Notes to Consolidated Financial Statements

Year ended December 31, 2019 with comparative figures for 2018 (tabular amounts in thousands).

  1. Reporting entity

    Canadian Life and Health Insurance Compensation Corporation (“Assuris”, the “Corporation”) is a federally incorporated not for profit organization established to provide Canadian policyholders with specified levels of protection against loss of benefits due to the financial failure of their life insurance company. All insurance companies that are licensed to issue policies covered by the Corporation are Members. As a not for profit organization, the Corporation is exempt from income taxes under the Income Tax Act.

    For a full description of the protection provided, assessment principles and other corporate matters, reference should be made to the Corporation’s By-Laws and Memorandum of Operation.

    The Corporation is domiciled in Canada. The address of the Corporation’s registered office is 250 Yonge Street, Suite 3110, P.O. Box 23, Toronto, Ontario M5B 2L7.

  2. Basis of preparation

    1. Statement of compliance

      The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board.

      The consolidated financial statements for the year-ended December 31, 2019, were approved for issue by the Board of Directors on February 20, 2020.

    2. Basis of consolidation

      The consolidated financial statements of the Corporation for the year ended December 31, 2019 include the funds of the Corporation, and its direct wholly-owned subsidiary CompCorp Life Insurance Company (“CompCorp Life”). All inter-company transactions are eliminated upon consolidation.

    3. Funds

      The Corporation is funded by assessments levied on its Members.

      Administrative assessments are assessed to Members to cover the administrative costs of the Corporation. Each member is assessed $6,000 plus an amount based on its capital required in Canada as filed with its solvency regulator.

      Specific Assessments are assessed to Members to cover the costs of protecting the policyholders of a failed Member or to provide funds to the Liquidity Fund. Each Member’s assessment is based on its capital required in Canada as filed with its solvency regulator.

      Extraordinary assessments may be made to cover the costs of protecting the policyholders of a failed Member. Each Member’s extraordinary assessment is based on its premium income from policies written after a date after the failure.

      Assessments are recognized on an accrual basis as revenue or contributions to the appropriate restricted funds. Investment income earned by the funds is recognized in the respective fund.

      The Administrative Fund and the Liquidity Fund are considered by management to be internally restricted under the By-Laws, which define the purpose and the assessment process for each fund. The By-Laws also outline the permitted transfers between the funds.

      The Administrative Fund represents the income and costs of administration not associated with a particular insolvency.

      The Liquidity Fund provides the Corporation with a source of liquid assets to provide immediate support to the policyholders of a Member determined by the Board to be a “Troubled Member”.

      The fund is not designed to provide for the cost of supporting policyholders. When the Board authorizes the Corporation to make a financial commitment to a Troubled Member, a separate fund will be established to account for the costs and obligations to that Member. Transfers from the Liquidity Fund to this separate fund, which reduces the Liquidity Fund to below its target level, will be recorded as an inter-fund receivable. Assessments to Members to cover funding needs in connection with the Troubled Member will be recognized as income in the separate fund.

    4. Basis of measurement

      The consolidated financial statements of the Corporation have been prepared on the historical cost basis, except for bonds, which are carried at fair value through other comprehensive income, and Exchange Traded Funds (ETFs) which are carried at fair value through income.

    5. Functional and presentation currency

      These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency. Except as otherwise indicated, all financial information presented in Canadian dollars has been rounded to the nearest thousand.

    6. Use of estimates

      The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised.

    7. Liquidity format

      The Corporation presents its consolidated statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in note 5.

  3. Significant accounting policies

    The significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

    1. Cash and cash equivalents

      Cash and cash equivalents are highly liquid investments composed of bank balances, overnight bank deposits and short-term investments with original maturities of three months or less. They are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. Interest income is recorded on an accrual basis.

    2. Investments

      The Corporation classifies its financial assets in the following measurement categories:

      • those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss) and;
      • those to be measured at amortized cost

      The classification depends on the Corporation’s business model for managing the financial assets and the contractual terms of the cash flows.

      At initial recognition, the Corporation measures a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Bonds are carried at fair value through other comprehensive income (FVOCI). The Corporation holds bonds to collect contractual cash flows and to sell. Contractual cash flows represent solely payments of principal and interest. Interest income is recorded on an accrual basis using the effective interest rate method. Realized gains and losses are recognized immediately in profit or loss.

      Exchange Traded Funds (ETFs) are measured at fair value through profit or loss. Interest income is recorded on an accrual basis using the effective interest rate method. Unrealized and realized gains or losses are recognized immediately in profit and loss.

      Cash and cash equivalents, accrued investment income and accounts receivable are measured at amortized cost.

      The Corporation assesses on a forward-looking basis, the expected credit losses associated with assets carried at FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Corporation considers the probability of default upon initial recognition of an asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk the Corporation compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information, including external credit ratings, actual or expected adverse changes in business, and other external factors.

    3. Securities lending

      The Corporation participated in a securities lending program, through a Lending Agent that is a financial institution. The program was terminated by the Corporation in December 2018.

    4. Property and equipment

      Property and equipment consist of computer equipment, software and leasehold improvements, measured at cost less accumulated depreciation and accumulated impairment losses if any. Computer equipment and software are depreciated over four years on a straight-line basis. Leasehold improvements are amortized over the lease term of ten years on a straight-line basis.

    5. Employee future benefits

      Executives of the Corporation are eligible to earn awards under the Long-Term Incentive Plan (LTI). These awards are determined based on the executive’s performance in the year before the award is granted. The award is adjusted based on corporate performance over the next three years and paid at the end of that period. A payment will be made only if the executive is still employed by the Corporation and the corporate performance has been satisfactory. The LTI liability is recognized over the four-year performance period and reported on the Statement of Financial Position. Similarly, the expense is recognized each year over the four-year period as the corporate performance is archived and the employee is still in service. The expenses for the year are recorded in Salaries and benefits.

    6. Revenue Recognition

      The Corporation is funded by an annual Administrative Assessment assessed to Members and recorded as revenue. This revenue is recognized over the same fiscal year as the performance obligation of Membership is fulfilled.

  4. Changes in accounting policies

    This note explains the impact of the adoption of IFRS 16 Leases on the Corporation’s financial statements

    The Corporation has adopted IFRS 16 Leases retrospectively from January 1, 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. As a lessee, the Corporation recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make future lease payments, in the Consolidated Statement of Financial Position.

    On adoption of IFRS 16, the Corporation recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using an incremental borrowing rate as of January 1, 2019.

    1. Measurement of lease liabilities

      Operating lease commitments disclosed as at December 31, 2018 $1,473
      Discounted using the incremental borrowing rate at the date of initial application 1,321
         
      Lease liability recognized as at January 1, 2019 $1,321
      Of which are:  
      Current lease liabilitie 116
      Non-current lease liabilities 1,205
    2. Measurement of right-of-use assets

      The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied.

    3. Adjustments recognized in the Consolidated Statement of Financial Position

      The change in accounting policy affected the following items in the consolidated statement of financial position on January 1, 2019:

      • Right-of-use-assets – increase by $1,321,367
      • Lease liabilities – increase by $1,321,367
  5. Timing of Expected Recovery or Settlement of Assets and Liabilities

     

    December 31, 2019

    December 31, 2018

     

    Less than 12 months

    Over 12 months

    Total

    Less than 12 months

    Over 12 months

    Total

    Assets

               
    Cash and cash equivalents
    $

    928

    $

    $

    928

    $

    2,113

    $

    $

    2,113

    Bonds held by custodian 35,854 126,225 162,079 26,400 118,393 144,793
    ETFs held by custodian 7,066 7,066 4,225 4,225
    ETFs used in securities lending
    Accrued investment income 860 860 651 651
    Accounts receivable and prepaids 81 81 76 76
    Right of use asset – office premises 137 1,046 1,183      

    Total Assets

    37,860 134,337 172,197 29,240 122,618 151,858

    Liabilities

               
    Accounts payable and accrued liabilities 815 815 826 826
    Employee future benefits 184 296 480 191 279 470
    Lease liability – office premises 119 1,086 1,205

    Total Liabilities

    1,118 1,382 2,500 1,017 279 1,296
  6. Administrative Fund and Liquidity Fund Information

    1. Consolidated Statement of Financial Position

       

      Administrative Fund

      Liquidity Fund

      Year ended Dec. 31, 2019

      Administrative Fund

      Liquidity Fund

      Year ended Dec. 31, 2018

      Assets

                 
      Cash and cash equivalents
      $

      424

      $

      504

      $

      928

      $

      389

      $

      1,724

      $

      2,113

      Bonds (note 7)            
      Held by custodian 3,837 158,242 162,079 3,505 141,288 144,793
      Exchange Traded Funds (note 7)            
      Held by custodian 7,066 7,066 4,225 4,225
      ETFs used in securities lending
      Total Investments 3,837 165,308 169,145 3,505 145,513 149,018
      Accrued investment income 67 793 860 55 596 651
      Accounts receivable and prepaid 81 81 76 76
      Due from (to) other funds 98 (98) 177 (177)
      Equipment (note 8) 521 521 635 635
      Right of use asset-office premises (note 14) 1,183 1,183      

      Total Assets

      6,211 166,507 172,718 4,837 147,656 152,493

      Liabilities

                 
      Accounts payable and accrued liabilities 809 6 815 821 5 826
      Employee future benefits (note 9) 480 480 470 470
      Lease liability – office premises (note 14) 1,205 1,205      

      Total Liabilities

      2,494 6 2,500 1,291 5 1,296

      Members’ Funds (note 6(c))

                 
      Administrative 3,717 3,717 3,568 3,568
      Liquidity 166,624 166,624 148,675 148,675

      Accumulated Other Comprehensive Income

                 
      Net unrealized loss on investments (123) (123) (22) (1,024) (1,046)

      Total Members’ Funds

      3,717 166,501 170,218 3,546 147,651 151,197

      Total Liabilities and Members’ Funds

      6,211 166,507 172,718 4,837 147,656 152,493
    2. Consolidated Statement of Comprehensive Income

       

      December 31, 2019

      December 31, 2018

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Revenue

                 
      Investment income (note 10)
      $

      67

      $

      2,831

      $

      2,898

      $

      55

      $

      2,247

      $

      2,302

      Administrative Assessment (note 12) 6,000 6,000 6,000 6,000
      Other income 3 3
        6,070 2,831 8,901 6,055 2,247 8,302

      Expenses

                 
      Salaries and benefits 3,508 3,508 3,172 3,172
      Professional fees 460 460 469 469
      Directors fees 564 564 568 568
      Travel and meetings 233 233 206 206
      External services 220 220 250 250
      General office and administration 936 82 1,018 887 60 947
      Operating expenses 5,921 82 6,003 5,552 60 5,612
      Net Operating Income 149 2,749 2,898 503 2,187 2,690

      Members’ Contributions

                 
      Specific Assessment (note 11) 15,200 15,200 15,200 15,200
      Net Income 149 17,949 18,098 503 17,387 17,890

      Other Comprehensive Income (OCI)

                 
      OCI, beginning of the year (22) (1,024) (1,046) (31) (1,374) (1,405)
      OCI, end of the year (123) (123) (22) (1,024) (1,046)
      Net change during the year 22 901 923 9 350 359
      Total Comprehensive Income 171 18,850 19,021 512 17,737 18,249
    3. Consolidated Statement of Changes in Members’ Funds

       

      December 31, 2019

      December 31, 2018

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Members’ Funds, beginning of the year
      $

      3,568

      $

      148,675

      $

      152,243

      $

      3,065

      $

      131,288

      $

      134,353

      Accumulated other comprehensive income (22) (1,024) (1,046) (31) (1,374) (1,405)
      Total members’ funds, beginning of the year 3,546 147,651 151,197 3,034 129,914 132,948
      Total Comprehensive Income 171 18,850 19,021 512 17,737 18,249

      Members’ Funds, end of the year

      3,717 166,501 170,218 3,546 147,651 151,197
  7. Investments

    1. Fair values

      Fair values of bonds and ETFs are determined by reference to quoted market bid prices.

    2. Effective interest rates

       

      Remaining term to maturity

      December 31, 2019

      December 31, 2018

       

      Within 1 year

      1 to 5 years

      Carrying Value

      Effective Rates %

      Carrying Value

      Effective Rates %

      Government of Canada
      $

      9,003

      $

      79,104

      $

      88,107

      0.8-3.8
      $

      78,284

      1.8-2.2
      Canadian provinces 26,852 25,066 51,918 1.3-10.6 44,756 1.9-2.8
      Canadian corporate and municipalities 29,120 29,120 2.5-3.8 25,978 1.9-2.8
        35,855 133,290 169,145 0.8-10.6 149,018 1.8-2.8
    3. Credit risk

      The Corporation has an objective to maximize the return on its investments without taking undue credit risk. The policy is to invest in Government of Canada, Provincial, Municipal, corporate bonds, and ETFs.

      Under the investment policy, the maximum investment in each category is:

      Investment

      Limit

      Restrictions

      December 31, 2019

      December 31, 2018

      Government of Canada Unlimited None 52% 52%
      Canadian provinces 80% total portfolio 15% in any one province 30% 30%
      Canadian corporate and municipalities 25% total 5% for anyone issuer 18% 18%

      Qualified investments have to be rated by at least two of the approved rating agencies – Standard & Poor’s, Moody’s and DBRS. In 2019 and 2018, the Corporation’s credit risk related to bonds with the following ratings:

      Bonds by rating

      December 31, 2019

      December 31, 2018

      AAA
      $

      98,514

      $

      87,621

      AA 28,694 30,804
      A 35,719 28,663

      Total Bonds

      162,927 147,088
    4. Interest rate risk

      The Corporation is exposed to changes in the fair value of its fixed income securities due to changes in interest rates. In sustained periods of lower interest rates, the interest income will be reduced, as the reinvestment yields on maturing securities are lower.

      An immediate hypothetical 100 basis point increase in interest rates for all maturities would decrease the fair value of the bond portfolio by $3,494,766 (2018 – $3,155,892).

    5. Bonds used in securities lending program

      As at December 31, 2019, and December 31, 2018, the Corporation did not have any bonds on loan through a securities lending program. Income from securities lending was $0 (2018 – $18,000).

  8. Property and equipment

     

    Cost

    Accumulated Depreciation

    December 31, 2019

    Cost

    Accumulated Depreciation

    December 31, 2018

    Computer equipment and software
    $

    353

    $

    261

    $

    92

    $

    337

    $

    202

    $

    135

    Leasehold improvements 483 103 380 483 58 425
    Furniture 102 53 49 102 27 75
      938 417 521 922 287 635
  9. Employee Future Benefits

    Employee future benefit costs are recognized in salaries and benefits expense. The change in the employee future benefits obligation is provided in table below:

     

    December 31, 2019

    December 31, 2018

    Opening Balance LTI
    $

    470

    $

    443

    Paid during the year (191) (179)
    Accrued benefit obligation – current year 201 206
      480 470
  10. Investment income

    Investment income was derived from the following sources:

     

    2019

    2018

    Cash and cash equivalents
    $

    14

    $

    10

    Bonds 2,682 2,242
    Exchange traded funds 202 50
      2,898 2,302
  11. Specific Assessment

    The Specific Assessment was assessed to Members beginning in 2017. The assessment is a contribution by Members to increase the Liquidity Fund to a Base Level of $200 million by 2021, to meet potential liquidity needs. The assessment for each Member is proportional to the capital required in Canada as filed with its solvency regulator. In accordance with the Corporation’s By-Laws, during 2016, the Board of Directors authorized a Specific Assessment of $15,200,000 for 2019.

  12. Administrative Assessment

    An annual Administrative Assessment is assessed to Members to cover the cost of administration not associated with a particular insolvency. The assessment is recorded as revenue and varies for each Member, as described in our By-Laws, depending on the Members’ size. In accordance with the Corporation’s By-Laws, during 2019, the Board of Directors authorized an Administrative Assessment of $6,000,000 for 2019 (2018 – $6,000,000).

  13. Related Party Transactions

    Key personnel of the Corporation are employees with authority and responsibility for planning, controlling and directing activities of the Corporation including members of the Board of Directors. Remuneration expenses for key personnel are the only related party transactions.

     

    2019

    2018

    Directors fees
    $

    564

    $

    568

    Salaries 1,269 1,291
    Other benefits 528 399
      2,361 2,258
  14. Leases

    The Corporation currently leases the office premises. This note provides additional information for this lease.


    1. Amounts recognized in the consolidated statement of financial position

      The statement of financial position shows the following amounts relating to leases:

      Right of use assets

      December 31, 2019

      January 1, 2019

      Office premises
      $

      1,183

      $

      1,321

      Lease Liabilities

      December 31, 2019

      January 1, 2019

      Current
      $

      119

      $

      116

      Non-current 1,086 1,205
      Total 1,205 1,321

    2. Amounts recognized in the consolidated statement of comprehensive income

      The statement of comprehensive income shows the following amounts relating to leases:

      Depreciation charge of right of use assets

      2019

      2018

      Office premises
      $

      138

           
      Interest expense (included in administrative expenses) 28

    The total cash outflow for leases in 2019 was $319,110.