McD.Intro

Reading: Life Insurance Laws of Canada (Common Law Provinces), Life Underwriters Association of Canada, 1995:

• pp. A1-1, A2-1 to A2-9
• pp. B1-1 to B1-2, B2-1 to B2-3, and B4-1 to B4-3.
• Candidates are responsible for all cases cited in this text.

Authour: McDonald, B.R.

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BA Quick-Summary: Canadian Life Insurance There has been a long tug-of-war between Federal & Provincial governments over the power to regulate insurance. The Insurance Reference Case set an important precedent in limiting Federal power. (See Mayhall.USreg, for how the U.S. approaches Federal versus State authority over insurance.) This paper also discusses general areas of responsibility of the federal & provincial governments as well as how each regulates insurance.

Pop Quiz

Identify areas of Canadian legislation (federal/provincial) that promote financial soundness of insurance companies. [Hint: CIRCA-F] (This question is from Baer.Intro)

BattlePlan

Based on past exams, the main things you need to know (in rough order of importance) are:

• Insurance Reference Case
• areas of authority of federal government
• areas of authority of provincial government
• provincial transaction matters
• provincial contract matters
• CASE: Citizen's v Parsons

Top Questions ← Questions you absolutely need to know!

Questions held out from Fall 2019 exam: #2. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.)

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Fall #1)	provincial regulation - contract matters	provincial regulation - transaction matters	federal auto insurance: - evaluate
E (2018.Fall #2)	Insurance Reference Case	incorporation of insurer: - OSFI's requirements
E (2018.Spring #1)	Insurance Reference Case - facts/issues	Insurance Reference Case - rulings
E (2017.Fall #1)	areas of authority: - federal government	areas of authority: - provincial government	Insurance Reference Case
E (2017.Spring #1)	areas of authority: - federal government	solvency regulations: - federal (CIRC-P)	provincial regulation - contracts/transactions
E (2016.Fall #1)	see PACICC.Comp	provincial regulation - contracts/transactions
E (2016.Spring #1)	solvency regulations: - federal (CIRC-P)	provincial regulation - areas & matters	see ICA.Ch47
E (2015.Fall #2)	solvency regulations: - federal (CIRC-P)	Insurance Reference Case
E (2015.Spring #1)	see Baer.Intro	provincial regulation - areas & matters
E (2014.Spring #1)	see Baer.Intro	see Baer.Intro	insurance regulation: - federal v provincial
E (2012.Fall #1)	Insurance Reference Case	solvency regulations: - federal (CIRC-P)
E (2012.Fall #2)	Citizen's v Parsons: - Fire Act ultra vires	Citizen's v Parsons: - trade & commerce	Citizen's v Parsons: - Privy Council ruling

In Plain English!

Federal & Provincial Authority

There are certain areas where the federal government has authority and certain areas where the provincial government has authority. This is different from federal & provincial authourity over insurance. Insurance is more specific. But before we look at the federal versus provincial regulation of insurance let's deal with federal & provincial authourity in general.

Question: identify federal areas of exclusive authority  → shout-out to gabrielcc and lukia6c25sp for these memory tricks!

♦ regulation of trade & commerce ♦ taxation ♦ banking ♦ bankruptcy & insolvency ♦ aliens & naturalization ♦ criminal law

Question: identify provincial areas of exclusive authority

♦ provincial taxes ♦ civil property rights ♦ hiring & supervising provincial employees ♦ operating jails & hospitals

Let's now cover 2 legal terms that are sometimes used on the exam:

intra-vires: within the powers of a particular government

ultra-vires: beyond the powers of a particular government

For example, bankruptcy & insolvency are intra-vires with respect to the federal government, but ultra-vires with respect to a provincial government.

Provincial Insurance Regulation

If you are pressed for time, there are two questions you absolutely have to know from this reading. (Remember that insurance regulation is more specific than general provincial authority.)

Question 1: what are the areas/matters under provincial insurance regulation

♦ contract matters ♦ transaction matters

Question 2: identify examples of contract matters and transaction matters

contract matters:

♦ policy contents ♦ policy terms (includes effective date) ♦ premium payment ♦ insurable interest ♦ reinstatement ♦ designation of beneficiaries

transaction matters: [Hint: AUC]

Agent licensing

Unfair practices

Claims handling

Some form of this question has appeared at least 5 times on recent exams:

E (2017.Spring #1c)

E (2016.Fall #1b)

E (2016.Spring #1b)

E (2015.Spring #1b)

E (2014.Spring #1c)

Observation: All of the above exam questions were question #1 on the exam. The structure of Exam 6 is very predictable. Understanding this can reduce your anxiety on exam day because there shouldn't be any big surprises.

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Insurance Reference Case (1916)

Another question that has been asked more than once is the Insurance Reference Case:

E (2018.Spring #1)

E (2015.Fall #2b)

E (2012.Fall #1a)

It's important because it's the quintessential Canadian case on federal versus provincial authority in regulating insurance. The parties involved were AG (Attorney General) of Canada and the AG of AB. This case, decided by the JCPC (Judicial Committee of the Privy Council), had important implications for authority of federal & provincial governments over Canadian insurance regulation. (More specifically, it concerned the ability of insurers to operate in more than 1 province. The answer depends on whether the insurer is incorporated federally or provincially.)

PROVINCIAL INSURER	has (capacity, not right) to operate in another province - need permission from other province
FEDERAL INSURER	has both the (capacity, right) to operate in any province

The mini BattleQuiz covers the gory details of the Insurance Reference Case as well as 2 other cases regarding federal versus provincial authority:

Citizen's v Parsons: concerns a province's ability to pass legislation that applies to a federally regulated insurer (There's another short explanation in this forum thread.)

CIC v AG(BC): concerns the elimination of private auto insurance in BC (Canadian Indemnity Corporation versus Attorney General of BC)

The Insurance Reference Case and Citizen's v Parsons were decided by the JCPC (Judicial Committee of the Privy Council), which was the highest court in Canada until the creation of the Supreme Court in 1949. The other case above, CIC v AG(BC), was from 1974 and thus decided by the Supreme Court of Canada.

Note 1: There is another case: AG(ON) v Reciprocal Insurers that is discussed in the McDonald paper, but I don't think it's likely to appear on the exam. You can view the details of this case in Legal Cases or in BattleCard Filters using Optional Setting C and selecting "BattleCards of Lower Probability". It is not included in the BattleQuiz.

Note 2: There are actually 2 more cases from this paper, but they are not described in very much detail, and both have conclusions similar to the other cases discussed: Namely that provinces have the exclusive jurisdiction to regulate the conduct of insurance business. The cases are:

• Re the Insurance Act of Canada (1932), on page A2-5 of McDonald (relates to foreign or British insurers operating in Quebec)
• Re Section 16 of the Special War Revenue Act (another attempt by the federal government regulate the business of insurance within a province.)

Both Acts were found by the courts to be ultra vires. I did not include these cases in the BattleCards.

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Federal Insurance Regulation

Recall the discussion of federal and/or provincial legislation from Baer.Intro. There is a very similar question that also appears on the exam, but is concerned only with federal regulation.

Question: identify areas under federal insurance regulation [Hint: CIRC-P]  → shout-out to Bastien for this (better) memory trick!

Conditions for entering business

Investments (restrictions on)

Reporting (financial reporting must be done regularly)

Calculation of assets & reserves

-Protection of policyholders

The CIRCA-F question from Baer.Intro appeared twice on previous exams and you can recognize it because the question asked about Canadian regulation or legislation. But the CIRC-P questions all specify federal regulation. (Note that restrictions on investments and requirements on reporting are part of both CIRC-P & CIRCA-F.)

Anyway, you should understand that these 2 questions are similar but not quite the same: CIRCA-F includes provincial areas of control such as rate regulation, whereas CIRC-P is only federal.

Before finishing, let's take a closer look at the first item from the above list: Conditions for entering business. The Insurance Companies Act (ICA) of 1992 allowed insurers to operate in a manner similar to other federally controlled corporations. In particular, the ICA gave insurers more power to diversify and raise money by issuing shares or borrowing. Still, there are number of conditions that OSFI considers in an insurer's application for incorporation:

Question: what does OSFI consider in an insurer's application for corporation (or what does the Minister of Finance consider when deciding whether to issue a letters patent) Hint: See this forum discussion Thanks sdeibert!

• financial resources (are they sufficient)

==> if you want to start a company, you obviously must have start-up funds for things like an office, computers, staff,...

• business plan (is it sound)

==> if your business plan is simply to make lots of $$$s, you probably won't be approved! (the business plan should be detailed and realistic)

• business record (of applicants – have they had past bankruptcies or legal charges against them)

==> Alice always says the best predictor of future success is past success

• CCE: Character, Competence, Experience (of the individuals who will operate the company)

==> you could have a lots of start-up capital, a great business plan, lots of past success, but if you hire a bunch of dumb-asses, your business is doomed! Don't hire dumb-asses

• add jobs and make other contributions to the Canadian financial system

==> it would awesome if the business created Canadian jobs, added to the GDP, and otherwise provided stability & growth to Canada's economy!

• for a foreign-owned Canadian subsidiary OSFI verifies that sub will treated fairly

==> we'll learn later in Dibra.Fail that one of the proximate causes of insurer insolvency is foreign ownership

Now, how are you going to remember this list? Here's how I do it. It isn't my greatest memory trick, but I suppose it will do. (Let me know if you come up with a better one. Or better yet, post it in the forum!)

$(plan, record, competence, jobs) and that last thingie about foreign ownership.

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BattleCodes

Memorize:

• 2 areas under provincial legislation (contract matters, transaction matters)
  • 6 contract matters
  • 3 transaction matters (AUC)

• There are 3 cases in McD.Intro on federal versus provincial regulation of insurance. (See BattleCards for details.)
  • Citizen's Ins v Parson's (1881)
  • Insurance Reference Case (1916)
  • BC Public Auto: CIC v AG(BC)
• 5 areas under federal legislation (CIRC-P)

Conceptual:

• Just the idea of federal versus provincial regulation

Calculational:

• none

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  Forum

POP QUIZ ANSWERS

• Areas of Canadian federal/provincial legislation regarding financial soundness of insurance companies: CIRCA-F

• C: CREATION (domestic) & licensing (foreign) of insurers
• I: INVESTMENTS (restrictions on)
• R: RATING bureaus (authorization of)
• C: COMPLIANCE (enforce by giving Govt depts authority)
• A: ADEQUACY of rates (create boards to oversee)
• -F: FILE F/S (Financial Statements) regularly