Executive Summary

Research Objectives

The primary goal of the research was to explore impressions of OSFI in the discharge of a number of key elements of its mandate as a prudential regulator of Life insurance companies.

More specific objectives were to obtain impressions of OSFI’s overall performance, OSFI’s effectiveness in the areas of guidance, supervision and approvals, areas of risk specific to the Life insurance sector on which OSFI should focus, and areas in which OSFI might improve.

Methodology

OSFI provided Nielsen with a list of names and contact information for 178 executives from Life insurance companies. Nielsen recommended a sampling plan to OSFI; the plan sought to ensure representation of CEOs, CFOs, and CCOs, as well as internal and external actuaries across Life insurance companies. Sampling was designed so that interviews would be undertaken with executives from large, medium and small Life insurance companies. Nielsen then randomly selected potential interviewees.

The findings are based on a total of 43 in-person or telephone interviews completed among CEOs, CFOs, CCOs, Actuaries and other senior executives of Life insurance companies. Participants were offered an interview in the official language of their choice; thirty-nine interviews were conducted in English and four in French.

Interviews were undertaken from November 29, 2016 through March 23, 2017. The average interview length was 60 minutes.

Qualitative Research Caution

This research employed a qualitative methodology. While the findings provide an indication of participants’ views about the issues explored, they cannot be generalized to the full population of senior executives of federally regulated Life insurance companies. This qualitative approach provides a depth of insight that is unachievable through other research methods and, in particular, through strictly quantitative surveys. One-on-one interviews allow deep probing into underlying assessments of OSFI’s effectiveness.

Key Findings

Strengths

Overall Impressions of OSFI

Overall, impressions of OSFI were positive, if not strongly positive. It is perceived to have established constructive working relationships with the entities that it regulates. OSFI’s ability to forge these relationships was linked with its willingness to engage in dialogue and its transparent and collaborative approach to interactions with companies.

OSFI was often compared with regulators in other jurisdictions, and was characterized as being best in class for its principles-based approach to regulation and supervision.

Focus on Risk

Overall, OSFI’s risk focus was generally described as being appropriate. Members of the sector felt that OSFI is appropriately focused on a number of key risk areas, including cyber risk, operational risk and interest rate risk.

The potential impact of the Life Insurance Capital Adequacy Test (LICAT) and the International Financial Reporting Standards (IFRS) are most likely to be considered potential areas of risk for the Life insurance sector in the near future.

Guidance

OSFI was viewed as excelling in its efforts to consult with the sector on guidance development. Overall, companies believe that they are given sufficient time to provide their input.

OSFI’s guidance consultations were held up by many in the sector as exemplary. Its engagement of stakeholders at three levels (industry organizations, bi-lateral company discussions, and public discourse) was viewed as effective. The channels that OSFI has developed to communicate its response to the sector (e.g., webcasts and summaries) were viewed as positive developments, and reaffirm to the sector that OSFI makes significant efforts to ensure transparency in its consultation process.

The 2013 LISC results uncovered concern about a “banking perspective” informing OSFI regulation of the Life insurance sector. While this issue was raised again in the 2016/2017 set of LISC interviews, it was raised only infrequently and with respect to the treatment of specific products.

Supervision

OSFI’s approach to supervision was considered to be very strong. Assessments were based on perceptions that OSFI’s supervisory staff generally have a good understanding of the business characteristics and product offerings of the companies they supervise and that, in general, they apply the appropriate level of “touch” for most companies.

Among smaller companies, some suggested the supervisory group is sensitive to company size and structure, and that the supervisory approach OSFI follows does not overburden those companies.

OSFI’s Lead Supervisors were seen as instrumental in strengthening the supervisory process. Their efforts to understand the companies they regulate, including asking questions to better understand company issues/concerns, were viewed as key factors that have served to develop strong positive and constructive relationships with companies.

Lead Supervisors were viewed to engage the appropriate internal OSFI resources, including those in specific risk areas, when issues warrant. Life insurance companies generally felt as well that they could elevate issues to more senior OSFI staff members should the need arise.

Regular meetings were viewed as contributing to an effective supervisory process, allowing both companies and OSFI to raise and discuss issues. These meetings were perceived to enhance transparency and foster a collaborative approach to supervision. Further, OSFI was perceived to be open to discussion prior to coming to a conclusion.

Communications

OSFI was considered accessible and responsive to inquiries and requests for information related to guidance and supervision and seen as timely in providing responses.

The channels through which Life insurance companies can provide feedback are considered robust and appropriate. Examples provided include the Canadian Life and Health Insurance Association (CLHIA), OSFI’s risk conference, C-suite meetings, and bi-lateral discussions.

Approvals

The approval process was consistently viewed as effective. Members of OSFI’s approvals group were characterized as highly responsive to, and timely in managing, requests. OSFI was further characterized as forthcoming in responding to requests for updates.

OSFI’s expectations were generally perceived to be clearly defined and the approvals group was viewed as open to discussion prior to coming to a conclusion.

Challenges

Guidance

While OSFI’s efforts to engage the sector through consultations were commended, there was a perception that OSFI has left unaddressed a number of crucial issues for the industry. Specifically:

There was also a general perception that OSFI has increasingly been pushing off issues that the industry believes require attention. This perceived tendency was viewed as having a detrimental impact on sector member competitiveness, approach to risk, and cost of doing business.

A number of companies, primarily smaller companies, suggested that OSFI’s guidelines which address corporate governance do not take into account sufficiently the particular characteristics and risk culture of their companies. Other companies, particularly subsidiaries, branches and reinsurers, suggested that OSFI needs to be more sensitive to the nature of these companies in the development of guidance.

Focus on Risk

Most insurers believed that OSFI’s risk focus is appropriate, and that it is in line with those areas of risk on which the insurers themselves are focusing.

IFRS 17 and concerns about its potential negative impact on the Canadian Life insurance sector was a theme that emerged consistently in the interviews. IFRS was among the top risk areas on which participants believed OSFI should place greater focus. Further, now that LICAT guidance has been finalized, participants are looking to OSFI to turn its focus to IFRS 17 and to communicate with industry members its thinking and likely approaches.

Supervision

Consistent with 2013/2014 LISC findings, some smaller companies feel that compliance requirements are onerous and do not take into account their company’s characteristics, placing an undue burden on resources and operational costs.

Lead Supervisor turnover was also cited as a point of frustration for a group of smaller companies. Again, this is consistent with 2013/2014 LISC findings.

Approvals

While the approvals process was considered to be effective, the overall timeframe in which approval requests are being finalized was viewed as too lengthy by some.

Additional Themes

While there was a general belief that OSFI is focusing on appropriate capital-related issues, as was the case in the 2013/2014 LISC, some expressed concern that capital requirements moving forward will be unreasonably onerous. This sentiment was expressed not only in response to probing about the LICAT, but throughout the interviews. There was a perception that new capital levels will negatively affect the ability of some Canadian Life insurance companies to develop and offer certain products and, in some cases, to compete either nationally or internationally.

OSFI was perceived to have carved out a strong and influential voice at international fora where cross-jurisdictional regulatory initiatives are being discussed. It was urged, however, that OSFI not succumb to the temptation to be a first adopter of international regulatory initiatives, or adopt these initiatives without a thorough consideration of their appropriateness in a Canadian context. Some felt that OSFI has made progress on this issue, and expressed the wish that OSFI continue to do so.

Cost of Research

The cost of this research was $62,545.50 (HST included).

How this Information is Expected to be Used

Findings will be used to assess and develop internal processes and operating strategies, and to help identify priorities going forward.

Political Neutrality

I hereby certify as Senior Officer of Nielsen that the deliverables fully comply with the Government of Canada political neutrality requirements outlined in the Communications Policy of the Government of Canada and Procedures for Planning and Contracting Public Opinion Research. Specifically, the deliverables do not include information on electoral voting intentions, political party preferences, standings with the electorate or ratings of the performance of a political party or its leaders.

David Brady
Vice President, Nielsen
(613) 751-5069
david.brady@nielsen.com