Ownership and organisational requirements

Ownership of (re)insurers

Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?

The Insurance Companies Act imposes restrictions on the acquisition or increase of a significant interest in, and/or acquisition of de facto control of, a federally incorporated insurance company. A person has a significant interest in a class of shares of a company if the aggregate of any shares of that class beneficially owned by the person and any shares of that class beneficially owned by entities controlled by the person exceeds 10%of all of the outstanding shares of that class of shares of the company. Restrictions are also imposed on the ability of the federal and provincial governments (or any agent or agency thereof), as well as a foreign government (or any agent or agency thereof) to hold shares in a federally incorporated (re)insurance company.

The Competition Act imposes restrictions on M&A. The commissioner of competition, who heads Canada’s Competition Bureau, has the power to challenge any merger captured by the act up to a year after the merger has been substantially completed if the merger will or is likely to prevent or lessen competition substantially. The pre-merger notification provisions provide that parties to a merger transaction of a specified type and exceeding specified thresholds must, subject to certain exceptions, provide the commissioner of competition with advance notice and specified information with respect to such a transaction.

The Investment Canada Act imposes restrictions on a foreign entity looking to acquire control of an existing Canadian insurer or who wishes to establish a new Canadian insurance business. The act generally applies to the establishment of a new Canadian business and the acquisition of control of existing Canadian businesses by non-Canadians. Frequently, non-Canadian investors are only required to file a notification. In some instances, pre-merger approval of the investment based on a ‘net-benefit to Canada’ test is required. The act also provides for the review of foreign investments that may be injurious to national security.

What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?

The approval of the minister of finance is required for the acquisition or increase of a significant interest in, and/or acquisition of de facto control of, a federally incorporated (re)insurance company. In determining whether or not to approve the transaction, the Insurance Companies Act sets out certain factors that are to be taken into account by the minister of finance.

Mergers, including those involving (re)insurers, are subject to review by the commissioner of competition to determine whether the merger is likely to have anti-competitive effects. Part VIII (sections 91-103) and Part IX of the Competition Act contain the merger review provisions. Part VIII is concerned with substantive merger review, including factors that are considered when assessing whether the merger will or is likely to prevent or lessen competition substantially. Part IX is concerned with merger notification. Under the pre-merger notification provisions, parties to a merger transaction of a specified type and exceeding specified thresholds must provide the commissioner with advance notice and specified information with respect to such a transaction. The obligation to file a pre-merger notification is on the parties to the proposed transaction.

A foreign entity, subject to certain exceptions, must either file a notification or an application for review with the minister of innovation, science and economic development where it is looking to make an investment in Canada. Where pre-merger approval of the investment based on a ‘net-benefit to Canada’ test is required, the minister must be satisfied that such investment is likely to be of ‘net benefit to Canada’. The Investment Canada Act sets out factors that are to be taken into account, where relevant, when assessing net benefit to Canada.

Organisational requirements

Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?

The most common legal structures adopted by (re)insurers are federally incorporated (re)insurance corporations under the Insurance Companies Act. Foreign (re)insurers can also opt to establish a Canadian branch rather than incorporating a separate entity. In some provinces, it is still possible to incorporate an insurance company under provincial legislation.

Whether a (re)insurer incorporates as an insurance company or establishes a Canadian branch, or incorporates as an insurance company under a provincial insurance statute, a (re)insurer cannot carry on business as both a property and casualty (P&C) (re)insurer and a life (re)insurer.

Many corporate groups have adopted a holding company structure, whereby one or more (re)insurance companies are held by a single entity. In such cases, it is possible for a corporate group to hold both a (re)insurance company carrying on business as a P&C (re)insurer and a life (re)insurer. 

Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?

The Insurance Companies Act imposes certain governance requirements on federally incorporated (re)insurers, including meetings and voting of shareholders and policyholders, proxies, eligibility and election of directors, meetings of the board, by-laws, committees of the board, authority of directors and officers, fundamental changes to the company, auditors, actuaries and ownership.

The Office of the Superintendent of Financial Institutions’s (OSFI’s) expectations with respect to corporate governance are set out in the Corporate Governance Guideline, which addresses the importance of sound corporate governance for (re)insurance companies and identifies three fundamental components of corporate governance: role of the board of directors, risk governance and the role of the audit committee. OSFI recently updated its Corporate Governance Guideline to adopt a more principles and outcomes-based approach and reflect recent corporate governance developments. It notably continues to increase the ‘essential duties’ of directors. It may be that directors are not appreciating how significant these duties have become in the aggregate and how much more time directors will have to commit to carrying out these duties.

The Insurance Companies Act provides that a director cannot be a person who:

  • is less than 18 years of age;
  • is of unsound mind;
  • has the status of a bankrupt;
  • is an officer, director, employee or agent of the federal or provincial government or an agent or agency of a foreign government;
  • is a minister of the federal or provincial government;
  • is an agent or employee of a foreign government; or
  • is an insurance agent or broker of the company.

OSFI expects every (re)insurance company and branch to have a written policy regarding the performance of assessments of the suitability and integrity of its ‘Responsible Persons’ which includes directors, senior management and, in the case of a branch, the chief agent.

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