For foreign insurance companies operating in Canada, terminating its insurance business in Canada comes with various regulatory requirements. Foreign companies closing a Canadian branch, whether it decides to have its policies reinsured by a third-party or to simply wind down its business, will need the approval of the Office of the Superintendent of Financial Institutions ("OSFI") in order to release its assets in Canada. This bulletin will provide transactional guidance in navigating OSFI's guidelines to obtain approval to terminate a Canadian insurance business under Section 650 of Canada's Insurance Companies Act (the "Act").
Requirements
1. Dealing with Liabilities of the Canadian Insurance Business
Before OSFI can approve the release of any of foreign insurance companies' assets, OSFI will need to approve the manner in which the foreign company deals with its Canadian policy liabilities. The specific ways that a foreign company can deal with Canadian policy liabilities are: (i) obtaining the surrender of the policies; (ii) transferring the policies (which is not practical as it requires the consent of policyholders); or (iii) causing the obligations under the polices to assumed on an assumption reinsurance basis.
The most common method to deal with policy liabilities is to cause the risks to be reinsured on an assumption basis, pursuant to Section 587.1 of the Act. This would cause the foreign company to cause itself to be reinsured against all of the risks undertaken and to cede all its policies and the liabilities thereunder in Canada to a third-party insurer or reinsurer.
- OSFI approval of the assumption reinsurance transaction is required.
- OSFI has detailed steps and requirements relating to assumption reinsurance transactions that are beyond the scope of this article. If you have questions about assumption reinsurance transactions, McMillan LLP will be pleased to work with you.
2. Financial Statements
A foreign insurance company applying for the release of its assets in Canadas will also be required to provide audited financial statements in respect of its insurance business in Canada, at a date no more than three months prior to the application for the release of its assets in Canada. The audited financial statements would typically show that there are no longer any policy liabilities (and nominal or no non-policy financial obligations). The auditor of the financial statements should confirm that the statements present fairly the financial position of the applicant's insurance business in Canada.
3. Actuarial Report
An actuarial report is required supporting the valuation of the policy liabilities reported in the financial statements for the foreign company's insurance business in Canada.
4. Publications and Notices
The foreign insurance company will need to provide proof of publication of notices advising the public in theCanada Gazetteand at least one local newspaper of general circulation at or near the location of the chief agency of the foreign company that the company is applying to OSFI for the surrender of its Canadian license and for the release of its assets in Canada. This notice will need to be in a prescribed form, as set out by OSFI, and published for four consecutive weeks, with the initial notice being published at least six weeks prior to the proposed date of the release of assets.
The proof of publication will typically be in a form of a statutory declaration from an authorized representative of the Canada Gazette or local newspaper, or tear sheets confirming the publication of the required notice.
5. Notices to Provincial Insurance Regulators
Foreign insurance companies will also need terminate its insurance licenses in each province and territory that it conducts its insurance business by informing such provincial and territorial insurance regulators of its intention to withdraw its Canadian insurance business (and anticipated application for the release of assets to OSFI). Each province has its own specific requirements for the withdrawal of a provincial/territorial insurance license; however, all of the applications will typically require the following documents:
- a completed provincial checklist;
- OSFI's approval of the foreign company's proposal with regards to dealing with any policy liabilities; and
- the form of notice intended to be published in the Canada Gazette and the local newspaper of general circulation.
In addition to the notices to the provincial and/or territorial insurance regulators, Assuris or The Property and Casualty Insurance Compensation Corporation (PACICC), as applicable, will need to be notified in writing as well.
6. Internal Approvals and Confirmations
Various internal approvals and confirmations from the directors and/or officers of the foreign insurance company is required. These include, but are not limited to, confirmations regarding any regulatory requirements from the foreign company's home jurisdiction, the accuracy of the documents submitted (e.g., the treatment of any policy or non-policy liabilities) and details regarding any internal approvals by the foreign company in order to terminate a Canadian insurance business.
7. Termination of Business Licenses
Once the foreign insurance company has had its insurance license terminated, it should then terminate all of its business licenses (i.e., extra-provincial registrations) in each of the provinces and territories in which is has registered to do business.
Reinsurance and assumption transactions and terminating Canadian insurance businesses are complex matters and members of McMillan's Insurance team are available to assist companies with navigating OSFI's approval processes.
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.
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