The current reinsurance framework consists of the following elements. OSFI`s new approach requires Zedantiants to enter into a reinsurance warranty contract, ensure that a guaranteed agent in Canada retains the guarantees, and ensures that the Cenant has a valuable senior security interest in warranties. In addition, Zedantiants must provide legal advice to the Cedant and OSFI regarding the safety interest. The discussion paper highlights the growing reliance of federal insurers (RNIS) on reinsurance. OSFI is particularly concerned about the « leveraged business model, » which involves prescribing major strategies in Canada and subsequently abandoning a significant portion of these risks outside of Canada, with Canada managing little capital or free movement assets to support increased risk. OSFI is also concerned about the risks associated with large commitments and the concentration of reinsurance counterparties. The discussion paper also examines adjustments to the capital framework for reinsurance. Finally, the questions and answers state that OSFI does not give or endorse any specific language or formulation for reinsurance contracts. OSFI recalls that inter-professional organizations such as the Reinsurance Research Council and the Property and Casualty Insurance Compensation Corporation adopt different formulations for reinsurance contracts. In addition, companies are encouraged to consult with their legal counsel to ensure that the reinsurance contract provisions are consistent with OSFI`s specific guidelines on reinsurance reinsurance agreements. OSFI has observed that some IVIs have essential reinsurance programs with one or a few reinsurers or groups of related reinsurers. This increases the risk of concentration. The discussion paper indicates that several legal systems include capital requirements related to concentration risk, which focus on the concentration of the name (i.e.
risks resulting from a concentration of exposures on a related entity or group of companies). OSFI is considering introducing a concentration risk tax/limit for reinsurance assets in a future update of the capital guidelines. This would be part of Phase III. The parties and OSFI must coordinate the termination of the existing reinsurance reinsurance contract with the implementation of the new reinsurance guarantee contract. OSFI indicated that a Form 298 (which must be approved by OSFI) would require the release of the assets of the existing trust agreement. An IRF should assess the ability of all reinsurance counterparties, present and future, to permanently honour commitments in the context of exceptional but plausible adverse events.