Insurance Risk: Registered vs Unregistered Reinsurance
From the wiki:
"If you're paying attention, you might be wondering why reinsurance risks are discussed in chapter 4 on insurance risk. The 2 risks mentioned above are actually credit risks, and the source text explicitly states that reinsurance risk for registered reinsurance is discussed in chapter 6 on credit risk.
The much longer subsection within reinsurance risk in chapter 4 concerns unregistered reinsurance."
Why are risks associated with registered reinsurance handled in the Credit Risk section, while the risks associated with unregistered reinsurance handled in the Insurance Risk section? Does being federally/provincially incorporated really make that big of a difference?
Comments
It is because unregistered reinsurers are not regulated by OSFI which means they would logically be higher risk than a registered reinsurer that is regulated by OSFI.
As to why they are in different sections, I am not too sure about that tbh
Thanks! I also found this helpful:
"The reduction in required capital depends on whether the risks are ceded to another FRI (a registered reinsurer) or an unregistered reinsurer. In the former case, the ceding FRI no longer holds capital for the insurance risk as the liabilities have been reinsured by the FRI reinsurer, which must maintain capital, in Canada, to support the assumed insurance risk. In the latter case, a FRI is permitted to take capital credit for reinsurance when the unregistered reinsurer has posted acceptable collateral in Canada to support the ceded liabilities and capital requirements. The requirement that adequate collateral be maintained in Canada to obtain a capital credit is an important aspect of Canada's regulatory approach to the use of unregistered reinsurance; it protects a FRI and its policyholders against the risk that an unregistered reinsurer fails to honour its obligations. The rules for what constitutes acceptable collateral, and the determination of an appropriate amount of collateral, are set out in the capital guidelines. Additional guidance on the collateral arrangements known as "reinsurance security agreements", is set out in OSFI's Guideline on Reinsurance Security Agreements."
From: https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/pp-do/Pages/reins_frmwk.aspx -- Capital Frameworks section.
Yup I think this explains why registered reinsurance risk is considered in the credit and not insurance section