Reuters reports that Canadian Finance Minister Jim Flaherty unveiled details of an assistance
facility for the country's life insurers aimed at ensuring the firms
have access to the funds they need if credit markets seize up.
The Canadian Life Insurers Assurance Facility is similar to one already available to the Canadian banks and is designed as a backstop to global credit markets, to put Canadian
insurers on an equal footing with foreign competitors who are benefiting from
guarantee programs provided by their governments (e.g. TARP for US insurers)
Reuters, citing the Canada budget website said that "while Canadian insurers have seen their profits suffer or vanish amid a drop
in business and huge investment losses, their balance sheets are relatively
solid and the credit facility may never be needed".
The life insurance sector, both in Canada and abroad, has been hurt by weaker financial markets that caused investment losses and higher
costs for minimum guarantee variable annuity products that are affected when market values fall.
Under the assistance facility, companies seeking to issue insured debt will be required
to enter an agreement with the Canadian government. Ottawa will then offer a
guarantee of timely payment for interest and principal payments for the
wholesale debt instruments that qualify, and the insurer will pay a market-based
fee on the amount of insured debt issued.
A number of life insurers issue structured settlements in Canada in addition to connections to the United States structured settlement market. Manulife, a Canadian company is the parent of US insurer John Hancock and Canada Life is a former structured settlement annuity issuer.
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