OSFI working on new capital guideline for mortgage insurers, amendments to guidelines for corporate boards

Officials with Canada’s Office of the Superintendent of Financial Institutions are working on a “wide range of amendments” to its guidelines for corporate boards of directors, as well as a new capital guideline for private mortgage insurers, OSFI’s deputy superintendent said during a recent event organized by Insurance Bureau of Canada.

“We are in the process of reviewing the requirements that we impose on boards of directors across all of our guidance …. to make sure that it is properly aligned with corporate governance guidelines,” said Zelmer, OSFI’s deputy superintendent, regulation sector, at the 20th annual IBC Financial Affairs Symposium. “This is going to result down the road in a wide range of amendments to our guidance to make sure that everything is aligned with the corporate governance guideline and you will hear more information from my colleagues later this year, so I don’t want to steal too much of their thunder.”

OSFI announced Jan. 28, 2013 the release of its updated Guideline on Corporate Governance, which applies to federally-regulated financial institutions.

OSFI said at the time that the “most significant changes” were in the composition and competencies of directors, risk governance, and the roles of the chief risk officer and the audit committee.

After that, OSFI “received a fair amount of feedback and certainly boards of directors have raised some additional issues,” Zelmer said April 13 during IBC’s Financial Affairs Symposium. “Some of them include things like how the governance requirements in the governance guideline mesh with all the other governance-related issues that you find in other aspects of OSFI guideance or in our supervisory process and the large volume of information that directors receive and are expected to digest. We have been listening to this feedback.”

The symposium was held at the Design Exchange, which was once the trading floor of the Toronto Stock Exchange. Zelmer’s presentation was titled A Regulatory ‘Walk Down Memory Lane.’

“When it comes to capital requirements we are going to have to do something different for mortgage insurers,” Zelmer told symposium attendees. “While we have typically used the (property & casualty) capital framework for both P&C companies and mortgage insurers, we are learning that we are going to have to …. have a different framework for mortgage insurers as opposed to P&C companies given the very different risks that mortgage insurers face and how they play relative to a typical P&C company. So we are working on a new capital guideline for private mortgage insurers which you will see out for public consultation in the near future.”

In recent years, most recent changes to OSFI guidelines for financial institutions “were very much introduced to deal with domestic issues here in Canada opposed to the aftermath of the global financial crisis,” Zelmer said, alluding to the aftermath of massive mortgage-related losses, in the 2007-08 time frame, by firms such as Lehman Brothers, Bear Stearns, Citigroup, Merrill Lynch and American International Group.

“While we certainly learned a lot of lessons from that crisis… the industry here has been evolving over time,” Zelmer said April 13.

Several recent OSFI guidelines “were very much introduced in response to developments within the industry here in Canada,” Zelmer said, referring to the updated guidelines for corporate governance as well as guidelines for Own Risk and Solvency Assessment and Regulatory Capital and Internal Capital Targets.

“We have been dealing with a lot of these issues – whether it be low interest rates, catastrophe events or if you’re a mortgage insurer, household debt and rising house prices – all of those things have required the need to make sure that corporate governance, risk management practices and underwriting prices remain commensurate with the state of the industry and that’s why we paid a lot of attention to those areas,” Zelmer said.

“The capital requirements are a living document,” Zelmer added. “It’s not something that we do and put to sleep for 10 years and don’t look at again. As you know we update this thing every year to take into account what’s going on in the industry and to make sure that it continues to reflect the risks that your industry faces.”

Clarification: A previous version of this article stated OSFI was amending its Guideline on Corporate Governance. In fact, OSFI is reviewing its requirements for boards of directors that currently appear in all forms of OSFI guidance.

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