Life Insurance Industry Rallies Behind Hobbled Confederation Life

Strategic Insights -

Canada's largest life insurance companies, including Sun Life Assurance Co., Canada Life Assurance Co., and Great-West Life Assurance Co., are teaming up to extend a helping hand to their struggling rival, Confederation Life Insurance Co., which is seeking a $600-million capital infusion. This move is not a bid to maintain competition, but rather a calculated attempt to avoid the devastating consequences of Confederation Life's collapse. With insurance companies not being members of the Canada Deposit Insurance Corp. (CDIC), the Canadian Life and Health Insurance Compensation Corp. (CompCorp) is the only private system in place to protect policy holders. However, CompCorp's limitations mean that its $100-million permanent protection fund and ability to raise up to $300-million annually through assessments and loans would be insufficient to cover a major collapse like Confederation Life's.

Key Takeaways:

  • The Canadian life insurance industry is rallying around Confederation Life Insurance Co., which is seeking a $600-million capital infusion to avoid collapse.
  • The industry's reliance on the private Canadian Life and Health Insurance Compensation Corp. (CompCorp) for protection of policy holders means that it cannot afford to see Confederation Life fail, as it would saddle all 150 Canadian life insurance companies with significant bills.
  • CompCorp's current setup and funding mechanism are inadequate to cover a major collapse, with its $100-million permanent protection fund and ability to raise up to $300-million annually through assessments and loans being insufficient.
  • The industry is lobbying the federal government for a $1.5-billion financial backstop, which it claims is necessary to level the playing field with CDIC membership and avoid a competitive disadvantage.
  • Many Canadian life insurance companies, including Confederation Life, are mutual or policy holder-owned, limiting their ability to raise funds by going public when losses mount.

Statistics:

  • $600-million: The funding required by Confederation Life Insurance Co. to avoid collapse.
  • 175,000: The number of policy holders at Confederation Life Insurance Co.
  • $200,000: The maximum amount of life insurance policy coverage guaranteed by CompCorp.
  • $2,000/month: The maximum amount of annuity and registered income fund payments guaranteed by CompCorp.
  • $60,000: The maximum amount protected by CompCorp for deposits, guaranteed investment certificates, registered retirement savings plans, and similar products.
  • 6 years: The time since the life insurance industry set up CompCorp to avoid government intervention.
  • $1.5-billion: The amount of financial backstop that the industry is lobbying the federal government for.
  • 2 recent failures: The recent collapses of Cooperants Mutual Life Insurance Society of Montreal and Sovereign Life Insurance Co. of Calgary, which have cost CompCorp $250-million.
  • 150: The number of Canadian life insurance companies that would be affected by Confederation Life's collapse.

Sources:

  • BARRIE McKENNA, Parliamentary Bureau
  • Canada's largest life insurance companies, including Sun Life Assurance Co., Canada Life Assurance Co., and Great-West Life Assurance Co.
  • Canadian Life and Health Insurance Compensation Corp. (CompCorp)