The Office of the Superintendent of Financial Institutions (OSFI) has revised the standard form reinsurance trust agreements (RTAs) used by insurers in respect of cessions to unregistered reinsurers. As a result of these revisions, OSFI has consolidated the RTAs from the current six to two -- one in respect of Canadian companies and one in respect of foreign companies.

Key amendments to the RTAs are as follows:

• The RTAs applicable to Canadian insurers in respect of reinsurance with unregistered non-affiliated reinsurers requires the Superintendent’s approval prior to withdrawing assets vested in the reinsurance trust account. It addresses OSFI’s concern that, if a company takes a credit for amounts ceded, such assets should be under the Superintendent’s control.



• The current foreign life company RTA says "The assets vested in trust shall be valued at the lower of book and market value for interest bearing assets and at market value for all other assets." The foreign company RTA requires valuation at market and converges with the Canadian company RTA.



• Under the proposed minimum capital test (MCT) for Canadian property and casualty insurers, the requirement for the reinsurer to vest assets at least equal to 115% of unearned premiums and outstanding losses on risks ceded by the company to the unregistered reinsurer will be reduced to up to 110%. The MCT is in draft form and applies on a trial basis for the years ending 2000 and 2001. Reporting on a compliance basis will begin with the first interim report due in 2002. The deposit adequacy test for foreign companies is also being reviewed and there will be a similar change for branches of foreign companies under the Branch Adequacy of Assets Test (BAAT). The BAAT will be implemented at the same time as the MCT. The standard form RTAs will no longer expressly stipulate the amount of assets to be vested in trust. Instead, as is the case for life companies, the percentage will be negotiated between the ceding company and the reinsurer with the agreed percentage being inserted in the RTA. Credit will be given as permitted by the Superintendent. OSFI will not be required to revise the RTAs when the MCT and BAAT come into force.

OSFI will begin using the new standard RTAs on August 1^st, 2001. Existing agreements will be grand-fathered. Companies that wish to make amendments to grand-fathered agreements after July 31^st, 2001 must use the new standard form RTAs.

The revised standard form RTAs are available in English and French on the OSFI Web site at www.osfi-bsif.gc.ca under the "What's New" icon. From time to time, other amendments may be made to the RTAs. The most current version will be available on OSFI’s Web site. If you have any questions, please contact Mr. Heny Kwong at (416) 973-0787 or by fax (416) 954-6478.