Skip to main content

The Globe and Mail

Insurers ask Ottawa to ease ownership rules

Insurers are pressing Ottawa to change laws that ban governments and sovereign wealth funds from owning their shares, arguing that the recent financial crisis has demonstrated the need for greater access to financing.

Executives at Canadian banks and insurers say the restrictions, which have been in place for decades, curb their ability to raise capital. When the financial meltdown first began to take its toll on U.S. banks, the initial wave of refinancing there came from sovereign wealth funds.

They also argue that the rules could prevent them from gaining access to assistance programs that foreign governments might put in place in a future crisis.

Story continues below advertisement

That is increasingly important as Canadian institutions flex their muscles abroad. Manulife for example, operates in more than 20 countries and earns about two-thirds of its profit outside of Canada. Canadian banks were among the various institutions worldwide that chose to tap into a U.S. Federal Reserve Board program to borrow money during the crisis. That program saw the banks post collateral such as bonds in exchange for loans, and did not involve any issuance of shares.

The rationale that Ottawa has put forward over the years for keeping the rules in place is that they prevent foreign governments from influencing Canadian banks and insurers.

But, in a recent submission to the Finance Department, the Canadian Life and Health Insurance Association says now is the time to give the industry "some flexibility."

"I think the financial crisis showed that financial institutions should have free access to capital markets as they need it," Frank Swedlove, the head of the CLHIA, said in an interview.

It's a notable comment from a man who, as a former senior player in the federal Finance Department, once advised various finance ministers on financial institution policies, including, undoubtedly, this topic.

He pointed out that the rules would also prevent Canadian institutions from, for instance, using shares to buy a stake in a foreign bank or insurer from a sovereign wealth fund. That could hamper their ability to execute takeovers abroad.

The Bank Act and the Insurance Companies Act each state that institutions cannot record in their securities registers any transfer or issuance of shares to either Ottawa, the provinces, the government of a foreign country, or an agent of a foreign country. If any of those entities do manage to get their hands on shares, they cannot participate in shareholder votes.

Story continues below advertisement

An exception is made for Canadian pension plans but the existing legislation doesn't permit even one share to be held by a sovereign wealth fund, Mr. Swedlove said.

In the 2009 federal budget, Finance Minister Jim Flaherty created another exception to the rules, allowing Ottawa to own shares of a bank or an insurer in an emergency. In order to exercise that power, the Finance Minister has to consult with the chief regulator, the head of the Bank of Canada, and the chairperson of the Canada Deposit Insurance Corp. and determine that the move would "promote the stability of the financial system in Canada."

On Wednesday, American International Group Inc. took steps that will pave the way for the U.S. Treasury to sell the government's stake in the insurer, which received a bailout that, at one point, totalled $182-billion.

Ottawa says that its recent exception would enable it to bail out a flailing institution.

"Although Canadian financial institutions have been successful in raising equity in the market, a number of other countries have used share purchases as a means of injecting capital into their troubled financial institutions," an official from the Department of Finance said Wednesday. "The Government of Canada has this standby authority to do the same in the event that extraordinary circumstances arise in Canada."

But insurers say that's not enough.

Story continues below advertisement

"There could be other foreign government assistance programs offered in the future which Canadian institutions would qualify for, given their operations in the particular foreign jurisdiction, but the current prohibition in the Act may prevent them from taking advantage of the program," the CLHIA said in its submission. The submission was made as part of the review of the country's financial institution laws that Mr. Flaherty launched in September.

Ottawa reviews the Bank Act and Insurance Companies Act every five years.

The insurance industry said it is in favour of restricting foreign governments to, at maximum, a 10-per-cent stake in Canadian players. By doing so, "no foreign government would be able to directly control or unduly influence a Canadian financial institution," it says.

Report an error Licensing Options
Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at