Insurance Solvency Regime Developments: Striking the Right Balance in Canada

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Regulators, policy-makers, and industry associations are actively discussing the development of global solvency requirements for life insurance companies. Paralleling these activities are banking solvency regulation developments driven by the provisions of Basel III. These activities originated prior to the financial crisis but have received more attention since then, and recent market instability is likely to further reinforce them. Post crisis, regulators around the globe find themselves having either to defend their regime, or explain how their enhancement proposals compare to other jurisdictions. To some extent this creates an environment of regulatory regime competition, which, of course, has implications for insurance companies.

In this paper, we consider the solvency regime reform proposals with a focus on the potential impact on Canadian life insurers. An overriding premise we hold is that a profitable domestic life insurance industry that’s able to compete globally and support sustainable growth is fundamental to achieving policyholder security. Such strength is critical for ongoing access to capital, both in terms of amount and cost, as well as for enabling the industry to invest in the resources to effectively measure and manage its business risks.