Insurance and reinsurance in Canada: overview

A Q&A guide to insurance and reinsurance law in Canada.

The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Canada.

To compare answers across multiple jurisdictions visit the Insurance and reinsurance Country Q&A tool.

This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit


Market trends and regulatory framework

1. What were the main trends in the insurance and reinsurance markets over the last 12 months?


Some commentators have stated that difficult market conditions such as continuing low interest rates, volatility of capital markets and slow economic growth have presented challenges for insurers in Canada and elsewhere. These challenges have translated into, among other things, difficulty in achieving organic growth and pressure on pricing which, in turn, has led to more company consolidations, both on the insurer and the broker sides. Recent consolidations include, for example:

  • The 21 January 2016 announcement by Aviva Canada of its proposed acquisition of RBC General Insurance Company and a long-term strategic agreement with RBC for providing property and casualty products to RBC's existing and future insurance customers.

  • The 14 January 2016 international acquisition by ACE Limited of the Chubb Corporation, which included Chubb's Canadian operations.

  • The May 2015 acquisition by Intact (Canada's largest provider of property and casualty insurance) of Canadian Direct Insurance, operating in British Columbia and Alberta.

  • The January 2015 purchase by Desjardins Group (a co-operative financial group in Canada) of State Farm Canada's businesses in property and casualty and life insurance, as well as its Canadian mutual fund, loan and living benefits companies.

  • The May 2016 announcement by Arthur J Gallagher of its proposed acquisition of BR Rhymer Insurance Agencies in Winnipeg, Manitoba and its 2014 acquisition of Noraxis Capital Corporation, making it a top five insurance broker in Canada.

  • The April 2015 acquisition by international broker Hub of two Canadian home warranty insurance providers in Edmonton, Alberta and Surrey, British Columbia that will become part of Hub's Canadian operations.

In relation to product development, longevity risk transfer as a means of pension plan de-risking appears to be edging into the spotlight in the life insurance marketplace.

Effective as of 1 January 2015, Sun Life Assurance Company of Canada (Sun Life) (a primary life insurer) and SCOR Global Life (a global life reinsurer) entered into a longevity insurance transaction that involved pension benefit liabilities of about Can$5 billion relating to the Bell Canada defined benefit pension plan. This was a first-of-its-kind transaction. Longevity insurance transactions in Canada first appeared in 2013, when the Canadian Wheat Board (CWB) and Sun Life agreed to a Can$150-million annuity policy that transferred some of the CWB's pension risk to the insurer.

Historically, homeowners' policies have not covered overland flooding, but this is changing. Co-operators General Insurance Company has announced that it will offer coverage for overland flooding by means of an endorsement to its homeowners policies in the province of Alberta. These developments are a reminder of 2013, when major flooding in Alberta and Ontario left many homeowners with uninsured losses. Other large home insurers appear to be following suit and adding this protection as well.

Cyber-risk is ever in the limelight these days, and many insurers and brokers are designing and marketing specialised products in this area.


In a recent address to the property and casualty industry, the federal Superintendent of Financial Institutions discussed the federal regulator's concern over an apparent trend of large cessions of commercial risks, particularly to unregistered affiliates, without any change in net risk retention. The federal Superintendent indicated that the regulator is currently assessing the scope and potential impact that these recent changes in reinsurance practices will have on cedant solvency.

Insurance-linked securities (ILS) such as catastrophe bonds as an alternative source of reinsurance capacity are slowly creeping into the Canadian market. Although there has yet to be a Canadian ILS issue, Canadian risks are increasingly becoming part of the covered risks in respect of issuances in other jurisdictions.

For details of longevity risk transfer transactions see above, Insurance.

2. What is the regulatory framework for insurance/reinsurance activities?

Regulatory framework

Under Canada's Constitution, there is a division of powers between the federal and provincial governments. Therefore, responsibility for lawmaking in Canada is shared between the:

  • Federal government. This makes laws for the whole of Canada in relation to matters assigned to it by the Constitution.

  • Ten provinces and three territories. The provincial and territorial legislatures (generally referred to as "provinces" throughout) have jurisdiction to make laws relative to the subject matters over which they have been assigned by the Constitution.

In the context of insurance, this federal/provincial jurisdiction is shared but somewhat compartmentalised, for example:

  • The federal government has jurisdiction over the prudential regulation (that is, solvency) of insurance companies and other entities federally authorised to provide insurance products.

  • The provinces have authority over the market conduct of insurers carrying on business in their local jurisdictions.

There is some overlap inasmuch as the solvency regulation of insurers that are provincially incorporated is within the jurisdiction of the province of incorporation, however a large majority of insurers operating in Canada are regulated at the federal level. Although efforts are being made to harmonise provincial legislation, no two provincial statutes are exactly alike, which can complicate efforts to ensure local compliance where insurers operate across the country.

The federal insurance statute is the Insurance Companies Act (Canada) and each province has its own insurance statute (each province also regulates agents, brokers and adjusters carrying on business in the province).

Unlike the rest of the provinces (which are common law jurisdictions), the province of Québec is a civil law province. The general principles of Québec insurance law are set out in the Civil Code of Québec.

There is no separate framework for reinsurance in Canada. Reinsurance is basically regulated as insurance, although there are some differences in the rules given the nature of reinsurance.

Regulatory bodies

The Office of the Superintendent of Financial Institutions (OSFI) is the federal insurance regulator. Each province also has its own provincial insurance regulatory authority, for example:

  • The Financial Institutions Commission in British Columbia.

  • The Alberta Treasury Board and Finance.

  • The Financial Services Commission of Ontario.

  • The Québec l'autorité des marchés financiers (AMF).

The provincial insurance regulators are typically government agencies that report to the Minister of Finance of the provincial government.

Agents, brokers and adjusters are generally regulated by either:

  • The insurance regulatory authority in the province in which they carry on business.

  • A separate body or council in the province.

In some provinces, insurance intermediaries are regulated by self-regulating organisations. For example, in Ontario (Canada's largest province, population-wise), insurance brokers are regulated by the Registered Insurance Brokers of Ontario, a self-regulatory body that derives its authority from a statute that is separate from the Ontario Insurance Act.

The Canadian Life and Health Insurance Association (CLHIA) is a trade association of life and health insurers that also has rule-making authority. The CLHIA issues guidelines in relation to:

  • Agent suitability and supervision.

  • Conflicts of interest.

  • Product disclosure.

  • Consumer rescission rights.

  • Products (such as individual variable insurance products, group and travel insurance).

The CLHIA's guidelines are designed to promote consistent practices and standards and reinforce the best interests of consumers and the industry.

Although the laws and regulations of the provinces are not harmonised, another important regulatory body which aims to bring about consistency in regulatory approach is the Canadian Council of Insurance Regulators (CCIR). The membership of this inter-jurisdictional association consists of the superintendent of insurance from each province and a representative of OSFI.

The CCIR aims to facilitate and promote an efficient and effective insurance regulatory system in Canada by working together to develop solutions to common regulatory issues.


Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

Contract of insurance

A contract of insurance is defined by statute in all provinces of Canada.

In Ontario, the statutory definition is achieved by telescoping the two definitions of "contract" and "insurance". The former is defined to include a policy, certificate, interim receipt, renewal receipt, or writing, evidencing the contract of insurance (which may be oral). The latter uses a two-part definition, which is an undertaking by one person to either:

  • Indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed.

  • Pay a sum of money or other thing of value upon the happening of a certain event.

The definition (for Ontario) also includes life insurance.

The definition of insurance set out above in relation to Ontario is essentially the same in all other common law provinces of Canada, except for the inclusion of the reference to life insurance.

In Québec, a "contract of insurance" is defined in the Civil Code as a contract where the insurer undertakes, for a premium or assessment, to make a payment to the client or a third person if a risk covered by the insurance occurs.

However, there are two important things to note in relation to this definition:

  • The insured must have an insurable interest (subject to certain exceptions for life insurance) in the subject matter of the insurance contract, otherwise the contract will be found to be void.

  • The definition is overly inclusive. Therefore, not all the arrangements that fit the definition of insurance will be found by the courts to actually be insurance (and therefore be regulated as such).

Contract of reinsurance

A contract of reinsurance is a contract of insurance where the insurer (referred to as the "reinsurer") agrees to indemnify the insured (referred to as the "ceding company", the "ceding insurer" or simply the "cedant") for amounts paid and expenses incurred by the ceding company pursuant to certain policies of insurance written or assumed by the ceding company and ceded to the reinsurer.

In Canada, the content and form of reinsurance contracts are not regulated at the provincial level. However, the Office of the Superintendent of Financial Institutions (OSFI) has issued guidance that contains OSFI's expectations for federally-regulated ceding companies and their reinsurers (see Question 2, Regulatory bodies).

4. Are all contracts of insurance/reinsurance regulated?

All true insurance contracts are regulated, with some being more regulated than others.

Among the most regulated in the common law provinces and territories are contracts relating to accident and sickness, aircraft, automobile, boiler and machinery, credit, fidelity, fire, liability (including directors' and officers' and professional liability), life (including annuities), marine, property, surety and title insurance.

In Canada, surety bonds including, without limitation, performance bonds, bid bonds and payment bonds, are regulated as insurance (as are the entities that issue them) by virtue of the statutory definition of surety insurance or guarantee insurance (as applicable).

An extended warranty contract issued by a person who is not the manufacturer or seller of the goods (such as a third-party extended warranty) may be considered insurance. However, in Québec, an extended warranty contract pursuant to which a person assumes only the cost of repair or replacement of property in the case of defect or malfunction, is statutorily exempt from regulation as insurance regardless of whether such person is the manufacturer or the seller.

The following contracts are not considered to be insurance and are not regulated as such:

  • Contracts relating to gambling or chance.

  • Certain derivatives such as interest rate hedging contracts and credit default swaps (even though they have certain characteristics of insurance).

  • An extended warranty contract sold by a person who is the manufacturer or seller of the goods (either as a matter of a statutory exemption, an administrative practice or the common law).


Corporate structure

5. What form of corporate organisation can insurers take?

Insurers can take one of the following forms of corporate organisations:

  • Stock insurance company.

  • Mutual insurance company.

  • Fraternal benefit society.

  • Reciprocal insurance exchange.

  • Lloyd's syndicate.

Stock insurance company

Stock insurance companies can be incorporated under either:

  • Federal law, under the Insurance Companies Act (Canada).

  • The laws of certain provinces.

The governance of stock insurance companies is similar to share corporations incorporated under federal or provincial business corporation statutes. For example, a stock insurance company can:

  • Have officers and directors.

  • Have shareholders who are the owners.

  • Issue dividends to their shareholders (provided that they comply with law).

Foreign-incorporated insurance companies can operate in Canada as branches, provided they have received a federal licence to do so. Most insurers operating in Canada are organised as stock insurance companies.

Mutual insurance company

Mutual insurance companies can be incorporated under federal law or under the laws of certain provinces. Mutual insurance companies do not issue shares and are owned by their policyholders, who elect their directors. Instead of share dividends, these companies can issue policy dividends to their participating policyholders.

Fraternal benefit society

Fraternal benefit societies can be organised in Canada under federal law or, where applicable, under provincial law. Under federal law, fraternal benefit societies:

  • Are corporations without share capital.

  • Have a representative form of government.

  • Are incorporated for fraternal, benevolent or religious purposes (including the provision of insurance benefits solely to their members or the spouses, common-law partners or children of their members).

Foreign fraternal benefit societies can operate in Canada provided they have received a federal licence to do so.

Reciprocal insurance exchange

Reciprocal insurance exchanges are comprised of a group of persons (individuals and/or entities) that have come together for the purpose of either:

  • Exchanging reciprocal contracts of indemnity.

  • Inter-insurance with each other through the same attorney appointed by them.

Foreign reciprocals can operate in Canada provided that they have received a federal licence to do so.

Lloyd's syndicate

A Lloyd's syndicate is an association of persons formed in a foreign country on the plan commonly known as "Lloyd's", whereby each member of the association participating in a policy becomes liable for a stated, limited or proportionate part of the entire proceeds payable under the policy.


Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated? Are they all regulated in the same way?

All insurers and reinsurers operating in Canada are regulated and must be licensed.

Foreign insurers and reinsurers that do not "insure in Canada a risk" are not regulated as insurers or reinsurers. Whether or not an entity is insuring in Canada a risk is determined by applying a list of indices to the facts surrounding the insurer's or reinsurer's business activities that are carried on within Canada (mainly underwriting activities) pursuant to an Advisory issued by the Office of the Superintendent of Financial Institutions (OSFI).

Under federal law, life insurers and property and casualty insurers are generally regulated in the same way, but there are some differences (for example, relating to capital requirements, restrictions on issuance of debt obligations and guarantees, restrictions on activities and so on). Life insurers and property and casualty insurers are also required to be members of different guarantee funds.

Under federal law, insurers and reinsurers are generally regulated in the same way, but there are some differences. For example, reinsurers are not required to:

  • Establish procedures for dealing with customer complaints.

  • Designate a committee of the board to monitor such procedures.

  • Designate an employee to receive and deal with such complaints.

  • Become a member of an organisation that deals with customer complaints.

  • Annually publish an accountability statement.

Foreign insurers and reinsurers operating as a branch in Canada are not subject to certain requirements that apply to domestic companies, for example, restrictions on ownership and related party transactions. Similarly, OSFI's comprehensive Corporate Governance Guideline and new Guideline on Operational Risk Management do not apply to branches. On the other hand, foreign insurers and reinsurers are subject to other requirements, such as vesting assets in a trust account under the control of OSFI and appointment of a Chief Agent who represents the foreign insurer in Canada.

In relation to other matters, for example, with respect to accounting matters and maintenance of capital, foreign insurers and reinsurers are generally regulated in a manner similar to Canadian federally-regulated insurers and reinsurers, subject to differences relating to the fact that branches are not separate legal entities.

7. Can insurers and reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Federally-regulated Canadian insurers and reinsurers are prohibited from engaging in or carrying on any activity that does not generally appertain to the business of providing financial services. According to statute, this includes:

  • Acting as a financial agent, receiver or liquidator.

  • Providing investment counselling services.

  • Providing portfolio management services.

  • Issuing payment, credit or charge cards.

However, insurers and reinsurers are permitted by the Insurance Companies Act (Canada) to carry out certain other activities (whether or not these generally appertain to the business of providing financial services). These include:

  • Acting as an agent for vendors, purchasers, mortgagors, mortgagees, lessors or lessees of real property.

  • Holding, managing and otherwise dealing with real property.

  • Providing consulting or appraisal services in respect of real property.

  • Providing certain information processing services in Canada and, with the approval of the Minister of Finance, providing certain IT services outside of Canada.

  • Acting as a custodian of property.

  • With the consent of the Minister of Finance, operating repair and appraisal centres,

  • With the consent of the Minister of Finance, carrying on any activities that are reasonably ancillary to the business of insurance carried on by the company.

Furthermore, federally-regulated Canadian insurers and reinsurers cannot deal in goods, wares or merchandise or engage in any trade or other business unless authorised under the Insurance Companies Act (Canada).

However, despite the above, federally-regulated reinsurers (whether incorporated in Canada or operating in Canada as a branch) are generally restricted by their licences to only carrying on the business reinsuring risk.

What a foreign insurer operating in Canada as a branch can or cannot do in Canada is governed by both the foreign insurance entity's organising statute and the Insurance Companies Act (Canada). In addition, the foreign insurer is limited by what is permissible pursuant to the Order granted by the Superintendent of Financial Institutions. Provincially-incorporated and regulated insurers (including reinsurers) are governed by their organising statutes and licences.

As far as federal law goes, although there are some general insurance companies or composites that offer both life insurance and property and casualty insurance, the Superintendent is prohibited from licensing any new insurer or reinsurer (or altering the licence of any existing insurer or reinsurer), to insure or reinsure (as applicable) risks that fall both within the classes of both:

  • Life insurance.

  • Any other class of insurance other than accident and sickness insurance, credit protection insurance or "other approved product insurance".

8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

The relevant statutory limits, restrictions and requirements are set out as follows.

Assumption reinsurance ("transfer" of business)

Under the Insurance Companies Act (Canada), both Canadian companies and qualified branches of foreign companies must obtain regulatory approval before causing themselves to be reinsured on an assumption basis.

Although the Office of the Superintendent of Financial Institutions does not view assumption reinsurance as a "transfer" of policies per se, a successful application allows the ceding insurer to remove the liabilities associated with the assumption transaction from its books, provided that (among other things):

  • Notification of the proposed transaction is publicly advertised.

  • Policyholders are given an opportunity to review the relevant transaction documents.

  • An assumption certificate is provided to each policyholder by the assuming reinsurer, establishing privity of contract with the policyholder.

These requirements distinguish assumption reinsurance from indemnity reinsurance.

The approval must be obtained from (depending on the context) the federal Minister of Finance or the Superintendent of Financial Institutions.

In each case, there are restrictions on the entities that are qualified to assume the policies. These rules apply equally to portfolios of reinsurance business.

Reinsurance in the ordinary course

Previously, the federal rules contained certain limitations on the amount of premium that could be ceded by federally qualified insurers (other than life and marine insurers) in any year. These restrictions did not apply to reinsurers and were removed a few years ago and replaced with the requirement for insurers and reinsurers to have a board-approved and monitored reinsurance risk management policy designed to ensure prudential placement and management of all reinsurance risks.

Federally-regulated insurers must obtain the approval of the Superintendent before ceding risks to affiliates that are not licensed in Canada.

Insurers that cede risks to unlicensed reinsurers (affiliated or not) are not permitted to take capital credit for the reinsurance unless certain conditions are fulfilled, for example:

  • There must be a qualifying collateral arrangement with the reinsurer (called a reinsurance security agreement).

  • For reinsurance arrangements such as those underwritten on a "funds withheld" basis, the reinsurance transaction must contractually satisfy the Superintendent of Financial Institutions' requirements. For example, the reserves (comprised of premiums withheld) must legally form part of the estate of the ceding company should an insolvency occur.

There is a 30% limitation on the use of letters of credit as collateral for unlicensed reinsurance, which is applied in the aggregate.


Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed?


Insurers (including reinsurers) must be licensed to carry on the business of insurance or reinsurance according to the wording set out in the various statutes, regulations and related requirements (as applicable).

The answers here focus on only legal corporations. Under federal law, the Insurance Companies Act (Canada), an insurer can be incorporated as a Canadian insurance company or licensed as a branch (in the case of a foreign company). Both applications involve a comprehensive application process, including:

  • The submission of a market analysis, business plan and actuarial reports to the Office of the Superintendent of Financial Institutions (OSFI).

  • The payment of service fees (currently Can$32,000).

  • Minimum capital requirements.

  • Criminal background checks.

  • Evidence of a substantial governance and compliance infrastructure.

OSFI will carefully scrutinise the application and generally will require significant follow up information and other action (including a site visit of the proposed entity's office premises prior to granting approval).

Under federal law there is no distinction between insurers or reinsurers in relation to the requirement to be authorised. Insurance companies can also be incorporated under the laws of a particular province (however, although there are many provincially incorporated insurers, it is less common for companies to be incorporated under provincial statutes). At least one province (Ontario) has considered prohibiting the provincial incorporation of new insurance companies and requiring existing Ontario-incorporated insurers to export to another jurisdiction (for example, federal or another province).

For the purposes of federal qualification of a branch, the test of whether or not a foreign company is "insuring in Canada a risk" is essentially determined based on an Advisory issued by OSFI that sets out several factors. The Advisory concentrates on the location of the insurer's insurance/reinsurance activities as opposed to the location of the risks. Risks that are not "insured in Canada" will not attract the licensing requirement. It is therefore possible for a foreign insurer/reinsurer to insure/reinsure persons or risks located in Canada without having to qualify as a Canadian branch, provided the criteria in the Advisory are carefully followed.

On the other hand, insurers must also be licensed in the province in which they are carrying on the business of insurance. The requirements for being licensed to carry on the business of insurance under provincial law are not harmonised across the provinces or with the federal requirements. A few provincial statutes require licensing merely if the object of the insurance or risk insured is located in the province. It is therefore theoretically possible that, for the same activities, a foreign insurer might not be required to be authorised federally by OSFI, yet it may be required to be licensed in one or more provinces.

Notwithstanding the disparity in the legislation, the provincial licensing application effort has been somewhat facilitated by the Canadian Council of Insurance Regulators (CCIR), which has put together a standardised application form that can be used for applying for a license in all 13 provinces (including the three territories). Although the CCIR form is standardised, each province will conduct its own evaluation of the application and may require additional information and documentation. A province may ask for some of the documentation that is filed with OSFI for the federal application. The provinces routinely require copies of proposed policy documentation.

Most provincial statutes do not require reinsurers to be licensed in the province, subject to meeting certain criteria. In addition, most provinces have a regime whereby insurance that is not available from a licensed carrier can be procured through a "special broker" and in some cases a financial penalty or extra taxes apply.

Insurance/reinsurance intermediaries

Licensing of insurance intermediaries is governed by laws made by the provinces. Licensing is required for both individuals and the entities that employ them. Generally, the statutory definitions for acting as an "agent" or a "broker" are broadly drafted and encompass a number of intermediate activities and interactions between the insured and the insurer. Each province has its own licensing regime and the provincial insurance statutes are not harmonised. However, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organisations (CISRO) have created harmonised application forms to facilitate agent and broker licensing across Canada. The harmonised forms categorise the applicants as "general insurance" or "life, accident & sickness", although the provinces have various other sub-categories.

Although the provinces do not all have the exact same requirements, typically the application involves:

  • The payment of the license application fee.

  • Passing qualifying examinations or examination equivalency.

  • Obtaining insurer sponsorship.

  • Obtaining errors and omissions insurance.

  • Obtaining home jurisdiction certificate of authority (for non-residents).

  • Carrying out criminal background checks.

Other providers of insurance/reinsurance-related activities

The province of Saskatchewan recently introduced a new insurance statute that should come fully into effect in 2016. Among other things, this new legislation includes licensing categories for "managing general agents" and "third party administrators". Saskatchewan is the first Canadian province to require licensing for these distinct categories.

The provinces also require persons acting as insurance adjusters and the entities that employ them to be licensed.

10. What are the main exemptions or exclusions from authorisation or licensing?

Insurance/reinsurance providers

The main exceptions or exclusions from authorisation or licensing for insurance/reinsurance providers are as follows:

  • Foreign insurers that provide insurance for losses caused by nuclear energy are not required to be licensed federally if, in the opinion of the Superintendent of Financial Institutions, the insurance is not available within Canada.

  • Foreign insurers and reinsurers are not required to be licensed federally if they are not "insuring in Canada risks" within the meaning of the Office of the Superintendent of Financial Institutions Advisory (see Question 6).

  • Insurers and reinsurers are not required to be licensed provincially if their mode of operation does not constitute (or is not deemed to constitute) carrying on business in accordance with the respective provincial statutes.

  • Reinsurers are not required to be licensed in certain western provinces as long as their business in the province is confined or restricted to reinsurance and reinsurers are generally not required to be licensed provincially if the reinsurance is transacted "outside" the province.

  • Generally, unlicensed direct insurers can underwrite insurance products that are not available in the Canadian marketplace subject to certain conditions (such as reporting through a special broker and, where applicable, payment of special levies/taxes).

Insurance/reinsurance intermediaries

The main exceptions or exclusions from authorisation or licensing for insurance/reinsurance intermediaries are as follows:

  • Any individual, partnership or corporation who acts solely as a reinsurance broker is exempt from licensing under the Registered Insurance Brokers Act (Ontario).

  • Although the provincial laws differ slightly, all provincial legislation generally contains exemptions from licensing as an insurance agent for:

    • salaried employees of the insurer;

    • employees of licensed agents whose work is generally of a clerical or administrative nature;

    • travel agents;

    • employees of transportation companies;

    • persons who only collect premiums; and

    • persons who receive no compensation for the placement of insurance.

Other providers of insurance/reinsurance related activities

Common exemptions for licensing as an insurance adjuster contained in the provincial legislation include:

  • Lawyers acting in their professional capacity.

  • Trustees of the property insured.

  • Salaried employees of the insurer.

  • Persons giving expert evidence.

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

The answers here focus only on insurers that are federally-regulated corporate entities (that is, companies or branches of foreign companies to which the federal Insurance Companies Act (Canada) applies).

Insurance/reinsurance providers

The following are not permitted to incorporate a Canadian federally-regulated insurance company:

  • The Canadian federal government, the government of a Canadian province, any agency of the federal or a provincial government, or any entity controlled by any of them.

  • The government or government agency of a foreign country, or any political subdivision of the foreign government or foreign government agency.

  • Any entity controlled by the government of a foreign country, or any political subdivision of a foreign government (except where the entity is a foreign institution such as a bank, insurer, loan and trust company, co-operative and so on) or subsidiary of a foreign institution.

  • Any foreign insurer based in a jurisdiction that is not a member of the World Trade Organization (WTO), unless the Canadian Minister of Finance is satisfied that treatment as favourable for Canadian insurance companies exists in or will be provided by the local laws of that jurisdiction.

Similarly, Canada's federal legislation generally prohibits the entities listed above from acquiring shares of an existing federally-regulated insurance company and exercising voting rights in respect of the shares (although there is a mechanism whereby the Minister of Finance can approve an "eligible agent").

There are special restrictions regarding share acquisitions and share ownership of demutualised companies.

There are general restrictions on foreign companies establishing a Canadian branch. For example, the Superintendent of Financial Institutions and the Minister of Finance require detailed information regarding the ownership of the foreign company and, in addition to reciprocal treatment (as described in the fourth point listed above) can take into account all matters considered relevant in the circumstances, including national security and Canada's international relations and international legal obligations (in relation to ownership of the foreign company).

To establish a branch that carries on the business of life insurance, the foreign company is generally required to have:

  • Consolidated assets of at least Can$1 billion.

  • Capital and surplus of between 5% and 10% of liabilities.

For a branch that carries on the business of property and casualty (non-life) insurance, the foreign company is expected to have

  • Consolidated assets of at least Can$200 million.

  • Capital and surplus of at least 20% of assets.

Insurance/reinsurance intermediaries

There are ownership restrictions on firms acting as "damage" insurance brokerages in the province of Québec. Under these restrictions, no more than 20% of the shares of the firm, or voting rights attached to its shares, can be held directly or indirectly by financial institutions, financial groups (such as co-operatives and their members) or legal persons related to such institutions/groups. However, certain firms are grandfathered (that is, exempt from new regulation) and the prohibition does not apply to firms that are listed on a stock exchange. Nevertheless, even if the firm is listed on a stock exchange, no more than 49% of the shares of such a firm or voting rights attached to its shares can be held directly or indirectly by a financial institution, financial group or legal person related to such an institution/group. These restrictions do not apply to firms that engage exclusively in the business of reinsurance.

Other providers of insurance/reinsurance-related activities

The province of Saskatchewan recently introduced a new insurance statute. It is contemplated that, one promulgated, the regulations will set out the persons and classes of persons that are not eligible to act as a "managing general agent". However, at the time of this writing, these regulations have not yet been drafted.

12. Must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

The answers here focus only on insurers that are corporate entities (that is, companies or branches of foreign companies to which the federal Insurance Companies Act (Canada) applies).

Insurance/reinsurance providers

In addition to the restrictions on ownership set out in Question 11, the Minister of Finance's prior approval is required:

  • Whenever a person, directly or indirectly, attempts to acquire more than 10% of any class of shares (known as a "significant interest") issued by a federally-incorporated insurance company. If a person already has a significant interest in a class of shares, any increase in holdings of those shares also requires the Finance Minister's approval, subject to acquisitions of small percentages.

  • In the case of an "acquisition of control in fact" of a Canadian insurance company. An acquisition of control in fact has been defined as "any direct or indirect influence that, if exercised, would result in control in fact of the entity."

If the acquisition of a significant interest in a class of shares, or of control in fact, takes place by means of an amalgamation, merger or reorganisation of an entity, the entity is deemed to be acquiring the significant interest in the class of shares or control in fact of the company. Generally, it is possible to obtain an exemption with respect to acquisitions of non-voting shares if the aggregate book value of the shares of the class is not more than 30% of the aggregate book value of all the outstanding shares of the company.

There is currently no Canadian federal approval requirement for the change of control of a foreign company that maintains a qualified Canadian branch, although approvals may be required under other statutes in such event (for example, under the Competition Act and the Investment Canada Act).

In relation to provincial law, section 100 of the Insurance Act (Ontario) requires a 30-day pre-notification to be given to the Superintendent of Financial Services:

  • In the event of a share transfer involving 10% or more of the voting shares of an insurer carrying on business in Ontario.

  • Where the directors of such insurer have reason to believe that the transfer would result in a majority of the issued voting shares of the insurer being beneficially owned by any one person.

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

At federal level, an incorporated insurer, except where noted, a Canadian branch of a foreign company are subject to extensive ongoing requirements, including:

  • Financial, audit and actuarial reporting.

  • Periodic on-site assessments by the Office of the Superintendent of Financial Institutions (OSFI).

  • Compliance with various guidelines and rules, such as:

    • maintenance of qualifying regulatory capital;

    • policies for prudential management of investments, and policies for derivatives practices, pledging and securities lending and so on;

    • corporate governance and operational risk governance, in line with emerging global best practices (not currently applicable to branches);

    • robust regulatory compliance management;

    • policies and procedures for the prudential management of all outsourced arrangements;

    • participating account management and disclosure to participating and adjustable policyholders (life);

    • deterring and detecting money laundering (life);

    • earthquake exposure sound practices (property and casualty);

    • stress testing;

    • own risk and solvency assessment (ORSA); and

    • policies and procedures for sound reinsurance practices.

In addition, Canadian insurers are subject to a regime under the Insurance Companies Act (Canada) that requires OSFI notification or approval in relation to a number of corporate and operational matters.

Such matters include:

  • Reinsurance with an unregistered affiliate.

  • Reinsurance security agreements.

  • Related party transactions.

  • Issuance, redemption and repurchase of shares.

  • Declaration of dividends.

  • Permitted investments in other entities.

  • Assumption reinsurance.

  • Amalgamations.

In some cases, the regime imposes limitations or restrictions on how the transaction or activity may be pursued.

Insurance/reinsurance intermediaries

Insurance intermediaries are regulated by the provinces in Canada. Although there are ongoing regulatory and statutory requirements, these are far less onerous than the requirements for insurers and reinsurers. As with any registered corporation, there are ongoing periodic reporting requirements. For example, annual corporate returns must be filed.

These requirements also apply to non-regulated intermediaries (for example, intermediaries that act exclusively in connection with reinsurance).

Other regulated intermediaries are generally required to maintain minimum education standards and obtain errors and omissions insurance.

Other providers of insurance/reinsurance-related activities

The province of Saskatchewan has a new insurance statute that includes "managing general agents" and "third party administrators" as licensed categories of intermediaries. These categories will likely have similar ongoing requirements as traditional intermediaries in Saskatchewan once the related regulations are finalised.

Ongoing requirements for persons and entities acting as insurance adjusters are similar to those of insurance intermediaries.

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

Insurance/reinsurance providers

Sanctions under federal, provincial or territorial insurance law can include:

  • Fines or other monetary penalties by the courts (on conviction).

  • Administrative monetary penalties (AMPs) by the regulator in the provinces with AMPs.

  • Revocation of licences.

  • Cease and desist orders/orders to comply.

Sanctions for insurers and reinsurers regulated at the federal level also include:

  • Imprisonment (on conviction on indictment).

  • A "prudential agreement" with an insurer or reinsurer by the Superintendent of Financial Institutions.

  • Removal directors or senior officers by the Superintendent.

  • Removal of the chief agent of a federally-regulated branch by the Superintendent.

  • In prescribed circumstances, assumption of control of insurer/reinsurer's assets by the Superintendent.

The Insurance Companies Act and most provincial insurance statutes provide that any directors or officers who authorise or participate/acquiesce in an offence are also liable for the offence.

Insurance/reinsurance intermediaries

Sanctions for insurance/reinsurance intermediaries are provided for pursuant to provincial law. Sanctions include:

  • Fines or other monetary penalties by the courts.

  • AMPs (in the provinces with AMPs).

  • Revocation of licences.

  • Cease and desist orders/orders to comply.

For corporate intermediaries, most provincial insurance statutes provide that any directors or officers who authorise or participate/acquiesce in an offence are also liable for the offence.

Other providers of insurance/reinsurance-related activities

The rules for adjusters are the same as for insurance/reinsurance intermediaries (see above, Insurance/reinsurance intermediaries).

Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

The insured must have an insurable interest (subject to certain exceptions for life insurance) in the subject matter of the insurance contract, or the contract will be void. If the insured is a natural person, the individual's ability to be sold the contract will also be restricted by the:

  • General law of capacity to enter into a contract.

  • Specific laws of capacity relevant to insurance contracts of the applicable province.


Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

The extent to which a reinsurance company can monitor the claims, settlements and underwriting of the cedant company will depend on the specific contractual arrangement made between the parties. There are no regulatory requirements that provide the reinsurer with particular rights or powers, or that require it to exercise particular rights or powers.

However, there are robust federal requirements embedded in the various insurance Guidelines (see Question 2, Regulatory bodies) that require all insurers, including reinsurers, to have risk management processes in place. Therefore, it would be prudent (where commercially reasonable/possible and appropriate) for reinsurers to have specific contractual rights that enable them to protect their interests. It is possible that, in certain circumstances, a reinsurer could be found to be non-compliant without certain minimum rights and powers in its reinsurance agreements.

17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

In Canada, the only fully-prescribed form of insurance policy relates to automobile insurance in each province.

Other than automobile insurance, the form and content of insurance contracts are generally left to the insurer. However, the legislation of some provinces contain statutory conditions (actual wordings) that are deemed to be included in certain types of insurance contracts even if they not expressly printed, for example:

  • Individual accident and sickness insurance policies.

  • Fire insurance policies.

  • All contracts of insurance, except for designated types or classes of insurance.

  • Specialist types of agricultural insurance (for example, hail insurance, weather insurance, and livestock insurance).

See also Question 20, Terms implied or deemed to be included by statute.

The legislation of each province also requires that certain minimum specific content be contained in certain types or classes of insurance contracts (in Québec for example, certain provisions are statutorily required for inclusion in group life insurance contracts and creditor's group life insurance contracts).

Commonly found clauses

Clauses commonly found in an insurance policy can vary greatly depending on the type of insurance involved (for example, whether the contract is a marine policy, directors and officer (D&O) policy, title insurance policy, commercial general liability policy and so on). Even where the policy is within the same class of insurance, there will be some variance (for example, a life insurance policy can be a term life policy, a whole life policy or a deferred life annuity).

However, there is some commonality of clauses within a class of insurance (for example, a liability policy will have an insuring clause as well as provisions relating to the term, warranties, premium, exclusions from coverage, policy limits, any deductibles owed by the insured, conditions relating to claims and other matters, governing law and so on).

Cross liability clauses tend to be quite similar, but subrogation clauses can vary with the drafter.

19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

In our experience, treaty reinsurance is more common than facultative insurance.

The most common clauses in reinsurance agreements are:

  • Business covered/territory.

  • Retention/limit of liability.

  • Exclusions.

  • Follow the fortunes (which means that the reinsurer is subject to the same liability as the direct writer/ceding company).

  • Special acceptances.

  • Reinsurance premium.

  • Notice of loss/loss settlements.

  • Special cancellation.

  • Deposits for unlicensed reinsurance.

  • Reinsurer insolvency.

  • Company insolvency.

  • Accounting.

  • Access to records.

  • Errors and omissions.

  • Taxes.

  • Arbitration.

  • Service of suit.

  • Choice of law.

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

Implied terms at common law

An insurance contract (as with any contract) is subject to a court implying terms into it to give efficacy to the mutual intention of the parties. Apart from this, the common law implies a duty of the utmost good faith into every insurance contract. This duty is owed by the insured to the insurer and vice versa, and if breached, the contract may be avoided by the innocent party.

An insured party who applies for insurance owes a duty to the insurer to disclose all relevant information that is material to the risk. This duty has, to a certain extent, been codified in various provincial insurance statutes (for example, in respect of the life insurance and the accident and sickness insurance provisions of those statutes).

In relation to the insurer's duty of utmost good faith, the insurer is required to:

  • Give a fair interpretation to the wording of the contract.

  • Conduct an adequate, balanced and timely investigation of the claim.

  • Assess the merits of the claim in a balanced, reasonable and expeditious manner.

  • Otherwise deal with the insured's claim fairly.

The duty to act fairly in respect of the claims process has, to a lesser extent, been codified in Canadian provincial statutes under provisions relating to "unfair or deceptive acts or practices".

Terms implied or deemed to be included by statute

The general insurance legislation of many Canada provinces provides for the deemed inclusion of certain statutory conditions in fire, individual accident and sickness, and auto insurance policies, whether or not the insured has printed them there as required.

See also Question 18, Form and content requirements.

In addition, certain warranties are implied into contracts of marine insurance (for example, in the federal Marine Insurance Act, there is an implied warranty that the marine adventure is lawful and that, in a voyage policy, the ship will be seaworthy at the commencement of the voyage for the purpose of the particular marine adventure insured).

Customer protections

21. How do customer protections in the general law affect insurance contracts? What customer protections are generally included in insurance policies to supplement this?

General law

The general consumer protection statutes of most provinces of Canada are not applicable to insurance contracts. This is because either:

  • They contain a provision that expressly exempts insurance contracts from their application.

  • They contain subject matter that does not include insurance.

In a few provinces, smaller portions of their consumer protection laws of general application apply to insurance contracts or their sale.

Insurance policies

Most insurance policies do not contain specific consumer protection provisions. However, the insurance statutes of most provinces contain provisions that prohibit "unfair or deceptive acts or practices". These provisions are designed to protect consumers of insurance against sharp marketing, claims and other practices (such as unreasonable delay, in or resistance to the fair adjustment and settlement of claims). The wording of automobile insurance policies is determined by provincial governments and tends to be consumer-friendly.

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

The Insurance Bureau of Canada makes available (on a members-only basis) certain standard policies and terms for certain types of property and casualty insurance.

Forms of personal lines automobile insurance policies are statutorily determined by the various provincial governments, and are available through the internet where their respective laws are found.

Certain provinces require specific statutory conditions to be included. Such conditions are deemed included in fire and automobile insurance policies as well as in individual accident and sickness insurance policies.


Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger a claim under an insurance policy?

For contingency insurance (for example, life insurance), a proper claimant may bring a claim on the occurrence of the event insured against. For indemnity insurance (for example, property or liability insurance), an insured may bring a claim on the insured suffering a loss as a result of the certain risk or peril that is within the scope of the particular insurance contract. In connection with the class of liability insurance, the insurer's duty to defend is broader in scope than its duty to indemnify, and is triggered when the insured alleges any facts that may fall within the coverage afforded by the particular policy.

The notice requirements that exist regarding notice of a claim that must be sent to the insurer will vary according to the type of policy involved.

In all Canadian jurisdictions other than Québec, relief from forfeiture will generally be available to an insured or other lawful claimant if there has been imperfect compliance with a notice provision in a policy, provided that such remedy will not be available if any one of the following events has occurred:

  • The insurer has suffered some prejudice as a result of the late notice.

  • A limitation period for commencing an action to recover the proceeds has otherwise run.

  • The claimant lacks clean hands, owing to the equitable origins of the remedy and the inherent equitable jurisdiction of the court.

In Québec, the Civil Code provides that in the case of damage insurance (which includes property as well as liability insurance), the insured must notify the insurer of a loss as soon as the insured becomes aware of it. If the insured fails to do so, and if the insurer has inserted a forfeiture provision in the contract in respect of such a failure, and if the insurer suffers some injury as a result of such failure, then the insurer will be entitled to invoke the forfeiture clause.

In the common law jurisdictions of Canada, if an insured has a legally enforceable right to recover its loss from a third party (for example, as a result of a tort or breach of contract committed by a third party) and the insurer has indemnified the insured for that loss, then the doctrine of subrogation allows the insurer to assume the rights of recovery that the insured has as against such third party. Subject to statutory modification (for example, in the case of auto, fire and marine insurance) or the terms of the insurance contract itself, the insurer's common law right of subrogation does not arise until the insured has been fully indemnified. Where modified by statute or the terms of the insurance contract, the right is generally said to arise on any payment being made by the insurer to the insured under the policy.

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

Generally, the principle of privity of contract applies to insurance contracts. This means that only the parties to the contract itself can either benefit from it or be bound by its obligations. Therefore, third parties are typically excluded from bringing a direct action against an insurer. However, there are some exceptions to the principle of privity of contact in the context of insurance law:

  • Third parties can join the contractual relationship by acquiring rights directly from the insured and thereby becoming assignees to the contract. Assignments can occur:

    • voluntarily. For example where the insured transfers or sells the insured object (a house, for example), the insurance policy itself, or the insured's right to receive benefits under the policy may be assigned to the third party assignee; or

    • without the insured's consent or by operation of law. For example, on the bankruptcy or death of the insured.

  • Third parties can become a beneficiary to an insurance contract without actually joining the contractual relationship. Third-party beneficiaries are persons who are found to have been within the contemplation of the insurer and the insured when the contract was negotiated and who are therefore exceptions to the principle of privity. For example, an individual who can establish that the insured was acting as his or her trustee or agent when negotiating the insurance contract may be able to sue the insurer if the insured is also joined to the action.

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

The period during which a claimant under an insurance contract must commence court proceedings varies with the statutory laws and judicial interpretations of the particular province.

In Ontario, and subject to certain exceptions, a limitations statute of general application provides that a claim must be brought within a two-year period, commencing from the time the claim is discovered. This two-year period cannot be shorted by contract, unless the insurance contract is made between persons that are not "consumers" (that is, the insurance is not for personal, family or household purposes).The determination of when a claim is discovered is governed by both that limitations statute and considerable judicial interpretation.

Notwithstanding this, the Ontario Insurance Act provides that proceedings against an insurer for recovery of a claim must be commenced within one year after the loss or damage occurs in respect of fire insurance claims and claims based on loss or damage to an automobile or its contents.


26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

Reinsurance is essentially insurance for insurers. The contractual relationship therefore exists between the insurer and the reinsurer, and the individual insured is not a party to the contract. Since there generally is no contractual provision establishing a relationship between them, the original policyholder cannot bring a direct action against a reinsurer.


27. What remedies are available for breach of an insurance policy?

Breach by the insurer

The available remedies depend on the laws of the applicable province. Generally, a default by the insurer will give rise to a claim for damages for breach of contract.

For the provinces outside of Québec, the remedies can comprise any of the following:

  • Compensatory damages. These are to restore the innocent party to the position they would have been in if the insurance contract had not been breached, and which was within the reasonable contemplation of the parties at the time the contract was made.

  • Damages for mental distress. These are compensatory in nature and are awarded where the court concludes that the purpose of the insurance contract was to secure a psychological benefit (for example, peace of mind), mental distress resulting from the breach was within the reasonable contemplation of the parties, and the degree of mental suffering is sufficient to warrant compensation.

  • Aggravated damages. These are compensatory in nature and are awarded to take into account the intangible injuries of humiliation and mental distress arising out of an independent cause of action (such as fraud or defamation by the insurer) rather than a breach of the insurance contract.

  • Punitive damages. These are not compensatory in nature. Punitive damages are awarded to provide retribution, deterrence or denunciation of some malicious or high-handed, independently actionable behaviour on the part of the insurer. Bad faith originating from an insurer's wrongful denial of an insurance claim may, but does not necessarily, result in an award of punitive damages.

In Québec, compensatory damages are available for an insurer's breach, as are "moral" damages, the latter being compensatory in nature and available to compensate for proven mental and emotional suffering sustained by the insured as a result of such breach. Punitive damages are not available unless the insurer's breach can be shown to violate the Charter of Human Rights and Freedoms (Québec).

Breach by the insured

For the provinces other than Québec, the remedies for breach of an insurance contract by the insured can give rise to the following remedies on the part of the insurer:

  • Termination or rescission of the contract, based on the nature of the insured's breach (for example, if there has been a fraudulent misrepresentation in order to obtain the coverage, the insurer can rescind the policy and retain the premiums received).

  • Compensatory damages.

  • Punitive damages for certain breaches of the duty of good faith owed by the insured to the insurer (although this is usually not claimed).

In Québec, the remedies for the insurer are generally equivalent to the remedies listed above, with the exception of the elimination of punitive damages and the addition of a statutory suspension of coverage for a breach by the insured of a warranty that aggravates the risk.

Punitive damage claims

28. Are punitive damages insurable? Can punitive damages be reinsured if they are covered by an underlying policy?

Although some common law courts have expressed public policy concerns about the insurability of punitive damages in Canada, there are no statutory prohibitions against such coverage within such jurisdictions of Canada. Therefore, whether or not punitive damages can be reinsured is ultimately determined by the terms of the policy.

The public policy concern is based on the notion that punitive damages are meant to punish and deter a defendant's malicious or high-handed conduct, and that allowing recovery would negative such effects.


Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

Jurisdiction over the winding-up of insolvent insurance companies lies exclusively with the federal legislative authority. The federal Winding-up and Restructuring Act is the statute under which an insolvent insurer can be wound up. This Act applies to all insurers that are incorporated federally or that operate in Canada as a branch.

From a practical perspective, once an insurer or reinsurer becomes distressed, the federal Superintendent will typically exercise his or her broad powers and take control of the insurer or reinsurer (and depending on the circumstances, apply for a winding-up order). Once the winding-up order is granted, the Superintendent will contract professional firms (for example, consulting arms of the large accounting firms), to manage the winding-up.

In Canada there are two compensation associations:

  • Property and Casualty Insurance Compensation Corporation (PACICC), for non-life insurance policyholders.

  • Assuris, for life insurance policyholders.

If a non-life company is to be closed by a Canadian regulator and there are not enough assets to satisfy the company's policyholder claims, PACICC will pay outstanding claims up to certain limits, as follows:

  • For automobile and commercial insurance policies: up to Can$250,000.

  • For home insurance policies: up to Can$300,000 per policy.

Policy deductibles are applied to the total amount of the insured loss.

PACICC will also refund 70% of the unearned (unexpired) portion of the premium, calculated from the date of the winding-up order to a maximum of Can$700 per policy.

Assuris guarantees that life policyholders will retain at least 85% of the insurance benefits they were promised, including death, health expense, monthly income and cash value.

For deposit-type products, Assuris guarantees that the policyholder will retain 100% of their accumulated value up to Can$100,000. Deposit-type products include:

  • Accumulation annuities.

  • Universal life overflow accounts.

  • Dividend deposit accounts.

30. Can excess insurance policies "drop down" to provide coverage if the primary insurer goes into insolvency?

There is no mandatory requirement in Canada for excess policies to drop down in the event of primary insurer insolvency. The matter would depend on the wording and intent of the excess policy in question.

31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

The federal Winding-up and Restructuring Act specifically provides that the legal and equitable principles of set-off apply to all claims on the estate of an insolvent insurance company, and all proceedings for the recovery of debts due or accruing due to the company, at the commencement of the winding-up of the company in the same manner and to the same extent as if the business of the company was not being wound up under that legislation.

Canadian courts have reviewed set-off clauses in reinsurance agreements in the context of insolvency. When interpreting these clauses, the courts have generally applied the normal rules of construction of contracts.


Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

Insurers, re-insurers and providers of insurance related services are generally subject to the same general tax regimes as other businesses. However, there are many specific insurance-related tax regimes.

Capital tax

Life insurance companies are generally subject to federal capital tax, at a rate 1.25%, on their taxable capital employed in Canada in excess of the Can$1 billion capital deduction (or such lesser capital deduction as may be available in their particular circumstances). For these purposes, an insurer's taxable capital employed in Canada is determined in accordance with detailed rules contained in the Income Tax Act (Canada). The capital tax liability of an insurer can generally be reduced by various amounts, including by an amount equal to its federal income tax payable. Ontario and Quebec impose similar provincial capital taxes.

Excise tax

The federal government levies a 10% excise tax to certain premiums paid to unlicensed insurers who are not located in Canada and not licensed to sell insurance in Canada. Exceptions from this excise tax may be available for reinsurers and certain types of insurance policies that are not otherwise available in Canada.

Goods and services/sales tax

The federal Goods and Services Tax (GST) is a multi-level value added tax levied on supplies of goods or services purchased in Canada. The Harmonized Sales Tax (HST) is a consumption tax in Canada. The HST is used in provinces where both the GST and the regional Provincial Sales Tax (PST) have been combined into a single value added sales tax.

Supplies of insurance policies in Canada are generally treated as exempt supplies for the purposes of:

  • GST/HST.

  • The Quebec sales tax (QST) (which is substantially harmonised with the GST/HST).

Therefore, insurers are not required to collect GST/HST or QST on supplies of insurance policies. As a consequence, however, insurers are generally not entitled to claim input tax credits (or input tax refunds) to recover any GST/HST (or QST) on their inputs.

Furthermore, for GST/HST purposes, insurers may be required to self-assess for GST/HST in respect of "qualifying consideration" in respect of outlays or expenses made outside of Canada. Alternatively, an insurer that is resident in Canada may elect to self-assess on the total of all amounts that are "internal charges" and "external charges" for a particular year. Under this regime, insurers who make payments to non-residents with whom they do not deal at arm's length for the provision of financial services (including insurance) may be required to self-assess for GST/HST in relation to the "loading" aspect of such payments (essentially, the amounts for profit and administrative costs). A similar regime applies for QST purposes.

Specific provincial taxes

The Canadian provinces levy their own insurance premium taxes on life, accident and sickness insurance, property and casualty insurance and, in some provinces, fire insurance. Although the details of each provincial regime vary, generally such taxes are payable in respect of gross premiums receivable by an insurer in respect of policies that relate to persons or property located in the relevant province. In addition, in some circumstances, insured parties can be liable for provincial premium taxes in relation to premiums paid to insurers who are not licensed in those provinces.

In addition, some provinces levy sales tax in relation to premiums for certain insurance policies. Although such tax is payable by the purchaser, if the insurer carries on business in the relevant province, it is typically required to collect and remit the applicable tax to the appropriate tax authority.


Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

Disputes between consumers and direct writers

Although market conduct is generally within the jurisdiction of the provincial legislatures, the Insurance Companies Act (Canada) provides that every federally regulated insurance company and every foreign company operating as a branch in Canada is required to establish procedures for dealing with complaints made by persons having requested or received products or services in Canada from the company, and to designate company officials to be responsible for implementation of those procedures and for receiving and dealing with complaints (complaints officers). The procedures must be filed with the Commissioner of the Financial Consumer Agency of Canada (Commissioner) and be made available on the insurer's websites and, where requested, in written format.

For complaints that cannot be resolved between the consumer and the company's complaints officer, the insurer is required to submit to provincial laws that mandate specific organisations for the resolution of complaints in the province and/or be members of another complaint handling organisation that is independent of the insurer.

There are two independent complaint-handling and dispute resolution organisations that deal with insurance products and services:

  • General Insurance OmbudService, which deals with disputes regarding home, auto and business insurance; and

  • OmbudService for Life & Health Insurance, which deals with complaints relating to life and health insurance products.

These services are designed to be consumer-friendly alternatives to the courts.

Disputes between cedants and reinsurers

Insurers whose business is restricted to reinsurance will be exempt from the above complaint handling requirements contained in the Insurance Companies Act (Canada) upon providing certain confirmatory statements to the Commissioner.

There are no specific procedures or venues for dealing with disputes between cedants and reinsurers outside of the provisions agreed upon in the reinsurance agreement.

34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

We are unaware of any court decision in common law Canada that deals with the express issue of whether a mandatory arbitration clause in an insurance contract is enforceable.

However, mandatory arbitration clauses in reinsurance agreements are common and are widely believed to be enforceable. In addition, a mandatory arbitration clause in a negotiated insurance contract is very likely enforceable. In common law Canada, a mandatory arbitration clause in a life insurance or accident and sickness insurance contract would likely not be enforceable on the basis that the insurance statute of the particular province or territory provides a claimant who is resident there with the express right to bring a legal action in that jurisdiction. To the extent that the insurance contract is otherwise a contract of adhesion (with the policy often being delivered to the policyholder subsequent to a signed application form being submitted to the insurer), it may be that a mandatory arbitration clause included in such a policy would not be enforceable especially if the policy was one of consumer rather than commercial lines insurance.

35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced?

With an insurance contract, and with the exception of certain specified classes of insurance, the insurance statutes of most provinces and territories expressly provide that if the subject matter of a contract is property in that jurisdiction or an insurable interest of a person resident in that jurisdiction, and if the contract is signed, issued or delivered in that jurisdiction or is committed to the post or courier to be handed over to the insured in that jurisdiction, then the contract must be construed according to the laws of that jurisdiction. As far as choice of jurisdiction goes, courts will generally give effect to such a provision included in an insurance contract, subject to the following:

  • The insurance statute of a particular province or territory will sometimes expressly state that an insured or claimant may commence an action in the courts of the jurisdiction in which that person resides (for example, in the case of life insurance and accident and sickness insurance).

  • A court may decline jurisdiction on the basis of forum non conveniens.

Canadian courts will generally give effect to choice of law and jurisdiction clauses in a reinsurance contract, unless the choice is contrary to public policy or is not bona fide and legal.



36. What proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services?

Provincial law reform

The Canadian Council of Insurance Regulators (CCIR), which is made up of the provincial and territorial superintendents of insurance and a representative of the Office of the Superintendent of Financial Institutions (OSFI), identified a number of priorities and strategic initiatives in its Strategic Plan for 2014-2017. The planned initiatives include:

  • Reviewing the travel insurance industry in Canada, including activities of call centre support providers, policy wordings and exclusions, and the adequacy of information provided to consumers (both on-line and in-person).

  • Reviewing and addressing the continuing issues that arise from the use of technology, such as electronic "pink cards" for automobiles, telematics (as an underwriting tool), claims handling, underwriting and data collection.

  • Considering enhanced methods for ensuring financial literacy so that consumers make informed insurance choices.

  • Reviewing the regulation of individual variable insurance contracts and assessing potential regulatory arbitrage (for example, in relation to the parallel regulatory framework for mutual funds).

  • Developing a common understanding with pension regulators, policy makers and pension and insurance stakeholders with respect to longevity risk transfer markets in Canada.

  • Reviewing policy wordings for property insurance and disclosure issues relating to natural disaster coverage.

In Ontario, the Minister of Finance appointed an expert advisory panel to examine the mandates of three key financial regulatory organisations, including the Financial Services Commission of Ontario, which regulates, among other matters, insurance in the province of Ontario. The preliminary consensus of the Panel is that Ontario needs a restructured regulator in light of rapid changes to industry structure, technology, market demands and consumer expectations.

The province of Saskatchewan has just revamped its insurance laws by passing the Insurance Act. This Act is designed to modernise requirements and harmonise the provisions of insurance statutes in Alberta and British Columbia. The changes are generally focused on issues such as fair and unfair practices, insurance intermediaries and self-evaluative audits (among other). However, the key regulations have yet to be drafted.

Federal law reform

Based on OSFI's 2015-16 Report on Plans and Priorities, the following matters are on the federal regulator's agenda:

  • Implementing the suite of domestic reforms set out in the Life Insurance Regulatory Framework publication, including continuing work on a more risk-sensitive standardised capital framework for life insurers.

  • Implementing the new property and casualty insurance capital requirements.

  • Participating in the development of global insurance capital standards.

  • Monitoring the implementation of insurance reforms in other jurisdictions and consider appropriate Canadian responses.

  • Developing a separate capital guideline for private sector mortgage insurance companies.

  • Implementing a new processes for reviewing "new entry" applications and monitoring their roll-out.

  • Managing the large volume of approval requests for reinsurance arrangements with unregistered related reinsurers, as a result of regime changes introduced in 2014.


Main insurance/reinsurance trade organisations

Canadian Life and Health Insurance Association (CLHIA)


Main activities. Trade association of life and health insurers. In addition to lobbying and representing its members' interests, the CLHIA issues guidelines and regulates specific products.

Insurance Bureau of Canada


Main activities. Trade association of property and casualty insurers. Follows current issues and lobbies governments in the interests of its members.

Reinsurance Research Council


Main activities. Trade association of property and casualty reinsurers. Conducts research into all lines of property and casualty reinsurance. Presents the view of members where appropriate and liaises with governments and other stakeholders.

Insurance Brokers of Canada


Main activities. Trade association of P&C brokers.

Independent Financial Brokers of Canada


Main activities. Association representing independent insurance, mutual fund and other financial service professionals. Maintains a dialogue with governments, regulators and other decision-makers.

Online resources

Federal: Insurance Companies Act (Canada)


Description. Insurance Companies Act, SC 1991, c. 47.

Alberta: Insurance Act


Description. Insurance Act, RSA 2000, c. I-3.

British Columbia: Insurance Act and Financial Institutions Act


Description. Insurance Act, SBC 2012, c. 1


Description. Financial Institutions Act, RSBC 1996 c 141.

Manitoba: Insurance Act


Description. Insurance Act, CCSM, c. I40

New Brunswick: Insurance Act


Description. Insurance Act, RSNB 1973, c. I-12

Newfoundland and Labrador: Insurance Companies Act


Description. Insurance Companies Act, RSNL 1990, c. I-10.

Nova Scotia


Description. Insurance Act, RSNS 1989, c. 231.

Ontario: Insurance Act


Description. Insurance Act, RSO 1990, c. I.8

Prince Edward Island: Insurance Act


Description. Insurance Act, RSPEI. 1988, c. I-4.

Quebec: Act respecting insurance and Act respecting the distribution of Financial Products and Services


Description. An Act respecting insurance, RSQ c. A-32


Description. An Act respecting the distribution of Financial Products and Services, RSQ, c D-9.2

Saskatchewan: Insurance Act


Description. Saskatchewan Insurance Act, SS 1978, c. S-26.

Northwest Territories: Insurance Act


Description. Insurance Act, RSNWT 1988, c. I-4.

Nunavut: Insurance Act


Insurance Act, RSNWT (Nu) 1988 c. I-4.

Yukon: Insurance Act


Description. Insurance Act, RSY 2002, c. 119.

Contributor profiles

Carol Lyons, Partner

McMillan LLP

T +416 307 4106

Professional qualifications. Ontario bar, Canada, 1989; University of Toronto Law School, JD, 1987; University of Toronto, BA, 1984

Areas of practice. Financial services; insurance, business formation; mergers and acquisitions; corporate governance; regulatory compliance; business law; pensions; industries: banking; finance and insurance; funds; service industries; healthcare.

Recent transactions

  • Routinely assisting corporations in a variety of industries/sectors with incorporation and licensing, mergers, acquisitions and divestitures, corporate reorganisations, jurisdictional changes as well as divestment/outsourcing of business functions.
  • Regularly advising with respect to commercial contractual matters, including procurement of goods and services, formation of joint ventures and strategic alliances.
  • Routinely assisting domestic and foreign insurance and reinsurance companies in connection with acquisitions, divestitures, incorporation and licensing of Canadian subsidiaries, qualification, licensing, run-off and closure of Canadian branch operations as well as portfolio transfers, reorganisations and amalgamations.
  • Advising insurers, reinsurers and insurance intermediaries with respect to statutory compliance and required regulatory approvals in a variety of contexts, including transactional and operational matters and related-party transactions.
  • Reviewing and drafting reinsurance agreements (including assumption, indemnity and co-insurance).

Professional associations/memberships

  • Chair, SCOR Canada Reinsurance Company.
  • Audit Committee/Conduct Review and Corporate Governance Committee member, SCOR Canada Reinsurance Company.
  • Advisory Board and Audit Committee member, a Canadian insurance reciprocal.
  • Past Director, Learning Disabilities Association of Ontario.
  • Canadian Bar Association.
  • Ontario Bar Association.
  • Law Society of Upper Canada.
  • Women's Law Network – Insurance Law.


  • The 10 Most Important Issues General Counsel Should Know About Risk Transfer Involving Insurance, Canadian Corporate Counsel Association Webinar, 27 April 2016.
  • Mitigating Cyber Risk and Cybersecurity Insurance, Cybersecurity Bulletin, May 2016.
  • Does Canada need a terrorism risk insurance scheme?, Canadian Journal of Insurance Law, January 2016.
  • Cybersecurity - The Legal Landscape in Canada, TerraLex, January 2016.
  • New OSFI Guideline on Operational Risk Management, Insurance Bulletin, September 2015.
  • In the works..., Canadian Underwriter: Canada's Insurance and Risk Magazine, 2015.

Gerald A Badali

McMillan LLP

T +416 307 4064

Professional qualifications. Ontario bar, Canada, 1983; University of Western Ontario, LLB, 1981; University of Toronto, BA (with high distinction), 1978

Areas of practice. Financial services; insurance; regulatory compliance; business law; government procurement; technology; outsourcing.

Recent transactions

  • Advised on life, accident and sickness, property, liability, surety, title, travel and creditor's group insurance matters including product development work in respect of term life, universal life and annuity policies as well as variable insurance (segregated funds) contract.
  • Advised on corporate reorganisations and governance, market conduct, product distribution and marketing arrangements (including affinity programs), as well as on regulatory matters related to all of the foregoing.
  • Advised banks, insurers, marketing companies, manufacturers and others in defining the borderline between insurance and non-insurance products.
  • Advised auto, electronics and other manufactures, warranty administrators as well as others on the implementation and administration of warranty, extended warranty, service contract and other dealer-sold programmes, on a cross-Canada basis.
  • Advised manufacturers, national distributors or their lending divisions on floor plan inventory insurance programmes.
  • Advised on the prepared corporate policies, compliance regimes and other guidance in respect of investments, outsourcing, anti-money laundering, anti-terrorism, FATCA, unclaimed property/escheatment, and so on for various financial institutions, credit card companies and other issuers of payment products.

Professional associations/memberships.

  • Anti-Money Laundering and Anti-Terrorism Financing Registered Deposit Brokers Association, 2009.
  • Anti-Money Laundering and Anti-Terrorism Financing, Independent Financial Brokers Association, Toronto Spring Summit, 2009.


  • The Anti-Money Laundering/Anti-Terrorist Financing section of Compliance Office®, Ethidex's web-based compliance and risk management system, which is currently utilised by numerous Canadian insurers (has authored this section since at least as early as 2004), 2015.
  • Managing Risk in the Administration of Employee Benefits, Risk Management Magazine Online, Risk and Insurance Management Society Inc., New York, New York, December 2015.
  • Insurance Intermediation Activities and Insurance Intermediaries, International Bar Association (co-author of Canadian chapter), 2015.
  • AM Best' s Digest of Insurance Law (a principal author of the Ontario section since 2009), 2014.
  • The Legal Nature of Insurance Contracts, International Bar Association (a principal author of the Canadian section), 2013.
  • Risky business: doing business in near-failed and failed states, Client bulletin, 2011.
  • Filthy Lucre: Confronting the Risks of Money Laundering Risk Management Magazine, Vol. 54:4 (May, 2010), Risk and Insurance Management Society Inc, New York, New York, 2010.

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