Assuring solvency

By David Wm. Brown | December 1, 2008 | Last updated on September 21, 2023
3 min read

It was April 1943. An enthusiastic fellow entered the head office of an insurance company for a job interview. After a barrage of questions from the interviewer, the prospective insurance agent was asked if he had any questions regarding the position. “Yes,” the applicant said, “what would happen to my clients if your company went bankrupt and couldn’t pay its obligations?”

“Young man, this company is stable as a rock, and will remain so for as long as there is a Bank of England,” the vice-president of The Confederation Life Insurance Company answered my father, Al G. Brown.

Flash forward fifty-one years to August 15, 1994. On that date, the Ontario Court (General Division) ordered that the Confederation Life Insurance Company end its business pursuant to the Winding-up Act, and appointed the Superintendent of Financial Institutions the provisional liquidator of Canada’s fourth largest life insurance company.

The Confederation Life Insurance story taught all of us in the industry some sobering lessons: First, rating agencies are not infallible. In 1993, the leading rating agency, A.M. Best, gave Confed an “A” ranking, the third highest of 15 levels.

The second lesson: Big is not necessarily safe. In the year before the windup, the company had 273,000 policyholders, 4,425 employees and $19 billion in assets. And, the final lesson, diversification is the key to investing at all levels. Confed’s fatal error was to concentrate over 70% of its assets in the real estate market.

The fall of Confederation Life was also the first test of the safety net created by the Canadian Life and Health Insurance Compensation Corp. (CompCorp). Founded in 1990, CompCorp, which changed its name to Assuris in December 2005, is the industry-sponsored organization that protects policyholders in the event an insurance company becomes insolvent. Assuris’s role is to minimize the loss of benefits to policyholders, and see to a quick transfer of their policies to a solvent company where provisions and benefits will be honoured. Funded by life insurance companies and endorsed by the government, Assuris provides peace of mind that insurance products are protected.

We live in uncertain times. World economies seem fragile and financial companies of all sizes appear at risk. Our clients are nervous and look to us for assurance. This is the time for us, as advisors, to be front and centre. We must be proactive in delivering a message of confidence to our clients.

And Assuris is a key element in the delivery of that message.

In general, the agency guarantees that on transfer of a life insurance policy from the insolvent entity to the solvent company, the contract will retain at least 85% of its promised insurance benefits. These benefits include death, health insurance, and monthly income payments.

Assuris also facilitates transfer of accumulation annuities products to a solvent company. These include deposit accounts, universal life overflow, premium deposits and dividend deposits. Group insurance and group retirement plans— and long- term care and critical illness contracts—all fall under the umbrella of Assuris protection. It’s important for an advisor to be aware of the levels of protection as they may differ by product and benefit. I encourage you to review the information on the detailed Assuris website, While you’re at it, direct your clients there or send them the Assuris brochure. Spread the word and the confidence in our products.

“We promise to pay,” are the first few words in most insurance contracts. Just as it was in 1943, and will be for as long as this industry exists, that promise is the essence and spirit of our business. It’s up to us, at times when that promise is either questioned or compromised, to show our clients what we’ve done to ensure we keep our word.

David Wm. Brown

David Wm. Brown , CFP, CLU, Ch.F.C., RHU, TEP, is a member of the MDRT, and a partner at Al G. Brown and Associates in Toronto.