Canada: New Public Disclosure Requirements For Canadian Life Insurers

Last Updated: April 10 2018
Article by Carol Lyons

In Canada, the Office of the Superintendent of Financial Institutions ("OSFI"), is the federal regulatory authority over life insurers. On March 29, 2018, OSFI published its final version of a new guideline entitled Life Insurance Capital Adequacy Test Public Disclosure Requirements (the "Disclosure Guideline").  The final version follows OSFI's usual public consultation period during which insurers and other stakeholders were given the opportunity to provide comments and suggestions.

New LICAT Guideline

The disclosure requirements in the Disclosure Guideline go hand in hand with OSFI's new Life Insurance Capital Adequacy Test (LICAT) guideline for 2018 (the "LICAT Guideline") which came into effect on January 1, 2018.  The LICAT Guideline resulted from a recent overhaul of the prior Minimum Continuing Capital and Surplus Requirement (MCCSR) guideline for life insurers. The LICAT Guideline contains two different tests: simply put, a capital adequacy test (LICAT) for Canadian-incorporated life insurers and an adequacy of margin and assets test (LIMAT) that applies to foreign life insurance branches operating in Canada. The LICAT/LIMAT requirements establish standards used by OSFI to assess whether Canadian-regulated life insurers maintain adequate capital or an adequate margin to support risks specific to the life insurance business.  In other words, these requirements essentially comprise OSFI's solvency tests for life insurers.

Disclosure Guideline

OSFI had previously announced that once the new LICAT/LIMAT requirements came into effect, it intended to promote enhancements to the regulatory framework for life insurers through information disclosures to support the revised regulatory capital/assets requirements.  The new disclosure requirements contained in the Disclosure Guideline are the result of this stated intention.

The Disclosure Guideline provides that the first LICAT public disclosure reporting period will be the year ended December 31, 2018, and that for the first year OSFI expects life insurers to apply the disclosure requirements prospectively with comparative period disclosures in subsequent reporting periods.  The disclosure is to be made on an annual basis, coinciding with the timing of the insurer's annual report.  Insurers are to make the disclosures publically available on their websites, maintaining archives of previous disclosures.

The Disclosure Guideline states that the information disclosed should undergo the same scrutiny as the internal review and control process that applies to the insurer's financial reporting.  According to OSFI, the internal audit function (or similar review function for the insurer) should confirm the company's compliance with the Disclosure Guideline, both initially and subsequently on a periodic basis.

Guiding Principles

The Disclosure Guideline outlines five guiding principles designed to result in transparent, high-quality disclosures that will enable those reviewing the information to better "understand" and "compare" the disclosing life insurer's business and risks.  According to OSFI, quantitative and qualitative information will "provide stakeholders with a broader picture of the life insurer's capital and risk position and promote market discipline".  In brief, the guiding principles require that disclosures must be (1) clear and accessible, (2) meaningful to users, (3) consistent over time, (4) comparable across life insurers (to enable meaningful comparisons), and (5) accompanied by the qualitative narrative (see below).

Quantitative and Qualitative Information

The Disclosure Guideline indicates that OSFI expects LICAT/LIMAT public disclosures to be "tailored to the nature, size and complexity of the insurer".  However, public disclosures are required to include, at a minimum, quantitative data points outlined in two attached templates – one for Canadian incorporated life insurers (i.e. the LICAT public disclosure requirements) and one for Canadian branches of foreign life insurers (i.e. the LIMAT public disclosure requirements).  The templates are essentially a summary of the applicable capital/asset test that applies to the insurer along with a statement of the applicable minimum ratios required to be maintained (based on OSFI's requirements) to enable the reader to gauge the insurer's relative solvency strength.  Although the technical information required as depicted in the templates appears to be summary in nature, it is based on the sophisticated calculations required by the LICAT Guideline. 

In addition to the minimum quantitative (technical) information that is required to be set out, the Disclosure Guideline also states that OSFI requires a minimum qualitative narrative that explains the reasons for any material LICAT/LIMAT movements from reporting period to reporting period and any other issues that management considers to be of interest to stakeholders.  Otherwise, the qualitative form of disclosure is "at the insurer's discretion". Overall, according to the Disclosure Guideline, quantitative and qualitative disclosures should be designed to provide stakeholders with a better understanding of an insurer's capital and risk position, and promote market discipline.

Comments From Respondents

One comment made to OSFI during the consultation process that was published in OSFI's announcement of the Disclosure Guideline suggested that the disclosure requirements are onerous and unwarranted because they are similar to those under Sarbanes-Oxley (SOX) in the United States. OSFI's response was to underscore that the LICAT public disclosure requirements should be similar to those that apply to financial reporting, and that this is consistent with the disclosure requirements for deposit taking institutions. In addition, in its related Impact Analysis Statement OSFI stated that requiring consistent disclosure of LICAT solvency risk would assist to aid the public's understanding of insurers' solvency strength.  Therefore, in addition to resulting in overall transparency, there appears to be an expectation that the general public will be educated in how to evaluate the soundness of life insurance companies through access to the required disclosure. 

Another comment made during the consultation process suggested that the disclosure would most likely be lost on the average policyholder due to its complexity, and some simplification was suggested.  OSFI's reply was that the information is intended to inform stakeholders of the insurer's business, governance, risk measurement and risk management in order to allow them to make informed decisions about the company.  OSFI's response to this comment could infer that policyholders should be prepared and responsible to perform their own due diligence, by reviewing the public disclosures, before purchasing a product from a life insurer (or choosing to maintain a product in force). 

Conclusion

In some respects, the new public disclosure requirements in the Disclosure Guideline do emulate public company disclosure requirements in the context of the capital markets. And, in many ways, life insurance policyholders are investing in their life insurance company, depending upon the product.  Putting aside the general liquidity issues with respect to life insurance products compared to publicly-traded securities, the new disclosure requirements should benefit policyholders and other stakeholders in assessing the soundness and solvency of their life insurer by giving them a new avenue to review the information disclosed and make an assessment, i.e. in addition to relying upon the rating agencies, or other public disclosure where the life insurer is publicly traded.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Carol Lyons
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions