Canada's banking and insurance watchdog has released a new regulatory framework for life insurance companies, outlining in broad strokes some of the rules that will be changing in the coming years.
While banks now generally know what the new rules of the game will be for their sector, regulators globally are still in the process of updating guidelines for life insurers in the wake of the financial crisis. That, the insurers say, has made it difficult to make business plans.
A paper released Wednesday by the Office of the Superintendent of Financial Institutions is intended to give the Canadian industry, its customers, and its investors a sense of the path that the new rules might take.
Some key themes are beefing up governance and corporate culture to control risks, and providing shareholders and other stakeholders with more information and transparency.
Many of the changes in the years to come will have to do with capital requirements, and OSFI provided the industry with further information about areas such as hedging.
"It is not possible or desirable to build a regulatory framework that provides a 100 per cent guarantee that no life insurance company will ever fail or that policy holders and senior creditors will be paid 100 cents on the dollar," the paper says.
"It is also not reasonable to require insurers to hold sufficient capital to cover extremely devastating yet highly unlikely events… "The higher the level of protection, the higher the cost will be for policy holders and, to a certain extent, the Canadian financial system as a whole. The goal of the revised regulatory framework is to strike a reasonable balance between protection (for policy holders/creditors) and competition."
The regulator acknowledged that the evolution of capital requirements into a more risk-sensitive framework could make capital levels more volatile, but it sought to assure the industry that it will consult with insurers to determine whether that's appropriate or not.