Game's on: Canada's life insurance market is dominated by three big corporations, but smaller insurers find ways to compete.A startling star·tle v. star·tled, star·tling, star·tles v.tr. 1. To cause to make a quick involuntary movement or start. 2. To alarm, frighten, or surprise suddenly. See Synonyms at frighten. fact about Canada is only three corporations control nearly two-thirds of the assets in the nation's life insurance industry. But while that may sound like an overwhelming concentration of power, industry leaders say the marketplace is still competitive and healthy. "At this point, no one is worried," said Jim Witol, a spokesman for the Canadian Life and Health Insurance Association, the industry's trade association. "It is an issue that is monitored, and there's an awareness amongst regulators. But anybody who's looked at the issue carefully, including the rating agencies, concludes there is strong competition. You can't do whatever you want, and everybody has got to be smart, efficient and nimble nim·ble adj. nim·bler, nim·blest 1. Quick, light, or agile in movement or action; deft: nimble fingers. See Synonyms at dexterous. 2. ." The Big Three in Canada are Manulife Financial Manulife Financial (NYSE: MFC, TSX: MFC, SEHK: 945, PSE: MFC), also known as The Manufacturers Life Insurance Company, is a major Canadian insurance company and financial services provider. , Sun Life Assurance Company of Canada, and the GreatWest group of life companies. Together, they hold 65% of the industry's assets and collect about 60% of the premiums, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the trade association. Witol said the premium number is more relevant in that it is a measure of activity in the marketplace today rather than the "business heft" of many years. The Big Three gained their heft in recent years through consolidation with their largest competitors. Sun Life acquired Clarica Life, while Great-West bought Canada Life. Manulife merged with U.S.-based John Hancock; through the merger, it also acquired Maritime Life The Maritime Life Assurance Company was a Canadian insurance company based in Halifax, Nova Scotia. It was founded in 1922 and in 2004 it became fully integrated with Manulife Financial, with the Maritime Life brand being retired. In 2004 it employed 2700 employees. , a Hancock subsidiary and the fifth- or sixth-largest Canadian insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. at the time. Earlier, Great-West had acquired London Life. Such a concentration of power often occurs in smaller countries without hurting competitiveness. Witol said Australia, Switzerland and the Netherlands, for example, all have very strong, reputable rep·u·ta·ble adj. Having a good reputation; honorable. rep  u·ta·bil insurance
industries with a high concentration in the top companies. And Canada,
despite ranking second only to Russia in land mass, has only about 32
million people, about 4 million fewer than California. In the United
States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , the top three writers hold about 21.6% of admitted assets,
according to A.M. Best Co. data.In Canada, some 113 companies are members of the trade association, said Witol, and they write about 99% of the business. The small companies concentrate in niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. , where they are nimble and spot market opportunities quicker because they have to, he said. This is possible in Canada more so than in the United States because Canada's regulatory regime is more flexible. "It is possible to introduce innovative products on the spot," Witol said. "There is no need to have products filed and approved by regulators before you can sell them, except for segregated fund Segregated Fund A type of annuity that is similar to a mutual fund, and is an insurance product and offered only by insurance companies. Notes: Most segregated funds will guarantee a specific return, anywhere from 70% to 120%, over a certain period of time (five-10 years). policies." The system works well, he added, with only low levels of consumer complaints. Canada regulates the insurance industry through the federal Office of the Superintendent of Financial Institutions The Office of the Superintendent of Financial Institutions or OSFI is an independent agency of the Government of Canada reporting to the Minister of Finance created "to contribute to public confidence in the Canadian financial system". , although Quebec Province has a regulatory regime for companies incorporated in Quebec. Provinces handle licensing and consumer issues, Witol said. Smaller companies heavily use reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. companies not only for reinsurance, but for help in product design and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , said Witol. Munich Re Munich Re AG, in German Münchener Rück AG (ISIN: DE0008430026), is the world's second largest reinsurance company with over 5,000 customers in 160 countries and has its headquarters in Munich, Germany. and Swiss Re Swiss Re is the world’s largest reinsurer, now that it has acquired GE Insurance Solutions (Ligi 2006). Founded in 1863, Swiss Re now operates in more than 30 countries. General Electric owns 8.9% of the firm. are the two largest reinsurers in Canada, he said. Filling the Void One of the most successful of the smaller insurers last year was 82-year-old Empire Life Insurance Co., which ranked 11th last year in total assets. The Kingston, Ontario-based company doubled its net income in 2004 to C$35.1 million (approximately $30 million). President and Chief Executive Officer Douglas B. Hogeboom attributed last year's strong results to Empire's investment income on its capital and surplus, which included "quite a bit" in equity investments, and strong life insurance sales from late 2001 through 2003. Those sales started to become profitable only last year because Empire does not heavily reinsure re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. new business and thus must post higher statutory reserves during the year of a new sale. Thus, its operational income for a couple of years was deflated de·flate v. de·flat·ed, de·flat·ing, de·flates v.tr. 1. a. To release contained air or gas from. b. To collapse by releasing contained air or gas. 2. . "That has settled down some," said Hogeboom. "The business is starting to contribute income, and it offsets our current life sales, which are still strong." Insurers can choose to mitigate mit·i·gate v. To moderate in force or intensity. mit i·ga tion n. this "sales strain" by
reinsuring a significant portion of sales. But they then lose the
opportunity for long-term profit to emerge over time, said Hogeboom.
"If reinsurance rates offered are too good to be true, you take the
profit up front," he said. "To this point, we've chosen
not to reinsure for that purpose. We reinsure to manage our risk."But how did Empire achieve strong sales? Hogeboom said industry consolidation has actually helped companies such as Empire to grow by filling the void left in independent advisers' product portfolios when the products of acquired companies are no longer offered. These independent advisers, the most common form of distribution in Canada, do not want to be overly associated with the bigger players, but rather want to maintain some independence so they can provide objective advice. "That's where we step into the breach," said Hogeboom. "We're trying to develop strong relationships." Empire's two main life products are universal life and 10-year level-premium renewable term insurance. The UL is actually similar to variable universal life in the United States. Canadian UL provides a savings element Savings element Used in the context of life insurance, the cash value built up in a policy, which equals the amount of premium paid minus the cost of protection. This excess is invested by the insurance company, and the returns are tax-deferred inside the policy. but also offers segregated funds--mutual-fund investment options that are called sub-accounts in the United States. These segregated funds offer no tax-favored status when sold on a stand-alone basis, but are tax-deferred inside a UL contract up to a limit that depends on the amount of insurance coverage in the contract. Hogeboom said Empire competes with the Big Three and with such smaller players as Quebec-based Industrial Alliance Insurance and Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , Standard Life Assurance Company of Canada, Transamerica Life Canada, AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group Assurance Canada, and others, particularly in individual life. Ten years ago, level-premium term life insurance to age 100 was "the" product in Canada, but lower interest rates, problems with lapse (language) LAPSE - A single assignment language for the Manchester dataflow machine. ["A Single Assignment Language for Data Flow Computing", J.R.W. Glauert, M.Sc Diss, Victoria U Manchester, 1978]. assumptions and higher reserving requirements have caused the market to gravitate grav·i·tate intr.v. grav·i·tat·ed, grav·i·tat·ing, grav·i·tates 1. To move in response to the force of gravity. 2. To move downward. 3. to products with shorter terms, said Hogeboom. "We still offer Solution 100, a term-to-100 product, but we don't put a competitive emphasis on it," he said. Segregated funds outside of life insurance products are part of Canadian insurers' wealth-management lines. Empire has offered them since the mid 1960s, and Hogeboom said they have produced strong investment returns for customers. A very high proportion of these funds are managed in-house, so each insurer develops a reputation around the investment performance of its funds, he said. Segregated funds are generally more expensive than mutual funds because they offer investment guarantees. In the past three to five years, some insurers started to "ratchet up" the levels of guarantees to the point where the risk to the insurer had increased significantly, and the costs have risen. "We have not really followed the marketplace in the significant guarantees; we tend to be more traditional," Hogeboom said. "For a time, that cost us new business. But as costs are starting to be recognized, it becomes less of a factor. The client now is in a position of choosing one or the other and has typically gone with basic guarantees." Some of the guarantees were 100% of amounts invested with periodic resets at a higher level, Hogeboom said. Career Agency Bucks Bucks: see Buckinghamshire. Trend Sun Life, based in Waterloo, Ontario Coordinates: Waterloo is a city in Ontario, Canada. It is the smallest of the three cities in the Regional Municipality of Waterloo, and is adjacent to the larger city of Kitchener. , enjoys a competitive edge through its 3,700-strong career agency force. About C$1 billion of new premium is sold each year in Canada's life marketplace, and only 30% or so is sold through career agents, said Tom Reid Tom Reid (born June 24, 1946 in Fort Erie, Ontario) is a retired professional ice hockey player who played 690 games in the National Hockey League. He would with the Chicago Blackhawks and Minnesota North Stars. , vice president of Sun Life's public and investor relations Investor relations The process by which the corporation communicates with its investors. . Some 70% is sold through third-party channels, and a very small amount on the Internet. Clarica built the career force in 1989 when it was still a mutual company, Reid said. Before the Clarica purchase, Sun Life had been using a wholesaling force to distribute through third parties, but he said it quickly diverted di·vert v. di·vert·ed, di·vert·ing, di·verts v.tr. 1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident. 2. resources from the 2wholesale channel into the acquired career agency system. The system uses a level-commission structure that Reid said is unique in Canada. It results in persistency on Sun Life's block of 2.6 million individual policies in force that is 2% or 3% greater than the rest of the market's, he said. Overall, the system does a better job of aligning a·lign v. a·ligned, a·lign·ing, a·ligns v.tr. 1. To arrange in a line or so as to be parallel: align the tops of a row of pictures; aligned the car with the curb. customers' interests with those of agents, Reid said. The career agency force also represents great value to Sun Life because the cost another public company would incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. to replicate rep·li·cate v. 1. To duplicate, copy, reproduce, or repeat. 2. To reproduce or make an exact copy or copies of genetic material, a cell, or an organism. n. A repetition of an experiment or a procedure. it would be significant. Sun spreads its business persistency to mutual fund sales. It owns 35% of CI Investments, the second-largest mutual fund company in Canada, and has an exclusive arrangement among insurers to sell those funds. Sun Life accounts for 30% to 40% of annual CI fund sales. "CI benefits because the money we bring in is far stickler stick·ler n. 1. One who insists on something unyieldingly: a stickler for neatness. 2. Something puzzling or difficult. " said Reid. "The average annual redemption rate in Canada is 13%, but ours is half that." Sun Life is making an aggressive attempt to re-enter re·en·ter also re-en·ter v. re·en·tered, re·en·ter·ing, re·en·ters v.tr. 1. To enter or come in to again. 2. To record again on a list or ledger. v.intr. the third-party distribution channel this year with a traditional commission structure. "Investment dealers sell a lot of product in Canada, and we're just creating the relationships," said Reid. "You need great products, great service and strong relationships." He added that third-party distribution would tend to bring in more clients from the higher end Coordinates: For other places with the same name, see Billinge. Higher End or Billinge Higher End is a district of the Metropolitan Borough of Wigan, in Greater Manchester, England. of the market. Small companies can be very intense competitors, said Reid. "They're quick to replicate product innovation, depending on the product," he said. Many are small, sometimes mutuals, with career agency forces that compete by serving clients face-to-face. Companies don't need a lot of capital to compete through product innovation, but may need capital for the kinds of administrative systems that larger insurers can build. Sun Life also competes with multi-line providers, including property/casualty companies that also sell life products. State Farm, for example, is building an office complex north of Toronto. On the group-business side, Sun Life has the technology to service large customers, and Reid said it does a robust group business with fully a third of the top 100 companies in Canada. He said Great-West dominates among smaller employers, while Manulife is healthy across all sectors of the group market. "We're clearly the largest in plans of 5,000 to 10,000 employees or more, and we've been using the Internet to service customers since 1998," he said. Sun is particularly strong in retirement services, with a 32% plus market share, and it recently won the group retirement services business of Magna, a big car-parts maker. Sun Life's best selling life product is a traditional UL contract with a fixed-income investment, according to Reid, but its fastest-growing are supplemental health insurance, critical illness insurance Critical illness insurance or critical illness cover is a contract, invented by Dr Marius Barnard[1], where an insurer makes a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed on the insurance policy and survives a and long-term-care insurance. All Markets, All Sales Channels Manulife Financial's Paul Lorentz said that despite the consolidation, the market in Canada is very competitive. Lorentz is vice president of product and marketing, individual life. What makes the market so competitive is that it has been flat for the past three years, but the Big Three and the smaller companies still are fighting for top-line growth. "Because of that, everyone is trying to make sure products are competitive, and we're out talking to Noun 1. talking to - a lengthy rebuke; "a good lecture was my father's idea of discipline"; "the teacher gave him a talking to" lecture, speech rebuke, reprehension, reprimand, reproof, reproval - an act or expression of criticism and censure; "he had to advisers trying to get them to sell our products." Manulife's strength is multiple products and distribution. Lorentz said smaller companies tend to focus on the managing general agency channel and on products for which financial strength is not that important, such as renewable term or 10-year level-premium term. One advantage is that smaller companies can provide advisers with a "personal touch" in service, which Lorentz said becomes harder to provide the larger an insurer becomes. Captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. sales forces have mostly disappeared in Canada, he said. Along with Sun Life, Great-West has a captive force through its London Life subsidiary. Manulife is strong among investment advisory firms such as Edward Jones Edward, Eddie, or Ed Jones is the name of: Edward Jones:
Manulife sells annuities, segregated funds, mutual funds and banking services. But even among its life products, diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. is strong. Based on premiums through early September, 35% has been in UL, 25% in term, 25% in fixed premium whole life, and 15% in living-benefits products including critical illness, disability and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. . An important characteristic of the Canadian market is that it likes guarantees "more than anywhere else in the world," according to Lorentz. To the extent that guarantees require more capital, regulators' reserving requirements may serve to limit product innovation. But having made that observation, Lorentz said there are opportunities for innovation in Canada, and critical illness insurance is a good example. He predicts that the product will be a big seller as more people understand that universal health insurance in Canada doesn't cover everything they think it does. "We try to get that message out, and that critical illnesses have financial implications,' he said. Manulife's critical illness product came out a couple of years ago. But for rapid growth, Canada's Big Three have begun to look elsewhere, according to Witol. Some hope to grow in the United States by acquiring insurers there. "But the countries in Pacific Asia and India are huge countries with hundreds of millions--even billions--of people," he said. "People there are not well covered by life insurance. And you go where the growth opportunities lie." Manulife now operates in 19 countries. According to A.M. Best Co. data, 78% of premiums and deposits last year came from outside of Canada. Sun Life has been in the Philippines since 1895 and is the second-largest life insurer there. It owns 26% of a joint venture in India, where it already sells more than it does in Canada and has annual growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. of 20% to 50%. Sun Life still is losing money in India, however, due to start-up expenses. Growth in Indonesia is very rapid, Reid said, but is slower in China, where the company is in a 50% joint venture that expands city by city. The company is also in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. . Hogeboom said Empire Life has considered expanding overseas, but it believes its focus on the Canadian marketplace is right for the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future. "We can still grow quite nicely without having to have the whole marketplace grow," he said. And moving into an Asian jurisdiction "would be a very major shift for us from a resource perspective," he said. Key Points * Canadian insurers primarily answer to a single, federal regulator regulator, n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape. regulator see reducing valve. and can sell products without prior regulatory filing and approval. * Smaller companies tend to fill niches and sell products that don't require large reserves. * Canada's market is slow-growing, but individual companies grow faster. * Canada's large life insurers grow fastest outside the country. Learn More Manufacturers Life Insurance Co. A.M. Best Company # 06688 Distribution: Independent agents, career agents, broker dealers, wholesalers and financial institutions Sun Life Assurance Company Of Canada A.M. Best Company # 07101 Distribution: Career agents, affiliated non-insurance marketers, third-party distributors Third-Party Distributor The name given to institutions that sell or distribute mutual funds to investors for fund management companies without direct relation to the fund itself. Empire Life Insurance Co. A.M. Best Company # 06329 Distribution: Managing general agents, independent financial advisers Great-West Life Assurance The Great-West Life Insurance Company (known more commonly Great-West Life) is a life and health insurance company. Its headquarters is located in Winnipeg, Manitoba, Canada and its CEO is Raymond L. McFeetors. Co. A.M. Best Company # 06493 Distribution: Career agents, affiliated non-insurance marketers, independent brokers, distribution alliances For ratings and other financial strength information about these companies, visit www.ambest.com WAY TO GROW: Douglas B. Hogeboom, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Empire Life Insurance Co., said industry consolidation actually has helped smaller companies such as Empire to grow by filling the void left in independent advisers' product portfolios when the products of acquired companies are no longer offered. [ILLUSTRATION OMITTED]
At a Glance: Canadian Life Insurance Industry
(US$1 = C$1.177 as of Oct. 11, 2005)
Canadian Life Marketplace
* Number of life and health insurance
companies operating in Canada: 113
* Number of full-time employees and
agents: 52,900
* Number of independent agents who sell
life/health products: 65,100
* Face amount of insurance owned by
Canadians, end of 2003: C$2.48 trillion
* Premiums paid by Canadians in 2003:
C$52.7 billion
* Premiums paid by foreign clients in
2003: C$54.6 billion
* Number of foreigners owning life insur-
ance from Canadian companies: 20 million
Source: Canadian Life and Health Insurance
Association
Life Insurance and
Canadians
Type of Owned Bought
Product End of 2003 During 2003
Individual C$1,318 billion C$167.5 billion
Group C$1,166 billion C$90.5 billion
Total C$2,484 billion C$258.0 billion
Approximate Number of Owners: 17.5 million
Number of Policies Bought: about 847,900
Average In-Force Amount Per Insured: $142,200
Average Size of New Individual Policies:
$197,600
Source: Canadian Life and Health Insurance
Premium Income from
Canadian Policyholders,
2003
Type of Product Amount
Life Insurance C$12.6 billion
Annuities C$20.9 billion
Health benefit plans * C$19.2 billion
Total C$52.7 billion
Note: Segregated fund premiums accounted for
C$14.9 billion, 28% of the total.
* Includes premium equivalents for uninsured contracts
administered by life insurance companies
totaling $6.2 billion.
Source: Canadian Life and Health Insurance
Association Fact Book
Total Assets, Top Life Writers, Canada--2004
Rank is based on total assets as reported at year-end 2004.
(C$ Thousands)
Rank Company AMB #
1 Sun Life Assur Co of CA 07101
2 Manufacturers Life Ins Co 06688
3 Great-West Life Assur Co (1) 06493
4 London Life Ins Co (1) 06667
5 CA Life Assur Co (1) 06183
6 Standard Life Assur Co of CA 66846
7 Desjardins Finl Security 69306
8 Munich Reins Co (CA Branch) 66862
9 Industrial Alliance Ins & Finl Svcs Inc (2) 06554
10 Independent Order of Foresters 60132
11 Transamerica Life CA 66805
12 RBC Life Ins Co 66806
13 CA Life Ins Co of CA (1) 66839
14 Empire Life Ins Co 06329
15 Swiss Re L&H CA 66803
16 Co-operators Life Ins Co 06290
17 Natl Life Assur Co of CA (2) 06789
18 RGA Life Reins Co of CA 66817
19 Industrial-Alliance Pacific Life Ins Co (2) 06838
20 Swiss Reins Co CA Branch 66833
Top 20 Canadian Life Cos
Total Canadian Life Cos
Total Capital &
Rank Assets Surplus
1 C$ 69,739,664 C$ 10,287,465
2 52,253,934 12,526,759
3 20,208,982 8,722,049
4 19,558,800 1,441,296
5 16,840,594 2,918,997
6 13,943,306 971,516
7 10,202,400 738,608
8 7,735,255 1,061,395
9 7,694,859 1,221,369
10 4,751,528 1,122,605
11 4,090,818 1,081,040
12 3,891,516 777,934
13 3,745,888 178,534
14 2,822,081 432,139
15 2,673,813 224,308
16 2,093,135 396,464
17 2,015,834 287,155
18 1,934,701 332,762
19 1,933,202 229,074
20 1,791,471 749,896
C$ 249,921,781 C$ 45,701,365
C$ 267,467,851 C$ 51,946,444
Notes:
(1) Canada Life, London Life and Canada Life of Canada are part of
Great-West Life Group.
(2) National Life and IA Pacific Life are part of Industrial Alliance
Life Group.
Source: A.M. Best Co.
Foreign Operations of Canadian Life/Health
Insurers, 2003
Life insurance ownership: C$1,861 billion
Premiums: C$54.6 billion, or 54% of their worldwide total
Benefit payments: C$40.8 billion
Assets: C$296.4 billion, or 51% of their worldwide total
Source: Canadian Life and Health Insurance Association Fact Book
Manulife Financial
Sales Ranks for Core Businesses
United States (1)
#1 Small Case 401(k)
#2 Group Long-Term Care (2)
#3 Individual Long-Term Care
#3 Universal Life
#4 Variable Annuities **
#5 Variable Life
#17 Mutual Funds **
Canada (1)
#1 Group Life
#1 Individual Life
#2 Individual Fixed Annuities
#2 Individual Segregated Funds
#3 Group Health
#4 Group Pensions
Asia (2)
#3 Vietnam
#4 China
#4 Indonesia
#4 Philippines
#5 Hong Kong
#7 Singapore
#13 Malaysia
#15 Thailand
#25 Japan (1)
#26 Taiwan
(1) As of March 31, 2005
(2) As of Dec. 31, 2004
** Through non-proprietary sales channel.
Source: Manulife Financial
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