The move could be a turning point in a battle over the use of specialized interest-earning accounts
Fresh regulations from the Saskatchewan government were welcome news for Manulife and iA Financial Group, which have been embroiled in an battle over how interest-earning accounts in certain life insurance policies should be used.
On Monday, the province published an update to the Saskatchewan Insurance Act, putting a cap the amount of premiums a life insurer may receive or accept for deposit in certain life insurance policies and associated side accounts, reported Bloomberg.
The new regulations cut to the heart of a legal standoff involving ‘90s-era universal life policies that iA and Manulife are responsible for. In a case brought against the firms in a Saskatoon court, hedge fund Mosten Investment LP, which acquired old policies that essentially guaranteed interest between 4% and 5%, argued that it should be allowed to invest unlimited amounts in the plans. The two insurers disputed the claim, saying that the contracts were only meant to accept amounts that could reasonably be required for policyholders to make future premium payments.
The legal dispute got greater attention earlier this month when short seller Carson Block of Muddy Waters announced a short position in Manulife. At the time, Block said the trial could lead to billions in losses for the Canadian insurer. But the new rules issued by the Saskatchewan government sharply lower the possibility of that outcome.
“[M]osten is seeking to use insurance policies to invest sizeable sums that have no connection to the insurance coverage,” Manulife said in a statement following the publication of the new regulations. “Given the new Saskatchewan regulations, Manulife and the other life insurers involved in similar matters plan to make submissions to the court, asking it to dismiss the claims that life insurers can be compelled to accept unlimited premium payments.”
“iA Financial Group has always maintained that this litigation was unfounded and that life insurance contracts were never intended to be used as deposit accounts or for purposes that are unrelated to life insurance,” iA said in a separate statement.
The Canadian Life and Health Insurance Association (CLHIA) has also weighed in on the matter. On Tuesday, it commended the government of Saskatchewan’s new regulations that address any confusion on whether life insurance policies could be used as deposit or securities contracts.
“Through these regulations, the government of Saskatchewan has taken important steps to reinforce the separation of banking and insurance which is a fundamental policy underpinning the strength of the Canadian financial system," said CLHIA President and CEO Stephen Frank.
The CLHIA went on to say that it plans to encourage other provincial and territorial governments to take similar actions to avoid any public uncertainty in other jurisdictions.
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