Mutual Company (Life Insurance) Conversion Regulations (SOR/99-128)

Interpretation

1 The following definitions apply in these Regulations.

Act

Act means the Insurance Companies Act. (Loi)

conversion

conversion means the conversion of a life company that is a mutual company into a company with common shares. (transformation)

converted company

converted company means a life company that was a mutual company and that has been converted into a company with common shares and, except for the purposes of paragraphs 4(1)(j) and 5(1)(p), includes a holding body corporate of that company. (société transformée)

converting company

converting company means a life company that is a mutual company that is proposing to convert into a company with common shares. (société en transformation)

effective date

effective date, in respect of a conversion, means the day stated in the letters patent of conversion as the day on which the conversion becomes effective. (version anglaise seulement)

eligibility day

eligibility day means the day selected by a converting company under subsection 4(3). (date d’admissibilité)

eligible policyholder

eligible policyholder means a person who

• (a) on the eligibility day is the holder of a voting policy;

• (b) is the holder of a voting policy issued by a converting company, if the policy was applied for by that person on or before the eligibility day and the application was received by the company within a period specified by the company in the conversion proposal;

• (c) is the holder of a voting policy that lapsed before the company’s eligibility day and was reinstated during the period beginning on the eligibility day and ending 90 days before the day on which the company’s special meeting is held, and was the holder of that policy at the time it lapsed; or

• (d) is included as an eligible policyholder under subsection 4(4). (souscripteur admissible)

holding body corporate

holding body corporate, in respect of a converted company, means a body corporate incorporated as a company under the Act that holds all of the voting shares of the converted company. (société mère)

special meeting

special meeting means a meeting of policyholders referred to in subsection 237(1.1) of the Act. (assemblée extraordinaire)

value

value, in respect of a converting company, means the estimated market value or range of market values referred to in subsection 3(1). (valeur)

voting policy

voting policy, in respect of a converting company, means a policy the holding of which entitles its holder to vote at meetings of policyholders of the converting company, but does not include a policy issued or assumed by a company with common shares that amalgamated with a mutual company after the making of a public announcement by the mutual company of its intention to develop a conversion proposal. (police avec droit de vote)

Application

2 These Regulations apply in respect of the conversion of a life company that is a mutual company into a company with common shares.

Valuation

• 3 (1) For the purposes of these Regulations, a converting company shall state as its value an estimated market value or range of market values, but shall exclude

  • (a) the value of capital contributions made to the mutual company at the time of its incorporation as a mutual company;

  • (b) amounts recorded in any account maintained under section 70 or 83.04 of the Act; and

  • (c) any expenses expected to be incurred by the converting company to effect the conversion.

• (2) The Superintendent may specify a day as at which the value of a converting company shall be estimated for the purposes of subsection (1).

Conversion Proposal

• 4 (1) A conversion proposal shall include

  • (a) a report setting out the value of the converting company and a description of how that value was estimated, the method used and any assumptions made;

  • (b) the eligibility day selected by the converting company and, if that day is a day referred to in paragraph (3)(b), the reasons why that day was selected;

  • (b.1) the period specified by the converting company for the purpose of paragraph (b) of the definition of eligible policyholder in section 1, within which an application for a voting policy must be received by the company;

  • (c) a description of the form, amount and aggregate value of the benefits to be provided to eligible policyholders in exchange for their rights with respect to, and interests in, the converting company as a mutual company;

  • (d) a detailed description of the benefits to be provided to eligible policyholders and the method to be used to apportion the value of the converting company among eligible policyholders, indicating

    • (i) the basis on which any variable amount of benefits will be calculated,

    • (ii) any fixed, minimum or maximum amount of benefits that may be provided to an eligible policyholder, and

    • (iii) the rationale for choosing the method for determining and allocating benefits among eligible policyholders;

  • (e) a statement confirming that

    • (i) benefits in respect of the conversion will be provided only to eligible policyholders,

    • (ii) benefits will be provided only in respect of voting policies, and

    • (iii) all or most of the benefits will be provided to policyholders who are entitled to participate in profit distributions;

  • (f) an estimate of any amounts that will be transferred out of the accounts referred to in section 456 of the Act as a result of the conversion, with a description of the method and assumptions that were used in establishing that estimate and that will be used in establishing any amounts that will eventually be transferred as a result of the conversion;

  • (g) an explanation of how the assets allocated to the accounts referred to in section 456 of the Act after the transfer are expected to be adequate to

    • (i) meet contractual obligations under the policies in respect of which those accounts are maintained,

    • (ii) meet the reasonable expectations of the holders of those policies in respect of future dividends and other non-guaranteed policy benefits, and

    • (iii) support any future participating policies expected to be allocated to those accounts;

  • (h) a statement of the dividend policy that will apply to the policies in respect of which the accounts referred to in section 456 of the Act are maintained, during the five years following the effective date of the conversion;

  • (i) a description of the mechanisms proposed to effect an initial issuance of common shares and any other class of shares of the converted company, including a copy of the proposed by-law authorizing the issuance of those shares;

  • (j) where shares of the converted company are to be issued to a holding body corporate, a description of the proposed activities of the holding body corporate;

  • (k) where the converting company has issued any shares that remain outstanding immediately prior to the effective date of the conversion, a statement describing how those shares will be converted into common shares of the converted company;

  • (l) where the benefits referred to in paragraph (c) include shares of the converted company, a description of the measures to be taken by the company, in the two years following the effective date of the conversion, to ensure that the eligible policyholders who receive the shares will be able to sell those shares on a public market;

  • (m) a description of how the measures referred to in paragraph (l) would be affected if the converted company were to issue additional shares during the two years following the effective date of the conversion; and

  • (n) a statement that the directors of the converting company may withdraw the conversion proposal at any time before the issue of letters patent of conversion.

• (2) The variable amount of benefits referred to in subparagraph (1)(d)(i) may be calculated based on any factor or combination of factors, including a policy’s contribution to surplus, policy reserves, cash values, amounts of policy coverage and the duration of the policy.

• (3) A converting company shall select as its eligibility day

  • (a) the day of the public announcement by the converting company of its intention to develop a conversion proposal; or

  • (b) a day subsequent to, but not later than 30 days after, the day referred to in paragraph (a).

• (4) Where a converting company selects an eligibility day referred to in paragraph (3)(b), the company shall include as eligible policyholders all persons whose policies were involuntarily terminated on or after the day referred to in paragraph (3)(a) and who would have been eligible policyholders if the eligibility day were the day referred to in paragraph (3)(a).

Material to Superintendent

• 5 (1) Subject to section 11, prior to sending a notice of a special meeting, a converting company shall submit to the Superintendent

  • (a) an opinion prepared by the actuary of the company and an opinion prepared by an independent actuary,

    • (i) stating that the benefits and method, referred to in paragraph 4(1)(d), to be used to apportion the value of the company among eligible policyholders are fair and equitable to those policyholders,

    • (ii) providing an explanation of how the assets referred to in paragraph 4(1)(g) are expected to be adequate to

      • (A) meet contractual obligations under the policies in respect of which the accounts referred to in section 456 of the Act are maintained,

      • (B) meet the reasonable expectations of the holders of those policies in respect of future dividends and other non-guaranteed policy benefits, and

      • (C) support any future participating policies expected to be allocated to those accounts, and

    • (iii) stating that the future financial strength and vitality of the company and the security of policyholders will not be materially adversely affected by the conversion;

  • (b) an opinion from a valuation expert that the method and assumptions referred to in paragraph 4(1)(a) employed to estimate the value of the company are appropriate and that that value reasonably reflects prevailing market conditions as at the day it was estimated;

  • (c) where, in respect of a conversion, other benefits are to be provided in lieu of shares, an opinion from an independent actuary, or from a valuation expert, that those benefits are appropriate substitutes for the shares as at the day the value of the company was estimated;

  • (d) an opinion from a financial market expert that the measures referred to in paragraph 4(1)(l) are likely to ensure that the eligible policyholders who receive shares will be able to sell those shares, within the two years following the effective date of the conversion, on a public market;

  • (e) the annual statement for the most recently completed financial year of the converting company, accompanied by reports for that year of the auditor and actuary of the company;

  • (f) where a notice of a special meeting is to be sent to eligible policyholders more than 120 days after the end of the most recently completed financial year of the converting company, financial statements for the portion of the current financial year ending prior to a day that is not more than 120 days before the day on which the notice is sent, and an auditor’s comfort letter in respect thereof;

  • (g) pro forma financial statements of the converted company, showing the effect of the conversion and any other significant transactions contemplated in connection with the conversion, including any proposed initial public offering of common shares, based on

    • (i) the annual statement for the most recently completed financial year, or

    • (ii) in the circumstances referred to in paragraph (f), the financial statements for the portion of the current financial year referred to in that paragraph;

  • (h) the compilation report of the auditor of the company, and a statement of reconciliation, in respect of the financial statements referred to in paragraph (g);

  • (i) a detailed description of any significant transaction contemplated in connection with the conversion;

  • (j) the conversion proposal referred to in subsection 4(1);

  • (k) the summaries referred to in paragraph 7(1)(g);

  • (l) the notice of the special meeting and the form of proxy and any management proxy circular to be sent with the notice;

  • (m) any prospectus referred to in paragraph 7(1)(q);

  • (n) the proposed letters patent of conversion;

  • (o) the proposed resolutions referred to in subsection 237(1.5) of the Act; and

  • (p) where shares of the converted company are to be issued to a holding body corporate, a copy of the existing or proposed incorporating instrument and by-laws of the body corporate.

• (2) The financial statements referred to in paragraphs (1)(f) and (g)

  • (a) shall be prepared in accordance with the accounting principles referred to in subsection 331(4) of the Act; and

  • (b) shall be accompanied by a report of the chief financial officer of the company stating that the financial statements have not been audited but have been prepared in accordance with the accounting principles referred to in subsection 331(4) of the Act.