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.

Authorization of Superintendent

• 6 (1) Prior to sending a notice of a special meeting, a converting company shall obtain from the Superintendent an authorization to send the notice.

• (2) In considering whether to grant an authorization under subsection (1), the Superintendent may consider any other information, including an opinion or report on any aspect of the conversion proposal.

• (3) As a condition of granting an authorization under subsection (1), the Superintendent may require that the notice of the special meeting or the management proxy circular contain such additional information as the Superintendent considers appropriate.

Information to Policyholders

• 7 (1) Subject to subsection (2) and section 11, the notice of a special meeting referred to in paragraph 237(1.2)(a) of the Act shall include

  • (a) a description of the advantages and disadvantages of the proposed conversion to the company and to the policyholders of the company;

  • (b) a description of the alternatives to the conversion of the company that the directors of the converting company have considered, and the reasons why, in their opinion, the conversion is in the best interests of the company and its policyholders as a whole;

  • (c) a description of the form, amount and estimated market value or range of market values of the benefits to be provided as a result of the conversion to the eligible policyholder to whom the notice is sent in exchange for the policyholder’s rights with respect to, and interests in, the converting company as a mutual company;

  • (d) a description of any right of policyholders to vote after the conversion, as policyholders or shareholders of the converted company;

  • (e) for each jurisdiction in which at least one per cent of all eligible policyholders reside, a description of the income tax treatment accorded the benefits referred to in paragraph (c) in that jurisdiction;

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

  • (g) summaries of

    • (i) the opinions referred to in paragraphs 5(1)(a) to (d), other than any opinions not required to be submitted under those paragraphs by virtue of an exemption under section 11, and

    • (ii) the documents referred to in paragraph 5(1)(p);

  • (h) the financial statements referred to in paragraphs 5(1)(e) to (g), other than any financial statements not required to be submitted under those paragraphs by virtue of an exemption under section 11;

  • (i) the documents referred to in paragraphs 5(1)(h) and (i), other than any documents not required to be submitted under those paragraphs by virtue of an exemption under section 11;

  • (j) a brief description of the business carried on by the converting company and its subsidiaries, and the general development of that business, during the three years preceding a day that is not more than 120 days before the day on which the notice of the meeting is sent to policyholders, and any future business foreseen as of that day;

  • (k) a brief description of any substantial variations in the operating results of the converting company during the three most recently completed financial years preceding the notice of the meeting and, where the notice of the meeting is sent more than 120 days after the end of the most recently completed financial year of the converting company, during the portion of the current financial year ending on a day that is not more than 120 days before the day on which the notice is sent;

  • (l) the identity of all persons who, on the day on which the notice of the meeting is sent, have a significant interest in the converting company or who, as a result of the conversion, will have a significant interest in the converted company, and a description of the type and number of shares held or to be held by those persons;

  • (m) the name and address of the auditor of the converted company;

  • (n) the names and addresses of the proposed transfer agents and registrars;

  • (o) the proposed location for the securities registers for the initial issuance of common shares of the converted company;

  • (p) a description of any sales by the converting company, within the 12 months preceding a day that is not more than 120 days before the day on which the notice of the meeting is sent to the policyholders, of securities of the same type as those to be provided as benefits to eligible policyholders under the conversion proposal;

  • (q) where the converted company is required under the laws of any jurisdiction in which it carries on business to file a prospectus in respect of its issuance of shares to eligible policyholders, a copy of that prospectus;

  • (r) a description of the restrictions set out in sections 12 and 13 and of any plans that the converting company may have for the establishment of stock-option or stock-incentive plans for directors, officers or employees of the converted company after the period referred to in section 13;

  • (s) a description of any measures, including the establishment of toll-free lines and internet sites, the holding of information sessions, and the placement of advertisements in widely circulated publications, that the converting company has taken or will take before holding a special meeting, to provide eligible policyholders with information about the proposed conversion and an opportunity to raise questions or concerns about the proposed conversion;

  • (t) a description of the measures that the converting company has taken or will take to encourage eligible policyholders to vote on the conversion proposal, in person or by proxy, at the special meeting; and

  • (u) any other information that the Superintendent has required the notice of a special meeting to contain under subsection 6(3).

• (2) The information described in subsection (1) may be included in the notice of a special meeting or in the management proxy circular sent with it.

• (3) The Superintendent may, to assist eligible policyholders in forming a reasoned judgment on a conversion proposal of a converting company,

  • (a) direct the company to hold one or more information sessions for eligible policyholders prior to the holding of a special meeting and set the rules under which those sessions must be held; and

  • (b) direct the company to take such others measures, prior to the holding of a special meeting, as the Superintendent considers appropriate.

Ministerial Approval

8 Within three months after the approval of a conversion proposal by the eligible policyholders, the directors of a converting company shall, unless the conversion proposal is withdrawn, apply to the Minister for

• (a) approval of the conversion proposal pursuant to paragraph 237(1)(a) of the Act; and

• (b) issuance of letters patent of conversion pursuant to paragraph 237(1)(b) of the Act.

• 9 (1) An application made by a converting company to the Minister pursuant to subsection 237(1) of the Act shall include

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

  • (b) the documents referred to in paragraphs 5(1)(a) to (i), (k), (m) and (p), other than any documents not required to be submitted under those paragraphs by virtue of an exemption under section 11;

  • (c) the notice of the special meeting at which the conversion proposal was considered and the documentation sent with that notice;

  • (d) the proposed letters patent of conversion and any by-laws, amendments to by-laws or repeals of by-laws, that are necessary to implement the conversion proposal; and

  • (e) the special resolutions of the eligible policyholders referred to in subsection 237(1.5) of the Act, accompanied by a certificate of the company indicating the results of the votes held in respect of those resolutions.

• (2) On receipt of an application referred to in subsection (1), the Minister shall refer it to the Superintendent for a recommendation, whereupon the Superintendent may request any additional information that the Superintendent considers necessary to evaluate the application.

Amendment or Withdrawal of Conversion Proposal

• 10 (1) The directors of a converting company may amend a conversion proposal of the company at any time before the vote of eligible policyholders is held at the special meeting, if measures approved by the Superintendent are taken by the converting company in respect of the amendment.

• (2) The directors of a converting company may withdraw a conversion proposal of the company at any time before the issuance of letters patent of conversion.

Exemption by Superintendent

11 The Superintendent may exempt a converting company from any of the requirements of paragraphs 5(1)(c) to (h) and 7(1)(e), (k) and (q), on such terms and conditions as the Superintendent considers appropriate.

Restrictions on Benefits

• 12 (1) Subject to subsection (2), a converting company shall not provide any director, officer or employee of the company with a fee, compensation or any other consideration in relation to the conversion of the company, other than

  • (a) the regular compensation provided to the person in that person’s capacity as a director, officer or employee of the company; and

  • (b) any benefits provided to the person as an eligible policyholder.

• (2) A converting company may provide fees, compensation or any other consideration to an entity with which a director, officer or employee of the company is associated pursuant to a contract for services in respect of the conversion that was entered into by the company with the entity on terms and conditions that are at least as favourable to the company as market terms and conditions, as defined in subsection 534(2) of the Act.

13 A converted company shall not, prior to the listing of its shares on a recognized stock exchange in Canada and for a period of one year after such a listing, issue or provide shares, share options or rights to acquire shares of the converted company to

• (a) any director, officer or employee of the company, or

• (b) any person who was a director, officer or employee of the company during the year preceding the effective date of conversion of the company and who ceased to be a director, officer or employee of the company,

other than shares issued to that person as an eligible policyholder.

Repeal

14 [Repeal]

Coming into Force

15 These Regulations come into force on the day on which they are registered.