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Proceedings of the Standing Senate Committee on
Legal and Constitutional Affairs

Issue 8 - Evidence, May 31, 2001 (10:05 a.m.)

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OTTAWA, Thursday, May 31, 2001

The Standing Senate Committee on Legal and Constitutional Affairs, with leave of the Senate and notwithstanding rule 115, to which was referred Bill S-27, to authorize the Imperial Life Assurance Company of Canada to apply to be continued as a company under the laws of the Province of Quebec; and Bill S-28, to authorize Certas Direct Insurance Company to apply to be continued as a company under the laws of the Province of Quebec, met this day at 10:05 a.m. to give clause-by-clause consideration to the bills.

Senator Lorna Milne (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, I see a quorum. Today, we are met to hear witnesses on two bills. Since we have the same witnesses before us on both bills, I suggest that we hear the evidence from our witnesses at once and then proceed with our questions, if that is all right with the senators. Is it agreed?

Hon. Senators: Agreed.

The Chairman: We have with us Mr. Rousseau and Ms Dion of Desjardins-Laurentienne Financial Corporate. Please proceed.

Mr. Pierre Rousseau, Consultant, former Senior Vice-President, Corporate Development, Desjardins- Laurentienne Financial Corporate: Honourable senators, thank you for your time and the consideration you are giving to our private bills. We appreciate that you had to rearrange your schedule to permit us to present our private bills in the best interests of hundreds of thousands of policyholders of both insurance companies.

I will be presenting the first draft bill in the French language and the second one in the English language. First, I will deal with Bill S-27.

[Translation]

This draft legislation is being tabled in order to authorize The Imperial Life Assurance Company of Canada, a federal chartered company that was incorporated under an act of the Parliament of Canada in 1896, to be continued as a Quebec chartered company under An Act respecting insurance (Quebec), so it can be merged with its sister company, Desjardins-Laurentian Life Assurance Company. The adoption of a private bill by Parliament is required since the Insurance Companies Act (Canada) does not currently contain any provision allowing Imperial Life to be continued as a provincial chartered insurance company.

The Department of Finance does not intend to amend the federal legislation at this time. Consequently, before it can be merged with Desjardins-Laurentian Life Assurance, Imperial Life must be continued as a Quebec chartered insurance company. The new insurance company resulting from the amalgamation will be under the supervision of the Inspector General of Financial Institutions (Quebec), which exercises the same duties with respect to provincial chartered insurance companies that are exercised by the Office of the Superintendent of Financial Institutions (Canada) with respect to federal chartered insurance companies.

The decision to amalgamate these two insurance companies was made in view of the numerous advantages that the merger represents for policy holders.

The Imperial Life Assurance Company of Canada was founded under a federal act in 1896. Following various transactions which took place as of 1968, Imperial Life became a subsidiary of the Mouvement Desjardins in 1993.

Imperial Life operates across Canada and in the Bahamas and it also holds a business portfolio in Hong Kong. Despite its good reputation in Canada, Imperial Life is a small player. With an annual premium volume of just under $500 million, Imperial Life is well behind the large insurance companies, whose premium volumes are between $1 billion and $3.6 billion. It will become increasingly difficult for Imperial Life to compete with these major Canadian insurance companies and foreign companies active in the market.

Moreover, Desjardins-Laurentian Life Assurance Company resulted from the amalgamation of Desjardins Life Assurance and Laurentian Life in 1994. DLLA is a very secure company that is licensed to do business in all Canadian provinces. Most of its business is conducted in Quebec, where it ranks number one in terms of written premiums, with close to a 16 per cent market share.

DLLA and Imperial Life, both subsidiaries of Desjardins, have been operating under a joint structure for the past three years: they have the same products, systems and services and share the same management. Consequently, from a business perspective, the legal amalgamation is the logical evolution of the process to regroup the two companies.

By merging, Imperial Life and DLLA will form a new company that will be better positioned to compete with the major insurance companies operating in Canada.

Based on last year's financial results of both companies, the new company will have total assets under management of $13.4 billion and an annual premium volume of around $1.5 billion, namely three times that of Imperial Life, and therefore closer to the premium volumes of larger Canadian insurance companies.

The new company, which will have a more solid base, will be better equipped to grow. Stronger, bigger, more financially secure and better capitalized, it will continue to operate across Canada and in the Bahamas.

Finally, this amalgamation will give rise to a new player that will rank 7th in the insurance industry in Canada and thus become more competitive. However, the most important point of this merger project is that, above all, it is in the best interests of policy holders. In fact, the insurance coverage will be better protected since the insurer will be bigger, more secure and better capitalized. Participating policy holders will also preserve their right to receive dividends. Following the merger of Imperial Life and DLLA, the participating fund will be larger and therefore less subject to fluctuations.

Since the operating structure will not change after the merger, there will be no impact on customer service or on day-to-day operations. Regarding Imperial Life and DLLA employees, the merger will not result in any job losses or office closings. Since both companies already share the same management, services and systems, the merger will have no impact on jobs, given that there will not be any structural changes.

In conclusion, from a business perspective and in terms of policy holder protection and the maintaining of jobs, the merger project represents a promising solution for both Imperial Life and its sister company, Desjardins-Laurentian Life Assurance. The project already has the support of the regulatory bodies, an independent actuary and the participating policy holders of Imperial Life. The Office of the Superintendent of Financial Institutions (Canada), which currently governs Imperial Life, has been involved in the process from the start and is favourable to the merger of Imperial Life and DLLA. The merger is also supported by the independent actuary who has been retained by both companies to examine the impact of amalgamation on policy holders. He found the following in his report and I quote:

Overall, the proposed merger is in the best interests of policy holders and of shareholders in the two companies.

Lastly, the merger of the two companies has been approved by Imperial policy holders. The approximately 100,000 company policy holders were consulted as required in early April by means of a mailing which included an information circular, a simplified brochure and a ballot. The response was overwhelming. As announced at the special general meeting of Imperial held in Toronto on May 11, over 90 per cent of policy holders voted in favour of the proposed merger. This clear result is undoubtedly a sound argument for moving ahead with amalgamation.

Clearly, it is in the interest of Imperial and of policy holders themselves that this bill be adopted by this Chamber.

[English]

With your permission, Madam Chairman, I will now deal with Bill S-28.

The aim in tabling this draft private bill is to authorize Certas Direct Insurance Company, a federally chartered company, to continue its operations as a provincial insurance company under an act respecting insurance in Quebec, so that it can be merged with its sister company, les Assurances générales des Caisses Desjardins inc., AGCD.

The decision to merge these two insurance companies is part of a corporate reorganization and was taken to maximize, within the same group of companies, the financial advantages specific to each of them, the ultimate objective being to grow the business outside Quebec. This type of administrative reorganization is usual in large financial groups. This reorganization specifically requires that a draft private bill be presented since we are dealing with companies that are governed by different jurisdictions. Otherwise the Office of the Superintendent of Financial Institutions, OSFI, would itself have approved this restructuring.

The Insurance Companies Act presently contains no provision which would allow an insurance company that is incorporated under the act to continue its operations as a provincially chartered company. The Office of the Superintendent of Financial Institutions, to which Certas Direct currently reports directly, has been involved in the process from the outset and is favourable to the proposed mergers of Certas and AGCD.

Certas Insurance Company was created in 1993 under the name CIBC General Insurance Company Limited as a subsidiary of CIBC. On August 31, 2000, the La Société de portefeuille du Groupe Desjardins assurance générales, a subsidiary of du Mouvement Desjardins, acquired CIBC general insurance companies, namely, the Personal Insurance Company of Canada and CIBC General Insurance Company Limited, whose corporate name was subsequently changed to Certas Direct.

Certas is a fairly young company which has posted substantial operating losses over the past years. Therefore, its operations need to be restructured to promote its future development. At the end of the 2000 financial year it reported $120 million in gross premiums written while it had accumulated tax losses of over $100 million.

Moreover, les Assurances générales des Caisses Desjardins is a corporation, incorporated under an act respecting insurance in Quebec, which wrote more than $451 million in gross premiums in 2000. AGCD is a very sound company with a solid track record of recurring profits for several years.

As part of the reorganization a new federally incorporated company, the new Certas, would be created to carry on the activities of the former Certas outside Quebec. This new federal company would write new insurance business and the old Certas would transfer all of its current operations to it. The new federally chartered Certas would offer the same products and services. The old Certas would be stripped of its current business, which would be transferred to the new Certas, but it would maintain the portfolio in run-off and would be continued as a provincially chartered company and merged with AGCD.

The proposed merger also benefits the policyholders. Enforced policies and future policyholders will be transferred to the new federal company which will be supported by new capital and market-specific growth strategies. Consequently, the interests of the policyholders will be protected and the merger will not affect customer service or daily operations. No positions will be abolished and no offices will be closed.

In conclusion, the proposed merger is a promising solution for Certas Direct from a business standpoint, as well as in terms of protecting policyholders and maintaining jobs. It is certainly in the interests of Certas and AGCD and consequently of the policyholders themselves that the proposed merger be adopted by this house.

Thank you for your attention. We are ready to answer any questions you may have.

[Translation]

Senator Fraser: Mr. Rousseau, what would be the name of the newly merged company?

Mr. Rousseau: A study is now being done by an outside firm to determine a new name for the company once the merger goes through. Since -

[English]

- was the name which will be accepted and which will be easy to market, both in Quebec and outside Quebec. The result of this study will be available at the end of June.

Senator Fraser: We still do not know.

Mr. Rousseau: We still do not know. It is still in the process.

Senator Fraser: You said that at the special general meeting of those who voted, 90 per cent voted in favour. What percentage of policyholders voted?

Mr. Rousseau: Out of approximately 100,000 policyholders, we received approximately 4,000 proxies. That was in line with what with we were used to receiving in the normal annual meetings of Imperial Life.

Senator Fraser: I suspect, for many companies, that number would be probably about par for the course.

Mr. Rousseau: It is the figure we are used to seeing when we send proxies for that type of operation. At the same time, we were holding the annual meeting of Imperial Life.

Senator Fraser: In the case of Certas, what does it mean when you say that the old Certas would maintain the portfolio run-off?

Mr. Rousseau: It means, first, that we are transferring all the going concerns and the future business through a new federally incorporated insurance company. The run-off remains with the old Certas and that company is transferred under the Quebec jurisdiction.

Senator Fraser: What is the run-off?

Mr. Rousseau: The run-off is the current outstanding claims in the organization.

Senator Fraser: Will the existing policies and contracts will go to the new company?

Mr. Rousseau: That is right.

Senator Fraser: What is now in place, then, will be wound up.

Mr. Rousseau: In AGCD, that is right.

Senator Fraser: Are we assured that the new company will have a stronger capital base? You say it will be supported by new capital and market-specific growth strategies, but a strategy is not money.

Mr. Rousseau: Yes. First, we have to create a new insurance company, which is a process conducted in collaboration and co-operation with OSFI. It has to ensure that our business plan is in line with the capital we will be investing in the new organization. There is no concern that the organization will be in a position to provide the necessary capital to write new business in Certas.

Senator Fraser: I guess we have to take that on faith.

I have another question, not so much for the witnesses, perhaps, but for Senator Beaudoin.

[Translation]

Senator Beaudoin: I'm satisfied with the process that was undertaken. My question is along the same lines as that of Senator Fraser. It's certainly reassuring to note that 90 per cent of all policy holders voted in favour of the merger. However, you stated that the respondents accounted for only 25 per cent of policy holders. Is that correct?

Senator Fraser: No, for only 4 per cent.

Senator Beaudoin: Obviously, not everyone responds to surveys of this nature. However, is this response rate considered normal by insurance companies?

Mr. Rousseau: Policy holder interest in regular annual meetings is usually not great. The participate rate is usually between two and three per cent. This was a special meeting and an extra effort was made to contact policy holders, explain the proposed legislation to them and to field their questions. As a result, we may have received more proxies that we normally do.

Senator Beaudoin: They were well informed about their rights. In theory, I fully agree with the proposal. The adoption of a federal private act is required because the Insurance Companies Act contains no provisions for continuation.

Several years ago, I recommended the introduction of parent legislation in a report of the Legal and Constitutional Affairs committee. You noted the following in your opening statement, and I quote:

The Department of Finance does not intend to amend the federal legislation at this time.

I'd like to know the reason for this decision because I felt it was a good report. You want to merge two companies in the absence of parent legislation. I have no problem supporting the adoption of Bills S-27 and S-28. However, can you tell me why the Department of Finance is reluctant to amend the federal legislation?

Mr. Rousseau: We contacted the Department of Finance to discuss this matter and the advisability of including a provision in the general legislation respecting the continuation of companies. We were told that continuation is truly a particular case and applies to only a handful of companies. The inventory drawn up shows that seven or eight companies could be affected. The government does not feel that there is a need for a general provision to cover marginal cases.

Senator Beaudoin: I have my answer. You stated that there will be a name change. I would imagine your lawyers have given some thought to the following: If the company's name changes, will you be required to come back before the committee?

Mr. Rousseau: No. The name change will be the result of an administrative process and will have to approved by shareholders and by the regulatory authority consulted on the matter.

Senator Beaudoin: In any event, the Senate would approve such a request, even though it won't be necessary to consult it, according to the legal opinion you received.

Mr. Rousseau: According to that legal opinion, the name change is a process approved by shareholders and since we are dealing with financial institutions, the name change will carried out in consultation with regulatory authorities.

[English]

Senator Moore: Mr. Rousseau, with respect to Bill S-27, which deals with Imperial Life, you mentioned that they have annual premiums of just under $500 million and that the new company will have an annual premium volume of around $1.5 billion. Are we to presume by inference that Desjardins- Laurentienne has $1 billion in annual premiums now?

Mr. Rousseau: Approximately, yes.

Senator Moore: I must say it is nice to see that there will not be any job losses or office closings. Normally when mergers happen that occurs. It is nice to see it will not happen here.

With respect to Bill S-28, you say the aim is to authorize Certas Direct to continue its operation as a provincial insurance company under an act respecting insurance in Quebec. Then further on you say that the new Certas Direct will be created to carry on the operations of the former Certas outside Quebec. What will be the name of the new company that will carry on nationally? Is it to be Certas Direct?

Mr. Rousseau: Exactly.

Senator Moore: Are the run-off assets, as you call them, to be rolled into Caisse Desjardins?

Mr. Rousseau: That is right.

Senator Moore: Will the old Certas then disappear?

Mr. Rousseau: That is right.

Senator Moore: All assets are stripped out of the company. It will just be a shell which remains. I suppose you have to keep it going for a while, legally, do you?

Mr. Rousseau: When we create the new federal insurance company, we will have to keep most of the assets in the new federal insurance company to be able to support the new business. We will transfer only minor assets in the old Certas just to be in a position to complete the run-off, but it will not be substantial. Most of the assets will remain with the new federal insurance organization.

Senator Moore: How long will you keep the old one going?

Mr. Rousseau: The old Certas will remain only for approxi mately six months, which is the time we need to complete the merger. Thus, it will be between the date of continuation and the date of amalgamation, which is expected to take place at the end of December.

Senator Fraser: As I said, I have a question, which I am not sure the witnesses are the ones to answer. It has to do with the drafting and it is the same in both texts. On page 2 of the French version of Bill S-28 at line 15 it clearly states:

[Translation]

[...] la Société a, dans sa pétition, sollicité l'édiction du présent texte [...]

[English]

That is fine.

At line 9 of the English version, it states:

...the Company has, by its petition, prayed that it be enacted as set forth in this Act...

This is lousy grammar. If that is the standard, if archaic, legal form formula for these cases, then that is no problem. However, if that is just bad grammar, then we might tidy up the language.

Senator Beaudoin: Please read it again in French.

[Translation]

[...] la Société a, dans sa pétition, sollicité l'édiction du présent texte [...]

Should the correct term not be "édition"?

[English]

Senator Moore: The English is okay.

Senator Fraser: Why? It has a spare "it." It states that "the Company has, by its petition, prayed that it be enacted." What is that "it"?

Senator Moore: The petition is the request, the written document.

Senator Fraser: What does the "it" refer to?

Senator Beaudoin: Enact in English means "édit" in French.

[Translation]

Senator Fraser: Should the correct term not be "édition" instead of "édiction"?

Senator Joyal: No, "édiction" is correct.

Senator Fraser: I see.

[English]

Senator Joyal, is this the standard form in English? We have some standard forms that are not grammatical, such as "The Honourable the Deputy of the Governor General."

Senator Joyal: The proposed draft that we have today has been prepared by the retired Law Clerk of the Senate, Mr. Duplessis, and this is a standard form. It relates to an old use of vocabulary that is recognized as being in the sacramental forumula - and I do not mean to put it in religious terms. However, it is the sacramental formula to say, "We have a petition. Following the petition there is a decision to publish the act." This is not the government; it is a private citizen coming to the Crown and asking the Crown to publish a text to follow up on the publication request.

Senator Fraser: I bow to tradition, Senator Joyal.

Senator Beaudoin: In English, since Confederation we have said "enact."

Senator Fraser: The "enact" is not my problem. The problem is the way the sentence is grammatically constructed. There is a reference to a subject which appears not to exist or which, indeed, is ambiguous.

Senator Cools: Despite what Senator Joyal has said, there could be, in point of fact, a problem and perhaps we should look into it.

Senator Fraser: No. The subjects of this bill are happy with it as it is. If it is a formula that has been adopted many times over the years. I will not worry about it.

Senator Beaudoin: Supreme Court justices will not have a problem with this in French or English.

The Chairman: I may point out to the drafters of the bill this is probably quite correct and quite common usage of language, but "it" should refer to something and it does not.

Senator Fraser: If "it" refers to anything, it refers to the company.

The Chairman: At any rate, this is beyond your expertise and ours.

Senator Joyal: To make the issue very clear, Mr. Rousseau, is this the last time that a representative of Imperial Life, a company incorporated in 1896, will come before the Senate of Canada to request any measures? Will this finish our dealings with Imperial Life in the future?

Mr. Rousseau: I cannot speak on behalf of Desjardins or for other subsidiaries, but in the case of Imperial Life this is certainly the last time we will come before the Senate.

Senator Beaudoin: This is why I asked if the name of the company will be changed.

The Chairman: But that will not require coming back here.

Senator Beaudoin: That is my question. If they do change the name of the company, are they not obliged to come back? If so, we will agree, but I want to understand.

The Chairman: Yes, we lose jurisdiction.

Senator Fraser: The point of this bill is that we lose jurisdiction.

The Chairman: Honourable senators, if there are no further questions, I thank the witnesses very much for appearing before us.

Is it agreed, honourable senators, that we move to clause-by- clause consideration of Bill S-27, to authorize the Imperial Life Assurance Company of Canada to apply to be continued as a company under the laws of the Province of Quebec?

Hon. Senators: Agreed.

Senator Cools: I have no problems with how these motions are being put. I would have thought that, perhaps, we should discuss whether there should be another witness or two. Has anybody else shown an interest in this?

The Chairman: I will point out, Senator Cools, if I may, that the steering committee discussed this matter this morning. There has been no interest expressed by any other witnesses to appear before us on this matter.

Senator Cools: That is reassuring for us to at least hear that. No other witnesses have shown any interest.

The Chairman: That is right.

Senator Cools: That is good to know that. The record should show that.

The Chairman: Thank you, Senator Cools.

Is it agreed then, honourable senators, that the committee move to clause-by-clause consideration of Bill S-27?

Hon. Senators: Agreed.

The Chairman: Shall the title stand postponed?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall the preamble stand postponed?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall clause 1 carry?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall clause 2 carry?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall clause 3 carry?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall the preamble carry?

Hon. Senators: Agreed.

The Chairman: Carried.

Shall the title carry?

Hon. Senators: Agreed.

The Chairman: Is it agreed that the bill be adopted without amendment?

The Chairman: Is it agreed that I report the bill at the next sitting of the Senate?

Hon. Senators: Agreed.

The Chairman: Is it agreed, honourable senators, that the committee move to clause-by-clause consideration of Bill S-28, an act to authorize Certas Direct Insurance Company to apply to be continued as a company under the laws of the Province of Quebec?

Hon. Senators: Agreed.

The Chairman: Shall the title stand postponed?

Hon. Senators: Agreed.

The Chairman: Shall the preamble stand postponed?

Hon. Senators: Agreed.

The Chairman: Shall clause 1 carry?

Hon. Senators:Agreed.

The Chairman: Shall clause 2 carry?

Hon. Senators: Agreed.

The Chairman: Shall the preamble carry?

Hon. Senators: Agreed.

The Chairman: Shall the title carry?

Hon. Senators:Agreed.

The Chairman: Is it agreed that the bill be adopted without amendment?

Hon. Senators:Agreed.

The Chairman: Is it agreed that I report the bill at the next sitting of the Senate?

Hon. Senators:Agreed.

The Chairman: Thank you, honourable senators. I shall report both these bills this afternoon at the next sitting of the Senate.

The committee adjourned.

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