December 17, 2009
CHANGES TO PART XIII – FEDERAL INSURANCE COMPANIES ACT
The Federal Office of the Superintendent of Financial Institutions (OSFI) has introduced changes to the Federal Insurance Companies Act (ICA/Part XIII) that will come into effect on January 1, 2010 governing what business foreign insurers licensed in Canada have to report as “Canadian business” to OSFI, and accordingly, meet the OSFI requirement to vest assets in Canada in respect of those risks. The federal regulatory focus with respect to foreign insurers will be effectively changed from the location of the risk to the location of the business activities of the insurer.
There has been concern at RIBO that this change might result in an increase in “unlicensed insurance” if some foreign insurers chose not to conduct their business activities in Canada. However, since all insurers carrying on insurance business in Ontario are also required to maintain a provincial license from the Financial Services Commission of Ontario, it appears that all foreign insurers licensed to carry on business in Ontario will also trigger the federal ICA requirements and continue to maintain their federal license with OSFI. Accordingly, RIBO is not expecting any change in the amount of “unlicensed” insurance written in Ontario, as a result of the OSFI proposed changes to Part XIII.
The OSFI proposed changes will also require all foreign insurance companies to add wording to all premium notices, insurance applications and insurance policies issued in Canada after January 1, 2010 that states, for example, “For the purpose of the Insurance Companies Act (Canada) this document was issued in the course of “Company X’s” insurance business in Canada”. Brokers should be aware of these changes and expect to see similar wording as above on all paper issued by any foreign insurer with whom they conduct business.
In Ontario, the Superintendent of Insurance, in conjunction with most other provincial Superintendents through the Canadian Council of Insurance Regulators (CCIR), has requested all foreign insurers to voluntarily sign a Consent and Undertaking, essentially agreeing to conduct business activities within certain OSFI requirements and thus to be conducting insurance business in Canada, for the purpose of Part XIII. We note that, following the release of the CCIR Undertaking, there have been several questions raised by foreign insurers that CCIR is currently reviewing. We will keep you advised as developments occur.
In the meantime, all brokers can do, in order to meet their due diligence requirements for clients placed or being placed with foreign insurers, is to ask their insurers to confirm they meet the OSFI criteria and that their policies will be “written in Canada”. Until this matter has been clarified further, that is what RIBO would expect of a reasonably prudent broker in the circumstances.
RIBO is aware that at least one insurer has asked its brokers to acknowledge that they are acting as it’s agents in Canada, for the purpose of clearly conducting its insurance business in Canada. Again, RIBO will keep you advised as developments occur.