In December 2010, OSFI released its Guidance for Reinsurance Agreements, which sets out OSFI’s expectations with respect to Reinsurance Security Agreements (“RSAs”) where capital/asset credit is being sought by a Canadian licensed insurer that has ceded risks to an unlicensed foreign reinsurer. In order to obtain capital/asset credit when an RSA has been entered into, the Canadian licensed cedant must obtain a legal opinion asserting that a valid and enforceable security interest, that has priority over any other security interest in the pledged assets, has been or will be created in its favour for the type of assets covered by the legal opinion. This legal opinion must then be filed with OSFI’s Securities Administration Unit.
In addition, OSFI has stated that it expects companies to have a Board, or committee of the Board, approved policy requiring management to confirm to the Board, or committee thereof, from time to time but at a minimum once every two years, that a valid and enforceable security interest that has priority over any other security interest in the pledged assets continues to be created in their favour, including where changes have been made to personal property security legislation or securities transfer legislation in the province or territory where the assets are held. OSFI states that the confirmation should either state that the opinion may still be relied upon or that subsequent changes to legislation do not affect the validity of the opinion or, alternatively, a new opinion can be provided.
Canadian licensed cedants are reminded that these confirmations are necessary every two years at a minimum, and are encouraged to be in contact with the legal firms who originally provided the RSA opinions in order to obtain such confirmation. You can see the full text of OSFI’s Guidance for Reinsurance Agreements by clicking here.
