The Canadian Insurance Companies Act

Insurance companies operating in Canada must abide by the Canadian Insurance Companies Act.

The Insurance Companies Act current as of June 2010 was passed by the Canadian federal government in 1991. It contains legal requirements for insurance companies wishing to operate in Canada on a great number of topics, including incorporation, governance, investment management and the operation of holding companies.

Incorporation

Applications for incorporation on behalf of an insurance company can not be made by a representative of the Queen, any member of Canada's federal or provincial government, any member of any foreign government or any agent acting as part of an agency controlled by any government. A Minister of the federal government receives the application and is responsible for considering a number of points before deciding whether to accept it, such as the company's available finances, the soundness of its business plan and the business experience of the company's directors. If the application is accepted, the insurance company may incorporate, under the laws in the Canada Business Corporations Act.

Organization and Governance

At the first directors meetings of the incorporated insurance companies, directors are required to create company bylaws, authorize the issuing of shares, appoint officers who will act on behalf of the corporation, appoint a superintendent and make banking arrangements. Companies with $5 million or more in holdings must also immediately call a shareholders meeting to share this information. The superintendent has the responsibility of authorizing orders on behalf of the corporation. Further directors and shareholders meetings must be held annually.

Changes to Company Regulations

Copies of company bylaws, notices, resolutions, statements or other document that needs to be signed must be sent to the company directors, shareholders and policyholders whose signatures may be needed. If these approved documents contain any change to the regulations the company operates by, the company must keep records of who signed them and the changes must be published in the Canada Gazette, a periodical published by the federal government of Canada containing changes to Canadian law and other legal matters. The company must also keep internal records of any changes made to it's board of directors.

Record Keeping

To remain in business, an insurance company must keep a number of detailed records on shareholders and policyholders. A shareholder is someone who has invested money in the company, while a policyholder is someone who has purchased insurance from the company. These records must detail who the company's shareholders are and which shareholders are to receive dividends and participate in the liquidation of assets. They must also note which shareholders are notified of shareholders meetings and which shareholders may vote at meetings. Records must also be kept on which of the company's policyholders are to be notified of meetings, which policyholders can vote, which have the right to receive dividends or bonuses and which have the right to receive shares in the company.

Investments

Insurance companies' investments are closely regulated.

The primary requirement of insurance companies where investments are concerned is that they invest in such a way as to earn a reasonable return without too much risk. They are specifically instructed to follow standards that a "reasonable and prudent person" would follow when managing their investment. With a few exceptions, an insurance company is not allowed to own more than 49 percent of another company. Furthermore, the insurance company can only purchase a controlling share of a company with written consent from a federal minister and the insurance company's superintendent.

References

• Canadian Department of Justice: Insurance Companies Act