Segregated funds: Proposed new regulation to enhance disclosure requirements

On November 2, 2023, the Autorité des marchés financiers (the AMF) published for comment its draft Regulation respecting information to be provided to holders of individual variable insurance contracts relating to segregated funds (the Draft Regulation) available here. The Draft Regulation is to establish an enhanced framework that will require insurers to disclose precise information on performance, guarantees and all related costs associated with investment funds and individual variable insurance contracts (IVICs) relating to segregated funds.¹ The purpose of the new transparency requirements is to improve consumer understanding, facilitate discussions with their insurance representatives and promote informed decision-making on the part of the consumer.² 

The Draft Regulation follows on the publication of April 20, 2023, by the Canadian Council of Insurance Regulators (CCIR) of the Individual Variable Insurance Contract Ongoing Disclosure Guidance (the Guidance). As a member of CCIR, the AMF is committed to implementing a framework that is harmonized with the Guidance. 

New disclosure requirements

Under the proposed new regulatory framework, affected insurers will be required to provide the IVIC owner, through an annual statement, with the information prescribed in the Draft Regulation relating to returns, embedded costs and fees, guarantees for all segregated funds, costs attributable to each class or series of units of the affected segregated fund and certain other general information. 

In addition, certain additional information will have to be provided to the owner when the IVIC provides maturity and death benefit guarantees for all segregated fund units allocated to the contract on the statement date; when the IVIC provides guaranteed withdrawal benefits and is in the accumulation phase in whole or in part; when the IVIC provides a withdrawal guarantee and is in the withdrawal phase in whole or in part; or when the IVIC provides a withdrawal guarantee and is in the guarantee payment phase in whole or in part.

The annual statement must also be sent within four months of the end of each fiscal year of the segregated funds whose units are allocated to the contract³. An exhaustive list of the information to be communicated is provided in Schedule I of the Draft Regulation. 

In addition, the Draft Regulation also provides that the fund costs for an applicable class or series of segregated fund units will now have to be disclosed. These costs will be calculated according to an established formula that takes into account the cost ratio, the market value of a unit, and the number of segregated fund units allocated to the contract on a given day - and repeated for each series or class.⁴  

The information disclosed in the annual statement must be “in a form that is clear, readable […] and so as not to cause confusion or misunderstanding.”⁵ With this in mind, the Draft Regulation also proposes the inclusion of certain mandatory explanations concerning the purpose and usefulness of the annual statement to facilitate investor understanding and decision-making.⁶ 

Consultation period and entry into force 

The consultation is continuing until December 2, 2023, and subject to ministerial approval, the Draft Regulation will come into force on January 1, 2026⁷.

The author would like to thank Katrina Graham, articling student, for her contribution to preparing this legal update.