FSCO posts new regulations for prudent portfolio investment

Financial Services Commission of Ontario (FSCO) has posted online new regulations for changes to the Corporations Act and Insurance Act, which implement a prudent portfolio investment approach for Ontario-incorporated insurers, reciprocals and fraternal societies.
The changes provide insurers with expanded investment powers, new related-party rules and corporate governance requirements.
Prior to the new rules, insurers could invest only in specific, enumerated investments. The new amendments allow insurers to engage in investment and lending policies that a reasonable and prudent person would apply in relation to portfolio investments, with a view to avoiding undue risk of loss and obtaining a reasonable return.
Substantial investments, however, remain restricted. For example, the regulations say an insurer “may acquire, hold or increase a substantial investment in a permitted entitywithout controlling the permitted entity after the acquisition, only if, after the acquisition, the total value of the following investments and loans does not exceed 50% of the insurer’s capital.”
No insurer is allowed to enter into a transaction with a related party unless permitted to do so by regulation. The amendments include a list of “related parties,” from which credit unions are exempt.
There are also new corporate governance rules respecting the board of directors of an insurer. An insurer must now have at least six board directors; no more than two-thirds of an insurer’s board of directors can be affiliated with the insurer.
The amendments came into force on May 5, 2008.
Insurers may choose to have the new rules apply to them at any point up until May 5, 2012, at which point the new rules will take effect.