Earlier today, the Alberta government introduced legislation providing for the licensing and supervision of captive insurance companies in Alberta, becoming only the second province, after British Columbia, to permit captive insurers.
A captive is an insurance company established by a single shareholder or group of related shareholders, and which typically insures only the risks of that shareholder or group. Captives often then further transfer, or “reinsure”, the risks to other traditional insurance companies inside or outside Canada. Historically, most Canadian captives have been formed in certain U.S. states, Caribbean jurisdictions or Bermuda, all of which have specific captive insurance legislation, and actively market themselves as preferred homes for captives. Only a few dozen captives have ever been formed in British Columbia.
The proposed Captive Insurance Companies Act draws on the British Columbia captive legislation as well as the captive legislation in key U.S. and offshore jurisdictions and the Insurance Act (Alberta). Uniquely among those jurisdictions, it permits a captive to be formed either as a limited partnership or as a traditional corporation incorporated under the Business Corporations Act (Alberta). Under the proposed legislation, a captive may be formed as a “pure” captive, an “association” captive or a “sophisticated insured” captive, each as defined in the legislation. Most of the key operating and supervisory provisions will be contained in regulations to be finalized in 2022.
The proposed legislation is intended to be the first of a number of Alberta insurance-related initiatives designed to achieve several complementary goals. These include providing additional Alberta-based insurance capacity to Alberta businesses, particularly in the energy sector, while preserving and creating new opportunities for incumbent insurers to co-insure alongside the captives and/or reinsure the captives. In addition, it would help foster the long-term development of the insurance, risk management and insurtech/fintech sector in Alberta, complementing relating Alberta governmental initiatives already underway and supporting long-term economic diversification in Alberta. Future initiatives are intended include further development of local reinsurance capacity.