Countdown to Part XIII in 2009 is a good time to close down branches that are in run-off: lawyer

Based on changes to Part XIII of Canada’s Insurance Companies Act, insurance branches in run-off may find that 2009 is a good time to consider transferring the branch’s business to a Canadian entity and closing down the branch, according to Frank Palmay of Lang Michener LLP.
“Branches wishing to complete the transfer in 2009 will need to start on the process without delay,” Palmay writes in a briefing published by the International Law Office.
“In this regard, while the approval mechanism in 2009 will normally require ministerial approval, this may be counter-balanced by the bringing to an end of the need to check and report on a quarterly basis on whether head office had insured risks outside Canada that should have been reflected on the books of the branch.”
Palmay said the Office of the Superintendent of Financial Institutions (Canada’s federal solvency regulator) normally requires a year-end to pass after the portfolio transfer before releasing the branch completely, but in special circumstances “this may be sped up.”
Since the test is now where the insurance activities are carried out, “the head office can reinsure the business transferred by the branch without adversely affecting the withdrawal of the branch,” Palmay writes.
Palmay said attention would need to be paid on whether the branch, if it is to continue in Canada, needs to be registered for marine insurance.
Once changes to Part XIII are implemented (as of January 2010), foreign companies writing marine insurance or those that have marine insurance on their books, no matter whether they are in run-off, will have to have their federal order amended to include marine as a class of insurance.