Office of the Superintendent of Financial Institutions
The Insurance Companies Act (ICA) makes specific reference to participating policies in a number of sections. These sections are intended to provide a minimum level of protection for participating policyholders. However, management of these policies is subject to significant discretion by the company with respect to the management of the business and the level of policyholder dividends.
In 2005, the ICA was amended to require each company with participating policies to have a policy for the management of the participating policies. In addition, new requirements for the management of adjustable policies were added.
In 2010, the Policyholders Disclosure Regulations (Regulations), which supports the ICA on the subject of par and adjustable policies, was enacted after consultation with industry.
There are a number of missing components in the current guidance for participating policies and adjustable policies:
This new guideline addresses the above issues by giving direction to companies on how best to comply with the revised requirements for participating and adjustable policies.
The advantage of this option is that OSFI would not have to devote resources to developing its own guidance on participating and adjustable policies. However, the resources and costs to produce the guidance are not material.
As previously noted, the Regulations were developed with the understanding by industry that OSFI would develop additional guidance. As it currently stands, there is also a lack of any official guidance on the continuing requirements for companies that have previously demutualized. Without additional guidance from OSFI, practice could vary between companies in how they meet the requirements of the ICA and the Regulations.
As under option 1 above, OSFI would not have to devote resources to the development of guidance.
While the CIA has authority over the professional responsibilities of AAs, it has no authority over the companies themselves. As such, this option could result in variation in practice between companies, with the potential for unequal treatment of policyholders.
The advantage of this option is that it results in consistent expectations for companies in how they interpret the ICA and the Regulations.
While there are costs for OSFI related to the development of guidance, they are relatively minor compared to having to supervise a variety of company approaches to the management of participating and adjustable policies.
OSFI issued a draft guideline for comment in June 2011. A number of organizations and individuals provided valuable input, a significant portion of which has been reflected in the final version of the guideline.
OSFI is of the view that the creation of guidance is the most appropriate option for ensuring that institutions consistently meet the requirements of the ICA and the Regulation. The guidance should be developed in cooperation with the CIA developing appropriate professional guidance for the AA in how to fulfill the AA’s obligations in the ICA and the Regulation.