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Canada’s expanding insurance regulatory framework: key elements for 2014

Canada’s expanding insurance regulatory framework: key elements for 2014 This article revisits the structure of (re)insurance regulation in Canada and outlines some of the key federal and provincial changes.


Rapidly expanding federal and provincial insurance laws in Canada serve as a reminder that (re)insurance regulation is divided between the federal government and the governments of each of the thirteen Canadian provinces and territories.

The federal government, through the Office of the Superintendent for Financial Institutions (OSFI), prudentially supervises federally incorporated insurers and foreign insurers, whilst provincial regulators oversee insurers incorporated in their jurisdictions and also market conduct matters for federally registered entities. Insurance intermediaries are also licensed and supervised at the provincial level. Provincial regulators have formed the Canadian Council of Insurance Regulators (CCIR) to increase provincial harmonisation and create synergies where possible.

Federal developments

At the federal level, 2014 will see Lloyd’s implementing new regulatory measures focused on risk management frameworks, catastrophe modelling and capital requirements. 

OSFI has recently published its Own Risk and Solvency Assessment (ORSA) Guideline, which sets out its expectations on how Canadian insurers, including Lloyd’s, assess their risks, capital needs and solvency position. Lloyd’s is currently developing its Canadian ORSA. 

Capital requirements are currently subject to a ongoing review as part of an OSFI initiative to recalibrate its Minimum Capital Target (MCT) calculation. As part of this initiative, Lloyd’s, along with all other P&C insurers has been participating in a Quantitative Impact Study (QIS) of the proposed calculation. Lloyd’s, with other market participants, has been in dialogue with OSFI on some of the technical aspects of the calculation, specifically; premium liability risk margins, claims risk margins and the operational risk charge. A revised OSFI calculation took into account some of the feedback received and it is Lloyd’s expectation that the increase in capital will now be less than originally anticipated. The additional funding requirements are now being phased in over a two year period; January 2015 will be the first funding requirement which is impacted. The LMA has been briefed on this matter.

In 2013, OSFI additionally released a major review of Guideline B9 Earthquake Exposure and Sound Practices which seeks to ensure insurers capital adequacy and preparedness to withstand a large earthquake event in Canada. Amendments to the Earthquake Reserve Formula have the potential to have a very significant impact on the future level of Canadian funding. Lloyd’s anticipates that from mid-2015 to early 2016 onwards, managing agents writing earthquake exposed Canadian business will be required to fund more in respect of earthquake business. Lloyd’s further anticipates that the revision to the Earthquake Reserve Formula creates a trajectory for an ever increasing funding requirement. Lloyd’s is in discussions with the LMA and the market regarding this matter and options to reduce the need for additional Canadian funding.

As a result of these activities and increased requirements for more Canadian specific data, Lloyd’s Exposure Management team will be consulting with the market in respect of providing further probabilistic information.

Provincial developments

Provincially, building on broad reaching reforms enacted in 2013, regulations and regulatory architecture are expected to continue to change through 2014. In general, the bulk of provincial regulation falls on products distributed by coverholders and affects mandatory disclosures and documentation requirements, as well as some class specific regulations. Most notably this affects motor business, which is very heavily regulated, and 2014 may see concerted efforts by a number of provincial governments to introduce legislation to reduce motor premiums.

Quebec’s mandatory ‘distribution guides’ are another good example of the nuanced nature of Canada’s provincial regulations. This has been an area of focus for Lloyd’s, with clarified guidance issued on the Quebec pages of Crystal in 2013. In short the Act respecting the distribution of financial products and services specifies that certain insurance products may be offered through distributors who, whilst not being licensed insurance intermediaries, may offer as an accessory an insurance product which relates solely to goods they are selling. Insurers offering products through a distributor must prepare and provide to consumers a distribution guide which should disclose information about the insurance product and its limitations. Lloyd’s managing agents must, where insurance products are distributed on their behalf by distributors in Quebec, whether the product is sold originally through a Canadian coverholder or OMC or not, ensure that a distribution guide has been drafted, filed with the regulator and provided to clients. Regulatory action including administrative penalties will be applied by the AMF in instances of non-compliance with this requirement.


In conclusion, 2014 is scheduled to be a dynamic year for regulatory obligations in Canada’s insurance market. (Re)insurers will need to be observant as rapidly changing regulatory requirements  and evolving rules create new challenges. Additional measures such as ORSAs and distribution guides are examples of these changes. Renewed foresight, consideration and resources is likely to need to be dedicated to compliance in order to keep abreast of federal and provincial-level regulatory developments.