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Overview of the British Columbia Captive Legislation

In 1987, British Columbia became the first Canadian province to enact legislation for the creation of domestic captive insurance companies. The Insurance (Captive Company) Act is a relatively brief and extremely flexible statute incorporating, by reference, sections from other British Columbia statutes, including the Company Act, the lnsurance Act and the Financial Institutions Act.

Three types of captives are permitted:

The Pure Captive

The Pure Captive, or the single parent captive, may insure the risks of its parent, its parent's affiliated corporations (majority owned) and their officers, directors, employees, agents or independent contractors.

The Association Captive

The Association Captive may insure the risks of the members of an association (that has been in existence for over one year), their affiliates, and their officers, directors, members, agents or independent contractors.

The Sophisticated Insured Captive

The Sophisticated Insured Captive is intended to cover a group of insureds who may be unrelated except for their participation in the captive. Where groups of companies do not qualify for a Pure Captive, not being majority owned, the Sophisticated Insured Captive can be utilized. Each member of the group must spend a minimum of Cdn$500,000 in annual premiums and must have "expertise" in insurance matters. The Sophisticated Insured Captive may insure the risks of the group, their affiliated corporations, and their officers, directors, employees, agents or independent contractors.

B.C. captives may write any line of insurance business within the meaning of the Insurance Act except:

1. Surety insurance, other than reinsurance of surety insurance,
2. Life, sickness, disability or personal accident insurance where the beneficiary under the policy is identified by any method other than being within a group,
3. Insurance of motor vehicles, other than fleet insurance by a corporation.

The intent of the legislation is that B.C. captives only insure the risks of their owners and not the risks of the general public.

Regulatory Environment

B.C. captives enjoy an accommodating regulatory climate, with minimal government intervention. Licensing is a simple, speedy process with convenient annual renewals. The regulators review standard indicators of solvency and performance; however, there are no statutory solvency or performance measures that must be met. This approach evaluates each captive on its merits and allows maximum flexibility.

Captive insurance companies formed under the Insurance (Captive Company) Act are given considerable latitude in the scope of allowable investments. There are no set limits, and the regulators examine the portfolio of each captive for prudence in its own unique circumstances.

The minimum level of capitalization for B.C. captives is Cdn$200,000. The amount of capital required is dependent on the insurance program being written, and larger programs will require a larger amount of capital. In addition, the minimum level of reserves to be maintained after initial registration is Cdn$100,000.

The application process is straightforward. A business plan must be submitted, along with an application package which can be obtained by writing to:

Financial Institutions Commission
Suite 1900, 1050 West Pender Street
Vancouver, B.C. V6E 3S7

Attention: Robert Hobart
Superintendent of Financial Institutions