Notes to Consolidated Financial Statements

Year ended December 31, 2020 with comparative figures for 2019 (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, 2020, were approved for issue by the Board of Directors on February 18, 2021.

    2. Basis of consolidation

      The consolidated financial statements of the Corporation for the year ended December 31, 2020, 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.

    8. COVID-19 disclosure

      The COVID-19 pandemic has developed rapidly in 2020, with a significant number of cases. Measures taken by various governments to contain the virus have affected economic activity. We have taken a number of measures to monitor and mitigate the effects of COVID-19. Our Business Continuity Plan was implemented in March 2020, allowing employees to work from home and to ensure business as usual through the pandemic.

      At this stage, the impact on our business and results has not been significant and based on our experience to date we expect this to remain the case. We will continue to follow the various government policies and advice and, in parallel, we will do our utmost to continue our operations in the best and safest way possible without jeopardizing the health of our employees.

      COVID-19 did not have any impact on the liquidity of Assuris itself. However, to ensure we have sufficient funds available quickly in case of any failure in the industry, a more conservative investing strategy was adopted to maintain high liquidity of our investment portfolio by reinvesting only in Government of Canada Bonds, see note 6 Investments for reference.

  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 or 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. 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.

    4. 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 achieved, and the employee is still in service. The expenses for the year are recorded in salaries and benefits.

    5. 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 Corporation’s performance obligation to Members is fulfilled.

    6. Lease

      The Corporation has adopted IFRS 16 Leases retrospectively from January 1, 2019. As a lessee, the Corporation recognized the right-of-use asset representing its rights to use the underlying asset and lease liabilities representing its obligation to make future lease payments, in the Consolidated Statement of Financial Position.

      The lease liability is initially measured at the present value of the non-cancellable lease payments over the lease term and discounted at the Corporation’s incremental borrowing rate. Lease payments include:

      • fixed payments, less any lease incentives receivable,
      • payments or penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

      The right-of-use asset is measured at cost, which comprises the following:

      • the amount of the initial measurement of the lease liability,
      • lease payments made at or before the lease commencement date, less lease incentives received,
      • initial direct costs, and
      • restoration obligations.

      The right-of-use asset is subsequently measured at amortized cost. The asset is depreciated over lease term, on a straight-line basis.

      Extension and termination options exist for the Corporation’s property lease. The Corporation re-measures the lease liability when there is a change in the assessment of the inclusion of the extension option in the lease term resulting from a change in facts and circumstances.

  4. Timing of Expected Recovery or Settlement of Assets and Liabilities

     

    December 31, 2020

    December 31, 2019

     

    Less than 12 months

    Over 12 months

    Total

    Less than 12 months

    Over 12 months

    Total

    Assets

               
    Cash and cash equivalents
    $

    1,099

    $

    $

    1,099

    $

    928

    $

    $

    928

    Bonds 83,030 99,908 182,938 35,854 126,225 162,079
    ETFs 7,296 7,296 7,066 7,066
    Accrued investment income 761 761 860 860
    Accounts receivable and prepaids 98 98 81 81
    Right of use asset – office premises 137 909 1,046 137 1,046 1,183

    Total Assets

    85,125 108,113 193,238 37,860 134,337 172,197

    Liabilities

               
    Accounts payable and accrued liabilities 939 939 815 815
    Employee future benefits 191 288 479 184 296 480
    Lease liability – office premises 125 961 1,086 119 1,086 1,205

    Total Liabilities

    1,255 1,249 2,504 1,118 1,382 2,500
  5. Administrative Fund and Liquidity Fund Information

    1. Consolidated Statement of Financial Position

       

      Administrative Fund

      Liquidity Fund

      Year ended Dec. 31, 2020

      Administrative Fund

      Liquidity Fund

      Year ended Dec. 31, 2019

      Assets

                 
      Cash and cash equivalents
      $

      362

      $

      737

      $

      1,099

      $

      424

      $

      504

      $

      928

      Bonds (note 6) 3,575 179,363 182,938 3,837 158,242 162,079
      Exchange Traded Funds (note 6) 7,296 7,296 7,066 7,066
      Total Investments 3,575 186,659 190,234 3,837 165,308 169,145
      Accrued investment income 124 637 761 67 793 860
      Accounts receivable and prepaids 98 98 81 81
      Due from (to) other funds 98 (98)
      Equipment (note 7) 497 497 521 521
      Right of use asset-office premises (note 8) 1,046 1,046 1,183 1,183

      Total Assets

      5,702 188,033 193,735 6,211 166,507 172,718

      Liabilities

                 
      Accounts payable and accrued liabilities 933 6 939 809 6 815
      Employee future benefits (note 9) 479 479 480 480
      Lease liability – office premises (note 8) 1,086 1,086 1,205 1,205

      Total Liabilities

      2,498 6 2,504 2,494 6 2,500

      Members’ Funds (note 5(c))

                 
      Administrative 3,142 3,142 3,717 3,717
      Liquidity 184,770 184,770 166,624 166,624

      Accumulated Other Comprehensive Income

                 
      Net unrealized loss on investments 62 3,257 3,319 (123) (123)

      Total Members’ Funds

      3,204 188,027 191,231 3,717 166,501 170,218

      Total Liabilities and Members’ Funds

      5,702 188,033 193,735 6,211 166,507 172,718
    2. Consolidated Statement of Comprehensive Income

       

      December 31, 2020

      December 31, 2019

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Revenue

                 
      Investment income (note 10)
      $

      57

      $

      3,031

      $

      3,088

      $

      67

      $

      2,831

      $

      2,898

      Administrative Assessment (note 12) 6,000 6,000 6,000 6,000
      Other income 3 3
        6,057 3,031 9,088 6,070 2,831 8,901

      Expenses

                 
      Salaries and benefits 3,844 3,844 3,508 3,508
      Professional fees 1,041 1,041 460 460
      Directors fees 530 530 564 564
      Travel and meetings 35 35 233 233
      External services 226 226 220 220
      General office and administration 956 85 1,041 936 82 1,018
      Operating expenses 6,632 85 6,717 5,921 82 6,003
      Net Operating Income (575) 2,946 2,371 149 2,749 2,898

      Members’ Contributions

                 
      Specific Assessment (note 11) 15,200 15,200 15,200 15,200
      Net Income (575) 18,146 17,571 149 17,949 18,098

      Other Comprehensive Income (OCI)

                 
      OCI, beginning of the year (123) (123) (22) (1,024) (1,046)
      OCI, end of the year 62 3,257 3,319 (123) (123)
      Net change during the year 62 3,380 3,442 22 901 923
      Total Comprehensive Income (Loss) (513) 21,526 21,013 171 18,850 19,021
    3. Consolidated Statement of Changes in Members’ Funds

       

      December 31, 2020

      December 31, 2019

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Members’ Funds, beginning of the year
      $

      3,717

      $

      166,624

      $

      170,341

      $

      3,568

      $

      148,675

      $

      152,243

      Accumulated other comprehensive income (123) (123) (22) (1,024) (1,046)
      Total members’ funds, beginning of the year 3,717 166,501 170,218 3,546 147,651 151,197
      Total Comprehensive Income (513) 21,526 21,013 171 18,850 19,021

      Members’ Funds, end of the year

      3,204 188,027 191,231 3,717 166,501 170,218
  6. 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, 2020

      December 31, 2019

       

      Within 1 year

      1 to 5 years

      Carrying Value

      Effective Rates %

      Carrying Value

      Effective Rates %

      Government of Canada
      $

      62,632

      $

      68,406

      $

      131,038

      0.5-3.8
      $

      88,107

      0.8-3.8
      Canadian provinces 10,380 18,572 28,952 1.6-8.0 51,918 1.3-10.6
      Canadian corporate and municipalities 10,017 20,227 30,244 2.5-3.8 29,120 2.5-3.8
        83,029 107,205 190,234 0.5-8.0 169,145 0.8-10.6
    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, 2020

      December 31, 2019

      Government of Canada Unlimited None 68.6% 52%
      Canadian provinces 80% total portfolio 15% in any one province 15.1% 30%
      Canadian corporate and municipalities 25% total 5% for anyone issuer 16.0% 18%

      Qualified investments have to be rated by at least two of the approved rating agencies – Standard & Poor’s, Moody’s and DBRS. In 2020 and 2019, the Corporation’s credit risk related to bonds with the following ratings:

      Bonds by rating

      December 31, 2020

      December 31, 2019

      AAA
      $

      138,979

      $

      98,514

      AA 22,212 28,694
      A 22,998 35,719

      Total Bonds

      184,189 162,927
    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 $2,487,100 (2019 – $3,494,766).

  7. Property and equipment

     

    Cost

    Accumulated Depreciation

    December 31, 2020

    Cost

    Accumulated Depreciation

    December 31, 2019

    Computer equipment and software
    $

    457

    $

    324

    $

    133

    $

    353

    $

    261

    $

    92

    Leasehold improvements 483 148 335 483 103 380
    Furniture 107 78 29 102 53 49
      1,047 550 497 938 417 521
  8. 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, 2020

      December 31, 2019

      Office premises
      $

      1,046

      $

      1,183

      Lease Liabilities

      December 31, 2020

      December 31, 2019

      Current
      $

      125

      $

      119

      Non-current 961 1,086
      Total 1,086 1,205

    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

      2020

      2019

      Office premises
      $

      138

      $

      138

           
      Interest expense (included in administrative expenses)
      $

      26

      $

      28

      The total cash outflow for leases in 2020 was $322,076 (2019 – $319,110).

  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 the table below:

     

    December 31, 2020

    December 31, 2019

    Opening Balance LTI
    $

    480

    $

    470

    Paid during the year (192) (191)
    Accrued benefit obligation – current year 191 201
      479 480
  10. Investment income

    Investment income was derived from the following sources:

     

    2020

    2019

    Cash and cash equivalents
    $

    2

    $

    14

    Bonds 2,675 2,682
    ETFs 411 202
      3,088 2,898
  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 2019, the Board of Directors authorized a Specific Assessment of $15,200,000 for 2020 (2019 – $15,200,000).

  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 2020 (2019 – $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.

     

    2020

    2019

    Directors fees
    $

    530

    $

    564

    Salaries 1,323 1,269
    Other benefits 523 528
      2,376 2,361