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Canadian Life Association canadienne
and Health Insurance des compagnies dassurances
Association Inc. de personnes inc.
November 2011
Life and Health Insurance Industry Fact Sheet
ABOUT THE CANADIAN LIFE AND HEALTH INSURANCE INDUSTRY
Its performance and operations
With assets of more than $514 billion in Canada, liabilities to allow for uncertainties in the best
minimal exposure to distressed asset classes and a estimate and possible deterioration in future
comparably more robust Canadian market than experience.
elsewhere in the world, Canada's life and health
insurers rank among the strongest financially both Insurance companies also issue variable annuity
nationally and internationally, and are well positioned products in which benefits are linked to the
to meet their obligations to their policyholders. investment performance of an underlying portfolio of
assets that are held and managed separately (i.e.,
When you decide to purchase a life and/or health segregated) from the general funds of company.
insurance product, you are investing in your own and However, the actuarial liabilities associated with any
your family’s future. You are also essentially making a guarantees on investment performance are held in the
long-term contract with an insurance provider. The general funds of the insurer.
following are some questions that are frequently asked
about the Canadian life and health insurance industry
How do insurance companies generate reserves?
and how it operates. It is hoped that the answers will
An insurance company has two main sources of
provide you with some assurance that you are dealing revenue: premiums and investment income from
with one of the most reputable sectors of the premiums. These are invested until policy benefits are
Canadian economy. paid out. The Canadian Institute of Actuaries has
established professional standards of practice for how
actuarial liabilities are to be calculated.
How are insurance companies regulated in Canada?
Insurance is one of the most highly regulated
industries in Canada. The federal government, through How are insurance companies’ reserves invested?
the Office of the Superintendent of Financial Under the Insurance Companies Act, insurers are
Institutions (OSFI), supervises federally incorporated required invest in a reasonable and prudent manner in
insurers as well as foreign insurers from a safety and order to avoid undue risk of loss. This means that they
soundness (i.e., prudential) perspective. The Autorité establish ranges for the amount of investments of
des marchés financiers performs the same function for different types they will hold, and set quality standards
companies incorporated in Quebec. Life and health for those investments. In addition, insurance
insurance companies are also regulated at the companies take note of the expected cash payouts for
provincial level and are subject to market conduct policyholder benefits, contract withdrawals, and
regulation by the province in which they do business. expenses in determining the maturity structure of
their investments. Bonds and mortgage loans
accounted for 54% and 12% respectively of the
What is the function of reserves? industry’s general fund assets in Canada as at the end
Insurance companies build up reserves -- more of 2010. Stocks amounted to 18% of general fund
accurately known as actuarial liabilities -- by putting assets in 2010.
money safely aside for the purpose of paying future
benefits on policies they have sold over the years. The
size of the actuarial liabilities is based on the insurer’s What does MCCSR stand for and why is it important?
best estimate of future mortality and morbidity rates, To make sure the company is able to meet its
investment returns, operating expenses and taxes, etc. obligations to its insurance and annuity policyholders,
OSFI requires that an insurer hold a minimum level of
In addition to the insurer's best estimate for future ‘risk-adjusted’ capital, known as the Minimum
experience, a provision for adverse deviation is Continuing Capital and Surplus Requirement (MCCSR),
included as a margin for conservatism in the actuarial over and above its actuarial liabilities.
Date Last Modified – November 1, 2011 1
Canadian Life Association canadienne
and Health Insurance des compagnies dassurances
Association Inc. de personnes inc.
November 2011
Life and Health Insurance Industry Fact Sheet
ABOUT THE CANADIAN LIFE AND HEALTH INSURANCE INDUSTRY
Its performance and operations
The MCCSR is calculated according to OSFI's published Deposit type products will also be transferred to a solvent
guidelines. The minimum amount of capital an insurer company. For these products, Assuris guarantees that
is required to hold takes into account the possibility policyholders will retain 100% of the Accumulated Value
that actual policy payouts may differ significantly from up to $100,000. Deposit type products include
expected policy payouts because of various events accumulation annuities, universal life overflow accounts
beyond the insurer’s control. For example, a poor and dividend deposit accounts.
economy may result in unusually high policy lapse
rates, falling equity markets may result in higher For example, for a death benefit, Assuris guarantees that
payouts for segregated fund guarantees, or the life insurance policyholders will retain up to $200,000 or
85% whichever is higher. For more information contact the
mortality rate may be much higher than expected
Assuris Information Centre at 1-866-878-1225 toll free, or
because of an epidemic. OSFI specifies the risk factors
see the Assuris website at www.assuris.ca.
or calculation procedure that an insurer must apply to
these and other risks in arriving at the minimum
capital required to meet its obligations.
To be on the safe side, OSFI requires that insurers
maintain at least 150% of the calculated MCCSR to
meet its obligations. The industry sets aside capital
well above the required minimum level. Canadian life
and health insurance companies’ MCCSR ratio
increased from 231% at the end of 2009 to 235% at
the end of 2010 -- their credit standing is strong and
amongst the very highest in the corporate world.
What other protection is provided to insurance
company policyholders?
Assuris is a not-for-profit organization that protects
Canadian policyholders if their life insurance company
should fail. It protects policyholders by minimizing the
loss of benefits and ensuring a quick transfer of their
policies to a solvent company.
On transfer, Assuris guarantees that policyholders will
retain at least 85% of the insurance benefits promised.
Insurance benefits include Death, Health Expense,
Monthly Income and Cash Value. However, Assuris
also provides 100% protection when benefits are
below certain dollar values: Contact us for more information:
Death benefits $200,000 Canadian Life and Health Insurance Association Inc.
1 Queen Street East, Suite 1700
Health expense $60,000
Toronto, ON M5C 2X9
Monthly income $2,000
416-777-2221 | www.clhia.ca
Cash values $60,000
Date Last Modified – November 1, 2011 2
