Browse Analysis of Managed and Structured Products

22.2.1 Regulation Of Segregated Funds

Learn about the regulatory framework governing segregated funds in Canada, including provincial guidelines, the role of Assuris, and licensing requirements.

Overview of Segregated Funds

Segregated funds are a type of insurance contract known as individual variable insurance contracts (IVICs). These contracts are an agreement between a policyholder and an insurance company and are regulated at the provincial level.

Regulatory Bodies Overview

There are three main regulatory bodies responsible for the oversight of segregated funds:

1. Canadian Life and Health Insurance Association Inc. (CLHIA)

Each province and territory in Canada adheres to the guidelines set by the CLHIA. These guidelines form the primary framework within which segregated funds operate at the provincial level.

2. Office of the Superintendent of Financial Institutions (OSFI)

The OSFI ensures that federally regulated insurance companies maintain adequate capital under the federal Insurance Companies Act. OSFI’s role is crucial for maintaining the solvency and stability of these companies.

3. Assuris

Assuris is a self-financing industry body that provides protection against the loss of policy benefits in case of the insolvency of a member insurance company. However, it’s important to note that Assuris only guarantees the death benefits and maturity guarantees in a segregated fund contract, not the assets of the funds themselves.

Protections Offered by Assuris

Assuris steps in to supplement any payments made by a liquidator to fulfill insurance obligations under a segregated fund contract. The maximum compensation provided under an individual segregated fund policy is either $60,000 or 85% of the promised guaranteed amounts, whichever is higher. These limits apply to both registered plans (such as RRSP, RESP, and RRIF) and contracts held outside registered plans.

Licensing Requirements

Since segregated funds are regulated as insurance products, you must hold a proper license to sell or advise on them in Canada. This entails completing an insurance licensing course that adheres to the curriculum prescribed by the Canadian Council of Insurance Regulators. For more details, visit the Canadian Securities Institute website and review the Loglife Licensed Qualified Person (LLQP) Insurance Course description.

Frequently Asked Questions

Q: What are segregated funds?

A: Segregated funds are individual variable insurance contracts between a policyholder and an insurance company, offering the combined benefits of mutual funds and insurance policies.

Q: Who regulates segregated funds in Canada?

A: Segregated funds are regulated by provincial insurance regulators, adhering to guidelines set by the Canadian Life and Health Insurance Association Inc. (CLHIA). Federally regulated insurance companies are overseen by the Office of the Superintendent of Financial Institutions (OSFI).

Q: What protections does Assuris provide?

A: Assuris guarantees the death benefits and maturity guarantees of a segregated fund contract up to a maximum of $60,000 or 85% of the promised guaranteed amounts. The assets of the segregated funds are not covered.

Q: What are the licensing requirements to sell segregated funds?

A: You need to complete an insurance licensing course that follows the curriculum prescribed by the Canadian Council of Insurance Regulators, in addition to passing the Canadian Securities Course.

Glossary

  • Segregated Funds: Insurance contracts that combine the benefits of mutual funds and insurance policies.
  • Canadian Life and Health Insurance Association Inc. (CLHIA): An organization providing regulatory guidelines for segregated funds in Canada.
  • Office of the Superintendent of Financial Institutions (OSFI): A federal body ensuring that federally regulated insurance companies are adequately capitalized under the federal Insurance Companies Act.
  • Assuris: A self-financing provider of protection against the loss of policy benefits in the event of the insolvency of a member insurance company.

Key Takeaways

  • Segregated funds are insurance-based products that are regulated at the provincial level in Canada.

Three main bodies oversee these products: CLHIA, OSFI, and Assuris. Assuris offers limited protection, primarily covering death benefits and maturity guarantees. Proper licensing is required to sell or advise on segregated funds, involving specific courses prescribed by insurance regulators. For more information, check the Canadian Securities Institute website and review the LLQP Insurance Course description.


CSC® Exams Practice Questions

📚✨ CSC Exam Questions ✨📚

Welcome to the Knowledge Checkpoint! You'll find 10 carefully curated CSC exam practice questions designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you're on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

Good luck!

## What are segregated funds primarily regulated as? - [ ] Securities contracts - [x] Insurance contracts - [ ] Mutual fund contracts - [ ] Pension plans > **Explanation:** Segregated funds are individual variable insurance contracts regulated by provincial insurance regulators. ## Which regulatory body is responsible for ensuring that federally regulated insurance companies are adequately capitalized? - [ ] Canadian Life and Health Insurance Association - [ ] Assuris - [ ] Canadian Securities Administrators - [x] Office of the Superintendent of Financial Institutions > **Explanation:** The Office of the Superintendent of Financial Institutions (OSFI) ensures that federally regulated insurance companies are adequately capitalized under the Insurance Companies Act. ## What role does Assuris play in the context of segregated funds? - [ ] Regulates the sale of segregated funds - [ ] Ensures funds are adequately capitalized - [x] Provides protection against the loss of policy benefits in the event of insolvency - [ ] Oversees the insurance licensing process > **Explanation:** Assuris is the self-financing provider of protection against the loss of policy benefits in the event of the insolvency of a member company. ## What aspects of segregated fund contracts does Assuris' guarantee cover? - [x] Death benefits and maturity guarantees - [ ] Investment returns of the funds - [ ] Policyholder premiums - [ ] Operational costs of the insurance company > **Explanation:** Assuris covers the death benefits and maturity guarantees of segregated fund contracts but does not cover the funds' assets themselves. ## Who regulates the sale of segregated funds? - [ ] Federal insurance regulators - [x] Provincial insurance regulators - [ ] Canadian Securities Administrators - [ ] Assuris > **Explanation:** Provincial insurance regulators are responsible for regulating the sale of segregated funds. ## What must you obtain to sell or advise on segregated funds in Canada? - [ ] Mutual Funds Dealer’s Licence - [ ] Canadian Securities Course Certification - [ ] Life and Health Insurance Association Membership - [x] Proper insurance license > **Explanation:** To sell or advise on segregated funds, you must complete a proper insurance licensing course, as prescribed by the Canadian Council of Insurance Regulators. ## What is the Canadian Life and Health Insurance Association Inc.'s role in regulating segregated funds? - [ ] Oversee the liquidation process - [x] Provide primary regulatory guidelines accepted by provincial regulators - [ ] Ensure federal insurance companies are capitalized - [ ] Guarantee the assets of funds > **Explanation:** The Canadian Life and Health Insurance Association Inc. provides guidelines that provincial regulators accept as the primary regulatory requirements. ## What is the maximum compensation provided by Assuris under an individual segregated fund policy? - [ ] $50,000 or 75% of the promised guaranteed amounts - [ ] $60,000 exact - [x] $60,000 or 85% of the promised guaranteed amounts, whichever is higher - [ ] 100% of the investment's value > **Explanation:** The maximum compensation under an individual segregated fund policy by Assuris is $60,000 or 85% of the promised guaranteed amounts, whichever is higher. ## Under which act does the Office of the Superintendent of Financial Institutions ensure federally regulated insurance companies are capitalized? - [ ] Securities Act - [x] Insurance Companies Act - [ ] Investments Act - [ ] Provincial Insurance Act > **Explanation:** The Office of the Superintendent of Financial Institutions ensures insurance companies are capitalized under the federal Insurance Companies Act. ## Where can you find further information about the insurance licensing course required to sell segregated funds? - [ ] Office of the Superintendent of Financial Institutions website - [ ] Assuris website - [ ] Canadian Life and Health Insurance Association Inc. website - [x] Canadian Securities Institute website > **Explanation:** Further information about the insurance licensing course can be found on the Canadian Securities Institute website at www.csi.ca.

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