OSFI Releases Letter and Draft Guidance on Reinsurance Security Agreements

On August 9, 2010, the Office of the Superintendent of Financial Institutions (Canada) (OSFI), the Canadian federal prudential insurance regulator, released for comment draft Guidance (the Guidance) on the use of Reinsurance Security Agreements (RSAs). The Guidance was accompanied by a letter (the Letter) that summarized OSFI's rationale for discontinuing the previously utilized mechanic of standard form reinsurance trust agreements (RTAs) and outlined OSFI's new approach to RSAs. The Guidance, which is open for comment until October 1, 2010, applies to all federally-regulated insurers and reinsurers (each, a FRI) in respect of reinsurance cessions and retrocessions with reinsurers not licensed in Canada, and also outlines OSFI's expectations of FRIs in connection with the RSA process. Once adopted, the Guidance will significantly increase the administrative burden on FRIs seeking to reinsure with unlicensed reinsurers and may, as a result, significantly discourage the