Ontario to give insurers greater investment flexibility

Ontario’s insurance regulator is consultating with Ontario-incorporated insurers, reciprocals and fraternal societies on proposed changes to insurance legislation that would allow these insurers to operate under investment and corporate governance rules similar to those at the federal level.
According to the Financial Services Commission of Ontario (FSCO), the “proposed ‘prudent portfolio’ approach would give Ontario’s farm mutual insurance companies and other provincially incorporated insurers greater flexibility in making investment decisions, as well as introduce strong corporate governance requirements.”
A posting on the FSCO Web site notes the intention of the proposal is to help “maintain a strong, sustainable farm sector in Ontario. This consultation is a key step towards improving the competitiveness of companies that serve Ontario’s rural and agricultural communities.”
In a bulletin, FSCO noted the new approach would be consistent with that of other Canadian financial services regulators. The federal government moved to a prudent portfolio approach in 1992.
“In Ontario, the aim is to harmonize, to the greatest extent possible, with the federal insurance legislation,” FSCO says.
In anticipation of the prudent portfolio regime and as an interim measure, a recent budget bill included provisions to expand the investment powers of Ontario insurers.
“Specifically, amendments to subsection 433 (1) of the Insurance Act have added mutual and pooled funds to the list of permissible investments and removed income-related restrictions on preferred and common shares,” the FSCO bulletin notes. “These amendments refer to a guideline to be issued by the Superintendent, with which insurers would need to comply when making such investments.”
The government in October 2005 shared with insurers a draft of the guidelines associated with this new provision. The final version of the guideline can also be accessed on FSCO’s website at www.fsco.gov.on.ca, under “What’s New” and “Publications”/ “Bulletins.”