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UV Insurance - Life InsuranceFounded Date: 1889

Term Insurance
Permanent Insurance
Child Insurance
Group Insurance
Critical Illness Insurance

LICAT Ratio 2022
199%
Financial Rating: NA

Foresters Financial Life InsuranceFounded: 1874

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2022
165.6%
Financial Rating: A

Canada Protection Plan Life InsuranceFounded: 1992

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2022
165.6%
Financial Rating: A
Underwritten by Foresters Financial

Co-operators Life InsuranceFounded: 1945

Term Insurance
Permanent Insurance
Participating Insurance
Universal Insurance
Critical Illness Insurance

LICAT Ratio 2022
160%
Financial Rating: A

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

LICAT replaces the previous 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 ensure the protection of 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 that take into account 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 important 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. UV Insurance - LICAT Ratio: 199%
UV Insurance, founded in 1889, has been serving Canadians for over a century and are the 5th oldest life insurance company in the country. They offer 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 199%, UV Insurance showcases its financial strength and stability, ensuring policyholders can rely on their coverage when it matters most. Compare Quotes
2. Foresters Financial - LICAT Ratio: 165.6%
Foresters Financial, with a history dating back to 1874, is one of Canada's leading life insurance providers. They offer a range of insurance products, including term life insurance, whole life insurance, and critical illness insurance.
With a LICAT ratio of 165.6%, Foresters Financial demonstrates a strong financial position and a commitment to providing reliable coverage to policyholders. Compare Quotes
3. Canada Protection Plan - LICAT Ratio: 165.6%
Canada Protection Plan is a trusted provider of no medical life insurance, catering to individuals who may face difficulties obtaining traditional coverage. They are underwritten by Foresters Financial 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
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 has a LICAT ratio of 160% in 2023, indicating a strong financial position. Co-operators offer both permanent and term life insurance options. Its permanent life insurance plans offer lifelong coverage with guaranteed premiums and cash value growth potential. Its term life insurance plans provide coverage for specific periods, ideal for covering a mortgage or a child's education. Compare Quotes
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 financial security solutions. The company offers a range of products to meet diverse needs, including term life insurance, permanent participating life insurance, and disability insurance. Compare Quotes

Available Capital

Available Capital is a crucial component in the calculation of LICAT ratios. It includes Tier 1 and Tier 2 capital, with certain deductions, limits, and restrictions. Available Capital within all subsidiaries that are consolidated to calculate the Base Solvency Buffer is also considered. 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 in the calculation of the LICAT ratios under certain criteria and limits. Collateral and letters of credit placed by unregistered reinsurers, as well as 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 key element in 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 made changes to 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 have an impact on the balance sheets and financial health of life insurance companies. However, the LICAT framework aims to minimize major changes to key 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 be used to assess the capital adequacy of insurers.

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 have an impact on 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 LICAT ratios of the life insurance company. The Actuary must review the calculation of the LICAT ratios and provide an opinion per the Standards of Practice of the Canadian Institute of Actuaries.

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

Conclusion

The LICAT framework is a crucial regulatory tool used by OSFI 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 in the face of 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/