Commercial Lending Restrictions - Foreign Life Insurance ...

Foreign companies and societies wishing to vest commercial loans must first ensure that their home jurisdiction grants them commercial lending ... Skiptomaincontent Skiptosecondarymenu CommercialLendingRestrictions-ForeignLifeInsuranceCompaniesandForeignFraternalBenefitSocieties PageContent AlternativeFormats PDF,23kB DocumentProperties TypeofPublication:Guideline Date:September1993 No:E-2A Audiences:Life Bylegislation,foreignlifeinsurancecompaniesandforeignfraternal benefitsocietiesareallowedtovestcommercialloanstomeetthe Office'srequirementstomaintainassetsinCanada(vestedassets).This guidelineoutlinestheOffice'srequirementsandinterpretationsdealing withthevestingofcommercialloansforthesecompaniesandsocieties. Companiesandsocietiesarenotrequiredtomakeaformalapplicationto vesttheseparticularassetsbutmustensurethattheydosoinaccordance withthisguideline. TableofContents DefinitionofCommercialLending RequirementtoMaintainExcessAssetsin Canada RoleoftheOffice Definition ofCommercialLending TheInsuranceCompaniesActdefinescommerciallendingforpurposesof theseexpandedpowers.Companiesandsocietiesshouldreviewthefollowing definitionofcommercialloansensuringthattheyhaveproperlyclassified theirvestedassetsandrespectthequantitativelimitsstipulatedbythe legislation. Theterm"commercialloan"isdefinedtoincludenotonlyloansinthe conventionalsensebutalsocertainloansubstitutesandinvestmentsin debtandequitysecuritiesofcorporationsandunincorporatedentities. Thedefinitiondoes,however,excludeseveralclassesofloansand investmentsthatarenottobeconsideredcommercialloans.Theseinclude: smallloans-lessthan$250,000tonaturalpersons(theseare essentiallyconsumerloansandwillnotbesubjecttoportfoliolimits undertheActs); mortgageloansthatareinsuredormeetcertainrequirementsregarding loan-to-valueratios; certaindepositsbyacompanywithanotherfinancialinstitution; loansandinvestmentsindebtobligationsdirectlyorindirectly backedbytheguaranteeofagovernmentorprescribedinternational agency; loansandinvestmentsindebtobligationseitherdirectlyor indirectlybackedbytheguaranteeofanotherfinancialinstitutionor securedbydepositswithanyfinancialinstitution,includingthe company; investmentsindebtorequitysecuritiesthatarewidelydistributed withinthemeaningoftheregulations;and investmentsinparticipatingshares. Indefiningacommercialloan,theActdefines"loan"withamodified meaningthatincorporatesclosesubstitutesforloans,suchasacceptances andotherguarantees,financialleases,conditionalsalescontracts, repurchaseagreements,andothersimilararrangements. Requirement toMaintainExcessAssetsinCanada Thecurrentlegislationpermitsforeigncompanies,whentheexcessof vestedassetsoverliabilitiesis$25millionorless,tohaveincludedin theirvestedassetsamaximumof5%incommercialloans.Foreigncompanies andsocietieswishingtovestcommercialloansmustfirstensurethat theirhomejurisdictiongrantsthemcommerciallendingpowers. TheOfficeisseekinganamendmenttotheregulationrespecting investmentsinCanadabyforeigncompaniessothatcompanies'excessof vestedassetsovertheaggregateofliabilitiesinCanadaandtheadequate marginrequiredunderSection608oftheInsuranceCompaniesActmust exceed$25millionbeforecompaniesarepermittedtohavemorethan5%of theirtotalvestingrequirementsincommercialloans. Ifacompany'sexcessisgreaterthan$25million,itmayhave,aspartof itsvestedassets,totalcommercialloansinexcessofthe5%limit. However,thecompanymustensurethatitsinvestmentandlendingpolicies, standardsandprocedures,inrespectofitsassetsinCanada,make referencetothecompany'sintentionswithrespecttocommerciallending operations.Forexample,thecompanymusthaveinplaceproceduresdealing withtheloanapprovalprocessandstepsrequiredindealingwith delinquentaccounts.Theguidelineontheprudentpersonapproachprovides additionaldirectioninthisarea. Foracompanytobepermittedtohavecommercialloansrepresentingmore than5%ofitsvestedassets,itmustmaintain,atalltimes,the $25millionexcessofassetsovertheaggregateofliabilitiesandthe adequatemarginrequiredundersection608.Ifacompany'sexcessdrops belowthe$25millionmark,commercialloansinexcessofthe5%limit willbegivenazerovalueforpurposesofadequacyofassetsinCanada (vestedassets).Ifacompany'sexcessdropstozero,azerovaluewillbe giventoallcommercialloansthatareunderthecontroloftheMinister. Inthesesituations,theActgrantstheSuperintendenttherightto requirethatthecompanyorsocietyvestadditionalassetstomeetthe minimumrequiredbythelegislation. Roleof theOffice Asaregulator,theOfficewillreviewthroughtheexaminationand monitoringprocess,thecommerciallendingactivitiestoensurecompliance withthecompany'sorsociety'sstatementoflendingpolicies,standards andprocedures.Thelendingpoliciesestablishedshouldbeadheredtoand reflectwhatareasonableandprudentpersonwouldapplyinrespectofa portfolioofloanstoavoidundueriskoflossandobtainareasonable return. ModifiedDate: 2013-06-14 Secondarymenu RegulationandGuidance ActsandRegulations Guidance TableofGuidelines TableofAdvisories ApprovalsandPrecedents ApplicationandApprovalGuides RegulatoryandLegislativeAdvisories LegislativeRulings CapitalRulings NameRequest RiskAssessmentandIntervention SupervisoryPractices GuidetoIntervention TrustAgreements RegulatoryData FilingCorporateReturns FilingFinancialReturns ViewingFinancialData Anti-moneyLaunderingandCompliance Anti-moneyLaundering Anti-terrorismFinancing Sanctions Messages IndustryNotices WebTools WhoWeRegulate