Insurance Technical Advisory Committee (TAC) for Insurance Prudential Regulation and Supervision

Date: January 25th, 2024
Time: 2:30 – 4:30 pm
Location: Virtual

The meeting of the Insurance Prudential Regulation and Supervision TAC focused on FSRA’s development of the Operational Risk and Resilience Guidance and the Corporate Governance Guidance for Ontario-incorporated insurance companies and Reciprocals (Insurers).

Operational risk and resilience Guidance

FSRA provided an overview of the proposed guidance which sets out principles, FSRA’s approach to assessing Insurers’ operational risk and resilience under the Risk-based Supervisory Framework for Insurers (RBSF-I) and desired outcomes for effective operational risk management and resilience.

Questions and responses

  1. A question was asked regarding how this guidance should be read with the existing Operational Risk Management Framework in Rating and Underwriting of Automobile Insurance Guidance (Auto ORM).

  • This guidance is a prudential guidance setting out operational risk management and resilience principles and practices for our Ontario-incorporated insurance companies and reciprocals. While the Auto ORM is focused on rate underwriting and applies to all Insurers licensed to write auto insurance in Ontario, FSRA continues to internally coordinate and welcomes feedback on this harmonization.
  • While an Insurers’ overall risk rating is maintained by FSRA’s Insurance Prudential Supervisory team, FSRA is making progress as an integrated regulator to ensure that the overall risk rating captures both market conduct and prudential supervision.
  • FSRA will continue to internally coordinate and welcomes feedback on this matter as we work to provide regulatory clarity to the sector.

  1. A stakeholder asked why FSRA is only talking about climate risk and Environment, Social, and Governance (ESG) prospectively and not addressing this now given the immediate risk of natural catastrophe events affecting the insurance sector?

  • FSRA is taking an evidence-based approach and will continue to work with the sector to better understand how it is managing climate risk and the nature of the data underlying these risks.
  • FSRA does not have enough data and evidence yet to develop requirements in guidance on this important issue.
  • FSRA would like to incentivize the right data collection, evidence-gathering, and behaviour by Insurers when it comes to climate risk management. This can only be achieved by continuing to work with the sector on further understanding its current state and ongoing ESG initiatives.
  • In addition to looking at the individual Insurers, FSRA will also be examining the work of peer regulatory authorities in this area.

  1. A stakeholder asked if these two Guidance were specific only to Insurers or all of FSRA’s regulated entities like the IT Risk Management Guidance?

  • The two draft Guidance would only apply to Ontario-incorporated insurers and reciprocals.

  1. Is FSRA going to be looking at other standard-setting bodies and other evolutions before landing somewhere?

  • Many regulators have converged their ESG approaches around common principles and the approaches have been developed in varying stages. Many of Canada’s climate initiatives to date have been driven by the Taskforce on Climate-related Financial Disclosures (TFCD) requirements.
  • FSRA wants to adopt something that is tailored and commensurate to Ontario’s Insurers, their scale, sophistication and understanding of their climate risks and varying ESG issues.
  • FSRA wants to understand Insurers’ priorities, risks, internal processes and their understanding of their own risk before developing any guidance on this issue.

  1. A stakeholder asked about the inherent risk of the distribution of insurance products to consumers (e.g. ability to understand details and coverage of their policies).

  • A core element of the draft Operational Risk and Resilience Guidance is to guide Insurers to effectively identify, assess and manage all their enterprise-wide risks, given various complexities of the insurance business, such as market distribution channels. This type of risk management helps to ensure consumers are protected.
  • For example, how Insurers look at non-financial operational risks and operational resilience, helps Insurers identify and assess their operational risk across their organization as a whole, which contributes to consumer protection practices.
  • Our integrated framework is unique to other regulators as we are both a market conduct and prudential regulator so both market conduct (focused on consumer protection) and prudential approaches are critical for us and contributes to consumer protection.

Corporate Governance Guidance

FSRA provided an overview of the Corporate Governance Guidance, which sets out FSRA’s approach to assessing Insurer’s corporate governance under the RBSF-I and desired outcomes for effective and prudent corporate governance practices that best protect policyholders, members, subscribers and other relevant stakeholders.

Questions and responses

  1. A stakeholder raised that these principles are aligned and consistent with other regulators’ guidelines, including Office of the Superintendent of Financial Institutions’ (OSFI) Guideline. They are happy to see alignment and consistency with other domestic and global regulators as a multinational entity.

  • FSRA confirmed that it develops guidance and principles that are aligned with our peer prudential regulators to ensure regulatory harmonization. These principles often align with recommendations set by international standard-setting bodies such as the Financial Stability Board or the International Association of Insurance Supervisors.

  1. A stakeholder asked how does the Board separate itself from the day-to-day operations but still keep itself accountable?

  • FSRA confirmed that the Board is responsible and accountable for setting the strategy, business objectives and risk appetite, but the execution should be undertaken by senior management and operational staff.
  • Once senior management implements, it is the Board’s role to monitor, oversee and question the implementation of the strategy/business plan.
  • FSRA made the distinction between the Board’s role in thinking strategically and senior management’s role to be tactical in implementation of the strategy.

  1. What is FSRA’s expectations for engaging with Boards (frequency, form)?

  • FSRA is not looking for formal reporting from the Board. The cadence and nature of our discussions is what is important for FSRA. For example, if there are any issues with the Insurer, FSRA should hear about it from the Board first.
  • Part of the engagement is being invited to observe or speak at Board meetings for informational purposes, receiving information voluntarily from the Board, sharing Board meeting minutes with FSRA, and having continuous open dialogue.
  • We would like open communication with the Board, not just due to an assessment or a problem but if there is a topic of interest, questions, or open discussion on such matters as ESG.

  1. A stakeholder noted that Boards of Directors may not have all the knowledge of the business when communicating with FSRA.

  • As FSRA is continuing to build trust with the sector, not every conversation with FSRA is part of an assessment.
  • When FSRA reaches out to Board members, it is because they have a particular skill or expertise in the sector or in the organization that FSRA would like to learn from.
  • The crux of Principles-based Regulation is not just talking to the Board during assessments or when there are issues but having open and transparent dialogue with the sector on a regular basis.
  • FSRA has taken steps to show this during previous touchpoints, engagements, Town halls, Directors’ Conference and other formal engagements.

  1. A stakeholder expressed support that the continued progress that FSRA is making in implementing best practices is excellent news and very welcomed from the industry’s perspective. The ownership and accountability of the Board is fundamental in oversight of risk appetite/tolerance, the role of the CRO in all of this and, in-camera sessions. The Board also has a significant role in enterprise-wide risk oversight, reviewing risk registers, risk mitigation strategies, etc.

  • FSRA appreciates the positive feedback and is in agreement with the views expressed.

  1. A stakeholder asked FSRA’s views on what is considered a controlling stake in subsidiaries?

  • FSRA would look at the way entity relationships work even if it’s not an official controlling stake, at 50% or more voting rights. There are provisions under the Insurance Act (Ontario) that address this that Insurers should review.

  1. How should Insurers share the draft Guidance with their Boards?

  • FSRA welcomes TAC members to discuss the Guidance with their Board of Directors. FSRA shared this message directly to Board Directors at the last Town Hall and Directors’ Conference.
  • FSRA would like the Board of Directors to be aware and involved in the formulation and development of the guidance.
  • FSRA will send the Guidance to Board chairs/contacts via our e-blast communication when we post the draft consultation guidance, but we also invite TAC members to raise it with their Boards.

  1. What is the timeline on releasing the draft Guidance for consultation and when would the final version be released?

  • FSRA will release the two draft Guidance for consultation for a 60-day period in the Spring 2024 and aim to integrate comments and post the finalized guidance in Summer 2024.

Next steps

  • FSRA continues to welcome feedback from the TAC on the draft guidance
  • FSRA will publish the draft guidance for a 60-day consultation period in early Spring 2024 to formally seek feedback from the sector

Attendance record

Invited/Attended

Company name

Attendance status
(A)ttended; (R)egrets; (S)ubstitute;

Harold Geller

Geller Law

A

Harley Lefton

McCarthy Tétrault

A

Alister Campbell

Property and Casualty Insurance Compensation Corporation (PACICC)

A

Dan Pinnington

LAWPRO

A

Evelyn Peng

CAA

A

Glenn Taylor 

Halwell Mutual

A

John Taylor

OMIA

A

Pamela Bourne-Chase

Fenchurch

A

Stephen Grant

Madorin, Snyder LLP / KW- Law

A

Melanie Hoad

CAN Insurance

A

Erika Schurr

Travelers Canada

A

Judith Kean

HIROC

A

Bryan Hicks

Trillium Mutual

R*

Amber McNair

FSRA

A

Alex Rafuse

FSRA

A

Brian Kogan

FSRA

A

David Maxwell

FSRA

A

Daniel Padro

FSRA

A

Emmanuel Rombe

FSRA

A

Eugene Shmeilin

FSRA

A

Samreen Hossain

FSRA

A

Steve Kokaliaris

FSRA

A

Stephane Raby

FSRA

A

Tim Miflin

FSRA

A

Michael Tin

FSRA

A

Victoria Lesau

FSRA

A

Shad Rafi

FSRA

A

Nathan Fahey

MoF

A

Iman Khan

MoF

A