April 18, 2023

Is the Life Insurance Industry in Canada Stable?

Chris Lubell

How concerned should we be about the status of the life insurance sector in Canada in light of the issues certain major financial institutions in the United States are currently facing?
One of the Canadian sectors with the strictest regulations is insurance.  In contrast to the United States, Canada has a government agency that oversees all international and federally established insurers to make sure they conduct their business responsibly.  The Office of the Superintendent of Financial Institutions (OSFI) is this company.  The largest life insurance firms are subject to federal regulation by OSFI (provincial control is provided for those companies that are provincially chartered).  

The Number of Life Insurance firms is declining

It is a proven truth that there are now far fewer active life insurance companies in Canada than there were ten years ago.  This decline is primarily the result of existing company mergers and acquisitions.  For instance, anyone who had insurance through Maritime Life, Commercial Union, North American Life, or Aetna Life are now covered by Manulife Financial.  
what is good news? No insured person has ever been deprived of any contractual advantages because their insurance firm was bought out by another.

Stability requires adequate reserves.

By enforcing the need that sufficient reserves be kept in order for the companies to meet their future contractual obligations, OSFI monitors the stability of life insurance companies.
Each company is obligated to set aside funds and to wisely invest those funds so that they can pay future benefits on policies that they have previously sold. These funds are known as reserves or "actuarial liabilities."  
These reserves are created by the insurer in the form of premium payments and investment profits.  Insurance companies are mandated by the Insurance Companies Act to make investments in a "reasonable and prudent manner in order to avoid undue risk of loss."  
Additionally, OSFI mandates that the insurer maintain the Minimum Continuing Capital and Surplus Requirement (MCCSR), a sum above and beyond these reserves. OSFI anticipates that the life insurance companies will keep a sum equal to 150% of the MCCSR minimum.  The MCCSR ratio kept by Canadian Health and Life insurance Association member companies has continuously been much greater than the minimum required.

additional safeguards for Canadian policyholders

Benefits offered to all policyholders by a non-profit organisation called Assuris give additional security for those with life or health insurance policies.  If an insurance firm fails, this organisation will safeguard policyholders in a manner comparable to the Canadian Deposit Insurance Corporation.  The following is guaranteed by Assuris:

  • Death benefits are limited to $200,000 or 85% of the face value guaranteed, whichever is higher;
  • critical illness benefits are limited to $200,000 or 85% of the benefit provided, whichever is higher;
  • $60,000 or 85% of the stated compensation, whichever is higher, for medical costs (including travel insurance);
  • (Disability, annuity, etc.) Monthly income. - $2,000 or 85% of the benefit that was promised, whichever is higher;
  • Segregated Funds from insurance companies: $60,000 or up to 85% of the promised guaranteed amount, whichever is larger;
  • TFSAs from insurance companies: Up to $100,000.

How robust is the Canadian life insurance market then?

A healthy financial sector with assets of more than $514 billion in Canada has been made possible by the combination of competent oversight and regulation of carefully invested actuarial liabilities. This makes the sector one of the major investors in Canada.  
The insurance sector holds 10% of all Canadian and Provincial Government bonds and 15% of all Canadian Corporate Bonds.  
$650 billion in assets are held abroad by Canadian insurers.  More than 150 000 people are employed in the sector in Canada.  

Even if the Canadian life insurance market has undergone significant transformation over the last decade or so, it is still solid and able to fulfil its future contractual obligations.

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