On January 22, 2025, the Gazette officielle du Québec published the Regulation respecting information to be provided to the holders of individual variable insurance contracts relating to segregated funds. The Autorité des marchés financiers published it in a bulletin the following day.

The regulation will come into force on Jan. 1, 2026. It is the result of a consultation held by the Autorité on draft regulations published on Nov. 2, 2023. The consultation closed on Dec. 2, 2023. The regulation applies to life and health insurers governed by the Insurers Act.

The new regulation requires insurers to provide the contract holder (customer) with an annual statement that presents, “at a minimum, the information…in a form that is clear, readable, specific and not misleading, while highlighting it and so as not to cause confusion or misunderstanding.” 

This statement must be produced within four months of the segregated fund's fiscal year-end. The regulator may impose penalties on offenders: $250 to an individual and $1,000 to insurers.

Total cost and repercussions  

The statement must contain a wide range of information (listed in Appendix 1 of the regulations). In addition to general and personal information, the insurer must state in its annual statement that the information presented is “intended to help you track your financial goals.” 

The insurer must also indicate the amount of all expenses incurred by the client during the period covered by the statement, and present each category of expense separately. The personal rate of return must also be shown, in percentage terms.

The statement should warn the customer that “fees and charges affect your returns,” or, if applicable, that fees paid directly to an independent advisor or his firm “are not included in the aggregate amount of fees and charges appearing on your statement”.

Among other things, the statement should invite the client to contact his advisor to discuss the fees and their impact on the long-term performance of his fund.

In the case of funds with a withdrawal guarantee, the statement should indicate, among other things, the scheduled maturity date and the value of the maturity guarantee and death benefit guarantee. If the guaranteed withdrawal fund offers an automatic adjustment option, the statement must specify the date of the next adjustment. If the fund owner can make adjustments or resets at his or her discretion, the statement should remind him or her of this.

The Autorité's regulations also provide for exemptions that should be a relief to the industry, judging by the commentary published during the 2023 consultation by the Canadian Life and Health Insurance Association (CLHIA) which noted that the draft regulation did not provide a process for insurers to request waivers for old contracts. “For these older contracts, it would be appropriate to grant some type of exemption or develop a modified approach to making the necessary information available to investors,” Lyne Duhaime Senior Vice President, Market Conduct Policy and Regulation at the CLHIA stated at the time. 

In certain cases, the new regulation exempts insurers from providing the following information in their annual statements:

- the total amounts invested and withdrawn by the contract holder from the issue date of the contract until the statement date; 

- the change in value of investments from the issue date of the contract until the statement date for reasons other than investments or withdrawals by the contract holder; 

- the personal rate of return, as a percentage, calculated on the dollar-weighted method, since the issue date of the contract; 

- the personal rate of return, as a percentage, calculated on the dollar-weighted method, for the 10 years, 5 years or 3 years ending on the statement date. 

For example, an insurer that has acquired contracts from another insurer as a result of a merger or asset acquisition will be exempt from providing this information, if the data inherited from the other insurer has only been transferred in part, or is presented on a net basis.

 Harmonization 

The new regulations are a further step towards harmonizing segregated funds from the life and health insurance sector with those of mutual funds. This is an important goal for regulators in both industries.

Early in 2022, the Canadian Insurance Services Regulatory Organizations (CISRO) and the Canadian Council of Insurance Regulators (CCIR) announced their intention to require segregated funds to disclose their total costs.

The CCIR is a member of the Joint Forum of Financial Market Regulators, which also includes the Canadian Association of Pension Supervisory Authorities (CAPSA) and the Canadian Securities Administrators (CSA). 

The publication of the Regulation respecting information to be provided to the holders of individual variable insurance contracts relating to segregated funds comes shortly after a consultation launched on Jan. 8 by Canadian insurance regulators on a guideline concerning segregated fund commission chargebacks.

This long-standing practice in the insurance industry will thus be preserved. It allows an advisor to receive a commission when selling a segregated fund with a chargeback option. The insurer may, however, recall the commission, in whole or in part, if the client withdraws money prematurely from the segregated fund.

Unlike mutual funds, segregated funds were allowed to continue charging sales charges. However, regulators have prohibited them from charging deferred fees.

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