Contingent Liabilities

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A contingent liability is a potential liability which may become an actual liability when one or more future events occur or fail to occur. Contingent liabilities are recorded in the accounts when it becomes likely that a payment will be made and the amount of that payment can be reasonably estimated. The contingent liabilities of the Government are grouped into: guarantees provided by the Government, international organizations, claims and pending and threatened litigation, and insurance programs of agent enterprise Crown corporations. Additional information regarding each category is provided below.

For details of contingent liabilities of consolidated Crown corporations, refer to Table 4.4 in Section 4 of this volume. Particulars of contingent liabilities of enterprise Crown corporations and other government business enterprises are not consolidated with those of the Government but details of these contingencies may be found in Table 9.8 in Section 9 of this volume.

Guarantees

Guarantees provided by the Government include:

  • guarantees on the borrowings of enterprise Crown corporations and other government business enterprises;
  • loan guarantees;
  • insurance programs managed by the Government; and
  • other explicit guarantees.

Losses on guarantees are recorded in the accounts when it is likely that a payment will be made to honour a guarantee and when the amount of the anticipated loss can be reasonably estimated. The amount of the allowance is determined by taking into consideration the nature of the guarantee, loss experience and the use of other measurement techniques. Borrowings of enterprise Crown corporations and other government business enterprises are recorded as liabilities for the portion not expected to be repaid directly by these corporations.

Table 11.5 lists the outstanding guarantees and is summarized in Note 18 to the consolidated financial statements in Section 2 of this volume. The authorized limits indicated in Table 11.5 represent the aggregate total of various types of authorities of Government bodies as stipulated in legislation, legal agreements or other documents that may be in force at any one time.

Table Summary

The table presents, in millions of dollars, the guarantees provided by the Government. It consists of three columns: a detailed listing of components; authorized limit (where applicable); principal amount outstanding. The first columns lists the individual guarantees by category, presented by department with a total at the end of each category.

(in millions of dollars)

Table 11.5
Guarantees provided by the Government as at March 31, 2015

  Authorized limit (where applicable) Principal amount outstanding
Guaranteed borrowings of enterprise Crown corporations and other government business enterprises —    
Agent enterprise Crown corporations   253,049Link to footnote 1
Non‑agent enterprise Crown corporations and other government business enterprises —    
Canadian Wheat Board, The   902
Total — Guaranteed borrowings   253,951
Other guarantees provided by the Government —    
Loan guarantees —    
Agriculture and Agri‑Food —    
Advance Payments Program — Agricultural Marketing Programs Act 5,000 1,245
Farm Improvement Loans Act (FILA) and Canadian Agricultural Loans Act 3,000 106
Employment and Social Development —    
Canada Student Loans Act 10,782 8
Indian Affairs and Northern Development —    
Indian Economic Development Guarantee Program 60 1
On‑Reserve Housing Guarantee Program 2,200  
Canada Mortgage and Housing Corporation   1,330
Other approved lenders   385
Industry —    
Regional Aircraft Credit Facility 1,500 116
Small Business Loans Act 1,838 Link to footnote 2
Canada Small Business Financing Act 2,139 752
Capital Leasing Pilot Project 16 Link to footnote 2
Natural Resources —    
Lower Churchill Hydro Electric Projects 6,300 1,793
Total — Loan guarantees 32,835 5,736
Insurance programs managed by the Government —    
Canadian Heritage —    
Canada Travelling Exhibitions Indemnification Act 3,000 Link to footnote 3
Canadian Nuclear Safety Commission —    
Nuclear Liability Reinsurance Account 975 506
Foreign Affairs, Trade and Development —    
Accounts administered for the Government by Export Development Canada 20,000 176
Finance —    
Mortgage or Hypothecary Insurance Protection 300,000 182,458
Transport —    
Aviation War Risks   Link to footnote 3
Total — Insurance programs managed by the Government 323,975 183,140
Other explicit guarantees —    
Agriculture and Agri‑Food —    
National Biomass Ethanol Program 140 25
Price Pooling Program — Agricultural Marketing Programs Act   4
Finance —    
Obligations to The Canadian Wheat Board under the Credit Grain Sales Program   17
Consolidated Crown corporations —    
VIA Rail Canada Inc. —    
Letters of credit   31
Total — Other explicit guarantees 140 77
Total — Gross guarantees 356,950 442,904
Less: allowance for guarantees   317
Net exposure under guarantees   442,587

Advance Payments Program — Agricultural Marketing Programs Act

The Advance Payments Program (APP) provides producers with a cash advance on the value of their agricultural products during a specified period. By improving their cash flow throughout the year, the APP helps crop and livestock producers meet their financial obligations and benefit from the best market conditions.

Under the APP, the federal government guarantees repayment of cash advances issued to farmers by the producer organization. These guarantees help the producer organization borrow money from financial institutions at lower interest rates and issue producers a cash advance on the anticipated value of their farm product that is being produced or that is in storage. The maximum cash advance of the program is $0.4 million and the loans generally have a repayment term of 18 months.

Farm Improvement Loans Act and Canadian Agricultural Loans Act

The Canadian Agricultural Loans Act (CALA) program is a financial loan guarantee program that gives farmers easier access to credit. Farmers can use these loans to establish, improve, and develop farms; while Agricultural co‑operatives may also access loans to process, distribute, or market the products of farming.

The CALA program builds on and replaces the previous Farm Improvement and Marketing Co‑operative Loans Act(FIMCLA) program, which has helped farming operations grow their businesses by guaranteeing loans issued through financial institutions since 1988.

Through the CALA, the Government of Canada is supporting the renewal of the agricultural sector and enabling co‑operatives to better seize market opportunities. This program guarantees 95 percent of the value of loans provided to farms and cooperatives by financial institutions. For individual applicants, including corporations, the maximum amount for a Canadian Agricultural Loans Act loan is $0.5 million. Most loans are repayable within ten years; for loans on land purchases, the repayment period is 15 years.

Canada Student Loans Act

Loans provided by financial institutions between 1964 and August 1995, under the Canada Student Loans Act, are fully guaranteed by Employment and Social Development (ESDC) to the lenders. ESDC reimburses the lenders for the outstanding principal, accrued interest and costs in the event of default, permanent disability or death of the borrower. ESDC bears all risks associated with guaranteed loans.

Indian Economic Development Guarantee Program

This program authorizes Indian Affairs and Northern Development Canada to guarantee loans for non‑incorporated Indian businesses on a risk‑sharing basis with commercial lenders because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. Guarantees are provided for various types of borrowers whose activities contribute to the economic development of Indians and enable them to develop long‑term credit relationships with mainstream financial institutions.

Loans issued under this program cannot exceed a term of 15 years and the line of credit must be renewed every year. Interest rates on guaranteed loans are consistent with rates provided by lending institutions to commercial businesses, which are usually based on a spread from the prime lending rate. Any security pledged for a guaranteed loan may not be released by the lending institution without the prior approval of the Minister of Indian Affairs and Northern Development.

On‑Reserve Housing Guarantee Program

This program authorizes Indian Affairs and Northern Development Canada to guarantee loans to individuals and Indian bands to assist in the purchase of housing on reserves because security restrictions in the Indian Act prevent the mortgage and seizure of property located on reserves. These loan guarantees enable status Indians residing on reserves, Band councils, or their delegated authorities, to secure housing loans without giving the lending institution rights to the property.

Loans under this program are issued by registered lending institutions and Canada Mortgage and Housing Corporation. Payments of principal and interest for loans issued under this program are amortized over a period of 25 years. The interest rates on the guaranteed loans are consistent with conventional mortgage interest rates offered by the major banks.

Regional Aircraft Credit Facility

The Regional Aircraft Credit Facility Program was established in 2004 to provide sales financing assistance in the form of loan guarantees to enable domestic air carriers to acquire Canadian‑built fixed‑wing commercial jets.

The guarantees are provided on commercial terms and are secured by the aircraft financed by private lenders. These guarantees have a life of 15 years. This program expired on March 31, 2008.

Small Business Loans Act and Canada Small Business Financing Act

The Small Business Loans Act (SBLA) includes loans registered until March 31, 1999 and the Canada Small Business Financing Act (CSBFA) includes both the core loans component (loans registered since April 1, 1999) and the Capital Leasing Pilot Project (leases registered between April 1, 2002 and March 31, 2007). In collaboration with financial institutions, the programs offered under these Acts are designed to help Canadian small and medium‑sized enterprises (SMEs) get access to loan and capital leasing financing that would not otherwise have been available, or would only have been available under less favourable terms. In the event a registered loan or lease defaults, the Government pays 85 percent of the net eligible losses. To be eligible, SMEs must be for‑profit businesses with revenues not exceeding $5 million per year.

Lower Churchill Hydroelectric Projects

In 2011, the Government of Canada committed to providing a loan guarantee for the Lower Churchill Hydroelectric Projects, including two projects sponsored by Nalcor Energy ((1) Muskrat Falls and Labrador Transmission Assets and (2) Labrador‑Island Link) and one project sponsored by Emera Inc. (Maritime Link). The federal loan guarantee applied to the debt raised for the construction of these projects. Subsequent to signing of the Guarantee Agreement by the Minister of Natural Resources for the Muskrat Falls / Labrador Transmission Assets and for the Labrador Island Link, on December 13, 2013, the financing was completed for the Nalcor‑led projects, raising $5 billion of guaranteed debt in the form of a bond financing. These bonds have a life varying from about 15 years to 40 years. After the Minister of Natural Resources signed the Guarantee Agreement for the Maritime Link; on April 23, 2014, the bond financing was completed for the Maritime Link, raising $1.3 billion of guaranteed debt for a life of about 39 years. As of March 31, 2015, $1,792,797,702 of guaranteed debt has been released to the project entities. As per the terms of the bonds that were issued, initially, only interest payments are being made on the guaranteed debt. Once the projects are operational, principal payments on the guaranteed debt will begin, with the schedule of these payments depending on the specific terms and conditions of each of the guaranteed bonds. Among the many safeguards put in place to protect Canada's interest, all of the project entities' shares, assets and agreements have been pledged as security to Canada.

Canada Travelling Exhibitions Indemnification Act

Pursuant to s. 3(1) of the Canada Travelling Exhibitions Indemnification Act (the Act) the Minister of Canadian Heritage is authorized to enter into indemnification agreements with owners of objects or appurtenances on loan to travelling exhibitions in Canada. Under the Act, maximum levels of liability are established including: no more than $600 million in respect of each travelling exhibition and; no more than $3 billion at any given time in respect of all traveling exhibitions. The Canada Travelling Exhibitions Indemnification Regulations set out specific requirements to be met when owners are seeking indemnification agreements with the Minister. The Regulations also set limitations on the scope of indemnity, establish deductibles, define maximums for and period of coverage, set requirements for condition reporting, outline a claims procedure and provide for dispute resolution, among other things. Applicants may include institutions organizing or participating in travelling exhibitions who apply on behalf of owners. Upon approval of an application by the Minister, the owner of an object or appurtenance included in the particular travelling exhibition may enter into an indemnification agreement with the Minister.

Nuclear Liability Reinsurance Account

Under the Nuclear Liability Act (NLA), operators of designated nuclear installations are required to possess basic and/or supplementary insurance of $75 million per installation for specified liabilities. The federal government has designated the Nuclear Insurance Association of Canada (NIAC) as the sole provider of third‑party liability insurance and property insurance for the nuclear industry in Canada. The NIAC provides insurance to nuclear operators under a standard policy.

The policy consists of two types of coverage:

Coverage A and Coverage B. Coverage A includes only those risks that are accepted by the insurer; that is, bodily injury and property damage. Coverage B risks include personal injury that is not bodily; for example, psychological injury, damage arising from normal emissions, and damage due to acts of terrorism.

The NIAC receives premiums from operators for both coverages; however, premiums for Coverage B risks are remitted to the federal government, which reinsures these risks under its reinsurance agreement with the NIAC. Through the reinsurance agreement, the federal government assumes the liability associated with the difference between the basic insurance coverage provided by the NIAC and the full $75 million of liability imposed by the NLA, aswell as for events listed under coverage B.

The Canadian Nuclear Safety Commission (CNSC) administers the Nuclear Liability Reinsurance Account on behalf of the federal government. The CNSC receives the premiums, paid by the operators of nuclear installations, for the supplementary insurance coverage and credits these to the Nuclear Liability Reinsurance Account in the Consolidated Revenue Fund.

Accounts administered for the Government by Export Development Canada (EDC)

The Government of Canada has authorized support for insurance and guarantee programs which on the basis of EDC's risk management practices, could not be supported under EDC's Corporate Account but are in the national interest. Canada Account transactions consist of activities undertaken by EDC pursuant to Section 23 of the Export Development Act.

Mortgage or Hypothecary Insurance Protection

The Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA) received Royal Assent on June 26, 2011 and came into force on January 1, 2013.

The PRMHIA authorizes the Minister of Finance to provide protection in respect of certain mortgage or hypothecary insurance contracts written by approved mortgage insurers. Under the PRMHIA, a payment in respect of this guarantee would only be made if a winding‑up order were made in respect of an approved mortgage insurer that had written an insurance contract guaranteed under the PRMHIA. In that case, the Minister would honour lender claims for insured mortgages in default, subject to: (1) any proceeds the beneficiary has received from the underlying property or the insurer's liquidation, and (2) a deductible of 10 percent of the original principal amount of the insured mortgage.

As at March 31, 2015, the aggregate outstanding principal amount of loans that are guaranteed under the PRMHIA is estimated at $205.8 billion ($174.9 billion in 2014). Any payment by the Minister is subject to a deductible equal to 10 percent of the original principal amount of these loans, or $23.3 billion ($19.7 billion in 2014). The principal amount outstanding presented within Table 11.5 does not refer to anticipated losses or payments in respect of the guarantee. No provision has been made in these accounts for payments under the guarantee. As at March 31, 2015, there are two approved mortgage insurers under the PRMHIA: Genworth Financial Mortgage Insurance Company Canada, and Canada Guaranty Mortgage Insurance Company.

Aviation War Risks

The Aviation War Risk Liability Program's guarantee is a blanket indemnity to the air industry for any losses arising as a result of war risks causing personal injury or property damage to third parties. Under the current program, airlines and other stakeholders are responsible for obtaining a certain threshold of third party war risk liability insurance. The Government's indemnity covers the gap between the threshold amounts and the individual policy holder's general liability policy limit. There is neither specified amount, nor amount specifiable—any given claim is up to the level of the individual participants' general insurance policy and there is no limit on the number of claims that can be made. The guarantee is in effect until December 31, 2015.

National Biomass Ethanol Program

By Agreement dated March 30, 2001 (and amended in September 1, 2003), Her Majesty the Queen in Right of Canada as represented by the Minister of Agriculture and Agri‑Food and Farm Credit Canada (FCC) entered into the National Biomass Ethanol Program (NBEP). The purpose of the program is to encourage new biomass fuel ethanol production in Canada. Guarantees are provided in relation to the Line of Credit Agreements entered into by Farm Credit Canada.

Price Pooling Program — Agricultural Marketing Programs Act

The Price Pooling Program (PPP) provides a price guarantee that protects marketing agencies and producers against unanticipated declines in the market price of their products. Program participants use the price guarantee as security in obtaining credit from lending institutions. This credit allows the marketing agency to improve cash flow of producers through an initial payment for products delivered. It also provides equal returns to producers for products of like grades, varieties and types. This program is designed to assist and encourage cooperative marketing of eligible agricultural products, including processed products.

Obligations to the Canadian Wheat Board under the Agri‑Food Credit Facility and the Credit Grain Sales Program

The Department of Finance manages guarantees to The Canadian Wheat Board for the repayment of the principal and interest of all receivables resulting from sales made under the Credit Grain Sale Program and a portion of credit sales made under the Agri‑Food Credit Facility.

Letters of credit

VIA Rail Canada Inc. has issued letters of credit to various provincial government workers' compensation boards as security for future payment streams.

International Organizations

Within contingent liabilities, callable share capital represents the portion of Canada's capital subscriptions that has not yet been paid‑in. Callable capital is subject to call by offshore banks in the event that they were unable to meet their obligations.

Table 11.6 details the contingent liabilities for international organizations and is summarized in Note 18 to the consolidated financial statements in Section 2 of this volume.

Table Summary

The table presents, in millions of dollars, a two‑year comparative of the contingent liabilities for international organizations. It consists of three columns: a detailed listing of components; March 31 of the current year; March 31 of the previous year. A series of rows presents the Non‑budgetary share capital and loans listed by department followed by subtotals for each of the departments. The last row presents the total for the table.

(in millions of dollars)Link to footnote 4

Table 11.6
International Organizations Contingent Liabilities

  March 31, 2015 March 31, 2014
Non‑Budgetary Share Capital and Loans —    
Callable Share Capital —    
Finance —    
European Bank for Reconstruction and Development 1,100 1,230
International Bank for Reconstruction and Development (World Bank) 8,367 7,303
Multilateral Investment Guarantee Agency 58 51
Subtotal 9,525 8,584
Foreign Affairs, Trade and Development —    
African Development Bank 4,126 3,727
Asian Development Bank 8,060 7,031
Caribbean Development Bank 155 135
Inter‑American Development Bank 8,735 8,740
Subtotal 21,076 19,633
Total 30,601 28,217

Claims and Pending and Threatened Litigation

Please refer to Note 18 to the consolidated financial statements in Section 2 of this volume for information on claims and pending and threatened litigation.

Insurance Programs of Agent Enterprise Crown Corporations

An insurance program is a program where the insured, an outside party, pays an insurance fee which is credited to an insurance fund or provision. The amount of the fee is based on the estimated amount of insurance fund or provision needed to meet future claims. The Canada Deposit Insurance Corporation, Canada Mortgage and Housing Corporation, Export Development Canada and Farm Credit Canada currently operate insurance programs as agents of Her Majesty. Insurance programs operated by private corporations such as employee group insurance, dental plans, etc., are not included in this definition.

The insurance programs are intended to operate on a self‑sustaining basis. However, in the event the corporations have insufficient funds, the Government will have to provide financing. The Government expects that all three corporations will cover the cost of both current claims and possible future claims.

Information presented in Table 11.7 has not been audited. Additional financial information relating to these corporations may be found in the quarterly Inventory of Government of Canada Organizations. Information contained in Table 11.7 is also summarized in Note 18 to the consolidated financial statements in Section 2 of this volume.

Table Summary

The table presents, in millions of dollars, the Insurance Programs of Agent Enterprise Crown Corporations. It consists of five columns: a detailed listing of components; Canada Deposit Insurance Corporation divided into two column — current year and previous year; Canada Mortgage and Housing Corporation divided into two columns — Mortgage Insurance Fund and Mortgage‑Backed Securities Guarantee Fund each of them sub‑divided into two columns — current year and previous year; Export Development Canada divided into two columns — current year and previous year; Farm Credit Canada divided into two columns — current year and previous year.

(in millions of dollars)

Table 11.7
Summary of Insurance Programs of Agent Enterprise Crown Corporations for the Year ended March 31, 2015

  Canada Deposit Insurance CorporationLink to footnote 5 Canada Mortgage and Housing CorporationLink to footnote 6 Export Development CanadaLink to footnote 7 Farm Credit CanadaLink to footnote 8
Mortgage Insurance Fund Mortgage-Backed Securities Guarantee Fund
2014–2015 2013–2014 2014–2015 2013–2014 2014–2015 2013–2014 2014–2015 2013–2014 2014–2015 2013–2014
Insurance in force as at reporting date 683,996 665,274 539,000 554,500 421,000 400,000 22,085 23,176 5,585 5,494
Opening balance of Fund 1,569 1,316 13,617 12,013 1,484 1,273 Link to footnote 7 Link to footnote 7 13 11
Revenues for the period —                    
Premiums and fees 279 192 1,662 1,738 247 246 195 190 24 23
Investment income 41 36 1,970 797 39 33        
Other revenues     (negative 4) 15 136 1,184        
Total revenues 320 228 3,628 2,550 422 1,463 195 190 24 23
Expenses for the period —                    
Loss on/provision for claims     313 298         11 8
Interest on borrowing         126 1,160        
Administrative expenses 38 36 248 223 32 30     6 6
Other expenses (includes taxes) 50 (negative 61) 763 493 66 68 14 268 8 7
Total expenses 88 (negative 25) 1,324 1,014 224 1,258 14 268 25 21
Net income or (loss) for the period 232 253 2,304 1,536 198 205 181 (negative 78) (negative 1) 2
Adjustments     (negative 81) 68 (negative 6) 6        
Closing balance of Fund 1,801 1,569 15,840 13,617 1,676 1,484 Link to footnote 7 Link to footnote 7 12 13
Net claims during the periodLink to footnote 9  Link to footnote a  Link to footnote a 410 406  Link to footnote a  Link to footnote a 70 60 11 8
Five year average of net claims paid  Link to footnote a  Link to footnote a 540 572  Link to footnote a  Link to footnote a 113 142 7 7

Footnotes

Footnote 1

Details can be found in Table 9.6 in Section 9 of this volume.

Return to footnote 1 referrer

Footnote 2

Less than $500,000.

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Footnote 3

No principal amount outstanding.

Return to footnote 3 referrer

Footnote 4

Foreign currencies were translated into Canadian dollars using the closing rates of exchange at March 31, 2015 (1$USD = $1.2666 CAD; 1SDR = $1.7473 CAD; 1 EUR = $1.3615 CAD).

Return to footnote 4 referrer

Footnote 5

The Canada Deposit Insurance Corporation (CDIC) provides insurance on deposits placed with member banks and trust and loan companies for up to $100,000 per depositor, per institution. The Corporation is funded by premiums assessed against its member institutions.

Return to footnote 5 referrer

Footnote 6

Canada Mortgage and Housing Corporation (CMHC) administers two funds: the Mortgage Insurance Fund (MIF) and the Mortgage‑Backed Securities Guarantee Fund (MBSGF). The MIF provides insurance for a fee, to lending institutions to cover mortgage lending on Canadian housing. Besides establishing a framework of confidence for mortgage lending by lending institutions, the Fund facilitates an adequate supply of mortgage funds by reducing the risk to lenders and by encouraging the secondary market trading of mortgages, to make housing more accessible for Canadians. An actuarial study of the MIF is produced as of September 30 of each year. The Corporation determines provisions for claims and unearned premiums at December 31 using valuation factors taking into account new business, claims and interest for the last quarter. The MBSGF supports two CMHC guarantee products: National Housing Act (NHA) Mortgage‑Backed Securities and Canada Mortgage Bonds. The Mortgage‑Backed Securities (MBS) program was implemented in 1987. For a guarantee fee paid by approved financial institutions, CMHC and ultimately the Government guarantee timely payment of monthly principal and interest to MBS investors who participate in a pool of insured residential mortgages which have been repackaged by the financial institution into investments which can be sold to investors in denominations as low as $1,000. The Canada Mortgage Bond (CMB) program was implemented in 2001. Under this program, bonds are issued by a special purpose trust known as Canada Housing Trust and sold to investors in denominations as low as $1,000. The proceeds of the bonds are used to purchase mortgages packaged into newly issued NHA MBS. Canada Mortgage Bonds of $207,544 million ($205,113 million in 2014) including accrued interest, issued by the Trust carry the full faith and credit of the Government of Canada. The timely payment of semi‑annual interest and principal at maturity is guaranteed by the Government of Canada through CMHC.

Return to footnote 6 referrer

Footnote 7

Export Development Canada (EDC) provides export and foreign investment insurance to Canadian businesses to facilitate and develop export trade. The insurance program has been adequate to provide for the full cost of claims experienced to date and for the cost of future claims established based on previous claims experience. The Corporation does not maintain a separate fund for its insurance program and therefore the balance of the fund is not available. EDC maintains an allowance for claims on insurance which is based on an actuarial review of net loss experience and potential net losses. The balance of the allowance is $545 million ($626 million in 2014).

Return to footnote 7 referrer

Footnote 8

Farm Credit Canada sells group creditor life and accident insurance to its customers through a program administered by a major insurance provider.

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Footnote 9

Refers to the difference between claims and amounts received from sales of related assets and other recoveries.

Return to footnote 9 referrer

Footnote a

Not applicable.

Return to footnote a referrer

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