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Foresters Financial Life InsuranceFounded: 1874

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2024
197.3%
Financial Rating: A

Canada Protection Plan Life InsuranceFounded: 1992

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2024
197.3%
Financial Rating: A
Underwritten by Foresters Financial

Equitable Life of CanadaFounded: 1920

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2024
172%
Financial Rating: A

UV Insurance - Life InsuranceFounded: 1889

Term Insurance
Permanent Insurance
Child Insurance
Group Insurance
Critical Illness Insurance

LICAT Ratio 2024
162%
Financial Rating: NA

Co-operators Life InsuranceFounded: 1945

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2023
160%
Financial Rating: A

Understanding LICAT Ratios and Their Impact on InsurersThe Life Insurance Capital Adequacy Test (LICAT) is a regulatory framework implemented by Canada's Office of the Superintendent of Financial Institutions (OSFI). It is designed to assess life insurance companies' capital adequacy and financial health. In the upper section of the individual carrier's pages on this website, you will see the LICAT ratio for that insurance company and other economic data.

LICAT replaces the Minimum Continuing Capital and Surplus Requirements (MCCSR) guideline to align risk measures with economic realities and international financial reporting standards.

Overview of LICAT

The LICAT framework consists of various ratios and requirements that life insurers must meet to protect policyholders and creditors. The primary ratios used in LICAT are the Total Ratio and the Core Ratio.

The Total Ratio focuses on policyholder and creditor protection, while the Core Ratio measures financial strength. These ratios are calculated using formulas considering available capital, surplus allowance, eligible deposits, and base solvency buffer.

LICAT Ratios

The LICAT ratios are key indicators used by OSFI to assess the financial condition of life insurers. However, it is essential to note that these ratios should not be used in isolation for ranking and rating insurers. They are part of a comprehensive assessment of an insurer's capital adequacy and financial health.

Top 5 Life Insurance Companies in Canada by LICAT Ratio

 

1. Foresters Financial - LICAT Ratio: 197.3%

Foresters Financial, founded in 1874, is one of Canada's leading life insurance providers. It offers a range of products, including term life insurance, whole life insurance, and critical illness insurance.
 
With a LICAT ratio of 197.3%, Foresters Financial demonstrates a solid financial position and a commitment to providing reliable coverage to policyholders.

2. Canada Protection Plan - LICAT Ratio: 197.3%

Canada Protection Plan is a trusted provider of no medical life insurance, catering to individuals who may face difficulties obtaining traditional coverage. Foresters Financial underwrites them, and they are well-regarded for their commitment to providing accessible coverage options and superior customer service.

Canada Protection Plan offers a range of plans, including guaranteed acceptance life insurance and simplified issue term life insurance. Compare Quotes

3. UV Insurance - LICAT Ratio: 162%

UV Insurance, founded in 1889, has been serving Canadians for over a century and is the fifth-oldest life insurance company in the country. It offers a variety of life insurance products, including no-medical-exam, simplified-issue, term life insurance, permanent life insurance, and critical illness insurance.
 
With a LICAT ratio of 162%, UV Insurance showcases its financial strength and stability, ensuring policyholders can rely on their coverage when it matters most.

4. Co-operators Insurance - LICAT Ratio: 160%

Co-operators Life Insurance offers a range of coverage options, from basic coverage to flexible plans that help you grow your savings. The company's LICAT ratio was 160% in 2023, indicating a solid financial position. Co-operators offer both permanent and term life insurance options.

Its permanent life insurance plans provide lifelong coverage with guaranteed premiums and cash value growth potential. Its term life insurance plans cover specific periods, ideal for covering a mortgage or a child's education.
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5. Empire Life - LICAT Ratio: 152%

Empire Life of Canada, founded in 1923, is another top life insurance company in Canada. With a LICAT ratio of 152% and a financial rating of A, Empire Life has established itself as a reliable provider of life insurance and economic security solutions.

The company offers a range of products to meet diverse needs, including term life insurance, permanent participating life insurance, and disability insurance.
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Available Capital

Available capital is a crucial component in calculating LICAT ratios. It includes Tier 1 and Tier 2 capital, with certain deductions, limits, and restrictions. Available capital within all consolidated subsidiaries is also considered when calculating the Base Solvency Buffer. The definition of Available Capital can be found in Chapter 2.1.1 of the LICAT guideline.

Risk Adjustments and Surplus Allowance

Risk adjustments play a significant role in the LICAT calculation. The term "risk adjustment" refers to the adjustments made for non-financial risks associated with specific blocks of business. These adjustments exclude provisions for credit risk and counterparty default.

The Surplus Allowance, which contributes to the LICAT ratios, is equal to the net risk adjustment reported in the financial statements for all insurance contracts except for segregated fund contracts with guarantee risks.

Eligible Deposits

Eligible deposits can be recognized when calculating the LICAT ratios under specific criteria and limits. Collateral and letters of credit placed by unregistered reinsurers and claims fluctuation reserves may be considered Eligible Deposits.

Recognition of these amounts is subject to the criteria for risk transfer described in the LICAT guideline.

Base Solvency Buffer

The Base Solvency Buffer is a critical element of LICAT calculations. It represents the capital requirements set by OSFI at a supervisory target level. The calculation of the Base Solvency Buffer involves all assets, written insurance business, and other liabilities of an insurer. It comprises aggregate capital requirements for different geographic regions and risk components, including credit risk, market risk, insurance risk, segregated funds guarantee risk and operational risk.

Changes in LICAT with IFRS 17

With the introduction of International Financial Reporting Standard 17 (IFRS 17), OSFI has changed the LICAT framework to align with the new accounting standard. IFRS 17 replaces IFRS 4 and brings significant changes to the accounting of insurance contracts.

The revised LICAT, effective from January 1, 2023, incorporates the requirements of IFRS 17.

Impact on Capital and Financial Health

The implementation of IFRS 17 and the revised LICAT is expected to impact the balance sheets and financial health of life insurance companies. However, the LICAT framework aims to minimize significant changes to crucial solvency metrics and maintain the stability and integrity of the insurance industry.

The LICAT ratios, including the Total Ratio and Core Ratio, will continue to assess insurers' capital adequacy.

Contractual Service Margin (CSM)

One significant change resulting from IFRS 17 is the introduction of the Contractual Service Margin (CSM). The CSM requires insurers to recognize profits from multi-year insurance contracts over the contract's duration rather than upfront.

This change affects the timing of profit recognition and can impact the calculation of LICAT ratios.

Minimum and Supervisory Target Ratios

OSFI has established minimum and supervisory target ratios under LICAT to ensure the financial soundness of life insurers. The minimum Total Ratio requirement is 90%, while the minimum Core Ratio requirement is 55%. However, OSFI's supervisory target ratios are more stringent, with a target Total Ratio of 100% and a target Core Ratio of 70%.

Available on our website are the LICAT ratios for the different insurance companies we represent; you can see these in the upper section of each insurance company's page.

These targets provide a margin for other risks and facilitate early intervention by OSFI if necessary.

Audit and Certification Requirements

Life insurers are required to retain an Auditor appointed under the Insurance Companies Act to report on the year-end LICAT Quarterly Return. The audit must comply with the relevant standards for assurance engagements established by the Canadian Auditing and Assurance Standards Board.

The Appointed Actuary is responsible for certifying the life insurance company's LICAT ratios. The Actuary must review the calculation of the LICAT ratios and provide an opinion per the Canadian Institute of Actuaries Standards of Practice.

The LICAT Memorandum, prepared by the Appointed Actuary, supports the certification and must be available to OSFI upon request.

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Conclusion

The LICAT framework is a crucial regulatory tool OSFI uses to assess the capital adequacy and financial health of life insurance companies in Canada. The introduction of IFRS 17 has led to revisions in the LICAT guideline, aligning it with the new accounting standard.

Life insurers must meet minimum and supervisory target ratios and comply with audit and certification requirements to ensure the stability and protection of policyholders and creditors.

The LICAT ratios provide valuable insights into an insurer's financial condition and resilience to economic and market challenges.

For more information on LICAT and its implications for life insurance companies, consult the official LICAT guideline and seek guidance from industry experts and regulatory authorities.

Sources: 
osfi-bsif.gc.ca/en/guidance/guidance-library/life-insurance-capital-adequacy-test-2023-chapter-1-overview-general-requirements
advisor.ca/insurance/life/industry-will-see-how-things-shake-down-with-new-lifeco-solvency-metric/
ggy.com/LICAT/