Regulators and reinsurance risk
Insurance regulators monitor reinsurance arrangements closely, because an insurer that relies heavily on reinsurance depends on its reinsurers being able to pay. In Canada, the Office of the Superintendent of Financial Institutions (OSFI) has reviewed rules on how reinsurance is used and how counterparty risk is managed.
Typical regulatory concerns include concentration in a few reinsurers, the use of unregistered or offshore reinsurers, collateral requirements and the legal certainty of contracts.
Stronger oversight can increase compliance costs, but it also supports confidence that reinsurance protection will be there when it is needed.