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SECTION Office of the Superintendent of Financial Institutions

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SECTION Office of the Superintendent of Financial Institutions Powered By Docstoc
					SECTION I                                                                   INTRODUCTION



Guidelines and Bulletins

Guidelines and Bulletins issued by Regulators are listed under the applicable jurisdiction in
Section V - Jurisdictional Requirements.


Foreign Branches (P&C-2)

All Branch operations are required to file the P&C-2 Annual Return. There is a separate set
of Instructions to assist in the completion of the P&C-2.


Language Preference

The Annual Returns and the Instructions are available in both official languages. Some
jurisdictions will accept filings in either official language. See Section V - Jurisdictional
Requirements, for specific details.




(2010)                                       I-2                             INSTRUCTIONS P&C-1
SECTION III                                                                       DEFINITIONS



Registered and Unregistered Insurer

         The terms "registered" and "unregistered", as defined below are relevant in determining
         whether credit can be taken for reinsurance placed by federally regulated insurers and
         provincially incorporated insurers, respectively.

         - Federally Regulated Insurers only:

         Registered Reinsurer
         A reinsurer is generally considered to be a registered reinsurer where it is:
         (a) a federally regulated domestic insurance company;
         (b) a foreign company that has reinsured in Canada the risks of the ceding company;
         (c) a provincially/territorially regulated insurer that does not meet the definition of
              unregistered reinsurer (defined below);
         (d) the Insurance Corporation of British Columbia;
         (e) The Manitoba Public Insurance Corporation;
         (f) Saskatchewan Government Insurance; and
         (g) Export Development Canada.

         In order to help companies determine whether they were reinsured in Canada,
         subsection 578(5) of the Insurance Companies Act requires a foreign company, in
         respect of risks it reinsures in Canada, to set out in all premium notices, applications
         for policies and policies (which may include cover notes offer letters or quotations) a
         statement that the document was issued or made in the course of its insurance business
         in Canada. In cases where the cover note, offer letter or quotation can neither be
         considered an application for a policy nor a policy, a company will only be
         permitted to treat a reinsurance arrangement as registered reinsurance only if the
         reinsurer includes, in the cover note, offer letter or quotation, a statement that the
         reinsurer intends to issue the policy under negotiation in the course of its insurance
         business in Canada, and that it will take measures to ensure that the cedant’s risks will
         be reinsured in Canada in accordance with OSFI’s Advisory No. 2007-01-R1 entitled
         Insurance in Canada of Risks.

         With respect to reinsurance of out-of-Canada business only, reinsurers regulated in an
         OECD country may be recognized as “registered” on the basis of financial soundness,
         provided that the reinsurance agreements are recognized by the regulatory agencies of
         the countries in question. The primary Regulator (in Canada) retains the authority to
         disqualify such reinsurance if not satisfied with the financial condition of the reinsuring
         company.




(2010)                                         III-6                           INSTRUCTIONS P&C-1
SECTION III                                                                         DEFINITIONS



Registered and Unregistered Insurer (cont’d)

         Unregistered Reinsurer
         Any other reinsurer is generally considered to be an unregistered reinsurer where it is:
         (a) incorporated or formed outside Canada and has reinsured outside Canada the risks
              of the ceding company;
         (b) either:
              (i) incorporated federally; or
              (ii) incorporated or formed outside Canada and has reinsured in Canada the risks
                   but is not authorized by order of the Superintendent to do so;
         (c) a provincially/territorially regulated reinsurer that has not been approved by the
              Superintendent.

         - Provincially Incorporated Insurers:

         Registered insurers in a particular jurisdiction are insurers that are licensed in that
         jurisdiction. Certain Regulators will also accept (re)insurers not licensed in their
         jurisdiction, but incorporated and licensed in another jurisdiction, as registered.
         Verify for your jurisdiction.

         Unregistered insurers are insurers not licensed by one or more provincial Regulators,
         and not federally registered.

         - Insurers in Quebec only:
         To be deemed approved, the insurer must be approved in Quebec or another province,
         or subject to federal regulation.

         Registered reinsurer: A reinsurance agreement is deemed registered if it was assumed
         by an insurer constituted under the laws of Québec, of another province, or the laws of
         Canada and in this case licensed by one or more provincial regulator. A reinsurance
         agreement is also deemed registered if it was assumed by the branch of a foreign
         company authorized by the federal authority, licensed by one or more provincial
         regulator, and the branch maintains assets which guarantee the fulfillment of its
         obligations in relation to the agreement.




(2010)                                          III-7                            INSTRUCTIONS P&C-1
SECTION III                                                                       DEFINITIONS



Regulator
    The federal, provincial or territorial government agency responsible for the control and
    regulation of the insurance industry under its jurisdiction. The "Primary Regulator" is
    the Regulator in the jurisdiction under which the insurer: (a) obtained its order to carry
    on business; or (b) was incorporated.


Retrospective Rating Credits
     Refer to the definition of Experience Rating Refunds


Salvage and Subrogation Recoverable
         Salvage is the residual value that belongs to the insurer as a result of paying an
         insured's claim for the property covered by a policy issued by the insurer.

         Subrogation is the assumption by an insurer of an insured's legal right to collect
         damages.


Selected Claims Ratio
     With respect to the Calculation of Required Margin on Net Unearned Premiums, the
     claims ratio that the actuary selects as the ratio expected to be experienced under
     policies issued by the insurer for a particular class of insurance during the unexpired
     terms of such policies. The selected claims ratio must not be less than the expected
     claims ratio or except with the approval of the Regulator, the claims ratio selected shall
     not be less than the claims ratio experienced under the policies with respect to the most
     recent year.


Structured Settlements
Refer to Section IV, "Special Topics"


Subsidiary
     A subsidiary is any enterprise of which the insurer owns directly, or indirectly through
     other subsidiaries, more than 50% of the voting rights and for which it has the right to
     elect a majority of the members of the board of directors.




(1996)                                         III-8                            INSTRUCTIONS P&C-1
SECTION III                                                                      DEFINITIONS



Substantial Investment
     For federally registered insurers, Section 10 of the Insurance Companies Act (ICA)
     defines a substantial investment as meaning:

         •   "the voting rights attached to the aggregate of any voting shares [owned] exceed 10
             per cent of the voting rights attached to all of the outstanding voting shares";

              or

         •   "the aggregate of any shares" which are owned "represents ownership of greater
             than 25 per cent of the shareholders' equity".

         Subsection 495(4) of the ICA provides that a property and casualty insurance company
         wanting to acquire or increase a substantial investment in a financial institution must
         control the financial institution (that is, must have more than 50% of the votes to elect
         directors), except as permitted under subsection 495(5).


Unearned Commissions
    The estimated amount of commission revenue on ceded premiums relating to the
    coverage period beyond the current year end. Unearned Commissions arising from
    ceded business must not be reduced by Deferred Commissions arising from direct and
    assumed business, and must be estimated by class of insurance.


Unrecognized (Assets and Liabilities)
    Assets and Liabilities that are not “recognized” as financial instruments under GAAP,
    and are “off-balance sheet”.


Unregistered Insurer (Company)
    Refer to the definition of Registered Insurer


Unregistered Reinsurer
    Refer to the definition under Registered and Unregistered Insurers




(2010)                                        III-9                           INSTRUCTIONS P&C-1
SECTION IV                                                                             SPECIAL TOPICS



Letters of Credit/Deposits of Reinsurers

Letters of Credit

To a limited extent, Regulators are prepared to recognize approved letters of credit as
security maintained in Canada for purposes of reducing the capital otherwise required for
unregistered reinsurance. General guidelines concerning letters of credit are set out below:

    (i) Letters of credit must be in Canadian dollars and payable in Canada. Letters of credit
        must be issued by Investment Grade1 Canadian banks or confirmed by Investment
        Grade Canadian banks if issued by foreign banks;
   (ii) They must be for a fixed term, at least one year;

  (iii) They must be for a stipulated dollar amount;

  (iv) They must be irrevocable except with at least three months notice to the Regulator.
       This condition can be satisfied either by a provision in letter of credit or by a letter of
       confirmation from the issuing bank; and

   (v) The issuing bank and the confirming bank must not have any claim on the assets of
       the Canadian insurance company as security for the letters of credit.

Please refer to Section V, Jurisdictional Requirements: Quebec (V-8); Ontario (V-9);
Federal (V-33).

Deposits of Reinsurers

Where the deposits provided by an unregistered reinsurer are placed in “trust”, the “trust”
account must be in a Canadian trust company and the primary Regulator must be party to the
“trust” agreement. The “trust” agreement must be in the standard wording prescribed by the
primary Regulator.

Deposits of reinsurers that are “not owned” by an insurer, including deposits held in “trust”
accounts on behalf of reinsurers, are not to be reported on the insurer's balance sheet. Details
of these deposits must be reported on Page 70.40 of the P&C-1.

For additional information, refer to the Instructions for Page 70.38.



1 The definition of Investment Grade is covered in Section VI, Detailed Instructions for page 30.71 and in the
Minimum Capital Test (MCT) Guideline.



(2010)                                             IV-3                                  INSTRUCTIONS P&C-1
SECTION V                                           JURISDICTIONAL REQUIREMENTS



Quebec

   Legislation

   (1)   Companies Act, R.S.Q., chapter C-38
   (2)   An Act respecting Insurance, R.S.Q., chapter A-32
   (3)   Regulation respecting the application of the Act respecting insurance, R.Q.,
         c. A-32, r.1

   Signature Requirements

   Per Section 309 of the Act respecting Insurance, the two persons signing the Annual
   Return must be directors of the insurer.

   Special Reporting

   Every insurer licensed to write business in Quebec, whether incorporated under the laws
   of Quebec, the laws of Canada or some other jurisdiction, must:

         (a) complete Pages 60.40, 60.41 and 70.21 of the Annual Return;
         (b) complete Page 67.15 if insurer has written, during the current year or in a prior
             year, policies for a term of more than 12 months. The data reported on
             Page 67.15 must include:
             ▪ for policies for a term not exceeding 12 months:
               - total premiums for policies written during the current year;
             ▪ for policies for a term of more than 12 months:
               - Only the portion of premiums applicable to the twelve months during the
                    current year;

   A copy of the major letters of credit and/or confirmation from trustees of deposits held for
   the account of the insurer (reported on Page 70.40) must be attached to the Annual Return.




(2010)                                      V-6                           INSTRUCTIONS P&C-1
SECTION V                                           JURISDICTIONAL REQUIREMENTS



Quebec (cont'd)

   Loans and advances to subsidiaries and affiliates

   Any Quebec incorporated insurers must show loans and advances to subsidiaries and
   affiliates on Page 50.40 as investment in Subsidiaries and Affiliates.

   Exhibits NOT Required

   The following exhibits or sections of exhibits need not be completed by Quebec
   incorporated insurers that transact insurance in Quebec only:
          Page                      Exhibit
          10.10                     Corporate data, Officers, Auditor, Actuary
          10.15                     Directors
          40.07                     Summary of Investments
          60.21                     Claims Incurred - Undiscounted
          67.31                     Provincial and Territorial Exhibit of Claims Incurred
                                    including Adjustment Expenses - Undiscounted
          90.70                     Reinsurance ceded - Out of Canada

   Actuary's Report

   Pursuant to sections 298.14 and 309 of the Act respecting Insurance every insurer
   authorised to practice "damage" (property and casualty) insurance in Quebec must attach
   an actuary's Expression of Opinion concerning the valuation of the provisions and reserves
   to its Annual Return.

   A copy of the Actuary's Report that establishes and presents the provisions and reserves
   must be forwarded to the Autorité des marchés financiers (« Autorité ») upon request.

   The actuary will have to include in the report a description of the assumptions and
   methods used in the valuation of the said reserves or provisions and also state and justify
   the criteria that have served as the basis for choices made.

   Moreover, the report must also include the other information required by the Autorité, for
   those insurers specifically requested to do so.

   Insurers with charters from outside Quebec, which transact insurance in Quebec, must file
   a copy of the Actuary's Report filed with their home jurisdiction.

   A copy of the resolution of the board of directors concerning the appointment of the
   actuary must be forwarded to the Autorité within 10 days of the actuary's initial
   appointment or at the change of the actuary.




(2010)                                        V-7                          INSTRUCTIONS P&C-1
SECTION V                                              JURISDICTIONAL REQUIREMENTS



Quebec (cont'd)

   Auditor's Report

   For Quebec incorporated insurers the report is to be made to the Autorité. All other
   insurers licensed in Quebec must submit a copy of the auditor's report addressed to their
   regulator.

   In addition, all insurers are expected to provide the Autorité with a copy of their annual
   report including the auditor's report to the shareholders and members.

   Letters of Credit

   Letters of Credit must respect general guidelines set out in Section IV.

   In general, letters of credit may be used to offset the reserve for unregistered reinsurance
   to the extent of 10% of the amount of the unearned premiums and outstanding losses
   recoverable from each assuming reinsurer;

   On a case by case basis, the Autorité des marchés financiers will consider approval of the
   use of letters of credit in larger amounts, but in no circumstances will the amount of letters
   of credit approved exceed 15% of the total assets of the insurer. The main criteria in
   evaluation of these special cases will be the size and financial strength of the unregistered
   reinsurer;

   These limits are applicable to all insurers licensed in Quebec.

   A copy of the major letters of credit must be sent with the Annual Return.

   Financial Statements of Subsidiaries and Affiliates

   Insurers licensed in Quebec must file a copy of their subsidiaries and affiliates' audited
   financial statements with their Annual Return, for those subsidiaries and affiliates reported
   on Page 20.10, line 40.

   Minimum Capital Test (MCT) – (Pages 30.70, 30.71 and 70.38)

   Instructions to complete Pages 30.70, 30.71 and 70.38 for insurers incorporated in Quebec
   are in the Guideline on capital adequacy requirement available on the Autorité’s Web site:
   http://www.lautorite.qc.ca/userfiles/File/reglementation/Lignes-directrices-assurance/solvency-
   capital-adequacy-mct-08.pdf

   Consequently, instructions in Section VI do not apply to those insurers.



(2010)                                        V-8                              INSTRUCTIONS P&C-1
SECTION VI                                                     DETAILED INSTRUCTIONS



Page 20.40 – Statement of Retained Earnings

Any transitional adjustments / balances from the adoption of a new accounting standard
should be reported on line 04 in the year of transition.

               - Line 16 – (Please specify)

This line is to be used only with the approval of the primary regulatory or provincial
superintendents.

Page 20.40 - Reserves

Insurers issuing nuclear risk policies are required to record an additional provision of 100%
of net premiums written, less commissions. In the absence of meaningful statistical data on
the severity and frequency of losses, regulators consider it appropriate for insurers to reverse
this reserve after twenty years.

The provision for earthquake exposures (Earthquake Reserves Required by Regulators) is to
be reported as two amounts: the Earthquake Reserve Complement (ERC) is to be reported on
line 90 and the Earthquake Premium Reserve (EPR) on line 91.


Page 20.42 – Comprehensive Income (Loss) and Accumulated Other Comprehensive
             Income (Loss)

General Instructions

All amounts should be reported on an after tax basis.

               - Line 10 - Comprehensive Income (Loss): Income (Loss) from
Subsidiaries

Report the Comprehensive Income (Loss), net of Income Taxes, for subsidiaries, affiliates
and partnerships which are accounted for using the equity method.

               - Line 47 – Accumulated Other Comprehensive Income (Loss): Income
                           (Loss) from Subsidiaries

Report the Accumulated Other Comprehensive Income (Loss), net of Income Taxes, for
subsidiaries, affiliates and partnerships which are accounted for using the equity method.




(2010)                                        VI-13                         INSTRUCTIONS P&C-1
SECTION VI                                                  DETAILED INSTRUCTIONS



Page 40.07 - Summary of Investments

See also “Page 40.07 to 40.80 – Investment Exhibits (General Comments)”

For each investment category listed in the summary the balance sheet value of the total
investments should be reported in the columns based on their classification under CICA
handbook section 3855.

Federally regulated insurers should refer to OSFI’s Accounting Guideline D-10 “Accounting
for Financial Instruments Designated as Fair Value Option”.

            - Column 01 – Held for Trading

Report the balance sheet value of investments classified as Held for Trading under GAAP,
CICA Handbook Section 3855.19(f)(i).

            - Column 03 – Available for Sale

Report the balance sheet value of investments classified as Available for Sale under GAAP,
CICA Handbook Section 3855.19(i), including items that are measured at Amortized Cost.

            - Column 05 – Hedges

Report the Balance Sheet Value of derivative instruments that are part of designated cash
flow or fair value hedging relationships under GAAP, CICA handbook section 3865. For a
Fair Value Hedge, also report the Balance Sheet Value of the hedged item. For a Cash Flow
Hedge the Balance Sheet Value of the hedged item should be reported in column 09.

            - Column 07 – FV Option

Report the Balance Sheet Value of investments designated as Held for Trading (“Fair Value
Option”) under GAAP, CICA Handbook Section 3855.19 (f) (ii).

            - Column 09 – Amortized Cost

Report the Balance Sheet Value of investments measured using amortized cost including
investments classified as Held to Maturity under GAAP, CICA Handbook Section 3855.19
(g), Cash Flow Hedges, and the Balance Sheet Value of Real Estate Investments.

            - Column 12 – Balance Sheet

Sum of columns 01, 03, 05, 07, and 09.



(2010)                                   VI-24                           INSTRUCTIONS P&C-1
SECTION VI                                                     DETAILED INSTRUCTIONS



Page 40.10 - Insurers incorporated in Quebec - Summary of Investments

Investments in subsidiaries or affiliates are to be reported on Page 50.40 and not in this
Summary.

For each investment category listed in the summary the balance sheet value of the total
investments should be reported in the columns based on their classification under CICA
handbook section 3855.

Quebec regulated insurers should refer to the notice about « Fair Value Option » allowing
financial intruments to be designated as « Held for Trading » on their initial mesurement.
Bulletin de l’Autorité des marchés financiers :section financial institutions, 2006-09-15, Vol.
3 no37.

             - Column 10 – Held for Trading

Report the balance sheet value of investments classified as Held for Trading under GAAP,
CICA Handbook Section 3855.19(f)(i).

             - Column 12 – Available for Sale

Report the balance sheet value of investments classified as Available for Sale under GAAP,
CICA Handbook Section 3855.19(i), including items that are measured at Amortized Cost.

             - Column 14 – Hedges

Report the Balance Sheet Value of derivative instruments that are part of designated cash
flow or fair value hedging relationships under GAAP, CICA handbook section 3865. For a
Fair Value Hedge, also report the Balance Sheet Value of the hedged item. For a Cash Flow
Hedge the Balance Sheet Value of the hedged item should be reported in column 18.

             - Column 16 – FV Option

Report the Balance Sheet Value of investments designated as Held for Trading (“Fair Value
Option”) under GAAP, CICA Handbook Section 3855.19 (f) (ii).

             - Column 18 – Amortized Cost

Report the Balance Sheet Value of investments measured using amortized cost including
investments classified as Held to Maturity under GAAP, CICA Handbook Section
3855.19(g), Cash Flow Hedges, and the Balance Sheet Value of Real Estate Investments.




(2010)                                     VI-29                            INSTRUCTIONS P&C-1
SECTION VI                                                   DETAILED INSTRUCTIONS


Page 70.38 – Reinsurance Ceded to Unregistered Insurers

             - Column 06 – 10% Margin on unearned premiums and outstanding losses
                           recoverable

This margin is only in respect of unearned premiums ceded to, and outstanding losses
recoverable from unregistered assuming insurers.

LOCs will first be used to cover the 10% margin on ceded reserves (Column 06, page 70.38).
The balance of LOCs held by ceding insurers will be applied against the security required to
cover 100% of the net unregistered reinsurance recoverable position (Columns 04+05+07-
08), page 70.38.

             - Column 07 – Receivable from assuming insurer

Include all receivables except for “Outstanding losses recoverable from assuming insurer”
recorded in column 05.


             - Column 08 – Payable to assuming insurer

Include deposits held in the insurer’s bank account; these deposits must also be reported as
“Miscellaneous Other Liabilities” on page 50.50, line 88.

Amounts payable to assuming reinsurers may be deducted from amounts receivable and
recoverable in the calculations in columns 14 and 15 only where there is a legal and
contractual right of offset.

Federally registered insurers are not to include any amounts payable to affiliated assuming
insurers.

             - Column 12 – Non-owned deposits held as security from assuming insurer

Complete only in cases where a special trust account under the control of the primary
Regulator has been established with a Canadian trust company in respect of the unregistered
reinsurance under a “trust” agreement prescribed by the Regulator.

Non-owned deposits held on behalf of an unregistered assuming insurer must be valued at
market value as at the end of the statement year, including the amount of investment income
due and accrued respecting these deposits.

In addition to non-owned deposits, include the balance of LOCs held by ceding insurers after
having met margin requirements as per Column (17). This amount represents the balance
between the previous 15% and the new 30% limit.




(2010)                                    VI-48                           INSTRUCTIONS P&C-1
SECTION VI                                                    DETAILED INSTRUCTIONS



Page 70.38 - Column 16 – Letters of credit held as security from assuming insurer

LOC’s may be used to reduce capital otherwise required up to 30% of unearned premiums
ceded to, and outstanding losses recoverable from unregistered assuming insurers. The limit
is applied in the aggregate and not against individual reinsurance exposures.

This column should only reflect the amount of LOCs needed to reduce the margin
requirements as calculated in Column (17) to $0, which represents the amount of LOCs up to
the previous 15% limit. The balance of LOCs is reported under Column (12).

For additional information on LOC/Deposits of Reinsurers, refer to Section IV, Special
Topics.


Page 70.40 - Non-owned Assets held on Deposit and Letters of Credit

Securities held as non-owned deposits should be valued at market value as at the end of the
statement year, including the amount of investment income due and accrued respecting these
securities.

All other unrecognized assets and liabilities are to be recorded on Page 50.50.




(2010)                                    VI-49                            INSTRUCTIONS P&C-1

				
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