OSFI Revises General Guidelines for Use of Letters of Credit

Document properties

• Type of publication: Letter
• To: Federally Regulated Insurance Companies, Trustees, and Issuing Banks
• Date: November 8, 2023

Letters of credit (LOC) for unregistered reinsurance are considered a direct credit substitute. They are subject to risk factors based on the credit rating of the issuing/confirming bank and the term of the liabilities covered by the reinsurance contracts held. OSFI will recognize an approved LOC as security for the purposes of:

• reducing the reserve and required coverage for unregistered reinsurance, and
• admitting Self Insured Retention (SIR) recoverable for the capital test.

To improve efficiency in the issuance of LOC approvals, OSFI is amending its process to reduce the amount of time LOCs spend in transit. In summary:

• All LOCs issued by banks will be forwarded to the respective insurance company for review.
• The insurance company performs an initial review to ensure the LOC meets OSFI Guidelines and is free from errors.
• Following review, a soft copy of the LOC is emailed to OSFI for approval.
• Once approved, OSFI will notify the insurance company and, if applicable, the trustee.
• The insurance company will retain the LOC or forward the LOC to the trustee for safekeeping as required.

The revised Guideline is effective as of the date of this letter.

Questions related to this Guideline can be directed to SAAR-SSAVMRCA@osfi-bsif.gc.ca.