Sound Reinsurance Practices & Procedures (OSFI B-3) - The Update April 18, 2012

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2 Sound Reinsurance Practices & Procedures (OSFI B-3) - The Update April 18, 2012

3 Overview Introductions Summary of B-3 Key Principles (3 & 4) The Reality of Being Compliant Cedant The Reality of Being Compliant Reinsurer B-3 Questions Panel Discussion Future State Questions

4 Your Panel Nancy Hudson Director, Reinsurance Admin, Controls & Treaties, Great-West Life Connie Dewar Managing Director Life Insurance Group, OSFI-BSIF Mark Lombardo Director, Individual Life, Munich Re

5 B-3 Principles - overview 1. Sound and comprehensive reinsurance risk management policy 2. Due diligence on reinsurance counterparties 3. Contract clarity and certainty 4. Appropriate terms and conditions

6 3. Contract clarity and certainty Binding contract prior to the effective date of coverage Summary documents may be adequate but should be contractually binding Final executed documents completed in a timely manner Reinsurance contracts should stand on their own

7 4. Appropriate terms and conditions Include an appropriate insolvency clause Include choice of forum, law, and appointment of agents for service of legal processes Appropriate use of off-set, cut-through and funds withheld Reinsurer must meet obligations, even when ceding company is insolvent Terms and conditions should not frustrate the scheme of priorities under the Winding-up and Restructuring Act

8 The Short-term Reality of Being Compliant (a ceding company s perspective) Summary signed by effective date Used to rely on agreement (less formal) Now Summary document modeled after the offer/proposal/letter of intent from reinsurer With addition of standard clauses Signatories for summary documents may be different from treaty (leader who negotiated reinsurance terms rather than senior executives)

9 The Short-term Reality of Being Compliant (a ceding company s perspective) Summary document templates Generally reinsurer manages summary document (since created from letter of intent/proposal) and treaty templates Consistency in the documents across reinsurers would be nice 2009 CLHIA model treaty document is helpful Consider internally prepared or industry template for B-3 Summary Document

10 The Short-term Reality of Being Compliant (a reinsurer s perspective) Differing Client Expectations To summarize or not to summarize? Different practices re. signing timing Part A / B Advantages Part A provided during quoting process Serves well for Summary document but not perfect

11 The Short-term Reality of Being Compliant (a reinsurer s perspective) Part B Intent was to have general wording that wouldn t change too often Should speed up treaty signing Dealing with Addenda When does the signing clock start?

12 The Short-term Reality of Being Compliant (a reinsurer s perspective) Wording has not changed too much Insolvency wording exists and does not limit reinsurance payments if cedant is insolvent Offset is limited to Canadian business Laws of the province apply Arbitration practices have been established

13 B-3 Questions Panel Discussion 120 days is e.g. in the guideline one may consider a longer amount of time to still be within a relatively short period especially for a new base treaty (versus an amendment). What happened to 9 months? How does OSFI view the 120 days; is it a requirement or recommendation?

14 B-3 Questions Panel Discussion confirmations as the summary document? Previously have stood in where the summary document is now required. Does binding contract or agreement require wet signatures if both parties are clear via ?

15 B-3 Questions Panel Discussion Side Agreements/Understandings What does OSFI think these are because we don t think we use them (maybe we don t know that we are using them)? When could they actually be helpful in reducing work load? Separate Claim authority agreements How do we have an entire agreement clause when normal practices are only referred to?

16 B-3 Questions Panel Discussion Why do we need a contractually binding summary document if the treaty is to follow shortly thereafter, and prior treaties are still open otherwise? Have there been litigation examples? What is OSFI s concern?

17 B-3 Questions Panel Discussion Summary Document standard clauses that are to be relied upon Where to draw the line between summary document and full treaty?

18 B-3 Questions Panel Discussion Review of all reinsurance contracts for insolvency, governing law, etc. Materiality in terms of size of inforce for older treaties? Use of blanket amendments?

19 Future State Move to a process where the treaty is signed by the effective date Removes the need for a summary document Have a treaty template that both sides are comfortable with Revise it outside of product launches Have dedicated resources at both insurer and reinsurer Then add negotiated terms into the template and have only limited pieces to sign off Dealing with minor points that shouldn t hold up the signature Use amendments after the effective date. Can amendments have a back dated effective date?

20 Questions