Basel 2 framework for P&C sector not as easy as perceived: OSFI

Canada’s property and casualty industry may want its own form of Basel 2 capital framework, but it is seriously underestimating the time and effort involved to achieve compliance with its capital standards, according to Canada’s Superintendent of Financial Institutions Julie Dickson.

Dickson spoke to property and casualty insurers attending KPMG’s 16th annual insurance issues conference, entitled ‘The Leadership Challenge,’ held in Toronto.

Dickson said she was impressed with the enthusiasm of Canadian insurers to move to their own form of Basel 2, even holding up such optimism as an example to Canadian bankers, who completed the implementation of Basel 2 at the beginning of November 2007.

Dickson urged Canadian insurers not to underestimate the shift in corporate culture required by compliance with Basel 2. She said life insurers are currently ahead of where P&C insurers are now in terms of becoming compliant with Basel 2, but the whole process to become compliant would take no less than five years to implement.

And just as bankers did early in their transition to Basel 2, Canadian insurers are similarly underestimating the amount of time, effort and resources it will take to become compliant to Basel 2-style standards, Dickson observed. She said she has frequently heard in conversations with Canadian insurers that European property and casualty insurers are “already there” on the road to Basel 2 compliance.

That is a “major overstatement,” said Dickson, noting some European P&C insurers have only started doing their own dynamic capital stress-testing.