Year ended December 31, 2018 with comparative figures for 2017 (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, 2018 were approved for issue by the Board of Directors on February 28, 2019.

    2. Basis of consolidation

      The consolidated financial statements of the Corporation for the year ended December 31, 2018 include the funds of the Corporation, and its direct wholly-owned subsidiary CompCorp Life Insurance Company (“CompCorp Life”). All intercompany 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 interfund 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 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 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. Securities lending

      The Corporation participated in a securities lending program, through a Lending Agent that is a financial institution, which was terminated 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. 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.

    6. Revenue Recognition

      The Corporation is funded by an annual Administrative Assessment assessed to Members and recorded as revenue. This revenue is recognized in the same fiscal year as the Corporations’ performance obligation to Members is fulfilled. Adoption of IFRS 15, Revenue from Contracts with Customers, on January 1, 2018 did not have an impact on the financial statements.

  4. Future accounting changes

    The new standard for accounting for leases (IFRS 16) is effective January 1, 2019 and has not been applied in preparing these consolidated financial statements. In 2019, the new standard will require the capitalization of the lease shown in note 14 by recognizing the present value of the lease payments as a lease asset and recognizing a financial liability representing an obligation to make future lease payments. Adoption of the standard is not expected to have a material impact on the financial statements.

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

     

    December 31, 2018

    December 31, 2017

     

    Less than 12 months

    Over 12 months

    Total

    Less than 12 months

    Over 12 months

    Total

    Assets

               
    Cash and cash equivalents
    $
    2,113
    $
    $
    2,113
    $
    894
    $
    $
    894
    Bonds held by custodian 26,400 118,393 144,793 11,588 101,292 112,880
    Bonds used under securities lending 14,264 583 14,847
    ETFs held by custodian 4,225 4,225 3,317 3,317
    ETFs used in securities lending 975 975
    Accrued investment income 651 651 602 602
    Accounts receivable and prepaids 76 76 44 44

    Total Assets

    29,240 122,618 151,858 27,392 106,167 133,559

    Liabilities

               
    Accounts payable and accrued liabilities 826 826 855 855
    Employee future benefits 191 279 470 177 266 443

    Total Liabilities

    1,017 279 1,296 1,032 266 1,298
  6. Administrative Fund and Liquidity Fund Information

    1. Consolidated Statement of Financial Position

       

      December 31, 2018

      December 31, 2017

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Assets

                 
      Cash and cash equivalents
      $
      389
      $
      1,724
      $
      2,113
      $
      677
      $
      217
      $
      894
      Bonds (note 7)            
      Held by custodian 3,505 141,288 144,793 2,802 110,078 112,880
      Used in securities lending 14,847 14,847
      Exchange Traded Funds (note 7)            
      Held by custodian 4,225 4,225 3,317 3,317
      ETFs used in securities lending 975 975
      Total Investments 3,505 145,513 149,018 2,802 129,217 132,019
      Accrued investment income 55 596 651 602 602
      Accounts receivable and prepaid 76 76 41 3 44
      Due from (to) other funds 177 (177) 120 (120)
      Equipment (note 8) 635 635 687 687

      Total Assets

      4,837 147,656 152,493 4,327 129,919 134,246

      Liabilities

                 
      Accounts payable and accrued liabilities 821 5 826 850 5 855
      Employee future benefits (note 9) 470 470 443 443

      Total Liabilities

      1,291 5 1,296 1,293 5 1,298

      Members’ Funds (note 6(c))

                 
      Administrative 3,568 3,568 3,065 3,065
      Liquidity 148,675 148,675 131,288 131,288

      Accumulated Other Comprehensive Income

                 
      Net unrealized loss on investments (22) (1,024) (1,046) (31) (1,374) (1,405)

      Total Members’ Funds

      3,546 147,651 151,197 3,034 129,914 132,948

      Total Liabilities and Members’ Funds

      4,837 147,656 152,493 4,327 129,919 134,246
    2. Consolidated Statements of Comprehensive Income

       

      December 31, 2018

      December 31, 2017

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Revenue

                 
      Investment income (note 10)
      $
      55
      $
      2,247
      $
      2,302
      $
      55
      $
      1,913
      $
      1,968
      Administrative Assessment (note 12) 6,000 6,000 6,000 6,000
      Other income 3 3
        6,055 2,247 8,302 6,058 1,913 7,971

      Expenses

                 
      Salaries and benefits 3,172 3,172 3,133 3,133
      Professional fees 469 469 390 390
      Directors fees 568 568 473 473
      Travel and meetings 206 206 207 207
      External services 250 250 212 212
      General office and administration 887 60 947 978 72 1,050
      Operating expenses 5,552 60 5,612 5,393 72 5,465
      Net Operating Income 503 2,187 2,690 665 1,841 2,506

      Members’ Contributions

                 
      Specific Assessment (note 12) 15,200 15,200 15,200 15,200
      Net Income 503 17,387 17,890 665 17,041 17,706

      Other Comprehensive Income Statement

                 
      OCI, beginning of the year (31) (1,374) (1,405)
      Change in unrealized loss (22) (1,024) (1,046) (31) (1,374) (1,405)
      Net change during the year 9 350 359 (31) (1,374) (1,405)
      Total Comprehensive Income 512 17,737 18,249 634 15,667 16,301
    3. Consolidated Statement of Changes in Members’ Funds

       

      December 31, 2018

      December 31, 2017

       

      Administrative Fund

      Liquidity Fund

      Total

      Administrative Fund

      Liquidity Fund

      Total

      Members’ Funds, beginning of the year
      $
      3,065
      $
      131,288
      $
      134,353
      $
      2,400
      $
      114,247
      $
      116,647
      Accumulated other comprehensive income (31) (1,374) (1,405)
      Total members’ funds, beginning of the year 3,034 129,914 132,948 2,400 114,247 116,647
      Total Comprehensive Income 512 17,737 18,249 634 15,667 16,301

      Members’ Funds, end of the year

      3,546 147,651 151,197 3,034 129,914 132,948
  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, 2018

      December 31, 2017

       

      Within 1 year

      1 to 5 years

      Carrying Value

      Effective Rates %

      Carrying Value

      Effective Rates %

      Government of Canada
      $
      11,727
      $
      66,557
      $
      78,284
      1.8-2.2
      $
      70,770
      1.0-2.1
      Canadian provinces 2,420 42,336 44,756 1.9-2.8 42,079 1.8-2.1
      Canadian corporate and municipalities 12,253 13,725 25,978 1.9-2.8 19,170 1.8-2.4
        26,400 122,618 149,018 1.8-2.8 132,019 1.0-2.4
    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, 2018

      December 31, 2017

      Government of Canada Unlimited None 52% 53%
      Canadian provinces 80% total portfolio 15% in any one province 30% 29%
      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 2018 and 2017, the Corporation’s credit risk related to bonds with the following ratings:

      Bonds by rating

      December 31, 2018

      December 31, 2017

      AAA
      $
      87,621
      $
      79,438
      AA 30,804 28,461
      A 28,663 20,419

      Total Bonds

      147,088 128,318
    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 $3,155,892 (2017 – $2,936,528).

    5. Bonds used in securities lending program

      As at December 31, 2018, the Corporation did not have any loaned bonds (2017 – $15,839,346) and therefore did not have any eligible securities as collateral (2017 – $16,647,240). Income from securities lending was $18,000 (2017 – $12,000).

  8. Property and equipment

     

    Cost

    Accumulated Depreciation

    December 31, 2018

    Cost

    Accumulated Depreciation

    December 31, 2017

    Computer equipment and software
    $
    337
    $
    202
    $
    135
    $
    257
    $
    140
    $
    117
    Leasehold improvements 483 58 425 483 12 471
    Furniture 102 27 75 100 1 99
      922 287 635 840 153 687
  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, 2018

    December 31, 2017

    Opening Balance LTI
    $
    443
    $
    439
    Paid during the year (179) (170)
    Accrued benefit obligation – current year 206 174
      470 443
  10. Investment income

    Investment income was derived from the following sources:

     

    2018

    2017

    Cash and cash equivalents
    $
    10
    $
    5
    Bonds 2,242 1,967
    Exchange traded funds 50 (4)
      2,302 1,968
  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 2018.

  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 Member’s size. In accordance with the Corporation’s By-Laws, during 2018, the Board of Directors authorized an Administrative Assessment of $6,000,000 for 2018 (2017 – $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.

     

    2018

    2017

    Directors fees
    $
    568
    $
    473
    Salaries 1,291 1,216
    Other benefits 399 392
      2,258 2,081
  14. Lease Commitments

    In 2017, the Corporation entered into an agreement to extend the lease for the office premises for a period of ten years to expire on July 31, 2028. The balance of its commitment under this agreement are:

     

    Total

    January 2019 – July 2021
    $
    796
    August 2021 – July 2024 988
    August 2024 – July 2028 999
      2,783