Canada: OSFI Issues New Draft Guideline On Residential Mortgage Insurance

Last Updated: April 29 2014
Article by Carol Lyons and Amrita Mann


On April 14 2014 the Office of the Superintendent of Financial Institutions Canada (OSFI) released for consultation Draft Guideline B-21 Residential Mortgage Insurance Underwriting Practices and Procedures. Once finalised, the draft guideline will apply to all federally regulated insurers that are governed by the Insurance Companies Act and provide insurance for residential mortgage loans in Canada, and/or reinsurance for such insured loans.1 The draft guideline sets out OSFI's prudential expectations for residential mortgage insurance underwriting and related activities in the form of six fundamental principles; it also outlines increased disclosure obligations on insurers issuing such insurance.

Six fundamental principles

The draft guideline articulates six fundamental principles for sound residential mortgage insurance underwriting.

Residential mortgage insurance underwriting plan

Under the draft guideline, insurers engaged in residential mortgage insurance underwriting should have a comprehensive residential mortgage insurance underwriting plan. The plan should be developed and implemented by the insurer's senior management and should contain the insurer's key mortgage insurance underwriting policies, including its:

  • business objectives;
  • risk management policies;
  • complete set of mortgage insurance products, requirements and conditions for lenders for mortgage insurance coverage; and
  • policies for assessing lenders' underwriting and compliance with their mortgage insurance agreements.

The insurer's board is expected to provide guidance to, and oversee senior management's role in, implementing the plan.

Establishing standards for initial assessment and qualification of mortgage lenders

The draft guideline requires insurers to establish sound standards for initially assessing and qualifying mortgage lenders for mortgage insurance coverage. To carry out an initial assessment of a mortgage lender, the insurer is expected to establish sound qualification standards by considering the particular lender's:

  • financial soundness;
  • mortgage loan underwriting experience;
  • ability to provide timely and accurate information on the performance of mortgage loans; and
  • delinquency, foreclosure and claims management processes.

Mortgage insurance criteria and insurance coverage requirements for lenders

An insurer issuing residential mortgage insurance should establish prudent underwriting criteria which specify the characteristics and parameters of insurable mortgage loans for lenders. At a minimum, the criteria for mortgage loans for each mortgage insurance product and insurance type should cover certain components, such as:

  • mortgage loan parameters;
  • the borrower's background and the borrower's willingness and capacity to service debt; and
  • underlying mortgage property/mortgage insurance premiums.

To help control risk, the draft guideline also requires insurers to promote sound mortgage underwriting and loan management practices consistent with the insurer's interests. In order to do so, the insurer must outline requirements, conditions and any other obligations to be adhered to by residential mortgage lenders, including elements such as:

  • a description of the mortgage insurance coverage;
  • a condition for lenders to provide complete, accurate and timely information; and
  • requirements for lenders to exercise documentation retention.

Periodic assessments of lenders' underwriting practices

In order to measure, track and control risk, the draft guideline expects insurers to review lenders' underwriting policies on a periodic basis, and to assess and verify the degree to which the insurer's stated criteria and insurance policies are being followed by lenders. Insurers should establish clear policies on the types, methods and frequency of reviews and remedial action to be taken in order to address inadequate underwriting practices by lenders.

Assessment and validation of underwriting systems, models and underwriters' processes

Under the draft guideline, insurers engaged in residential mortgage insurance underwriting should periodically assess and validate their insurance underwriting systems and models to ensure compliance with the residential mortgage insurance underwriting plan. For automated underwriting systems, the insurer should establish programmes to monitor continuously and audit the information received on mortgage loans, and take immediate remedial action to address any identified weaknesses. Insurers should:

  • train their underwriting personnel appropriately;
  • ensure that underwriters' decisions are well documented; and
  • develop appropriate underwriting processes and practices which are regularly monitored and evaluated to assess compliance and consistency in decision making.

Effective portfolio risk management and other risk mitigation

Insurers should have effective portfolio risk management practices, including a stress-testing regime that considers "exceptional, but plausible" events and scenarios and the corresponding impact on asset and liability-side portfolios. Based on the assessment of risk, insurers are expected to adjust their mortgage insurance underwriting criteria and premium schedules appropriately to align with the objectives outlined in their residential mortgage insurance underwriting plan. For higher-risk insured mortgage loans, insurers should exercise heightened caution through:

  • greater board and senior management oversight;
  • increased reporting to and monitoring by senior management and the board;
  • clear internal time limits consistent with the residential mortgage insurance underwriting plan;
  • stronger internal controls; and
  • increased oversight of higher-risk mortgage lenders.

Increased disclosure requirements

The draft guideline also imposes increased and somewhat onerous disclosure requirements on insurers, although it is not clear exactly how such disclosure should be made, except that it should be "publicly disclosed" to "market participants". The disclosure requirements in the draft guideline include publishing quarterly information relating to residential insurance portfolios and discussions of the potential impact of an economic downturn on insured mortgage loans. The draft guideline requires insurers to provide a breakdown of mortgage loans insured during the past 12 months, as well as the total stock of insured mortgage loans divided by mortgage insurance type and further categorised by volume, loan to value, amortisation, geography and delinquencies.

Supervisory requirements

The draft guideline not only requires an insurer to maintain and provide to OSFI, on request, its residential mortgage insurance underwriting plan and associated management reports, but also expects an insurer to inform OSFI promptly of any mortgage insurance underwriting issues that could materially affect the insuer's financial condition. The draft guideline gives OSFI the power to take, or require the board and/or senior management to take, necessary corrective measures to deal with issues of financial soundness.


Through the draft guideline, OSFI has proposed tightening mortgage insurance and lending practices. OSFI is initiating a public consultation on the draft guideline, for which comments are due by May 23 2014. OSFI plans to review and consider all comments before finalising the draft guideline later in 2014, at which time it will provide further guidance on implementation issues, such as the required time for insurers and other stakeholders to adjust their internal systems, policies and processes. A summary of stakeholder comments and OSFI's associated responses will be provided when the final guideline is released.

The draft guideline is consistent with various recent OSFI initiatives requiring insurers to identify, monitor and report on the risks undertaken in their underwriting activities. Once finalised, the requirements of the draft guideline will need to be incorporated into the insurer's risk appetite framework and ultimately dealt with as part of the insurer's own regulatory solvency assessment.


1 Any reference to 'mortgage insurance' in this update also includes mortgage loan reinsurance. The remainder of this update makes reference only to mortgage insurance, unless the distinction is required.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Carol Lyons
Amrita Mann
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.