CHAPTER 12 Life Insurance Nonbank Financial Institutions As you can see in Table 12-1, there are currently 94 life insurance companies in Canada, which are organized as either stock companies or mutuals Shareholders own stock companies; mutuals are technically similar to credit unions, owned by the policyholders Prior to 1999, half of the life insurance companies in Canada were organized as mutuals In 1999, however, five large mutual life insurance companies, Canada Life, Clarica, Manulife Financial, Sun Life, and Industrial-Alliance, started a process called demutualization, and have now converted to stock companies Life insurance company regulation is the responsibility of the OSFI and Assuris, formerly known as the Canadian Life and Health Insurance Compensation Corporation (CompCorp) OSFI regulation is directed at sales practices, the provision of adequate liquid assets to cover losses, and restrictions on the amount of risky assets (such as common stock) the companies can hold In other words, OSFI performs the same oversight functions as it does for banks and near banks Assuris has no regulatory role in overseeing individual life insurance companies It is a federally incorporated private, not-for-profit corporation established and funded by the Canadian life and health insurance industry to provide liability insurance to policyholders: it compensates policyholders if the issuing company goes bankrupt Because death rates for the population as a whole are predictable with a high degree of certainty, life insurance companies can accurately predict what their payouts to policyholders will be in the future Consequently, they hold long-term assets that are not particularly liquid corporate bonds (about 60% of assets) and commercial mortgages (15% of assets) as well as some corporate stock Actuarial liabilities make up about 70% of the liabilities of the Canadian life insurance industry These are the present values of expected claims of policyholders There are two basic classes of life insurance, distinguished by the way they are sold: individual life insurance and group life insurance Individual life insurance, as its name implies, is sold one policy at a time, whereas group life insurance is sold to a group of people under a single policy There are two principal forms of individual life insurance policies: permanent life insurance (such TA B L E 12 - Relative Shares of OSFI-Regulated Financial Intermediary Assets (as at March 31, 2008) Financial Institution Company Number of Companies Total Assets (in millions) Percent (%) Insurance Companies Life Insurance 94 479 299 12.54 196 109 129 2.85 350 131 765 3.45 Banks 73 815 426 73.64 Trust and Loan Companies 70 266 455 6.97 Property and Casualty Pension Plans Depository Institutions Cooperative Associations Total 289 21 152 0.55 823 226 100.00 Source: Office of the Superintendent of Financial Institutions Canada, OSFI Annual Report 2007 2008, www.osfi-bsif.gc.ca/app/DocRepository/1/RA/0708/eng/index_e.html