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Best’s News & Research Service - May 11, 2015 09:23 AM (EDT)

A.M. Best Comments on Canada's Budget 2015 Anti-Avoidance Rule Pertaining to Canadian Insurance Risk

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Oldwick //BestWire// - A.M. Best has been following the Canadian budget proposals relating to a specific anti-avoidance rule under the FAPI (foreign accrual property income) regime over the past two years. It is still too early to definitively determine what the specific regulatory and tax implications would be should the proposal be approved this year on the business profile of the companies that would fall under this proposed tax law change. It is A.M. Best's view that the budget proposal, if approved, could potentially have a negative impact to the business profile of the companies whose activities fall under this ruling.

The intent of the proposal contained in the 2015 budget is to ensure that profits of a Canadian taxpayer from the insurance of Canadian risks remain taxable, as intended in the 2014 budget proposal. The current tax proposal is specifically intended to impact a foreign affiliate's income in respect of the ceding of Canadian risks to be included in computing the affiliate's FAPI, and extend the activity to when an affiliate cedes Canadian risks and receives foreign risks as consideration. In this case, the affiliate is considered to have earned a FAPI in respect of accepting Canadian risks. The Canadian government has extended interested stakeholders to submit comments by June 30, 2015. A.M. Best will continue to monitor the progress of the recent budget proposal and determine the impact, if any, to the rated entities that may be subject to the new FAPI tax rule.

Companies identified within the life/health space that have exposure to this new FAPI rule are listed below. In addition, all the listed companies currently hold a financial strength rating of A (Excellent) and an issuer credit rating of "a+" with a stable outlook from A.M. Best:

  • BMO Reinsurance Limited

  • Scotia Insurance (Barbados) Limited

  • CIBC Reinsurance Company Limited

  • Royal Bank of Canada Insurance Company Ltd

  • TD Reinsurance (Barbados) Inc.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

Canada Financial Strength Life Insurers Press Release Insurance Issuer Credit Rating Taxation

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