Remarks by Neville Henderson - 2021 Mortgage Insurance and P&C Risk Management Seminar

I have been looking forward to this opportunity to speak with property and casualty and mortgage insurers. The operating environment is moving quickly and these seminars are excellent for connecting institutions with what is keeping us busy and where our work will take us.

COVID-19 has accelerated risks, which require accelerated responses to those risks from institutions and regulators. Even before the onset of the pandemic economic pressures due to extended period of low interest rates, uncertain and volatile business conditions, and growing exposures to non-financial risks were shaping the future of the insurance sector.

The quick responses to the pandemic around the globe helped save lives and prevent further economic disruptions, but the consequences will have lasting impacts that will shape business decisions for years to come.

The issues on the horizon require urgent efforts to understand, adapt and address. The speed, scope and depth of the risks associated with climate change, digitalization and cyber risk all require approaches that are commensurate with the challenges they pose. These are international as well as domestic issues and the need to address them is accelerating as the public and governments react to the risks of climate change; and, the number and sophistication of cyber attacks is increasing.

OSFI has embarked transformation to change our operations to meet these challenges through a new Blueprint that was released internally earlier this month. The three foundational elements of our transformation are to:

  1. Refocus our mandate to put greater emphasis on contributing to public confidence in the Canadian financial system.
  2. Expand and fortify our risk management capabilities and risk appetite to support strategic and operational management.
  3. Enable our corporate values to enhance our culture so that individuals can flourish in an increasingly uncertain operating environment.

Enacting this Blueprint will allow us to speed up work on developing risks and will help build for a more resilient future.

Today I will cover a few of the areas that are occupying OSFI and the industry, but I would like this to be the beginning of more conversations on these issues and I encourage you all to ask questions of the OSFI specialists presenting at the various sessions today.

I’ll begin with Tech-related risks.

Tech-related risk

Business responses to COVID-19 sped up the shifting of operations towards digital platforms and third parties. This raises the scope, and potential impacts, of cyber-risks. This, along with the rapid advances in AI, Machine Learning, and data storage and analysis in both the front and back offices creates an ever changing landscape for institutions and regulators alike.

OSFI realizes that tech expertise is also found outside of the financial sector. We launched a discussion paper on Technology risk to try to capture a broader set of inputs to help meet our prudential mandate. Our paper considers the fact that other regulators are moving at different paces, with different objectives, and with different tool kits.

We’ve built on this work. Over the summer we issued a letter on Operational resilience, updated our expectations on tech and cyber incident reporting and released a new cyber self-assessment document. More recently we issued a consultation on a new draft guideline on Technology and Cyber Risk Management. Our plans include producing a revised guideline on Outsourcing/Third Party Risk early in the New Year.

This is occurring at the same time as the insurance industry is facing business model challenges of providing services to meet rising customer expectations and non-traditional competitive sources. All the while adopting and adapting new data, analytical tools and partnerships to meet those forces.

I look forward to further discussions about how our regulatory framework can help inform sound business decisions and improve resilience. These efforts demonstrate our desire to move forward in improving the oversight framework for the benefit of institutions, policyholders and Canadians. However, this is not the only issue where we are focussing our attention.

Climate Risks

Climate change is the challenge of our generation, and in the words of UN Secretary General António Guterres, “we are rapidly running out of time.” It is increasingly clear that climate change requires all of us to address its threats with a greater sense of urgency, vigour and effort commensurate with the risk.

Climate related transition risk, is largely borne by institutions with long-term liabilities, backed by long-term assets. Transition risk is the most difficult to quantify and is heavily dependent on how rapidly the transfer takes place. A slower pace of change may help companies in managing the transition but increases the consequences of more dramatic financial consequences; a quick pace could complicate operations and disrupt investment strategies but may be less costly in the long run.

This is an important consideration for countries like Canada whose economy is heavily dependent on oil and gas, and industries that depend on carbon fuels. The most effective approach to understanding the impact of these complex relationships is through comprehensive modelling involving multiple scenarios and stress testing and using those results to inform decisions and in assessing risk appetites.

Prior to 2021, OSFI analyzed and supervised climate-related risks on an institution-by-institution basis, without formal guidance or policy direction. This year, we have taken deliberate steps towards addressing climate-related risks in our supervisory work and in our broader macro-prudential activities. With the release of our climate related risk discussion paper, and climate pilot scenario project with the Bank of Canada, we are setting a path forward for prudential regulation of climate-change risks.

We released a summary of our discussion paper that sets out a timeline for future policy work. In the coming weeks a report on our pilot work with the Bank of Canada will be released. This work will provide further motivation to accelerate the supervisory work we are doing, and the domestic and international engagement we are involved in.

In the future, we will need to draw more upon of the expertise and support of the P&C sector as we pursue the other identified climate-related physical and liability risks that come with climate change like floods, droughts and wildfires

Economic environment

When speaking about the environment, my nature leads me to consider not just the climate but the economic and business environment that institutions must respond to. While the low for long interest rate environment has driven competition in insurance market, the spectre of inflation and interest rate changes needs to be considered.

Some companies are responding by increasing prices ahead of competitors, or moving up the risk curve to capture yield. These are all business decisions that we expect to be well managed. The Canadian economic exposure to housing related debt has become increasingly perilous as many mortgages written in the past few years are more sensitive to interest rate changes.

Policyholders, new purchasers and investors are also looking at interest rates and assessing their options. Understanding their behavior is an increasingly important consideration when setting business strategies, as the competition for investment becomes more complex.


I know that at a later session you will be given a status update on work towards the accounting transition to International Financial Reporting Standard 17 - Insurance Contracts (IFRS 17). This remains a significant and important undertaking for the industry and has significant implications for OSFI.

I know that keeping on top of all the work underway can be challenging. We remain committed to working with the industry and key stakeholders to support a robust IFRS 17 implementation. Please take the opportunity to ask the questions that will help us all make progress towards implementation together.


I know that many insurers are already taking the high-levels of uncertainty in the economic and operating environments into account when making their business decisions.

OSFI too is considering and analyzing the impact of severe but plausible risks and making appropriate decisions.

I look forward to continuing discussions and engagement with insurers to meet the challenges ahead and to create a more resilient future for those who rely upon all of us to contribute to public confidence in the Canadian financial system.