The concept of longevity risk transfer (LRT) is not new but has
recently been attracting more attention both internationally and
here in Canada as life expectancies continue to increase. On August
29, 2013, the Office of the Superintendent of Financial
Institutions Canada (OSFI) released both a draft policy advisory (Draft Policy) and a memorandum (Memorandum) on the topic of
In brief, the Draft Policy provides information and guidance to
administrators of federally regulated pension plans who are
considering entering into insurance or swap contracts to hedge
longevity risk. It outlines (1) the different types of LRT
contracts, (2) the risks associated with LRT contracts,
(3) considerations for plan administrators who are seeking to
enter into an LRT contract, and (4) OSFI's expectations
for plan administrators entering into LRT contracts. Notably, the
Draft Policy states that OSFI has no objections to a pension plan
administrator entering into an LRT contract and there is no
requirement that plan administrators obtain OSFI approval prior to
entering into such a contract, provided the investment is
permissible under the terms of the pension plan and the plan's
Statement of Investment Policies and Procedures, that it complies
with the Pension Benefits Standards Act (including s. 8)
and its Regulations (including Schedule III), and that the plan
administrator exercises proper due diligence.
The Memorandum is addressed in part to all federally regulated
life insurers and reinsurers in Canada and outlines OSFI's
support of a draft consultation paper on longevity risk transfer
markets published by the Joint Forum. The Joint Forum is an
international group that works under the Basel Committee on Banking
Supervision, the International Organization of Securities
Commissions and the International Association of Insurance
Supervisors to deal with issues common to the banking, securities
and insurance sectors, including the regulation of financial
conglomerates. The Joint Forum is comprised of an equal number of
senior bank, insurance and securities supervisors. OSFI notes that
it expects that insurers and reinsurers that are interested in
assuming longevity risk should have the appropriate risk management
expertise and governance to assume this particular risk and refers
to the Draft Policy.
We note that OSFI is soliciting comments on the Draft Policy
until December 6, 2013 and is looking to receive comments on the
Joint Forum paper specifically and on LRT more generally. Comments
may also be made on the Joint Forum paper directly to the Joint
Forum by October 18, 2013.
From these communications, it is clear that while OSFI is
watching LRT market developments, LRT contracts are permitted in
Canada. We expect that Canadian reinsurers and life insurers will
be taking a closer look at the new opportunities offered by such
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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