2025 Year In Review In Insurance

As anticipated in our 2024 Year in Review, there were several developments in the regulation of the insurance sector in Canada in 2025. This article provides a recap of some of the substantial changes that were made to the regulation of insurers and insurance intermediaries in Canada in 2025 and will highlight some issues that we will be watching in 2026.

Regulatory Changes

Federal Regulators

a. CISRO Issues Guideline for Principles-Based Approach to Boost Adjuster Mobility During Natural Catastrophes

On August 14, 2025, the Canadian Insurance Services Regulatory Organizations ("CISRO") introduced a new set of seven principles aimed at improving the efficiency and flexibility of adjuster licencing in response to catastrophic events within Canada's insurance industry. With natural disasters such as wildfires, floods, and severe storms becoming more frequent and intense, these guidelines offer regulators a structured approach to authorize qualified adjusters expeditiously, while upholding strong consumer protection standards.

The seven principles are: delivering prompt service to policyholders, clarifying emergency licencing procedures, enabling agile regulatory design, fostering coordination between jurisdictions, ensuring oversight is proportionate to the context, encouraging innovation in licencing models, and supporting practical mobility.

Collectively, these principles are designed to reduce administrative bottlenecks, enhance transparency, and ensure that regulatory actions are both rapid and aligned with the broader goal of protecting public trust in the insurance sector and responding to catastrophic events promptly.

b. OSFI Issues 2025 Guideline for Life Insurance Capital Adequacy Test to Strengthen Risk-Based Capital Standards.

On November 21, 2024, the Office of the Superintendent of Financial Institutions ("OSFI") released a revised Life Insurance Capital Adequacy Test ("LICAT") Guideline for life insurers offering segregated fund guarantee products, aimed at enhancing the risk sensitivity of capital requirements.

This framework incorporates changes to the calculation of available capital, adjustments to the Base Solvency Buffer, and implements transition measures. In addition, LICAT 2025 includes minor refinements and clarifications to ensure accurate application of the updated framework.

This guideline came into effect on January 1, 2025. Additionally, a Regulatory Notice on Adjustments to the LICAT Guideline became effective on May 22, 2025.

c. OSFI Issues 2025 Guideline on Mortgage Insurer Capital Adequacy Test for Federally Regulated Mortgage Insurers

On November 21, 2024, OSFI issued a revised Mortgage Insurer Capital Adequacy Test guideline for mortgages on multi-unit residential properties. This guideline introduces a standardized method to calculate Capital Adequacy Requirements for material real estate exposures linked to the properties' cash flows.

The new capital requirements are intended to reduce the risk of mortgage insurer insolvency, improve market stability, and protect market actors from disruption through improvements to insurer capitalization.

This guideline came into effect on January 1, 2025.

d. OSFI Issues 2025 Guideline on Sound Reinsurance Practices to Strengthen Risk Management for Insurers

On October 20, 2023, OSFI issued a new guideline for reinsurance risk management frameworks, applicable to all federally regulated insurers. OSFI requires that reinsurance risk management frameworks are developed to include the purpose and objectives for seeking reinsurance, ceding limits, counterparty risk, and concentration limits, along with reflecting the scale, nature, complexity, and risk appetite of the business.

If the insurer seeks to manage insurance risks through reinsurance, then:

• an insurer may lower its capital requirement for risks that have been ceded through reinsurance, subject to certain terms and conditions;
• reinsurance may be used to mitigate the insurer's exposure to large catastrophic losses, subject to the insurer developing an appropriate stress test program to determine whether the reinsurance approach adequately mitigates losses at levels that align with the insurer's risk appetite; and
• reinsurance may be used for purposes not directly linked to the mitigation of the insurer's insurance risks, subject to OSFI's evaluation of the reinsurance arrangements.
  • If the insurer seeks to manage insurance risks arising from the use of reinsurance, the risk management framework should:
• identify risks arising from the use of the reinsurance and outline how these risks will be managed;
• set appropriate ceding limits for the overall book of business, and by line of business, as appropriate, and the insurer should avoid ceding substantially all of its insurance risk in the normal course of business;
• assess all elements of counterparty risk, including the legal and insolvency framework, jurisdiction, total exposure to a counterparty, and contract terms, from both going-concern and gone-concern scenarios; and
• set out processes for assessing, monitoring and controlling liquidity risk, if such reinsurance programs exposes the insurer to such a risk.

Additional key elements of a reinsurance risk management framework include: conducting ongoing due diligence on reinsurance counterparties; ensuring clarity and certainty of reinsurance coverage terms in the reinsurance contract; and ensuring that the reinsurance contract does not adversely affect the ceding insurer.

This guideline came into effect on January 1, 2025.

e. OSFI Issues Guideline on Property and Casualty Large Insurance Exposures and Investment Concentration

On December 11, 2024, OSFI issued Guideline B-2 – Large Insurance Exposures and Investment Concentration applicable to all federally regulated property and casualty insurers ("P&C Insurers"). The guideline requires P&C Insurers to establish a Gross Underwriting Limit Policy that defines what constitutes a single insurance exposure by class of insurance and sets maximum loss limits accordingly. P&C Insurers must measure potential losses using forward-looking approaches, aggregate exposures across locations, buyers, and contractors, and maintain systems for active monitoring and internal reporting.

OSFI also imposes strict limits on net retention and unregistered reinsurance exposures: these combined exposures must not exceed 100% of total capital for widely held or regulated entities, and 25% for others. Eligible counterparty risk mitigation techniques, such as excess collateral and letters of credit, may be used to reduce exposure, but only within OSFI's prescribed limits.

In addition to insurance exposure controls, the guideline addresses investment concentration risk, limiting aggregate investments in any single entity or affiliated group of entities to 5% of total assets (or of assets in Canada for Canadian branches of foreign P&C Insurers).

P&C Insurers must also consider off-balance-sheet commitments such as derivatives and unfunded loans. Non-compliance may trigger corrective measures, including heightened supervisory activity or adjustments to capital requirements.

This guideline came into effect on January 1, 2025.

f. OSFI Issues Guideline on Capital Treatment of Crypto-Asset Exposures for Insurers

On February 20, 2025, OSFI issued its Capital Treatment of Crypto-asset Exposures Guideline, applicable to each of life, property and casualty, and mortgage insurers operating in Canada. The guideline establishes how insurers should manage and calculate regulatory capital for crypto-asset exposures. Dematerialized securities issued through distributed ledger technology, known as tokenized traditional assets, fall within scope, while central bank digital currencies do not. Insurers are expected to notify OSFI of their crypto-asset exposures and adopt prudent risk management practices aligned with their overall risk appetite.

The guideline offers two approaches for capital treatment of crypto-asset exposures: a simplified approach, where insurers deduct all crypto-asset exposures from Gross Tier 1 or capital available, and a comprehensive approach, where capital treatment varies based on crypto-asset categorization into any of four classes - Group 1a (tokenized traditional assets), Group 1b (value-referenced crypto-assets such as stablecoins), Group 2a (hedging-eligible crypto-assets), and Group 2b (all other crypto-assets).

Group 1 assets receive treatment similar to related assets under LICAT, MCT, and MICAT frameworks, while Group 2 assets must be fully deducted from capital. OSFI also imposes a strict exposure limit: total Group 2 exposures cannot exceed 5% of Net Tier 1 capital (for life insurers) or capital available (for P&C insurers, including mortgage insurers). Additional requirements include stress testing, documentation of classification decisions, and OSFI's authority to override insurer assessments.

Beyond capital requirements, OSFI emphasizes robust governance and risk management for crypto-asset activities. Insurers must implement policies to identify and mitigate technology risks, legal uncertainties, valuation challenges, and cyber threats associated with distributed ledger technology and crypto markets. Insurers are expected to conduct due diligence on stabilization mechanisms for value-referenced assets, maintain operational resilience, and comply with anti-money laundering and counter-terrorism financing standards. OSFI reserves the right to impose additional capital charges or limits if risk management practices are deemed inadequate.

This guideline came into effect on January 1, 2026.

g. OSFI Issues Guideline on Climate Risk Management

On February 20, 2025, OSFI issued Guideline B-15 – Climate Risk Management to ensure alignment with the Canadian Sustainability Standards Board ("CSSB") requirements released in December 2024. The revisions primarily affect disclosure timelines for Scope 3 greenhouse gas emissions, providing additional transition relief while reinforcing OSFI's expectation that federally regulated financial institutions, including insurers (both Canadian-domiciled, and foreign companies licenced in Canada on a branch basis), continue advancing their climate risk management practices.

Key changes include revising the implementation date for disclosing Scope 3 emissions to fiscal year 2028, clarifying expectations for on-balance sheet and off-balance sheet assets under management, and setting the implementation date for disclosing Scope 3 emissions for the off-balance sheet component of assets under management to fiscal year 2029.

This guideline came into effect on March 7, 2025.

h. OSFI Releases Guideline E-23 on Model Risk Management for Financial Institutions

On September 11, 2025, OSFI published the final version of Guideline E-23 – Model Risk Management, applicable to all federally regulated financial institutions, including insurers (both Canadian-domiciled, and foreign companies licenced in Canada on a branch basis). The guideline emphasizes comprehensive governance of models across their lifecycle, recognizing the growing complexity and use of models, including those leveraging artificial intelligence and machine learning. OSFI clarified that the definition of a model remains broad, requiring institutions to identify and manage model risk proportionate to the model's risk rating, while allowing flexibility for low-risk applications.

Key revisions include enhanced guidance on AI/ML models, proportionality in application based on an institution's size and complexity, and expectations for explainability and monitoring of self-learning models. OSFI also addressed stakeholder concerns regarding third-party and "black box" models, reinforcing that institutions must apply robust governance and validation processes even when using vendor-developed solutions. While no grace period was granted for third-party model validation, institutions may adopt exceptions policies for limited use prior to full validation. Additional clarifications were provided on model inventory requirements, approval processes throughout the model lifecycle, and governance for decommissioned models. OSFI also removed references to "model risk drivers" and "risk classification" to improve clarity and streamlined principles related to downstream risk considerations.

This guideline will take effect on May 1, 2027

i. OSFI Releases 2026 Minimum Capital Test Guideline for Property & Casualty Insurers to Strengthen Risk-Based Capital Standards.

On November 20, 2025, OSFI published the final Minimum Capital Test ("MCT") 2026 Guideline, applicable to federally regulated property and casualty insurers.

Key revisions to the MCT 2026 Guideline include the simplification of the unexpired coverage formula, updates to regulatory adjustments for net assets available for insurance receivables, and changes to capital confirmation requirements for user fees. OSFI also introduced minor adjustments and clarifications to ensure consistent application of the framework across insurers.

The guideline came into effect on January 1, 2026.

Provincial Regulators

a. The Insurance Council of British Columbia ("ICBC") announces new Restricted Insurance Agency Licence

On December 18, 2025, the Government of British Columbia announced a new restricted licencing framework for businesses that sell insurance incidentally to non‑insurance products or services, with the regime taking effect on January 1, 2027. Administered by the ICBC, the framework introduces the Restricted Insurance Agency ("RIA") licence and builds on the existing model for travel agencies selling travel insurance. The new approach aligns British Columbia's treatment of incidental insurance distribution with similar regimes already in place in Alberta, Saskatchewan, Manitoba, and New Brunswick, and will require some businesses previously exempt from licencing to obtain an RIA licence.

The Restricted Insurance Agent Licence Regulation comes into force on January 1, 2027, with a three‑month transition period to March 31, 2027, and an application process expected to open in November 2026, giving affected businesses an extended runway to prepare for compliance.

For more detail on the RIA licence please refer to our article here.

b. Alberta Superintendent of Insurance Issues Updates to Guidelines for Captive Insurance Industry in Alberta

In November 2025, Alberta's Superintendent of Insurance updated two guidelines governing the province's captive insurer industry: the Capital Guideline for Captive Insurance Companies (the "Capital Guidelines") and the Captive Insurer Licencing Guide (the "Licencing Guide").

Updates to the Capital Guideline clarify acceptable forms of capital, notably restricting inter-company loans from being recognized as valid assets to prevent contagion risk and asset concentration. Letters of credit are permitted only if they meet strict conditions, including being irrevocable, unencumbered, and issued by a Canadian financial institution for the benefit of the captive. While these changes formalize practices already observed in Alberta's captive market, they signal growing regulatory sophistication as interest in association captives continues to rise.

The revised Licencing Guide introduces a new section detailing the information required under Section 15 of the Captive Insurance Companies Act (Alberta) for association captives seeking an initial licence. This includes documentation such as an association agreement outlining governance provisions, ownership structures for voting shares or partnership interests, and enhanced business plan requirements specifying projected premium distribution by jurisdiction and insurance class. Additionally, changes of captive managers must now be reported to the regulator as material changes, and board-approved risk management policies must be submitted within 90 days of licencing rather than at the application stage. These measures aim to improve transparency and governance across captive operations.

c. FSRA Updates Proposed Regulatory Framework for Ontario Life and Health Managing General Agents ("MGAs")

On October 20, 2025, following extensive stakeholder feedback, the Financial Services Regulatory Authority of Ontario ("FSRA") released a substantially revised draft version of Rule 2025-001 – Life and Health Managing General Agents. The revisions aim to clarify ambiguities and reduce compliance burdens that were considered disproportionate to consumer protection benefits, particularly for smaller organizations. The updated draft framework introduces a tiered approach for MGAs, distinguishing among Tier 1, Tier 2, and Tier 3 entities based on their roles in recruiting, training, and monitoring agents. This contemplated tiered system replaces the original one-size-fits-all model, aiming for regulatory requirements that are more proportionate and practical.

Key changes include more flexible requirements for Designated Compliance Representatives ("DCRs"), streamlined agent recruitment standards, and clarified screening and training obligations for both insurers and MGAs. The revised draft Rule, if brought into force, would allow insurers to delegate certain screening and training activities to Tier 1 MGAs under specified safeguards, while removing overly prescriptive requirements such as conflict-of-interest processes and insurer pre-approval of training materials. Compliance systems for insurers and MGAs have been significantly expanded to include ongoing monitoring, suitability assessments, and client service continuity plans. Reporting obligations have also been strengthened, requiring annual information returns and timely updates on material changes.

2. Other Developments That We Are Watching in 2026

• FIFAI II on Artificial Intelligence – Interim Report: In Spring 2026, the Financial Industry Forum on Artificial Intelligence ("FIFAI") will release its full interim report that will include input from four (4) workshops held throughout 2025.
  
  The first workshop, on the topic of security and cybersecurity, discussed how artificial intelligence ("AI") technology is reshaping security and cybersecurity threats and opportunities, and best practices for effective AI risk management strategies.
  
  The second workshop, on the topic of financial crime, discussed emerging threats such as AI-enabled fraud, data manipulation, and cybercrime; limited AI investment and talent; low barriers to entry for threat actors; and gaps in Canada's regulatory and supervisory frameworks. Participants also considered opportunities to strengthen resilience, improve data integrity, and enhance information sharing across the sector.
  
  The third workshop, on the topic of AI and financial stability, discussed areas where AI could amplify systemic risk, including AI-related challenges to systemic operational resilience; AI-induced market volatility; agentic AI; AI-related disruptions to labour markets and business sectors; and challenges in the rapid and prudent adoption of AI.
  
  The final workshop, on the topic of financial well-being and consumer protection, discussed key principles to support AI adoption and safeguard consumers. The workshop also examined how AI can amplify consumer risks in transparency, accountability, data integrity, bias, third-party concentration, consumer confidence and fraud.
  
• FSRA Statement of Priorities for 2025-2026: FSRA released its statement of priorities for 2025-2026 which, among other things, set out FSRA's priorities in the insurance sector, including:
  • Implementing key reforms for the regulation of auto insurance rates and underwriting, including finalizing the Auto Insurance Rating and Underwriting Supervision Guidance, implementing a new principles-based, consumer-outcomes focused auto insurance rate and underwriting supervisory model, and improving transparency and disclosure for consumers to increase awareness and product knowledge and support informed decision-making, with an emphasis on high insurer accountability for achieving these outcomes.
  • Supporting reforms of the auto insurance system, including implementing government-led and FSRA-led auto reform initiatives, issuing the Fraud Reporting Rule and Guidance (subject to approval by the Minister of Finance) and initiating development of the Fraud Reporting Service.
  • Supporting the fair treatment of P&C consumers by completing the implementation of a market conduct supervisory framework for P&C insurance that will better enable FSRA to identify and address priority areas for supervision.
  • Increasing resilience, stability, and public confidence by completing and maintaining accurate and consistent risk profile assessments of Ontario-domiciled insurers, enhancing stakeholder awareness by continuing to improve their understanding of FSRA's supervisory approach and regulatory requirements, and developing a data framework to enhance monitoring of Ontario-domiciled insurers.
  • Enhancing FSRA's Regulatory Framework by consulting on and issuing own Risk and Solvency Assessment guidance for Ontario-domiciled insurers, and commencing review of reinsurance requirements and guidance.
  • Strengthening the market conduct regulation and supervision of intermediaries, including MGAs, by publishing for consultation a rule framework corresponding to the regulatory framework, dependent on legislation being approved, which aims to address regulatory gaps for Life and Health Insurance MGAs.
  • Strengthening protection of consumers who invest in segregated fund contracts by finalizing the Total Cost Reporting Rule for individual segregated fund contracts.

To view the original article click here

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.