Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- passport application -- Exemption granted to a trust from continuous disclosure requirements under National Instrument 51-102 Continuous Disclosure Obligations and certification obligations under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, subject to certain conditions -- Trust established for purpose of effecting offerings of trust securities in order to provide insurance company with a cost-effective means of raising capital for Canadian insurance company regulatory purposes -- Without relief, trust would have to comply with continuous disclosure and certification requirements -- Given the nature, terms and conditions of the trust securities, the meaningful information to public holders of trust securities is information with respect to the insurance company, rather than the trust.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 4.1, 4.3, 5.1, 7.1, 12.2, 13.1, 13.4.

National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, ss. 4.1, 5.1, 6.1, 6.2, 8.6.

May 25, 2020

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CANADA LIFE CAPITAL TRUST (the Trust or the Filer)

DECISION

Background

Canada Life Financial Corporation (CLFC), The Canada Life Assurance Company (CLA) and the Filer received an order dated May 14, 2002 (the 2002 Order) exempting the Trust from the continuous disclosure requirements of securities legislation as specified in the 2002 Order. CLFC and the Filer received an order dated May 28, 2004 (the 2004 Order) exempting the Trust from the certification requirements of securities legislation as specified in the 2004 Order.

This application is submitted by the Filer in connection with the amalgamation of certain entities pursuant to Letters Patent of Amalgamation issued by the Minister of Finance (Canada) effective on January 1, 2020 (the Amalgamation). Pursuant to the Amalgamation, CLA, CLFC, The Great-West Life Assurance Company, London Insurance Group Inc. and London Life Insurance Company became one entity, The Canada Life Assurance Company (hereinafter referred to as Amalco).

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) to revoke and replace the 2002 Order and the 2004 Order to account for the Amalgamation and to provide that:

1. the Trust be granted an exemption (the Continuous Disclosure Exemption) from the requirements contained in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) to file and deliver, as applicable,

(a) audited annual financial statements including management's discussion and analysis (MD&A) thereon required by sections 4.1 and 5.1 of NI 51-102;

(b) unaudited interim financial reports including MD&A thereon required by sections 4.3 and 5.1 of NI 51-102;

(c) press releases and material change reports required by section 7.1 of NI 51-102 in the case of material changes that are also material changes in the affairs of Amalco; and

(d) other material contracts required by section 12.2 of NI 51-102 in the case of material contracts that are also material contracts of Amalco (collectively, the Continuous Disclosure Filings) pursuant to section 13.1 of NI 51-102; and

2. the Trust be granted an exemption (the Certification Exemption) from the requirements to file (a) annual certificates (as defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109)) under sections 4.1 and 6.1, as applicable, of NI 52-109; and (b) interim certificates (as defined in NI 52-109) under sections 5.1 and 6.2, as applicable, of NI 52-109 (the Certification Requirements) pursuant to section 8.6 of NI 52-109;

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the provinces and territories other than Ontario.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision, unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

CLA

Incorporation and Status

1. CLA was established on August 21, 1847 and incorporated on April 25, 1849. On November 4, 1999 CLA demutualized and became a stock life insurance company under Letters Patent of Conversion issued under the Insurance Companies Act (ICA). CLA amalgamated with CLFC, The Great-West Life Assurance Company, London Insurance Group Inc. and London Life Insurance Company under Letters Patent of Amalgamation issued by the Minister of Finance (Canada) pursuant to the ICA effective on January 1, 2020.

2. CLA had, and Amalco has, a financial year end of December 31.

3. CLA was a reporting issuer (or the equivalent) in each of the provinces and territories of Canada and was not in default of any requirement of the Legislation immediately prior to the Amalgamation.

Capital Structure

4. Effective on January 1, 2020 following the Amalgamation, the authorized share capital of Amalco consists of an unlimited number of: (i) common shares; (ii) Class A Shares, issuable in series; and (iii) Class B Shares, issuable in series; (the Class A Shares and the Class B Shares being collectively referred to as the Amalco Preferred Shares). As at February 24, 2020, 2,407,384 common shares, 18,000 Class A Shares, Series 1 and 40,000,000 Class A Shares, Series 6 were issued and outstanding.

5. Amalco is unable to provide a guarantee or alternative credit support pursuant to section 13.4 of NI 51-102 and remain in compliance with insurance regulatory capital requirements. Therefore, Amalco does not qualify as a "credit supporter" pursuant to section 13.4 of NI 51-102.

Disclosure

6. Prior to the Amalgamation, each of CLA and the Trust relied on the Continuous Disclosure Filings of CLFC pursuant to relief granted in the 2002 Order, the 2004 Order and the decision document dated August 31, 2004 granting relief to CLA from certain continuous disclosure obligations and certification requirements, subject to certain specified conditions. Post-Amalgamation, Amalco as successor to CLFC, will prepare and file all applicable Continuous Disclosure Filings, including financial statements and MD&A. Amalco will prepare the audited annual financial statements of Amalco (the ICA Financial Statements) in order to comply with section 331 of the ICA, which requires that such financial statements be placed before its shareholders and policyholders at every annual meeting. Amalco is also required to send the ICA Financial Statements to its registered shareholders and policyholders and to file them with the Superintendent of Financial Institutions (Canada) (the Superintendent), in each case not later than 21 days before the date of the annual meeting pursuant to sections 334(1) and 335(1) of the ICA, respectively. Amalco will, in the same way that CLFC has done in the past, file its annual financial statements on the System for Electronic Document Analysis and Retrieval (SEDAR).

The Trust

Formation and Status

7. The Trust is an open-end trust established under the laws of the Province of Ontario by The Canada Trust Company (Trustee), as trustee, under a declaration of trust made as of February 6, 2002 (the Declaration of Trust).

8. The Trust is a reporting issuer, or the equivalent, in each of the Jurisdictions as a result of the filing of a final prospectus in connection with the Offering dated March 7, 2002 (the Prospectus) and the issuance of a final MRRS Decision Document in relation to the Prospectus. The Trust is not in default of any of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

Capital Structure

9. The beneficial interests of the Trust are divided into two classes of units, issuable in series. The outstanding securities of the Trust consist of: (i) Special Trust Securities (the Special Trust Securities); and (ii) Canada Life Capital Securities -- Series B (the CLiCS). Post-Amalgamation, the Special Trust Securities are held in their entirety by Amalco, as successor to CLA. The Special Trust Securities and the CLiCS are collectively referred to herein as the Trust Securities. The CliCS and the Special Trust Securities are not quoted or listed on any exchange or organized market.

Business of the Trust

10. The Trust was established solely for the purpose of effecting a public offering of Canada Life Capital Securities (the Offering) and possible future offerings of securities in order to provide CLA with a cost effective means of raising capital for Canadian insurance company regulatory purposes by means of: (i) creating and selling the Trust Securities; and (ii) acquiring and holding assets, which consists primarily of a debenture issued by CLA (the CLA Debenture). The CLA Debenture generates income for distribution to holders of the Trust Securities. The Trust does not and will not carry on any operating activity other than in connection with the Offering and any future offerings.

CLiCS

11. The Trust issued two series of CLiCS, Canada Life Capital Securities -- Series A and Canada Life Capital Securities -- Series B under the Prospectus. The Canada Life Capital Securities -- Series A were redeemed in full on June 30, 2012.

12. The Trust also issued and sold 1,000 Special Trust Securities, which are voting securities of the Trust, to CLA in connection with the Offering.

13. Holders of CLiCS are entitled to receive fixed, semi-annual non-cumulative distributions (each, an Indicated Yield) on the basis described below (Distributions). Distributions will not be made if Amalco fails to declare dividends on certain of its preferred shares (namely, the Class A Shares Series 1) in accordance with their terms in the 3-month period preceding each 6-month distribution period (a Distribution Diversion Event). In that circumstance, all of the income of the Trust will be paid to Amalco as the holder of the Special Trust Securities. In addition, if a Distribution Diversion Event occurs, and Amalco does not have more than $100 million of Amalco Preferred Shares which: (i) have been issued to the public (excluding any Amalco Preferred Shares held beneficially by affiliates of Amalco); (ii) are listed on a recognized stock exchange; and (iii) have an aggregate liquidation entitlement of at least $100 million (the Public Preferred Shares) outstanding, then Amalco will be prevented from declaring dividends on certain of its outstanding shares. If there is more than one class of Public Preferred Shares outstanding, then the most senior class or classes of outstanding Public Preferred Shares shall, for all purposes, be the Public Preferred Shares. Once a Distribution Diversion Event no longer exists, the Indicated Yield will once again be paid to holders of CLiCS.

14. Upon the Amalgamation, Amalco automatically succeeded to the obligations of CLA and CLFC under a Share Exchange Agreement entered into among CLA, CLFC, the Trust and a party acting as Exchange Trustee (the Share Exchange Agreement). As a result, Amalco has agreed, for the benefit of the holders of CLiCS, that in the event that the Trust fails on any Regular Distribution Date to pay the Indicated Yield on the CLiCS in full: (i) Amalco will not declare or pay Dividends on the Public Preferred Shares; or (ii) if no Public Preferred Shares are then outstanding, Amalco will not declare or pay Dividends on any of its preferred shares or on its common shares, in each case, until the twelfth month following such Regular Distribution Date, unless the Trust first pays such Indicated Yield (or the unpaid portion thereof) to holders of CLiCS (the Dividend Stopper Undertaking). Accordingly, it is in the interest of Amalco to ensure, to the extent within its control, that the Trust complies with its obligation to pay the Indicated Yield on each Regular Distribution Date so as to avoid triggering the Dividend Stopper Undertaking.

15. Under the terms of the CLiCS and the Share Exchange Agreement, the CLiCS may be exchanged, at the option of the holders of CLiCS, for newly issued Amalco Class A Shares Series 4.

16. The CLiCS will be automatically exchanged, without the consent of the holder, for Amalco Class A Shares Series 5 (the Automatic Exchange) in the event that any one of the following occurs: (A) the Attorney General of Canada files an application for a winding-up order in respect of Amalco pursuant to the Winding-up and Restructuring Act (Canada) or a court grants a winding-up order in respect of Amalco pursuant to that act; (B) the Superintendent advises Amalco in writing that the Superintendent has taken control of Amalco or its assets pursuant to the ICA; (C) the Superintendent advises Amalco in writing that Amalco has a net Tier 1 capital ratio (as determined in accordance with the Minimum Continuing Capital Surplus Requirements (or its equivalent) for Canadian federally regulated insurance companies issued from time to time by the Superintendent (MCCSR)) of less than 75% or an MCCSR ratio (as determined in accordance with the MCCSR) of less than 120%; (D) the Board of Directors of Amalco advises the Superintendent in writing that Amalco has a net Tier 1 capital ratio of less than 75% or an MCCSR ratio of less than 120%; or (E) the Superintendent directs Amalco, pursuant to the ICA, to increase its capital or provide additional liquidity and (x) Amalco elects to cause the automatic exchange as a consequence of the issuance of the direction or (y) Amalco does not comply with such direction to the satisfaction of the Superintendent within the time specified in the direction (each, a Loss Absorption Event).

17. The terms of the Amalco Class A Shares Series 4 and Series 5 each provide, among other things, that such shares are exchangeable at the option of the holder for common shares of Amalco at certain times and in certain circumstances, but in any event the Amalco Class A Shares Series 4 and Series 5 are not exchangeable into Amalco common shares until December 31, 2032. These exchange rights are not operative at any time that an event giving rise to the Automatic Exchange in respect of the CLiCS has occurred and is continuing.

18. The Trust may, subject to regulatory approval, on any Distribution Date, redeem the CLiCS. The price payable in respect of any such redemption will include an early redemption compensation component (such price being the Early Redemption Price) in the event of a redemption of CLiCS prior to June 30, 2032 (the Early Redemption Date). The price payable in all other cases will be $1,000 per CLiCS together with any unpaid Indicated Yield thereon (the Redemption Price).

19. Upon the occurrence of certain regulatory or tax events affecting Amalco or the Trust, the Trust may, subject to regulatory approval, redeem at any time all but not less than all of the CLiCS at the Early Redemption Price (if the CLiCS are redeemed prior to the applicable Early Redemption Date) and at the Redemption Price (if the CLiCS are redeemed on or after the applicable Early Redemption Date).

20. CLA covenanted, under the Share Exchange Agreement, that CLA or its affiliates would maintain ownership, directly or indirectly, of 100% of the outstanding Special Trust Securities. As a result, the financial results of the Trust are consolidated with those of Amalco following the Amalgamation. The CLiCS will constitute Tier 1 Capital of Amalco.

21. As long as any CLiCS are outstanding, the Trust may only be terminated with the approval of the holder of Special Trust Securities and with the approval of the Superintendent for any reason on any Distribution Date. Holders of Trust Securities rank pari passu in the distribution of the property of the Trust in the event of a termination of the Trust, after the discharge of any creditor claims. As long as any CLiCS are outstanding, Amalco will not approve the termination of the Trust unless the Trust has sufficient funds to pay the Early Redemption Price in the case of a termination prior to the Early Redemption Date, or the Redemption Price in the case of any other termination.

22. As set forth in the Declaration of Trust, the CLiCS are non-voting except in limited circumstances and Special Trust Securities entitle the holders to vote.

23. Except to the extent that the Distributions are payable to CLiCS holders and, other than in the event of termination of the Trust (as set forth in the Declaration of Trust), CLiCS holders have no claim or entitlement to the income of the Trust or the assets held by the Trust.

24. Because of the terms of the Trust, the return to a CLiCS holder depends upon the financial condition of Amalco and not that of the Trust.

25. Under an Administration Agreement between the Trustee and Amalco, the Trustee delegates to Amalco certain of its obligations in relation to the administration of the Trust. Amalco, as administrative agent, provides advice and counsel with respect to the administration of the day-to-day operations of the Trust and other matters as may be requested by the Trustee from time to time.

26. The Trust has not requested relief for the purposes of filing a short form prospectus pursuant to National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) (including, without limitation, any relief which would allow the Trust to use Amalco's annual information form as a current annual information form of the Trust) and no such relief is provided by this Decision Document from any of the requirements of NI 44-101.

27. The Trust may, from time to time, issue further series of Canada Life Capital Securities, the proceeds of which would be used to acquire additional debentures from Amalco.

The Exemption Sought

28. The Exemption Sought is a revocation and replacement of the relief granted pursuant to the 2002 Order and the 2004 Order.

29. The obligation to prepare and, where applicable, print and distribute, continuous disclosure materials for the Trust would be costly, time consuming and not meaningful to holders of the Trust Securities.

Continuous Disclosure and Certification Exemptions of the Trust

30. Because of the terms of the CLiCS, the Share Exchange Agreement and the various covenants to be binding on Amalco, information about the affairs and financial performance of Amalco, as opposed to that of the Trust, is more meaningful to holders of CLiCS and will continue to be made available to holders of Trust Securities and the general investing public. Amalco's Continuous Disclosure Filings will provide holders of CLiCS and the general investing public with all information required in order to make an informed decision relating to an investment in CLiCS. Information regarding Amalco is relevant both to an investor's expectation of being paid the Indicated Yield on the CLiCS as well as the return of the investor's principal. As noted above, holders of CLiCS have always relied upon CLFC Continuous Disclosure Filings and this exemptive relief is seeking to amend the existing orders to account for the Amalgamation and the successor entity to CLFC (Amalco).

31. The Certification Filings are intended to improve the quality and reliability of (i) an issuer's interim financial reports and interim MD&A filed pursuant to NI 51-102 (the Interim Filings) and (ii) an issuer's annual information form (if applicable), annual financial statements and annual MD&A filed pursuant to NI 51-102 (the Annual Filings).

32. Investors in CLiCS are ultimately concerned about the affairs and financial performance of Amalco, as opposed to that of the Trust itself, and therefore, it is appropriate that Amalco's Certification Filings be available to them on the same basis as the Interim and Annual Filings of Amalco.

33. For the avoidance of doubt, for so long as the Trust qualifies for the Continuous Disclosure Exemption, Amalco is considered a "responsible issuer" for the purposes of determining the Trust's liability under Part XXIII.1 of the Securities Act (Ontario) and the CLiCS constitute "issuer's securities" of Amalco for the purposes of such part.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for it to make the decision.

The decision of the principal regulator under the Legislation is that the Continuous Disclosure Exemption and the Certification Exemption be granted to the Trust provided that:

(a) Amalco remains a reporting issuer under the Legislation;

(b) Amalco continues to be regulated by the Office of the Superintendent of Financial Institutions (Canada) or any successor;

(c) Amalco files with the principal regulator, in electronic format under the Trust's SEDAR profile, or the Trust's profile on any successor system to SEDAR, the Continuous Disclosure Filings, at the same time as they are required under the Legislation to be filed by Amalco;

(d) Amalco complies with the Certification Requirements and files the necessary certifications under the Trust's SEDAR profile, or the Trust's profile on any successor system to SEDAR, at the same time as they are required under the Legislation to be filed by Amalco;

(e) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the Continuous Disclosure Filings;

(f) Amalco sends its Annual Filings, where applicable, to holders of Trust Securities at the same time and in the same manner as if the holders of Trust Securities were holders of Amalco common shares;

(g) the Trust does not carry on any material operating activity other than in connection with the administration and repayment of the Trust Securities;

(h) the Trust does not have any material assets other than the CLA Debenture, has minimal assets, operations, revenues or cash flows other than those related to the CLA Debenture or the issuance, administration and repayment of the Trust Securities and has no material liabilities other than those related to the repayment of the Trust Securities;

(i) the Trust immediately issues in Canada a news release and files a material change report for all material changes in respect of the affairs of the Trust that are not also material changes in the affairs of Amalco;

(j) all outstanding securities of the Trust are either CLiCS or Special Trust Securities or are additional series of Canada Life Capital Trust Securities where the rights and obligations (other than the economic terms) of the holders of such additional securities are the same in all material respects as the rights and obligations of the holders of the CLiCS at the date hereof;

(k) the rights and obligations (other than the economic terms thereof) of holders of additional series of Canada Life Capital Trust Securities are the same in all material respects as the rights and obligations of the holders of CLiCS at the date hereof;

(l) for so long as any CLiCS or additional series of Canada Life Capital Trust Securities that are the same in all material respects as the CLiCS are outstanding, Amalco continues to provide the Dividend Stopper Undertaking;

(m) the CLiCS will be automatically exchanged, without the consent of the holder, for Amalco Class A Shares Series 5 pursuant to the Automatic Exchange upon the occurrence of a Loss Absorption Event;

(n) Amalco or its affiliates are the beneficial owners of all Special Trust Securities; and

(o) this decision will expire on the earlier of:

(i) 30 days after the date that a material adverse change occurs in the representations in this decision; and

(ii) three months after the coming into force of any substantive amendments to section 13.4(2) of NI 51-102 that materially adversely affect the Continuous Disclosure Exemption.

The further decision of the principal regulator is that the 2002 Order and the 2004 Order are revoked and replaced by this decision.

In respect of granting the Continuous Disclosure Exemption, granting the Certification Exemption, revoking the 2004 Order, and revoking the 2002 Order in respect of the AIF and MD&A Requirements (as defined in the 2002 Order):

"Jo-Anne Matear"
Manager, Corporate Finance
Ontario Securities Commission

In respect of revoking the 2002 Order in respect of the Financial Statements, Annual Filing and Annual Report (as defined in the 2002 Order):

"Lawrence Haber"
Commissioner
Ontario Securities Commission
"Craig Hayman"
Commissioner
Ontario Securities Commission