Global insurance and reinsurance groups that currently serve Canadian customers are alarmed by the discussion paper as the envisaged measures do not promote market-based solutions. When groups tested the effect of the policy limit rule recently at OSFI’s request, it became clear that the rule would create an estimated $21-$30 billion CAD capital gap. This gap means that the affected insurers would on average need to more than triple their current capital base to remain in Canada and writing the same policies as they currently do. The proposal would have the effect of significantly reducing the return on capital relative to opportunities which may be available to groups globally, thus disincentivising groups from offering insurance and reinsurance services or investing in Canada. Regrettably, it seems inevitable that such requirements will discourage participation in the Canadian market.
