Canada: Establishing An Insurance Business In Canada

Last Updated: November 27 2013
Article by Carol Lyons

Canadian Insurance Regulatory Environment

There are two levels of government that regulate insurance in Canada. Federally, the Office of the Superintendent of Financial Institutions Canada (OSFI) is responsible for the prudential regulation of insurers carrying on an insurance business in Canada. Federal qualification of insurers is governed by the Insurance Companies Act (Canada) which is overseen by the federal Minister of Finance.

There are also 10 provinces and 3 territories in Canada ("provinces") which regulate market conduct activities of insurers carrying on business within the particular province. Each province has its own statute and its own government department that regulates insurance activities. Therefore, once established federally, all insurers will need to be licensed in each provincial jurisdiction in which they intend to carry on business.

Forms of Insurance Business

There are two main vehicles for establishing an insurance business in Canada federally: incorporation of a Canadian insurance company and qualification of a Canadian branch of a foreign insurance company. Insurers may also carry on business in Canada in other forms, such as a fraternal benefit society or a reciprocal exchange, and may be incorporated under the laws of a province. For simplicity, this article is mainly restricted to insurers carrying on business in Canada as a company or a branch and whose primary regulator is OSFI. The information requirements and timing for incorporation of a Canadian company and establishment of a Canadian branch are very similar. Both involve an extensive approval application to OSFI. Since a branch is not a separate legal entity from the foreign insurer, one of the main differences between the two vehicles is that a Canadian insurance company requires a board of directors and mandatory board committees and is subject to – among many other guidelines – the OSFI Corporate Governance guideline which contains comprehensive requirements for board and committee oversight. Although a branch operation does not have a board, OSFI requires the Chief Agent of a branch to fulfill many of the corporate governance functions required of a board of a Canadian company. Despite the legal distinction between a company and a branch, from an accounting perspective (e.g. financial and regulatory reporting), the branch is treated as a separate entity.

As indicated above, there are a number of insurers that have been incorporated under the laws of a province. However, most of the largest insurance companies in Canada are federally-incorporated and many insurers that were originally incorporated provincially have migrated into federal jurisdiction where the legislation is comparatively modern and solvency regulation is more robust. At least one provincial insurance regulatory authority is considering putting a moratorium on the incorporation of insurers under its provincial laws, and to require existing insurers incorporated in that province (other than reciprocal exchanges and farm mutuals) to transfer to federal jurisdiction or another jurisdiction where the insurer is subject to supervision that meets the new solvency standards set by the International Association of Insurance Supervisors (IAIS).

Focus of OSFI Review – Business Plan

If an applicant wishes to incorporate a Canadian insurer federally, or establish a Canadian branch, the focus of much of OSFI's review will centre on the proposed business plan that is submitted with the application, including the actuarial calculations. The business plan must be comprehensive and include, among other things, descriptions of the proposed activities (by line of business), a complete market analysis, identification of sources of capital as well as pro forma financial statements and solvency ratio calculations, in each case for three years following start up. The business plan is to be stress tested for the three year period. OSFI, including its actuarial staff, will probe and assess the business plan, including the actuarial calculations and stress testing. The amount of initial capital that OSFI ultimately will require will be determined based on the business plan's contents, stress testing and OSFI's own assessment.

Restrictions and Prohibitions

The company or branch will be authorized to conduct life or non-life business only – i.e. one or the other. No new dual-licensed or "composite" companies are permitted in Canada. Any conditions or limitations will be stipulated in the order issued by OSFI (e.g. "restricted to the business of reinsurance"). Generally speaking, governments, political subdivisions of governments, government agencies and government-controlled entities – other than qualifying foreign institutions – are not permitted to incorporate an insurance subsidiary in Canada.

Summary Information for Federal Applications – Incorporation and Branch

The following chart contains a summary of the processes and requirements to incorporate a Canadian insurer federally and qualify a Canadian branch, based on OSFI's issued guidance and instructions. 



Application Timeframes

Approximately 12 to 18 months

Approximately 12 to 18 months

Application Form

●  Letters Patent; and

●  Order to Commence and Carry on Business

Order approving  the Insuring in Canada of Risks by a foreign entity

Minimum OSFI Fees

Cdn. $32,000

Cdn. $32,000

Estimated fees for provincial licenses1

Cdn. $65,000

Cdn. $65,000

Minimum capital

●  Company to have a minimum of Cdn. $5 million paid in capital (or such greater amount specified by the Minister, e.g. based on the proposed business plan)

●  Regulatory solvency ratio of the proposed company to be at least 300% based on the proposed business plan

●  Life: Applicant to have consolidated assets of Cdn. $1 billion; capital and surplus of 5%-10% of liabilities

●  Non-life: Applicant to have consolidated assets of Cdn. $200 million; capital and surplus of 20% of assets

●  Branch to vest and maintain in trust account under the control of OSFI a minimum of $5 million for 3 years; regulatory solvency ratio of the branch to be at least 300% based on the proposed business plan

Information Requirements

●  Regulatory information for applicant (details of ownership and financial strength; regulation in applicant's jurisdiction, etc.)

●  Financial information (financial statements for applicant, comprehensive business plan for the company – pro forma financial statements and solvency test calculations – planned reinsurance arrangements

●  Criminal background checks for principals and senior officers

●  Copies of governance, risk management and compliance policies and procedures to be submitted

●  Regulatory information for applicant (details of ownership and financial strength; regulation in applicant's jurisdiction, etc.)

●  Financial information (financial statements for applicant, comprehensive business plan for the branch – pro forma financial statements and solvency test calculations – planned reinsurance arrangements

●  Criminal background checks for Chief Agent and senior employees

●  Copies of governance, risk management and compliance policies and procedures to be submitted

Entity Infrastructure/


●  Board of directors and statutory and governance committees

●  Management – "Oversight Functions"2

●  Appointed Actuary

●  Governance, risk management and compliance policies and procedures

●  Information Technology

●  External Auditor

●  Peer Review Actuary

●  Chief Agent

●  Management – "Oversight Functions"2

●  Appointed Actuary

●  Governance, risk management and compliance policies and procedures

●  Information Technology

●  External Auditor

●  Peer Review Actuary


●  Pre-notification publication requirements

●  Name clearance

●  "Support principle" acknowledgement by controlling shareholder

●  "Letter of commitment" regarding notification of material changes to business plan

●  Membership in industry compensation association     

●  OFSI on-site review of operations

●  Pre-notification publication requirements

●  Name clearance

●  "Letter of commitment" from senior officer of applicant regarding notification of material changes to business plan

●  Membership in industry compensation association

●  OFSI on-site review of operations

●  Establish branch trust account and trust agreement with OSFI, applicant and custodian

Provincial Licensing

Once qualified as a federal insurance company or branch, the insurer will be required to obtain a license in each province in which it intends to carry on business. Generally, to attract licensing requirements, the provincial legislation contemplates that the insurer will have some kind of presence and/or carry on some insuring activities in the province. However, at the time of preparation of this paper at least three provinces require licensing if the risk (e.g. person or property) or peril is located in the province. Although the legislation of each of the 13 provincial jurisdictions varies, the Canadian Council of Insurance Regulators (CCIR)3 has put together a standardized application form which can be used for applying for a license in all 13 jurisdictions. Although the CCIR form is standardized, each jurisdiction will conduct its own evaluation of the application and may require additional information and documentation. The depth of provincial review and analysis can vary widely. Accordingly, timeframes for issuance of provincial licenses also varies (roughly ranging from one month to six or even more months) and many provinces will not entertain the insurer's application until after the OSFI qualification process has been completed.

Compliance with other Statutes

If there is a foreign bank in the applicant's corporate group, there are restrictions under the Bank Act (Canada) with respect to having a financial establishment in Canada, so that the provisions contained in that statute may have to be reviewed for compliance. Where the applicant is not Canadian, the establishment of a new Canadian insurance business may require a notification filing under the Investment Canada Act.


1 Assumes licenses are obtained in all provinces

2 Finance, Actuarial, Risk Management, Compliance and Internal Audit.

3 CCIR is an association whose membership is made up of the insurance regulators of each province and a representative of OSFI is also a member.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

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