Canada's Federal Budget Affects Life Insurers through New Health Benefits, Higher Taxes, and Additional Disclosures
Canada's federal budget that was tabled on April 7, 2022, contains several measures affecting life insurance companies. For example, the budget offered additional details on the government's previously announced prescription drugs and dental benefit programs as well as income tax increases arising from both permanent and temporary tax measures, including from IFRS 17 adoption. The budget also makes climate-related disclosures mandatory for insurance companies and banks starting in 2024.Key highlights include:
-- Canada's federal budget introduces measures that negatively affect profitability of life insurance companies but are not material enough to affect credit ratings.
-- New federal prescription drugs and dental care programs may decrease the demand for private plans that are offered by employers through life insurance companies.
-- Higher corporate income taxes will decrease profitability of life insurance companies.
-- New climate-related disclosures will increase compliance costs, especially for smaller life insurance companies.
DBRS Morningstar notes that 2021 was a banner year for the majority of life insurance companies in Canada with many companies’ earnings exceeding their multi-year highs. “The measures contained in the federal budget are expected to negatively affect insurers' profitability going forward but are not material enough to affect credit ratings,” said Nadja Dreff, Senior Vice President, Insurance.
Great-West Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. Co. has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC. Co., through its operating subsidiaries, provides protection and savings products that are distributed through multiple sales channels. Products are marketed under the Great-West Life, London Life and Canada Life brands.
Manulife Financial is a provider of financial protection and wealth management products and services, including individual life insurance, group life and health insurance, long-term care insurance, pension products, annuities and mutual funds to individual and group customers in Asia, Canada and the United States. Co. also provides investment management services with respect to Co.'s general fund assets, segregated fund assets, mutual funds, and to institutional customers. Co. also offers reinsurance services, specializing in property and aviation catastrophe risk reinsurance products.
Sun Life Financial is a holding company. Through its subsidiaries, Co. is an international financial services organization providing a range of protection and wealth accumulation products and services to individuals and corporate customers in Canada, the U.S., the U.K., Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam and Bermuda. Co. manages its operations in four business segments: Sun Life Financial Canada, Sun Life Financial United States, MFS Investment Management and Sun Life Financial Asia.
DBRS Morningstar is a global credit ratings business with 700 employees in eight offices globally. DBRS and Morningstar Credit Ratings are committed to empowering investor success, serving the market through leading-edge technology and raising the bar for the industry.
Together, we are the world’s fourth largest credit ratings agency and a market leader in Canada, the U.S. and Europe in multiple asset classes. We rate more than 2,600 issuers and 54,000 securities worldwide and are driven to bring more clarity, diversity and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs, while being large enough to provide the necessary expertise and resources. For more details visit us at dbrs.com.
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