Establishment of a branch by a foreign insurer (order to insure in Canada risks)

Information Requirements

Corporate Information

The applicant is generally expected to provide:

1. the name of the applicant;
2. the name of the jurisdiction and date of incorporation or establishment of the applicant;
3. the address of the principal place of business and head office of the applicant;
4. a certified copy of the constating documents and current company by-laws of the applicant;
5. a certified copy of a resolution of the board of directors of the applicant approving the application;
6. the current organization chart (with percentages owned) of the applicant’s corporate group, including entities in which the applicant (and any of its parents) beneficially owns 10% or more of the voting rights (indicate by an asterisk whether any of the entities shown on the chart operate in Canada, and provide a summary of these operations);
7. details regarding any voting agreement or other similar arrangements that involve persons exercising direct or indirect control^Footnote1 over the applicant;
8. the names of all persons owning more than 10% of any class of shares or ownership interests in the applicant (and in any of its parents), and the percentage of shares or ownership interests held (to the extent not already shown in the organization chart referred to in item 6 above);
9. details of any shares or ownership interests of the applicant (and any of its parents) that are held by a government or a political subdivision, an agent or agency thereof, together with a summary of its involvement in the operation and affairs of the applicant;
10. a summary of the current and proposed financial services and other key activities carried on by the applicant and its affiliates (other than the proposed branch in Canada (Branch)), including a list of jurisdictions in which they operate and the nature and degree of regulatory oversight applicable to the financial services activities; and
11. if the applicant, or an entity affiliated with the applicant, is an entity referred to in section 508 of the Bank Act (BA), an analysis demonstrating compliance with Part XII of the BA.^Footnote2

Regulatory Information

The applicant is generally expected to provide:

12. the name and contact information of an individual from the applicant’s home regulator that is familiar with the applicant’s activities;
13. confirmation that the applicant’s home regulator is aware of the applicant’s intention to establish the proposed Branch, details regarding whether the applicant requires regulatory approval from its home regulator to establish the proposed Branch, and if so, confirmation that any such approval has been obtained;
14. information on whether, and in what manner, the applicant is subject to comprehensive consolidated supervision and regulation by its home regulator;
15. details of whether the applicant or any of its affiliates have been the subject of any criminal proceedings or administrative sanctions;
16. details of whether the applicant and any of its affiliates have been denied a request to establish a financial institution or a branch;
17. if the application is made by a foreign entity^Footnote3 that is not controlled by a WTO Member resident^Footnote4 , the applicant must demonstrate that reciprocal treatment exists, or will be provided for, in the jurisdiction in which the applicant principally carries on business, either directly or through a subsidiary;^Footnote5 and
18. copies of the following documents issued by the applicant’s home regulator:
    1. a report of the examination in respect of the applicant, if available, or confirmation that the applicant’s home regulator reports favourably on the applicant, and
    2. regulatory authorization(s):
       1. listing the classes of insurance under which the applicant is permitted to insure in its home jurisdiction, and
       2. permitting the applicant to transact in, or otherwise carry on, any other activities in its home jurisdiction that it is proposing carry on in Canada, if applicable.

Financial Information

The applicant is generally expected to provide:

19. details in support of the applicant’s capacity to provide continuing financial, managerial and operational support to the proposed Branch, including a confirmation that the applicant meets the minimum capital requirements in its home jurisdiction;^Footnote6
20. for each of the most recent three years, copies of the applicant’s:
    1. annual regulatory filings in the form submitted to the insurance regulatory and/or supervisory authorities in the applicant’s home jurisdiction evidencing a high degree of success and expertise relative to the applicant’s insurance operations in its home jurisdiction and those that it proposes to carry on in Canada, and
    2. audited consolidated financial statements of the applicant (balance sheet, income statement, statement of changes in shareholders’ equity);^Footnote7 and
21. a copy of the most recent
    1. annual report of the applicant (and of any of its parents), and
    2. report in respect of the applicant (and of any of its parents), issued by a recognized credit rating agency, if available.

Business Plan

The applicant is generally expected to provide a minimum three-year business plan for the proposed Branch, including:

22. a current curriculum vitae of the proposed chief agent and each of the senior individuals expected to be directly responsible for the operations of the proposed Branch, including:
    1. a completed OSFI Security Information Form,^Footnote8
    2. the title of the position the individual would hold in respect of the Branch, and
    3. details of whether the individual, and/or any entity in which the individual is or was a senior officer, have been the subject of any criminal proceedings or administrative sanctions;
23. the reasons why the applicant is seeking to establish the Branch;
24. the location(s) of the proposed office(s) and/or agency(ies) in Canada;
25. an analysis clearly demonstrating that the applicant’s proposed business plan for Canada would cause the applicant to be insuring in Canada risks, in accordance with OSFI’s Advisory 2007-01-R1 (Insurance in Canada of Risks);
26. an analysis of target markets and opportunities that the proposed Branch will pursue in Canada, and the plans to address them;
27. an analysis of competitors, showing both challenges and opportunities, and plans to address them;
28. the reasons why the applicant believes that the proposed Branch will be successful, and the overall strategy for achieving this success, including a discussion of key assumptions;^Footnote9
29. a detailed description of each line of business to be conducted by the proposed Branch and the products and services to be offered, including how the lines of business interrelate;
30. an analysis of how the risks that the proposed Branch would insure, in respect of its lines of business, fall within the classes of insurance set out in the Schedule to the ICA;
31. an analysis demonstrating that the applicant is authorized to insure risks falling within the classes of insurance identified in item 30 above in its home jurisdiction (as identified in item 18(b)(i), Text for screen readers: 18(b)(i) = 18(2)(1),);
32. details regarding the projected insurance policy limits by class of insurance;
33. three-year pro-forma financial statements (base case) for the Branch, including:
    1. balance sheet,
    2. income statement showing premium volumes on a gross and net basis, premiums earned, net claims and adjustment expenses, acquisition expenses, investment income and net income,
    3. details regarding any key assumptions, including actuarial assumptions, supporting the pro-forma financial statements, including, but not limited to, those related to underlying claims, valuation, pricing, underwriting, expenses, and persistency of policies, and
    4. detailed calculations of financial ratios relevant to the proposed business of the Branch;^Footnote10
34. in the case that the applicant is proposing to establish a property and casualty insurance Branch, three-year pro-forma Branch Adequacy of Assets Test (BAAT)^Footnote11 calculations, or in the case that the applicant is proposing to establish a life insurance Branch, three-year pro-forma Life Insurance Margin Test (LIMAT)^Footnote12 calculations, including:
    1. base case and scenario stress testing supporting the proposed Branch’s anticipated internal target ratio showing the results on the base case business plan (including a worst case scenario and a scenario with a maximum single loss),^Footnote13
    2. a detailed description of the applicant’s contingency plans to address the worst case and other adverse scenarios, and
    3. details regarding the source(s) of the initial and future vested assets provided for in the base case, worst case and other adverse scenarios;^Footnote14
35. a detailed description of all projected reinsurance arrangements involving the proposed Branch, including planned net retentions per class of insurance requested;^Footnote15
36. a detailed description of any proposed material outsourcing arrangements involving the proposed Branch and how these arrangements would be managed;^Footnote16
37. details regarding the projected staff complement and an organization chart showing reporting lines for the chief agent and all senior positions, located in Canada or elsewhere, including their key responsibilities and mandates for the proposed Branch over the lifespan of the business plan;
38. details regarding the hiring criteria, including knowledge and experience, for each senior position;
39. a description of the oversight that will be provided by the applicant’s senior management, or if applicable, that of its parent, in the operations of the proposed Branch;
40. the name and address of the proposed appointed actuary of the Branch and confirmation that the proposed appointed actuary meets the suitability requirements set out in the ICA and OSFI guidance;^Footnote17 and
41. the name and address of the proposed external audit firm, and the specific partner of that firm, that will be responsible for auditing the Branch, and confirmation that the proposed external auditor meets the suitability requirements set out in the ICA.^Footnote18

Policies, Procedures and Controls

The applicant is generally expected to provide:

42. a detailed description of all risks to which the proposed Branch would be exposed as well as the manner in which it would monitor and manage these risks, including:
    1. market and credit risk,
    2. operational and regulatory compliance risk,
    3. reputational and strategic risk, and
    4. product design, pricing and underwriting risk;
43. draft copies of the proposed Branch’s:
    1. stress testing policies and procedures,^Footnote19
    2. reinsurance risk management policy,^Footnote20
    3. operational risk management policies,^Footnote21
    4. business continuity management policy, business impact analysis and plans for business continuity and disaster recovery,^Footnote22
    5. investment and lending policies, standards and procedures,^Footnote23
    6. vested asset management policy,^Footnote24 and
    7. if applicable, the proposed provisioning policies and a description of the collective allowances that are anticipated in executing the proposed Branch’s business plan;
44. a detailed description of the internal controls, policies and procedures that the proposed Branch will follow to ensure compliance with:
    1. the ICA and OSFI issued guidance applicable to the proposed Branch, including the name of the senior person that will be responsible for such compliance and a description of the resources and authority allocated to that person discharge this responsibility,
    2. sections 83.08 to 83.12 of the Criminal Code and the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (UNSTR) and related directives issued by OSFI and the Government of Canada, including the name of the proposed senior person that would be responsible for compliance with the Criminal Code and UNSTR, and a description of the resources and authority to be allocated to that person to discharge this responsibility,
    3. in the case of a proposed life insurance Branch, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and related guidelines issued by the Financial Transactions and Reports Analysis Centre of Canada and OSFI Guideline B-8 - Deterring and Detecting Money Laundering, including the name of the proposed Chief Anti-Money Laundering Officer that would be appointed under the PCMLTFA, a description of the resources and authority to be allocated to that person to discharge this responsibility, and an assessment of the money laundering and terrorist financing risks relevant to the proposed Branch’s business plan, and
    4. all other pertinent Canadian legislation;^Footnote25
45. details of any proposed risk management and control processes that will be integrated with those of the operations of the other entities in the applicant’s group;
46. the name of the proposed senior person to be responsible for risk management oversight of the proposed Branch and a description of the resources and authority allocated to discharge this responsibility;
47. where applicable:
    1. a description of the Branch’s proposed information technology (IT) environment,
    2. a risk assessment of the IT operations,
    3. a description of any integration with third party systems,
    4. the proposed end user computing policy, and
    5. the proposed IT policy and governance structure, including roles and responsibilities, and details on resources and staffing; and
48. where applicable, a description of the:
    1. proposed mandate, organization structure, and methodology and practices of the internal audit function, and
    2. involvement of any internal audit group(s) of the applicant or any of its affiliates to assess the internal controls of the proposed Branch.

Proposed Name

The applicant is generally expected to provide:

49. the proposed name under which the applicant intends to insure in Canada risks, in English, French, or both (as required), and a name search report^Footnote26 accompanied by an analysis in support of the applicant’s conclusion that the proposed name:
    1. is available for use in Canada, and
    2. is not prohibited by the ICA and meets the requirements of any other relevant Canadian legislation, including all pertinent financial institution statutes;^Footnote27 and
50. where the proposed name under which the applicant intends to insure in Canada risks is substantially the same as that of an affiliated entity:
    1. the consent in writing of that entity, or from the controlling parent of the corporate group on behalf that entity, to use the name, and
    2. a description of the mitigants already in place, or mitigating measures that the applicant intends to undertake, to avoid potential confusion in the marketplace.

Other Requirements

The applicant is expected to provide:

51. a completed:
    1. Power of Attorney appointing a chief agent for Canada (OSFI-BSIF-25), and
    2. Return of Officers, Auditor and Appointed Actuary form (OSFI-BSIF-513);
52. a statutory declaration or affidavit by a representative of the newspaper and Canada Gazette pertaining to the dates that the applicant’s notice of intention to apply for an order approving the insuring in Canada of risks by the applicant (Order) was published, along with a copy of the published notice;^Footnote28
53. a confirmation that the applicant has not received any objections related to the notice referred to in item 52 above, or has addressed any objection received (together with a description of the manner in which the objection was addressed); and
54. in the final stages of the application:
    1. a letter of commitment^Footnote29 signed by a senior officer of the applicant to the effect that the applicant will provide OSFI with adequate advance notice of any proposed material changes to the business plan of the proposed Branch, ^Footnote30
    2. a confirmation that the applicant has vested in trust in Canada assets of an amount that has been specified by the Superintendent,^Footnote31 and
    3. a confirmation that the applicant has applied for membership in Assuris (the life insurance compensation fund)^Footnote32, or the Property and Casualty Insurance Compensation Corporation (PACICC), as the case may be.

Administrative Guidance

1. This Transaction Instruction relates solely to the ICA and does not address any provincial or territorial requirements, or Assuris or PACICC requirements, that may apply to the applicant’s insurance activities in Canada. Accordingly, OSFI recommends that:
   1. applicable provincial and territorial insurance statutes be reviewed, and the agencies that administer them be consulted, in connection with the applicant’s proposed insurance activities in Canada; and
   2. the applicable membership requirements of Assuris or PACICC be reviewed, and that compensation fund officials be consulted accordingly.

Prior to Applying for an Order

2. Prior to filing an application for an Order, prospective applicants are strongly encouraged to contact OSFI (Insurance Approvals) to schedule an initial discussion regarding the proposed Branch and the applicant’s proposed business plan for Canada. This discussion provides an opportunity for OSFI to identify any apparent or potential regulatory, prudential or public policy issues.
3. Before making an application, the prospective applicant must give notice of its intention to apply for an Order (Notice).  The primary purpose of the Notice is to inform the public of the identity of the person making the application and to allow for public comment.  The ICA states that the Notice must be published once a week for four consecutive weeks in the Canada Gazette and in a newspaper in general circulation at or near the place where the chief agency in Canada is to be situated.  The ICA also specifies that the Notice must be in a form satisfactory to the Superintendent.  As such, a draft copy of the Notice should be provided to OSFI for review prior to publication to avoid the possibility of having to republish the Notice. ^Footnote33 In this regard, OSFI’s expectation is that the Notice will set out:
   1. the name of the applicant;
   2. the name(s) under which the applicant intends to insure in Canada risks;
   3. the geographical location/jurisdiction of the applicant and, where applicable, the geographical location/jurisdiction of the person that ultimately controls the applicant; and
   4. the types of risks the prospective applicant intends to insure in Canada.
4. At or around the time at which an application is made for an Order, applicants are encouraged to contact Assuris (the life insurance compensation fund) or the Property and Casualty Insurance Compensation Corporation (PACICC), as the case may be, to ascertain the requirements for membership.  As the regulation of a Branch’s insurance activities is shared between the federal and provincial and territorial governments, applicants are also encouraged to engage the relevant provincial and territorial insurance regulators at this time with respect to any licensing and other regulatory requirements in those jurisdictions.

Information Requirements - Additional Guidance

5. The OSFI Security Information Form(s) must be provided to OSFI in the following two formats: (a) a signed and dated original hard-copy, and (b) an electronic version in Excel format.  Once OSFI receives the completed forms, they are then forwarded to the relevant Canadian law enforcement and intelligence agencies to carry out the requisite background and security assessments.  Please note that the time required by law enforcement and intelligence agencies to complete these assessments is not within OSFI’s control, and the Superintendent will generally not seek the Minister’s approval for the making of an Order until these assessments are completed without issue.  As such, applicants are strongly encouraged to remit the completed OSFI Security Information Form(s) at the earliest possible stage in the application.
6. An applicant is generally required to have consolidated assets of at least $1 billion (CAD) in the case of a life insurer, or $200 million (CAD) in the case of a property and casualty insurer, with a capital and surplus of between 5% and 10% of liabilities in the case of a life insurer, or at least 20% of assets in the case of a property and casualty insurer.
7. OSFI generally expects the internal BAAT target ratio to be at least 300%, or LIMAT target ratio to be at least 150%, as the case may be, for all newly established insurers, including Branches.  OSFI also expects that the initial amount of vested assets will be sufficient, at all times, to maintain the Branch’s BAAT or LIMAT ratio above its selected internal target for at least the first three years of operations.
8. With respect to matters of corporate governance, OSFI looks to the Branch’s chief agent to oversee the management of the Branch.  The chief agent must be a natural person who is ordinarily resident in Canada and is expected to be able to receive in Canada all notices from the Minister or the Superintendent.  This person must be familiar with the Branch’s day-to-day operations and is required to maintain records at the chief agency related to the Canadian business of the applicant.  Additional information regarding OSFI’s expectations relative to the selection and duties of the chief agent are set out in OSFI Guideline E-4A – Role of the Chief Agent and Principal Officer and Record Keeping Requirements and OSFI Guideline E-17 - Background Checks on Directors and Senior Management of FREs.
9. In preparation for the vesting of assets in trust in Canada to support the projected liabilities of the Branch, an applicant is expected to carry out all necessary actions with respect to establishing a Standard Trust Agreement in respect of the vested assets (OSFI/BSIF-541).  Additional information in this regard is set out in OSFI Instruction Guide: Establishment or Termination of a Trust for Vesting Assets in Canada by a Foreign Company.

OSFI’s Assessment of the Application

10. An application for an Order entails obtaining approvals from both the Superintendent (who actually makes the Order), and the Minister of Finance (who first approves the making of the Order). In practice, OSFI reviews the entirety of the applicant’s submissions and, once that analysis is complete, submits a recommendation to the Department of Finance regarding the Order. Please note that OSFI will generally not seek the Minister’s approval until the applicant has, in OSFI’s view, satisfied all of the Information Requirements noted above and provided any additional information and evidence that has been requested.^Footnote34
11. OSFI will generally evaluate applications for an Order against the criteria in this Transaction Instruction; however, as the particular circumstances and facts of each application are different, this Transaction Instruction should not be viewed as an exhaustive set of criteria and information requirements.^Footnote35 OSFI officers from the Legislation and Approvals Division and Supervision Sector jointly review and assess each application for an Order.
12. In certain circumstances, it may not be feasible for an applicant to provide all the Information Requirements set out above at the time an application is made for an Order. Where this is the case, applicants should explain to OSFI which information items will be provided at a later date. OSFI will not, however, begin its review of an application until the Notice has been published.
13. OSFI will review the application and will contact the applicant to discuss its completeness, status, and outstanding issues.  Where necessary, OSFI will request additional information to complete the assessment of the application, which may include additional corroborating information or analysis from third parties.  OSFI’s assessment will also be informed by its experience of the actual performance of existing Branches in similar business lines.
14. Prior to the Superintendent making an Order, OSFI generally arranges for an on-site review of the applicant’s proposed chief agency to assess the control processes and management systems in place, and to ensure that the chief agent is capable of producing the required statutory and supervisory information in an accurate and timely manner upon the commencement of operations.  Applicants should also note that several months may be required for them to prepare for the on-site review prior to receiving their Order, and the timing related to the making of an Order will be affected by the on-site review readiness of the applicant.
15. While there is no specific time limit on the assessment of applications, OSFI endeavours to complete all application assessments as quickly as possible.  As the assessment of each application will depend on its own specific facts and circumstances, applicants should note that applications for an Order typically span at least 12 to 18 months from the filing of the application to the making of the Order.  OSFI will communicate regularly with the applicant throughout this process.
16. In OSFI’s experience, delays in receiving the requested approval(s) most often result from the complexities presented in the application, the provision of incomplete information by the applicant in support of the application, and/or a failure on the part of the applicant to sufficiently address additional information requests from OSFI in a timely manner.  In such circumstances, the timeframe noted in paragraph 15 above may be significantly longer.
17. OSFI may discontinue its review of an application where, in OSFI’s view, based on the quality of the applicant’s submissions, and despite significant feedback from OSFI, the applicant is unable to satisfy the information requirements in support of the application.  In this regard, applicants should note that they bear the onus of satisfying OSFI’s information requirements in a timely, clear and complete manner.

Legislative Matters

18. The ICA prohibits applicants from establishing a composite Branch, namely, a Branch that would be authorized to insure in Canada both risks falling within the class of life insurance, and risks falling within any other class of insurance other than accident and sickness, credit protection insurance and other approved products insurance.^Footnote36
19. Upon an Order being made in respect of an applicant, the applicant and its affiliates will, if they are entities referred to in section 508 of the BA, have a financial establishment in Canada (where the group does not already have such an establishment) for purposes of Part XII of the BA.^Footnote37 In such circumstances, the applicant and its affiliates become subject to an operating framework in Canada that is substantively equivalent to the one applicable to Canadian banks in certain areas, such as substantial investments.
20. The ICA provides that, subject to approval of the Superintendent, the risks on the books of a Branch cannot be reinsured by an “unregistered” related party (i.e., a related party that is neither a federally regulated insurance company nor a foreign insurer that would reinsure in Canada the risks).^Footnote38 Accordingly, if an applicant’s reinsurance program for the proposed Branch entails ceding risks to an unregistered related party, the applicant should refer to Transaction Instruction DA No 21 – Reinsurance with Related Unregistered Reinsurer with respect to the requisite approval of the Superintendent.
21. The ICA provides broad authority to the Minister and Superintendent to take into account all matters that they consider relevant in the circumstances related to the granting of any approval, including national security and Canada’s international relations and international legal obligations.^Footnote39 The Superintendent may also set out in the Order conditions or limitations on the Branch’s business to address supervisory and regulatory concerns.^Footnote40
22. OSFI is required to publish a notice upon the making of the Order in the Canada Gazette.  The applicant is also required to publish a notice of the making of the Order in a newspaper in general circulation in the city where the chief agency is situated.^Footnote41

Regulatory and Administrative Matters

23. All applications for an Order are subject to a service charge.^Footnote42 A wire-transfer, cheque or draft should be made payable to the “Receiver General for Canada”.
24. Please note that the May 2013 revisions to this document reflect OSFI’s expectations and practices as at December 31, 2012.  As these expectations and practices continue to evolve, this document will be updated when and as needed.
25. An application for an Order may be submitted electronically to approvalsandprecedents@osfi-bsif.gc.ca, or in hard-copy to:
    • Office of the Superintendent of Financial Institutions
    • Approvals and Precedents, Legislation and Approvals Division
    • 15th Floor, 255 Albert Street
    • Ottawa, Ontario, Canada
    • K1A 0H2