OSFI issues letter clarifying amendments related to foreign insurers

Pending changes to the way the Canadian Office of the Superintendent of Financial Institutions (OSFI) oversees foreign property and casualty (P&C) insurers, OSFI will presume that as of Jan. 1, 2009, unless otherwise established, all risks reported on the books of Canadian branches of foreign insurers will be considered to have been insured in Canada.
Changes to Part XIII of the federal Insurance Companies Act are expected to come into force on Jan. 1, 2009. The amendments are intended to clarify the regulatory scope that applies to Canadian branches of foreign insurance companies.
OSFIs reporting requirements now apply (or do not apply) to foreign insurers with branch offices in Canada depending upon the location of the risk. Specifically, according to OSFIs August 2007 letter:
(1) risks located in Canada but insured outside Canada by foreign companies will no longer be subject to Part XIII requirements (including reporting and vesting requirements); and
(2) risks located outside Canada but insured in Canada will become subject to Part XIII requirements.
Regulations have not yet accompanied the amendments. Industry sources have thus pondered publicly about what OSFIs exact interpretation of a risk located in Canada would be. In its letter to Canadian P&C insurers, OSFI said: to assist foreign companies in determining where a risk was insured, OSFI will issue its advisory entitled Insurance in Canada of Risks in final form in the coming weeks.
In the meantime, said OSFI, in order to ease the transition for OSFI and foreign companies, in respect of scenario (1) above, OSFI will presume all risks reported on the books of a branch as at Jan. 1, 2009 to have been insured in Canada and therefore to be subject to Part XIII requirements, unless the foreign company satisfies OSFI or OSFI otherwise comes to the view that some or all of those risks were insured outside Canada.
As for scenario (2) above, OSFI expects that foreign companies will, within a reasonable timeframe after the coming into force of the amendments to Part XIII, use their best efforts to identify all the risks located outside Canada that were insured in Canada prior to Jan. 1, 2009 and comply with Part XIII requirements in respect of those risks. This approach is consistent with the Winding-up and Restructuring Act and the nature of the clarifications brought to Part XIII.