THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 321

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 - 1

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

1 350

131 765

3.45

Banks

73

2 815 426

73.64

Trust and Loan Companies

70

266 455

6.97

Property and Casualty
Pension Plans
Depository Institutions

Cooperative Associations
Total

289

8

21 152

0.55

3 823 226

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.