Consultation summary report

• FEC
• OMIA
• CAIR
• Lambton
• Ayr
• Usborne & Hibbert
• Trillium
• OSBIE (via CAIR)
• HIROC (via CAIR)
• CURIE (via CAIR)
• Germania

Generally, although stakeholders were pleased to be consulted on the development of this new framework, they raised some issues with the RBSF-I approach guidance. Stakeholders expressed that the framework may add an unnecessary layer of regulatory and financial burden to the sector, potential increased consumer costs, and that compliance with the new framework may deviate Insurers from their focus on serving policy holders in rural communities.

Consistent with its statutory objects, FSRA is committed to fostering the competition, effectiveness, and sustainability of the Ontario insurance sector. This includes protecting the rights and interests of consumers and promoting high standards of business conduct.

The RBSF-I does not add or articulate any compliance requirements for Insurers; it outlines FSRA’s supervisory practices and assessment methodology. With the use of the RBSF-I, FSRA will assess then articulate supervisory expectations for example for Insurers that have gaps in oversight functions and corporate governance. Remediation, if required, will serve to enhance the Insurer’s business and enable the Insurer to be stronger and better maintain its position as a viable entity.

The RBSF-I is an integrated framework that will be used to identify imprudent or unsafe business practices utilizing an outcomes-focused and risk-based approach while also granting latitude to the sector, allowing Insurers to compete and take on reasonable levels of risk. In the short term, this may require that Insurers make changes to their internal policies, practices, procedures, and systems. However, this will lead to improved efficiencies and a safer, stronger Insurer in the medium to long-term. The RBSF-I will also result in better alignment between risk and FSRA’s level of supervisory engagement with Insurers.

A mature, robust, and modern supervisory framework and regulatory regime should not be considered as a burden, rather it should be seen as a privilege. This new regime and framework will help enhance, strengthen, and promote trust and confidence in the sector.

• FEC
• OMIA
• SE Mutual
• Usborne & Hibbert
• Lambton
• Trillium

Stakeholders stressed that their tight-knit grassroots collaborative nature, and strong internal structure (Farm Mutual Guarantee Fund (FMGF), Farm Mutual Re, the FEC, and OMIA), alongside their members-first approach is integral to their continued success.

As the framework did not specifically mention the unique structure (i.e., self-regulatory framework) of the OMIA/FMGF system, the sector would like to know if there will be further work or documentation that captures the specific structures, processes, and responsibilities that are unique to the FMGF solvency regime.

FSRA appreciates the unique nature, values, and interdependence of Ontario’s farm mutuals and their focus on policyholders which helps them effectively serve the unique needs of their clients.

RBSF-I is a flexible, proportional, principles-based framework that is predicated on gaining a thorough understanding of each Insurer’s business – including specific structures, processes, and governance frameworks that are unique to the farm mutual system. FSRA will continue to communicate and work with the sector to gain a deeper understanding of farm mutuals and their unique needs before assigning any ratings to the Insurers.

• FEC
• CAIR

Stakeholders asked how the various oversight functions required by FSRA would be adapted to smaller companies?

Some stakeholders expressed that some of the oversight functions (e.g., internal audit) would not be feasible as a separate function for a small-sized Insurer as Ontario Insurers, not only the FMGF members, tend to be small and thus many of them would not have this resource readily available.

One stakeholder expressed that most reciprocal exchanges are relatively small organizations with limited capacity to implement the additional oversight functions, particularly the independence requirements.

The presence and nature of these functions vary based on the size and complexity of an Insurer. Where an Insurer lacks a critical and required oversight function, FSRA expects the Insurer to engage external expertise to perform that function and continue to maintain accountability for that function (i.e., an Insurer can outsource the function’s responsibility but not the accountability or ownership of risks).

Where an Insurer lacks some of the other oversight functions, they are not sufficiently independent, or they do not have enterprise-wide responsibility, in applying proportionality, FSRA expects other functions (e.g., Senior Management) to provide the independent oversight.

• FEC

Questions were raised around what resources FSRA will use to assess risk and how the assessment will be shared with Ontario Insurers

As the RBSF-I is a dynamic and outcomes-focused framework, FSRA will allocate resources to the areas of greatest risk; as such, not all activities within an Insurer may need to be assessed for each review or at the same granularity or intensity

As defined in the framework, risk is assessed with respect to both possibility of loss to policyholders and the possibility that the conduct, acts, or omissions of an Insurer harm or deliver poor/unfair outcomes for its policyholders.

• FEC

The stakeholder expressed that members are concerned that FSRA would be taking a relative rather than absolute approach to risk assessment.

Further concerns were raised around FSRA’s use of risk ratings and clarification was sought on whether FSRA plans to categorize a certain portion or number of companies in each of the categories.

The stakeholder indicated that the intervention steps are very extensive, and they feel that it is crucial that the sector have a full understanding of how the risk levels are first assigned.

The risk rating/classification process is evidence-based, leveraging sufficient quantitative and qualitative information to support FSRA’s analysis, judgement, findings, and final assessment ratings.

FSRA does not have a predetermined number of entities that it assigns into each category, nor does it intend on setting a number at any time in the future; each Insurers’ rating will be determined by the assessment of its risk profile.

Once determined, FSRA will discuss in detail the Overall Risk Rating with the Insurer’s senior management and Board. FSRA will strive to be proactive in its monitoring, assessment activities, and identification of issues. Where possible, FSRA will give adequate notice and time for Insurers to remediate, if required, so the Insurer will remain at a desired Intervention Level (i.e., Level 1). The Intervention Framework is used as a proactive tool to ensure all Insurers operate at a tolerable overall risk profile so they do not pose undue risk to their policyholders, customers, and the sector.

• FEC

Questions arose around whether FSRA will provide Insurers with details on its forward-looking assessment as well as how FSRA expects Environmental, Social and Governance (ESG) risks would affect capital and what role FSRA could be expected to play in identifying ESG factors and how FSRA’s own forward assessment work would play a factor.

In terms of resilience, the stakeholder noted that some Insurers have established their Own Risk and Solvency Assessment (OSRA) levels, with actual capital levels that exceed ORSA by a wide margin.

For the Recovery Plan, Business Continuity Plan, and Disaster Recovery Plan, stakeholder inquired if FSRA has specific criteria that must be met/included in these plans to meet FSRA’s assessment of resilience.

FSRA has not yet determined how ESG risks will impact Insurers and would like to work with the sector to develop the ESG framework in areas that would add value to the sector. 

FSRA has removed reference to ESG in RBSF-I, and instead it will be addressed through other guidance.

ORSA is a valuable tool and FSRA encourages all Insurers to develop and appropriately use robust ORSA information.

Regarding recovery planning, business continuity, and disaster recovery, FSRA will develop and communicate expectations at a future time.

• FEC

The stakeholder asked if there’s any relation to the Minimum Capital Test (MCT) and how each of these three risk (credit, market, insurance) elements will be assessed? Also, more clarity was sought in what the major classifications of risk are within the major risk categories and the proportion of MCT capital required to total capital and how it would be part of the risk assessment?

All these three elements (credit, market, and insurance) are separately assessed; however, capital comprises a significant element in an Insurers’ ORR. FSRA will examine certain factors and indicators which would increase or decrease the overall risk of the Insurer in the aforementioned risk elements. FSRA asks stakeholders to refer to the framework where FSRA has outlined and defined these risks.

• FEC

The stakeholder expressed that this sets out a level of intervention in the operations of companies that are deemed by FSRA to be a level that may not warrant such action.

The overall risk rating (ORR) of an Insurer is used in determining the level of intervention FSRA may take to address identified prudential or conduct issues.

This will be done on a case-by-case basis, supported by evidence and sound rationale after all relevant risks and mitigants have been identified and evaluated.

• FEC
• OMIA

Some stakeholders raised that there is no mention in the document of the appeal process that will be established to allow individual companies, or groups of companies, to challenge the assessments completed by FSRA or the proposed actions being taken / imposed on the companies. Stakeholders stated that this would appear to provide FSRA with discretionary opportunities to impose its will on the regulated entity.

They recommend that an appeals process should be set out and detailed.

A system of internal checks and balances will be built into the assessment process, including an internal multi-level quality assurance and review process that involves reviews beyond those conducted by the lead supervisory team.

This process also includes a panel comprised of FSRA senior management that were not directly involved in the process to ensure accurate and consistent assessments. After FSRA’s internal review process is complete, the ORR and Interim Supervisory Letter will be shared with the Insurer. If an Insurer has an issue with the assessment or ORR it can arrange further discussion with FSRA, with the supervisory staff and/or FSRA management.

As an Ontario government agency, FSRA falls under the purview of the Ontario Ombudsman. If an Insurer has an issue that is not able to be resolved through FSRA’s internal process, the Insurer can file a complaint with the Ontario Ombudsman and request an independent investigation.

• OMIA

A question was raised about FSRA’s discretionary powers within the framework as it relates to the transparency in how FSRA would be arriving at its risk assessments. Although the sector acknowledges that supervisory letters and specific risk matrices provide some transparency, they believe the framework needs to be more explicit as related to how FSRA will share its own decision-making matrix and deliberations with an insurer that is subject to some of the interventions set out in the intervention guide.

FSRA constantly strives for transparency as required by our statutory objects. To this end, we will ensure that an Insurers’ ORR, will be provided to the Insurer alongside an Interim Supervisory Letter that will provide further details. FSRA Supervisory staff will work closely with Insurers to ensure the ratings are based on factual information and will provide information and context to improve clarity of the assessments.

• SE Mutual
• CAIR
• OMIA
• CAIR

FSRA heard that additional regulatory and financial burdens disproportionate to the size of an insurer could lead to amalgamation and consolidation of smaller institutions, thus depriving rural communities.

Stakeholders also expressed that if the concept of proportionality is applied to reciprocal exchanges, any supervisory framework should make it clear that benchmarks used in the context of reciprocal exchanges are different than those used for other types of Insurers. 

FSRA’s approach to proportionality ensures that supervisory efforts will be committed to areas where material risks are identified from both prudential and market conduct perspectives. Hence, the degree of engagement and if required intervention will be commensurate with the Insurer’s size, complexity, and risk profile. Insurers that are transparent, well-managed, demonstrate adequate and effective oversight and maintain a safe financial position, will require less regulatory oversight.

• OMIA
• FEC

As this is a principles-based approach, there were concerns that the ultimate outcome on regulatory decisions may be contingent on the RM and examination staff making the decision. Further, some stakeholders questioned how many companies would be under the purview of one RM or if one RM would be responsible for all farm mutuals.

Lastly, Insurers expressed that they will be heavily reliant on their RM and the capabilities of FSRA’s examination staff to maintain a fair minded and proportionate mindset. In their view, the ability of these individuals to apply experience and insight that allows for proportionality, efficiency, and cost effectiveness is a critical factor.

The RM plays an integral role as the main point of contact for the Insurer and engages in ongoing dialogue with its management. The RM will always be supported by other FSRA staff and does not have full decision rights or discretion for market conduct or supervisory assessments and issues.

Ensuring that Insurers’ risk profiles are assessed proportionately, accurately, and consistently is challenging in a principles-based regime given the inevitable variation which will arise between individuals and teams in their assessments, especially in a very diverse sector. Therefore, FSRA has developed a four-level quality assurance mechanism to provide the maximum possible assurance in this respect. The assignment of ratings for all Insurers is subject to independent panel reviews, as well as other Q/A levels, to ensure ratings are accurate, consistent, and proportional.

• CAIR

The stakeholder expressed that the framework should not apply to reciprocals as they are not “incorporated” under the Act.

The stakeholder also expressed that unlike traditional Insurers, reciprocal exchanges are not required to complete an ORSA. As such, they communicated that any supervisory framework for reciprocal exchanges should not consider an ORSA to be a key indicator of resilience.

The framework applies to all Insurers that are prudentially regulated by FSRA, not only those incorporated under the Act. FSRA recognizes that reciprocals are unincorporated organizations licensed under the Act.  For greater clarity, the scope of the framework has been revised to explicitly state that the framework applies to “insurance companies and reciprocals”

It is important to FSRA that Insurers can demonstrate that capital buffers added to their minimum requirements are sufficient for the Insurer to withstand stress events and remain adequately capitalized. ORSA is one means by which Insurers can achieve this, but an alternative methodology may be used as well.  FSRA will determine on a case-by-case basis whether, or to what extent, an Insurer needs to prepare an ORSA based on the size, complexity, and risk profile of the Insurer.

• FEC

The stakeholder expressed that the supervisory work appears to be very intensive and thus it would be beneficial if FSRA could provide an implementation timeline or an annual calendar on supervisory activities for the FMGF members.  Does FSRA have a schedule that it could share with the individual companies?

The sector has also asked if FSRA could share its information gathering on the emerging issues, both Insurer-specific and sector-wide, to ensure the sector can be responsive to FSRA’s concerns.

Based on an understanding and knowledge of the business of each Insurer, supervisory work is performed to achieve supervisory outcomes rather than completing a standard cycle or process. FSRA’s supervisory activities will be risk-based and prioritized based on which Insurers and what activities will most likely put meeting the outcomes at risk. This process is dynamic and not predetermined or static based on a regular frequency of pre-set assessments. For example, an Insurer that is larger and/or more complex and/or riskier will get prioritized and receive a higher level of supervisory engagement and will be assessed earlier.

• OMIA

The stakeholder raised concerns that although the framework is principles-based, “rules” could still be manifested through the discretionary decisions made by FSRA.

A further concern about FSRA’s discretionary powers within the framework and our ability to maintain transparency in how we are arriving at our risk assessments was raised.

Although FSRA’s framework will primarily be driven by principles instead of prescriptive requirements, FSRA strives to take a balanced approach to regulate the sector effectively to minimize the possibility of failure and disruption. In the case where an Insurer’s risk profile is elevated, a more prescriptive approach may be utilized to proactively bring the Insurer’s risk profile back to a desired level.

FSRA will continue to collaborate and seek input from the sector to better understand and gain a more comprehensive knowledge of the business to accurately and consistently determine risk profile of each Insurer.

• FEC
• Usborne & Hibbert
• OMIA
• CAIR

Although regulatory oversight is necessary, some Insurers (and reciprocals) believe the oversight needs to be balanced and have asked for more detail on how the framework will address specific factors of the FMGF system, the FEC, or OMIA. To better understand this, the sector has asked for more consultation from FSRA.

In line with the proportionality principle, the level and extent of supervision will depend on the size, complexity, and risk profile of an Insurer.

FSRA is committed to continued engagement with the sector.