Law Times

Law Times • OcTOber 19, 2009 FOCUS PAGE 11 New rules for foreign insurers to take effect C BY JULIUS MELNITZER For Law Times hanges to the adminis- tration of Canada's In- surance Companies Act coming into force next year mark the latest step in a major evolution of the country's regulatory regime for foreign insurance companies. "The focus has shifted dra- matically from the location of the insured risk to the place where the insurance business is conducted," says Stuart Carru- thers of Stikeman Elliott LLP. Julie Dickson, superintendent of financial institutions, explained the change in a speech in 2008. "[The changes] are about promises made and promises kept," she said. "The policyhold- ers that have transactions here in Canada with a foreign insurer ex- pect that Canadian law will pro- tect them. They expect that, in a worst-case scenario, there will be enough money to satisfy all eligi- ble claimants in liquidation. That is a reasonable expectation. "However, if we regulate on the basis of location of risks, we lose the ability to keep that prom- ise. So the promise being made is that if the transaction occurred in Canada, with some physical presence of the insurer, then the regime protects policyholders. "In other words, if you 'walked into the store' in Cana- da, you are protected, but if you 'walked into the store' abroad you are not protected in terms of solvency by [Dickson's office but by a foreign regulator]." Under a revised advisory is- sued in May 2009, the Office of the Superintendent of Fi- nancial Institutions will, as of Jan. 1, 2010, consider the fol- lowing in determining whether a foreign company is insuring a risk in Canada: • Whether the insurer is pro- moting itself or its products through a medium of com- munication that is primarily accessible in Canada; • Whether the insurer is in- citing anyone in Canada to request insurance coverage and providing that person with the means to request cov- erage during the course of the inciting activity; • Whether the insurer is receiv- ing in Canada a request for coverage from a policyholder; • Whether the insurer negoti- ates from Canada the terms and conditions of coverage; • Whether the insurer decides in Canada to bind itself to in- surance coverage; • Whether the insurer commu- nicates from Canada an offer to provide coverage or the ac- ceptance of a request for cov- erage to a policyholder; • Whether the insurer receives in Canada an acceptance of its offer to provide coverage from a policyholder; and • Whether the insurer interacts in Canada with the policy- holder in providing services such as giving information about the coverage. As of Jan. 1, then, Canadian branches will no longer need to record business written outside Canada, will no longer be re- quired to have assets in place in Canada backing business writ- ten outside Canada, and will be able to apply for a release of assets backing business written outside Canada. But that's not quite so simple. "The difficulty is that no grandfathering will be available in either circumstance," Carru- thers says. "OSFI required all for- eign companies within a reason- able time after Jan. 1, 2010, to exercise due diligence to identify all risks located outside Canada that were written in Canada be- fore Jan. 1, 2010, and to comply with the changes going forward in respect of those risks." Insurers must complete that process by Dec. 31, 2010. Complications also arise with respect to reinsurance. Currently, if an OSFI-licensed Rules requiring insurance com- panies to review their existing business to bring it in line with new regulations could pose a problem, says Frank Palmay. company reinsures with another OSFI-licensed company, the in- surer doesn't need to have assets in Canada backing up the reinsured risk; rather, OSFI will require the reinsurer to put up the assets. "The difficulty is that with the change in emphasis from loca- tion of the risk to the place where the business is conducted, certain reinsurers may now need to be licensed whereas others may not require licences any longer," Car- ruthers says. "So both insurers and reinsurers have to go through all their old business and re-record and treat their risk in accordance with the new regime." According to Frank Palmay of Lang Michener LLP, that could pose a problem. "People are struggling be- cause the mandates of Canadian branches tend to be local rather than international," he says. "And while it's unusual for Canadian branches to have written business outside the country, the idea of going back to square one to make that determination can be quite difficult for some of them." Foreign insurers will also have to consider the interplay between the federal and provin- cial insurance regimes. "Each province has a slightly different test as to what consti- tutes carrying on business in that province, and they may or may not conflict with federal rules," Carruthers says. "For example, British Columbia recently an- nounced that it will be using a risk location test that is the exact op- posite of the new federal rules." The upshot is that a foreign insurer who writes a policy in the United Kingdom on a B.C. ski resort may not have to be licensed under the federal Trust [ Malach + Fidler LLP Mediation & Arbitration Services A Fair Settlement Is No Accident Jon Fidler, C.Med. David Dempster 439 University Avenue Suit e 1401 Toronto, Ontario M5 G 1Y8 (416) 598-1667 (416) 598-5222 (fax) Stephen Malach,Q.C. Ivan Luxenberg 30 Wertheim Court Uni t 6 Richmond Hill, Ontario L4 B 1B9 (905) 889-1667 (905) 889-1139 (fax) e-mail: mediation@malach-fidler.com www.malach-fidler.com Untitled-1 1www.lawtimesnews.com 4/7/08 9:02:11 AM Alan Farrer - Managing Partner | Desmond Dixon - Partner | David Neill - Partner For over 70 years Thomson, Rogers has built a strong, trusting, and collegial relationship with hundreds of lawyers across the province. As a law firm specializing in civil litigation, we have a record of accomplishment second to none. With a group of 30 litigators and a support staff of over 100 people, we have the resources to achieve the best possible result for your client. Moreover, we are exceptionally fair when it comes to referral fees. We welcome the chance to speak or meet with you about any potential referral. We look forward to creating a solid relationship with you that will benefit the clients we serve. THOMSON, ROGERS Barristers and Solicitors 416-868-3100 Toll free 1-888-223-0448 www.thomsonrogers.com YOUR ADVANTAGE, in and out of the courtroom rules but would require a licence under the provincial regime. "It would certainly be prefer- able if OSFI and the provincial regulators could continue their efforts towards potential harmo- nization," Carruthers says. There are also anomalies in re- lation to insolvency and tax laws. "Under insolvency law, only the Canadian assets securing in- surance risks are available to poli- cyholders, so an insured whose policy has been written outside Canada won't have first-tier access to those assets in the event the in- surer fails," says Paul Belanger of Blake Cassels & Graydon LLP. As well, provincial premium tax legislation is payable based on the location of the risk, and fed- eral excise tax continues to apply on unregistered insurance. There may also be an eco- nomic impact. "It remains to be seen whether the migration to the new regime will, as has been widely specu- lated, result in an acceleration of withdrawals of existing branches in circumstances where the busi- ness model could be more con- veniently continued on a basis that would not attract licensing requirements under the new re- gime," Carruthers says. LT Every time you refer a client to our firm, you're putting your reputation on the line. It's all about trust well placed.

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