Office of the Superintendent of Financial Institutions
The Office of the Superintendent of Financial Institutions (OSFI) is responsible for administering a number of federal statutes, including the statute applicable to the regulation of federally incorporated insurance companies (the Insurance Companies Act (ICA)). As part of the regulatory process, OSFI assesses applications for incorporation and makes recommendations to the Minister of Finance (the Minister), the individual that has the ultimate responsibility for approving the incorporation of a federal regulated insurance company (FIC) under the ICA.
Please note that the May 2013 revisions to this Guide reflect OSFI’s expectations and practices as at December 31, 2012. As these expectations and practices continue to evolve, this Guide will be updated when and as needed.
This Guide sets out the various prudential, regulatory and legislative criteria and information requirements relative to applications for the incorporation of a FIC.Footnote 1 One of the primary objectives of this Guide is to promote awareness and enhance the transparency of the assessment criteria and processes for the incorporation of a FIC.
Part I of this Guide identifies the information that applicantsFootnote 2 are generally expected to submit in support of an application to the Minister seeking the issuance of letters patent of incorporation (Letters Patent) establishing the FIC. Part II identifies the information that is generally expected in support of the subsequent application to the Superintendent of Financial Institutions (the Superintendent) for the making of an order to commence and carry on business (Order). Part III provides administrative guidance.
OSFI will generally evaluate a proposed incorporation against the criteria in this Guide; however, as the particular circumstances and facts of each application are different, this Guide should not be viewed as an exhaustive set of criteria and information requirements.Footnote 3 OSFI officers from the Legislation and Approvals Division and Supervision Sector jointly review and assess each application for the incorporation of a FIC.
This Guide does not apply to:
Applicants are encouraged to contact OSFI for further information regarding the establishment, incorporation or continuance of these entities.
Please note that this Guide relates solely to the ICA and does not address any provincial or territorial requirements, or Assuris or PACICC requirements, that may apply to a FIC’s insurance activities in Canada. Accordingly, OSFI recommends that:
There are two main components involved with an application to establish a FIC in Canada: (i) obtaining Letters Patent from the Minister; and (ii) obtaining an Order from the Superintendent.
Part I of this Guide deals with obtaining Letters Patent, which are issued by the Minister upon recommendation of the Superintendent. Part II deals with obtaining an Order, which is made by the Superintendent after the Letters Patent have been issued. Part III provides administrative guidance to applicants in respect of Parts I and II.
Prior to filing an application, prospective applicants are strongly encouraged to contact OSFI to schedule an initial discussion with the Legislation and Approvals Division regarding the nature of the proposed FIC, including an overview of the proposed owners, ownership structure, the business plan and the eligibility requirements.Footnote 6 This discussion provides an opportunity for OSFI to identify those persons who should be considered applicants for the purpose of this Guide, as well as any apparent or potential regulatory, prudential or public policy issues.
Before making an application, the prospective applicant must give notice of its intention to apply for Letters Patent (Notice). The primary purpose of the Notice is to inform the public of the identity of the persons making the application and to allow for public comment. The ICA states that the Notice must be published once a week for four consecutive weeks in the Canada Gazette and in a newspaper in general circulation at or near the place where the head office of the FIC is to be situated. The ICA also specifies that the Notice must be in a form satisfactory to the Superintendent. As such, a draft copy of the Notice should be provided to OSFI for review prior to publication to avoid the possibility of having to republish the Notice.Footnote 7 In this regard, OSFI’s expectation is that the Notice will set out:
The ICA provides that a person may formally object to the proposed incorporation of a FIC by submitting the objection, in writing, to the Superintendent within 30-days of the last publication of the Notice. Where an objection is submitted, the Superintendent will assess its merits and determine whether a public inquiry into the objection is warranted, informing the Minister of the objection and the findings of any such inquiry.
At or around the time at which an application is made to incorporate a FIC, applicants are encouraged to contact Assuris (the life insurance compensation fund) or the Property and Casualty Insurance Compensation Corporation (PACICC), as the case may be, to ascertain the requirements for membership. As the regulation of FICs is shared between the federal and provincial and territorial governments, applicants are also encouraged to engage the relevant provincial and territorial insurance regulators at this time with respect to any licensing and other regulatory requirements in those jurisdictions.
OSFI will review the whole application with a view to ascertaining whether the criteria related to the Ministerial approval for the issuance of the Letters Patent have been met.Footnote 8 In this regard, and prior to recommending that the Minister issue Letters Patent, the primary emphasis of OSFI’s review will focus on determining whether the following broad considerations – which are further informed by the requirements set out in the remainder of this Guide – have been satisfied:
Applicants should also note that additional information will be requested if the proposed FIC is to be a subsidiary of a foreign institutionFootnote 10 and the application for letters patent to incorporate the FIC is made by a non-World Trade Organization (WTO) Member foreign institution.Footnote 11
OSFI will review the application and will contact the applicant to discuss its completeness, status, and outstanding issues. Where necessary, OSFI will request additional information to complete the assessment of the application, which may include additional corroborating information or analysis from third parties. OSFI’s assessment will also be informed by its experience of the actual performance of existing FICs in similar business lines.
OSFI may discontinue its review of an application where, in OSFI’s view, based on the quality of the applicant’s submissions, and despite significant feedback from OSFI, the applicant is unable to satisfy the information requirements in support of the application. In this regard, applicants should note that they bear the onus of satisfying OSFI’s information requirements in a timely, clear and complete manner.
OSFI’s review relative to the making of the Order will focus on whether the FIC’s management, policies, processes and systems are in place and meet OSFI’s expectations. Part II of the process will normally culminate in an on-site review of the FIC by OSFI to determine whether the FIC is sufficiently prepared to commence business operations.
While there is no specific time limit on the assessment of applications, OSFI endeavours to complete all application assessments as quickly as possible. As the assessment of each application will depend on its own specific facts and circumstances, applicants should note that the issuance of Letters Patent and an Order for a new FIC is generally expected to take at least 12 to 18 months from the initial application to completion. OSFI will communicate regularly with the applicant throughout this process.
In OSFI’s experience, delays in receiving the requested approval(s) most often result from the complexities presented in the application, the provision of incomplete information by the applicant in support of the application, and/or a failure on the part of the applicant to sufficiently address additional information requests from OSFI in a timely manner. In such circumstances, the above noted timeframe may be significantly longer.
Applicants should also note that a newly incorporated FIC may require several months to prepare for the on-site review prior to receiving its Order, and the timing related to the making of an Order will largely depend on the on-site review readiness of the FIC. In this regard, applicants should note that subsection 57(3) of the ICA specifies that the Superintendent shall not make an Order more than one year after the issuance of Letters Patent incorporating the FIC.
OSFI expects applications to contain all the information requirements set out in sections 1.1 to 1.9 of this Guide. The level of detail of the information to be provided will depend on the size of the proposed FIC, its corporate group, the ownership structure of the applicant and the nature, complexity and related inherent risks of the proposed FIC’s business.
In certain circumstances, it may not be feasible for an applicant to provide all the information set out below at the time of the application. Where this is the case, applicants should explain to OSFI which information items will be provided at a later date. OSFI will not, however, begin its review of an application until the Notice has been published and the commitment referred to in section 1.1(r) of this Guide has been provided.
The applicant is generally expected to provide, as applicable:
The applicant is generally expected to provide a minimum three-year business plan for the proposed FIC, including:
The applicant is generally expected to provide:
The applicant is generally expected to provide a detailed description of the proposed internal controls, policies and procedures that the FIC would follow to ensure compliance with:
The applicant is also generally expected to provide:
The FIC comes into existence on the date provided in the Letters Patent. The Minister may set out in the Letters Patent terms and conditions in respect of the FIC’s business to address supervisory and regulatory concerns raised by the corporate structure of the applicant.
Please note that the FIC may not carry on any business until the Superintendent has made an Order in respect of the FIC.
Once the Letters Patent has been issued, and before an Order is made, OSFI must be satisfied that the FIC has the necessary systems, management structure, control processes and compliance management systems in place. All policies and procedures should be finalised and approved prior to the making of an Order. An on-site review is usually arranged after the issuance of Letters Patent and the anticipated areas for review and discussion will be provided by OSFI at that time. The purpose of the review is to assess the control processes and management systems referred to in section 1.4 of this Guide and to ensure that the FIC is capable of producing the required statutory and supervisory information in an accurate and timely manner at the commencement of operations.
In support of its application for an Order, the FIC is generally expected to provide:
The FIC may only commence business on the date provided in the Order. The Superintendent may set out in the Order conditions or limitations on the FIC’s business to address supervisory and regulatory concerns.
The Superintendent may not make an Order more than one year after the day on which the FIC came into existence.Footnote 51 Therefore, the FIC should ensure that all of the information required for the issuance of an Order is submitted to the Superintendent as soon as possible after it receives its Letters Patent.
The FIC will be required to publish notice of the making of the Order in a newspaper in general circulation in the city where the FIC’s head office is located. OSFI is also required to publish a notice of the making of the Order in the Canada Gazette.Footnote 52
This Part provides additional guidance to applicants in respect of ownership and the factors the Superintendent will take into account in determining OSFI’s ability to supervise and regulate a FIC.
Acquisitions of a significant interestFootnote 53 in, and/or controlFootnote 54 of, a FIC are subject to Ministerial approval.Footnote 55 Where such an approval is required in the context of the incorporation of a FIC, a separate application in respect of that acquisition is not necessary.
Where the applicant controls or is a major ownerFootnote 56 of a FIC, the applicant and its affiliates will, if they are entities referred to in section 508 of the BA, have a financial establishment in Canada (where the group does not already have such an establishment) for purposes of Part XII of the BA.Footnote 57 In such circumstances, the applicant and its affiliates become subject to an operating framework in Canada that is substantively equivalent to the one applicable to Canadian banks in certain areas, such as substantial investments.
Applicants who fall within the following categories are not eligible to apply for Letters Patent:
The ICA prohibits the establishment a composite FIC, namely, a FIC that would be authorized to insure both risks falling within the class of life insurance, and risks falling within any other class of insurance other than accident and sickness, credit protection insurance and other approved products insurance.Footnote 59
The ICA provides that, subject to approval of the Superintendent, a FIC may not cause itself to be reinsured, in respect of risks undertaken under its policies, by an “unregistered” related party (i.e., a related party that is neither a federally regulated insurance company nor a foreign insurer that would reinsure in Canada the risks).Footnote 60 Accordingly, if an applicant’s reinsurance program for the proposed FIC entails ceding risks to an unregistered related party, the applicant should refer to Transaction Instruction DA No 21 – Reinsurance with Related Unregistered Reinsurer with respect to the requisite approval of the Superintendent.
In all applications to incorporate a FIC, the Superintendent will assess OSFI’s ability to supervise, examine and regulate the FIC effectively. This assessment will entail an examination of the proposed corporate structure. Where appropriate, the Superintendent may consider whether the proposed structure would hinder effective implementation of corrective measures in the future.
The Superintendent will generally consider the following factors in assessing the level of risk posed by the proposed corporate structure and its impact on OSFI’s ability to effectively supervise and regulate the FIC:
There are various ways that supervisory concerns arising out of corporate structures could be addressed. One possibility would be for an applicant to address such concerns through an undertaking to OSFI that restricts certain activities of the corporate group.
All enquiries regarding the incorporation of a FRFI should be directed to:
In respect of the requirements related to applications for continuance, please refer to OSFI Transaction Instruction A No. 13 – Continuance of a Body Corporate and sections 32 through 38 of the ICA.
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For the purpose of this Guide, any reference to applicant generally includes any entity or individual who would hold the shares of the FIC and any other person identified by OSFI.
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The ICA provides broad authority to the Minister and Superintendent to take into account all matters that they consider relevant in the circumstances related to the granting of any approval (e.g., s. 1016.1 of the ICA).
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Please refer to OSFI Transaction Instruction A No. 4 - Establishment of Branch by Foreign Insurer (Order to Insure in Canada Risks).
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Please note that section 449 of the ICA generally requires life FICs to become a member of Assuris.
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Please see, in particular, sections 1.2 and 5.3 of this Guide.
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Review by OSFI of the draft Notice will ensure that the applicant has performed the requisite name use analysis, and that the form and information contained in the Notice provides the necessary information to the public. Please see sections 1.9(b) and (c), Text for screen readers: 1.9(b) and (c) = 1.9(2) and (3), of this Guide.
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Please see section 27 of the ICA.
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Please see section 1016.1 of the ICA.
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Please see the definition of “foreign institution” in subsection 2(1) of the ICA.
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Please see section 24 of the ICA and section 1.9(f) of this Guide.
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Please see section 5.3 of this Guide.
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If the person is a foreign entity, provide a comparison between the accounting standards used to complete the applicant’s financial statements and Canadian generally accepted accounting principles.
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Please note that, in certain circumstances, OSFI may request that the applicant provide information that demonstrates that the institution meets the minimum capital requirements in both its home jurisdiction and in Canada.
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The OSFI Security Information Form(s) must be provided to OSFI in the following two formats: (a) a signed and dated original hard-copy, and (b) an electronic version in Excel format. Once OSFI receives the completed forms, they are then forwarded to the relevant Canadian law enforcement and intelligence agencies to carry out the requisite background and security assessments. Please note that the time required by law enforcement and intelligence agencies to complete these assessments is not within OSFI’s control, and the Superintendent will generally not seek the Minister’s approval in respect of the Letters Patent until these assessments are completed without issue. As such, applicants are strongly encouraged to remit the completed OSFI Security Information Form(s) at the earliest possible stage in the application.
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Please see section 5.2 of the Guide for additional information in this regard.
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Premium volumes and sales targets should be supported by market studies in Canada and projected results should be compared to the peer group or industry as a whole. Major asset, liability, income and expense categories should also be identified, including start-up costs and any amount and description of off-balance sheet activities.
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Please see OSFI Guideline B-3 - Sound Reinsurance Practices and Procedures.
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Please see OSFI Guideline – Minimum Capital Test or Guideline – Mortgage Insurer Capital Adequacy Test, as applicable, and Guideline A-4: Internal Target Capital Ratio for Insurance Companies.
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Please see OSFI Guideline - Life Insurance Capital Adequacy Test andGuideline A-4: Internal Target Capital Ratio for Insurance Companies.
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Please see OSFI Guideline E-18 - Stress Testing. Applicants are strongly encouraged to contact OSFI to ensure scenarios correctly stress the FIC’s proposed businesses. Please note that the maximum single loss scenario should be calculated without regard to the probability of the event occurring leading to that loss. In addition, the maximum single loss scenario should explicitly set out the considerations of the relationship between: (a) the maximum policy limits offered by the FIC; (b) the FIC’s reinsurance arrangements; and (c) the FIC’s capital levels and MCT/MICAT/LICAT calculations.
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Paragraph 57(1) of the ICA require that the FIC has paid-in capital of at least $5 million (CAD), or any greater amount that may be specified by the Minister, prior to the issuance of an Order. OSFI generally expects the internal MCT target ratio to be at least 300%, the internal MICAT target ratio to be at least 300%, and the internal LICAT ratio to be at least 150%, as the case may be, for all newly established FICs. OSFI generally expects that the initial amount of paid-in capital will be sufficient, at all times, to maintain the FIC’s MCT, or MICAT, or LICAT internal target ratio above its selected internal target for at least the first three years of operations.
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Please see OSFI Guideline B-10 – Outsourcing of Business Activities, Functions and Processes.
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Please see footnote 15.
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Please see Division XIV of Part VI of the ICA and OSFI Guideline E-15 - Appointed Actuary: Legal Requirements, Qualifications and External Review.
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Please see section 338 of the ICA.
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Please see OSFI Guideline E-18 - Stress Testing.
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OSFI generally expects the FIC’s operational risk management policies to include policies related to the following: outsourcing risk, business continuity and disaster recovery, privacy risk, information technology, information management and security, physical security, fraud risk, and records retention. Please also see OSFI’s Supervisory Framework.
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In particular, the FIC’s business continuity plan should ensure that the proposed FIC has in its possession or can readily access all records necessary to allow it to sustain business operations, meet its regulatory obligations, and provide all information as may be required by OSFI to meet its legislated mandate.
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Please see OSFI Guideline B-1 - Prudent Person Approach, OSFI Guideline B-2 - Large Exposure Limits (life) or Guideline B-2 - Investment Concentration Limit for Property and Casualty Insurance Companies, as applicable.
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The compensation policy is expected to be consistent with Financial Stability Board Principles for Sound Compensation and related Implementation Standards.
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The capital management policy should detail the internal targeted levels of capital and describe ongoing monitoring procedures to ensure that the FIC will meet OSFI’s minimum capital requirements. Please see OSFI Guideline A-4: Internal Target Capital Ratio for Insurance Companies.
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Please see OSFI’s Corporate Governance Guideline.
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The proposed directors named in the application for Letters Patent hold office until the election of directors at the first shareholders’ meeting. Please note that OSFI will assess the strength of the Board at the time of incorporation and the Board’s effectiveness going forward.
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Relevant financial institution and risk management expertise are key competencies for the Board. There should be reasonable representation of these skills at the Board and Board committee levels.
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Particular attention should be given to the audit and conduct review committees. In this regard, subsection 165(2) of the ICA requires that the directors of the FIC establish audit and conduct review committees.
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The corporate governance practices adopted by a FIC will likely depend on the nature, scope, complexity, and risk profile of that institution.
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Please see OSFI Guideline E-13 - Legislative Compliance Management System.
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The proposed name can be reserved under the ICA. Please see Index A No. 20 – Name Reservation for information requirements and administrative guidance in relation to name reservation applications.
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OSFI will accept a Newly Upgraded Automated Name Search (NUANS) report, which includes a list of business names and trademarks that sound similar to the name being proposed. If the proposed FIC would conduct business in the Province of Québec, a search of the Québec Corporations Database at “Registraire des entreprises” is also required.
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If the FIC will use both an English and French form of the proposed name, a name search report and corresponding analysis must be provided in respect of both forms of that name. Reference should also be made to OSFI Advisory 2002-01-R1 - Corporate Names, Registered Names and Trade Names.
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Please see section 25 of the ICA.
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The Support Principle that the applicant is expected to acknowledge will be provided by OSFI. Where no person will control the FIC, the applicant will not be required to provide this acknowledgement.
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Please see subsection 2(1) of the ICA for the definition of “non-WTO Member foreign institution”.
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Please see section 24 of the ICA.
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A wire transfer, cheque or draft should be made payable to the “Receiver General for Canada”.
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The letter of commitment that the FIC is expected to sign will be provided by OSFI.
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Material changes to the business plan may include new product offerings, changes in management structure or growth of the business beyond what was contemplated in the initial business plan submitted in support of the application for Letters Patent.
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Please see subsection 57(3) of the ICA.
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Please see section 60 of the ICA.
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Please see section 8 of the ICA.
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Please see section 3 of the ICA.
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Please see sections 407 and 407.1 of the ICA.
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Please see subsections 507(9) and (10) of the BA.
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Please see paragraphs 507(15)(d) and 507(16)(d) of the BA.
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Please see section 23 of the ICA.
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Please see section 445 of the ICA.
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Please see section 523 of the ICA.
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