Resolution Funding
How Does Assuris Fund Resolution?
Assuris is funded by member life and health insurance companies to meet our resolution and administrative funding needs.
Member companies have a contractual obligation to pay for policyholder protection under their membership agreement, and regulators are committed to helping enforce our assessments under the participation agreements with the Government of Canada and the governments of every Canadian Province and Territory.
A privately funded system avoids the moral hazard of supporting financial institutions with public money. Assuris is also a national funding regime. This means that all the companies in the industry are responsible for the cost of failure, regardless of whether the failed company is federal or provincially incorporated, or which province or territory policyholders resides in.
It is primarily a post-funded model, meaning funds are collected from the industry after a failure occurs. It is post-funded because the likelihood of an asset shortfall is low. The failed company’s estate provides significant resolution funding. Policyholder priority over lower-ranking creditors minimizes the funds needed from the industry to pay for policyholder protection. The conservative nature of life and health insurers’ risk management, regulations and rating agency pressure also reduces the likelihood of asset shortfall closer to zero.
Assuris plays a financial role in resolution to ensure policyholders are protected. For most life and health insurance companies, the best resolution option will be to transfer the business to a solvent company where benefits continue to be honoured. We guarantee a minimum level of benefits when the business is transferred, where we make a top-up payment to the liquidator when there is a shortfall in the failed company’s estate. The loan agreement with the liquidator to cover costs, provide liquidity and top-up policyholders is how we negotiate our role and influence in the liquidation.
Most policyholder protection plans are used for funding portfolio transfers and run-offs, as well as policyholder compensation in liquidation. Assuris financial commitments can also take less traditional forms such as guarantees or indemnities.
Funding Tools
The Assuris funding model is composed of the assessment system plus the liquidity fund we hold to meet immediate needs in resolution.
Funding = Assessment System + Liquidity Fund
Resolution Funding
The resolution funding is the total funding available to manage an insurer failure, made up of the assessment system and the liquidity fund.
Assessment System
The assessment system is the primary mechanism through which Assuris collects funds from the industry after a failure, including specific, extraordinary, and loan assessments.
The specific assessment is a standard funding tool based on the solvency buffer for Canadian business, used to recover the cost of a failure from the industry.
Specific Assessment
0.5% of the
assessment base
The extraordinary assessment is a special funding tool for large-scale or multiple failures, based on new business written after the failure, allowing costs to be passed to future policyholders.
Extraordinary Assessment
based on new
business written
The loan assessment is the ability for Assuris to borrow funds from member companies—up to six times the annual specific assessment.
Loan Assessment
3.0% of the
assessment base
Liquidity Source
Main source of liquidity that provides immediate cash during the early days of a failure and is held in low-risk, high-liquidity assets.
Liquidity fund is a fund invested in low-risk, liquid assets to supply immediate financial support at the onset of a failure. For example, to ensure continuity of claims’ payment.
Liquidity Fund
target level $200 million
grows with interest
Assuris’ main tool to fund a failure is the specific assessment, which is based on the solvency buffer1 for Canadian business, also known as the Assuris assessment base. The annual maximum specific assessment is calculated as approximately 0.5% of the assessment base.2 Our past failures have all been funded using the specific assessment tool, where Assuris assessed the industry for the cost of each insolvency.
For large-scale failures, including a series of multiple failures, our funding tool is the extraordinary assessment, which is based on new business written after the failure(s). Post-Global Financial Crisis, Assuris worked with the industry to develop a funding tool to manage our largest financial exposures without causing contagion for the industry, with the ability to pass through the cost to future policyholders.
Following the experience with the insolvencies in the 1990s, Assuris added the ability to borrow from our members using a loan assessment up to six times the annual maximum specific assessment. Loans can be interest-bearing cash advances, non-interest-bearing stand-by facilities or used as security for future borrowing or guarantees.
The liquidity fund supplies funds in the early days of a failure and is invested in high-liquidity, low-risk assets to meet Assuris’ needs. Between 2017 and 2021, Assuris worked with the industry to increase the target level from $100 million to $200 million, and it continues to grow with interest today.
The Assuris By-law outlines how we can use our funding tools to meet our financial commitments in a failure. Additionally, we have developed a funding playbook with guidance on how we apply our funding tools, and we regularly test our playbooks with funding preparedness exercises with member companies representing over 90% of the Assuris assessment base.
Funding Objectives
Assuris resolution funding is designed to meet our needs in a failure while balancing our stakeholders’ needs. We take a risk-based approach to the assessment of our funding tools, with five key objectives:
Sufficient Funds
Capable of raising sufficient funds to meet obligations to protect policyholders
Capacity – ability to raise sufficient funds for a plausible worst-case failure
Liquidity – having sufficient funds available for most failures and the short-term needs for a large-scale failure
No Contagion
Sufficiently limited so as not to threaten the solvency of the industry
An assessment to the industry should not cause the failure or near-failure of another member company
Equitable
Equitable between member companies
Members should pay their share of a failure based on their added risk to the system
Practical
Practical to administer for Assuris without undue burden on member companies
The assessment base is easily calculated and verifiable
Ability to administer the assessment system in a practical manner
Industry Strength
Demonstrates the financial strength and flexibility of the private sector solution to government
Provides assurance that no taxpayer funds are needed
Assuris regularly stress tests our funding capabilities to meet evolving resolution needs. We review the adequacy of our assessment system annually with the Board of Directors and every three years with the Industry Advisory Committee.
To assess the funding capacity, Assuris models the cost of providing our protection to estimate the industry funding needed under potential failure scenarios. We collect information from our member companies every three years to model the cost of protection for each company based on their business profile.
Post-Funded model
The failed company’s estate provides significant resolution funding. The shortfall of assets vs. liabilities is seldom more than 15% and usually more in the 5-10% range, based on our experience in Canada and what we have observed abroad. Policyholder priority over lower-ranking creditors minimizes the funds needed from the industry to pay for policyholder protection. The conservative nature of life and health insurers’ risk management, regulations and rating agency pressure also reduce the likelihood of asset shortfall closer to zero.
The recovery rate is the key assumption to determine the severity of the funding scenario.
Recovery % =
Assets Available in Canada
Exit Value on Canadian Policyholder Liabilities
| Insurer | Country | Year | Recovery Rate |
| Executive Life | U.S.A. | 1991 | 92%3 |
| Mutual Benefit Life | U.S.A. | 1991 | 100%3 |
| Les Cooperants | Canada | 1992 | 80%4 |
| Sovereign Life | Canada | 1993 | 95%4 |
| Confederation Life | Canada/U.S.A. | 1994 | 100%4 |
| AIG | U.S.A. | 2008 | 100%5 |
| Union du Canada | Canada | 2012 | 95%4 |
| Pre-Fund | Post-Fund |
|
|
[1] “Solvency Buffer” means: (a) for each Member operating only in Canada, the amount of its “Base Solvency Buffer” or “Coussin de solvabilité global” as Filed; (b) for each foreign Member operating in Canada on a branch basis, the amount of its “required margin” as Filed; and (c) for each Canadian Member operating in foreign jurisdictions, the amount of its “Base Solvency Buffer” or “Coussin de solvabilité global” as Filed, calculated based on only that Member’s Consolidated Assets and Liabilities in Canada.
[2] The maximum specific assessment is defined in the By-Law as 4/3 of 1% of the assessment base multiplied by a transition factor from when the capital framework changed from required capital to solvency buffer in 2018, which is approximately 0.5% of the assessment base.
[3] U.S. and Japan Life Insurers Insolvencies Case Studies, The Geneva Association, 2015.
[4] Assuris data.
[5] AIG (American International Group) received a bailout from the U.S. government.
Explore the Safety Net
Gain a deeper understanding of Assuris’ framework for protecting policyholders if a life and health insurer fails. From strong governance and funding tools to resolution readiness, see how Assuris supports a stable and resilient life and health insurance system in Canada.
