Canada Gazette, Part I, Volume 157, Number 6: Regulations for Permitted Infrastructure Investments

February 11, 2023

Statutory authority
Insurance Companies Act

Sponsoring department
Department of Finance

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues

The Government introduced, in Budget Implementation Act, 2018, No. 1, legislative amendments to the Insurance Companies Act (the Act) to create a new category of permitted investments for federally regulated life insurance companies, fraternal benefit societies, and insurance holding companies (life and health insurance entities). Under this new investment power, life and health insurance entities are permitted to acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity (PIE), subject to prescribed terms and conditions.

The proposed Regulations for Permitted Infrastructure Investments (the Regulations) establish the terms and conditions that are necessary to bring the amendments to the Act into force and make this new investment power operational. Not adopting the Regulations would prevent these legislative amendments from being brought into force which would result in life and health insurance entities not being able to acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity (PIE).

Background

The current Framework

The Act currently provides broad flexibility for life and health insurance entities to engage in financial services activities — either in-house or through investments in other entities — but restricts their ability to engage in non-financial commercial activities. This includes a general prohibition (subject to some exceptions) on the acquisition of substantial or controlling equity investments (e.g. 10% or more of voting shares) in commercial entities that own or operate public infrastructure assets. This general prohibition is, however, subject to a number of exceptions (e.g. “temporary investment” and “specialized financing”) that allow life and health insurance entities to acquire and hold substantial or controlling equity investments in almost any type of commercial entities, but only on a temporary basis (e.g. 2 or 13 years).

The separation between financial and commercial activities is a long-standing feature of the federal financial sector framework. It stems from objectives that are both prudential (e.g. to ensure that federally regulated financial institutions remain primarily engaged in their core area of expertise) and policy-driven (e.g. to prevent federally regulated financial institutions from using their size to acquire market dominance over certain commercial segments).

Over time, targeted flexibility has been incorporated into the federal financial sector framework to allow federally regulated financial institutions — including life and health insurance entities — to engage in certain non-financial commercial activities (e.g. ability to invest in real property and to provide certain information processing services). This seeks to accommodate the changing needs of financial institutions and to enable them to adapt to an evolving business environment.

Asset liability management

As part of the broad consultations undertaken by the Department of Finance Canada (the Department) to advance the last review of the federal financial sector framework (2019), the life and health insurance industry, through the Canadian Life and Health Insurance Association, identified the provision of increased flexibility to make equity investments in infrastructure as a priority.

Life and health insurance entities generally collect premiums in return for protecting individuals and their families from life and health risks. Because of the long-term nature of the risks insured for certain types of insurance products (e.g. annuity and long-term disability products), a significant length of time separates the receipt of premiums by the life and health insurance entity from the payment of claims to beneficiaries.

To ensure they have enough assets and liquidity to pay future insurance claims, life and health insurance entities use their revenues from premiums to buy various types of assets, including bonds, stocks and real estate. Life and health insurance entities manage their portfolio of assets through the discipline known as Asset Liability Management (ALM) with the objective of aligning the proceeds from invested assets with the expected future policy claims they are contractually obligated to pay.

Infrastructure gap

There are many studies about Canada’s infrastructure gap but estimates for the size of the gap vary over a relatively wide range.^{footnote 1} Despite these quantitative debates, there is consensus that Canada faces a broad-based infrastructure gap which is limiting Canada’s economic growth and Canadians’ quality of life, and that significant investments are needed to address it. According to the G20’s Global Infrastructure Hub, Canada’s infrastructure needs are the largest in rail transportation, telecommunications, airports, and water infrastructures. The Global Infrastructure Hub also indicates that Canada’s additional future infrastructure priorities will include seniors’ health care, rural broadband and clean transit and energy infrastructure.

The Government of Canada’s flagship program to tackle the infrastructure gap is the Investing in Canada Plan with infrastructure funding of $180 billion over 12 years. The Government also established the Canada Infrastructure Bank (CIB) with the mandate to attract private and institutional investment in revenue generating infrastructure in the public interest. In October 2020, the CIB launched a three-year $10 billion Growth Plan, which targets zero-emission buses, clean power, energy-efficient building retrofits, large-scale broadband, and agriculture-related infrastructures. In addition, the Government also announced it would be investing $3 billion annually in permanent federal public transit funding beginning in 2026–2027.

In addition, fiscal constraints on governments at all levels have increased the interest in exploring private sector investment and alternative ownership options and financing mechanisms as a means to increase overall investments in infrastructure.

Changes to the Framework

Public infrastructure assets are particularly useful from an ALM perspective because they are typically long-term, relatively high yielding, and with a predictable cash flow. Investments in this type of asset were severely constrained under the Act but amendments were made to the Act through Budget Implementation Act, 2018, No. 1 to permit life and health insurance entities to make long-term and predictable investments in public infrastructure.

The legislative amendments create a new category of permitted entities within the investment regime of the Act under which life and health insurance entities are permitted to acquire control of, or acquire or increase a substantial investment in, a PIE, subject to prescribed terms and conditions. The amendments also

• create a new definition for a PIE as an entity that only makes investments in infrastructure assets or engages in any other activity prescribed by regulation;
• create a new definition for “infrastructure asset” as a physical asset, including a long-lived physical asset that supports the delivery of public services, prescribed by regulation;
• provide new regulation-making power for the Governor in Council to prescribe physical assets for the purposes of the definition of “infrastructure asset,” activities in which a PIE is permitted to engage, and conditions applicable to investments made and other activities carried out by PIEs; and
• provide new regulation-making power for the Governor in Council to establish terms and conditions respecting the acquisition of control of, or the acquisition or increase of a substantial investment in, a PIE by a life and health insurance entity.

Objective

The objective of the Regulations is to make operational the new power for life and health insurance entities to acquire controlling or substantial equity investments in PIEs.

The overarching policy objective of the new investment power is to make life and health insurance entities more resilient financially by improving their ALM capacity through a new permission to make long-term equity investments in public infrastructure projects that generate predictable returns.

Another key objective is to enable life and health insurance entities to undertake additional investments in public infrastructure in Canada to help tackle the infrastructure gap and encourage post-COVID economic growth, and to provide an alternative source of capital given that government balance sheets are stretched due to COVID-related measures.

Description

The Regulations prescribe infrastructure assets and permitted PIE activities, and establish the terms and conditions of the new power for life and health insurance entities to acquire controlling or substantial equity investments in PIEs.

Prescribed infrastructure assets

The Regulations prescribe the physical assets for the purpose of the definition of “infrastructure asset” in the Act. The list of such prescribed physical assets is exhaustive and sets out the infrastructure assets that can be the subject of the business activities of a PIE.

The list of prescribed assets covers a wide range of long-lived physical assets that can be used to support the delivery of public services under 10 broad categories:

• transportation assets (e.g. airport, bridge, railway and subway tracks, railway and subway stations);
• water supply assets (e.g. water desalination plant, water distribution system, water filtration plant);
• waste disposal assets (e.g. incinerator, sewage treatment plant, waste disposal facility);
• agriculture assets (e.g. grain terminal, irrigation canal, irrigation reservoir);
• flood protection assets (e.g. flood gate, water retention pond);
• information and communication technology assets (e.g. data centre, telecommunications transmission cables and lines, wireless communication network);
• energy assets (e.g. energy storage facility, power plant, power transmission network);
• health care and housing assets (e.g. hospital, senior citizen home, social housing building);
• educational, scientific, cultural and recreational assets (e.g. laboratory, library, museum, school); and
• certain other assets (e.g. court house, fire station, police station).

An entity that would engage in a prescribed activity (as explained below) in respect of a non-prescribed physical asset would not be considered a PIE for the purpose of the Regulations.

Investments in these prescribed assets made by life and health insurance entities in Canada would remain subject to all applicable federal and provincial environmental requirements and other regulatory requirements.

Prescribed activities of a PIE

The Regulations prescribe the activities in which a PIE is permitted to engage. These prescribed activities are in addition to that of making investments in infrastructure assets, which is provided for in the Act.

The list of prescribed activities is exhaustive and intends to cover all of the business activities that a typical owner or operator of a revenue-generating infrastructure would need to perform. The Regulations also require that all of these activities be exclusively in respect of prescribed infrastructure assets.

The following activities are prescribed:

• operating an infrastructure asset;
• acquiring or holding shares of another PIE;
• holding, managing and otherwise dealing with real property connected to an infrastructure asset; and
• designing or acting as a general contractor for the construction or maintenance of an infrastructure asset that is operated or owned by the PIE, or by another PIE in the same corporate group.

An entity that would engage in a non-prescribed business activity, such as operating a non-prescribed physical asset, would not be considered a PIE for the purpose of the Regulations.

Condition on the involvement of a public body

The Regulations create a condition that must be met in order for a life and health insurance entity to acquire control of, or to acquire a substantial investment in, a PIE as a permitted entity.

The condition is that the PIE, or each of the infrastructure assets that are the subject of its business activities, must “involve” a “public body.”

The condition on the involvement of a public body supports the policy objective of ensuring that life and health insurance entities only invest in infrastructure assets that support the delivery of public services (i.e. “public” infrastructures), as opposed to purely private infrastructure assets. Given that public bodies serve a public mandate, their involvement in an infrastructure project is considered to be a marker of the public nature of the PIE or of its underlying infrastructure assets. For this reason, the Regulations only require the condition on the involvement of a public body to be met at a moment in time, namely at the time when the life and health insurance entity first acquires control of the PIE, or when it first acquires a substantial investment in the PIE.

The Regulations allow the life and health insurance entity to continue holding an investment in the PIE even if the involvement of the public body ceases, but only in cases where the infrastructure assets that are the subject of the business activities of the PIE (for example owning the asset, operating it, designing it, acting as a general contractor for one) remain the same. In cases where a new infrastructure asset becomes the subject of the business activities of the PIE (i.e. an infrastructure asset that until then was not the subject of any of the PIE’s activities), the Regulations provide that the life and health insurance entity can continue holding its investment, but only if at that moment the PIE or that new infrastructure asset involves a public body.

The Regulations provide that a PIE “involves” a public body if the public body holds control of, or has a substantial investment in, that PIE, or if the public body has provided a significant amount of debt financing to the PIE (whose value is at least equal to 10% of the total liabilities of the PIE).

The Regulations provide that an infrastructure asset “involves” a public body if the public body has at least one of the following roles in respect of the infrastructure asset: owner of at least 10% of the infrastructure asset; purchaser of all or substantially all of its product or service; lessor of all or substantially all of the infrastructure asset; guarantor of all or substantially all of its operating revenues; approving or setting the price paid by users for the product or service of the infrastructure asset; or determining the rights regarding its use or access. This list seeks to capture the range of roles that public bodies (e.g. a public utility regulator) have in respect of public infrastructure assets.

The Regulations define “public body” as either a domestic or foreign government of any level, including a municipality, or any type of Indigenous government; any Crown corporation, or governmental regulatory body or agency; or any international organization that is governed by a treaty to which Canada is a signatory. This definition seeks to cover entities whose actions are guided by a public interest mandate, as opposed to being guided by the objective of maximizing profits or returns on investments. To that end, the definition of a “public body” excludes public entities such as sovereign wealth funds and public pension plans, except where they have a public mandate to support, foster or attract investments in infrastructure.

Condition on ownership of infrastructure asset

The Regulations create a condition that applies in cases where a life and health insurance entity seeks to invest in a PIE that operates an infrastructure asset.

The condition is that the infrastructure asset that is being operated by the PIE must be wholly owned, individually or jointly, either by the PIE itself (or by another PIE in the same group) or by another entity that is not affiliated with the life and health insurance entity.

This condition seeks to ensure that all of the ownership interests, if any, that are held by the life and health insurance entity in respect of the infrastructure asset are held by PIEs. In particular, this prevents the life and health insurance entity from transferring ownership of the infrastructure asset to non-PIE affiliates. This seeks to prevent the life and health insurance entity from structuring its business for the purpose of preventing the value of its ownership interests in infrastructure assets from counting against the limit on aggregate exposure to PIEs (discussed below).

Condition on matching of assets and liabilities

The Regulations create a condition that must be met in order for a life and health insurance entity to acquire control of, or to acquire or increase a substantial investment in, a PIE.

The condition is that one of the purposes of that acquisition has to be for the life and health insurance entity to match its consolidated assets with its long-term liabilities. The objective of this condition is to act as a marker of the core public policy objective, which is to make life and health insurance entities more resilient financially for the benefit of their policyholders.

Limit on aggregate exposure to PIEs

The Regulations create a condition that must be met in order for a life and health insurance entity to acquire control of, or to acquire or increase a substantial investment in, a PIE.

The condition is that the sum of the following values (as it pertains to the life and health insurance entity or any of its subsidiaries) must not exceed 20% of the value of the life and health insurance entity’s “regulatory capital”: all ownership interests in, the outstanding principal of all loans made to, and all outstanding guarantees given on behalf of all PIEs, which the life and health insurance entity (or any of its life and health insurance entity subsidiaries) controls, or in which it has a substantial investment. The regulatory capital of a life and health insurance entity is defined in regulations and provides a measure of its capacity to absorb losses without jeopardizing its solvency.^{footnote 2}

This condition and the determination of the value for the threshold (20% of regulatory capital) seek to ensure that life and health insurance entities remain primarily in the business of insurance, while enabling a measured exposure to public infrastructure assets.

The Regulations only require the condition on aggregate exposure to PIEs to be met at a moment in time, namely at the time when the life and health insurance entity first acquires control of the PIE, or when it first acquires (or subsequently increases) a substantial investment in a PIE.

The Regulations provide that a life and health insurance entity that exceeds the exposure limit can continue to hold all existing controlling and substantial investments in PIEs but cannot directly or indirectly increase its exposure to such PIEs.

Regulatory development

Consultation

Pre-consultations on the Regulations began in 2016 in the context of the periodical review of the financial sector statutes (the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act). The Department of Finance released a first consultation paper in August 2016 asking a broad range of stakeholders to identify potential legislative changes that could be advanced to ensure the financial institution statutes remain up to date, are technically sound, and respond to changes and emerging trends in the financial sector.^{footnote 3}

In response, the life and health insurance industry, through the Canadian Life and Health Insurance Association (CLHIA), identified the provision of increased flexibility to make long-term equity investments in infrastructure as their top priority. The industry indicated that life and health insurance entities have traditionally relied on fixed income investments (e.g. government and corporate bonds) to build their asset portfolios to meet their long-term insurance policy obligations but that the prevailing low-yield environment was putting downward pressure on returns. The industry indicated that new investment powers in infrastructure would improve their ALM capacity and help make them more resilient financially.

The Department considered the feedback from stakeholders to the first consultation paper and released a second consultation paper in August 2017^{footnote 4} seeking comments and recommendations from stakeholders on a number of specific potential measures. One such potential measure was a proposal to provide life and health insurance entities with additional investment powers in infrastructure.

The Department received submissions on the second consultation paper from a diverse range of stakeholders, including financial institutions, industry associations, consumer and investor organizations, and individual Canadians. The potential measure pertaining to infrastructure investments by life and health insurance entities was addressed in eight submissions, including from the CLHIA, the three largest federally regulated life insurance companies (Canada Life, Sun Life, Manulife), and Desjardins. All submissions were strongly supportive of the infrastructure proposal.

Finance Canada hosted a “Lifeco Day” in November 2017 to further discuss the potential measure and the feedback submitted by stakeholders on the second consultation paper. Participants included officials from the Department and the Office of the Superintendent of Financial Institutions (OSFI) as well as representatives from the CLHIA and member institutions. This consultation session allowed the Department and OSFI to share with the industry their policy and prudential perspectives on the scope and parameters of the potential measure and allowed the industry to provide an overview of their ALM needs. Separate bilateral sessions were held with the three largest federally regulated life insurance companies to discuss company-specific perspectives on the potential measure and to gather information on their current and planned exposure to infrastructure, as well as on their internal capacity to manage infrastructure investments.

The Department, in close consultation with OSFI, then developed a consultation document consisting of draft potential policy parameters for the regulatory framework. The intent of this round of consultation was to validate the general approach at a high level and ensure that it supported departmental policy objectives and the operational needs of life and health insurance entities. The consultation document was shared with representatives from the CLHIA and the three largest federally regulated life insurance companies in January 2019, subject to a non-disclosure agreement. Officials from the Department and OSFI then met with industry representatives to discuss their feedback on the consultation document. Participants generally expressed strong support for the draft potential policy parameters.

The same set of stakeholders was consulted again in May 2020 on a potential draft of the regulations, subject to a non-disclosure agreement. Stakeholders were encouraged to reach out to internal or external experts on infrastructure and on the Insurance Companies Act to ensure the draft regulatory parameters would be consistent with their planned investment strategies. The Department sought feedback on a number of specific matters in the draft regulations, including the list of prescribed infrastructure assets; the list of prescribed activities of a PIE; and the various conditions being proposed. The industry confirmed again that the overall approach was sound and made numerous targeted suggestions, mostly of a technical nature (e.g. adjusting the drafting language to ensure that municipal governments would be covered by the definition of a “public body”; suggesting a number of additional physical assets for inclusion in the list of permitted infrastructure assets). The most substantive comment from the industry pertained to a condition that had been included in the draft regulations that required all of the infrastructure assets that are the subject of the business activities of a PIE to have a remaining useful life of at least 20 years. This condition sought to ensure that the new investment power would support investments in long-term infrastructure assets to improve the ALM capacity of life and health insurance entities. The industry explained that, as formulated, the condition on minimum remaining useful life would prevent a PIE from having a mix of assets at different stages of their life cycle. The Department agreed and proposed instead a condition that would directly state the policy objective, namely by requiring that an investment in infrastructure has to be motivated, at least in part, by ALM considerations.

A final round of consultations was held with the industry in October and November 2021 as a final “disaster check” prior to prepublication, which resulted in a small number of technical adjustments.

Modern treaty obligations and Indigenous engagement and consultation

No impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, or its modern treaty obligations.

Instrument choice

Non-regulatory options have not been considered because the Insurance Companies Act requires the terms and conditions to be prescribed by regulations.

Regulatory analysis

Baseline and regulatory scenarios

Baseline scenario

Given the existing rules of the investment regime respecting substantial or controlling equity investments in commercial entities, the baseline scenario under which life and health insurance entities currently operate is one in which they are generally allowed to invest in a PIE, but only on a temporary basis (e.g. pursuant to the “temporary investment” or “specialized financing” exceptions). The existing rules, however, generally require that they divest from such investments at the end of the applicable temporary period (e.g. 2 or 13 years).

Under the baseline scenario, the acquisition of a substantial or controlling investment in infrastructure projects is not well adapted to the purpose of the ALM. This is because the acquisition of such an investment is generally subject to significant fixed costs (e.g. appraisal, due diligence, legal fees) and because the requirement to divest by a specific date creates important downside risks for the seller (e.g. being “forced” to sell during an unfavourable market). For these reasons, life and health insurance entities do not generally rely on the existing temporary investment vehicles for the purpose of their ALM needs.

Regulatory scenario

The proposal would maintain the existing rules of the investment regime — including the general prohibition against the acquisition of substantial or controlling investments in commercial entities and the exceptions allowing such investments but only on a temporary basis — but would create a new category of permitted entities for PIEs. As a result, the regulatory scenario is one in which life and health insurance entities are allowed to acquire substantial or controlling investments in PIEs and to hold such investments indefinitely, provided that regulatory conditions are met (see the “Description” section for a detailed description of these conditions).

Benefits

The key difference between the baseline and regulatory scenarios is that life and health insurance entities would, under the regulatory proposal, be allowed to hold their substantial or controlling investments in PIEs for an indefinite period, as opposed to only on a temporary basis. This creates a new investment vehicle that is better adapted to the purpose of ALM.

The main incremental benefit of the regulatory proposal is to improve the ALM capacity of life and health insurance entities to better manage long-term risks and make them more resilient financially by creating more investments and diversification opportunities. This benefits their shareholders and policyholders.

Another incremental benefit of the proposal is the creation of a new potential source of private capital to fund public infrastructure projects that benefit communities and contribute to tackling Canada’s infrastructure gap and support post-COVID economic growth.

Costs

The regulatory proposal would enable life and health insurance entities to undertake a narrow set of commercial activities. Given the proposed regulatory parameters, the Department has not identified any material incremental prudential or policy risks as a result of the regulatory proposal. OSFI will continue to supervise all life and health insurance entities to ensure that they are appropriately managing all of the risks that they are taking on and have adequate related capital and controls. The Department also considers that risks of market dominance over commercial segments do not apply in this case, given the scale of the investments from Canadian life and health insurance entities relative to the size of the global market for public infrastructure assets. No other prudential or policy risks have been identified.

No incremental costs to life and health insurance entities or to the Government have been identified as a result of the regulatory proposal.

Regarding incremental costs to life and health insurance entities:

• The regulatory proposal would introduce no new requirement on life and health insurance entities that would result in them no longer being able to undertake an investment that they had undertaken under the baseline scenario.
• Similarly, all of the investments that would be allowed under the regulatory scenario (i.e. pursuant to the new permission for PIEs) could also be undertaken, albeit only on a temporary basis, under the baseline scenario (e.g. pursuant to the “temporary investment” or “specialized financing” exceptions).
• The Department did not identify any incremental administrative burden on life and health insurance entities as a result of the regulatory proposal (e.g. reporting or data collection requirements). Investments being held indefinitely pursuant to the new permission and those being held on a temporary basis are subject to various (prudential and non-prudential) constraints under the investment regime. In both cases, life and health insurance entities are responsible for ensuring that those investments comply with all applicable regulatory requirements. Some of those constraints are common to both investment vehicles (e.g. ensuring that investments adhere to the policies, standards and procedures that a “reasonable and prudent person” would apply), while others are specific to the choice of investment vehicle (e.g. with or without time limits, subject or not to a cap on the value of aggregate investments). The internal activities that a life and health insurance entity would have to conduct to ensure compliance may vary qualitatively between investment vehicles, but not quantitatively.
• The proposal is expected to result in a shift in the composition of the investment portfolios of life and health insurance entities, but not in the overall volume of investments. For instance, the proposal could lead life and health insurance entities to reallocate some investments away from bonds and other debt instruments towards equity investments in public infrastructure projects. While any equity investments in public infrastructure projects undertaken pursuant to the regulatory proposal would involve some administrative costs (e.g. oversight, accounting, regulatory compliance), the Department has no reason to believe that those costs would be greater than those associated with other types of investments (e.g. debt financing).

Regarding incremental costs to Government:

• OSFI supervises and regulates all financial institutions that are subject to federal oversight, including life and health insurance entities, and ensures that they are complying with their governing legislation. OSFI’s supervision is conducted in accordance with its Supervisory Framework, which describes the underlying principles, concepts, and core processes that OSFI uses to assess the soundness of financial institutions.
• As mentioned above, all of the investments that would be allowed under the regulatory scenario could also be undertaken, albeit only on a temporary basis, under the baseline scenario.
• OSFI indicates that, since it already monitors the investments of life and health insurance entities under the baseline scenario, the Regulations will not require additional resources or create any incremental monitoring costs.

Small business lens

Analysis under the small business lens, and consultations with the industry, concluded that the proposal will not impact Canadian small businesses.

One-for-one rule

The one-for-one rule does not apply as there is no incremental change in the administrative burden on businesses.

Regulatory cooperation and alignment

The proposal would only apply to life and health insurance entities incorporated under the Act. Life and health insurance entities that are incorporated under a provincial statute are subject to province-specific regulatory regimes.

Canada’s international trade agreement obligations focus on ensuring non-discriminatory treatment between Canadian and foreign financial institutions. This policy framework applies equally to Canadian-controlled life and health insurance entities and to life and health insurance entities that are subsidiaries of foreign companies; as such, it is in accordance with Canada’s international trade agreement obligations.

Financial institutions are generally subject to the regulatory regime of the jurisdiction in which they are incorporated. Federally regulated life and health insurance entities are subject to the Act and its regulations, but their foreign subsidiaries (if any) are subject to the regulatory regimes of the foreign jurisdictions in which they operate. Similarly, foreign life and health insurance entities are regulated in their home jurisdictions, but their Canadian subsidiaries are subject to the same regulatory regime as Canadian life and health insurance entities. The regulatory proposal would therefore have no impact on the ability of a Canadian company to operate in a foreign jurisdiction or of a foreign company to operate in Canada.

The Regulations are part of the broader financial sector framework. The Department and partner agencies (OSFI, the Canada Deposit Insurance Corporation, the Financial Consumer Agency of Canada, and the Bank of Canada) continuously work to ensure this framework is aligned with the work of the international organizations, such as the International Association of Insurance Supervisors, the Financial Action Task Force, the International Monetary Fund, and the Financial Stability Board. The Department has not identified any aspects of the regulatory proposal that would impede the alignment of the federal financial framework with the work of these international organizations.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for this proposal.

Implementation, compliance and enforcement, and service standards

Implementation

A separate Order in Council will be required to bring into force the amendments to the Act that create the new investment regime, including the regulation-making authority. The Regulations would come into force on the day on which the amendments to the Act come into force, but if the Regulations are registered after that day, they come into force on the day on which they are registered. No further actions will be required to ensure effective and efficient implementation.

Compliance and enforcement

OSFI is the prudential regulator of federally regulated life and health insurance entities and administers the prudential regulatory framework that applies to them, including through the Act and the Regulations.

It is the responsibility of the life and health insurance entities to ensure that their investments comply with the various rules of the investment regime in the Act.

Contact

Manuel Dussault
Acting Director General
Financial Institutions Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑369‑3912
Email: Manuel.Dussault@fin.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, under section 2.2^{footnote a} and paragraphs 501(e)^{footnote b}, 554(9)(c)^{footnote c} and 977(e)^{footnote d} of the Insurance Companies Act ^{footnote e}, proposes to make the annexed Regulations for Permitted Infrastructure Investments.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette and the date of publication of this notice, and be sent to Manuel Dussault, Senior Director, Framework Policy, Financial Sector Policy Branch, Finance Canada, 90 Elgin Street, Ottawa, Ontario K1A 0G5 (email: manuel.dussault@fin.gc.ca).

Ottawa, xxx, 2022

Wendy Nixon
Assistant Clerk of the Privy Council

Regulations for Permitted Infrastructure Investments

Interpretation

Definitions

1 (1) The following definitions apply in these Regulations.

Act

means the Insurance Companies Act. (Loi)

insurance entity

means a life company, society or insurance holding company. (entité d’assurances)

Physical assets

(2) The physical assets set out in the schedule are prescribed for the purposes of the definition infrastructure asset in subsection 2(1) of the Act.

Prescribed activities

(3) For the purposes of the definition permitted infrastructure entity in subsection 2(1) of the Act, the following activities are prescribed as activities in which a permitted infrastructure entity is permitted to engage:

• (a) operating an infrastructure asset;
• (b) acquiring or holding shares of, or other ownership interests in, another entity;
• (c) holding, managing or otherwise dealing with real property connected to an infrastructure asset; and
• (d) designing an infrastructure asset — or acting as a general contractor for the construction or maintenance of an infrastructure asset — if that infrastructure asset is, or if a contract sets out that once its construction is complete it will be,
  • (i) operated by the permitted infrastructure entity or by another entity in which an insurance entity, or any of its subsidiaries that is a life company, holds control or has a substantial investment, in accordance with subsection 495(2.1), 554(2.1) or 971(2.1) of the Act, or
  • (ii) wholly owned, individually or jointly, by the permitted infrastructure entity or another entity in which an insurance entity, or any of its subsidiaries that is a life company, holds control or has a substantial investment, in accordance with subsection 495(2.1), 554(2.1) or 971(2.1) of the Act.

Value

(4) In these Regulations, value means

• (a) in respect of the shares or other ownership interests or loans held on a particular day by an insurance entity or any of its subsidiaries, the aggregate value that would be reported on their balance sheets on an unconsolidated basis as of that day; and
• (b) in respect of loans held on a particular day by a public body and made to a permitted infrastructure entity, the aggregate value that would be reported on the balance sheet of the permitted infrastructure entity on an unconsolidated basis as of that day;
• (c) in respect of guarantees given by an insurance entity or any of its subsidiaries, their aggregate face value.

Public body

(5) In these Regulations, public body means

• (a) the Government of Canada, the government of a province, a municipality in Canada or the government of a foreign country or any political subdivision of a foreign country;
• (b) an agency or corporation of the Government of Canada, of a province, of a municipality in Canada or of a foreign country or any political subdivision of a foreign country that does not administer or manage the funds of a public pension plan or that is not a sovereign wealth fund, except where that agency or corporation has a mandate to support, foster or attract investments in infrastructure;
• (c) a regulatory body established under federal or provincial legislation or by the government of a foreign country;
• (d) an Indigenous government, a band council, a body established under a land claim agreement or a governing body that is authorized to act on behalf of an Indigenous group, community or people located outside of Canada;
• (e) an international organization that is governed by a treaty to which Canada is a signatory; or
• (f) a not-for-profit entity or non-share capital corporation in respect of which one or more of the bodies set out in this subsection may, directly or indirectly, appoint one or more members to the board of directors or to any other group within that entity having authority for managing its business and affairs.

Terms and Conditions

Involvement of public body — acquisition

2 (1) An insurance entity must not acquire a substantial investment in a permitted infrastructure entity unless that permitted infrastructure entity, or each of the infrastructure assets that is the subject of its activities, involves a public body.

Involvement of public body — control

(2) An insurance entity that does not have a substantial investment in a permitted infrastructure entity must not acquire control of it unless that permitted infrastructure entity, or each of the infrastructure assets that is the subject of its activities, involves a public body.

Ownership of infrastructure asset

(3) An insurance entity must not acquire or hold control of, or a substantial investment in, a permitted infrastructure entity that operates an infrastructure asset unless that infrastructure asset is wholly owned, individually or jointly, by any of the following:

• (a) the permitted infrastructure entity;
• (b) an entity in which the insurance entity, or any of its subsidiaries that is a life company, has a substantial investment, or that the insurance entity, or any of its subsidiaries that is a life company, holds control of, in accordance with subsection 495(2.1), 554(2.1) or 971(2.1) of the Act; or
• (c) an entity that is not affiliated with the insurance entity, and in which the insurance entity does not have a substantial investment.

Permitted infrastructure entity undertaking new activities

(4) If a permitted infrastructure entity which an insurance entity holds control of or has a substantial investment in engages in an activity in respect of a new infrastructure asset, the insurance entity must not continue to hold such control or substantial investment unless, at the time the permitted infrastructure entity engages in that activity,

• (a) the new infrastructure asset involves a public body, as set out in subsection 4(1) or (2); or
• (b) the permitted infrastructure entity involves a public body, as set out in subsection 4(3).

Matching of assets

3 An insurance entity must not acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity unless one of the purposes of the acquisition is to match its consolidated assets with its long-term liabilities.

Conditions on involvement of public body

4 (1) For the purposes of section 2, an infrastructure asset involves a public body if

• (a) the infrastructure asset is partially or entirely located in the same country as the public body, unless the public body is a body referred to in paragraph 1(5)(e); and
• (b) the public body has at least one of the following roles in respect of the infrastructure asset:
  • (i) it owns at least ten per cent of the infrastructure asset,
  • (ii) it is the purchaser of all or substantially all of the product or service of the infrastructure asset,
  • (iii) it is the lessor of all or substantially all of the infrastructure asset,
  • (iv) it is the guarantor of all or substantially all of the revenues of the operator of the infrastructure asset,
  • (v) it approves or sets the price that users pay for the product or service of the infrastructure asset, or
  • (vi) it determines the rights regarding access to, or use of, the infrastructure asset.

Infrastructure asset under construction

(2) An infrastructure asset that is being designed or that is under construction involves a public body if a contract sets out that, once its construction is complete, the conditions referred to in subsection (1) will be satisfied.

Control, substantial investment and loans

(3) A permitted infrastructure entity involves a public body if

• (a) the public body holds control of, or has a substantial investment in, the permitted infrastructure entity; or
• (b) the aggregate value of the outstanding principal of all loans held by the public body and made to the permitted infrastructure entity is greater than 10% of the value of the total liabilities of the permitted infrastructure entity.

Life Companies

Regulatory capital of life company

5 (1) A life company must not acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity if the sum of the following values exceeds 20% of the value of the life company’s regulatory capital:

• (a) all shares and ownership interests held by the life company, or any of its subsidiaries, whether individually or jointly, in all the entities that the life company, or any of its subsidiaries that is a life company, holds control of or has a substantial investment in, in accordance with subsection 495(2.1) of the Act;
• (b) the outstanding principal of all loans held by the life company, or any of its subsidiaries, whether individually or jointly, and made to entities that the life company, or any of its subsidiaries that is a life company, holds control of or has a substantial investment in, in accordance with subsection 495(2.1) of the Act; and
• (c) the outstanding guarantees given by the life company, or any of its subsidiaries, whether individually or jointly, on behalf of all entities that the life company, or any of its subsidiaries that is a life company, holds control of or has a substantial investment in, in accordance with subsection 495(2.1) of the Act.

Regulatory capital exceeds 20 per cent

(2) If the sum of the values set out in paragraphs (1)(a) to (c) exceeds 20% of a life company’s regulatory capital, that life company must not, and must not permit its subsidiaries to,

• (a) acquire additional shares of, or other ownership interests in, or acquire loans made to, an entity that the life company, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) of the Act;
• (b) make new loans or guarantees, or increase the value of the loans or guarantees, referred to in paragraphs (1)(b) and (c); or
• (c) acquire control of, or amalgamate or merge with, an entity that holds
  • (i) shares of, or other ownership interests in, an entity that the life company, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) of the Act, or
  • (ii) loans made to, or guarantees on behalf of, an entity that the life company, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) of the Act.

Determination of regulatory capital

(3) For the purposes of this section, the regulatory capital of a life company must be determined in accordance with the Regulatory Capital (Insurance Companies) Regulations.

Societies

Regulatory capital of society

6 (1) A society must not acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity if the sum of the following values exceeds 20% of the value of the society’s regulatory capital:

• (a) all shares and ownership interests held by the society, or any of its subsidiaries, whether individually or jointly, in all the entities that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act;
• (b) the outstanding principal of all loans held by the society, or any of its subsidiaries, whether individually or jointly, and made to entities that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act; and
• (c) the outstanding guarantees given by the society, or any of its subsidiaries, whether individually or jointly, on behalf of all entities that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act.

Regulatory capital exceeds 20 per cent

(2) If the sum of the values set out in paragraphs (1)(a) to (c) exceeds 20% of a society’s regulatory capital, that society must not, and must not permit its subsidiaries to,

• (a) acquire additional shares of, or other ownership interests in, or acquire loans made to, an entity that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act;
• (b) make new loans or guarantees, or increase the value of the loans or guarantees, referred to in paragraphs (1)(b) and (c); or
• (c) acquire control of, or amalgamate or merge with, an entity that holds
  • (i) shares of, or other ownership interests in, an entity that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act, or
  • (ii) loans made to, or guarantees on behalf of, an entity that the society, or any of its subsidiaries that is a life company, holds control of, or has a substantial investment in, in accordance with subsection 495(2.1) or 554(2.1) of the Act.

Determination of regulatory capital

(3) For the purposes of this section, the regulatory capital of a society must be determined in accordance with the Regulatory Capital (Insurance Companies) Regulations. A reference in the Regulatory Capital (Insurance Companies) Regulations to a “company” or “life company” is to be read as a reference to a “society”.

Insurance Holding Companies

Regulatory capital of insurance holding company

7 (1) An insurance holding company must not acquire control of, or acquire or increase a substantial investment in, a permitted infrastructure entity if the sum of the following values exceeds 20% of the value of the insurance holding company’s regulatory capital:

• (a) all shares and ownership interests held by the insurance holding company, or any of its subsidiaries, whether individually or jointly, in all the entities that the insurance holding company or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act;
• (b) the outstanding principal of all loans held by the insurance holding company, or any of its subsidiaries, whether individually or jointly, and made to entities that the insurance holding company or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act; and
• (c) the outstanding guarantees given by the insurance holding company, or any of its subsidiaries, whether individually or jointly, on behalf of all entities that the insurance holding company or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act.

Regulatory capital exceeds 20 per cent

(2) If the sum of the values set out in paragraphs (1)(a) to (c) exceeds 20% of an insurance holding company’s regulatory capital, that insurance holding company must not, and must not permit its subsidiaries to,

• (a) acquire additional shares of, or other ownership interests in, or acquire loans made to, an entity that the insurance holding company, or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act;
• (b) make new loans or guarantees, or increase the value of the loans or guarantees referred to in paragraphs (1)(b) and (c); or
• (c) acquire control of, or amalgamate or merge with, an entity that holds
  • (i) shares of, or other ownership interests in, an entity that the insurance holding company, or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act, or
  • (ii) loans made to, or guarantees on behalf of, an entity that the insurance holding company, or its life company subsidiaries, hold control of, or have a substantial investment in, in accordance with subsection 495(2.1) or 971(2.1) of the Act.

Determination of regulatory capital

(3) For the purposes of this section, the regulatory capital of an insurance holding company must be determined in accordance with the Regulatory Capital (Insurance Holding Companies) Regulations.

Coming Into Force

S.C. 2018, c. 12

8 These Regulations come into force on the day on which section 343 of the Budget Implementation Act, 2018, No. 1 comes into force, but if they are registered after that day, they come into force on the day on which they are registered.

SCHEDULE

(Subsection 1(2))

Physical Assets

Transportation assets

• Airport
  Aéroport
• Air passenger terminal
  Aérogare de passagers
• Air traffic control facility
  Installation de contrôle de la circulation aérienne
• Bridge
  Pont
• Bus terminal
  Terminus d’autobus
• Canal
  Canal
• Container terminal
  Terminal à conteneurs
• Ferry terminal
  Gare maritime
• Freight terminal
  Terminal de fret
• Harbour
  Port
• Harbour terminal
  Terminal portuaire
• Highway, road or street
  Autoroute, route ou rue
• Light rail station
  Station de train léger
• Light rail track
  Ligne de train léger
• Railway track
  Ligne de chemin de fer
• Railway station
  Gare ferroviaire
• Railway terminal
  Terminal ferroviaire
• Runway
  Piste d’atterrissage
• Seaport
  Port de mer
• Seaport terminal
  Port maritime
• Subway station
  Station de métro
• Subway track
  Ligne de métro
• Tarmac
  Tarmac
• Tunnel
  Tunnel
• Waterway
  Voie navigable

Water supply assets

• Water collection facility
  Installation de collecte d’eau
• Water desalination plant
  Usine de dessalement de l’eau
• Water distribution system
  Installation de distribution d’eau
• Water filtration plant
  Usine de filtration d’eau
• Water pumping station
  Poste de pompage d’eau
• Water purification plant
  Station d’épuration des eaux
• Water storage facility
  Installation de stockage d’eau

Waste disposal assets

• Incinerator
  Incinérateur
• Landfill
  Site d’enfouissement
• Sewage treatment plant
  Station d’épuration des eaux usées
• Sewer
  Égout
• Waste disposal facility
  Installation de traitement des déchets
• Wastewater treatment plant
  Usine de traitement des eaux usées

Agriculture assets

• Grain elevator
  Élévateur à grains
• Grain silo
  Silo à grains
• Grain terminal
  Terminal céréalier
• Irrigation canal
  Canal d’irrigation
• Irrigation dam
  Barrage d’irrigation
• Irrigation network
  Réseau d’irrigation
• Irrigation pipeline
  Pipeline d’irrigation
• Irrigation reservoir
  Réservoir d’irrigation

Flood protection assets

• Berm for flood protection
  Berme pour la protection contre les inondations
• Dike for flood protection
  Dique pour la protection contre les inondations
• Flood gate
  Porte d’inondation
• Floodway
  Canal de crue
• Levee
  Levée
• Sluice
  Vantelle
• Sluice gate
  Vantelle d’écluse
• Water retention pond
  Bassin de rétention

Information and communication technology assets

• Broadcasting or telecommunications antenna or relay tower
  Antenne de radiodiffusion ou antenne de télécommunication ou tour de relais
• Data centre
  Centre de données
• Satellite earth station
  Station terrestre de satellite
• Telecommunications transmission cables and lines
  Câble et ligne pour la transmission des télécommunications
• Telecommunications transmission optical fibre cables
  Câble à fibres optiques pour la transmission des télécommunications
• Telecommunications transmission tower
  Tour de transmission des télécommunications
• Wireless communication network
  Réseau de communication sans fil

Energy assets

• Battery storage facility
  Installation de stockage sur batterie
• Carbon capture facility
  Installation de captage du carbone
• Carbon storage facility
  Installation de stockage de carbone
• Energy storage facility
  Installation de stockage d’énergie
• Gas pipeline
  Gazoduc
• Gas pumping station
  Station de pompage de pétrole
• Gas storage tank
  Réservoir de stockage de gaz
• Hydrogen production facility
  Installation de production d’hydrogène
• Metering facility
  Installation de comptage
• Oil pipeline
  Oléoduc
• Oil pumping station
  Station de pompage de pétrole
• Oil storage tank
  Réservoir de stockage de pétrole
• Power distribution network
  Réseau de distribution d’électricité
• Power plant
  Centrale électrique
• Power transmission network
  Réseau de transport d’électricité
• Transformer station and substation
  Station et sous-station de transformation
• Waste recovery plant
  Installation de récupération des déchets

Health care and housing assets

• Convalescent home
  Maison de convalescence
• Hospital
  Hôpital
• Long-term care facility
  Établissement à soins de longue durée
• Mental health centre
  Centre de santé mentale
• Palliative care home
  Maison de soins palliatifs
• Senior citizen home
  Résidence pour personnes âgées
• Social housing building
  Immeuble à logements sociaux

Educational, scientific, cultural and recreational assets

• College
  Collège
• Community centre
  Centre communautaire
• Day-care centre
  Garderie et centre de la petite enfance
• Exhibition hall
  Hall d’exposition
• Laboratory
  Laboratoire
• Library
  Bibliothèque
• Meteorological station
  Station météorologique
• Museum
  Musée
• Observatory
  Observatoire
• Public archives facility
  Dépôt d’archives publiques
• Research and development centre
  Centre de recherche et de développement
• School
  École
• Sport facility
  Installation sportive
• Student residence
  Résidence pour étudiants
• Theatre
  Théâtre
• University
  Université

Other assets

• Court house
  Palais de justice
• Fire station
  Caserne de pompiers
• Office building
  Immeuble de bureaux
• Police station
  Poste de police

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