POR Registration Number: POR 019-16
PWGSC Contract Number: 59017-160006/001/CY
Contract Award Date: July 16, 2016
Delivery Date: May 12, 2017
Prepared for:
Office of the Superintendent of Financial Institutions (OSFI)
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For more information on this report, please contact: information@osfi-bsif.gc.ca
Prepared by: AC Nielsen Company of Canada
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.
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.
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.
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.
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.
The cost of this research was $62,545.50 (HST included).
Findings will be used to assess and develop internal processes and operating strategies, and to help identify priorities going forward.
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
Since 1998, OSFI has commissioned qualitative research among senior members of the financial services community to obtain their assessment of OSFI.
In 2016, OSFI commissioned Nielsen, an independent research firm, to undertake interviews with key stakeholders in the Life insurance sector in order to explore perceptions of OSFI. The project comprised a series of 43 confidential interviews with senior executives from Life insurance companies regulated by OSFI.
The primary purpose of the research was to obtain an in-depth evaluation of OSFI’s effectiveness in discharging its mandate as a regulator of federally regulated Life insurance companies.
Specific research objectives included the following:
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.
Nielsen sent selected potential interviewees a package containing an invitation letter from the Superintendent of OSFI, as well as a copy of the interview guide to allow potential interviewees to think about the issues to be discussed during the interviews. Contact was then made by telephone and/or email to set up an interview time, date and place. No monetary incentives were offered to participants.
The research followed the methodological approach employed in prior qualitative research projects similar in nature to the research among Life insurance companies: qualitative, semi-structured, one-on-one interviews. 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.
In a majority of the cases, interviews were undertaken on-site at the participant’s office. However, telephone interviews were conducted if requested by the participant or the participant’s location made an in-person interview unfeasible (i.e., outside of the Montreal, Ottawa or Toronto areas where the interviewers are located).
In total, 43 individuals participated in the consultation: in some cases, more than one individual from an institution participated in an interview. In other cases, the participant provided feedback from a number of senior executives whose views had been canvassed prior to the interview.
Participants were offered an interview in the official language of their choice; thirty-nine interviews were conducted in English and four in French. The average interview length was 60 minutes.
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, as follows:
| Size of Company | Number of interviews |
| Large Life insurance companies (at least $1 Billion in assets) | 22 |
| Small Life insurance companies (assets less than $1 Billion) | 17 |
| External appointed actuaries | 4 |
| Type/Location of Company | Number of interviews |
| Domestic Life insurance company | 27 |
| Foreign Life insurance company | 12 |
| External appointed actuaries | 4 |
| Type of Insurer | Number of interviews |
| Direct insurance company | 30 |
| Reinsurance company | 9 |
| External appointed actuaries | 4 |
| Title/Position of interviewee | Number of interviews |
| CEO | 20 |
| CFO | 10 |
| CCO | 8 |
| External Actuary | 4 |
| Other company representative | 1 |
Interviews were undertaken from November 29, 2016 through March 23, 2017.
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. The findings from this research are intended to provide themes and direction.
Q1: Overall, how satisfied are you with OSFI as the principal prudential regulator and supervisor of Canada’s financial services industry?
Overall satisfaction was strongly positive. OSFI was characterized as a strong and effective regulator. These assessments are based on perceptions that OSFI:
Further, OSFI was described as being pragmatic in its approach to supervising companies and as making a concerted effort to implement guidance in a manner that does not disadvantage companies based on their size or structure.
A number of participants felt that the relationship that OSFI has established with regulated entities means that Life insurance companies are open and transparent with OSFI.
OSFI was often described as being among the best in class when compared with other jurisdictions. A number of participants indicated that OSFI understands their company and that this understanding is crucial to effective principles-based regulation.
Q2: How would you assess OSFI on the extent to which it focuses on the appropriate areas of risk in the life insurance sector?
OSFI was generally perceived to be focusing on the appropriate areas of risk. Further, among both small and large companies, OSFI was often viewed as being aligned with the insurance sector in its risk focus.
Examples of appropriate risk areas provided by participants include:
Q3: How would you assess OSFI with respect to how proactive it is in responding to emerging issues pertaining to the life insurance sector?
Many participants indicated they believe OSFI is proactive in responding to emerging issues. Participants reiterated that cyber and operational risk are areas on which OSFI has been both focused and proactive. The other issues on which OSFI was also viewed as having been proactive by at least a few participants are conduct risk and capital risk management.
One issue on which some felt OSFI has lagged is in its responsiveness in providing capital credit for hedging of segregated fund risk.
Q4: What one or two risk areas do you believe should be priorities for OSFI in the next couple of years pertaining to the life insurance sector?
The risk areas identified most often as recommended priorities for OSFI are:
Other risk areas mentioned by at least a few respondents were the entry and operation of unregulated fintech companies in the Canadian marketplace, conduct risk, market risk and longevity risk.
Q5: What one or two things does OSFI need to improve upon as a regulator and supervisor?
The areas of improvement identified by participants were disparate. Some suggested that OSFI needs to be sensitive to the amount of regulatory change faced by Life insurance companies. Some felt that the number of guidelines and compliance requirements that OSFI has introduced are a significant contributor to perceptions of regulatory overburden.
There was a perception that OSFI needs to enhance its understanding of reinsurance and the role of reinsurance in the Canadian marketplace, which would assist OSFI to more effectively tailor guidance so that it more effectively recognizes the characteristics of these companies.
It was seen as highly important that in adopting guidance that has its origins in international regulatory initiatives that OSFI give careful consideration to its implications in the Canadian marketplace.
Some recommended that, where possible, OSFI reduce regulatory burden through a variety of means including harmonizing guidance to reduce duplication of compliance requirements, intensifying efforts to take into account the nature, size and complexity of companies in guidance and the supervisory process to streamline compliance requirements for smaller, less complex companies, and harmonizing compliance requirements with Quebec’s Autorité des marchés financiers.
Some felt that OSFI should monitor the activity of more junior staff as there was a perception that due to their limited experience they tend to take an unnecessarily prescriptive and conservative approach.
Smaller companies observed that OSFI should strive to minimize Lead Supervisor turnover.
Some recommended that OSFI introduce calibration for the calculation of reinsurance counterparty credit risk.
Finally, some suggested that OSFI should continue to improve efforts to take into account the nature, size and complexity of companies, particularly branches and subsidiaries.
Q6: How would you assess OSFI with respect to responding in a timely manner to market developments or to industry suggestions that guidance needs updating?
Overall, many perceived OSFI to be responsive to market developments and the need to update guidance. This view often stemmed from perceptions that OSFI has a global perspective as a result of its participation on international regulatory committees, which allows it to anticipate potential issues that may have an effect on the Canadian marketplace. It was also attributed to OSFI’s commitment to consulting with the companies that it regulates - both individually and through industry associations such as the CLHIA. This interaction is believed to enhance OSFI’s understanding of the Canadian Life insurance marketplace and how guidance may be impeding business processes or competitiveness.
In some instances, however, OSFI was perceived as moving too slowly in responding to industry suggestions or concerns. One example cited by a number of participants was OSFI’s perceived slowness in addressing the issue of segregated funds guarantees and hedging exposure to those guarantees.
A number of participants suggested that OSFI moved LICAT to a conclusion prior to addressing key gaps in the guidance.
Q7: How would you assess OSFI with respect to consulting the financial services industry when developing guidance?
Assessments of OSFI on this issue were almost universally positive. OSFI was perceived to have worked effectively to consult at three levels: industry organizations such as the CLHIA and CIA; individual companies; and the public.
OSFI’s effort to engage the industry early on in the process of guidance development was lauded and OSFI was described as being collaborative, transparent, and open to discussing issues during its consultations with the sector.
Consultations cited as exemplifying OSFI’s constructive approach to engaging the industry included LICAT and E13.
Some provided positive assessments of OSFI’s willingness to share consultation results through summary documents and webcasts. These channels were viewed as constructive means of assisting regulated entities to better understand OSFI’s thinking and its rationale for accepting or rejecting industry recommendations.
Opinions tended to be split on the extent to which OSFI is receptive to industry feedback. Many felt that OSFI has done a good job of integrating industry feedback into final guidance. Others, however, expressed concerns that OSFI appeared to ignore industry recommendations on what the industry considers key issues. Again, the treatment of hedging and counterparty risk charge in LICAT was raised here.
While overall impressions of OSFI consultations were positive, a group of smaller companies expressed frustration that they have not generally been engaged on an individual basis to provide feedback. Some of these companies felt that the consultations target feedback from larger companies. The perceived emphasis on CLHIA feedback serves to reinforce their views as they observed that smaller companies are not necessarily members of the Association.
Q8: How would you assess OSFI with respect to developing guidance that strikes an appropriate balance between prudential considerations and the need for institutions to compete?
Views varied widely on the issue of OSFI’s guidance fostering an appropriate balance between prudential considerations and the need to compete. Some suggested that OSFI is doing fairly well in this respect. This belief stems from perceptions that OSFI’s approach served to ensure stability through the 2008 financial crisis and that its principles-based approach facilitates greater flexibility in the application of guidance, which assists in achieving balance.
Others view OSFI’s capital requirements as having a negative impact on competitiveness. In particular, some participants suggested that an increase in capital requirements is making certain types of insurance more expensive and thus less easily accessible to consumers.
In addition, among a few companies that also operate in markets outside of Canada, OSFI’s capital requirements are perceived to make it more difficult to be competitive in those regions.
Finally, some indicated that they believe capital requirements create a disincentive for companies considering entry into Canada, or that they limit the type and scope of business branches are willing to underwrite.
Q9: Overall, how effective do you think OSFI’s guidance is in providing a clear indication of OSFI’s expectations?
Among the larger companies, OSFI’s expectations were generally viewed to be clear.
Among smaller companies, some observed that there are instances, such as Own Risk and Solvency Assessment (ORSA), where OSFI’s expectations have not been clear. There was some recognition that this lack of clarity is due to OSFI’s principles-based orientation.
These smaller companies often reported that where a lack of clarity exists they have found OSFI to be responsive in aiding companies with their requests for further information (even if they were not happy with or disagreed with what was communicated).
There was a call from both large and small companies for OSFI to further enhance its communications regarding the rationale for new and revised guidance. These participants argued that a clear understanding of OSFI’s rationale allows companies to more easily and effectively discern how to provide OSFI with an appropriate response.
Q10: How would you assess OSFI’s guidance on the extent to which it considers the nature, size and complexity of financial institutions?
Larger companies indicated that OSFI’s guidance generally considers the nature, size and complexity of their companies.
Smaller companies were more varied in their responses. Responses tended to focus on the application of guidance, rather than the guidance itself.
Some smaller companies, particularly those with a limited number of niche products or less complex lines of business, felt that OSFI’s guidance related to governance does not take into account the structure of different insurance companies. Further, a few smaller companies specifically noted that the operational risk guidance has been more effectively geared to take into account nature, size and complexity.
Some smaller companies viewed compliance requirements as inconsistent with the complexity of their products or their company’s structure, while others suggested that the compliance requirements do not differ for larger and smaller institutions. The extent of compliance requirements is seen as placing undue stress on the resources of these institutions.
A number of participants observed that branches and subsidiaries appear to be regulated differently than other companies in the sector. This was not considered a positive attribute of OSFI’s guidance, but rather a disadvantaging factor for these entities.
There was a perception among some reinsurers that OSFI needs to continue to enhance its knowledge of reinsurance and its role in the Canadian marketplace. Some felt that OSFI’s guidance development does not reflect a depth of understanding of reinsurance.
Q11: In June 2016, OSFI issued its guideline IFRS 9 Financial Instruments and Disclosure. How would you assess the consultation process OSFI followed when developing the final guideline (e.g., means by which insurance companies could provide feedback, timing for feedback)?
A number of participants indicated that they were not personally active in the IFRS 9 consultation process so they could not provide an opinion as to its effectiveness. A few participants reported that they were not aware of the consultation. Among those with an opinion, the assessments tended to be positive.
Some reported that OSFI’s use of the CLHIA and other channels to obtain feedback was an effective approach. A number of participants felt that OSFI not only listened to, but also took into account, the feedback provided by industry members. This was viewed as a strength of this particular consultation. Overall, IFRS 9 did not appear to be an issue about which there are major concerns.
By contrast, many participants raised IFRS 17 during their interviews. Some companies were of the view that IFRS 17 is the greatest issue affecting Life insurance companies moving forward. Some suggested that OSFI needs to enhance its focus on this, and more clearly signal to the industry its thinking and direction on the issue. These companies expressed concern about IFRS 17 because of its potential ramifications for product offerings and profitability.
Q12: How effective has OSFI been in communicating its expectations to the Life insurance industry regarding operational risk governance (e.g., as set out in Guideline E-21 Operational Risk Management; the accompanying Letter; the accompanying Guideline Impact Analysis Statement)?
In general, OSFI was perceived to have effectively communicated its expectations regarding operational risk governance. Many participants commended OSFI for its consultation process on this guidance. They indicated that OSFI allowed time for feedback, that there was substantial interaction with the sector on the issue and, most importantly, that OSFI took into account feedback from the companies.
Most reported that they understand OSFI’s requirements. However, a small group suggested that they believe OSFI and the industry face a challenge in taking what is perceived to be an inherently qualitative element of the business and attempting to translate it into quantifiable risk.
Q13: Between 2009 and 2016, OSFI requested several Quantitative Impact Studies (QIS) from Canadian Life insurance companies in relation to developing a standardized approach for regulatory capital requirements, now known as the Life Insurance Capital Adequacy Test (LICAT). Did your company participate in QIS 6 or QIS 7?
Most participants indicated that they participated in both QIS 6 and QIS 7. A very small group indicated that they participated solely in QIS 7.
Q14: How would you assess OSFI’s communication with your company concerning the Quantitative Impact Studies (QIS) for life insurance companies (e.g., clarity of QIS instructions; responding to questions or interpretation of QIS instructions - directly or via Q&As posted to OSFI’s website; providing information on the QIS process)?
Evaluations of QIS-related communications were generally strongly positive. The QIS instructions were viewed as detailed and clear. Further, OSFI was seen as having been responsive to requests for clarification.
Overall, there was a perception from direct insurers that OSFI was listening to and taking into account the feedback that it received in the QIS process. However, some reinsurers expressed concern that their feedback on the 2.5% charge related to counterparty risk had not been addressed in the final guidance.
In addition to the evaluations of OSFI’s communications on the QIS, participants raised several other issues about the QIS process. Specifically, errors in the QIS templates and last minute changes were identified as points of frustration.
Q15: What could OSFI do to improve its communication with your company regarding the QIS, including the process for submitting the QIS forms and comments to OSFI?
There were few consistent recommendations as to how OSFI could improve communications regarding Quantitative Impact Studies. Some suggested that the timing of the QIS 6 and 7 exercises could have been reconsidered. The request to complete these QIS exercises in the busy year-end period was felt to have placed undue pressure on resources, and those of smaller companies in particular.
Errors in the forms and last minute changes to the QIS instructions were perceived to be the greatest challenge of the process. That having been said, companies appreciated both OSFI’s transparency about the errors and its responsiveness to questions.
Q16: How would you assess the consultation process OSFI followed when developing the LICAT Guideline (e.g., means by which insurance companies could provide feedback, timing for feedback, timing of OSFI’s response)?
Many assessed the LICAT consultation process as an effective means of obtaining feedback on the proposed guidance. Some observed that the consultation process illustrates that OSFI was receptive to feedback, that it listened to the sector’s comments, and that it integrated at least some of that feedback into the final guidance.
A number of participants felt that the channels used by OSFI to obtain feedback and provide information to companies were effective (e.g., bi-lateral meetings, CLHIA and Canadian Institute of Actuaries, OSFI webcasts).
However, a number of concerns were raised about the final guidance. Complaints were levied about the last minute changes to the draft guidance in 2016. These changes were characterized as unexpected, and raised concerns on a number of fronts:
Some expressed concern that certain issues were not addressed in the final guidance (e.g., credit for hedging in segregated funds). Left unaddressed, these issues were identified as placing unnecessary and/or punitive capital requirements on some companies.
Some reinsurers expressed strong frustration about the 2.5% counterparty risk charge that has been included in the guidance. They felt that OSFI, despite being presented with what the reinsurance companies felt was compelling evidence about the issues associated with the charge, ignored their position to the detriment of these companies.
Q17: Accompanying the final LICAT was a summary of stakeholder comments and explanation of how OSFI dealt with the issues raised through the consultation process. Were you aware that OSFI provided this summary of stakeholder comments with the release of the final LICAT?
Most participants reported that they were aware of the summary of stakeholder comments accompanying the final LICAT.
Q18: How effective was the summary in communicating the decisions OSFI took on the issues raised by stakeholders regarding the LICAT?
Generally, those who were aware of the summary appreciated OSFI’s efforts to produce an outline of its responses to industry feedback on the draft guidance. Providing this type of summary was viewed as a positive aspect of OSFI’s communications with regulated companies. The summary reinforced perceptions among some that OSFI is transparent in its dealings with the insurance sector.
Further, a number of participants noted that the summary was clear and provided insights into the reasoning behind OSFI’s final position on the guidance. Particularly among those who reported that they actively participated in the consultation process, the summary was viewed as reflecting their understanding of the issues raised in the process.
While the summary was perceived as a positive aspect of OSFI’s consultation process, a number provided feedback outside the scope of the question and commented that the summary suggested that OSFI had not sufficiently taken into account concerns/issues raised by the sector during the consultation.
Q19: Overall, how effective do you think OSFI is in supervising your company (e.g., ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.)?
Evaluations of OSFI’s effectiveness in supervising regulated Life insurance companies tended to be very positive. A number of themes about the supervisory approach emerged.
Some companies identified the work of the Lead Supervisors as contributing both to the strength of the relationship with OSFI and the effectiveness of the supervisory process.
OSFI was often described as being open and collaborative in its supervision, with some specifically referring to regular meetings with OSFI as having contributed to a strong supervisory process.
A number of insurers viewed OSFI as focusing on the appropriate issues in the supervisory process. Further, some suggested that OSFI takes an appropriately balanced and scaled approach to supervision. A number of companies reported that they believe that this approach is taken because OSFI has a fundamental understanding of their business, and as such can scale its supervisory process accordingly.
Q20: When carrying out supervisory work, how would you assess OSFI on the extent to which it applies guidance in a manner that is scaled to reflect the nature, size and complexity of your company?
Q21: How would you assess OSFI on the extent to which its supervisory activities are scaled to reflect the nature, size and complexity of your company?
These two questions are reported together because many participants did not draw a distinction between them and/or their responses tended to overlap across the two questions.
Many of the participants believed that OSFI does apply guidance in a manner that is scaled to their company. This belief was based on perceptions that:
There were, however, a number of participants who did not feel that that OSFI scales its supervisory activities. This group of participants was mainly composed of smaller companies. Among this limited group of participants, a few believed that compliance requirements imposed on their companies do not differ substantially from those imposed on larger companies. Further, a few felt that OSFI’s supervisory approach does not take into account their business model, and again, that OSFI is employing a large company approach for smaller companies.
Q22: How would you assess OSFI with respect to providing an opportunity for your company to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
Almost without exception, participants reported that OSFI provides opportunities to discuss issues of concern. According to some participants, OSFI is approachable and accessible when questions or concerns arise. Some commended OSFI for its efforts to promote open lines of communication with companies.
OSFI’s approach to supervision provides a number of channels or fora in which companies can raise concerns, including quarterly meetings, annual risk conferences, and C-Suite meetings. Some expressed positive views about the meetings OSFI schedules in advance of delivering its review letters in which companies are provided with OSFI’s preliminary findings. They suggested that these meetings allow companies to address questions or concerns that may arise from the findings.
Q23: Have you had any dealings with your Lead Supervisor (formerly known as Relationship Manager) over the past 12 months?
Almost all participants reported that they have had dealings with a Lead Supervisor in the past 12 months.
Q24: How would you assess the overall knowledge level of your Lead Supervisor (e.g., knowledge of legislation; OSFI guidelines; regulatory policy and supervisory practices; life insurance sector issues and risks; your company)?
Many participants reported satisfaction with their Lead Supervisor’s knowledge level. Those who held positive impressions attributed them to:
Having a background in the industry was considered to be an important factor contributing to a Lead Supervisor’s ability to understand and respond to company issues.
A number of participants indicated that their Lead Supervisor is relatively new. Among this group, evaluations varied. A few indicated that their Lead Supervisor showed a commitment to learning about their company. A few offered the observation that less experienced Lead Supervisors tend to be more prescriptive or focus on areas in which they have greater comfort/knowledge. A few also felt that the Lead Supervisor did not appear to understand the nature of their business.
A small group of participants expressed frustration about the extent of Lead Supervisor turnover.
Q25: Thinking about your company’s interactions with your Lead Supervisor and the Supervision team, what, if anything, do you believe needs to be improved?
Many of the participants indicated that their relationship with their Lead Supervisor is very good or satisfactory, and did not have any recommendations to improve interactions. Among the smaller group of participants who had suggestions, responses varied.
A few recommended that there should be greater continuity in the Lead Supervisors assigned to their company. They expressed the view that turnover often restricts Lead Supervisor’s from gaining a depth of knowledge about a company, thereby limiting their effectiveness. They also mentioned that OSFI could do better in communicating to them that/when they would be getting a new Lead Supervisor.
A few felt that their Lead Supervisor should take a more risk-based approach and should avoid being prescriptive, getting lost in detail, or encroaching on management issues.
Finally, a few reported that their interaction with the Lead Supervisor was limited and that they were seeking more regular opportunities to interact.
Q26: Overall, how would you assess OSFI with respect to responding to questions your company has brought forward concerning final OSFI guidance, including questions related to interpretation (e.g., consistency; clarity; timeliness)?
Some participants indicated that that they had not brought forward any issues directly to OSFI, either because they have not had any questions about the guidance or because their issues were addressed through other channels (e.g., CLHIA, lawyers). Generally, most reported positive assessments of OSFI with respect to responding to questions. OSFI was described as being accessible when questions arise, responsive to companies that are seeking information, effective in engaging the appropriate individuals within OSFI to address an issue, and timely in its response to questions.
OSFI was viewed as providing a number of channels or fora through which companies can raise concerns, including quarterly meetings, annual risk conferences, and C-Suite meetings. In particular, OSFI’s risk management seminar was cited as a constructive forum where companies have an opportunity to ask questions and learn more about OSFI’s thinking on issues.
Some characterized OSFI as fostering open dialogue about guidance issues. If necessary, participants felt that they could escalate their concerns to more senior members of OSFI. A small group of participants held more negative perceptions of OSFI’s approach to addressing guidance-related questions. However, there was no consistency in reasons provided for these negative perceptions.
Q27: Overall, how would you assess OSFI with respect to responding to Enquiries your company has brought forward about supervisory matters (e.g., consistency; clarity; timeliness)?
Many indicated that their impressions of OSFI on this issue were addressed in their overall evaluation of OSFI’s supervision. Again, OSFI is viewed as responsive and timely in its responses to enquiries. Further, a number identified that Lead Supervisors have been effective in engaging the appropriate resources within OSFI to respond to company requests for clarification.
Q28: Overall, how would you assess OSFI with respect to responding to questions your company has brought forward concerning a specific risk area (e.g., actuarial, credit, corporate governance, ML/TF risk management and compliance, operational risk, etc.) (e.g., consistency; clarity; timeliness)?
Many reported that they have not brought forward issues concerning risk areas. Among those who have, there was little consistency in responses.
Q29: Overall, how would you assess OSFI with respect to its written correspondence (e.g., clarity; timeliness; and, consistency between written and oral communications)?
Feedback on these issues was very positive. OSFI’s correspondence was not only perceived to be clear but was also described as concise. Particularly as it relates to review letters, some commented that OSFI’s willingness to communicate in advance the issues to be covered in the final review letters means there are generally no surprises. With only a few exceptions, most indicated that there is consistency between OSFI’s written and verbal communications.
Q30: Thinking about your dealings with OSFI’s staff on any supervisory or regulatory matter, how satisfied are you with OSFI’s capacity to interact with you in the official language of your choice (i.e., English or French)?
Without exception, all participants indicated that they have been satisfied with OSFI’s capacity to interact in the official language of the participant’s choice.
Q31: To the best of your knowledge, has your company ever made a request for a regulatory approval from OSFI?
Most companies reported that they have made a request for regulatory approval.
Q32: Has your company made a request for a regulatory approval in the past 1-2 years?
Just over one-half of the companies interviewed reported that they have made a request in the past 1-2 years.
Q33: Thinking about request(s) for a regulatory approval your company has submitted in the past 1-2 years…Overall, how satisfied are you with OSFI in processing applications from your company?
Assessments of the approval process were generally positive, with the exception of the overall timeline. Evaluations of approvals staff were also positive. They were characterized as:
While the approval process was evaluated positively, the length of time to obtain an approval was viewed by some as too long. In some of these cases, the slowness was attributed to the request having to receive final approval from the Department of Finance.
Q34: How would you assess OSFI with respect to communicating its expectations as it relates to the information required in support of processing a request for a regulatory approval?
Most felt that OSFI’s expectations were clearly communicated. Some reported that OSFI’s approvals group asked appropriate questions and then provided explanations of what would be required from the company in response to requests that were outside the norm.
Q35: How well do you understand the basis on which OSFI makes decisions about your company’s applications?
Opinions tended to split on this issue. When a request was outside of the norm, some felt that they did not have a firm grasp of the basis for OSFI’s decision. Others reported that their request was approved and as such an explanation was not required.
Q36: How would you assess OSFI with respect to responding to your company’s requests for updates on the status of applications?
Most reported that they had not made any requests for an update. Among those who had made a request, the approvals group was viewed as providing the update in a timely fashion.
Q37: How would you assess OSFI with respect to providing an opportunity for your company to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
A number of participants reported that there has been no need to discuss issues with OSFI in advance of the regulator coming to a conclusion. Some added that the approvals group has been forthcoming with updates and information as necessary.
Among the small group that responded to this question, most felt they would be able to discuss issues with OSFI should the need arise.
Q38: Are there any other comments or suggestions for improvements you would like to make concerning the issues raised today, or concerning any other issues you feel are particularly relevant at this time?
The comments in response to this final question tended to echo comments captured earlier in this report. The responses varied widely with the exception of one theme: that they believe OSFI is doing a good job in fulfilling its mandate and that the interactions with Canada’s Life insurance companies have been open and collaborative, leading to a positive relationship overall.
Dear _____________
I am writing to invite your participation in an important confidential study that is being conducted by Nielsen on behalf of the Office of the Superintendent of Financial Institutions (OSFI) with representatives of the life insurance companies we regulate and supervise. Since 1998, OSFI has commissioned consultations with senior members of the financial community to obtain their assessment of its effectiveness as a regulator and supervisor. The results of this consultation will help OSFI to improve its performance, which we believe will be of ultimate benefit to you and your organization.
Within the next week, a representative of Nielsen will contact you to arrange a suitable time for an in-person interview of about one hour in length. Prior to the interview, we ask that you review the enclosed interview guide, as it will form the basis of questions you will be asked. Please feel free to canvass your colleagues for their views to obtain a broader perspective, if you feel this would be helpful.
OSFI is committed to a confidential consultation process, which includes ensuring that the identities of those who participate are not disclosed to us. Although I have signed this letter personally, it has been addressed and mailed to you by Nielsen. In addition, the report that OSFI will ultimately receive from Nielsen will include only summary form, non-attributable feedback. The findings from this consultation will be posted on OSFI’s website in 2017.
If you would like to discuss the study at any time during the process, please call Danielle Armengaud of Nielsen at (613) 751-5069.
We hope we can count on your participation.
Sincerely,
Jeremy Rudin
Superintendent
Encl.
Nielsen has been retained by the Office of the Superintendent of Financial Institutions (OSFI) to conduct this consultation with senior executives of federally regulated Life insurance companies.
Since 1998, OSFI has commissioned consultations with senior members of the financial community and their professional advisors to obtain their assessment of its effectiveness as a supervisor and regulator. OSFI is committed to monitoring how well it is achieving its strategic objectives, both to be accountable to stakeholders and to help improve effectiveness. It is for these reasons that we are asking your company to participate in this research.
You can be assured that Nielsen, as an independent third party, will hold your comments in strict confidence. Your answers will remain anonymous. OSFI will not know who was interviewed or what specific companies have said about it.
As a standard industry practice, Nielsen has put in place secure communication and usage procedures to ensure that confidentiality is maintained at all times.
Nielsen will provide OSFI with a full report aggregating the findings from this consultation.
1. Overall, how satisfied are you with OSFI as the principal prudential regulator and supervisor of Canada’s financial services industry?
2. How would you assess OSFI on the extent to which it focuses on the appropriate areas of risk in the life insurance sector?
3. How would you assess OSFI with respect to how proactive it is in responding to emerging issues pertaining to the life insurance sector?
4. What one or two risk areas do you believe should be priorities for OSFI in the next couple of years pertaining to the life insurance sector?
5. What one or two things does OSFI need to improve upon as a regulator and supervisor?
From time to time, OSFI develops Guidance (which may include guidelines and advisories) for companies in the life insurance sector.
6. How would you assess OSFI with respect to responding in a timely manner to market developments or to industry suggestions that guidance needs updating?
7. How would you assess OSFI with respect to consulting with the financial services industry when developing guidance?
8. How would you assess OSFI with respect to developing guidance that strikes an appropriate balance between prudential considerations and the need for institutions to compete?
9. Overall, how effective do you think OSFI’s guidance is in providing a clear indication of OSFI’s expectations?
10. How would you assess OSFI’s guidance on the extent to which it considers the nature, size and complexity of financial institutions
11. In June 2016, OSFI issued its guideline IFRS 9 Financial Instruments and Disclosure. How would you assess the consultation process OSFI followed when developing the final guideline (e.g., means by which insurance companies could provide feedback, timing for feedback)?
12. How effective has OSFI been in communicating its expectations to the Life insurance industry regarding operational risk governance (e.g., as set out in Guideline E-21 Operational Risk Management; the accompanying Letter; the accompanying Guideline Impact Analysis Statement)?
The next set of questions (13-18) focus specifically on activities and guidance relating to Capital matters.
Between 2009 and 2016, OSFI requested several Quantitative Impact Studies (QIS) from Canadian Life insurance companies in relation to developing a standardized approach for regulatory capital requirements, now known as the Life Insurance Capital Adequacy Test (LICAT).
13. Did your company participate in QIS 6 or QIS 7?
Yes, QIS 6 (2014-2015)
Yes, QIS 7 (2015-2016)
Neither [If neither, go to question 16.]
14. How would you assess OSFI’s communication with your company concerning the Quantitative Impact Studies (QIS) for Life insurance companies (e.g., clarity of QIS instructions; responding to questions or interpretation of QIS instructions - directly or via Q&As posted to OSFI’s website; providing information on the QIS process)?
15. What could OSFI do to improve its communication with your company regarding the QIS, including the process for submitting the QIS forms and comments to OSFI?
In March 2016, OSFI issued the draft LICAT Guideline for public consultation, followed by the final Guideline issued on September 12, 2016.
16. How would you assess the consultation process OSFI followed when developing the LICAT Guideline (e.g., means by which insurance companies could provide feedback, timing for feedback, timing of OSFI’s response)?
17. Accompanying the final LICAT was a summary of stakeholder comments and explanation of how OSFI dealt with the issues raised through the consultation process. Were you aware that OSFI provided this summary of stakeholder comments with the release of the final LICAT?
Yes
No [If no, go to PART 3 – SUPERVISION (question 19).]
18. How effective was the summary in communicating the decisions OSFI took on the issues raised by stakeholders regarding the LICAT?
The following questions pertain to OSFI’s supervision as it relates to your company.
19. Overall, how effective do you think OSFI is in supervising your company (e.g., ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.)?
20. When carrying out supervisory work, how would you assess OSFI on the extent to which it applies guidance in a manner that is scaled to reflect the nature, size and complexity of your company?
21. How would you assess OSFI on the extent to which its supervisory activities are scaled to reflect the nature, size and complexity of your company?
22. How would you assess OSFI with respect to providing an opportunity for your company to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
23. Have you had any dealings with your Lead Supervisor (formerly known as Relationship Manager) over the past 12 months?
Yes
No [If you have not dealt with your Lead Supervisor in the past 12 months, please skip to PART 4 (question 26)]
24. How would you assess the overall knowledge level of your Lead Supervisor (e.g., knowledge of legislation; OSFI guidelines; regulatory policy and supervisory practices; life insurance sector issues and risks; your company)?
25. Thinking about your company’s interactions with your Lead Supervisor and the Supervision team, what, if anything, do you believe needs to be improved?
26. Overall, how would you assess OSFI with respect to responding to questions your company has brought forward concerning final OSFI guidance, including questions related to interpretation (e.g., consistency; clarity; timeliness)?
27. Overall, how would you assess OSFI with respect to responding to enquiries your company has brought forward about supervisory matters (e.g., consistency; clarity; timeliness)?
28. Overall, how would you assess OSFI with respect to responding to questions your company has brought forward concerning a specific risk area (e.g., actuarial, credit, corporate governance, ML/TF risk management and compliance, operational risk, etc.) (e.g., consistency; clarity; timeliness)
29. Overall, how would you assess OSFI with respect to its written correspondence (e.g., clarity; timeliness; and, consistency between written and oral communications)?
30. Thinking about your dealings with OSFI’s staff on any supervisory or regulatory matter, how satisfied are you with OSFI’s capacity to interact with you in the official language of your choice (i.e., English or French)?
30b) [If dissatisfied] In which areas are you are dissatisfied (e.g., OSFI’s capacity to speak, write or read materials in the official language of my choice)?
As you know, OSFI’s Superintendent, and in some cases, the Minister of Finance, must approve certain business transactions or initiatives which companies in the life insurance sector wish to undertake. The following questions pertain to OSFI’s approval process as it relates to your company.
31. To the best of your knowledge, has your company ever made a request for a regulatory approval from OSFI?
Yes
No [If no, go to question 38.]
32. Has your company made a request for a regulatory approval in the past 1-2 years?
Yes
No [If no, go to question 34.]
Thinking about request(s) for a regulatory approval your company has submitted in the past 1-2 years ...
33. Overall, how satisfied are you with OSFI in processing applications from your company?
34. How would you assess OSFI with respect to communicating its expectations as it relates to the information required in support of processing a request for a regulatory approval?
35. How well do you understand the basis on which OSFI makes decisions about your company’s applications?
36. How would you assess OSFI with respect to responding to your company’s requests for updates on the status of applications?
37. How would you assess OSFI with respect to providing an opportunity for your company to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
38. Are there any other comments or suggestions for improvements you would like to make concerning the issues raised today, or concerning any other issues you feel are particularly relevant at this time?
On behalf of OSFI, Nielsen would like to thank you for your participation.
Participants were recruited from a list of potential interviewees provided by OSFI. The list provided by OSFI included a total of 63 Life insurance companies.
The following process was used in administering the interviews: