Canada's OSFI Recognises Catastrophe Bonds as Reinsurance for Property Insurers

The Office of the Superintendent of Financial Institutions has widened the set of reinsurance arrangements recognised under its Minimum Capital Test guideline for property and casualty insurers to include catastrophe bonds. The change means Canadian P&C insurers can obtain capital credit for risk transferred through these instruments, which are issued into capital markets and pay out when a defined catastrophe event occurs, alongside traditional reinsurance treaties. Catastrophe bonds have become an established tool globally for insurers seeking to diversify their sources of protection and reduce dependence on a reinsurance market where pricing and capacity can shift sharply after major loss years. Recognising them for regulatory capital purposes removes a structural disincentive and may encourage broader use in a market facing rising weather-related claims from wildfires, floods and severe storms. The move sits within a busy regulatory agenda: OSFI is developing a comprehensive Credit Risk Management guideline with an initial consultation closing at the end of July, has updated its Guide to Intervention for deposit-taking institutions, and has identified real estate secured lending, non-bank financial institution risk, and funding and liquidity as the top risks facing Canada's financial system in its latest Annual Risk Outlook.