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IFRS reduces insurers’ ability to invest in infrastructure

By Alain Thériault | February 20 2014 07:08PM

Determined to fight the International Financial Reporting Standards (IFRS) for insurance contracts, the Canadian Life and Health Insurance Association (CLHIA) has released a report noting that these standards would undermine its members’ ability to make long-term investments.The CLHIA’s report, The important role of Canada’s life and health insurers as long-term institutional investors, was released in mid-January and reveals that, of assets totalling $615 billion, the life insurance industry holds $540 billion in long-term investments. The CLHIA document points out that the IFRS rules would create an undesirable volatility in financial results. This would reduce insurers’ ability to invest in financial instruments such as bonds and infrastructure, and the development of products with long-term guarantees would be affected.

At $6 billion, insurers’ holdings in infrastructure only represented 1% of their total investment portfolios in 2012. The report says that the industry would like to increase this amount. To do so, it will need to have a free hand and the CLHIA is concerned that this is precisely what the IFRS rules for insurance contracts will prevent if they are accepted by Canadian accounting bodies. The life insurers’ lobby group has been pleading its case for several years now. In 2009, the consulting firm PricewaterhouseCoopers (PwC) wrote that governments and the private sector have an important role to play in financing Canadian shortcomings in infrastructure.

Besides making investments in infrastructure, the life insurance industry also invests heavily in bonds, holding nearly $230 billion. Out of all of the insurers’ investments, 21% is in government bonds ($112.5 billion), 20% in corporate bonds ($105.7 billion), and 2% in foreign bonds ($10.1 billion). Mutual funds and stocks also represent major investment positions, making up 26% and 17% of the grand total respectively ($39.7 billion in funds and $92.8 billion in shares). Mortgages come in third at 8% or $42.4 billion, followed by real estate (3% or $18.5 billion) and other instruments such as those made through securitization (2% or $12 billion).

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