Insurance Companies Act to be amended by new legislation

Government elements of the Insurance Companies Act will be amended based on recent plans to introduce new legislation to modernize the corporate governance framework for Canada’s federally regulated financial institutions, according to Minister of Finance Ralph Goodale.The Insurance Companies Act regulates rules relating to rights of shareholders, policyholders and members, the role of directors, auditors and other advisors, and the rules relating to the preparation, review, and disclosure of financial information. Four categories of the act, relevant to general insurance, are now subject to new measures in the planned legislation. These include: clarifying the role of the directors where new legislation clarifies the role of directors in carrying out their important functions, for example, by explicitly allowing for a due diligence defense and clarifying the conflict of interest rules; enhancing the rights of shareholders where new legislation enhances the ability of shareholders to exercise their rights by, for example, permitting electronic participation in meetings and allowing shareholders greater freedom to communicate without triggering the proxy rules; modernizing governance practices where new legislation facilitates electronic communication with shareholders and the regulator, adds a going-private framework to the federal statutes, and enables insider reporting, proxy and prospectus rules to be harmonized with the rules applied by provincial regulatory authorities; and, strengthening the governance elements of the regulatory framework where new legislation strengthens a number of governance elements of the regulatory framework, including improving the flow of information to the regulator and harmonizing various governance standards within and across the financial institutions statutes. For example, the legislation expands the eligibility of medium-sized insurers companies to apply for an exemption from the requirement that they float 35% of their voting shares on a stock exchange, which would bring it in line with the same exemption rules that apply to banks. This would allow a broader range of companies to apply for an exemption from the public float requirement.Goodale says insurance companies are part of a network of institutions that play an essential role in Canada’s economy and therefore governance tools must be up-dated, bringing standards up to the levels adopted in 2001 for other federally incorporated companies.