robust system of oversight and capital rules.”

On the accounting side, meanwhile, Dickson suspects the industry is less likely to reach a global consensus on a set of standards that’s appropriate for every country. She said this is problematic for the industry, especially in cases where the standards are drastically different between countries, as is the case with the U.S. Generally Accepted Accounting Principles (GAAP) in the U.S. compared to the International Financial Reporting Standards (IFRS) in Canada. This creates confusion for investors, analysts and regulators who are trying to understand and compare insurers’ financial statements, she said.

“I think that is a problem to have two very, very different accounting regimes,” Dickson said. “I think that more needs to be done there.”

However, she is doubtful that a single standard could be reached.

“It’s hard to reach that objective, because the [International Accounting Standards Board] and the Financial Accounting Standards Board in the U.S. are independent entities,” she said. “I think the reality is, we will continue to have two very different sets of standards.”