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A recent court ruling in Saskatchewan, which found that universal life policies can’t be used for unlimited deposits, alleviates risks and uncertainty facing Canada’s big insurers, says DBRS Ltd.

In a new report, the Toronto-based rating agency said the March 15 ruling of the Court of Queen’s Bench of Saskatchewan “materially [reduces] risks arising from the extreme interpretation of some insurance contracts in Canada, since it clarifies that universal life policies are not intended to be used as deposit or securities contracts…”

In its decision, the court denied applications from several hedge funds seeking to allow them to make unlimited deposits in universal life products that were created back in the 1990s.

DBRS acknowledged that the ruling could still be appealed, but said the court’s decision remains a positive for both Manulife and Industrial Alliance, which were directly involved in the cases, “as it greatly reduces the uncertainty surrounding the outcome of the litigation.”

“The ruling also serves to prevent these legacy universal life policies from being used primarily as investment vehicles by institutional investors in an opportunistic manner,” DBRS added.