Securities Law & Instruments


Headnote

Application to the Ontario Securities Commission for a ruling pursuant to subsection 74(1) of the Securities Act (Ontario) (the Act) for a ruling that the Applicants be exempted from the adviser registration requirements in subsection 25(3) of the Act. The Applicants will provide advice to certain Canadian Affiliates in Ontario only for so long as such affiliates remain affiliates of the Applicants. Filer acknowledged its activities did not comply with the registration requirements under applicable Canadian securities legislation. Exemptive relief granted is not retroactive.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(3), 74(1).

September 9, 2016

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
(THE ACT)

AND

IN THE MATTER OF
SWISS RE AMERICA HOLDING CORPORATION,
SWISS REINSURANCE COMPANY LTD, SWISS RE CORPORATE SOLUTIONS LTD AND
SR CORPORATE SOLUTIONS AMERICA HOLDING CORPORATION

RULING
(Subsection 74(1) of the Act)

                UPON the application (the Application) of Swiss Re America Holding Corporation, Swiss Reinsurance Company Ltd, Swiss Re Corporate Solutions Ltd and SR Corporate Solutions America Holding Corporation (the Applicants) to the Ontario Securities Commission (the Commission) for a ruling pursuant to subsection 74(1) of the Act that the Applicants be exempted from the adviser registration requirements in subsection 25(3) of the Act;

                AND UPON considering the Application and the recommendation of staff of the Commission;

                AND UPON the Applicants having represented to the Commission as follows:

1.             The Applicants are part of a multi-national group of companies headquartered in Zurich, Switzerland and collectively known as the “Swiss Re Group”. The Swiss Re Group is in the business of wholesale reinsurance, insurance and risk transfer solutions. Swiss Re Ltd, domiciled in Zurich, Switzerland, is the ultimate holding company of the Swiss Re Group. Its principal activity is the holding of investments in Swiss Re Group companies.  

2.             Swiss Re Corporate Solutions Ltd (SRCS) is a corporation existing under the laws of Switzerland, based in Zurich. SRCS is a wholly-owned subsidiary of Swiss Re Ltd and is the primary legal entity within Swiss Re Group’s Corporate Solutions business. The Corporate Solutions business offers insurance capacity to mid-sized and large multinational corporations worldwide. SRCS does not have an office or employees in Canada.

3.             SR Corporate Solutions America Holding Corporation (SRCS AH) is a corporation existing under the laws of the State of Delaware, based in New York. SRCS AH is a wholly-owned subsidiary of SRCS. SRCS AH is the primary holding company for Swiss Re Group’s Corporate Solutions business in the Americas. SRCS AH does not have an office or employees in Canada.

4.             Westport Insurance Corporation (WIC) is a corporation existing under the laws of the State of Missouri, with its administrative office in Overland Park, Kansas. WIC operates as a stock property and casualty insurer and is a wholly-owned subsidiary of SRCS AH.

5.             Westport Insurance Corporation, Canada Branch (WIC Canada) carries on business in Canada as a federally and provincially licensed branch of a foreign insurance company with its Canadian head office in Toronto, Ontario.

6.             The principal carrier within Swiss Re Group’s Reinsurance business group is Swiss Reinsurance Company Ltd (SRZ). SRZ is a corporation existing under the laws of Switzerland, based in Zurich. SRZ is a wholly-owned subsidiary of Swiss Re Ltd and a sister company to SRCS. The Reinsurance business offers reinsurance, insurance, and insurance linked financial market products to customers worldwide.

7.             Swiss Reinsurance Company Ltd, Canada Branch (SRZ Canada) carries on business as a federally licensed branch of a foreign insurance company with its Canadian head office in Toronto, Ontario. SRZ Canada and WIC Canada are referred to, collectively, as the “Canadian Affiliates”.

8.             Swiss Re America Holding Corporation (SRAH) is a corporation existing under the laws of the State of Delaware, based in New York. SRAH is a subsidiary of SRZ. SRAH does not have an office or employees in Canada.

9.             The Canadian Affiliates hold portfolio assets directly and are also the beneficiaries of portfolio assets held in certain collateral accounts (the Collateral Accounts) established either (i) as Canadian-domiciled trusts settled by affiliates within the Swiss Re Group, as grantors, for the contingent benefit of itself and SRZ Canada or WIC Canada (Vested Asset Trusts) or (ii) by affiliates within the Swiss Re Group, as pledgors, for the benefit of SRZ Canada or WIC Canada, as secured parties, under reinsurance security agreements pursuant to which the pledgor has agreed to collateralize certain risks of the secured party for purposes of internal and external reinsurance and retrocession (i.e. reinsurance of reinsurance) (the Reinsurance Security Agreements). Under the Insurance Companies Act (Canada) (the ICA) and guidelines of the Office of the Superintendent of Financial Institutions Canada (OSFI) assets in the Collateral Accounts must be maintained in Canada in order for the beneficiary or secured party, as applicable, to receive credit for such assets under the ICA. The trustee of each of the Vested Asset Trusts and the custodian under each of the Reinsurance Security Agreements is RBC Investor Services Trust (the Trustee and Custodian), a Canadian financial institution as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions (NI 45-106). The portfolio assets held directly by the Canadian Affiliates and the Collateral Accounts are referred to, collectively, as the “Accounts”.

10.          With respect to the Vested Asset Trusts, the Trustee and Custodian acts as agent of the Swiss Re Group and invests the vested assets on the written direction of the persons authorized by the grantor of the Vested Asset Trust.

11.          With respect to the Reinsurance Security Agreements, until an entitlement order is delivered by the secured party, pledged collateral is held by the Trustee and Custodian for safekeeping and the pledgor is entitled to direct the Trustee and Custodian as to the manner of investment of the collateral and with respect to the manner of exercising the voting rights attached to the securities and other financial assets that are part of the collateral. These investment and voting powers promptly cease, and the Trustee and Custodian must transfer the collateral to or to the direction of the secured party, upon the receipt of an entitlement order by the Trustee and Custodian from the secured party.

12.          Each of the Canadian Affiliates, the Trustee and Custodian, the grantor under each Vested Asset Trust and the pledgor under each Reinsurance Security Agreement is a “permitted client” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

13.          Although one Vested Asset Trust (the Non-Permitted Client Trust) does not qualify as a permitted client under NI 31-103 because it has net assets of less than $25 million as shown on its most recent prepared financial statements, each of the grantor and the Trustee and Custodian is a permitted client as defined in NI 31-103 and such trust has been established for the benefit of the Canadian insurance business of a Canadian Affiliate that is also a permitted client.

14.          The Applicants currently provide or will provide investment management services solely to entities in the Swiss Re Group, including branches, subsidiaries and other entities related to Swiss Re Ltd.

15.          SRAH currently provides investment management services and portfolio management services to affiliates within the Swiss Re Group, such as the Canadian Affiliates in connection with its respective Canadian business.

16.          SRAH is a sister company to WIC Canada. The provision of investment management services by SRAH to WIC Canada is anticipated to be assumed by January 1, 2018 by WIC Canada’s direct and indirect corporate parent, SRCS AH and SRCS. SRCS AH and SRCS may also provide investment management services and portfolio management services to SRZ Canada in the future.

17.          SRZ from its offices in Zurich, and SRAH, provides investment management services and portfolio management services primarily to the grantor or pledgor, as applicable, in respect of the Collateral Accounts, and SRCS AH and SRCS may also provide investment management services and portfolio management services to the grantor or pledgor, as applicable, in respect of the Collateral Accounts in the future.

18.          None of the employees who provide investment management services and portfolio management services to the Accounts is resident in Canada.

19.          Given that SRAH does not provide investment management services to entities outside of the Swiss Re Group, SRAH is exempt from the requirement to register as an adviser with the U.S. Securities and Exchange Commission (SEC) under the United States Investment Advisers Act of 1940 (the 1940 Act). As of December 31, 2015, SRAH provided investment oversight on approximately US $35 billion on behalf of entities in the Swiss Re Group.

20.          SRCS AH does not currently provide investment management services in Canada, but it is also exempt from the requirement to register as an adviser with the SEC under the 1940 Act on the same basis as SRAH.

21.          Given that SRZ does not provide investment management services to entities outside of the Swiss Re Group, SRZ is exempt from the requirement to register as an asset manager with the Swiss Financial Market Supervisory Authority (FINMA). As of December 31, 2015, SRZ provided investment oversight on approximately US $66 billion on behalf of entities in the Swiss Re Group.

22.          SRCS does not currently provide investment management services in Canada, but it is also exempt from the requirement to register as an asset manager with the FINMA on the same basis as SRZ.

23.          The provision of these services by SRAH and SRZ (the Current Advisors) to the Accounts commenced upon their creation in 1959 and 1973 respectively. The Current Advisors provided these services to the Accounts without obtaining adviser registration under the Act based on the advice of Canadian counsel and a good faith determination that they were not providing advice to others with respect to investing in securities or buying or selling securities because they were providing such advice only to affiliates or special purpose entities within the Swiss Re Group. The Current Advisors seek to continue to provide investment advice and portfolio management services to affiliates and special purpose entities in the Swiss Re Group, including the Accounts, on a basis that would not require adviser registration under the Act.

24.          Except as indicated in the previous paragraph with respect to the Current Advisors, no Applicant is in default of any requirements of securities legislation in Ontario.

25.          The Applicants provide or will provide investment advice and portfolio management services on portfolios of assets held in the Accounts that include Canadian securities (being part of the investment objectives of the Accounts). However, the international adviser registration exemption in Section 8.26 of NI 31-103 does not apply with respect to the Canadian portfolio assets in the Accounts managed by the Applicants since such advice is not incidental to the advice it is providing on a “foreign security” (as defined in Section 8.26(2) of NI 31-103).

26.          There is no requirement for employees of a corporation to be registered as advisers under the Act if such employees provide investment advice to their employer on a portfolio assets held by such employer. The Canadian Affiliates do not currently employ, nor do they intend to employ, individuals who provide investment advice with respect to the Accounts, but rather the Canadian Affiliates have outsourced or will outsource the adviser function to the Applicants, each an affiliated corporation. Outsourcing the investment function is permitted under the federal insurance company legislation.

27.          The Canadian portfolio assets held in the Accounts and managed or to be managed by the Applicants are owned by each of the respective Canadian Affiliates or held for their benefit and the benefit of the Swiss Re Group. There are no external stakeholders (such as, for example, holders of variable annuity contracts or segregated funds/separate accounts for policyholders) that have any direct interest in the performance of such assets. Accordingly, there are no stakeholders in Ontario or elsewhere other than members of the Swiss Re Group that are directly affected by the investment advice provided or to be provided by the Applicants.

28.          Subsection 74(1) of the Act provides that a ruling may be made by the Commission that a person or company is not subject to section 25 of the Act, subject to such terms and conditions as the Commission considers necessary, where the Commission is satisfied that to do so would not be prejudicial to the public interest.

                AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

                IT IS RULED, pursuant to subsection 74(1) of the Act, that each Applicant is exempt from the adviser registration requirements of subsection 25(3) of the Act in respect of advice it provides to its affiliates in Ontario, provided that:

1.             the Applicants provide investment advice and portfolio management services in Ontario only to:

(a)           their affiliates that:

(i)            are licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada or a branch of a foreign insurance company in Canada; or

(ii)           are holding companies that have as their principal business activity to hold securities of one or more affiliates that are each licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada; or

(b)           their affiliates that are the grantor or pledgor of a collateral account established for the benefit of the Canadian insurance business of an affiliate, described in paragraph (a), in accordance with the ICA and OSFI guidelines; and

2.             with respect to any particular affiliate described in section 1, the investment advice and portfolio management services provided in Ontario are provided only as long as that affiliate remains: (i) an “affiliate” of the Applicant as defined in the Act, and (ii) a “permitted client” as defined in NI 31-103; and

3.             in the case of investment advice and portfolio management services provided to the grantor of a collateral account, described in paragraph 1(b), that is a trust, the trust remains a “permitted client” as defined in NI 31-103 except for in the case of the Non-Permitted Client Trust.

September 9, 2016

“William Furlong”
Commissioner
Ontario Securities Commission

“Deborah Leckman”
Commissioner
Ontario Securities Commission