Travelers Indemnity Company, The, -- s. 74(1) of the Act and s. 80 of the CFA
Headnote
Application to the Ontario Securities Commission for a ruling pursuant to subsection 74(1) of the Securities Act (Ontario) (the Act) that the Applicant be exempted from the adviser registration requirement in subsection 25(3) of the Act -- Application to the Ontario Securities Commission for a ruling pursuant to section 80 of the Commodity Futures Act (CFA) that the Applicant be exempted from the adviser registration requirement in subsection 22(1)(b) of the CFA -- Applicant will provide advice to an affiliated insurance company in Ontario only so long as that affiliate remains an affiliate of the Applicant.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(3), 74(1).
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss, 22(1)(b), 80
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
(THE ACT)
AND
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, c.20, AS AMENDED
(THE CFA)
AND
IN THE MATTER OF
THE TRAVELERS INDEMNITY COMPANY
RULING
(Subsection 74(1) of the Act and Section 80 of the CFA)
UPON the Application (the Application) of The Travelers Indemnity Company (the Applicant) to the Ontario Securities Commission (the Commission) for a ruling pursuant to subsection 74(1) of the Act that the Applicant and any individuals acting on the Applicant's behalf be exempted from the adviser registration requirements in subsection 25(3) of the Act and an order pursuant to section 80 of the CFA that the Applicant and any individuals acting on the Applicant's behalf be exempted from the adviser registration requirements in subsection 22(1)(b) of the CFA in respect of the trading in Contracts, as defined in the CFA, on the conditions described herein;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission as follows:
1. The Applicant is a corporation existing under the laws of the State of Connecticut and is a licensed property and casualty insurance company.
2. The Applicant is an indirect wholly-owned subsidiary of The Travelers Companies, Inc., an insurance holding company headquartered in the United States with operations in the United States, the U.K., Ireland and Canada. All of the U.S. employees in the Travelers group of companies are employed by the Applicant, which is a large insurance company and the Travelers' lead operating company.
3. The Applicant, through such employees, provides services to entities within the Travelers group of companies. The services comprise various activities needed to properly operate a property casualty insurance company, including investment advisory and portfolio management services (including possible transactions involving Contracts) (the Advisory Services) and information technology, human resources and other administrative services.
4. The Advisory Services are provided to the affiliates on a cost sharing basis or for a fee that is modest but compliant with tax, regulatory and other considerations. It is not intended that the Applicant profit from the provision of such services. The Applicant does not provide Advisory Services to any person or company other than its affiliated entities.
5. The Applicant is an affiliated company of two companies that carry on insurance business in Canada, specifically (1) The Travelers Insurance Company of Canada, which is a Canadian federally licensed insurance company and (2) St. Paul Fire and Marine Insurance Company, which is a US insurance company operating a Canadian branch with its Canadian head offices located in Ontario (collectively the Canadian Affiliated Companies and including Dominion Insurance, which will become an affiliate after the completion of the transaction described in paragraph 10).
6. The Applicant is not required to be registered as an investment adviser with the U.S. Securities and Exchange Commission under the United States Investment Advisers Act of 1940 and is not required to be registered as a commodity trading adviser under the Commodity Exchange Act pursuant to Rule 4.6(a)(1) promulgated pursuant to such act, which excludes insurance companies and any wholly-owned subsidiaries or employees of an insurance company from the definition of commodity trading advisor.
7. The Applicant is not registered in any capacity in any jurisdiction of Canada. The Applicant does not have an office in Canada or any employees in Canada that provide or are involved in the Advisory Services.
8. Each of the affiliated companies for which the Applicant provides services, including each of the Canadian Affiliated Companies, is a direct or indirect wholly-owned subsidiary of The Travelers Companies, Inc. and, as such, is an affiliate of the Applicant as defined in the Act.
9. The arrangements under which the Advisory Services are provided to the Canadian Affiliated Companies are similar to the arrangements pursuant to which the Applicant provides similar Advisory Services to other affiliated companies in the Travelers group.
10. The Applicant provides the Advisory Services to the Canadian Affiliated Companies with respect to the portfolio assets of the Canadian Affiliated Companies maintained in connection with their respective Canadian businesses. Such services have been provided by the Applicant since approximately 2002. The Applicant provided those services on the basis of a good faith determination that it was not providing advice to others with respect to investing in securities or buying or selling securities because it was providing such services only to companies affiliated with the Travelers group of companies, and that its provision of such services did not constitute the "engaging in the business" of an adviser. The Applicant seeks to continue to provide such Advisory Services on a basis that would not require registration under the Act. In addition, on occasion, the Applicant may provide Advisory Services to companies wholly-owned by affiliates of the Applicant and that are holding companies of the Canadian Affiliated Companies (Holdcos) and engaged in the movement of funds between the Canadian Affiliated Companies and such affiliates of the Applicant. The Applicant seeks to continue to provide such Advisory Services on a basis that would not require registration under the Act.
11. The Travelers Companies, Inc. has announced its intention to purchase The Dominion of Canada General Insurance Company (Dominion Insurance), and the Applicant proposes to provide, following completion of that transaction, Advisory Services to Dominion Insurance on the same basis as to the other Canadian Affiliated Companies.
12. The Applicant is not able to rely on the international adviser registration exemption in section 8.26 of NI 31-103 to continue to provide such services to the Canadian Affiliated Companies because the advice provided by the Applicant to the Canadian Affiliated Companies on the securities of Canadian issuers is not incidental to the advice it is providing on a foreign security, as investment in securities of Canadian issuers are part of the investment objectives of the Canadian Affiliated Companies.
13. There is no requirement for employees of a corporation to be registered as advisers under the Act if the employees provide Advisory Services to their corporate employers with respect to the portfolio assets of such corporate employers. The Canadian Affiliated Companies do not currently employ individuals to provide Advisory Services with respect to their portfolio assets, but rather the Canadian Affiliated Companies have outsourced this function to the Applicant, an affiliate of the Canadian Affiliated Companies. The Canadian Affiliated Companies are permitted to outsource this function under federal insurance company legislation in Canada.
14. The Canadian portfolio assets of the Canadian Affiliated Companies managed by the Applicant are owned by each of the respective Canadian Affiliated Companies. 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 portfolios. Accordingly, there are no stakeholders in Ontario or elsewhere other than the Canadian Affiliated Companies that will be directly affected by the results of the investment advice to be provided by the Applicant. None of the affiliates have life insurance or annuity products, separate accounts or products where the customer participates in the investment performance.
15. Subsection 74(1) of the Act and section 80 of the CFA each provide that an order may be issued subject to terms and conditions as the Commission may consider necessary.
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 the Applicant and any individual acting on behalf of the Applicant is exempt from the adviser registration requirements of subsection 25(3) of the Act and under subsection 22(1)(b) of the CFA in respect of it acting as an adviser, provided that:
1. the Applicant provides investment advice and portfolio management services in Ontario only to its affiliates that are licensed or otherwise duly permitted or authorized to carry on business as an insurance company in Canada or holding companies of such entities that are wholly-owned by affiliates of the Applicant; and
2. with respect to any particular affiliate, the investment advice and portfolio management services are provided only as long as that affiliate remains an "affiliate" of the Applicant, as defined in the Act.
September 17, 2013