Canada has upped the limit to which letters of credit (L/Cs) can be used as collateral by reinsurers.

The Office of the Superintendent of Financial Institutions (OSFI) has raised the L/C limit and may raise it even further.

Collateral limits

Previously, L/Cs used as collateral for unregistered reinsurance were limited to 15 per cent of the risks ceded to unregistered reinsurers.

The OSFI recently increased this limit to 30 per cent for the life and property and casualty sectors.

Liberal L/C use

Now it seems that OFSI - the federal regulator that oversees Canadian financial institutions, including banks, insurance companies and loan and trust companies - may extend the use of L/Cs as collateral for reinsurers even further.

In a speech delivered in May, the assistant superintendent of the regulation sector of OSFI, Mark White, said that new reinsurance guidelines will support more liberal use of L/Cs as collateral for unregistered reinsurance and will permit greater flexibility in unregistered reinsurance collateral arrangements.

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