Proceedings of the Standing Senate Committee on Banking, Trade and
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
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.
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,
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
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
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
Mr. Audcent: I will have to look at that, senator.
Senator Lynch-Staunton: Mr. Chairman, perhaps you could explain what a parchment
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
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
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.
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
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
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
Your first consideration should be whether the parchment correction could affect
Second, I have only practice to protect me in my decision. I do not have an
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
I am not suggesting that is good or bad legislation. It is merely a fact at this
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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
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
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
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
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
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
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.