The Office of the Superintendent of Financial Institutions has issued a draft guideline concerning reinsurance arrangements.

The guideline sets out prudential considerations for the formal completion and execution of reinsurance agreements and for complete wording within an agreement, OSFI explains in a letter.

“The need for such guidance became apparent during a review of reinsurance arrangements across the industry,” it says.

OSFI noted there is often a disparity in the length of time between the initiation of a reinsurance arrangement and formal execution by the parties of the agreement.

“Coverage during this period is usually set out in a less formal document. However, if an event were to occur within this period, the lack of certainty relating to coverage in the informal document could create risks for the both the ceding and assuming companies,” it says.

Once the guideline is finalized, its provisions will apply to all new reinsurance arrangements (including renewals and amendments to existing agreements signed by both parties), as well as to reinsurance arrangements that have been initiated but not formally executed by the parties.

OSFI is seeking comments by January 19, 2007.