Federal financial regulators are revising capital rules for property and casualty insurers in order to better account for their exposure to earthquakes.
The Office of the Superintendent of Financial Institutions (OSFI) Wednesday released revised draft guidelines and changes to the capital rules for P&C insurers that aim to improve risk measurement and their ability to capitalize against earthquakes.
OSFI notes that catastrophic losses from exposure to earthquakes pose a significant threat to the financial well-being of many P&C insurers and reinsurers which means they must effectively measure, monitor and limit their exposures.
The existing guidelines in this area were issued in May 1998, and have become outdated in certain respects, OSFI notes. As a result, they need to be revised for clarity, to reflect risk modeling best practices, and to provide the regulator with more flexibility in terms of data collection. The changes also aim to strengthen the principles-based approach to managing earthquake exposure.
A joint industry-regulatory working group was formed in August 2010, including representatives from OSFI, the Autorité des marchés financiers (AMF), Financial Institutions Commission (FICOM), along with insurers, reinsurers and reinsurance brokers to take on this issue. It provided input to an initial revised draft, and in subsequent discussions. Now, the guidelines are being released for public comment by Sept. 30. OSFI expects the revised guideline to take effect Jan. 1, 2014.