OSFI Seeks Comments on Revisions to the Vested Asset Regime for Foreign Insurance Branches

Document Properties

  • Type of Publication: Letter
  • Date: March 29, 2021
  • To: Foreign Insurance Branches and Trustees

Background

In November 2019, following a review of the responsibilities and general operating activities of the Securities Administration and Approvals Reporting Unit (SAAR), OSFI announced the first in a series of steps to modernize and improve its Securities Administration regime and processes. This letter introduces proposed procedural updates to branch requirements intended to reduce administrative requirements on a risk-adjusted basis and ensure OSFI is efficiently collecting the information it needs.

Proposed Amendments

The Insurance Companies Act requires foreign companies to maintain in Canada an adequate margin of assets in respect of its insurance business in Canada. These assets must be vested in trust in a Canadian financial institution. The vested assets provide assurance that the foreign company is able to meet its obligations to Canadian policyholders. The Standard Trust Agreement (STA) is the agreement that establishes the account to hold such assets, and the contractual means for OSFI to obtain information from the Canadian trustee in respect of such assets. The STA consists of two forms:

  • Form 541 - The Standard Form Trust Agreement
  • Form 542 - The Terms and Conditions of the Standard Form Trust Agreement

Form 542 includes three Schedules:

  • Schedule A - A list of assets that foreign insurance branches can vest without pre-approval from OSFI
  • Schedule B - Monthly Reporting Requirements for trustees holding assets for foreign insurance branches
  • Schedule C - Annual Declaration for trustees holding assets for foreign insurance branches

Amendment 1

OSFI proposes to revise Schedule A to better reflect its risk tolerance for certain asset classes. The proposed list will include investment grade debt and securities from the United States. OSFI expects insurance branches will only request to vest assets outside of this list in exceptional circumstances.

PROPOSED SCHEDULE A
ASSETS VESTED IN TRUST

Eligibility Criteria

In addition to any requirements or restrictions included in Part XIII of the Insurance Companies Act, the assets vested in trust must be included in the List of Permitted Assets and meet all of the following criteria:

  1. The assets may include cash or assets in which the insurance branch may invest its funds pursuant to the branch’s investment and lending policies, standards and procedures.
  2. The assets must be free of all liens, charges and encumbrances and may not be used for securities lending purposes.
  3. The assets vested in trust, other than cash and obligations of the Government of Canada, must be liquid tradable securities deposited with the Canadian Depository for Securities Ltd. (CDS).
  4. The assets must be payable in Canadian or United States dollars.

List of Permitted Assets

  1. Cash denominated in Canadian dollars or United States dollars
  2. Investment gradeFootnote 1 bonds, notes and other obligations of the following entities:
    1. The Government of Canada;
    2. Canadian provincial and territorial governments;
    3. Agents of the Canadian Government or a Canadian provincial or territorial government whose debts are, by virtue of their enabling legislation, direct obligations of the Crown in right of such federal, provincial or territorial government;
    4. Federally guaranteed obligations issued directly by the United States government;
    5. Canadian Corporations;
    6. United States Corporations.
  3. Common equities and preferred shares of the following entities:
    1. Canadian Corporations listed on the S&P/TSX Composite Index;
    2. United States Corporations listed on the S&P 500 Index or the Nasdaq Composite Index.

Footnotes

Footnote 1

To be considered an investment grade issue, the debt must be rated at 'BBB' or higher by Standard and Poor's or ‘Baa3’ or higher by Moody's

Return to footnote 1

Amendment 2

Requests to vest non-preapproved assets to, or release assets from, trust accounts must be accompanied by OSFI Form 298. In conjunction with the revision of the Schedule A list of assets, OSFI is proposing to revise Form 298 to better capture information Supervisors require. A draft of the revised Form is attached.

Amendment 3

Trustees that hold assets in trust for foreign insurance branches are required to, on or before the fifteenth of each month, file with the Superintendent a statement of assets held along with their respective market values. OSFI intends to standardize this process by requiring all filings be submitted via OSFI’s Regulatory Reporting System (RRS). A sample of this format is attached. Roll out of this feature is still under development and will not commence until later this year.

Consultation

Stakeholders are invited to provide comments on the above proposals by email at SAAR@OSFI-BSIF.gc.ca by April 23, 2021. OSFI expects to publish its final amendments and implementation schedule in spring 2021.