On November 2, 2023, the Autorité des marchés financiers (the “Authority”) published for comment its draft Regulation respecting information to be provided to holders of individual variable insurance contracts relating to segregated funds (the “Draft Regulation”), enacted under the Insurers Act.[1] The comment period is open until December 2, 2023. Anyone wishing to submit comments on the Draft Regulation is invited to do so in writing to the Authority.[2]
Purpose
With this Draft Regulation, the Authority aims to increase the disclosure requirements for key elements of segregated funds so that insureds are informed of the performance, guarantees and all costs pertaining to the segregated funds purchased through their insurer. The Draft Regulation also aims to improve transparency and enhance consumer protection by informing consumers of the rights and guarantees provided for in insurance contracts.
Background
On April 20, 2023, the Canadian Securities Administrators (CSA) and the Canadian Council of Insurance Regulators (CCIR) issued amendments to enhance total cost reporting requirements for investment funds and segregated funds, for the purpose of increasing transparency of the total fees and costs for the holders of these funds and aligning insurance industry practices with those of the securities industry.
What’s Covered
The new requirements set out in the Draft Regulation apply to any individual variable insurance contract[3] entered into by an authorized insurer under the Insurers Act and to any provision of an individual contract of life insurance stipulating that dividends under the contract are allocated to such segregated funds.
New Requirements
The insurer must provide to the contract holder, within four months of each fiscal year end of the segregated funds whose units are allocated to the contract, an annual statement for the fiscal year presenting, at a minimum, the information listed in Schedule 1 of the Draft Regulation in a form that is clear, readable, specific and not misleading, while highlighting it and so as not to cause confusion or misunderstanding. This information includes:
- general information,
- performance information calculated according to the provisions of the Draft Regulation,
- information about fees and charges,
- information for each segregated fund whose units are allocated to the contract for the period covered by the statement,
- information about maturity and death benefit guarantees for all segregated fund units allocated to the contract as at the statement date,
- information for contracts providing guaranteed withdrawal benefits where all or part of the contract is in the accumulation phase,
- information for contracts providing guaranteed withdrawal benefits where all or part of the contract is in the withdrawal phase, and
- information for contracts providing a guaranteed withdrawal benefit where all or part of the contract is in the benefits phase.
More information on the scope of this information and the disclosures is detailed in Schedule 1 of the Draft Regulation.
Coming into Force
Subject to ministerial approval, the Draft Regulation will come into force on January 1, 2026, and the first enhanced annual reports will relate to the year ending December 31, 2026.
[1] Chapter A-32.1
[2] See: https://lautorite.qc.ca/en/professionals/regulations-and-obligations/public-consultations/topic/insurance-and-financial-planning/ongoing
[3] Defined as “an individual contract of life insurance, including an annuity, or an undertaking to provide an annuity, under which the insurer’s liabilities vary in amount depending upon the market value of the segregated funds that it holds and in which it allocates the amounts invested by the holder of the contract, which are, with the corresponding rights held thereunder by the contract holder, represented by means of segregated fund units allocated to the contract.” (s. 1 of Draft Regulation)
