Follow-up responses from OSFI to questions posed by Committee members on March 2, 2022

  • Type of Publication: Letter
  • Date: March 24, 2022
  • Hon. Pamela Wallin, Chair
    Senate Standing Committee on Banking, Trade and Commerce
    Senate of Canada
    Ottawa, Ontario K1A 0A4
    Via email

Dear Honourable Chair,

During the Superintendent’s appearance before the Committee on March 2, 2022, members of the Committee asked questions to which the Superintendent committed to providing further information. Specifically, the members wanted more information on the questions below which are followed by OSFI’s responses.

What is the total federal government exposure to mortgage defaults?

  • As at December 31, 2021, $697 billion of residential mortgage loans are covered by mortgage default insurance. Of this amount, $401 billion is insured by CMHC, and is fully backed by the Crown. The remaining $296 billion is insured by two private sector insurers, for which the Crown’s back-stop exposure is $261 billion.

  • This default insurance coverage is funded by premiums paid to the insurers either by homebuyers (for individually insured loans, typically with loan-to-value ratios above 80%) or by lenders (for insured pools of low ratio loans). Therefore, valid claims emerging from mortgage default insurance are paid for with funds derived from those premium payments. The strong capital levels held by the mortgage insurers provide an additional layer of protection to cover potential losses before recourse to the Crown or Canadian taxpayers. In addition, CMHC and the private sector insurers pay an annual risk fee to the Crown, in respect of the back-stop coverage provided.

  • CMHC, through its mortgage securitisation activities, provides a timely payment guarantee in respect of mortgages underlying National Housing Act Mortgage-Backed Securities and Canada Mortgage Bonds. The total guarantees-in-force (representing the maximum principal obligation related to CMHC’s timely payment guarantee) are $460 billion as at September 30, 2021. This guarantee is a wrapper around the insured mortgages referenced above and, as such, is an additional layer of protection rather than being additive to the Crown’s aggregate exposure to mortgage defaults.

  • CMHC also participates in other lending programmes related to residential real estate and assisted housing, which are not subject to OSFI oversight.

What is the Estimated Solvency Ratio for pension plans OSFI oversees?

  • OSFI oversee approximately 1,200 federal private pension plans which account for approximately 7% of plans in Canada.

  • Given the potential negative impact that uncertain market conditions could have had on solvency ratios of pension plans, OSFI introduced a temporary portability freeze that prohibited all portability transfers and annuity purchases relating to defined benefit plan provisions.

  • OSFI closely monitored market conditions and the estimated solvency ratio (ESR) of federally registered pension plans and determined in August of 2021 to lift the portability freeze, subject to certain conditions.

  • By the end of 2020 the median ESR for all 342 defined benefit (DB) plans (down from 348 the year before) increased to 0.97, up from 0.95 at the end of 2019. In contrast, the liability-weighted average ESR for all plans decreased slightly to 1.00 as at December 31, 2020, from 1.01 at the end of 2019. The graph below shows the current and previous ESRs and median ESRs dating back to December 2011.

    Graph - Solvency Position of Pension Plans as at December 31
    Solvency Position of Pension Plans as at December 31 - Graph Description
    Median ESR0.880.880.740.770.970.900.900.910.960.940.950.97
    Estimated Solvency Ratio (ESR)0.900.930.810.830.980.940.950.971.020.981.011.00
    ESR in excess of Median0.
  • While we have not yet completed our review of the ESR for 2021, media reports suggest that the ESR for DB plans in Canada at the beginning of the year were above 100%. Uncertainty and volatility remain in the economic environment as we continue to monitor the solvency of federally registered pension plans.

Thank you for inviting OSFI to appear before the Committee. We are happy to respond to any further requests that the Committee members may have.


Tracie Noftle
Senior Director
Communications and Corporate Affairs
Office of the Superintendent of Financial Institutions