Canada's Life Insurance Industry
Exporting an Invisible Giant

Canada's early economy relied almost entirely on the exploitation of its abundant natural resources. For a long time, in fact, Canada was one of the world's leading suppliers of raw materials. This gave way, in time, to a very successful and highly integrated manufacturing sector exporting processed goods. More recently, and almost unnoticed, Canada has become a major exporter of services. The largest service exported by Canadians today is the insurance persons by Canadian life insurance companies.

Crown Life Insurance Company, Toronto, Ontario, founded, 1901. [Photo, courtsey Crown Life]

The size of this Canadian export industry and its related products is staggering. In direct life insurance alone in 1993, Canadian companies insured more than five million non-residents located in over 20 countries. The insurance industry expresses its gross sales as “premiums,” which is the aggregate of the prices paid by consumers for their insurance protection. For the entire Canadian life insurance industry in 1993, premium revenues outside of Canada accounted for $16 billion or 43 per cent of its worldwide premiums. Assets invested abroad to protect the security of lives insured by branches and subsidiaries of Canadian life insurers exceeded $111 billion, an amount comparable to the revenues of the Federal government of Canada in the 1993/94 year, and more than 20 per cent of the entire government debt. These numbers do not include direct foreign sales of health insurance, sold mainly by life insurers, or revenues derived from assuming life and health risks originally accepted by foreign insurance companies, normally termed “reinsurance.”

In what parts of the world do Canadian life insurers do business? Easily their most important export market is the United States which accounts for about 75 per cent of the direct life insurance sold abroad. The recent Free Trade Agreement only served to increase the importance of the U.S. market to Canadian life insurers. Other important markets are the U.K. and Ireland, which together account for 18 per cent of insurance placed abroad. Bermuda was one of the earliest foreign markets entered by major Canadian companies and, today, companies operate directly as branch operations or through subsidiaries in Latin America, the Caribbean, and the Far East, especially Hong Kong.

The early entry of Canadian life insurers targeting an international market is one reason life insurance and health insurance have been successful service exports for Canadian companies. For example, Canada Life entered the U.S. market as early as 1889 and both the U.K. and Ireland by 1903. Canada Life today is a major player in both the individual and group insurance markets with each of these countries. As well, Sun Life of Canada entered the U.S. in 1895 and Bermuda almost as early. Manulife (formerly Manufacturers Life) began selling insurance in Bermuda in 1898 and in the U.S. in 1903. Sixty per cent of Manulife’s revenues are now derived from operations outside Canada. The company, moreover, is the largest Canadian employer in Hong Kong. More recently, but still long enough ago to have now become well established, Crown Life entered the U.S. in 1924; it has since expanded to Hong Kong, Bermuda, and the Bahamas. Great-West Life has long been a player in the U.S. and in 1994 derived more than twice as much premium revenues in the U.S. (almost seven billion dollars) as in Canada (almost three billion dollars). And veteran Canadian mutual company, Mutual Life, which was founded in 1870, now has an important presence in the U.S. and is planning entry into the Asian-Pacific arena.

Because Canadians traditionally have had the highest per capita value of life insurance in the world (a record only recently overtaken by the Japanese), Canadian insurers, by the late nineteenth century, were forced to look abroad to sustain growth in an ever-competitive market.

Still another reason Canadian life insurers expanded globally at the turn of this century is directly related to the Canadian government regulators who put financial security well ahead of other concerns in overseeing the life insurance industry in Canada. Thus, the financial security of Canadian insurers quickly became a watchword throughout the world.

London Life Assurance Company, London, Ontario, founded, 1870. [Photo, courtsey London Life]

The geographical terrain of Canada itself contributed to worldwide growth of specialized classes of insurance and reinsurance. Our dependence on transportation over long distances and into remote areas made aviation a high priority for Canadian insurers. Insuring bush pilots and the like gave Canadian life insurers an insight into high-risk insurance requirements worldwide.

The reinsurance business is little known to the general public. In fact, reinsurance plays a crucial part today in the worldwide business of insurance. It supports the financial security of companies since, by allowing them to accept amounts of insurance coverage larger than they could retain on their own books, it thus shields them from the impacts of catastrophic events ranging from hurricanes and earthquakes to airline crashes and mining disasters. Although most of Canada’s life insurance companies have active reinsurance operations in their own name, they also have banded together to participate in one or more reinsurance pools that collectively accept risks larger than any one of the companies, even the largest, is prepared to retain for itself. Reinsurance business is very cost effective because large blocks of business can be handled by a small number of staff. Because of this, the reinsurance business of Canadian life insurers is even more widely distributed geographically than their direct insurance business.

One Canadian-based reinsurance pool is the Canadian Accident Reinsurance Facility (CARF) which is managed out of Toronto by Tri-Can Reinsurance Inc. Although this pool only negotiates reinsurance business in North America, many of the same Canadian companies are also members of an international pool called CARF International which is managed by Tri-Can International Ltd. of Bermuda, an associated company of Tri-Can Reinsurance Inc. CARF International specializes in reinsuring accident risks on a worldwide basis. Thus, while the man in the street thinks of international accident insurance as being the natural province of Lloyd’s of London, in fact the CARF International pool and many of the indi vid ual Canadian companies which participate in it reinsure Lloyd’s itself.

Canada’s life insurance industry has not only a strong international presence but also an extensive network of reinsurance connections with the world’s insurance industry. With its developed base of traditional expertise in world markets reinforced by financial strength, there is little doubt that this service will sustain its success well into the twenty-first century.

Derrick Crawley