Regulation (May 01, 2010)

TAXES, REGULATORY COSTS EAT UP MORE THAN 11% OF CANADIAN INSURERS’ REVENUES

Slightly more than 11% of the $38.4 billion of the insurance industry’s 2008 revenues went towards regulatory and tax costs, according to a PricewaterhouseCooper’s (PwC) report.

Insurance Bureau of Canada commissioned PwC to study, for the first time, the burden of taxes and regulatory costs borne by the insurance industry.

Total taxes borne by the industry in 2008 amounted to $4.3 billion, of which $600 million was income taxes, PwC found.

Twenty-eight insurers provided survey data on regulatory costs to PwC, representing about 54% of the industry’s total market share.

Those survey respondents reported $45 million in borne regulatory costs in 2008. When PwC extrapolated this to the entire industry, it estimates this figure to be about $85 million.

OSFI SHELVES MUTUAL RECOGNITION

The Office of the Superintendent of Financial Institutions (OSFI) has rejected the notion of mutual recognition of international regimes for the purpose of regulating the use of unlicensed reinsurance.

Instead, OSFI plans to maintain its collateral regime for unregistered reinsurance.

“It would be premature to consider a full ‘mutual recognition’ framework,” OSFI assistant superintendent Mark E. White told the 2010 IBC Financial Affairs Symposium in Toronto. “There is wide variation in insurance regulation worldwide and Canada has, we believe, one of the most robust insurance regimes, so our obligation is not to give up our protections lightly.”

Under a system of mutual recognition, a supervisor or regulator in one jurisdiction agrees to abide by the standards of a regulator in a jurisdiction where the parent company of a global reinsurer resides — and vice versa.