Document Properties
- Type of Publication: Advisory
- Category: Regulatory & Legislative
- Issued: September 2007
- Revised: May 2009
- No: 2007 – 01 – R1
Introduction:
Section 573 of the Insurance Companies Act (ICA)
provides that a foreign entity shall not insure in Canada a risk
unless it is authorized by order of the Superintendent to do so
and the risk falls within a class of insurance that is specified
in the order. Where a foreign entity has been granted such an
order, every aspect of its insurance business in Canada, including
the insurance in Canada of risks, is subject to record keeping,
vesting of assets in trust in Canada and other requirements
imposed by Part XIII of the ICA.
This Advisory provides guidance on key indicia to consider in
determining, for the purposes of the ICA, whether a foreign entity
is insuring in Canada a risk (paragraph 2), and how OSFI will
apply these indicia to a particular business model (paragraphs 3
to 5). It also provides guidance regarding other ICA and
provincial and territorial insurance matters related to foreign
entities (paragraphs 6 to 9).
Where a foreign entity is authorized to insure in Canada risks
falling within the class of life insurance, this Advisory also
applies in determining, for the purposes of the ICA, whether that
foreign entity is issuing annuities and/or policies of endowment
insurance in Canada. When applying the Advisory to such matters,
it should be read with such modifications as the circumstances
require (e.g., any reference to “insuring in Canada a risk” is to
be read as a reference to “issuing annuities in Canada” and/or
“issuing policies of endowment in Canada”).
Legislative Reference:
Part XIII of the Insurance Companies Act.
Definitions:
In this Advisory,
- “foreign insurer”
means an entity incorporated or formed by or
under the laws of a country other than Canada that insures risks,
including an association and an exchange (as those terms are
defined in section 571 of the ICA);
- “insurance”, “insure”, “insurer” and “insuring”
include
reinsurance, reinsure, reinsurer and reinsuring, respectively; and
- “policyholder”
means a prospective or an actual holder of an
insurance policy, and includes a person acting for, or on behalf
of, that prospective or actual holder.
Interpretation:
-
The ICA does not define “insuring in Canada a risk” which,
when read in the context of Part XIII of the ICA, falls within
the “insurance business in Canada” of a foreign insurer. A
review of case law indicates that courts have not interpreted
these concepts, but have interpreted the analogous concept of
“carrying on business in Canada”. Based on these
interpretations, the location where operations are carried on
is of significant importance in determining the location where
business is carried on.
-
To determine whether a foreign insurer is insuring in Canada
a risk, consideration should be given to whether any person
acting for, or on behalf of, the foreign insurer:
-
promotes the foreign insurer or the foreign insurer’s
insurance products through a medium of communication that is
primarily circulated, transmitted, broadcasted or otherwise
accessible in Canada (other than in the course of the
activity referred to in subparagraph 2(b), or as read by screen readers, paragraph 2-2 below);
-
directly incites a person located in Canada to request
insurance coverage (where that person is specifically
identified and targeted), and that person is provided with
the opportunity and/or means with which to make a request
for insurance coverage in the course of that activity (e.g.,
telemarketing, door-to-door solicitation, direct/targeted
mail);
-
receives in Canada a request for insurance coverage from a
policyholder;
-
negotiates from Canada the terms and conditions of
insurance coverage;
-
decides in Canada to bind the foreign insurer to insurance
coverage;
-
communicates from Canada an offer to provide insurance
coverage, or the acceptance of a request for insurance
coverage, to a policyholder;
-
receives in Canada an acceptance of the foreign insurer’s
offer to provide insurance coverage from a policyholder;
-
receives in Canada payment for insurance coverage from a
policyholder; and
-
interacts in Canada with the policyholder in the provision
of services related to the insurance coverage (e.g.,
providing information about the coverage and receiving
claims).
-
While each business model must be assessed on the basis of
its own components, OSFI is of the view that:
-
the indicia in paragraph 2 are not necessarily exhaustive;
and
-
where an activity referred to paragraph 2 occurs partly in
Canada and partly outside Canada, the location where most of
the material aspects of that activity occur should be regarded
as the location where it occurs.
-
OSFI considers that a foreign insurer is insuring in Canada a
risk where its business model encompasses:
-
Scenario 1: Two or more of the
activities referred to in any of subparagraphs 2(b) to (h), or as read by screen readers, paragraphs 2-2 to 2-8.
-
Scenario 2: Any one of the activities
referred to in any of subparagraphs 2(b) to (h), or as read by screen readers, paragraphs 2-2 to 2-8 and both of the
activities referred to in subparagraphs 2(a) and (i), or as read by screen readers, paragraphs 2-1 and 2-9.
-
Scenario 3: Reaching an agreement,
actual or in principle, on most or all of the material terms and
conditions of the insurance coverage in the course of its
negotiations in Canada (i.e., this Scenario contemplates that, in
addition to 2(d), or as read by screen readers, paragraph 2-4, at least one additional activity referred to in
2(e) through (g), or as read by screen readers, paragraphs 2-5 through 2-7 would apply).
-
OSFI considers that a foreign insurer is not insuring in
Canada a risk where its business model encompasses no more
than one of the activities referred to in paragraph 2.
Other Guidance:
-
A foreign insurer that is authorized under the ICA to insure
in Canada risks operates in Canada on a branch basis. That
Canadian operation is not a separate legal entity. Therefore,
depending on its business model, that foreign insurer may
insure in Canada a risk (through its Canadian branch) or it may insure outside Canada a risk (through its head office
or a branch located outside Canada), irrespective of the
location of that risk. However, only risks that are insured in
Canada are subject to the ICA regime. In the event that a
foreign insurer becomes insolvent, the assets it has vested in
trust in Canada under the ICA regime would be available to
satisfy claims made under the Winding-up and Restructuring
Act by holders of policies covering risks insured in
Canada. In that regard, subsection 578(5) of the ICA will
assist policyholders in determining whether they benefit from
the protection afforded by the ICA, when dealing with foreign
insurers. This provision will require a foreign insurer to set
out or cause to be set out in legible characters in all
premium notices, applications for policies and policies
related to its insurance in Canada of risks, a statement that
the document was issued or made in the course of its insurance
business in Canada.
-
Where a foreign insurer is not insuring in Canada a risk, the
ICA does not restrict that foreign insurer from carrying on
any activity or business in Canada. Subject to other
applicable Canadian laws, it could, for example, carry on any
insurance business in Canada that does not involve the
insurance of a risk by it, such as providing underwriting,
policy administration or product development services to other
insurers.
-
In Canada, the federal and provincial/territorial governments
share jurisdiction over foreign insurers. While a foreign
insurer may, for the purposes of the ICA, be considered not to
be insuring in Canada a risk, its activities may cause that
foreign insurer to require a license under one or more of the
insurance statutes of the provinces/territories in Canada. For
example, some of these statutes require a foreign insurer to
obtain a license merely to promote its products in, insure a
person domiciled or resident in, or provide insurance coverage
on a property situated in the province/territory. Accordingly,
OSFI recommends that foreign insurers consult these statutes
and the agencies that administer them.
-
For more information on how OSFI applies the guidance set out
in this Advisory to specific circumstances, please refer to Rulings relating to insurance in Canada of risks posted on
OSFI’s website.