The author wishes to thank Claudie Bélisle‐Desjardins, Marketing Intern, for her contribution
In February the European Parliament voted by a wide margin to approve the Comprehensive Economic and Trade Agreement (CETA), aimed at strengthening investment between Canada and the EU. In the month of April, the EU trade commissioner stated that she believes that getting each EU member to follow suit should happen relatively “smoothly”, a statement that is reinforced by the recent results of the 2017 French presidential elections.
And once Canada’s Senate ratifies the deal, which is expected in the coming weeks, roughly 95 per cent of the deal will provisionally take effect soon thereafter.
So what does it all mean for European and Canadian insurers?
The answer, in the short term, is not much.
CETA offers little new in terms of increasing market access and competition. CETA’s Chapter 13 provisions on financial services, which explicitly include insurance services, are closely modeled on those set out in the multilateral General Agreement on Trade in Services ("GATS"), to which both Canada and the European Union are parties. Generally speaking, the parties are committed to not making their existing frameworks more restrictive for financial service providers with regard to cross-border insurance, reinsurance and intermediation.
The Chapter 13 provisions
The Chapter 13 provisions leave regulatory and licensing requirements largely unchanged on both sides. And the "prudential carve-out" provision, which allows national governments to regulate the financial sector to protect investors, is very much in line with recognized international standards. That should continue to give some cover to national governments against claims of discrimination.
The major question for European insurers is whether CETA’s implementation will help ease requirements on financial services firms – including insurers – to maintain assets and capital levels in Canada or in Canadian currency, as currently required by law. So far, the Office of the Superintendent of Financial Institutions – responsible for regulating and supervising federally regulated insurers – has been largely silent on CETA's potential implications on this particular issue, specifying only that it is not planning to change its capital tests for either P&C insurers (the Minimum Capital Test) or life insurers (the Life Capital Adequacy Test) following the implementation of CETA.
That said, in the longer run, Chapter 13 is likely to help European financial institutions follow their clients as they conduct more business in Canada. There is still no internal single market for financial and insurance services in Canada, where efforts are under way in other sectors of the economy to remove long-entrenched provincial trade barriers. But an increase of trade and investments from the EU could lead to pressure on the provinces to harmonize regulatory and licensing requirements and to facilitate access to EU financial services providers.
For Canadian firms looking to Europe the benefits are more immediate — on paper at least. The EU has made greater strides in creating a single market for financial services. Thanks to what is commonly known as “passporting”, financial services firms authorized in one EU member state can provide services – directly or across borders – in another without having to meet additional licensing requirements. But to fully take advantage of this, Canadian firms have to set up a presence in a member state and comply with its regulations. And European law doesn’t consider that carrying on business through unincorporated branches meets that requirement of having a presence.
Dispute settlement mechanism
One notable change that CETA is expected to bring about, once full ratification is completed, is a specialized dispute settlement mechanism for financial services, through a new tribunal called the Investment Court System, to handle investor-state disputes.
With the CETA implementation bill (C-30) now before the Senate, CETA should become reality by July 1st. The impact on insurance services is unlikely to be felt overnight, but in the long run, increased trade could significantly reshape the regulatory landscape for the sector.