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Why a Large, Complex Life and Health Insurer Failure Would Be Different — and Why Canada Needs a Modern Insurance Resolution Framework
When Confederation Life failed in the early 1990s, it was the fourth-largest life and health insurer in Canada. The insolvency was complex for its time, involving operations in Canada, the United States, and the United Kingdom. Yet the outcome was unequivocally successful: Canadian policyholders received 100 cents on the dollar, benefits continued uninterrupted, and confidence in the system was preserved.
That outcome was not accidental. It reflected strong cooperation across jurisdictions, effective use of the tools available at the time, and a degree of good fortune in how events unfolded. It also reflected a very different insurance landscape.
If a large, complex Canadian life and health insurer were to fail today, the challenge — and the risk — would be fundamentally different.
Confederation Life: A Success Story, With Lessons
At the time of its failure, Confederation Life had approximately 260,000 individual Canadian policyholders and another 1.5 million people covered under group insurance plans. Assuris worked closely with the liquidator to transfer the business and provide protection to Canadian policyholders under its rules as the liquidation progressed. Canada’s cross-border cooperation, particularly with U.S. authorities, proved critical.
The result was full recovery for Canadian policyholders and a clear demonstration that orderly outcomes are possible — even in cross-border cases — when coordination works and complexity is manageable.
But Confederation Life was complex by the standards of the early 1990s. Today’s largest Canadian life and health insurers operate in a different world.
Today’s Reality: Scale, Complexity, and Interconnectedness
Canada’s current WURA-based framework has proven adequate for resolving most life and health insurance failures. The majority of Canadian life and health insurers are domestically incorporated, operate primarily in Canada, and have relatively straightforward business models. Past failures — including as recently as 2012 — were resolved effectively using existing tools.
That would not be the case for the large public life and health insurance companies that have operations in multiple jurisdictions. Together, these firms dominate the Canadian life and health insurance market, representing more than75% of market share and more than half of Assuris’ assessment base. Their operations are global in scale, with extensive businesses in the United States, Asia, and Europe that are often significantly larger than their Canadian operations. Their activities span traditional insurance, annuities, pensions, health services, and large-scale institutional asset management. Trillions of dollars of assets are administered across jurisdictions, products, and legal entities.
Critically, much of this international activity is conducted through foreign branches or subsidiaries of the Canadian life and health insurance operating companies themselves. While efficient in normal times, this structure creates deep operational and financial interdependencies across borders. In a stress or failure scenario, disentangling those connections — quickly and in an orderly manner — would be extraordinarily difficult.
Assets supporting Canadian policyholder liabilities may be invested through foreign vehicles subject to ring-fencing. Complex derivatives portfolios and large, asset-intensive reinsurance arrangements link these insurers tightly to global financial markets and non-traditional counterparties. Confidence effects would not be confined to Canada.
Today’s insurers are several orders of magnitude more complex than Confederation Life, and they operate in foreign jurisdictions from which Canada can no longer take cooperation for granted.
Why Court-Based Liquidation Is Not Enough
Canada’s insurance resolution toolkit relies almost entirely on court-based liquidation under WURA. That process works when failures are slow-moving, domestic, and limited in systemic impact. It is not designed to manage the failure of a large, complex, cross-border insurance group whose disorderly collapse could threaten financial stability.
For example, if even a modest portion of offshore assets supporting Canadian liabilities were temporarily ring-fenced or impaired, the resulting liquidity and capital shortfall could significantly increase Assuris assessments. In a large, complex failure, the difference between an orderly transfer and a prolonged liquidation could translate into billions of dollars of additional cost to the industry.
Unlike banks, insurers in Canada do not have access to a designated resolution authority with administrative powers to act decisively outside the courts. Key tools reflected in the FSB Key Attributes — such as the ability to take control, transfer portfolios rapidly, impose stays, coordinate cross-border actions, and execute a pre-planned resolution strategy — are largely absent outside of the court process.
In practice, this means Canada would be attempting to resolve a 21st-century financial institution using a 20th-century legal process.
Key differences between the WURA framework and the resolution authority model can be seen below:
| WURA framework | Resolution authority model |
|---|---|
|
Court-driven liquidation |
Out-of-court, expert-driven |
|
Triggered at insolvency |
Triggered at non-viability |
|
Limited restructuring tools |
Broad sector-specific tools |
|
Vulnerable to uncertainty and delay |
Clear statutory powers |
|
Weak cross-border collaboration |
Internationally recognized authority |
| WURA framework |
|---|
|
Court-driven liquidation |
|
Triggered at insolvency |
|
Limited restructuring tools |
|
Vulnerable to uncertainty and delay |
|
Weak cross-border collaboration |
| Resolution authority model |
|---|
|
Out-of-court, expert-driven |
|
Triggered at non-viability |
|
Broad sector-specific tools |
|
Clear statutory powers |
|
Internationally recognized authority |
Speed Matters More Than Ever
The expectations of policyholders and markets have changed dramatically since the 1990s. Consumers now expect continuous access to financial services and immediate clarity when something goes wrong. Markets react in hours, not weeks.
Past life and health insurance failures were handled quickly by the standards of their time: notifications within days, statements in weeks, transfers in months. Today, that would be perceived as unacceptably slow. Policyholders would expect to know not only that a failure has occurred, but exactly how their policy will be affected — immediately.
Recent global experience has reinforced this lesson. Where authorities have had credible resolution frameworks and clear powers, they have been able to act decisively and stabilize confidence in days, not months. Speed is no longer a luxury; it is a prerequisite for success.
Governance Gaps and the Need for a Designated Resolution Authority
One further difference from the Confederation Life era is institutional. The supervisor is no longer the liquidator — a change made deliberately to avoid conflicts of interest. While appropriate, this leaves Canada without an internationally recognized designated insurance resolution authority capable of leading complex resolutions and engaging as an equal with foreign counterparts.
Canada cannot rely on goodwill, leverage, or good fortune to manage the failure of a globally active insurer. Resolution planning, cross-border cooperation mechanisms, and crisis management groups must be built in advance and anchored in clear statutory authority.
In the absence of a designated insurance resolution authority with clear statutory powers, Canada would be engaging foreign counterparts from a position of relative weakness, seeking cooperation rather than executing a coordinated resolution strategy. In today’s environment, where host jurisdictions are under pressure to protect local interests, that distinction matters.
The Bottom Line
Confederation Life showed that insurer failures can be resolved successfully, even across borders. But it also belongs to a different era.
Today’s largest Canadian life and health insurers are larger, more complex, more interconnected, and more critically important than anything Canada has previously resolved. A disorderly failure would pose risks not just to policyholders, but to confidence in the Canadian financial system and beyond.
To be ready, Canada needs a modern insurance resolution framework — one that includes a designated resolution authority with resolution powers aligned to the FSB Key Attributes, supported by robust resolution planning and cross-border coordination.
In short, the lesson from Confederation Life is not that our existing tools are sufficient — but that preparation, authority, and the ability to act decisively are what make successful resolution possible.
