The Canadian Life and Health Insurance Association (CLHIA) has commended the Saskatchewan government for enacting regulations to address any public confusion that life insurance policies could be used as deposit or securities contracts.
The new Saskatchewan regulations, published yesterday, limit the amount of premiums a life insurer may receive or accept for deposit in certain life insurance policies and associated side accounts.
The provincial government took the steps after three limited partnerships took two insurers to court in Saskatoon saying the side accounts they bought had no upper limit on the size of the investment.
Some of the side accounts in question, issued during a time of higher interest rates, allowed holders to invest with guaranteed rates of up to five per cent. While this can be very profitable for the partnerships they could also cause significant financial damage for the insurers.
The firms that issued the policies were later acquired by Industrial Alliance Insurance and Financial Services (iA Financial Group) and Manulife Financial.
In a news release, Manulife said consumers buying universal life policies and those companies issuing the policies, “never intended to have the policies function as deposit or securities contracts.”
Accounts have no connection with life insurance
Manulife said one of the partnerships, Mosten Investment LP, has claimed that life insurers “can be compelled to accept unlimited premium payments. In effect, Mosten is seeking to use insurance policies to invest sizeable sums that have no connection to the insurance coverage.”
The CLHIA intervened in the Saskatchewan case saying it raises significant legal issues of concern to the Canadian life and health insurance industry. “The position taken by the Ituna Investment LP, Mosten Investment LP and Atwater Investment LP is contrary to the nature and intended purpose of the product, fundamental insurance law concepts and Canada’s regulatory system,” said Stephen Frank, CLHIA president and CEO.
“Because the public policy concern addressed by the Government of Saskatchewan is equally relevant across Canada, the CLHIA plans to request other provincial and territorial governments to take comparable regulatory steps to avoid any public uncertainty in other jurisdictions,” added Frank.
In a statement issued Oct. 30, iA Financial Group also welcomed the new regulations. “Given these new Saskatchewan regulations, iA Financial Group believes that the substantial aspects of the Ituna litigation will be resolved. iA Financial Group fully supports the CLHIA's initiative to request that other provincial and territorial governments take comparable steps to add clarity to the legislation and reinforce the insurance purpose of side accounts.”