Alberta’s Captive Insurance Companies Act: A “season of migration to the north”
The Alberta government has announced that the province’s Captive Insurance Companies Act (the “Act”) and the Captive Insurance Companies Regulation (the “Regulation”) will come into force on July 1, 2022. For industries facing difficulty obtaining insurance coverage from the open market, such as the Oil & Gas industry, the Act offers a possible solution. Under the Act, businesses and associations will be able to self-insure by forming purpose-specific captive insurance companies (“captives”), potentially offsetting some of the risk through reinsurance.
Captive insurance is not a new concept. Established captive insurance industries exist in several on-shore and off-shore jurisdictions, such as Bermuda and Vermont. Until the Act comes into force, British Columbia remains the first and only province to introduce captive legislation, and is currently home to 23 captives.
What are the types of captives?
Captives come in different types. The most common types of captives are pure, association and sophisticated. A pure captive typically only insures risks of its parent which, in this case would be a company. Some jurisdictions allow a pure captive to insure risks unrelated to its parent up to a maximum ceiling. An association captive insures risks related to members of the parent association, such as an industry association. Some jurisdictions allow a captive to insure risks unrelated to its parent, up to a limit. For example, Class 3 captives in Bermuda may insure unrelated risks up to 50 percent of net written premiums. Sophisticated captives are typically owned by a parent which has some insurance expertise and/or are captives larger than a particular prescribed size.
How can a captive be established?
To establish a captive in Alberta, an application must be submitted to the Minister of Finance. The application must:
- specify the class of captive (pure, association or sophisticated);
- include “a plan for the conduct and development of the business of the captive insurance company”;
- include “a certified copy of the company’s organizational documents”;
- appoint an individual as the company’s attorney for service;
- include the Alberta address of the company’s principal place of business; and
- provide any other information or documents requested by the Minister.
In addition, the captive must either be incorporated under the Business Corporations Act, or set up as a partnership under the Partnership Act. The captive must demonstrate the availability of the prescribed minimum base capital. Once a captive is established, it must also maintain the prescribed adequate capital on an ongoing basis. If a captive at any point fails to maintain adequate capital, it must notify the Minister. The regulation includes details about the minimum base capital and adequate capital requirements.
What are extra-provincial captives?
Some Canadian businesses already own captives in foreign jurisdictions and a new amendment to the Act aims at attracting foreign captives to Alberta. On May 5, 2022, the Alberta legislature passed Bill 16 which amends the Insurance Act and the Captive Insurance Companies Act. Bill 16 creates a fast-track path for existing captives outside Alberta, whether owned by a Canadian parent or not, to transfer or “re-domesticate” to Alberta.
To re-domesticate to Alberta, the foreign captive files an application with the Superintendent of Insurance for the Minister’s review. The foreign captive must provide the Superintendent with its organizational documents, evidence of continuance under the Business Corporations Act, and any additional information required by the Superintendent.
What are the incentives for re-domestication?
As an incentive to foreign captives, the Act gives the Superintendent the power to postpone or waive re-domestication fees for up to 2 years. In addition, the Act gives the Superintendent the ability to fast-track the process by issuing a conditional licence allowing the captive to carry on its insurance business immediately with minimum interruption. Even if the Superintendent has some concerns, they can still issue a conditional licence subject to any terms and conditions they see fit.
A re-domesticated captive does not need to merge, consolidate, transfer assets or reorganize in any way other than what is set out in the Act. The captive smoothly carries with it all its liabilities, assets and contracts from the previous jurisdiction. The Act also allows for a re-domestication in the opposite direction, should an Alberta captive decide to move to another jurisdiction.
How much does it cost to set up a captive in Alberta?
Most of the details of the requirements to set up a captive in Alberta are set out in the Regulation. The Regulation addresses requirements for minimum capital, solvency, and reporting.
To provide insight into the above, the following is a short comparison of regulatory costs and rules from jurisdictions with more mature captive legislation:
What is next?
The Captive Insurance Act has not been proclaimed into law, but it is expected that the Act and the Regulation will come into force on July 1, 2022. Upon proclamation, captive insurance operations can immediately be set up or relocated to Alberta.
DLA Piper's Insurance practice is one of the largest and strongest, comprising over 400 lawyers serving the insurance industry globally. For more information regarding captive insurance companies in Alberta, please contact the authors.
“Season of Migration to the North” is a 1966 masterpiece postcolonial novel written by Sudanese novelist Tayeb Salih. It explores the impact of British colonialism on rural African communities. The title sums up the policy objective of the Act and Bill 16, attracting offshore and US captives to Alberta.