Canada: North America

Last Updated: March 10 2017
Article by Heather Gray, Nathalie David and Vikram Sidhu

North America based Clyde & Co lawyers answer important questions on the Reinsurance industry.


(1) What are the rules and procedures for setting up a new reinsurance company in your country?

The business of insurance is regulated at both the federal and provincial/territorial levels in Canada. Generally, insurers seek primary licensure at the federal level under the Insurance Companies Act through the Office of the Superintendent of Financial Institutions Canada (OSFI). Once licensed federally, an insurer must seek licensure in any provincial/territorial jurisdictions in which they intend to write business. In this scenario, OSFI acts as prudential regulator while the province/territories regulate market conduct.

There are two main ways to establish an insurance business in Canada, either as a Canadian incorporated entity or as the Canadian branch of a foreign insurer. In either case, the licensure process is extensive, taking between 18 months and 2 years to complete and requiring a detailed business plan. The business plan must include a description of the proposed business, market analysis, pro forma financial statements and solvency ratio calculations.

An insurer who intends to only act as a reinsurer will have such a limitation stipulated in its license, i.e., "restricted to the business of reinsurance".

(2) What are the capital and surplus requirements for a reinsurance company?

Reinsurers must maintain statutorily mandated asset and capital levels. Observance of these requirements is overseen by OSFI..

OSFI evaluates the solvency and financial health of insurers using guidelines, targets, and tests it has developed. OSFI also mandates that insurers implement an Own Risk and Solvency Assessment ("ORSA"). The ORSA provides for stress and scenario testing so that an insurer can adequately understand its risk profile, capital needs, and foresee relevant material risks. By conducting the ORSA, the insurer is to determine its own capital needs and internal targets and to develop a robust risk management framework. In the normal course of its supervisory monitoring, OSFI can review an insurer's ORSA but it does not approve it.

The Minimum Continuing Capital and Surplus Requirements ("MCCSR") and Minimum Capital Test ("MCT") guidelines, which apply to life and health and property and casualty insurers respectively, also establish means to calculate the exact amount of regulatory capital (the Base Required Capital) an insurer requires to support the risks it is engaged in. These guidelines also establish calculations of an insurer's qualifying regulatory available capital (Available Capital). For a life and health insurer, the MCCSR makes a further distinction and calculates the available Tier 1 capital, which consists of the highest quality capital elements (i.e. common shareholders' equity, amongst others).

In addition to minimum standards, OSFI sets higher Supervisory Targets that serve to provide an early warning system and the possibility of taking earlier measures to address difficulties. For property and casualty insurers, this minimum is set at 150% by the MCT. For life and health insurers, the Supervisory Target is set by the MCCSR at 150% for total capital and at 105% for Tier 1 capital.

(3) Are there any restrictions on foreign ownership of a reinsurance company?

No (provided that the foreign investor is not a government or government agency).


(1) What are the rules and procedures for setting up a new reinsurance company in your country?

Insurance and reinsurance are regulated almost completely at the state-level in the USA, including with respect to the setting up of a new reinsurance company. Although the specific requirements for setting up a new reinsurance company vary from state to state, there are broad similarities for licensing across the states. To establish a new reinsurance company in the USA, it is necessary to submit the Uniform Certificate of Authority Application (UCAA) of the National Association of Insurance Commissioners (NAIC) along with supporting information and documents to the proposed domiciliary state for the company. After obtaining a licence from its domiciliary state, the new reinsurance company can apply to expand its licences to other states, which still impose various requirements for granting licences to a reinsurance company domiciled in another US state (including with respect to how long a reinsurance company must engage in business in its domiciliary state and elsewhere before it can be granted a licence).

However, many reinsurers choose not to be licensed in all or most US states or even in any state. Instead, reinsurers can provide reinsurance to ceding companies in the US states without a licence in the ceding companies' domiciliary states by satisfying the requirements for the ceding company to receive credit for reinsurance on its statutory financial statements from unauthorized reinsurers (including by posting collateral in the form of a trust account or a letter of credit).

(2) What are the capital and surplus requirements for a reinsurance company?

Each state has its own capital and surplus requirements. These will vary depending on the lines of business and volume of business. Certain reserves will have to be maintained as well.

(3) Are there any restrictions on foreign ownership of a reinsurance company?


North America

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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Heather Gray
Vikram Sidhu
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