Canadian Framework for Life and Health Insurance Resolution
Life and health insurance companies rarely fail in Canada. Insurers maintain high levels of reserves and capital backing the financial guarantees that they make to policyholders. They also are expert risk managers and are very well supervised by Canadian regulators.
In the unlikely event that a life and health insurer fails, Canadians should know that Canada has a robust safety net and framework for resolving a failed insurer. The resolution framework is designed to protect policyholders and facilitate an orderly resolution.
The Canadian life and health insurance resolution framework is composed of several elements with responsibility and authority for resolving failure distributed among prudential supervisors, the courts and the insurance guarantee scheme. All regulators, including the provincial and territorial regulators, also play a role to ensure policyholder protection by making membership with the insurance guarantee scheme mandatory for all licensed insurers in all jurisdictions.
Supervisors
Guide to Intervention
Information sharing through our
Memorandum Of Understanding
Insurance Guarantee
Scheme
Scheme
Canada-wide private
funding model
Participating Agreements with jurisdictions
Mandatory membership for licensed insurers
Regulators
Liquidator
(through the court
under WURA)
(through the court
under WURA)
- Orderly, transparent and equitable process
- Policyholder priority facilitates the transfer of the business
- Best transaction sells liabilities for least amount of assets
Control Order triggers resolution
- Loan Agreement funds resolution
- Largest priority creditor
- Appointed inspector to assist and advise
- Template liquidation agreements
under WURA)
Control Order triggers resolution
- Loan Agreement funds resolution
- Largest priority creditor
- Appointed inspector to assist and advise
- Template liquidation agreements
under WURA)
- Orderly, transparent and equitable process
- Policyholder priority facilitates the transfer
of the business - Best transaction sells liabilities for least
amount of assets
Control Order triggers resolution
Supervisors
Supervisors
Solvency Focus
Primary Regulators
- Autorité des marchés financiers (AMF) – Québec
- Office of the Superintendent of Financial Institutions (OSFI)
Assuris also has member companies regulated by the following
Alberta Treasury Board and Finance – Alberta Superintendent of Insurance
British Columbia Financial Services Authority (BCFSA)
Financial and Consumer Services Commission (FCNB) – New Brunswick
Office of the Superintendent of Insurance – Nova Scotia
Consumer protection focus
- Alberta Treasury Board and Finance – Alberta Superintendent of Insurance
- Autorité des marchés financiers (AMF) – Québec
- British Columbia Financial Services Authority (BCFSA)
- Digital Government and Service Newfoundland and Labrador – Superintendent of Insurance
- Financial and Consumer Affairs Authority of Saskatchewan (FCAA)
- Financial and Consumer Services Commission (FCNB) – New Brunswick
- Financial Institutions Regulation Branch (FIRB) – Manitoba
- Financial Services Regulatory Authority of Ontario (FSRA)
- Office of the Superintendent of Insurance – Northwest Territories Department of Finance
- Office of the Superintendent of Insurance – Nova Scotia
- Office of the Superintendent of Insurance – Nunavut Department of Finance
- Superintendent of Insurance – Prince Edward Island Department of Justice and Public Safety
- Superintendent of Insurance – Yukon Department of Community Services
Regulators
Regulators
Prudential Supervisors – OSFI, AMF and Other Provincial Supervisors
All insurance companies in Canada are overseen by a prudential supervisor that regulates and supervises insurers to determine whether they are in sound financial condition and meeting regulatory requirements. About two thirds of life and health insurers are federally regulated by the Office of the Superintendent of Financial Institutions (OSFI). The Quebec Autorité des marché financiers (AMF) regulates most of the remaining life and health insurers, with a handful regulated by British Columbia, Alberta, New Brunswick and Nova Scotia.
The prudential supervisors have the statutory powers to intervene in a troubled insurer prior to insolvency. OSFI and AMF have published Guidelines to Intervention for insurers that describe at a high level the intervention process and roles and responsibilities related to an insurance resolution, including the role of the insurance guarantee schemes. The triggers for resolution and powers to take control are also outlined in the intervention guidelines.
In addition to the prudential supervision of the insolvent insurer, other Canadian regulators also have a role in the resolution framework. Provincial and Territorial regulators are principally responsible for the market conduct of insurers operating in their jurisdiction and have a critical role in protecting their financial consumers (i.e. policyholders). Most Canadian insurance companies sell policies in multiple provinces and/or territories and consequently would have policyholders in many of the Participating Jurisdictions. Information sharing among regulators and with Assuris is therefore critical in the run up to and during a life and health insurer insolvency. Once an insolvency becomes public knowledge, closely coordinated communications are necessary to ensure that policyholders and their financial advisors are receiving the best information about what is happening. Assuris works closely with all the Participating Jurisdictions to help ensure this cooperation and coordination.
Insurance Guarantee Scheme – Assuris
Assuris is the insurance guarantee scheme for the life and health insurance industry in Canada that provides a guaranteed minimum level of protection for policyholder’s insured benefits if their insurer fails1. These guarantees are funded through the ability of the guarantee scheme to assess their industry members for the cost of protecting policyholder benefits after failure.
Protection by Benefit
Benefit
Death Benefit
Health Expense
Monthly Income
Investments / Savings:
- Cash Value
- Accumulated Value
- Segregated Fund Guarantee
Assuris Protection
$1,000,000
$250,000
$5,000/month
$100,000
or
90%,
whichever is higher
Benefit
Assuris Protection
Death Benefit
$1,000,000
Health Expense
$250,000
Monthly Income
$5,000/month
Investments / Savings:
- Cash Value
- Accumulated Value
- Segregated Fund Guarantee
$100,000
or
90%,
whichever is higher
Assuris is designated by the federal Minister of Finance under the Insurance Companies Act of Canada. Assuris is recognized by the Autorité des marchés financiers (AMF) as the compensation body whose members are Quebec-chartered life insurers.
Assuris’ powers and capabilities are outlined in its By-law and Memorandum of Operation. They are not defined in law but are effectively constrained by agreements with participating jurisdictions, including the participation agreement with OSFI as the representative for the jurisdiction of Canada. The Assuris By-law and Memorandum of Operation can not be amended if any participating jurisdiction objects to the changes.
Assuris has demonstrated its ability to mobilize all necessary knowledge and resources with the four past life and health insurance insolvencies in Canada. Assuris’ subsidiary company, CompCorp Life Insurance Company (CCL), is also an available option for the transfer of business in resolution. CCL is licensed federally and provincially to reinsure business from a troubled member company.
Winding-up and Restructuring Act (WURA or the Act)
The Winding-up and Restructuring Act (WURA or the Act) is the legislation that governs the affairs of most financial institutions experiencing financial distress. The purpose of WURA is to provide for the orderly liquidation of a distressed financial institution.
Typically, at the point that an insurer has been deemed non-viable by its prudential supervisor, the prudential supervisor will assume temporary control of the insurer and almost immediately petition the court for a winding-up order under WURA. The insurance guarantee scheme will usually have been involved and working with the prudential supervisor in preparing the petition and winding-up order presented to the court, and in recommending the liquidator (usually a firm of restructuring professionals) to be appointed by the court. The liquidator takes control of the failed insurer immediately after the winding-up order comes into effect.
Assuris typically exerts considerable influence in WURA proceedings because we represent the largest group of creditors (i.e. policyholders with guaranteed benefits covered by Assuris protection). We work cooperatively with the prudential supervisor and with the liquidator. The breadth and scope of Assuris’ influence may be enhanced significantly in various ways, including:
- in acting as a court-appointed inspector to assist and advise the liquidator in the liquidation of the company;
- in providing working capital financing to the liquidator; and
- in assisting with the transfer of the business or assets of the insolvent insurance company. For example, Assuris will typically enter into a loan agreement with the liquidator immediately upon their appointment. This loan allows the liquidator to continue to make claims payments during the period of liquidation. The loan agreement will typically include requirements that the liquidator consult with or obtain approval from Assuris for significant resolution steps, such as the sale or transfer of the business.
Courts have broad discretion in the types of orders they may make under WURA. Assuris has a standard winding-up order that could provide the following resolution powers:
- to operate and resolve the firm,
- to ensure the continuity of essential services,
- to override the rights of shareholders,
- to transfer or sell assets and liabilities,
- to establish a temporary bridge institution, such as CCL,
- to establish a separate asset management vehicle,
- to provide a temporary stay of early termination rights, except for eligible financial contracts (EFCs), and
- to impose a moratorium on payments.
An advantage of this court-based system is its flexibility. This allows for creative and tailored solutions in resolution.
[1] The property & casualty insurance industry has separately established the Property and Casualty Insurance Compensation Corporation (PACICC) as its insurance guarantee scheme in Canada.
Explore What Happens in a Failure
See how Canada’s resolution framework protects policyholders if a life and health insurer fails. These pages explain the coordinated approach between regulators, Assuris, and other stakeholders to preserve financial stability, how the resolution process works, and our experience with past failures.
