The recently proposed Insurance Amendment Act (Bill 16) would add new reinsurance provisions to allow provincially licensed insurance companies to focus solely on reinsurance, which is insurance for insurance companies. The legislation would allow the companies to enter into limited partnerships to raise capital, reduce the current regulatory charge for purchasing unlicensed insurance from 50 per cent of the premium payable for unlicensed insurance to 10 per cent and reduce the 50 per cent financial penalty for the late payment of all charges and tax on unlicensed insurance, to 10 per cent.
“Alberta is creating opportunities in every sector of our rapidly growing economy,” provincial Finance Minister Travis Toews said. “To this end, we’re delivering a regulatory framework that will help generate more insurance activity right here in Alberta — leading to more opportunities for Albertans in sophisticated finance and insurance positions and boosting the investment potential of our entire financial services sector.”
If the bill passes Alberta will be the first Canadian jurisdiction to allow licensed provincial insurance companies to focus solely on reinsurance business. It also puts the finishing touches on insurance rules before the province proclaims the Captive Insurance Companies Act, which was passed last December. That legislation outlines the rules necessary for forming, operating and dissolving a captive insurer in Alberta, which are “in-house” insurance solutions created and owned by an industrial, commercial or financial entity that can offer services when traditional insurers are unable to provide necessary coverage. A reinsurance company assumes the risk of insurance companies, including captive insurance.
David Corrigan, HMC Lawyers
“They will take on risks above a certain amount, and if you set up your own captive pool of some sort then you can go deal with these companies directly for any excess exposures,” he said. “The idea is just to make sure that these companies are going to be able to find an insurance product that will allow them to stay in business, and as I understand it the oil companies are having trouble getting coverage for certain types of things.”
Lee Rogers, president of Alberta-based Rogers Insurance, said the insurance industry as a whole has really been challenged across the globe as it relates to its pricing versus risk.
“And the pricing really has not afforded insurers the ability to manage risk the way they once could — so, when that happens you have a much bigger selection criteria that goes into taking risk on, and you then have reduced capacity in the marketplace,” he said. “What a captive does is allow for an alternate way for people to protect themselves without having to rely on the traditional insurance market — and so the more options that are available to clients the better because that allows them to better understand how they need to operate their business.”
Rogers said it will be some time before the effects of the captive insurance and reinsurance changes filter down to “everyday businesses” in the province, but it will have a more immediate impact for large companies like those in the energy sector.
“You could see this becoming a more effective manner in which they could obtain appropriate insurance for those people,” he said. “The industry is somewhat fearful of being in that space and providing insurance to those kinds of operations due to the bad press associated with it.”
A Ministry of Finance spokesperson said in an-email that the government is anticipating proclamation of the captive insurance legislation in the summer, with the regulations coming into effect simultaneously. Bill 16 is before the Alberta legislature.
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