Julie Dickson on tighter underwriting

Julie Dickson on tighter underwriting

Julie Dickson on tighter underwriting

Julie Dickson: I think convergence in banking is a lot further ahead than convergence in the insurance world.  I do know that the Financial Stability Board is getting much more interested in the insurance industry and the lack of convergence.  One shouldn’t be surprised at that.  People may know that the FSB released a list of global systemically important insurance companies.

The U.S. is in the process of designating a few insurance companies as being systemically important.  When that happens, people start to get worried about the fact that there is no global capital standard in the insurance industry and that there is a huge disparity between supervisory and regulatory approaches from country to country.

People often focus on the fact that it’s not perfect in banking, but insurance is much further behind in terms of that global coordination.  I think that there is a possibility that there could be a lot of change on that front in the next while because one of the functions of the Financial Stability Board is to really push standard setters to take action when they perceive that not enough is being done.  I think that’s what’s going on now with the FSB and the IAIS.

Question: You mentioned what a difference a year can make in P&C sector and it requires a reset, a response by the regulator of capital requirements.  Almost by definition, those events are extreme, unpredictable and varied. How do you get the balance right that you don’t hamper the businesses with something that may or may not happen again?

Julie Dickson: Our mandate drives us to focus on the unexpected; capital is for the unexpected.  When you look at catastrophe risk, I think that as I mentioned in the speech, some of the things we did just encourage companies to think more about the kinds of losses, catastrophes that they could face.  I think this conference itself is going to lead to a lot more thinking about that.

We had a lot of comments from the industry on whether we have thought enough about that balance.  We will never agree on the balance.  That’s just the nature of the thing.  OSFI’s mandate is pretty clear to be focused on what could go wrong, not to focus on everything that could go right.  We really hope for the best, but you really have to plan for the worst.

From time to time, even if I look at the capital requirements as mentioned, the companies that did the quantitative impact study and provided us with views, that has a very positive impact because at the end of the day a number of improvements have been identified by the industry that will result in an outcome that the industry is going to be happier with.

That’s just us being better informed of what the impacts of some of the things that we’re looking at may result in.  That’s one reason why I do like coming to events like this, why we have OSFI people here at this conference as well, because we need to have that interaction and get the industry perspective so that we don’t do something that has huge unintended consequences and we weren’t really thinking about them prior to making our decisions. (continued.)


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