Confederation Life Insurance Co. Collapse to Hit Life Insurers with $800-Million Levy

Strategic Insights -

The failure of Confederation Life Insurance Co. is expected to cost the life insurance industry dearly, with sources indicating that the Canadian Life and Health Insurance Compensation Corp. (CompCorp) may need $800-million to cover shortfalls stemming from the collapse. The heavy hit comes at a time when the industry is still paying off customer claims on the collapse of Sovereign Life Insurance Co. of Calgary in 1992. The industry will be able to offset some of the cost through the acquisition of prized parts of Confederation Life's business, but the effects of the hit will be mitigated by the fact that it will not happen all at once.

Key Takeaways:

  • The Canadian Life and Health Insurance Compensation Corp. (CompCorp) may need $800-million to cover shortfalls stemming from the collapse of Confederation Life Insurance Co.
  • The industry will be hit with the maximum assessment this year, as well as additional loans by CompCorp, resulting in a total levy of up to $800-million.
  • The collapse of Confederation Life is expected to have a significant impact on consumer confidence in the life insurance industry.
  • Several rivals have already lined up to acquire parts of Confederation Life's business, including Sun Life Assurance Co. of Canada, Canada Life, Great-West Life, and Manufacturers Life.
  • The sale of Confederation Life's vast real estate holdings, valued at $1.1-billion at year-end, will be staggered to avoid swamping the market.
  • All pension funds managed by Confederation Life are fully covered and safe from creditors, with policy holders advised that it's business as usual for the group life and health business.

Statistics:

  • $800-million: estimated amount needed by CompCorp to cover shortfalls stemming from the collapse of Confederation Life Insurance Co.
  • $1.1-billion: valuations of Confederation Life's vast real estate holdings at year-end
  • 120,000: number of policy holders who come in above Compcorp limits
  • $200,000: maximum coverage amount per life insurance policy provided by CompCorp

Sources:

  • Globe and Mail, "Confederation Life collapse to hit life insurers with $800-million levy"
  • Financial Services Reporter John Partridge, Globe and Mail, "Confederation Life collapse to hit life insurers with $800-million levy"
  • Alan Morson, President, CompCorp
  • Paul Costello, Spokesman, Peat Marwick Thorne Inc.
  • Mark Daniels, President, Canadian Life and Health Insurance Association