Regulators raise alarm over Union of Canada’s outlook
Several years of near-rock-bottom interest rates pushed an already troubled Ottawa-based life insurer into a situation so financially precarious that industry regulators asked that it be liquidated, court documents say.
Union of Canada Life Insurance received court approval late last month to wind up its business, ending 148 years of operations. The company employed 23 local full-time workers and owned the 10-storey ByWard Market office building bearing its name.
Last September, the Ontario Superintendent of Financial Services filed notice of its intent to take possession and control of the assets of Union of Canada. That was followed by a recommendation in December from Assuris - a not-for-profit sector-funded organization that works to protect insurance policymakers - that Union of Canada be placed into liquidation "as soon as possible."
Union of Canada, which did most of its work in Quebec, caught the attention of the industry oversight board as early as 2006 and subsequently saw its financial outlook deteriorate, according to documents filed with the Ontario Superior Court of Justice.
Industry and provincial regulators voiced several concerns, including arguments that the Union of Canada was too small to be cost-competitive, and that its aging board and management team had little in the way of a succession plan. It was heavily invested in real estate relative to other assets and lacked access to capital.
In latter years, documents stated, Union of Canada was struggling to meet asset and liability maturities and it had reduced dividends on dividend-paying policies, increasing the chances of seeing policyholders choose to take their business elsewhere.
For the past two years, the company's capital base deteriorated "primarily because of low interest rates (which, in effect, increase the present value of its estimated liabilities) and low investment returns."
While macroeconomic factors such as interest rates would affect other industry players, Canadian Life and Health Insurance Association president Frank Swedlove said the demise of Union of Canada is not a bellwether for the rest of the sector.
"(Union of Canada) obviously got into some financial difficulty particular to the markets they served, and were not able to meet the requirements of the regulator," he said. "It was not really reflective of the rest of the industry, where capital levels remain high."
A key measurement of a life insurance company's health and capital levels is its minimum continuing capital and surplus ratio, or MCCSR.
Provincial guidelines require a ratio of at least 120 per cent, although a level of 150 per cent is generally required to avoid "regulatory intervention" in Ontario.
Union of Canada had an internal target of 200 per cent, but was estimated to have a ratio of approximately 146 per cent last August. Furthermore, the Ontario Superintendent of Financial Services said it also had concerns about the "assumptions and methodologies" used by the company's outside professional actuary to value its liabilities and MCCSR.
The company was eventually placed under the stewardship of bankruptcy trustee Grant Thornton LLP, which brokered a deal with Union Life Mutual Assurance Co. in May to transfer all Union of Canada policyholders to the new company.
"We brought forward to the court early on a recommended process to identify a likely candidate and solicit interest in the portfolio," said Grant Thornton's Michael Creber, who oversaw the case. He said several parties expressed interest.
"The process was quite effective."
Volume of business (as of Dec. 31, 2010)
Quebec $535.18 million (91%)
Ontario $46.76 million (8%)
New Brunswick $4.07 million (1%)
Alberta $725,000 (<1 %)
PEI $111,000 (<1%)
Life, accident and sickness insurance - direct premiums
Quebec $5.75 million (88%)
Ontario $627,000 (10%)
New Brunswick $137,000 (2%)
PEI $10,000 (<1%)
Alberta $9,000 (<1%)