OSFI Superintendent Peter Routledge took part in a fireside chat at the National Insurance Conference of Canada in Québec. He covered earthquake planning, growth, catastrophe bonds and reinsurance. Routledge said earthquake is one of the most significant catastrophic risks facing Canada.
A Pre-Planned Resolution Regime for the Earthquake Scenario
In his remarks, Routledge said: “We are aligned on the importance of establishing some form of pre-planned resolution regime in the event of an earthquake.”
Routledge also said: “As I’ve said previously, the goal is not a “backstop” but some form of pre-planned resolution framework that can respond effectively if insurers become non-viable following a catastrophic earthquake.”
Routledge said that “The recent tabletop exercise reinforced the importance of having a plan in place before a major event occurs.” He also said earthquake has the potential to create impacts across the broader financial system, not just the insurance sector.
Where OSFI’s Role Ends and Policymakers Begin
On the regulator’s part in any federal earthquake arrangement, Routledge said in the same fireside chat: “Decisions on any federal arrangement are for governments and Parliament.”
Routledge said OSFI’s role is to provide prudential expertise, risk analysis and supervisory insight so policymakers have a clear understanding of the potential financial system implications of a major earthquake.
For readers who follow OSFI insurer reporting, InsuraBeat has separate coverage of how OSFI rewrites insurer regulatory returns.
Growth, Modernization and Risk Appetite at OSFI
Routledge said: “I don’t see prudential regulation and economic growth as being in conflict.” He also said: “We’re already 2 years into the most significant modernization of our regulatory and supervisory framework in OSFI’s history.”
On the Domestic Stability Buffer, he said: “A good example is our recent decision to lower the Domestic Stability Buffer, which gives banks greater flexibility to deploy capital while maintaining substantial loss-absorption capacity.”
Routledge also said: “Similarly, in insurance, we have reduced barriers to alternative sources of capital by allowing the use of insurance-linked securities, such as catastrophe bonds, for certain catastrophe risks.”
On how OSFI weighs its objectives, Routledge said: “Financial system resilience remains our primary responsibility, but we’re placing greater weight on growth and competition than we have in the past.”
Catastrophe Bonds and Reinsurance
On reinsurance, Routledge said: “Reinsurance remains a critical part of the resilience of Canada’s insurance sector, particularly as catastrophe risks become more frequent and severe.” He also said: “The recognition of catastrophe bonds reflects a broader principle: prudential frameworks should evolve alongside markets and innovation, provided policyholder protection and sound risk management are maintained.” On risk-transfer tools generally, he said: “Our focus is not on favouring one risk-transfer tool over another.”
For readers who follow Canadian catastrophe-bond capital treatment, InsuraBeat has separate coverage of the OSFI catastrophe bond rule and the Canadian capital margin. For readers who follow earthquake catastrophe bonds, InsuraBeat also has separate coverage of the CEA Sutter Re catastrophe bond for California earthquake finance.
Routledge on Climate Guidance
Routledge discussed OSFI’s climate guidance. He said Guideline B-15 is not designed to incentivize or disincentivize investment in any particular sector, asset class, or business activity. Of the guideline, he said: “Its purpose is to strengthen risk management by helping institutions understand, assess, and manage climate-related financial risks.”
Routledge on Risks That Combine
Looking further ahead, Routledge said the biggest risks are those that combine and reinforce one another: geopolitical uncertainty, security and national security risks, technology and cyber risks, climate-related events, and vulnerabilities that emerge outside traditional regulatory boundaries.
