Insurance Companies Investment in Infrastructure

0 Comments

The Investments in Permitted Infrastructure Entities Regulations (SOR/2023-197), registered on September 26, 2023, under the Insurance Companies Act, establish a framework for insurance entities in Canada to invest in infrastructure-related activities while ensuring compliance with regulatory standards. Recommended by the Minister of Finance and approved by the Governor in Council, these regulations introduce definitions that clarify terms such as “insurance entity,” which refers to life companies, societies, or insurance holding companies; “public body,” which includes various levels of government, regulatory agencies, Indigenous governments, and not-for-profit entities influenced by public bodies; and “value,” which specifies the calculation of shares, loans, and guarantees held by insurance entities or public bodies in relation to permitted infrastructure entities.

The regulations stipulate that insurance entities can only acquire substantial investments in permitted infrastructure entities if they are directly connected to a public body, ensuring that such investments contribute to projects of governmental or public interest. Insurance entities are permitted to engage in specific activities related to infrastructure, including operating or managing infrastructure assets, holding shares in other entities, managing real property associated with infrastructure, and designing or contracting for the construction and maintenance of infrastructure assets. Additionally, the regulations prescribe particular physical assets that are classified as infrastructure assets.

Strict conditions govern the acquisition of control or substantial investments in permitted infrastructure entities. These conditions mandate that the permitted infrastructure entity involves a public body and that any infrastructure asset must be wholly owned by certain specified entities, thereby safeguarding public interest. Moreover, any new infrastructure activity undertaken by the permitted infrastructure entity must also involve a public body.

A notable provision of the regulations is that insurance entities may only increase their investments if such acquisitions align with the need to match their consolidated assets with long-term liabilities, promoting financial stability. For life companies and societies, there are explicit caps on investments in permitted infrastructure entities. Specifically, neither a life company nor a society can acquire control or increase investments if the total value of their investments exceeds 20% of their regulatory capital, preventing excessive risk concentration and encouraging sound financial management.

The Investments in Permitted Infrastructure Entities Regulations aim at creating a structured environment for insurance companies to invest in infrastructure while promoting stability and ensuring that these investments serve a public purpose.

Canada (SOR/2023-197) October 11, 2023