Canadian insurance changes rules

New rules for insurance companies operating in Canada

This information has been provided by the Insurance Brokers Association of Alberta and we reprint the information here:

As of January 1st, 2010, amendments to Part XIII of the federal Insurance Companies Act, implemented through the Office of the Superintendent of Financial Institutions, have created new rules for Insurance Companies operating in Canada.

While the revised regulations apply primarily to Insurers, brokers should nevertheless be aware of the changes, and of how they and clients may be impacted.

What has changed?
OSFI now defines Canadian risks as those which are insured in Canada, rather than those which are simply located in Canada. The emphasis is on the location of the business activity which creates the insurance contract. OSFI has a number of criteria that they will use in deciding whether a risk is insured in Canada or not.

A second change is that marine risks are no longer exempt from OSFI's supervision. Insurers are required to report and maintain financial reserves for marine business insured in Canada.

What are the implications of a risk being insured in Canada?
Insurers – both Canadian and foreign - are required to report risks they insure in Canada and maintain certain levels of reserves as security for potential claims pay-outs. These risks fall under OSFI's overall supervision and protection in the event of an Insurer insolvency.

(A ‘foreign’ company is defined as any entity incorporated or formed by or under the laws of a country other than Canada.)

On the other hand, risks which are not ‘insured in Canada’ ie the work of creating their insurance coverage is accomplished elsewhere, would not be protected, even if they are themselves located here.

Who is affected by the changes?
Most affected are foreign Insurance Companies who must ensure that their Canadian operations meet OSFI's criteria of insuring in Canada; otherwise clients purchasing coverage for risks, even if they are located in Canada, will not benefit from OSFI's protection.

Marine Insurers, too, must now add the Marine class to their licences, maintain appropriate reserves and pay premium taxes on that business.

Reinsurance credits for Insurers may also change if their reinsurance arrangements are deemed not to have been insured in Canada, even though the risks may all be located in this country.

How are Brokers affected?
There are a few changes to brokers’ responsibilities:

  • On any policy documents issued by foreign Companies insuring in Canada, or issued by brokers on their behalf, the phrase “For purposes of the Insurance Companies Act (Canada), this document was issued in the course of (Insurer’s name)’s insurance business in Canada” must now appear.

This statement does not need to appear on documents for domestic Insurers. Brokers must, therefore, be aware of whether Insurers they deal with are considered by OSFI to be foreign or Canadian (details can be found at, and for foreign Insurers, confirm that their operations do indeed qualify as “insuring in Canada”.

  • For any invoices (premium notices) issued by brokers on coverage from these same foreign Companies insuring in Canada, the above statement must appear.

This statement will also not appear on documents from foreign Insurers who are doing business from outside of Canada, and whose clients are not protected by OSFI. This does potentially create a point of confusion for a client to whom documents from a domestic Insurer, or from a foreign Insurer insuring outside of Canada, would appear the same.

Brokers have a responsibility to advise their clients about the Insurers they recommend, if their coverage is not insured in Canada and so not protected by OSFI. Brokers should also take care to determine whether or not proposed coverage which is not insured in Canada is in fact licenced in Canada.

What is the relationship between the OSFI changes and provincial regulations?
Each province has its own separate, independent rules for Insurers and intermediaries. They may or may not coincide with the OSFI rules. Several regulators are working together to try to provide some uniformity of approach, but brokers are best advised to double-check with their own provincial regulators to ascertain what potential conflicts or additional responsibilities may arise from the Part XIII changes.

Where can I get more information?
The Insurers with whom you do business will be able to confirm their own status, and advise how they will proceed under the new rules. More detail on OSFI's reasons for making these changes, and specific criteria for determining whether risks are insured in Canada, can be found on OSFI's website. Finally, provincial regulators will also provide advice as to how the federal legislation fits within the regulatory framework of each province.