Federal financial regulators are calling on insurers to ensure that they are uncovering, and managing, risks associated with their increasing use of reinsurance.
Following a consultation carried out last year, the Office of the Superintendent of Financial Institutions (OSFI) is proposing revisions to its guidance on reinsurance.
Among other things, OSFI said the proposed changes aim to push insurers to do a better job of identifying reinsurance risks, particularly counterparty risks, and to ensure that they are properly managing those risks.
The regulator noted that some insurers are making greater use of reinsurance, and that some have increasingly large, concentrated exposures to particular firms.
It’s worried that these sorts of exposures can increase risks to insurers and policyholders “in the event that a large loss occurs if its reinsurer becomes distressed and fails to pay a claim…”
Additionally, OSFI noted that some insurers are not consistently following its expectations for prudent reinsurance risk management.
“As a result, some [insurers] may have more risk associated with their reinsurance programs than appropriate,” it warned.
OSFI is planning to finalize the updated guidance in 2020. It’s seeking comment on today’s proposals by Aug. 16.