OSFI's 2026-27 Annual Risk Outlook: Real Estate Lending, Non-Bank Financial Institutions and Liquidity Lead the List, With Targeted Plans for Canada's Insurers

Canada's federal financial regulator has set out what it will be watching over the year ahead, and the list includes both banks and insurers. The Office of the Superintendent of Financial Institutions released its Annual Risk Outlook for the 2026-27 fiscal year on April 14, 2026; Wealth Professional covered it the next day and Insurance Business on April 16. The outlook names three prioritised risks: real estate secured lending, non-bank financial institution risk, and liquidity and funding risk. OSFI's news release headlined that it had "reintroduced" non-bank financial institution risk, which means that item returned to the list after a period when it was not a stated priority. The Superintendent, Peter Routledge, said: "Canadians can be confident that OSFI acts early, transparently, and decisively to strengthen financial system resilience."

The non-bank risk is the main new theme. According to Wealth Professional, OSFI says that Canadian institutions' exposure to private capital firms and their portfolio companies has grown considerably in recent years and is now a material share of their balance sheets. Federally regulated institutions lend to these firms, to their portfolio companies and to their clients. OSFI warns that the opacity of the market "can mask structural weaknesses," that highly leveraged private capital firms could magnify losses in a stress, and that hedge funds, which use repo funding and derivatives, could unwind positions quickly if funding costs rise or margin calls arrive suddenly, with effects on markets including sovereign bond markets. Banks are also increasingly using non-bank institutions to provide credit protection on their loan portfolios through synthetic risk transfers; in a stress those institutions may have less capacity to provide protection, which could reduce lending to core clients, raise credit risk and weaken capital. OSFI's response includes supervisory reviews of exposures, risk rating approaches and governance, a loan-level wholesale data call covering non-bank and other corporate and commercial exposures, and reviews of counterparty credit risk management, stress testing and liquidity and funding provided to these institutions. It also plans a principles-based Credit Risk Management Guideline aligned with Financial Stability Board and Basel Committee practices, with feedback on its initial consultation document due on July 29, 2026.

On real estate secured lending and liquidity, OSFI's release says that housing and mortgage pressures have grown in some parts of the country, and that global uncertainty could affect confidence in funding markets. Funding cost and availability have stayed stable, but the speed at which a liquidity event could unfold remains a key concern. The regulator also says it is recalibrating capital requirements, so that some risk weights may rise and others fall over time, which it describes as routine maintenance. Revisions to liquidity adequacy requirements for specific retail deposit categories took effect on May 1, 2026, and a consultation on further liquidity updates launched on May 21 with the second quarterly release.

The insurer-specific plans, reported by Insurance Business, are detailed. For certain life insurers, OSFI will assess policyholder behaviour risk, asset-liability management and liquidity, noting that lapses and surrenders have become more volatile but remain modest relative to total available capital. For selected property and casualty insurers, it will do thematic monitoring of cyber insurance underwriting and the use of AI in underwriting, and it is watching claims inflation, especially in auto, and a softening commercial lines market. Selected insurers will face targeted reviews of their own risk and solvency assessments, including follow-up on prior recommendations, and cyber and technology risk reviews. Larger companies will undergo intelligence-led cyber resilience testing, and all insurers will face scrutiny of cyber incident response and preparedness. OSFI will monitor mortgage insurers for the effect of the housing market and will monitor catastrophe risk resilience across the industry. For boards, it will look at oversight of risk appetite frameworks, governance of complex technology and business transformations, and the independence and stature of combined oversight functions.

On investments, OSFI says it will examine insurers' private market holdings closely for effects on earnings, capital and risk oversight, and describes those assets as bringing increased opacity, complexity and potential illiquidity. Continued market volatility also creates reinvestment and valuation risk across asset classes. The article also lists geopolitical uncertainty, AI integration and execution risk from inorganic growth as other concerns. More than 1,100 transactions are reviewed and approved each year under the vested asset and DA-21 regimes, and the article mentions related-party reinsurance under DA-21 without a specific supervisory plan.

OSFI says the outlook is normally released each spring, and that an update may be published in fall 2026 if risks change significantly. It does not give risk ratings or severity levels in the release. In July 2026 OSFI also issued a separate regulatory notice recognising natural catastrophe bonds for capital purposes for property and casualty insurers, an example of how the supervisory agenda affects insurers' capital planning.

The outlook is a guide, not a rulebook. Institutions should read OSFI's full document for the supervisory approach, since the news coverage summarises it.