Interpretation

1  In this regulation:

"Act" means the Financial Institutions Act;

"actuary" means a person who

(a) is a Fellow of the Canadian Institute of Actuaries, or

(b) although not a person described in paragraph (a), is qualified to be an actuary because of the person's training, experience and education or because of any of those factors in combination with one or both of the others;

"insurance company" includes

(a) a society that is deemed under section 191 of the Act to have a business authorization, and

(b) a mutual fire insurance company as defined in section 188 of the Act.

 Life insurance business

2  (1)  An insurance company authorized to carry on only life insurance business shall establish a reserve for all unmatured obligations under the terms of its policies dependent on life, accident or sickness or on any other contingencies or on a term certain.

(2)  Subject to subsection (3), the reserve shall be calculated on the basis of a rate or rates of interest and a rate or rates of mortality, accident, sickness or other contingencies that, in the opinion of an actuary, are appropriate to the circumstances of the company and the policies in force.

(3)  The reserve for a life insurance policy shall be calculated in accordance with the methods specified in sections 124 and 125 of the Canadian and British Insurance Companies Act, (Canada) as those sections read on September 15, 1990, or in accordance with any other method that produces a reserve not less, for any policy at any duration, than the reserve calculated in accordance with the methods specified in those sections as they read on that date.

 General insurance business

3  (1)  For its policies in force other than marine insurance policies, and for claims under accident and sickness policies payable in installments, an insurance company that is authorized to carry on one or more classes of general insurance business, but is not authorized to carry on life insurance, shall establish the following reserves:

(a) for non-cancellable accident and sickness policies in force and for claims under accident and sickness policies payable in installments, a reserve of at least the amount calculated on the basis of a rate or rates of interest and a rate or rates of mortality, accident, sickness or other contingencies that, in the opinion of an actuary, are appropriate to the circumstances of the company and the policies and claims being valued;

(b) for all other policies, a reserve of at least the amount that is equal to the unearned premiums less a deduction of whichever of the following is the least amount:

(i)  the actual acquisition expenses incurred;

(ii)  the proportion of the unearned premiums that may reasonably be considered not to be required for the payment of claims and expenses other than acquisition expenses;

(iii)  30% of the unearned premiums.

(2)  For the purpose of subsection (1) (b),

(a) where a company has issued policies on the premium note system, unearned assessments levied in respect of all outstanding premium notes held by the company are considered to be unearned premiums, and

(b) unearned premiums shall be calculated pro rata as of the date of the annual statement except that, where the risk insured and the amount of insurance are not substantially uniform over the term of the policy, the unearned premiums shall be calculated in a manner that, in the opinion of an actuary, are appropriate to the terms of the policy.

 Both general insurance and life insurance business

4  Sections 2 and 3 both apply to and in respect of an insurance company authorized to carry on both life insurance business and one or more classes of general insurance.

 Financial statements and actuarial reports

5  (1)  In this section "return" means the return that must be filed under section 127 (1) of the Act by an insurance company.

(2)  An insurance company shall include the reserves calculated under this regulation in the liabilities shown in its return.

(3)  An insurance company authorized to carry on life insurance business shall attach to its return a report prepared by an actuary with respect to the reserve included in the liabilities shown in the return stating

(a) that, in the opinion of the actuary,

(i)  the rate or rates of interest, the rate or rates of mortality, accident, sickness or other contingencies used in calculating the reserve are appropriate to the circumstances of the company and the policies in force,

(ii)  the method used to calculate the reserve produces a reserve in respect of each life insurance policy that is not less than the reserve produced by the methods described in sections 124 and 125 of the Canadian and British Insurance Companies Act (Canada) as those sections read on September 15, 1990, and

(iii)  the reserve makes sufficient provision for all the unmatured obligations guaranteed under the terms of the policies in force,

(b) with respect to any policies for which the reserves calculated in accordance with section 2 (3) are negative, the aggregate amount of the negative reserves,

(c) the nature of any prospective changes in dividend scales that have been taken into consideration in stating the opinions in paragraphs (a) (ii) and (iii), and

(d) with respect to any policies for which the reserves calculated in accordance with section 2 (3) are less than the cash surrender value available on the date as of which the calculation is made, the aggregate amount of the deficiencies for those policies.

(4)  An insurance company authorized to carry on one or more classes of general insurance business shall attach to its return one or more of the following reports, as appropriate:

(a) a report, prepared by an actuary with respect to the reserve referred to in section 3 (1) (a), stating

(i)  that, in the opinion of the actuary, the rate or rates of interest, the rate or rates of mortality, accident, sickness or other contingencies and the method used in calculating the reserve are appropriate to the circumstances of the company and the policies and claims being valued,

(ii)  that, in the opinion of the actuary, the reserve makes sufficient provision for all the unmatured obligations guaranteed under the terms of the policies and claims being valued, and

(iii)  with respect to any policies for which the reserves are negative, the aggregate amount of the negative reserves;

(b) a report, prepared by an actuary with respect to the reserve referred to in section 3 (1) (b), setting out particulars of the calculation of the reserve and stating whether or not, in the opinion of the actuary, the reserve, together with

(i)  any other reserve making provision for claims and other obligations expected to arise after the date of the return under policies to which the reserve pertains, and

(ii)  the amounts receivable from reinsurers with respect of those policies,

is at least equal to the amount that makes proper provision for all claims and other obligations expected to arise after the date of the return under those policies, and to pay adjustment expenses expected to be connected therewith and expenses relating to the servicing of those policies;

(c) a report, prepared by an actuary with respect to the reserve shown in the return, for all claims and other obligations that have been incurred by the company prior to the date of the return, including claims and obligations which arose before that date but were not reported on or before that date, setting out particulars of the calculation of the reserve and stating whether or not, in the opinion of the actuary, the reserve, together with amounts receivable from reinsurers in connection with those claims and other obligations, is at least equal to the amount that will make proper provision for those claims and other obligations and to pay adjustment expenses therewith.

 Reduction for reinsurance

6  (1)  Subject to subsections (2) and (3), the reserves required under this regulation for a policy or a group of policies or a claim may be reduced if the risk under the policy or group of policies or the claim is reinsured in whole or in part with another insurer (the "reinsurer").

(2)  The amount by which a reserve for any policy or group of policies or claim may be reduced under subsection (1) shall not be greater than the portion of that reserve that may reasonably be considered to apply to the portion of the risk undertaken by the reinsurer.

(3)  Where the reinsurer does not have a business authorization to carry on insurance business and the reinsurer is not licensed, registered or otherwise authorized to carry on the business of insurance under the laws of a province or Canada, the reserve

(a) for a policy or group of policies or claim in Canada reinsured with that reinsurer may be reduced only to the extent that adequate security is maintained in Canada for the potential obligations of the reinsurer, and

(b) for any other policy or group of policies or claim reinsured with that reinsurer may be reduced only to the extent that adequate security is maintained for the potential obligations of the reinsurer.