On July 10, 2009, Quebec's financial services regulator, the Autorité des marchés financiers (AMF), released a draft guideline respecting reinsurance risk management by insurers carrying on business in Quebec. Reinsurance, while obviously an important risk management tool for insurers, exposes them to a number of risks, including residual insurance, legal, counterparty and liquidity risks. Citing the AMF's principles-based approach to regulation, the guideline sets out four broadly-drafted principles for the management of reinsurance risks by insurers:
- A reinsurance risk management framework should be supported by
effective governance. The AMF considers the board of directors and
senior management to be ultimately responsible for reinsurance
decisions and expects that they should, among other things, develop
and implement a reinsurance strategy and risk management policy
tailored to the insurer's risk profile, adequately monitor
reinsurance transactions and review the reinsurance strategy and
policy on a regular basis.
- Reinsurance risk management should be an essential part of an
insurer's integrated risk management framework and should take
into account its overall risk appetite and tolerance levels, be
integrated into its strategic and financial planning process and be
considered in the development or renewal of products.
- A policy for managing reinsurance risk should be adopted and
include procedures for selecting risk transfer methods and
reinsurers as well as procedures for implementing, reviewing,
amending and documenting reinsurance agreements. The policy should
also, among other things, define the conditions for using
alternative risk transfer mechanisms, address the possibility of
using intermediaries, determine the reinsurer selection process,
address reliance on unregistered reinsurers and outline the process
for monitoring the application of the policy.
- Insurers should adopt a process to implement the reinsurance risk management policy and establish a process for ceding insurance and implementing alternative risk transfer mechanisms.
The AMF intends to assess compliance with the stated principles in
light of the risk profile of each insurer. The proposed guideline
is open for comment until October 30, 2009.
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