Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 44 - Evidence, February 11, 1999

OTTAWA, Thursday, February 11, 1999

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-59, to amend the Insurance Companies Act, met this day at 11:00 a.m. to give consideration to the bill.

Senator Jack Austin (Acting Chairman) in the Chair.


The Acting Chairman: Honourable senators, I have been asked to act as chairman today in the absence of our chairman and our deputy chairman. I would ask committee members if this is agreeable.

Hon. Senators: Agreed.

The Acting Chairman: It has been drawn to my attention that there is a typographical error in the bill as it is before us. The bill was introduced in the House of Commons but in clause 1 of the bill there is a reference to the addition, after subparagraph (iii) of subparagraph (iv). However, the bill that was introduced in the Senate refers to subparagraph (ii) instead of (iv).

The same error appears at the end of subclause 2(2), where there is a reference to repealing subparagraph (ii); but in the original bill this refers to subparagraph (iv).

The French version is accurate in this respect.

This typographical error being pointed out, I have asked the Law Clerk of the Senate, Mr. Mark Audcent, to explain to us the process and the precedents for correcting the typographical error. Mr. Audcent is therefore our first witness.

Please proceed.

Mr. Audcent, Law Clerk of the Senate and Parliamentary Counsel: Honourable senators, as has been pointed out to you, in the English version of the "as passed" copy by the House of Commons of Bill C-59, there is an error in line 10 and an error in line 25, and (ii) in each case should be (iv).

I have received a copy from the House of Commons of a corrected parchment that has been initialled by the officials of that House, therefore, we have the option of agreeing with that.

I have confirmed with the Department of Justice, Legislation Section, that they are in agreement with this correction. That raises the question of how honourable senators should proceed with the correction. There are two ways that these corrections can be made. They can be made by formal motion; that is always open to senators. The other way is by clerical correction, in which the change is made by the officials to the parchment and it is considered a correction of a parchment error.

My files indicate that the Senate discussed this matter on May 18 and 19, 1988, when an error came to light. The Law Clerk was asked to prepare a memorandum for honourable senators. The memorandum was read into the record on May 19, 1988.

I can read that memorandum or it can be distributed by the clerk.

The Acting Chairman: How long is it, Mr. Audcent?

Mr. Audcent: It is about one column of a page of the Debates of the Senate.

The Acting Chairman: With the committee's permission, I would ask that you read it into the record today.

Mr. Audcent: I am reading from page 3448:

I have a memorandum to the Clerk of the Senate, Mr. Lussier, from Mr. du Plessis. The subject is "Technical errors in bills." It reads as follows:

You have asked me to brief you concerning the correction of mistakes in the parchments of bills in various stages of their passage through both Houses. The following is, to the best of my knowledge, the current situation.

(1) There is no provision of law nor is there any provision in the Rules of the Senate or in the Standing Orders of the House of Commons that clearly allows for corrections of errors, no matter how small. Standing Order 126 of House of Commons gives a limited authority to the Law Clerk of that House "to revise" bills before third reading in that House. This Standing Order provides some authority to correct obvious errors but is limited in scope and there is no similar provision in the Rules of the Senate.

(2) Over the years, there has been a practice of making editorial corrections. They are never made by the Clerk of the Parliaments acting alone. They are usually made by the Law Clerks of both Houses acting together and then initialled by the Clerks of both Houses. I understand that the present Clerk of the House of Commons has delegated to the Law Clerk of that House the task of initialling such editorial changes.

(3) After Royal Assent, no mistake, no matter how minor, should be corrected by parliamentary officials without proper legislative authority.

(4) No guidelines have been established for deciding which errors are the proper subject-matter of clerical correction and which require parliamentary amendment. A good guide for clerical correction is to work by analogy to errors that the courts would feel comfortable in characterizing as "an obvious typographical error or slip of the draftsman's pen." Driedger Construction of Statutes, (2d), pages 128 to 130, deals with this topic. I attach copies.

Senator Frith then said: "I do not propose to put those copies on the record."

He continues his intervention with respect to Bill C-102.

The Acting Chairman: Could you summarize the conclusion the Senate reached on May 19? Was the error corrected as a parchment error or was another procedure required?

Mr. Audcent: I will have to look at that, senator.

Senator Lynch-Staunton: Mr. Chairman, perhaps you could explain what a parchment error is?

The Acting Chairman: I will ask the Law Clerk of the Senate to explain a parchment error. I take it that it is something from earlier times in which the inscribing clerk made an unintentional mistake.

Senator Kroft: It is probably known in some places as a spelling error.

Mr. Audcent: Honourable senators, in theory there is an official copy of a bill, the parchment copy. That copy will go into the archives of the Clerk of the Parliaments and that would, for example, be accessed by a court if they wanted to go right back to the official copy as adopted by Parliament.

Clerical errors are not common, nor are they extremely rare. On occasion they do occur. The clerical errors are then corrected.

From the time of Mr. du Plessis' opinion, things have evolved in the Senate in that the Clerk of the Senate has authorized the Law Clerk of the Senate to sign the editorial corrections, the corrections to the parchment errors that are done. As was indicated in the letter, it would only be done where it is clearly clerical, or editorial. The test would be that there is no possible change in meaning.

The Acting Chairman: This morning I quickly perused the Debates of the Senate of May 19, 1988, as I just received notice of this parchment error as I came into the committee. Senators Frith, Macquarrie, McElman, Flynn, and Arthur Tremblay accepted the request for the parchment error correction, and the bill before the Senate at that time was so corrected and adopted.

I doubt if there could be a more clear-cut case of a pure parchment error than simply the lettering error. The words are unamended. The French version has remained correct. It is clearly an unintended error that our clerk has called a parchment error.

If this committee is willing to accept the precedent of May 19, 1988, how do we go about correcting the error? Do we require a motion to correct it, Mr. Audcent?

Mr. Audcent: Honourable senators, I would correct parchment errors on my own authority. Now that the question has come before the committee, I will exercise that authority in following the committee's direction. In this particular case, I have indicated to the House of Commons and the Department of Justice that I would be prepared to say that this is a clerical error and to do the correction. However, if the senators give me any other direction, in that case obviously, I would follow the direction of this committee and of the Senate.

The Acting Chairman: Are honourable senators agreeable to consenting to the correction of the parchment error as stated?

Senator Lynch-Staunton: I am uncomfortable with it, but perhaps with some explanation I might rally. At the moment I am uncomfortable because I am not too sure how broad a definition you can give to a parchment error. Is it limited to what it appears to be in this case, not a typographical error, but a drafting error? Or can it also extend to a word, which in one version may be in the plural but was intended to be in the singular, which it is in the other version? Or can it go further than that? If it is just an unfortunate mistransposing of Roman numerals, fine. However, I sense that a parchment error can go beyond what we are looking at today.

The Acting Chairman: It is a matter of not extending the rule beyond the actual facts that are before us, Senator Lynch-Staunton. Here there is simply some form of transposition that took place from a (iv) to a (ii). That is well within the definition of parchment error. We need not try to find a broader definition for other cases at other times. This one will stand on its own and be referred to as a precedent for what we have done whenever this issue should arise again.

Senator Lynch-Staunton: I am not looking for a broader definition. I want to be reassured that there is no broader definition.

The Acting Chairman: Please proceed.

Mr. Audcent: Senator, in the absence of an express authority from the chamber, I can assure you that my concern is always that I would not do anything that in any way could affect the meaning. That is the test that I would apply. The examples that have come up in the past have been diverse.

In this particular case, there are a few reasons why it might be considered to be very narrow. The first indication is that there is a numerical sequence. As there is i, ii, iii, it is rather difficult to have the next insertion to be a ii again. It would be i, ii, iii, iv.

That in itself is supported by the fact that the French version says something different. If it went through without correction, the courts would be called upon to decide which of the two versions is correct, and the English version here would not be in numerical sequence and the French would. That is why in this particular case it seems to be a fairly small range of discretion.

Senator Frith, in speaking to the chamber on May 18, 1988, spoke about correcting wrong dates or wrong numbers. Senator Frith, again, spoke about a matter of a comma, a number or something of that kind. Those are some examples of what would be considered to be a parchment error.

My recollection is of a lawsuit in which there was an A, B, C or D which got into the statute book as an "and" in a criminal offence. That did affect the judgment of the court. That is where the line should be drawn, where it could affect meaning. If it could affect meaning, it should not be corrected. However, if it cannot affect meaning I would define it as clerical.

Senator Lynch-Staunton: This is an obvious error, not just a slip of the pen. I know people will say, "Oh, you want to delay the bill again," which we never did in the first place. I would feel much more comfortable if we sent it back to the House. In two or three days it would return, with the error corrected by Parliament.

Otherwise, it might not give encouragement but might make the draftsmen more relaxed in the knowledge that if they do make slips here or there, which appear to be minor, they can be corrected by the Law Clerks of both houses. I do not think that kind of encouragement should be given. As far as I know, there is no Royal Assent this week or at the earliest the end of next week. Two or three days would give the House the opportunity to make the corrections themselves. This would not delay passage of the bill in the last stage and would make some of us comfortable in the knowledge that Parliament saw its error and corrected it itself rather than leaving the corrections to the pens of our distinguished Law Clerks.

Senator Ghitter: Mr. Audcent, perhaps you could help me. If the Senate were a little more Machiavellian and wished to make a change, what control does Parliament have over us if we wanted to do something like that? Perhaps we would be changing meaning, although we may think that it is only a clerical error. What control does Parliament have?

Mr. Audcent: You are expressing a fear of mine, a fear that comes with one of my obligations of office. I think the question is very well put. There are three players that look at the parchment corrections we make. They are officials from the House of Commons, Justice and the Senate. All three must agree to the parchment correction.

Your first consideration should be whether the parchment correction could affect meaning.

Second, I have only practice to protect me in my decision. I do not have an express mandate.

The office has, in the past, considered suggesting to the Senate that perhaps the mandate should be spelled out. However, the problem with spelling the mandate out is that it would almost certainly enlarge it. It might not be desirable if one of your officials had too much power to make those sorts of corrections. My role in this is very small; I only make corrections that could not change meaning.

Senator Ghitter: If your successor were a little more "liberal" and did not feel the same restrictions, is this not a dangerous precedent? Should we really amend on the basis of clerical error? I worry about it like my colleague. It is a very dangerous precedent.

Mr. Audcent: I think you must balance objectives and values. There is obviously danger in the fact that officials can change the parchment.

On the other hand, if you get yourself involved in the fact that every error, no matter how small, must be sent back and forth between the houses, you would lose productive time. That is a policy decision for senators.

Senator Ghitter: Perhaps the other place might be a little more careful in what they finalize. We seem to see a considerable number of errors. Perhaps we should put the other place on notice that we are not going to make corrections for them. Is that a positive approach?

Mr. Audcent: With respect to your reference to "considerable," I do not have statistics. I would not have called the number of errors considerable. I would say that although I cannot classify them as extremely rare, they are not at all common. It is fairly unusual to have to do a parchment correction.

Senator Kenny: If I have understood the proceedings correctly, this matter would have been corrected in the normal course of events by the Law Clerk had we not been seized with it. The problem that we are facing is bringing the English numbering into line with the French numbering and putting it in the proper sequence, as in one, two, three, four.

I share the respected Leader of the Opposition's concern in a broad sense. I think it is a legitimate and a valid concern and it must be addressed.

The proper forum for that is the Rules Committee. I think Rules should be seized with the question of how much latitude should rest in the Law Clerk's hands when errors like this come to light.

If the Leader of the Opposition's concern is the broader question, as I took it to be, he did not know the definition nor how much latitude existed. I think that is a proper question for Rules. We should give them a reference and let them come up with a more precise direction and definition, if they can, for the Law Clerk in future. However, in this case, if we are simply trying to make the English numbers fall in proper sequence and match the French numbers, I think it is appropriate to move ahead and be done with this issue. We should do this now, as the error will have to be corrected in any event had we not been seized of the matter.

Senator Kroft: I, too, share a concern for ensuring that we act on the cautious side of matters to leave no doubt that we are proceeding correctly. I have heard some persuasive and some not so persuasive arguments. I am not convinced that to act in a restrictive way here would send a warning to otherwise diligent and careful officials. I think mistakes will inevitably be made -- hopefully, as few as possible.

We all wish to be as careful as possible. We do not wish to set a precedent, but there is a fairly clear precedent. Taking the most cautious point of view, I would like to suggest that we look at what would be the most severe test that we might have to go through. Perhaps a reference to the Rules Committee would be useful in looking at the question more broadly.

If anyone here were prepared to advance the view that there was any possibility of doubt as to the meaning, I think we would have to pause and listen to that. I have not heard any such viewpoint. I have heard a concern about process and it is an appropriate concern. If anyone is prepared to advance the case that there is any possible question as to what is meant, then take it to the full range of the strictest or narrowest definition. We will pause and listen to that case. However, given that it is purely a mechanical issue, and one that can be addressed prospectively if our concern is the matter of precedent and future clerks who may be less diligent or whatever, that may be dealt with in an appropriate manner in the Rules Committee.

However, on this particular question at this particular time, I hear no doubt as to the meaning. I see no reason for not proceeding with what I believe is to be the appropriate precedent and have the Clerk make the amendment.

The Acting Chairman: Considering the debates from 1988, Senator Arthur Tremblay was speaking to a bill on behalf of the then government. He said on page 3436:

... we have found that there is a technical error, a typing error, so to speak, in the bill. The wrong date is indicated in clause I(c). The date mentioned is April 11, 1987. The correct date is May 11, 1987. The report does amend the bill on that specific point. That being said, I move that the report be adopted.

After debate by the senators I have mentioned, the precedent to change the date from April 11 to May 11 was adopted in the Senate itself. The error was not pointed out in committee but in the Senate. Therefore, in my view, changing a date is certainly a larger matter than changing the numbering.

Senator Meighen: I wish to point out that we should definitely err on the side of caution and ensure that we do not, and cannot in any fashion, be held to have established a precedent that would open any doors whatsoever. I do not know whether the example you just quoted, Mr. Chairman, from Senator Tremblay dealt with both the English and French versions of the bill. However, as Senator Kenny mentioned, the fact that the error occurs in only one version and not in both gives me some comfort in terms of being able to correct it.

Both versions are, of course, equally valid and one of them is correct. It is not as if both are incorrect. That assists me in feeling that it may be advisable to consider proceeding in a way that would allow the correction to be made by the clerk.

Senator Lynch-Staunton: Picking up on what Senator Kenny has said, do I understand that what has been described as a parchment error can be corrected unilaterally by officials before being brought to the attention of legislators, that we need not have had this discussion this morning?

The Acting Chairman: The matter was brought to my attention by the Law Clerk. Perhaps Mr. Audcent could comment on the point that Senator Lynch-Staunton has raised.

Mr. Audcent: Honourable senators, both the House of Commons and the Department of Justice brought the matter to my attention. In response to Senator Lynch-Staunton's intervention, that is correct. Officials can make parchment corrections and they go on the record in that way. They would not necessarily be brought formally to the attention of a committee or of the house.

The Acting Chairman: We have at least two possible ways of proceeding. First, we could take no further note of the matter and allow the Law Clerk to proceed in accordance with his own view. Or, we can allow the Law Clerk to proceed on the guidance of this committee, which would be to correct the parchment error, or not to correct the parchment error.

I would propose that the view of this committee be that the Law Clerk should correct the parchment error. Is that agreeable to honourable senators?

Some Hon. Senators: Agreed.

Senator Meighen: May I ask a question of information? You touched on it earlier, Mr. Chairman. We hear in theory that the parchment could be corrected without notice to anyone.

The Acting Chairman: It has been the practice, in fact. However, if it comes to our notice, then I believe we must deal with it.

Senator Meighen: I wonder if we could determine a way to bring the errors to our notice.

The Acting Chairman: The clerk has done that in this case.

Senator Meighen: He has indeed and that should be encouraged and noted as a practice.

Senator Kenny: In addition to your suggestion, Mr. Chairman, if this committee so chooses, it could allow for the correction to take place but request that it be drawn to the attention of the Rules Committee, so that they can review the matter and satisfy themselves that the procedures for correcting parchment errors are appropriate. They can then report back to the chamber whether they are or are not and whether they feel that changes are necessary, so that everyone might be satisfied.

This is the Banking Committee. I really think that the Rules Committee should be concerned about parchment errors in a general sense rather than this committee. We can deal with this specific one, but in terms of how broad the latitude should be for the Law Clerk, I would suggest that that is another committee's role.

The Acting Chairman: Shall we agree that the Law Clerk be permitted to correct the parchment error and shall we make a recommendation to the Rules Committee to consider the matter both as raised in the Senate on May 18 and May 19, 1988, and in this committee?

Hon. Senators: Agreed.

Senator Lynch-Staunton: We will include that recommendation in our report. I do not want to prolong this, however, have there been any other parchment errors since this one since 1988.

Mr. Audcent: Honourable senators, I do not have a list of them. However, yes, parchment errors occur annually.

Senator Lynch-Staunton: I am not surprised. However, I do not wish to give the impression that they are common.

The Acting Chairman: Let us proceed with the first group of witnesses. They are from the Action réseau consommateurs. We have your lengthy brief before us. Perhaps you could outline your key points rather than read the brief in total.


Mr. Charles Lajoie, Analyst, Action réseau consommateurs and the Regroupement des consommateurs d'assurance: I will dispense with introducing the two groups I represent, namely Action réseau consommateurs and the Regroupement des consommateurs d'assurance.

Today, we would like to discuss the key components of a demutualization regime which is mindful of the needs of insurance policyholders.

Our position on this process flows from the consultations that we have had with our member groups as well as from the experience we have acquired as a consumer protection agency established by consumers for consumers.

On page 2 of our submission, you will find an explanation of the demutualization process that has taken place since the government first unveiled its plans to bring in legislation respecting demutualization.

Last fall, our two groups, Action réseau consommateurs and the Regroupement des consommateurs d'assurance, submitted a number of recommendations to the Department of Finance, recommendations which I will focus on again here today. These recommendations were made in conjunction with the drafting of the legislation and the regulations. You have received a copy of our submission. Unfortunately, because of time constraints, we were not able to have it translated into English.

Regarding the recommendations we initially made, on reading the draft legislation, we noted that most of them had not been retained. Therefore, we are pleased this morning to have an opportunity to put forward once again recommendations which, in our opinion, are geared to protecting the best interests of consumers, in this case policyholders.

We are confident of the legitimacy of our actions and of the credibility of our recommendations. We cannot decide for individual policyholders whether or not demutualization is in their best interest, since this is a personal matter and every individual is free to choose.

However, to ensure that consumers do in fact make the best possible choice, it is important that clear, complete and timely information that is easy to understand is provided to them .

On page 4 of our report, you will see that footnote 1 contains references to the Mackay Report on the future of Canada's financial services sector, to the paper "A Blueprint for Change," a response by the Senate Banking Committee to the task force report, and to "The Future Starts Now," a study by the House of Commons Standing Committee on Finance on the financial services sector in Canada.

These reports highlight how important it is for consumers to be able to base their choices on clear, complete information that is easy to understand and available in a timely manner. That is why am here today, along with Mr. Podmore, to comment on this process. We will be focusing on the disclosure and transparency of information, as well as on the subject of quorums and proxies. On page 5, we discuss the quality of the information provided to policyholders.

If the Act to Amend the Insurance Companies Act as well as the regulations respecting the conversion of mutual insurance companies are adopted, large mutual insurance companies have promised to send their policyholders detailed documents outlining the demutualization process under way and inviting their comments. Will the average policyholder be able to understand the information that he receives? Will that information be clear enough or accurate enough? Will it prompt policyholders to exercise their right to vote? Will the advantages and disadvantages of the various options available be clearly spelled out to them? We do not know the answer to these questions at this time, but we would like to be involved in getting this information out to policyholders so that they can make some enlightened, reasoned decisions.

Although a process will be instituted by mutual insurance companies to educate and inform policyholders, we do nevertheless harbour some reservations about the process. Mutual insurance companies should not be solely responsible for the content of the material that will appear in the newspapers, on television, on the radio or on the Internet. This would prevent any appearance of a potential conflict of interest. In our estimation, consumer groups as well as government representatives -- specifically, Industry Canada's Office of Consumer Affairs, a recognized expert on consumer issues -- should certainly be involved in deciding the kind of information that will be made available through the media. A multipartite working group should be set up to ensure that the information material available is clear and easy to understand and geared to the needs of policyholders.

I also refer in my submission to recommendation 58 in the report of the Task Force on the Future of the Financial Services Sector in Canada which concerns the best practices for improving transparency and disclosure. This recommendation is taken up in the Senate Banking Committee's report, "A Blueprint for Change," and in "The Future Starts Now," a study on the financial services sector in Canada.

Information contained in marketing documents and available on Internet sites, along with information provided by 1-800 phone services would, pursuant to this recommendation, be reviewed by representatives of mutual insurance companies, the government and consumers. Of course, the information would be tested on control groups. Members of these control groups would be asked to answer questions to determine their understanding of the process and to issue an opinion, favourable are not, on the demutualization initiative.

Furthermore, we feel that the management of 1-800 telephone services should be handed to someone other then the mutual insurance companies during the conversion process. The risk of a perceived conflict of interest justifies such a measure. The multipartite working group which we are recommending be established could decide who is responsible for administering these lines.

All interests would thus be represented and the areas of expertise of each stakeholder would prove invaluable to devising a process whereby the information communicated to policyholders is objective, clear, complete, easy to understand and timely. The public would view such a process as an effective exercise characterized by healthy cooperation among the various stakeholders.

It is critical that the information imparted to policyholders is accurate and comprehensive, since experience has taught us that the average consumer is not greatly interested in the information received from the companies with which he does business, either because he chooses not to be, or he simply does not understand the material. That is why we believe any such information must be straightforward, concise and clear. The large scale public awareness and information campaign to be launched must generate interest among policyholders and entice them to attend the meeting at which time they can express their views on the conversion of their mutual insurance company.

The agreement reached between Sun Life and it policyholders is a telling example of what can happen when information is inadequate. Fewer than 30 per cent of the company's policyholders made their choice of option clear to Sun Life. All the more reason why a major effort must be made to ensure that information is provided to policyholders.

I am not here to criticize any aspect of the agreement to which I referred, but clearly, few policyholders took up the invitation extended to them. In cases like this, a genuine effort needs to be made to ensure that people have the information they need to form an opinion and make a decision.

Furthermore, specifically on the subject of demutualization, we frequently receive calls from policyholders who simply do not understand the inns and outs of the conversion process.

While mutual insurance companies appear to be sharing only minimal information with their policyholders at this time, it seems that consumers are confused and, for the most part, are not capable at this time of comprehending this complex process. Cooperation among the various stakeholders would undoubtedly help to educate policyholders who are eligible to vote.

I would like to conclude by touching briefly on quorums and proxies, issues of utmost importance to consumers as we move toward demutualization. The conversion of a mutual insurance company into a public stock company represents a radical change in that company's corporate structure. Policyholders who in effect own the company are being asked to relinquish control of the company in exchange for stock options that give them limited power -- power that could be further diluted through a public share offering. Since all policyholders will be bound by the decision reached by those attending the special meeting, it is critical and in keeping with a democratic approach that any votes on the future of the corporation be decided by a majority of the interested parties. It must also be borne in mind that the boards of directors of mutual insurance companies, which clearly favour conversion, hold numerous proxies, not to mention the fact that they are often in a privileged position when it comes to soliciting other proxies in support of their position.

In the absence of provisions spelling out the minimum quorum required for a special meeting and of measures to help dissenting policyholders solicit proxies, any vote taken could be perceived as a sham of an exercise in democracy.

We therefore suggest that some provision be made in the regulations for requiring for special meetings a minimum quorum of 50 per cent of policyholders eligible to vote, either in person, by proxy, by mail or electronically (Internet). Furthermore, mutual insurance companies should be clearly required to help all interested policyholders in soliciting proxies, specifically by including in the notice of special meeting sent to policyholders proxy forms and by posting relevant information on their website.

In our opinion, increasing the percentage of policyholders who must be in attendance to constitute a quorum and to validate the conversion vote bodes well for a successful public awareness and information campaign. In fact, increasing the quorum would ensure that policyholders are provided with better information.

Following is a list of the recommendations that Action réseau consommateurs and the Regroupement des consommateurs would like to put forward to this committee:

That the regulations make provision for ensuring that the conversion proposal is fair and equitable and in the best interest of policyholders;

That the regulations make provision for the establishment of a multipartite working group comprised of industry and government representatives as well as representatives of consumer groups. The job of this working group would be to review the content of the information material to be distributed to policyholders eligible to vote;

That a new provision be included in the regulations whereby telephone information centres would be managed by organizations other than the converting companies and that the cost of this operation be borne by the mutual companies;

That for special meetings, the quorum be set at 50 per cent of policyholders eligible to vote, whether they vote in person, by proxy, by mail or electronically...

That converting companies be prepared to lend assistance to all policyholders interested in soliciting proxies, specifically by including the latter's circulars in the company's information mailouts to policyholders.


The Acting Chairman: Mr. Podmore, do you have any additional comments to make?

Mr. Bill Podmore, President, Regroupment des consommateurs d'assurance: No, we are open to whatever questions you may have.


Senator Hervieux-Payette: I have read your recommendations and I would simply like to say to my colleagues that in my opinion, these rules should have applied to the Quebec referendum.

Your fourth recommendation calls for a quorum of 50 per cent of policyholders for special meetings. Is there a precedent for setting the required quorum at 50 per cent, or is a simply the scope of the transaction that is prompting you to do this?

When you call for a new provision whereby telephone information centres would be managed by independent organizations, are you saying that you would like this process to come under the authority of OSFI? Who should be responsible? An independent body is a somewhat vague suggestion. It might be useful to have this tie in with the general duties and obligations of each party in terms of protecting the public interest.

I do not understand recommendation 5 which reads as follows:

That converting companies be prepared to lend assistance to all policyholders...

Converting engaged would be required to lend assistance. What exactly does that mean? I am not clear on this. Could you rephrase this for me?

Mr. Lajoie: This provision would simply mean that any person or group interested in soliciting proxies could obtain assistance from the insurance company in order to have their circulars included in the company's mailout.

Senator Hervieux-Payette: Policyholders would therefore receive information from other associations and groups, not only from the converting company.

Mr. Lajoie: As far as recommendation 4 is concerned, it is not based on a precedent, but flows from the importance of this transaction to policyholders. Since the structure of the company is being altered, as I mentioned earlier, we feel it is important that the majority of stakeholders be able to voice their opinions on the conversion process.

Senator Hervieux-Payette: The following thought occurred to me. To my knowledge, U.S. citizens receive advance notice of elections. Yet, voter turnout is not 50 per cent. If we applied your principle, we would have to concede that the United States is not a democracy because fewer than 50 per cent of eligible voters do in fact turn out to cast their vote. People are free to choose. Therefore, what reason to you have for demanding a quorum of 50 per cent of eligible policyholders for these special meetings?


Mr. Podmore: The important issue is the ownership of the company and its transfer from its current owners to shareholders. Quite traditionally, when there is a special meeting called for insurance companies, or annual meetings, it is questionable for a normal representative policyholder -- and I stress those words "representative policyholder" -- to attend those meetings. Not many representative policyholders attend them. It is my experience that at these meetings there are mostly policyholders who are also employees. Therefore, I question the fairness of the vote, let alone the percentage required. That is why we are insisting on the process where there is a maximization of opportunity for the general membership, for the owners of the insurance companies to participate.


Mr. Lajoie: Recommendation 3 calls for entrusting to an independent body responsibility for certain things. Who do you have in mind for this job? The Superintendent of Financial Institutions. Our objective was to ensure that a multipartite working group would be the one to assign to an independent body responsibility for managing telephone centres that field questions from customers.


Senator Callbeck: You said in your comments that you have been getting many phone calls from policyholders complaining that they do not understand. Last Tuesday, the minister was here and I asked whether he had received any letters of complaint from policyholders. If I recollect correctly, there were only four. They felt that the concerns expressed were covered in the regulations.

Do these complaints concern information that has already gone out? I understand that some of the companies have sent information out. Is that what they are complaining about, that it is too complicated to read?


Mr. Lajoie: Information has in fact been circulated to policyholders. As I stated in my submission, parts of which I read to you, some insurance policyholders have expressed concerns about the conversion process. Of course, the media has reported on the demutualization process. Some people have trouble understanding the ins and outs of conversion. By emphasizing the complexity of the conversion process, I wanted to make it clear how important it is for policyholders to get the best possible information.

I realize that there have not been an overwhelming number of complaints or requests for information. Our objective was to focus on the complexity of this matter and to emphasize how difficult a process it is for policyholders to comprehend.


Mr. Podmore: If I may add to that, within the scope of the SunLife settlement, I was involved with actually handling some of the calls that came through from policyholders asking questions about what they should do and trying to understand the settlement. The vanishing premium issue is complex in itself, but the demutualization process is even more so. Given that the vanishing premium issue had a response from over 400,000 policyholders, the demutualization response was less than 25 per cent, which means that about 300,000 policyholders did not reply. Within the scope of demutualization, if there is less than 25 per cent of policyholders who reply, I do not think it is a very successful attempt.

Senator Callbeck: My question relates more to the information that has already been sent to policyholders. Is that information clear? Is it readable? Can the average person out there pick up the brochure and read it and understand what they are saying?


Mr. Lajoie: In recommending the establishment of a multipartite working group, we are seeking assurances that the information that will be imparted following the passage of legislation will be clear enough and concise enough to allow the average policyholder to understand what has transpired.


Senator Callbeck: I agree with you. I think it is very important that there be clear information. My question, however, is this: Is the information that has gone out clear? Have you seen any of it?

Mr. Podmore: I have seen some things. I have been involved with it for a while. They have not really issued any specific information regarding choices and so on. The information that has gone out has been very pro-demutualization. It has not really begun to address the advantages or disadvantages to demutualization. The meetings that have been held so far have been, as far as I know, just rallies to push the process through more quickly.

What needs to be dealt with is the complexity of the issue and the apathy that most policyholders have towards the product.

Senator Stewart: I have two very different types of questions.

As I understand your presentation, you were proposing that the information to be propagated would be prepared not only by the companies in question, but by bodies, such as consumer advocates and even the government itself.

This is all-speculative, as it inevitably is, but let us assume that eventually there may be litigation by some who are dissatisfied with the outcome of the process. Presumably, one of the bases for the complaint would be that the quality of the information propagated was inadequate.

If, for example, consumer representation groups participated in the preparation of information, would they also be liable to be requested to appear as defendants?


Mr. Lajoie: The point we were trying to make this morning is that consumer associations should be involved in preparing the information material that will be sent to policyholders. They have experience dealing with the types of questions that consumers may have and their expertise could be put to use in establishing this working group. I admit that I have not given much thought to the possibility of litigation.


Senator Stewart: My next question is of great general importance and is not limited to this particular instance. It is the question of the quorum.

As has been suggested, some votes take place in which the participation is very low, and yet presidents are elected and so on. Your argument is based on the presumption that those who fail to participate in the voting are in favour of the status quo.

Let us think about the other possibility, namely, that they are prepared to accept the decision made by those who do, in fact, vote. It may be that they do not vote because, as you say, of apathy or inertia, or they are so busy that they do not have time to read all the bumph. They may have concluded, by reason of attending meetings of the shareholders, that it is pointless to attempt to participate.

Is that reverse presumption not a reasonable one, and should we not take that into account as well as the other side of the presumption coin?


Mr. Lajoie: It is critically important that the majority of policyholders be involved in the decision-making process. We are recommending that the quorum be set at 50 per cent of the policyholders, not 100 per cent. The scenario you describe is highly plausible. Nevertheless, we feel that a majority of policyholders should be involved when it comes to a decision as important as this one.


Senator Stewart: One is tempted to ask what happens if you carry that over to the changing of the laws of the country -- let us say the law on capital punishment. We have a quorum for the Senate and we have a quorum for the House of Commons; that allows definitive decisions to be made by a majority vote of a very small part of the membership. That is why I say it is a question of general importance rather than being confined to this specific case.


Senator Meighen: Page 4 of the bill contains a provision amending subsection 237 (2) of the act which spells out the authority of the Superintendent.

One of your recommendations concerns the quorum required for special meetings. The message you appear to be conveying is how important it is for policyholders to have access to clear and complete documents that are presented to them in a timely manner and that are easy to understand. Is that not correct?

Mr. Lajoie: Correct, Senator Meighen.

Senator Meighen: On looking at the proposed changes to the powers of the Superintendent, my sense is that the latter will have all the authority required to ensure that clear, complete, readable information is provided to policyholders in a timely manner.

Is my assessment of this provision correct, in your opinion? Can we look to OSFI in the future to ensure that the desired results are achieved?

Mr. Lajoie: That is probably fair to say. Clearly, we wanted the information provided to policyholders to be clear, timely and so forth. While there is no doubt that OSFI will do a good job, we also want to tap into the expertise of consumer associations.

Senator Meighen: Obviously, one alternative is to amend the bill, while another is to pass it, mindful that OSFI has or would have all the authority it needs to comply with most of your recommendations. I realize that the quorum issue is separate because another formula is set out in the draft legislation. However, it seems to me that the Superintendent has the authority to implement most of your recommendations. I do not know whether you have this list of proposed changes, but I can read it to you in English.


If I may switch to English, it would be a list of measures to ensure protection and fair treatment of policyholders by the regulatory authority. There is a page and a half of measures, but there is no heading and I do not know where it came from.

Senator Stewart: And there is the one at the bottom of page 1.

Senator Meighen: Yes, and I will read it, if I may:

The Office of the Superintendent of Financial Institutions must review the conversion plan, opinions and information to be sent to eligible policyholders and provide authorization for the release of this information.

The Acting Chairman: In order to identify the authority of the document, it is in the briefing book supplied to senators by the Department of Finance. I asked the clerk to circulate this page to senators during the course of the submissions of the witnesses because I thought this page was relevant to the points being made by the witnesses.


Mr. Lajoie: Absolutely. I would like to respond to the last thing you said. Broad powers are being given to the Superintendent, who can also retain the services of outside experts. We would have liked to see a more clearly worded provision.


The Acting Chairman: I wish to thank the witnesses for their information, which was relevant to the issues that are before us. I thank you for your well-organized presentation.

I will now call on the witnesses from the Canadian Life Insurance Policy Holders Association, Ms Anne Holmes and Mr. Joel Vale.

I have a comment to make to the witnesses. I reviewed your brief; there are several examples set forward in the brief that relate to a particular insurance company and are not, in my opinion, focused on the relevance of the legislation before us. Mr. Vale, correct me if I am wrong, but these examples, I have been advised, relate rather to litigation that you have prosecuted or are now prosecuting against a life insurance company. Is that correct?

Mr. Joel Vale, Canadian Life Insurance Policy Holders Association: With respect, Mr. Chairman, the examples have no relation whatsoever to the litigation. The examples are from media reports in the press that are related to events that have nothing whatsoever to do with my personal issues. They are meant as illustrations of the broad policy issue to be dealt with.

I am advised that the clerk has made copies of the materials so that, if the other senators are interested in seeing it, it is available.

The Acting Chairman: I have no objection to senators seeing your brief. However, I do decline to distribute it as a function of the Senate committee. If you wish to distribute it to senators yourself, I have no reason to object to that. If they wish to see your brief, that is their mandate.

However, my view -- and this is a general policy of the Senate as well as of the House of Commons -- is that this committee cannot lend itself to being used as a stalking horse against any legal person where the issues in the examples are not relevant to the material.

What we heard before us just now from Mr. Lajoie and Mr. Podmore was a very relevant presentation. However, while there are parts of your brief that are relevant, it is the examples that pose a problem, and I ask you not to make reference to any company by name. If you will stay within that brief, then I am quite happy to hear your submission.

Ms Anne Holmes, Founding Chair, Canadian Life Insurance Policy Holders Association: If I may speak, Mr. Chairman, I am the chair of the Canadian Life Insurance Policy Holders Association. Our association is not in litigation with any life insurance company, or any mutual insurance company of any nature or any form.

I represent the policyholders association, and Mr. Vale is simply making a presentation to assist me. Therefore, I do not see the relevance to the point that was just made, in that our association has no litigation.

The Acting Chairman: It is a matter of record that you are engaging to assist you a person who has litigation against an insurance company. This committee is interested in the question of demutualization, and I should like you to focus on it. I am sure that that is what you are interested in as well, Ms Holmes. If it comes to any point to which I might have an objection, I will state it.

Please proceed.

Ms Holmes: Mr. Vale will make the presentation on behalf of the Canadian Life Insurance Policy Holders Association.

Mr. Vale: The fundamental issue here is the information that is supplied to the policyholders so that they are in a position to make an informed decision. The bottom line is that most policyholders, when they are going to make this decision, simply want to know how much money they will get out of the deal, in its crassest sense. They may phrase it differently, but they want to know how much money they will get in shares, what is the value, and how will it affect their policies. It is a financial decision.

The issue with which the Canadian Life Insurance Policy Holders Association is concerned is that the flow of information to the policyholders is controlled by the management. That is not necessarily a bad thing. I raised two recent examples of public record that have absolutely no relation to my litigation, and I will avoid naming any company. However, if you feel that you need particulars, I have those.

Last year, in April, there was an annual meeting of an insurance company. It posted the largest gain in its 127-year history, showing a profit of some $511 million. The annual statement was sent out and distributed at the meeting; then speeches were made about the performance of the company and how well it had done, and there was a projection of the year ahead, meaning 1998, because it was the annual statement for 1997. The language said, "Our strengths and strategies, we believe, are positioned to deliver excellent financial results and further make progress in developing our business in the year ahead."

After that report was distributed -- and there was a bit of a road show to explain to the policyholders the past performance and future performance -- within three weeks that particular company received the largest fine in the United Kingdom's history for dishonest sales practices. However, in the report there had been no notes or mention anywhere that that pending fine was looming. As a result of that fine, the company had to take write-offs of $800 million -- almost $1 billion. Again, there was no mention of it in any of the documents, notes or auditors' notes.

In reality, had the provision been taken in accordance with accounting principles, the company, instead of showing the best gain in 127 years, would have had to report the worst performance in 127 years. Without that information, the policyholders were asked to vote on a board of directors to advance the next year's business. In addition, they were asked to vote for a substantial raise for all members of the board of directors.

The Acting Chairman: Mr. Vale, I have listened to you develop this example. However, we are not here to examine matters that were under litigation, and we are not examining any other issue but the issue of demutualization. I would like you to make whatever comments you are making relevant to that issue.

I do not want to take the evidence of this committee, unless senators wish to do so, into litigation in the U.K., or whether auditors were correctly informed, or whether there is any dereliction of duty in any corporate place. I am interested in the relevance of your presentation to demutualization. Therefore, I would ask you to move in that direction.

Mr. Vale: I will cite the relevance of the point and then tie it back to the example.

The current legislation in the proposed regulation places great dependence on information flow from the insurance company to the policyholders so they can be in a position to make an informed decision to go with the program or not. I understand from news releases that this legislation is not to encourage demutualization; it is just a format to give policyholders an opportunity, if their converting companies want it, to have rules and regulations to make the decision. If they decide they want it, they will convert. If they decide they do not want it, they will not convert. However, in order to make that decision, they must get information as set out in the regulation and the legislation.

Some of these relevant pieces of information all flow from the company. For example, there is a description of substantial variations in the operation over the previous three years. The regulations provide that that information flows from the company to the policyholders.

The second point is that there are opinions from the company's actuary. The company actuary, in its report that was discussed by our predecessors, will tell the policyholders that they think it is a good or a bad idea, as well the inherent risks, so that they can make a decision. Also, the company must provide information on estimated values or estimated range of values. This information flow then comes from the company to the policyholders.

In addition, the company, according to the regulations, must have a report setting out the value of the converting company, a description on how the value was estimated, and the method and assumptions used. The company must tell the policyholders what the deal is worth in money. The policyholders look at those numbers and determine whether it is worth it or not. That flows from the company.

The company must also have a report regarding outstanding contractual obligations. It must supply material to the superintendent, such as annual statements that were most recently completed in the financial year and the converting year. The report must be accompanied by a report from the auditor and the actuary of the converting company. All of this is within the control of the company.

I am not suggesting that is good or bad legislation. It is merely a fact at this point.

They must also provide sufficient information and adequate time beforehand so an informed decision can be made.

The proposed legislation does contemplate that there be some independent expert opinions. Those independent expert opinions are that, additionally, first, there must be an independent actuary who gives an opinion on valuations, and second, there must be an independent actuary to confirm the security to the policyholders and assess the financial strength of the company. The third point is that the independent experts will be required to provide an opinion with respect to the aspects of the conversion proposal, including whether the method of allocation of value is fair or adequate. That is from an independent source.

I wish to explain, for a moment, the current issue with respect to auditing, and then we will see where my recommendation fits in with respect to the problem that exists.

In the current regime of an auditor, auditing any financial statements, which would even include a non-insurance company or a stock-listed company, an auditing company looks at three criteria. The first is good faith in management; the second is legal representation letters; and the third is management representation letters.

The auditing practices in the industry permit the auditor to go under the assumption that the integrity of the data it receives is honest and forthright. It is not required to investigate or be suspicious that the information coming to it is tainted or incorrect. Therefore, when the company's actuary or any employee in the company hands over the baskets of documents to the auditor, the auditor does not look at them to see what type of skulduggery has taken place. He assumes that it is correct, does his normal audit testing, and then crunches the numbers and signs off.

However, if he is put on notice that there is a technical problem -- for example, if the integrity of the person who signed the document is impugned or is in question -- the audit requirements ratchet up his due diligence. He cannot have wilful blindness and say, "I will accept, prima facie, that these figures are correct," because he is put on notice. He cannot sign that audited statement with knowledge that there could be a problem, without taking another step.

Mr. Chairman, you have made reference to my litigation, and my litigation and the issues there have nothing whatsoever to do with this issue. If the information flow from the company, innocently or otherwise, has a flaw in it, then the decision-makers, the policyholders, will make a decision based on the flaw.

I raised the example of a respected auditing firm signing statements that a particular company had the best year in 127 years when, in fact, it had the worst year in 127 years. The reason I brought that forward is that the policyholders receiving that information -- in this case over 1 million people -- would have had confidence in the recommendations of management, based on the strength of the numbers and the fairness of the numbers. When they made their decision, however, it would have been based on feet of clay. Therefore, I recommend a solution to the problem.

I raised the example of the British scandal and the fact that Scotland Yard and its fraud squad is investigating the matter independently. In the boom days, when Prime Minister Thatcher treated deregulation as almost a god, all the government pensions had an opportunity to opt into private pensions. There was not much regulation, which led to, as the press reports, as high as $20 billion in compensation problems.

The Acting Chairman: The committee is familiar with those issues. Having given you a considerable amount of time to make your points, I would like you to come to the nub of your submission. Thus far, you have described what is common corporate experience and practice. We are quite familiar with the role of auditors and actuaries.

I would like you to focus on how the points you are making impact on the legislation in front of us in terms of the demutualization of those insurance companies -- and there are a number of them -- who might ask their policyholders to take advantage of this legislation. What I am hearing is still a complaint against an insurer and not something that any reasonable person could suggest applies to the insurance industry, the corporate industry or anyone else. Please come to your point.

Mr. Vale: My point is that if this legislation had been passed 12 months ago on the feet of a statement that was wrong by $1 billion, 1 million policyholders would have been asked to decide their whole financial future. The majority of Ma and Pa Kettle policyholders are unsophisticated people looking to the government for parental protection.

My recommendation is that the control of the information in the process of decision-making be set up with an independent audit team, a due-diligence team that has no allegiance or loyalty to the converting mutual company. That auditing company would have town hall meetings and consultations with policyholders. It would make newspaper announcements for invitations for comment, as well as telephone solicitations and random sampling. It would do this not on the standard basis of corporate auditing, but on an adversarial basis, similar to our justice system, in an effort to see if there are problems, and not on the assumption that there is integrity.

The reason for this is contained in the example of the John Hancock Insurance Company. They had a $350 million U.S. liability for dishonest sales practices. In the same year, the chairman was given an $800,000 U.S. bonus when the company had its worst performance.

When you have a controlled board, the implication is that there is a temptation, that the performance of the company may go down, but yet compensation may go up. Logic would tell you that, if the company does well, then the stock options are exercised and everyone does well, which is the way it should work. However, experience says that it does not always work that way.

If this legislation is passed without a due diligence team, the current experience is that 1 million policyholders would have made a decision on the basis that their management had the best year, when it had the worst year. That was not disclosed. My recommendation has a higher probability that that disclosure would have come out.

In addition, in 1995 the same company reported a record profit, and the United Kingdom Department of Trade and Industry reported that they had not taken into account $300 million in losses. Had that been reported, the company would have had one of its worst years again.

The legislation contemplates a floating three-year annual report. I am taking the most current three years. I am not going into ancient history -- 1995, 1996 and 1997. In two of the three years, the largest insurer reported the best year in history. In fact, it was the worst year in history in two of the three. Had policyholders voted on that in that time gap, they would have made a decision not knowing the true value of what they were asking to give up and the value of what they were asking to get.

Senator Ghitter: I believe you make a very important point. Your examples are important. I feel that it is instructive for us, as senators, to understand the type of examples you have given us. Are you suggesting that the legislation be amended to bring in your due diligence, or are you suggesting that within regulations this due diligence committee be imposed upon the superintendent? After all, the superintendent has very broad powers.

Some of the things you have disclosed are almost in the area of fraud, which is a different issue in my mind. The policyholders can always sue the directors of the company. I am not clear where you suggest the remedy should lie. Does it lie with instructions to the superintendent, amendments to the legislation, or changes to the regulations? Where do you want this put?

Mr. Vale: Ideally it should be in the body of the legislation as a protective measure so that the stakeholders have an independent analysis to review. As well, the independent analysis would challenge the assumptions in the audits.

This legislation, in the news releases that I have read from the government, talks about a $10-billion distribution of wealth among 2 million people. Since that announcement, $1 billion of that wealth has disappeared. One billion dollars is wrong. That is one point.

Two million people is a significant number. They are vulnerable and they need the protection of the legislature, as opposed to the discretion of the Superintendent of Insurance. The superintendent and OSFI were responsible for making sure that audited statements that did go out were correct. However, something went wrong. The system has a problem. Somehow, even with the Superintendent of Insurance and OSFI, those faulty financial statements were distributed, and they were out by $1 billion.

If a $1 billion mistake has occurred in the system as it exists now, this legislation is perpetuating that mistake and moving it into this new piece of legislation. They are saying that whatever checks and balances we have made in the past over here, we will move into this new legislation and let the people make a decision on those figures in the new proposal.

Given that this affects 2 million people, there should be a special safeguard. Whether that safeguard should exist in all corporate auditing, however, is not what is before us. We are dealing with these 2 million people and four companies and an imposition of some control.

But one point needs to be made. These people bought their policies on the basis of these companies being of a mutual type. When the people made their decision, there were stock insurance companies out there, but they clearly elected to go with a mutual company instead of a stock company.

The example I cited proves that the management members were voted in on the basis of incorrect statements, and now they are recommending that policyholders agree to change the rules. The policyholders must have facts to know what the values are. The way the system is working now, those facts would be out by $1 billion on just the one example I have investigated.

There must be legislated protection or safeguard for policyholders. Some companies will do well with demutualization; however, there is no guarantee. It may be good, it may be bad. However, policyholders must be allowed to make an informed decision.

Senator Ghitter: Mr. Chairman, by way of an inquiry, and for my information, could you advise whether or not the superintendent has been here and has addressed these issues that have been raised by the witness?

The Acting Chairman: The superintendent has been here and has addressed the issue of policyholder protection. He has not addressed the special issues that are referred to by the witness.

However, we do have officials from the department here and perhaps from the superintendent's office. They will be appearing right after these witnesses with a wrap-up. You will have the opportunity to question them.

Senator Lynch-Staunton: Ms Holmes, could you tell us about your organization, when was it founded, how it was founded and how many members you have so we can get a better idea of where this interesting brief has come from?

Ms Holmes: I formed the Canadian Life Insurance Policy Holders Association in the fall of 1997. The original association, the London Life Policy Holders Association, was formed because I personally had a problem with my own insurer, London Life. However, I received so many phone calls from across the country and the northern U.S. states from people who were in the same position as I found myself in, who felt they had no representation from a policyholder's perspective, that I therefore made the decision to form the umbrella group, Canadian Life Insurance Policy Holders Association. Since then subgroups have been formed, such as ALPHA, Atlantic Life Policy Holders Association, in Halifax, and in Calgary, Winnipeg and Montreal, additional policyholder associations are forming.

We have thousands of members who belong to the association. At this point I know of policyholder members from 37 companies.

Senator Lynch-Staunton: What is the purpose of this association? Is it to fight for the rights of disgruntled policyholders? Did you have a problem and you found that others had problems so you tried to act jointly to address these problems?

Ms Holmes: Yes. It is to address our common concerns and to act as an advocacy organization for the average policyholder who is not able to take on an insurance giant in court. We felt that, collectively, we could manage those concerns.

Senator Lynch-Staunton: Have you any idea how old the average policyholder in Canada is? My sense is that people do not buy life insurance any more, and that most of the policies were bought some years ago and, therefore, the average age of the policyholders may be a little higher rather than lower.

Ms Holmes: Since the 1980s we have had a shift in thought; you are correct. With the rise in mutual funds, it was, "Buy term and invest the difference." That was a promotional slogan.

There were new products brought on to the market. Mr. Podmore indicated that the vanishing premium issue actually came forward at that time in answer to the investments into mutual funds. This was the insurance industry's answer to that. We know how that has ended up -- not in a pleasant situation.

On average, you are looking at people in an age group anywhere from their 50s to 70s who had to deal with a vanishing premium issue. In large measure, I have found that one out of every three policies sold in Canada since 1980 has been affected. That is a large number of people.

Senator Lynch-Staunton: You are confirming my thought that the average age is slightly higher. Most people have put these funds aside for their estates. It may be that they are on limited income or are not high-income earners, and what has been bothering many of us here are the tax consequences of this so-called windfall. Have you looked into that? I am thinking particularly of those whose income is tested through various means.

Ms Holmes: If I may, I will defer that to Mr. Vale, who has looked after our tax aspect more than I have. I deal more with the individual calls, and I have many of them.

Senator Lynch-Staunton: The government will consider the cash payment of a dividend and treat it as a dividend and treat the sale of shares as they are sold under the capital gains provisions. I am terribly afraid, as are others, that many Canadians, not being properly informed of the consequences of the so-called windfall, will find themselves in an income tax bracket that may affect their benefits. Can you reassure me on that? Perhaps I am overly pessimistic.

Mr. Vale: There are two aspects to your question. Although I do not have the statistics, my inclination is that it is older people and more conservative people who have bought insurance. In many cases they are more vulnerable in society and of a lower income. Many are receiving certain types of provincial or federal assistance.

This windfall that they receive, if they decide to cash it in or have some benefit, could take them out of the supplements that they are getting from the government and they will lose those. They will not even be aware of it and it will be too late once it happens. It will also affect child tax credit benefits. For instance, a lower-income family may have some life insurance and, although they normally would not cash it in, now, because they have some credit-card debt and they now have shares, they sell the shares to pay their debt; then, when they file their tax return, they find that the $2,000 or $3,000 or $4,000 of child tax benefits that they used to get have been cut off. They would not have had a clue that that was coming.

There is no way an insurance company is going to analyze this for each person. Therefore, when people check that box two years later and find that they do not get child welfare benefits, or their old age supplement has been cut off, because they were at the threshold and they were just pushed over the cusp, that is a serious problem. There should be an independent group that could analyze these scenarios.

Interestingly, when you take out life insurance, you must give your stated income. The insurance companies do have a database of what the people are earning and the consequences to them.

I am loath to think that it was the intention of the plan to have a grid saying to people making the decision, for example: "If you are earning between $8,000 and $10,000 and you get your lump sum, you will lose these following benefits. That should be part of your consideration." That is part of the informed decision.

What a terrible disaster it would be for some family out in an area without much representation to check the box, expecting their $5,000 of paid-up benefits after 20 years, and then finding out that they lose $8,000 in the next year in social benefits.

The second part of your question had to do with taxes. Well, what are the tax consequences if the insurance goes bad? Every five years there is a new guru. It used to be that gold was the god. Then, a few years ago, real estate could not go down. It is now mutual funds. That is the new god. Mutual funds will never go down; the future is rosy. These four companies are posting profits of two to four times the gross national product.

If an insurance company that is traditionally conservative is making 200 to 400 per cent more than the gross national product of the company, they are saying, "We are still not doing well enough; we want to go into the capital markets to expand." Maybe they will do well; maybe they will not. We do not know.

However, if these companies fail and there are solvency problems, the tax consequences are that the government will be required to pay the bill for people who do not have any insurance. That is something that no one is really looking at.

We are so mesmerized by these rising stock markets and the quest for capital that we think that demutualization is going to be a panacea. It may be great. It may not.

I do not know if the ordinary policyholder knows that the risk he is taking is that a company that is conservative, that has the opportunity to go into a capital market, might make bad decisions that could cause it to fail, while, if it was restrained from that and had to suffer with a conservative 8 or 10 per cent growth, there would not be that risk.

There are two aspects to that. One is that people could lose their welfare supplement or social assistance without having been aware of that possibility when they made their decision. What a disaster it would be, if you thought you were going to get money and then, in the end, found that your family was worse off.

Senator Lynch-Staunton: Another preoccupation is that all policyholders, no matter where they reside, get the same terms and benefits. When the insurance companies were here on Tuesday, that question was asked. The only assurance we could get was that that is the intent.

Is it possible that one jurisdiction would accept this conversion plan, but only if you gave a little more generous treatment to the policyholders in their area, despite the fact that you are not offering it elsewhere? How can we control that to ensure that all policyholders, who bought policies on the same terms, I assume, get the same benefits, and that some are not prejudiced at the expense of others?

Mr. Vale: Senator, your question is excellent. That is the American experience. Depending on the various states and jurisdictions, some distribution on demutualization has given no money to the policyholders whatsoever; they have only given them an opportunity to buy stock. They shifted into holding companies and then the only beneficiaries were the management.

Senator Lynch-Staunton: I do not believe that that is allowed in this legislation.

Mr. Vale: No, but you are talking about foreign jurisdiction.

Senator Lynch-Staunton: Yes.

Mr. Vale: It is difficult to legislate what a foreign subsidiary of a Canadian life insurance company will do when it distributes.

Everything you are saying comes back to one point: the decision must be based on reliable information, and that "reliable" information under the current regime is controlled by a group of managers who will become multi-millionaires, if this matter proceeds and there is a breach of the fiduciary relationship. That is where the government must say that it will proceed on good faith, on the assumption that they are honest, but in the event that there is a bad apple in there the government will step in. One rogue trader in Singapore was able to take a 300-year-old bank, in which the Queen had invested, and put it into bankruptcy in one afternoon.

We are all in approximately the same age group. It is a different world than we used to know. A 100-year-old company can be finished in an afternoon on a few bad derivative trades. Jumping into capital markets is not the reason most people bought insurance. Most people chose not to go to a stockbroker and put away $20 a month or a week. They wanted slow growth; in many cases less than a bank account paid, because they had blind, unflinching confidence that our insurance companies would never fail. In fact, they never did fail until Confederation Life went down.

Senator Hervieux-Payette: I would like you to direct your attention to the bill for a moment. Clause 5(2) of the bill gives the superintendent the authority:

... to require additional information in order to make a recommendation;

(a.1) respecting the conversion proposal, including the information to be contained in the conversion proposal, and authorizing the Superintendent to approve the measures to be taken by the converting company in respect of any proposed amendment to the conversion proposal;

Clause 3 also talks about the power of the superintendent to use every means possible to check the information. I believe that the crux of your presentation is the quality of the information that will be submitted and the impact on the people who buy policies.

Even though we do not have your document, I think you made your point very strongly as to the importance of the quality of the information. It is the government, and the superintendent in this case, that will ensure that the information provided is accurate. I believe that we have the enabling clauses and that what you are asking for could be done through the regulations.

Why would you not go along with the actual wording of the law and ask us to go further? I believe that the auditing process to which you are referring could be part of the regulations we adopt.

Since I am co-chair of the Joint Committee for the Scrutiny of Regulations, I will review the regulations in another capacity. Perhaps I should consult my expert on regulations, but I have the impression that this wording allows the superintendent to qualify the information that he wants.

Mr. Vale: Senator, it is the same type of wording that is in the Insurance Act for the audited statements that exist, and those audited statements produced a $1-billion error in the last three years. Therefore, this legislation is not working.

However, if it is a requirement, because the superintendent has discretion, that there must be a separate team of due diligence auditors feeding the superintendent with information after surveying it, not from the perspective of the management of the company wanting to convert, but from the perspective of the owners, thus giving them the opportunity to direct the superintendent to review the due diligence from a different footing.

Your point is theoretically correct, but that has failed. As one congressman said, "A billion dollars here, a billion dollars there, and soon we are talking about a lot of money." If a $1-billion error does not get your attention, there is a problem. If a company can say it had its best year, when it had its worst year, and if you are not putting the brakes on, then something is wrong with the entire system, and I do not know what more I can say.

Senator Hervieux-Payette: You may be right with regard to the Insurance Act. Regulations under the current legislation dealing with the insurance report may not be as specific as they could be. If I understand correctly, you do not recommend that the regulations be more specific in this case, because we are dealing with a very big change in the status of the companies, and we could have different sets of regulations that could comply with your suggestion.

However, you would like to see it in the law and I can understand that.

Senator Stewart: I have one rather pedestrian question. You are proposing, as I understand it, and please correct me if I am wrong, that one way or another there be an independent audit to assure that as accurate as possible an evaluation of the worth of each company be available. That sounds like a highly attractive proposal.

My pedestrian question: Who appoints and who pays?

Mr. Vale: As part of the underwriting cost, it would be a cost borne by the company, of course, just like the brokerage fees. However, the audit would not just be an audit of the statements, because that is done by the auditors already. It would be an audit of viewpoints of the policyholders then to direct the concerns, but it would be part of the underwriting process.

The Acting Chairman: I wish to thank the witnesses for their presentation, and particularly Mr. Vale. Thank you for a vigorous presentation of your views. I appreciate your staying within the rules of the committee for evidence.

Ms Holmes, thank you for coming here also to present your views.

Mr. Vale: I do have something for distribution. I have given a copy to Senator Meighen.

The Acting Chairman: You can distribute them to whoever wants them.

Mr. Vale: I am just saying that they are available. If any senators want them, I will be happy to distribute them.

The Acting Chairman: It will not be a brief presented to this committee; however, you can certainly provide it to anyone you wish.

Senator Meighen: For the record, may I say that I did, as I indicated to you, pass on the material you gave to me to Senator Kirby's assistant.

Mr. Vale: I appreciate that.

The Acting Chairman: Thank you for your presentation.

I would now like to ask members of the committee whether we have permission to hear the wrap-up statements of the Department of Finance and the Office of the Superintendent of Financial Institutions.

Senator Lynch-Staunton: Will that be the end of the session, then?

The Acting Chairman: That will probably take us to about 1:30, and then I am in the hands of senators if they wish to proceed.

We must adjourn, of course, at two o'clock.

Senator Lynch-Staunton: Can we agree to adjourn at 1:30? Some of us must go back to our offices and prepare for two o'clock.

The Acting Chairman: Yes, if that is what you wish.

Senator Stewart: Let us not get ourselves in a box. We have heard important testimony. We do not wish to get in a position of abbreviating this meeting simply because we have other commitments at 1:30. It might be better to come back later when we are not under that time pressure.

Senator Lynch-Staunton: I would prefer that.

The Acting Chairman: Senator Stewart, would you like to hear the witnesses from the Department of Finance now?

Senator Stewart: If it can be done conveniently before 1:30, yes.

The Acting Chairman: I believe it can be.

Let us proceed, then, with the witnesses from the Department of Finance.

We are interested in your wrap-up and any comments that you may have on this morning's evidence.

Mr. Charles Seeto, Director, Financial Sector Division, Department of Finance: Thank you for inviting us to appear here today, honourable senators.

I should like to take this opportunity to say a few words about the consultations that led to the development of the proposed demutualization regime. As the Secretary of State indicated on Tuesday, the government takes the consultation process very seriously. We have conducted extensive consultations with all stakeholders in the development of the proposed regime, including the regulations.

On the consultations, the government announced its intention to extend the demutualization regime to large mutual life companies in a June 19, 1996 consultation paper. In September 1997, we consulted all parties who had indicated an interest in demutualization on the key principles to be followed in the development of a new demutualization regime.

From that point, we began developing the details of the proposed regime. That involved a thorough study of demutualization statutes in other countries, which enabled us to identify the strong points of other regimes, especially in terms of policyholder protection, and to adapt them to our framework.

During development of the proposed regime, we held pre-consultations with a number of stakeholders, including the mutual companies and the two policyholder groups here today.

After a final proposal, we released a paper on June 27, 1998, which outlined the proposed regime and included the proposed legislative amendments and the draft amendments.

We received 20 submissions in response to the consultation paper. The comments were generally positive and most recommendations were of a technical nature. We analyzed each submission carefully and replied to the key stakeholders that made recommendations. As a result of these consultations, modifications were made to the draft regulations.

Revised draft regulations were publicly released upon introduction of Bill C-59 in the House of Commons on November 30, 1998. Copies of the draft regulations were included in the briefing book prepared for both the House Finance Committee and this committee.

Since November 30, we have not received any further submissions proposing changes to the regime, with the exception of recommendations from the companies and our lawyers for four clarifications to the regulations. The regulations have been available for public comment since August 27, 1998.

In addition, I should like to highlight the contributions of policyholder groups to the proposed regime. As a result of the consultations that we have held with them, these are some of the things that we have modified in our regime. First, there is the notice of meeting periods. We extended the minimum notice of meeting period from 21 days to 45 days in order to allow policyholders time to review or give them more time to review the information package.

Second, there is the review by OSFI. OSFI will be required to review and release policyholder information packages.

The superintendent will have the power to order companies to include any additional information that he deems appropriate in the policyholder information packages. As well, the superintendent will have the power to order companies to take additional measures, such as holding information sessions, if he is of the view that policyholders require additional information prior to the vote on demutualization.

We have also added measures to encourage voting. Companies will be required to describe to their policyholders, in their policyholder information package, the measures they have taken or will take to encourage policyholders to vote on the conversion proposals, and the measures they have taken or will take to provide policyholders with information on the proposal, and they will be required to provide policyholders with an opportunity to raise questions or concerns in relation to the proposal.

In terms of the proxy form, we have asked that the proxy forms be required to provide a means by which policyholders may indicate how they would like their vote recorded.

In terms of management benefiting indirectly from demutualization, we made a clarification in the draft regulations to specify that any payment made by a converting company to entities associated with directors, officers or employees of the company for services rendered in respect of conversion must reflect the market value of the services provided.

I also heard questions being raised as to whether OSFI is the appropriate institution to play the primary role in the protection of policyholders in respect of demutualization.

Given that a fundamental element of OSFI's mandate is to protect the interests of policyholders, we think it is the best place for a federal institution to oversee this process. OSFI's roll in a demutualization will be to ensure that companies meet all the requirements in the demutualization framework which contains provisions for fair and equitable treatment of policyholders. OSFI will have to bear policyholders' interests in mind throughout the demutualization process.

In reviewing the information it receives on company conversion plans, OSFI has authority to engage outside experts -- it has already done so -- and to require additional information from the companies if it deems it necessary in order to evaluate the demutualization plan.

I should like to conclude by saying that, through consultations with both policyholder groups in the industry, we were able to develop what we believe to be a balanced regime that provides flexibility to the companies while ensuring full protection of policyholder interest.

I am also pleased to inform you that, as a result of suggestions made at this committee on Tuesday, the Superintendent of Financial Institutions has agreed to include an account of actions taken in respect of demutualization as part of its annual report that is tabled in Parliament each year.

I will now welcome any questions you may have.

The Acting Chairman: Are there other witnesses who have statements to make?

Mr. Seeto: No.

The Acting Chairman: This presentation is on behalf of all witnesses, then.

Senator Stewart: In your preparation of the bill and the regulations, did you give any consideration to a matter raised earlier today about the impact of the payout, whether it takes the form of shares or cash to persons of relatively low income who might be affected by it? I refer to the tax impact or the social assistance impact.

Mr. Gilbert Ménard, Senior Chief, Financial Institutions Section, Business Income Tax Division, Department of Finance: As you know, the tax considerations are not dealt with in this bill but in a separate draft bill, which was mentioned in a press release December 15. As the Secretary of State mentioned on Tuesday, all these issues have been looked at very carefully.

Senator Stewart: How do you deal with it? That is the question I am asking.

Mr. Ménard: In terms of the transfer programs that are administered by provinces, we communicate with officials to inform them of the process of the demutualization bill that is coming through. In this case, we presented them with all the information and facts. Ultimately, the decision is up to them to determine if there are cases in some of those programs that will need to be addressed.

Ultimately, it is their decision to decide whether benefits received under demutualization should be treated in any other way as compared with other income, which could be earned income or the case of someone on welfare deciding to go back to work. These implications exist. In terms of provincial programs, we are trying to provide all the information so that they can make these decisions.

Senator Stewart: You seem to be saying that if indeed there is a problem here, as there appears to be, you will rely on provincial governments to solve it insofar as provincial programs and taxation are concerned.

Mr. Ménard: If it is a provincial program, we are ensuring that they are aware of the process, that they verify the programs and that they take action, if necessary.

Senator Stewart: You are confirming my statement in your own words.

Mr. Ménard: If they are provincial programs, yes, we inform them; but the provinces must ultimately make the decisions.

Senator Stewart: What about the implications for federal taxation and other federal programs?

Mr. Ménard: Those implications have been reviewed. In the context of this review, particular circumstances were identified as being unduly harsh and in need of correction. The demutualization process highlighted the issue of a Guaranteed Income Supplement recipient receiving dividend income. I want to stress that this issue was there before. Demutualization highlighted this process because GIS is only for low income, elderly people. Ordinarily, these people would receive few dividends. There could be more now. An amendment has been introduced to deal with that. I do not know if you wish me to go into the details.

Senator Stewart: Is it in this bill?

Mr. Ménard: No. It was introduced separately because it addresses this issue more generally.

Basically, the corporate tax and personal tax are integrated in the system. If, in recognition of the fact that taxes have been paid at the corporate level, someone receiving dividends grosses out these dividends, and thus has more income, then they pay tax on all of that. However, they then receive a dividend tax credit, which reduces tax but is not refundable.

Someone in a low-income position receiving a dividend causes the system to come into operation. Therefore, there is a gross-up to an amount of $125. However, because these people?s incomes are not taxable and the dividend tax rate is not refundable, they never receive the other end of the integration. This gross-up would have been counted as income, thus reducing the program.

For example, someone in that situation who received, for example, $100 as a demutualization benefit, would have that amount grossed up to $125. It may reduce the benefit by that much but they would never get the benefit of the dividend tax credit.

I am repeating myself again. This is an issue that existed in the system before. It was highlighted by this particular enabling legislation, and fixed.

To return to the first part of your question, senator, that is precisely what the federal government and officials are trying to do now. We are giving all the information to the provinces so that they can examine their own programs to see if situations such as those exist which they, in their best judgment, may find would produce unwarranted results. If they so decide, they can address them.

Senator Stewart: I will go to my second question.

Senator Hervieux-Payette: I do not understand the first answer.

Senator Stewart: Nor do I, senator.

I look at the clock and I think it may be useful to have questions out on the table, even though they are not asked adequately now, so that in our next session we can return to them.

The second question is a simple one. The witnesses were in the room when we heard testimony that the statements produced by the auditors in the case of insurance companies and perhaps other companies may not be reliable. The witness made intimations as to one specific instance.

Given the fact that there seems to have been at least one major instance of concern, my question is whether you dealt with the problem of the accuracy of the information given to the Superintendent of Financial Institutions as to the evaluation of the assets of the present mutual companies. Or will he just go ahead on the basis of what is provided by the company auditors?

Mr. Michael Hale, Director, Actuarial, Office of the Superintendent of Financial Institutions: I should like to return to the original suggestion about there being some misstatement at the end of some previous year. I cannot talk about a specific company. However, I would like to go through some of the events that occurred in England in the past 12 months and try to position that at least as a timing issue.

In April of last year, the personal investment authority and the financial services authority issued a report, which was the culmination of the first phase of an investigation around the pension mis-selling issue. As a result of all that activity, a couple of Canadian companies were affected fairly severely in terms of either fines or restitution that they expect to have to make in respect of pension mis-selling.

There is actually a second phase to that, which has continued to evolve over the course of the last year. There may still be more to come on that.

At the same time, some of the companies noticed that they were also going to start generating reserve requirements because of the declining interest rate environment around some guarantees that they had in their contracts to pay certain minimum interest.

As well, some of them reviewed the goodwill inherent in some of the businesses they purchased that were subject to these two risks.

The result was that during the course of the last year, some Canadian companies took charges totalling possibly three-quarters of a billion dollars in one case in respect of these issues. Without getting into all the timing issues of the limitations of auditors and those kinds of things, there is a legitimate question as to when those financial results should have been reflected in the statements. We generally believe that the companies have been identifying these and making the proper adjustments in their accounts on a timely basis.

How would that have been reflected had demutualization occurred under these regulations a year ago, for example? Everyone knew that these investigations were ongoing with respect to pension mis-selling. Whether or not everything was reflected in the books at that day in the valuation of the company looking forward, the potential loss under pension mis-selling would have to be reflected in the value and then be reflected in the share values going to policyholders.

In the course of getting ready for this, we have engaged our own investment banking and actuarial advisors, and we have available to us, if we want, accounting or auditing advisors. We have not felt a strong necessity to move in the direction of getting additional audit help, but it may be something we will need to think about further.

Senator Hervieux-Payette: To pursue the previous witness's statement, we asked a consumer association representative whether they would incur some liability if they participated in validating the information because they would confirm it. I am asking you now if you think the federal government would be liable if the superintendent validates the information that is being sent to the policyholder. What if it is validated by your team of experts and is sent out and people take a decision to go one way and then discover that things are not going in the right direction?

Mr. Claude Gingras, Special Advisor, Financial Sector Division, Department of Finance: Perhaps I will start by explaining the information that will be provided and the mechanism to provide it. The regulations include a long list of information that must be provided by the company and different people, including the actuary of the company but also independent actuaries and other experts. That information will flow to policyholders with the package they would receive to approve demutualization. If you compare the information itself with the other approximately 45 demutualization statutes that we could consult, nowhere does it have such an extensive list.

I do not think the superintendent guarantees the accuracy of that information. The board of directors can be sued. The experts who express an opinion can be sued if they are negligent. That is where the liability will occur. The superintendent sees that the process is completed and is abided by, and that the information is provided as required, but he does not guarantee the information.

Senator Hervieux-Payette: I understand. However, we have a fiduciary rule to the ordinary people, these people who are not expert. I do not know if they can read and understand everything they have in their policy, but I do know that, even with a legal background, I would need to take another step in legal knowledge.

I am wondering how far we can be held responsible, even though you say no. Of course, I exclude criminal acts. If we are induced criminally into bad information, that is one thing. We are talking about people of good faith, and we are talking about information.

The previous group was asking about due diligence to be carried on by an independent team as well as, of course, independent auditors. From your answer, we all have that in place, and it will happen, and we will have a total review by outside expertise under our supervision.

Mr. Gingras: There are a number of layers. As I said at the beginning, the company must provide information. Also, there are experts who would analyse that information and provide their own opinions. This would be reviewed by OSFI to see that it is complete and sent to policyholders.

In this regard, I am not too surprised that policyholders may be somewhat confused right now. The companies have been waiting for the regulations to be out before they send the information package. The information package would be noticeable. It may be up to 150 pages. There will be a summary, and there will be ways and means to address questions. At that point, the policyholders would be more educated. Two years ago, it was difficult to explain what demutualization meant. As we are coming closer to the events, I suppose there would also be more information in the press and by the consumer associations across the world.

However, the liability would rest with those providing information and not those supervising the process.

Senator Hervieux-Payette: Mr. Chairman, I would take exception to this and say, "Provide us with a legal opinion certifying what you are saying, and then I will believe it." If we conduct the whole process of re-examining the figures supplied to us by the companies, our position is as fiduciaries that are validating the information we receive. I do not say that we should not do that, but I am questioning whether we will bear some responsibility. All these people must insure the risk that they are taking with other insurance companies, and they have a limitation in terms of the insurance. We are dealing with $10 billion. I think we had better be sure of what you say to us. As far as I am concerned, I think we need to have a legal opinion certifying that all the responsibility lies with the companies.

Mr. Gingras: The $10 billion is a rough estimate. The value of the companies will be determined by the value of the shares and the market. It is just a guide. It is not a guarantee that it will be $10 billion. It could be higher; it could be lower.

As for the legal opinion, perhaps that will be considered. I am not in a position to give legal opinions.

Mr. Hale: On one point of clarification, we are not seeking to redo all of the work that people submit. We are doing some reasonable due diligence around that with the assistance of experts as we require them.

Senator Callbeck: I want to come back to an area that Senator Stewart touched on, and that is the income tax implications on certain people who might lose their social benefits. If I am a policyholder, how am I to know or twig to the idea that this might affect my social benefits? Will that be in the package?

Mr. Gingras: The package itself will explain the tax consequences. It is a requirement of the regulations that in any place where a company is doing business, there be a complete explanation of the income tax consequences in each jurisdiction, and that will be sent to each individual policyholder.

The Acting Chairman: The question is, to what extent will the individual be informed with respect to the tax consequence to them? Is it just a general warning that the individual should check with tax experts, or will there be additional information to that individual?

Mr. Gingras: The company must make a complete effort to explain the tax consequences in all the jurisdictions in which they operate, including in some cases nine countries. That is a detailed explanation. There may be cases such as Hong Kong, for example, where the tax is not clear or a bill is in the process. There may be a notice of that and a reference to consult your own expert.

However, in Canada and the United States, it should be quite clear. It should describe fairly well what the tax consequences are.

The Acting Chairman: Will the companies offer tax advisors to answer specific inquiries by policyholders as to their particular circumstances?

Mr. Gingras: I remember that that question was posed to the CEOs of the companies, and they do not intend to go so far as to offer specialized service to individuals.

Senator Lynch-Staunton: You just said that it is quite clear in Canada. I do not think it is quite clear since the provinces themselves have yet to take a decision on this, if I understood correctly. We are still waiting to hear. You have sent the information, and you have sent your own federal approach to it, as has been explained here, but as a policyholder in Quebec or Ontario, do I know the tax consequences that my province may or may not impose? Social assistance, rent subsidization and child tax credits could be affected.

Mr. Ménard: Mr. Gingras was referring to the tax consequences. You are referring to all the transfer program consequences. My understanding is that the income tax consequences will be included in the description that will be provided, at least defined in a factual way and in a broad sense. Just to be clear, it is advice. It is a description of the implications of these payments for tax purposes.

With respect to the provincial transfer programs, many of those are under provincial jurisdiction. I must admit that I cannot say if this is supposed to be in the information package.

Senator Callbeck: How will you know what the provinces are doing? Will the insurance company get that information and put it in the package?

The Acting Chairman: I think Mr. Ménard has said all that he can say. He said it three times.

Senator Ghitter: Mr. Hale, I am somewhat confused about your statement that everyone knew about the situation coming out of England. We were told that there was no reference to it in the financial statements. It was something that happened in England. How do you make the statement that I, as a Canadian policyholder looking at the financials and what is presented to me, should have known? I do not understand that statement.

Mr. Hale: I meant that anyone taking a look at valuing that company and the risks to which that company was exposed would know that.

Senator Ghitter: As a policyholder, had the demutualization gone on that year, I would have had no knowledge of it.

Mr. Hale: In the process of determining the company value or getting other disclosure around the policyholder information guide, that information would have had to be dealt with.

Senator Stewart: You could hire your own auditor.

The Acting Chairman: Senator Lynch-Staunton will ask the last question.

Senator Lynch-Staunton: I have many more questions, and I do not have time to get through all of them today, Mr. Chairman.

The Acting Chairman: I would like to avoid bringing the witnesses back. Do you think your questions will take more than five or 10 minutes?

Senator Lynch-Staunton: I do not want to prolong this, but I do not see why you hesitate to bring the officials back.

The Acting Chairman: I do not hesitate. If it is necessary, that is what we will do.

Senator Lynch-Staunton: I have questions on the regulations. I have questions on the tax consequences. I have questions on the report. After hearing from my colleagues today, I believe they, too, have more questions.

The Acting Chairman: In that case, we will adjourn the proceedings at this time. Our clerk will invite the witnesses back at a time when committee scheduling permits. I imagine it will be soon. We will continue with questioning at that time, and then move to the next stage.

The committee adjourned.