Assuris is launching an initiative to develop a policy framework for establishing a designated insurance resolution authority for Canada. The following provides some background on the Canadian insurance resolution framework and the opportunity to strengthen it.
Current Insurance Resolution Framework Overview
The Canadian insurance resolution framework involves prudential supervisors, the courts, and the policyholder protection plans (Assuris for life and health insurance, and the Property and Casualty Insurance Compensation Corporation (opens in new tab) (PACICC) for property & casualty insurance) working together to ensure an orderly resolution when an insurer fails. Prudential supervisors such as the Office of the Superintendent of Financial Institutions (opens in new tab) (OSFI) at the federal level and the Autorité des marchés financiers (opens in new tab) (AMF) in Quebec monitor insurers’ financial condition and can intervene before insolvency under published Guidelines to Intervention.
When an insurer is deemed non-viable, the supervisor assumes temporary control and petitions the court for a winding-up order under the Winding-up and Restructuring Act (WURA), which governs liquidation of distressed financial institutions. Once the court issues the order, a liquidator—typically a restructuring firm—is appointed to take control of the failed insurer.
The policyholder protection plans play a central role throughout the process as the representative of policyholders, the largest creditor group, and works closely with supervisors and liquidators. Its responsibilities include acting as a court-appointed inspector, providing working capital financing to maintain claims payments, and assisting with the transfer of business or assets to a solvent insurer. Loan agreements often require the liquidator to consult Assuris or PACICC on significant resolution steps.
Courts have broad discretion under WURA. They can grant powers to operate and resolve the firm, ensure continuity of essential services, override shareholder rights, transfer or sell assets and liabilities, establish a bridge institution, create asset management vehicles, and impose temporary stays or moratoriums on certain payments.
Overall, the process is collaborative, with supervisors initiating intervention, courts providing legal authority, and Assuris or PACICC ensuring policyholder protection and continuity of benefits.
Cross-Border Risks and Jurisdictional Challenges
While the current WURA-based framework works well for most Canadian insurers with simple, domestic operations, the resolution of internationally active insurance groups (IAIGs) in Canada presents significant challenges compared to domestic life insurers. Canada has three life and health insurance IAIGs: Manulife, Sun Life, and Canada Life, and one property & casualty insurance IAIG: Intact.
The three life and health insurance IAIGs dominate the Canadian life and health insurance market with approximately 75% market share and operate globally across multiple jurisdictions, with extensive businesses in the United States, Asia, and Europe, with their international operations often exceeding their Canadian ones. Their structures are highly interconnected, with foreign branches and subsidiaries held within Canadian entities, creating material capital, tax, and operational benefits but also severe resolution risks. Unwinding these interdependencies in an orderly manner would be difficult, especially given cross-border issues like jurisdictional ring-fencing of assets.
The failure of any IAIG would have profound systemic implications, affecting millions of Canadian policyholders and potentially undermining confidence in the financial system both domestically and internationally. These firms also maintain significant exposure to global financial markets through derivatives and complex reinsurance arrangements, including large transactions with private equity-owned counterparties, amplifying contagion risk. Consequently, IAIG failures require advanced resolvability analysis, detailed resolution planning, and ongoing international coordination well beyond what is needed for smaller domestic insurers.
While initial work has begun, advance resolution planning alone is insufficient. The current WURA-based framework is likely inadequate for handling an IAIG failure and should be strengthened by establishing a modern administrative resolution authority with powers aligned to the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions (opens in new tab).
Role and Powers of a Resolution Authority
A resolution authority is an entity distinct from the prudential supervisor (OSFI) and the courts/liquidator under traditional insolvency law (WURA). It is mandated to intervene once an insurer becomes non-viable, or likely to become non-viable, before value is destroyed and without relying primarily on liquidation. The role of a resolution authority for the insurance industry would be to:
- Protect policyholders by ensuring continuity of insurance coverage and benefit payments.
- Contribute to maintaining financial stability by avoiding a disorderly failure that could trigger policyholder runs, destabilize markets or harm other insurers via contagion effects.
- Enable orderly resolution, not just liquidation.
- Coordinate a failure domestically and internationally, by being a recognized counterpart to foreign resolution authorities for cross-border insurance groups and participating in crisis management groups (CMGs).
Based on the Financial Stability Board (FSB) Key Attributes, a resolution framework would have administrative (not purely court-based) powers1, including the following:
- Entry into resolution
- Determine when an insurer is non-viable or likely non-viable
- Trigger resolution before insolvency occurs
- Control and governance powers
- Remove or override the board and senior management
- Take control of the insurer or its critical operations
- Policy and liability restructuring powers
- Transfer insurance policies to a solvent insurer
- Establish a bridge insurer to maintain policies temporarily
- Modify, reduce or terminate policy benefits
- Temporarily suspend surrender or withdrawal rights to stop runs
- Asset and contract transfer powers
- Transfer assets and liabilities without individual consent
- Override contractual termination rights (reinsurance, derivatives)
- Ensure continuity of essential services and hedging programs
- Funding and industry loss-allocation powers
- Access policyholder protection funds
- Coordinate industry-funded loss adoption
- Avoid taxpayer exposure while preserving confidence
- Recovery and resolution planning (ex ante powers). Before failure occurs, the resolution authority would:
- Require insurers (especially IAIGs) to prepare recovery and resolution plans
- Conduct resolvability assessments
- Identify barriers to orderly resolution and require structural changes
How Does a Resolution Authority Differ from Canada’s Current Framework?
Canada’s current WURA framework is fundamentally court-driven and triggered only once an insurer is insolvent, which limits intervention to liquidation or narrow restructuring options at the very moment policyholder confidence is already at risk. The process can be slow and less equipped to manage complex or cross-border realities of today’s insurance sector. By contrast, a dedicated resolution authority model enables administrative, expert-led action triggered at the point of non-viability —before insolvency— using a broader set of sector-specific tools supported by clear statutory powers. It provides greater predictability, faster decision-making, stronger coordination domestically and internationally, and ultimately better protection for policyholders.
In an increasingly interconnected financial system, Canada needs a modern insurance resolution authority to ensure stability, preserve confidence in the financial system, and align with global best practices.
| WURA framework | Resolution authority model |
|---|---|
Court-driven liquidation |
Administrative, expert-driven |
Triggered at insolvency |
Triggered at non-viability |
Limited restructuring tools |
Broad sector-specific tools |
Vulnerable to uncertainty and delay |
Clear statutory powers |
Weak cross-border collaboration |
Internationally recognized authority |
| WURA framework |
|---|
Court-driven liquidation |
Triggered at insolvency |
Limited restructuring tools |
Vulnerable to uncertainty and delay |
Weak cross-border collaboration |
| Resolution authority model |
|---|
Administrative, expert-driven |
Triggered at non-viability |
Broad sector-specific tools |
Clear statutory powers |
Internationally recognized authority |
