New global capital standards likely won’t have much impact on the balance sheet of Canada’s property & casualty (P&C) insurers, a top regulator says.
New global capital rules in the works for the insurance business are similar to the framework that’s already in place for large, global banks, noted Mark Zelmer, deputy superintendent at the federal regulator, the Office of the Superintendent of Financial Institutions (OSFI), in his speech to a conference in Toronto on Wednesday.
“There is no question that we will see the emergence of a new international capital standard for internationally active life and P&C insurance companies,” he said.
However, the new standard may not have much impact on Canadian firms, he added. “This new international standard is expected to be in place in 2020, but at this stage we do not expect it will affect capital requirements for the Canadian P&C insurance industry. The progress we have seen so far suggests it is unlikely to improve upon our own [minimum capital] requirements,” Zelmer said.
Continued low interest rates are also likely to remain an issue for the financial sector, Zelmer said. “We know that the longer we live with very low interest rates, the more likely they will affect business decisions. Thus, our focus will be on making sure that your governance and risk management practices continue to be commensurate with your investment strategies,” he said.
For P&C insurers specifically, technology, environmental, and social issues, will also pose ongoing challenges for the industry, Zelmer noted, and “… changes in catastrophe exposures arising from more extreme weather events, a cyber-related catastrophe, driverless cars, expanded flood coverage are all factors that will require you and OSFI to be vigilant,” he added.
“As such, I expect that OSFI’s regulatory framework will continue to evolve as your industry evolves,” he said.