On November 8, 2013, the Office of the Superintendent of Financial Institutions (OSFI) released a memorandum with respect to changes relating to Superintendent approvals for reinsurance with a related party. The changes are set to be implemented on January 1, 2014.
Sections 523 and 597 of the Insurance Companies Act (ICA) require that prior approval of the Superintendent is needed where a federally regulated insurer (FRI) intends to cause itself to be reinsured by a related party that is not also an FRI (Related Reinsurer). OSFI’s Transaction Instruction DA No. 21 currently sets out the information that an FRI would need to provide in an application for approval under Sections 523 and 597. Such approvals are currently granted in respect of each reinsurance arrangement.
Under the revised approach, approvals under Sections 523 and 597 of the ICA will be granted in respect of the applicant’s intention to cause itself to be reinsured (through one or more reinsurance arrangements on an ongoing basis) by a specific Related Reinsurer rather than according to each particular reinsurance arrangement. OSFI’s updated approach is intended to better align with practices in the reinsurance industry in which an FRI may enter into multiple reinsurance arrangements with the same Related Reinsurer on short notice.
OSFI is expecting to publish an updated Transaction Instruction by December 31, 2013 that includes the general information requirements for approval of an FRI’s intention to cause itself to be reinsured with a Related Reinsurer. Approvals under the revised approach will be conditional on the FRI annually providing certain information to OSFI; these annual information requirements will be included in an FRI’s Notice of Approval letter.
To help guide the transition to the new approach, OSFI has provided direction on the following situations:
- to the extent an FRI has obtained an approval of a reinsurance arrangement with a Related Reinsurer under the current process for a defined period, such approval will be extended until June 30, 2015, and the FRI will be expected to apply for approval of its existing Related Reinsurers under the revised process prior to January 1, 2015;
- to the extent an FRI has obtained an approval of a reinsurance arrangement with a Related Reinsurer under the current process with no approval expiry date, the FRI will be expected to apply for approval of its existing Related Reinsurers under the revised process prior to January 1, 2015;
- FRIs should continue to seek the approval of the Superintendent using the current approval process in accordance with the existing Transaction Instruction DA No. 21 in relation to new reinsurance arrangements with Related Reinsurers (or material changes to existing approved arrangements) to be executed prior to January 1, 2014; and
- FRIs should seek the approval of the Superintendent using the revised approval process in accordance with the revised Transaction Instruction that will be published by OSFI in relation to new reinsurance arrangements with Related Reinsurers (or material changes to existing approved arrangements) to be executed after January 1, 2014.
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