On December 12, 2024, the Alberta Superintendent of Insurance (the “Superintendent”) issued Interpretation Bulletin 08-2024 (the “Bulletin”) extending the ability of captive insurers to reinsure certain third-party risks. As outlined below, this development may create new opportunities for captive insurers regulated under Alberta’s Captive Insurance Companies Act.
Background
The Bulletin provides the Superintendent’s revised interpretation of the interplay of sections 27 and 28 of the Act, which respectively function as follows:
- Section 27 restricts a captive insurer to insuring the risks of (i) its parent and its parent’s affiliates, (ii) in the case of an association captive, the association and members of the association, or (iii) certain sophisticated insureds (in each case, in addition to certain associated individuals, such as officers, directors, employees, agents and contractors, while acting in those capacities).
- Section 28 allows a captive insurer to reinsure risks ceded by another insurer or to cede its own risks to a reinsurer.
The Superintendent’s previous interpretation of the interaction of these sections required that a majority of a captive insurer’s risk qualify under section 27. That interpretation effectively limited the amount of reinsurance risk that a captive insurer could take on.
Going Forward
As announced in the Bulletin, the Superintendent now interprets sections 27 and 28 to allow a captive insurer to reinsure third-party risks without restriction, provided that the following conditions are met:
- There is an existing business relationship between the captive insurer’s owner and the third party;
- All third-party insurance contracts are fronted by an insurer licensed in the jurisdiction of risk; and
- The captive maintains at least one contract that insures a person or other entity that is eligible under section 27 to be insured.
Alberta Captives
Stikeman Elliott acted as volunteer counsel to Alberta insurance sector stakeholders who initiated and led the development of the Alberta captive regime and worked closely with relevant Alberta government departments and officials to design the regime and key guidance. We have since acted on the formation and licensing of numerous captives, and are currently acting on a number of applications through collaboration across our Toronto and Calgary offices. For those interested in learning more, we have prepared a convenient one-page overview of the Alberta captive regime.
[View source.]
