On May 22, 2009, the Minister of Finance announced the launch of the Canadian Life Insurers Assurance Facility (CLIAF), which is intended to assist life insurance companies in accessing debt markets on competitive terms by insuring their wholesale term borrowing. The CLIAF is a component of Canada's implementation of the G7 Plan of Action to stabilize financial markets and support global economic growth.
Life insurance companies regulated by the Office of the Superintendent of Financial Institutions are eligible to participate in the CLIAF, as are, with the Minister's approval, fraternal benefit societies and provincially regulated life insurers. Instruments eligible to be guaranteed under the CLIAF include newly-issued commercial paper, bearer notes and senior unsecured bonds and notes in which the underlying debt has been issued by a related entity. Other new senior unsecured marketable wholesale instruments may be eligible subject to the Minister's approval. Eligibility for the CLIAF requires a minimum issuance size of $1 million for Canadian-denominated issuances and $10 million for foreign-denominated issuances. Further, instruments must have a minimum term of three months from the date of issuance and the guarantee will apply for a maximum of three years.
In order to have its debt instrument guaranteed under the CLIAF, an eligible institution must:
- submit a satisfactory application setting out the provisional dollar value of the institution's overall issuance limit under the CLIAF;
- sign a participation agreement and an indemnity to the benefit of the Government of Canada for any amounts paid under the CLIAF guarantee; and
- submit an application for a certificate confirming that a specified maximum value of a specific instrument will be guaranteed under the CLIAF when issued.
The participation limit under the CLIAF is, at the eligible institution's option, either 125% of the contractual maturities of on-balance sheet wholesale debt instruments issued and maturing during the six-month period beginning November 1, 2008, or 20% of total cashable liabilities (calculated in accordance with regulatory filings) in Canada as of the most recent quarter up to and including December 31, 2008. Until the application is approved, a company may seek guarantees for a total amount of up to 50% of the limit sought.
Guarantee fees will depend on whether the eligible institution's senior unsecured medium-term debt obligations have satisfied a minimum credit rating. The minimum credit rating is: "A low" from DBRS, "A3" from Moody's, "A-" from Standard & Poor's or "A-" from Fitch, taking the lower of the highest two ratings for the eligible institution's debt. Senior unsecured medium-term debt obligations satisfying the minimum credit rating will be assessed an annual base fee of 110 basis points plus a 25 basis point surcharge (which surcharge is temporarily waived), while debt not meeting the minimum rating will be assessed a fee of 110 basis points plus a 50 basis point surcharge (25 basis points of which surcharge is temporarily waived). Guaranteed instruments issued in foreign currencies will be subject to an additional annual 20 basis point surcharge.