More provincial regulators might break with OSFI over “insuring in Canada a risk”: ILO paper

An apparent split between the federal and provincial jurisdictions over the question of “insuring in Canada a risk” may cause more provincial regulators to state divergent views from those of the Office of the Superintendent of Financial Institutions (OSFI), says a paper for the International Law Office published by Lang Michener LLP.
Authored by Frank Palmay and Gabriella Farcas-Chan, the paper says provincial licensing requirements for insurers “carrying on business” in Ontario and Alberta “are for the most part consistent with the factors set out in the OSFI advisory regarding what OSFI considers to be ‘insuring in Canada a risk.'”
Nevertheless, the authors add, the phrases “do not constitute a one-to-one mapping.”
“It is quite possible that the correct conclusion for one’s course of conduct under the OSFI advisory may be that while a foreign insurance company will not require an OSFI order in order to carry on the activity, under the various provincial rules, the company would need to be licensed as an insurer in the province,” the authors write.
In fact, British Columbia has proposed the addition of a new subsection amending the Financial Institutions Act.
According to the authors, the new subsection states “the selling of insurance to residents of the province (regardless of whether the business is conducted in British Columbia) is deemed to be the conduct of insurance business in the province if the risk or peril is located there.”
This is distinct from the approach of the federal solvency regulator, the authors say. OSFI’s amendments to Part XIII of the Insurance Companies Act do not focus on the location of the risk, but rather on the location of the insurance business activities.
The authors list three possible consequences of the seeming discrepancy:
•    “The existing regulatory scheme contains no mechanism for assessing and overseeing the solvency of foreign companies that are only provincially licensed, but not federally regulated.”
•    With one exception (i.e. unlicensed reinsurers posting assets to permit OSFI-rated cedants to take credit for the reinsurance), “there are no mechanisms for placing assets in trust for other than federally regulated insurance branches.”
•    “It is unclear how, if at all, there will be any coordination between provincial insurance regulatory authorities, each of which determines to license a foreign insurance company that is not regulated under the federal jurisdiction. Will they each require their own separate solvency tests or assets in trust?”
For foreign insurers, the practical implications of the above “may be severe and may leave the Canadian insurance regulatory landscape in a much more fragmented state than it is in at present,” the authors conclude.

The full paper can be viewed at: http://www.internationallawoffice.com/Newsletters/Detail.aspx?g=31a553ff-9352-4df9-b37d-a3d661344397