Tag: Canada

Regulatory Capital Adequacy for Life Insurance Companies

Mary Pat Campbell

Link: https://www.soa.org/4a194f/globalassets/assets/files/resources/research-report/2023/erm-191-reg-capital-with-final-visuals.pdf

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The purpose of this paper is to introduce the concept of capital and key related terms, as well as to compare and contrast four key regulatory capital regimes. Not only is each regime’s methodology explained with key terms defined and formulas provided, but illustrative applications of each approach are provided via an example with a baseline scenario. Comparison among these capital regimes is also provided using this same model with two alternative scenarios.

The four regulatory required capital approaches discussed in this paper are National Association of Insurance Commissioners’ (NAIC) Risk-Based Capital (RBC; the United States), Life Insurer Capital Adequacy Test (LICAT; Canada), Solvency II (European Union), and the Bermuda Insurance Solvency (BIS) Framework which describes the Bermuda Solvency Capital Requirement (BSCR). These terms may be used interchangeably. These standards apply to a large portion of the global life insurance market and were chosen to give the reader a better understanding of how required capital varies by jurisdiction, and the impact of the measurement method on life insurance company capital.

All of these approaches are similar in that they identify key risks for which capital should be held (e.g., asset default and market risks, insurance risks, etc.). However, they differ in significant ways too, including their defined risk taxonomy and risk diversification / aggregation methodologies, as well as required minimum capital thresholds and corresponding implications. Another key difference is that the US’s RBC methodology is largely factor-based, while the other methodologies are model-based approaches. For the model-based approaches, Solvency II and BIS allow for the use of internal models when certain conditions are satisfied. Another difference is that the RBC methodology is largely derived using book values, while the others use economic-based measurements.

As mentioned above, this paper provides a model that calculates the capital requirements for each jurisdiction. The model is used to compare regulatory solvency capital using identical portfolios for both assets and liabilities. For simplicity, we have assumed that all liabilities originated in the same jurisdiction as the calculation. As the objective of the model is to illustrate required capital calculation methodology differences, a number of modeling simplifications were employed and detailed later in the paper. The model considers two products – term insurance and payout annuities, approximately equally weighted in terms of reserves. The assets consist of two non-callable bonds of differing durations, mortgages, real estate, and equities. Two alternative scenarios have been considered, one where the company invests in riskier assets than assumed in the base case and one where the liability mix is more heavily weighted to annuities as compared to the base case.

Author(s): Ben Leiser, FSA, MAAA; Janine Bender, ASA, MAAA; Brian Kaul

Publication Date: July 2023

Publication Site: Society of Actuaries

Antique Insurance and Actuarial Books

Mary Pat Campbell

Link: https://thetermguy.ca/books.html

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The Term Guy’s hobby is collecting antique insurance books.  Here we’ve scanned many of our out of copyright books for your enjoyment and perhaps research purposes. Stay tuned, more books coming as I have time to scan them!

We have extracted table data from many of these books and made the information available as excel spreadsheets. In the download of spreadsheets we have also included a high def image of each of the pages containing the tables. The image filename for each page and the excel spreadsheet have the same name, i.e. image0001.jpg.xlxs contains table data from image0001.jpg. You may download and use the data unrestricted, but we would ask that you consider giving us a link from your website so that others can find this information as well.

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Canadian legislation aimed at protecting pension plans may mean significant changes for lenders, borrowers and employees

Mary Pat Campbell

Link: https://www.nortonrosefulbright.com/en-us/knowledge/publications/e91814ee/canadian-legislation-aimed-at-protecting-pension-plans-may-mean-significant-changes

Excerpt:

On February 3, 2022, Bill C-228 was introduced as a private members bill and has now made its way to the third reading in Canada’s Senate. The purpose of Bill C-228 is to greatly expand the pension liabilities that are afforded super priority status by amending bankruptcy and insolvency legislation. As currently drafted, the Bill will grant priority for a pension plan’s unfunded liability or solvency deficiency claims over the claims of the majority of creditors — including secured creditors — unless specifically enumerated otherwise in the statutes.

The “unfunded liability” is the amount necessary to enable the fund to continuously pay member benefits as they come due, on the assumption that the fund will operate for an indefinite period of time. The “solvency deficiency” includes the amount necessary to ensure the fund meets its obligations if wound up. As these amounts are constantly fluctuating, a fixed value cannot be ascribed to either of these requirements other than through a single point in time calculation by an actuary.

What does this mean for borrowers with pension plans?

Clearly, Bill C-228 would substantially increase the opportunity for recovery of pension entitlements within insolvency proceedings by way of super priority. The issue is whether it remains viable for lenders to provide capital to borrowers with defined benefit pension plans given the increased risk profile that may be created by Bill C-228 expanding the pension claims that take priority over a secured creditor in an insolvency case.

In all likelihood, Bill C-228 will minimally effect borrowers that have defined-contribution pension plans as the employer’s liability is restricted to predefined contributions. As this type of plan is subject only to ordinary course known contribution requirements, and given that the employer does not guarantee a certain amount of income in retirement, the liability afforded super priority in insolvency proceedings should be predictable in most circumstances.

Conversely, Bill C-228 will significantly impact defined-benefit pension plans. These types of plans commit to providing a specified level of income in retirement based on a variety of factors. As such, an employer must diligently manage the pension fund to ensure it is in a position to pay the benefit to the employee for the remainder of their life, once retired. The inherent challenge with these plans is the uncertainty of the liability of the employer at any given time and the potentially large scope of that liability based in part on external factors such as interest rate fluctuations.

Bill C-228 has therefore created a conundrum. Although the intention of the Bill is to protect pension plans, it may potentially cause a shift that results in even more employers moving from a defined-benefit pension plan to a defined-contribution pension plan. Plainly, this shift may be caused by lenders’ concerns regarding the uncertainty surrounding the amount necessary to liquidate an unfunded liability or solvency deficiency at any given time. In other words, a lender will not be able to determine prior to the lending decision, with any great certainty, the amount of the unfunded liability or solvency deficiency in a future insolvency proceeding. At a minimum, a secured creditor wants to know the quantum of obligations that will take priority over their interests. This is essential information in deciding the quantum of a loan, the terms of such loan, any reserves and whether the creditor will agree to loan any money to the borrower.

Author(s): Candace Formosa

Publication Date: 2023Q2

Publication Site: Norton Rose Fulbright

Canada’s Health Care Crisis Is in Large Part a Labor Crisis

Mary Pat Campbell

Link: https://jacobin.com/2023/02/canada-health-care-crisis-labor-shortage-wage-cuts-austerity

Excerpt:

Canada’s system of Medicare — a point of national pride — was strained before the COVID-19 pandemic hit. It’s now teetering on the brink, with some Conservative provincial leaders salivating at the prospect of privatization.

For months, provincial premiers have been demanding that the federal government increase health transfer payments. Indeed, the cost-sharing model which sees the federal government currently kick in around 22 percent of health funding should be revised so that Ottawa pays more of the bill. Although a deal to boost federal funding appears to be in sight, Prime Minister Justin Trudeau and the Liberals are failing to ensure that protecting public health care delivery is a part of it.

….

Canada’s health care crisis is in large part a labor crisis. In general, unceasing anguish over a generalized “labor shortage” in Canada has had only the most tenuous relationship to reality. In the health care sector, however, worker burnout and a consequent lack of staff are all too real. While the Canadian Federation of Independent Business, the mouthpiece of Canadian employers, bemoaned a purportedly economy-wide labor shortage that was crippling business, an actual dearth of nurses and other health care professionals snowballed as deteriorating pay and working conditions drove these workers out of their jobs.

Newly released Statistics Canada payroll data helps paint the picture. Overall payroll figures show year-over-year employment across the whole economy virtually unchanged in November 2022, despite the Bank of Canada’s aggressive series of interest rate hikes (how much longer stable employment numbers will persist is debatable). Job vacancies — the bugbear of employers in Canada for most of the past year — declined another 2.4 percent, down to 850,300 from 1,002,200 at their peak, and reached their lowest post-pandemic level since August 2021. Average weekly wage growth, while continuing to lag inflation, ticked upward slightly to 4.2 percent (5.3 percent in goods-production alone).

Author(s): Adam D.K. King

Publication Date: 1 Feb 2023

Publication Site: Jacobin

(Updated) New Hong Kong Watch report finds that MSCI investors are at risk of passively funding crimes against humanity in Xinjiang

Mary Pat Campbell

Link: https://www.hongkongwatch.org/all-posts/2022/12/5/updated-new-hkw-report-finds-that-msci-investors-are-at-risk-of-passively-funding-crimes-against-humanity-in-xinjiang

Report PDF: https://static1.squarespace.com/static/58ecfa82e3df284d3a13dd41/t/638e318e6697c029da8e5c38/1670263209080/EDITED+REPORT+5+DEC.pdf

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A new report by Hong Kong Watch have found that a number of pension funds may be passively invested in at least 13 China based companies where there is credible evidence of involvement in Uyghur forced labour programs and construction of internment camps in Xinjiang.

 As part of the report, Hong Kong Watch found that major asset managers are exposed passively to these companies as a result of their inclusion on Morgan Stanley Capital International’s Emerging Markets Index, China Index and All World Index ex-USA.  

….

Commenting on the release of the report, Johnny Patterson, co-founder and a research fellow at Hong Kong Watch, said:

“13 companies on MSCI’s emerging markets index are either known to have directly used forced labour through China’s forcible transfer of Uyghurs, or been involved in the construction of camps. Given this Index is the most widely tracked Emerging Markets index in the world, it raises serious questions about how seriously international financial institutions take their international human rights obligations or the ‘S’ in ESG.

Our view is that firms known to use modern slavery or known to be complicit in crimes against humanity should be classed alongside tobacco as ‘sin stocks’, or stocks which investors do not touch. Governments have a duty to signal which firms are unacceptable, but international financial institutions must also be doing their full due diligence. It is unacceptable that enormous amounts of the money of ordinary pensioners and retail investors is being passively channelled into firms that are known to use forced labour.” 

Publication Date: 5 Dec 2022

Publication Site: Hong Kong Watch

Hong Kong Watch gives evidence to the Canada-China Relationship Committee on ESG investment & country risk analysis

Mary Pat Campbell

Link: https://www.hongkongwatch.org/all-posts/2022/12/1/hong-kong-watch-gives-evidence-to-the-canada-china-relationship-committee-on-esg-investment-amp-country-risk-analysis

Excerpt:

On Tuesday, Hong Kong Watch’s co-founder and trustee, Aileen Calverley, and Director of Policy and Advocacy, Sam Goodman, gave evidence to the Special Committee on the Canada–People’s Republic of China Relationship on the exposure of Canadian pension funds to Chinese stocks and bonds.

Hong Kong Watch has previously written extensively on the question of ESG, business, human rights, and Canadian pension funds exposure to Chinese companies linked to gross human rights violations, including the internment camps in Xinjiang.

In his remarks, Sam Goodman, discussed why China should be considered an ESG investment risk, recommending that:

  • Lawmakers consider sensible regulations to define ESG, label China as an ESG risk, and introduce a blacklist like the USA to restrict investment in Chinese firms with questionable human rights, environmental, and governance credentials.

In her remarks, Aileen Calverley discussed the risk of pension fund investments in China in the event of sanctions, recommending that the Government:

  • Include a China Country Risk Analysis in the Indo-Pacific Strategy.
  • Encourage publicly controlled pension funds to avoid exposure in China.

The full committee hearing can be watched here.

Publication Date: 1 Dec 2022

Publication Site: Hong Kong Watch

Inflation Around the World: How Does the US Compare to Canada and the EU?

Mary Pat Campbell

Link: https://mishtalk.com/economics/inflation-around-the-world-how-does-the-us-compare-to-canada-and-the-eu

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  • Inflation in the US was the first to peak.
  • US inflation peaked in June at 9.06 percent and is currently (through September) at  8.20 percent.
  • Inflation in France peaked at the lowest rate, 6.08 percent.
  • France also has the lowest current rate of 5.55 percent.  
  • Inflation in Germany is 9.99 percent and still rising
  • Inflation in Italy is 8.87 percent and still rising
  • Inflation in Spain was the highest peak so far at 10.77 percent
  • Inflation in the UK is 8.80 percent matching the July high.
  • Inflation in Canada peaked at 8.13 percent and is now 6.86 percent

Author(s): Mike Shedlock

Publication Date: 3 Dec 2022

Publication Site: Mish Talk

Ontario Teachers Pension Could Lose $95 Million on FTX Investment

Mary Pat Campbell

Link: https://www.ai-cio.com/news/ontario-teachers-pension-could-lose-95-million-on-ftx-investment/

Excerpt:

Canada’s Ontario Teachers Pension Plan could lose as much as $95 million that it had invested in now bankrupt cryptocurrency exchange FTX.

In October of last year, the C$242.5 billion ($182.9 billion) pension fund announced that it had participated along with 68 other investors in a $420 million funding round for FTX Trading Ltd., which is the owner and operator of FTX.COM. The investment was made through OTPP’s C$8.2 billion Teachers’ Venture Growth platform.

The pension fund says TVG, which was established in 2019 to invest in emerging technology companies raising late-stage venture and growth capital, seeks out innovative companies “that are using technology to shape a better future.”

Although the pension fund didn’t say how much of the $420 million it accounted for at the time of the announcement, it recently disclosed that it invested a total of $75 million during that round of funding in both FTX International and its U.S. entity FTX.US. It also revealed that it made a follow-on investment of $20 million in FTX .US three months later in January.

Author(s): Michael Katz

Publication Date: 11 Nov 2022

Publication Site: ai-CIO

Canadian Pension Giant Makes Its First Foray Into Colombian Private Equity

Mary Pat Campbell

Link: https://www.ai-cio.com/news/canadian-pension-giant-makes-its-first-foray-into-colombian-private-equity/

Excerpt:

The C$539 billion ($431.7 billion) Canada Pension Plan Investment Board has invested $334 million to acquire a 19.3% stake in Colombia-based discount grocery store chain D1, formerly known as Koba Colombia. The deal marks the pension giant’s first direct private equity investment in the country.

D1, which first opened for business in 2009 and officially took on its new name last month, recently announced it has become Colombia’s main food retailer. Citing findings from Nielsen, the company said it had a 9.7% share in the retail market and a 74% share in the so-called “hard discount” sector at the end of 2021. D1 has over 2,000 stores and reported 2021 operating income of more than $10.9 billion, which was a 32% increase from 2020. It also said this year.

Author(s): Michael Katz

Publication Date: 14 July 2022

Publication Site: ai-CIO

Faulty Regulation Blamed for Pension Plans Cutting Investment in Canada

Mary Pat Campbell

Link: https://www.theepochtimes.com/faulty-regulation-blamed-for-pension-plans-cutting-investment-in-canada_4474326.html

Excerpt:

Canada’s government acknowledges that the significant investments they seek in Canadian businesses and infrastructure must come mostly from the private sector. But in fact for decades, the country’s pension funds have been considerably reducing their domestic investments, a trend the feds and regulation are being taken to task for.

Tony Loffreda, independent senator from Quebec and former vice chairman of RBC Wealth Management, on May 12 asked the government’s representative in the Senate, Marc Gold, what the feds could do to incentivize Canada’s pension funds to invest more in Canada “without necessarily regulating free enterprise.”

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The CPPIB’s 2021 annual report showed that in 2006, 64 percent of its assets were invested in Canada and the remaining 36 percent invested globally. But by 2021, the mix had changed to 15.7 percent in Canada and 84.3 percent globally.

….

The report outlined some of the reasons for the trend, singling out regulation.

“Plan sponsors are reacting in very predictable ways to their regulatory environment and the only way to change this behaviour is to change the environment,” LetkoBrosseau said.

It said regulation has over-emphasized short-term fluctuations in asset values, resulting in a shorter investment time horizon for pension fund assets. In contrast, pension savings, which represent 30 percent of Canadian savings, are typically invested for the long term and are meant to be managed such that they can take more risk to earn greater rewards.

Author(s): Rahul Vaidyanath

Publication Date: 18 May 2022

Publication Site: The Epoch Times

Report: Thousands of Canadians Died Due to Delayed Care during COVID-19

Mary Pat Campbell

Link: https://fee.org/articles/report-thousands-of-canadians-died-due-to-delayed-care-during-covid-19/

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A new report commissioned by the Canadian Medical Association (CMA) looks at the broader health impacts of COVID-19 in Canada. The November report, called A Struggling System, explores a range of growing problems, from mental health issues to substance abuse and deteriorating social determinants of health. Sadly, the report also confirms a fact that many have suspected since the beginning: that delays in care have led to thousands of preventable deaths.

“Although it is not surprising that more Canadians died in 2020 than in a typical year,” the authors write, “the number of excess deaths was greater than can be explained by COVID-19 alone. While there may be several drivers of these excess deaths, delayed or missed care due to shutdowns of services and lack of sufficient capacity in overburdened health systems may be a contributing factor.”

After analyzing the data, the authors estimated that delayed and missed health care contributed to more than 4,000 excess deaths not related to COVID-19 between August and December 2020. Needless to say, the total number of preventable deaths over the pandemic to date is likely much higher.

Author(s): Patrick Carroll

Publication Date: 8 Dec 2021

Publication Site: FEE

Severe hepatitis of ‘unknown origin’ in children being investigated in Canada

Mary Pat Campbell

Link: https://www.cbc.ca/news/health/liver-disease-mystery-1.6431872

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Public health officials say they’re investigating cases of severe liver disease “of unknown origin” among children in Canada as global scientists race to understand a mysterious hepatitis outbreak that has affected nearly 200 youths around the world.

“The Public Health Agency of Canada is aware of reports of severe acute hepatitis of unknown origin in young children in Canada,” the department said in a statement on Tuesday, in response to questions from CBC News.

“These are being investigated further to determine if they are related to cases in the United Kingdom and the United States. As the investigation evolves, we will keep the public updated accordingly.”

The latest available data from the World Health Organization (WHO) shows at least 169 cases of acute hepatitis of unknown origin have been reported in close to a dozen countries, with the bulk of the reports — 114 — from the U.K. 

Author(s): Lauren Pelley

Publication Date: 26 April 2022

Publication Site: CBC