Exemption Orders (Discretionary)
CANADA LIFE FINANCIAL CORPORATION
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – relief from the prospectus requirements of the legislation so as to permit issuer to use the post receipt pricing procedures established under National Policy No. 44 for prospectus offering being completed in connection with demutualization of issuer
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 61, 76
National Policy No. 44
National Policy No. 47
IN THE MATTER OF THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO,
QUEBEC, NEW BRUNSWICK, PRINCE EDWARD ISLAND,
NOVA SCOTIA, NEWFOUNDLAND, THE NORTHWEST TERRITORIES,
NUNAVUT AND YUKON
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF
APPLICATIONS
AND
IN THE MATTER OF
CANADA LIFE FINANCIAL CORPORATION
DECISION DOCUMENT
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO,
QUEBEC, NEW BRUNSWICK, PRINCE EDWARD ISLAND,
NOVA SCOTIA, NEWFOUNDLAND, THE NORTHWEST TERRITORIES,
NUNAVUT AND YUKON
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF
APPLICATIONS
AND
IN THE MATTER OF
CANADA LIFE FINANCIAL CORPORATION
DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, the Northwest Territories, Nunavut and Yukon (the “Jurisdictions”) has received an application from Canada Life Financial Corporation (“CLFC”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) exempting CLFC from the prospectus requirements of the Legislation and permitting the use by CLFC of the PREP Procedures (as such term is defined in National Policy No. 44 (“NP 44”) and similar procedures under the Legislation of Quebec (the “Quebec Procedures”)) as if CLFC were eligible under NP 44 and articles 37.5, 37.6 and 37.7 of the Regulation respecting Securities under the Legislation of Quebec (the “Quebec Regulation”) in connection with CLFC’s proposed initial public offering (“IPO”) of common shares (the “Common Shares”), as more fully described below;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the Principal Regulator for this application;
AND WHEREAS CLFC has represented to the Decision Makers that:
1. The Canada Life Assurance Company (“Canada Life”) is a mutual life insurance company under the Insurance Companies Act (Canada), S.C. 1991, c. 47, as amended (the “Insurance Companies Act”) and is regulated by the Office of the Superintendent of Financial Institutions (“OSFI”). Canada Life was established on August 31, 1847, incorporated on April 25, 1849 and became a mutual life insurance company in 1962. The head office of Canada Life is located in Toronto, Ontario.
2. Canada Life is a diversified international life insurance company offering a wide range of protection and wealth management products to individuals and groups, principally in Canada, the United Kingdom, the United States and Ireland. At December 31, 1998, Canada Life ranked as the fourth largest Canadian life insurer, based on consolidated premium income and General Fund and Segregated Fund assets.
3. At December 31, 1998, Canada Life had policyholders’ equity of approximately $2.7 billion and total assets of $45.0 billion, consisting of General Fund assets of $26.3 billion and Segregated Fund assets of $18.7 billion. For the year ended December 31, 1998, Canada Life reported consolidated premiums of $6.1 billion, consisting of General Fund premium income of $4.0 billion and Segregated Fund premiums of $2.1 billion. Net income for 1998, before provisions which were taken with respect to two industry-wide issues in the United Kingdom, was $270 million. Net income after these provisions was $88 million.
4. As a “mutual company” within the meaning of the Insurance Companies Act, Canada Life is owned by its participating policyholders and has no shareholders. A limited number of non-participating policyholders enjoy voting rights with respect to Canada Life. The holders of voting policies of Canada Life are entitled to vote for the Board of Directors of Canada Life. Any such right to vote lapses upon the policy conferring such right itself lapsing or maturing or being transferred to another insurance company.
5. Canada Life has been a reporting issuer under the Securities Act (Ontario) (the “Ontario Act”) since August 18 , 1998. To its knowledge, Canada Life is not in default of any requirement of the Ontario Act or the regulation made pursuant to the Ontario Act. Canada Life is not currently a reporting issuer under the Legislation of any other Jurisdiction, although it intends to become a reporting issuer in each of the other Jurisdictions by filing a prospectus to qualify the distribution of $300 million aggregate principal amount of subordinated debentures.
6. CLFC was incorporated under the Insurance Companies Act on June 21, 1999 and is currently a wholly-owned subsidiary of Canada Life. Until the demutualization of Canada Life (described below), CLFC will have no assets other than the minimum capital required by OSFI. CLFC will be regulated by OSFI.
7. The authorized share capital of CLFC consists of an unlimited number of common shares and one class of an unlimited number of preferred shares, issuable in series, of which one common share and one Series A preferred share are issued and held by Canada Life. No other shares are outstanding. CLFC is not a reporting issuer in any of the provinces or territories of Canada.
8. Canada Life has proposed to demutualize pursuant to the Insurance Companies Act. The demutualization requires the approval of certain holders of participating policies of Canada Life (“Eligible Policyholders”) and the Minister of Finance (Canada). If the Eligible Policyholders and the Minister of Finance (Canada) approve the conversion proposal of Canada Life dated as of July 8, 1999 (the “Conversion Proposal”), the effective date of the demutualization (the “Effective Date”) will be the date specified in the Letters Patent of Conversion.
9. On the Effective Date, among other things: (i) Canada Life will convert from a mutual life insurance company to a life insurance company with common shares and become a wholly-owned subsidiary of CLFC through the issuance of its common shares to CLFC; (ii) the Eligible Policyholders will be entitled to receive Common Shares or, in certain circumstances, policy credits or cash, in accordance with the Conversion Proposal; (iii) the participating accounts of Canada Life and its principal U.K. subsidiary will be restructured in accordance with the Conversion Proposal; (iv) the corporate structure of Canada Life’s U.K. division will be reorganized; and (v) CLFC will complete the IPO.
10. Prior to the Effective Date, CLFC will file a preliminary long form prospectus and a long form prospectus (the “Prospectus”) in each of the Jurisdictions to qualify the distribution of the Common Shares pursuant to the IPO. The IPO is scheduled to be completed following the time the demutualization becomes effective. In connection with the IPO, the Toronto Stock Exchange (the “TSE”) and the Montreal Exchange (the “ME”) have conditionally approved the listing of the Common Shares.
11. In the IPO, the Common Shares will be offered to the public in Canada pursuant to the Prospectus, to qualified institutional buyers in the United States pursuant to Rule 144A under the United States Securities Act of 1933 and internationally in transactions exempt from local prospectus requirements. The IPO will establish a market price for the Common Shares, including a price for the Common Shares to be repurchased by CLFC or sold to the underwriters as described below, and will assist in establishing a proper trading market for the Common Shares and allow for sales of Common Shares in an orderly fashion. As a result of filing the Prospectus, CLFC will become a reporting issuer (or its equivalent) under the Legislation of each Jurisdiction.
12. CLFC intends to use its net proceeds from the IPO: (i) to fund the payments to those Eligible Policyholders who are required to receive cash under the Conversion Proposal; (ii) to contribute to Canada Life an amount sufficient to fund the policy credits for those Eligible Policyholders who are required to receive policy credits under the Conversion Proposal; and (iii) to satisfy the obligations incurred by CLFC in purchasing Common Shares from Canadian-resident Eligible Policyholders who have elected to sell all of their Common Shares to CLFC immediately prior to the IPO. The balance of the net proceeds, if any, will be retained by CLFC for its own working capital or contributed to Canada Life to help defray the costs of demutualization or provide additional working capital.
13. In connection with the demutualization of Canada Life, CLFC will issue approximately 156 million Common Shares. CLFC anticipates that, immediately following completion of the IPO, the aggregate market value of the Common Shares will be significantly in excess of the $300,000,000 minimum provided for in section 4.2 of National Policy 47 (“NP 47”).
14. Section 4.1 of NP 44 makes the PREP Procedures available to an issuer that is: (i) eligible to use the POP System (as defined in NP47), either as a result of meeting the POP System’s eligibility criteria or as a result of obtaining discretionary relief permitting the issuer to use the POP System, to distribute the relevant class of securities; or (ii) has outstanding equity securities that are listed and posted for trading on a Recognized Stock Exchange (as defined in NP 44).
15. Without the order sought by this application, CLFC would not be eligible to use the PREP Procedures for the IPO because: (i) CLFC does not satisfy the POP System’s eligibility criteria for the distribution of the Common Shares; and (ii) the Common Shares are not currently listed and posted for trading on a Recognized Stock Exchange. However, as noted above, immediately following completion of the IPO, CLFC expects to satisfy the “substantial issuer” eligibility criteria prescribed by section 4.2 of NP 47 and its Common Shares will be listed and posted for trading on the TSE and the ME, each of which is a Recognized Stock Exchange.
16. Canada Life has an obligation to its Eligible Policyholders to maximize the value of their demutualization benefits, which will be in the form of Common Shares, policy credits or cash. The value of the demutualization benefits will be established initially through the sale price for the Common Shares in the IPO.
17. CLFC believes that the PREP Procedures will permit CLFC and its underwriters to better coordinate the pricing, prospectus delivery, and purchase confirmations relating to the IPO, thereby assisting Canada Life in meeting its obligation to Eligible Policyholders through a successful IPO.
AND WHEREAS, pursuant to the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
IT IS HEREBY DECIDED by the Decision Makers, pursuant to the Legislation, that CLFC is hereby exempted from the prospectus requirements of the Legislation with respect to the IPO of Common Shares effected in compliance with the PREP Procedures and the Quebec Procedures:
- 1. insofar as such requirements concern the form and content of a preliminary prospectus or a prospectus, including the form of prospectus certificates, filed under the Legislation;
2. insofar as the requirements of the Legislation concern the filing of an amendment or supplement to a preliminary prospectus or prospectus filed under the Legislation;
provided that:
3. a preliminary prospectus complying with NP 44 and the Quebec Regulation is filed under the Legislation pursuant to and in accordance with the requirements and procedures set forth in NP 44 and the Quebec Regulation, as if CLFC was eligible to use the PREP Procedures and the Quebec Procedures and such preliminary prospectus is supplemented and amended pursuant to and in accordance with the requirements and procedures set forth in NP 44 and the Quebec Regulation, including the filing of amendments complying with the requirements of the Legislation;
4. a prospectus complying with NP 44 and the Quebec Regulation is filed under the Legislation pursuant to and in accordance with the requirements and procedures set forth in NP 44 and the Quebec Regulation, as if CLFC was eligible to use the PREP Procedures and the Quebec Procedures; and
5. such prospectus is supplemented and amended pursuant to and in accordance with the requirements and procedures set forth in NP 44 and the Quebec Regulation, including the filing of amendments complying with the requirements of the Legislation.
DATED at Toronto this 9th day of September, 1999.
- Howard I. Wetston K. D. Adams