On December 12, 2024, the Alberta Superintendent of Insurance (the Alberta Superintendent) published Interpretation Bulletin 08-2024 (the Bulletin). The Bulletin includes the Alberta Superintendent’s interpretation of sections 27 and 28 of the Captive Insurance Companies Act (Alberta) (the Captive Act) with respect to captive insurers licensed in Alberta (Alberta Captives). The Bulletin expands the risks which may be reinsured by Alberta Captives to include “third-party” risks, provided certain conditions are satisfied.
For the purposes of the Bulletin, the Alberta Superintendent considers a “third-party” to be any entity outside of an Alberta Captive’s permitted group of insureds prescribed under section 27 of the Captive Act.
This article provides a brief overview of the Bulletin and is applicable to Alberta Captives and other persons considering establishing a captive insurance company (whether in Alberta or in another jurisdiction).
Background: Sections 27 and 28 of the Captive Act
Section 27 of the Captive Act restricts the scope of risks that an Alberta Captive may reinsure to three main categories and does not contemplate the reinsurance of third-party risks. Alberta Captives may be formed to reinsure the following risks: (a) a pure captive insurance company may insure risks of its parent and its parent’s affiliated entities; (b) an association captive insurance company may insure risks of its association, the member organizations of its association and their affiliated entities; and (c) a sophisticated insured captive insurance company may insure risks of the sophisticated insureds that comprise its sophisticated insured group and their affiliated entities. Alberta Captives may also insure risks of certain persons affiliated with the captive (including officers, directors, employees, agents and independent contractors, where such persons act in such capacities).
Section 28 of the Captive Act provides that an Alberta Captive may provide reinsurance of risks ceded by any other insurer and enter into a contact of reinsurance to cede its risk or any portion of its risk, to any other insurer.
The Alberta Superintendent’s revised interpretation
The Bulletin states that, initially, the Alberta Superintendent interpreted these sections of the Captive Act to mean that a majority of an Alberta Captive’s risk must qualify under section 27 of the Captive Act, accordingly leaving a minority portion for reinsurance of third-party risk.
The Bulletin confirms that Alberta Captives may reinsure third-party risks, provided all of the following conditions are met:
- There is an existing business relationship between the Alberta Captive’s owner(s) and the third party or parties;
- All third-party insurance contracts are fronted by an insurer licensed in the jurisdiction of risk; and
- The Alberta Captive maintains at least one contract that insures an eligible insured under section 27 of the Captive Act.
Although an Alberta Captive must still insure an eligible insured under section 27 of the Captive Act, the Alberta Superintendent’s interpretation provides greater flexibility and utility for Alberta Captives to reinsure additional lines of business which may not meet one of the three main categories in section 27. We expect the publication of the Bulletin to result in increased application activity for captives in Alberta and to promote captive activity in the province of Alberta.
For more information on this topic, please reach out to the authors, Laurie LaPalme, Marisa Coggin or Jesse Collins-Swartz, or any member of Dentons’ corporate and regulatory insurance group. Our group has extensive experience navigating the captive licensing regime and associated regulatory requirements in Alberta and other jurisdictions outside of Canada and would be pleased to assist with any insurance regulatory and corporate structuring matters related to the establishment or operation of a captive insurer.
