On October 27, 2021, proposed legislation was tabled in Alberta to allow for the formation of captive insurers.
What you need to know
- Captive insurers typically underwrite related party risks and are subject to lower capital requirements and prudential supervision than an authorized insurer.
- The Superintendent of Insurance (Alberta) will be responsible for the licensing and on-going supervision of Alberta captives.
- Financial management and corporate governance requirements are set out in the proposed legislation.
- An Alberta captive must have a principal place of business in Alberta.
What are the opportunities?
Bill 76 was introduced to address what has been a persistent hard insurance market which is challenging business and other organizations in finding adequate insurance protection. A captive insurer may serve as an efficient risk management and risk retention vehicle, whether for commercial or industrial enterprises, associations, or other organizations.
If passed, Bill 76 will allow for the following types of captives:
- a pure captive insurance company—which essentially insures or ultimately reinsures related party risks;
- an association captive insurance company—which insures or ultimately reinsures the risks of members, or the member organizations, of an association and those of affiliated entities;
- a sophisticated insured captive insurance company which will insure or ultimately reinsure the risks of persons who, in the opinion of the Superintendent, have expertise in insurance matters, and whose aggregate annual premiums total at least an amount to be set out in the regulations; or
- another type of captive insurance company authorized by the regulations.
The capital requirements that will apply will be set out in the regulations once Bill 76 is passed.
Typically, these requirements will be much lower than those that would apply to an authorized insurer, potentially driving cost savings.
An Alberta captive must have a principal place of business in Alberta. That said, it may be possible, under certain conditions, for an Alberta captive to insure or reinsure risks originating in other Canadian provinces or territories.
The Bill anticipates that a captive can insure or reinsure any class of insurance that exists under the Insurance Act (Alberta) although likely property and casualty risks will be the main business of Alberta captives.
When will Bill 76 come into effect?
If passed, the Bill will come into effect on proclamation. As regulations need to be drafted and brought into effect, it is unlikely that Bill 76 will become law before the second half of 2022.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.