The Office of the Superintendent of Financial Institutions (OSFI) has provided welcome clarification of the law which will further open the door to the use of financial guarantee insurance in the context of Canadian infrastructure projects.

Financial guarantee insurance (sometimes known as a “monoline wrap”) is often used in infrastructure project financing to boost the credit rating of debt issuers for such projects, but such insurance has rarely been seen in Canada. The main reason was that under the federal Insurance Companies Act (ICA), it was not clear whether before providing such insurance in Canada, a foreign insurer would need to obtain a special order from the Office of the Superintendent of Financial Institutions (OSFI), which in turn would subject the insurer to the heavy regulatory burden of Part XIII of the ICA.

However, OSFI has recently published some guidance that makes it clear that foreign insurers providing this product would not be subject to Part XIII. Earlier, in a May, 2007 letter, OSFI announced its administrative position that risks located in Canada but insured outside Canada would no longer be subject to Part XIII requirements. In its September Advisory OSFI listed four broad indicia that it will use to determine whether a particular risk is insured in or outside of Canada (see box opposite). Most recently, in an October 25 ruling, OSFI applied these criteria to find that a foreign insurer proposing to provide financial guarantee insurance to Canadian entities that were raising funds to finance infrastructure projects in Canada would not be subject to Part XIII.

These developments are good news for foreign providers of monoline wraps and for Canadian infrastructure project bidders seeking a broader menu of financing options in an increasingly competitive bidding environment. The barriers have not come down completely, of course: insurers still face provincial regulation, which may impose licensing requirements, premium levies or other regulatory hurdles.

Other Canadian PPP News:

  • New Applications for the PPP: Across Canada, the use of PPP-based structures has recently expanded beyond healthcare and transportation sectors to include social infrastructure and more innovative projects. The Alberta government recently announced a plan to build 18 schools by 2010 using the PPP model, while authorities in Ontario and New Brunswick are using similar structures to finance courthouses, highway service centres and justice facilities. Partnerships BC, in consultation with the Province of British Columbia, BC Hydro and industry, has recently launched a request for qualifications in connection with a PPP project to expand the existing transmission system into the northwest region of British Columbia. Montreal will soon see the construction of a new concert hall constructed using the PPP model.
  • Québec. The Québec Ministry of Transport has awarded the Province’s first major PPP – the 35-year DBFOM project for Autoroute 25 - to Concession A25 S.E.C., a partnership of local and North American firms. Several other PPP projects in Québec are at the RFQ or RFP stage, including Autoroute 30; a package of 7 Highway Service Areas; the Centre hospitalier de l’Université de Montréal; the McGill University Health Centre; a Residential and long-term care centre; the Montréal Concert Hall and the Salaberry-of-Valleyfield Court House.