Insurers increase capacity to meet the needs of ultra high net worth clients

By Susan Yellin | April 30 2018 07:00AM

Photo: Unsplash

The list of millionaires and billionaires in Canada keeps growing and so do the life insurance needs of this ultra high net worth demographic.

Canada’s biggest insurers – including Sun Life and Great-West Life – are all increasing the life insurance capacity they can hold as are reinsurers and retrocessionaires.

Credit Suisse says Canada is home to 1.1 million millionaires, measured in U.S. dollars, not really too surprising given the prices of many houses. The wealth of these millionaires includes financial and real assets like their homes. The number is up from 968,000 in 2016 and Credit Suisse forecasts this group  will grow 35 per cent, to almost 1.5 million, by 2022.

New billionaires

The latest Forbes magazine’s annual List of World’s Richest People included 46 Canadians. Added over the past year were seven new billionaires.

Some of these affluent individuals have approached Canadian life insurance companies to get life policies to match their wealth, but many found the capacity just wasn’t there.

At first Dean Chambers​, vice president insurance management at Sun Life Financial said he thought there was a supply and demand problem because Sun Life wanted to provide insurance to all who meet qualifications, including the high net worth market.

“People were coming to us asking us to provide them with insurance coverage to preserve their estates and to transfer their wealth to the next generation,” Chambers said in an interview. “But we were running into the fact that we couldn’t provide them with as much insurance as they needed.”

Sun Life can only take on a certain amount itself. Together with the help of reinsurers and retrocessionaires, the insurer used to be able to provide a total of $170 million for an individual policy. “But there are those who need more. The demand was there but not the supply. It was uncomfortable for us because we weren’t satisfying the needs of these very unique clients.”

Now Chambers is proud to report that Sun Life can offer $220 million in permanent insurance, a 30 per cent increase from the previous amount.  Sun Life has a maximum of $25 million on any life policy that it can offer. The rest is divided among the reinsurers and retrocessionaires.

“Much of this capacity I term ‘virgin capacity’ because it’s insurance now available through Sun Life to Canadians for the first time,” he said.

He noted that Guinness World Records stated in March 2014 that a billionaire in the Silicon Valley took out a life insurance policy of US$201 million, the largest ever issued at that time and still not updated.

He said he believes that Sun Life is the only insurer in Canada that can make available $220 million.

A spokesperson for Manulife said it has the largest individual life capacity in Canada at $30 million and a “similar maximum” to the total Sun Life amount.

“It is important to note though, that all insurers approach the underwriting of each case individually and capacity is set, based on the specific details and reinsurers involved,” the spokesperson said in an email.

Great-West Life has also had significant experience in the ultra high-net worth and high net-worth markets, said Saundra Roll, assistant vice-president, product and large-case support at Great-West and subsidiaries London Life and Canada Life.

Roll said the insurers are always looking for ways to increase capacity in conjunction with reinsurers and retrocessionaires.

Reliable capacity

“We like to refer to ‘reliable capacity’ because a number of our reinsurers share retrocessionaires so you don’t want to double up coverage,” Roll said in an interview. “When we look at what we call ‘reliable capacity’- when we are getting rid of any of that doubling up of coverage - we can offer in the range of $190 million to one individual.”

Together, Great-West, London Life and Canada Life can retain a total of $30 million. The remaining $160 million goes through reinsurers and retrocessionaires.

Should the company get increased capacity it will let clients know so they can take advantage of it if they want.

Permanent coverage

Roll said the life insurance is typically permanent, participating whole life insurance for individuals. “It’s solid and secure and meets their needs for permanent insurance coverage for business and family succession planning without taking on additional risk.”

Roll said while there are a number of wealthy families in Canada, they cannot, as a family, double up for the $190 million using the same reinsurer as another life insurer.

Premiums depend on the product, age, health and other factors, as they do with any coverage. But Roll said as coverage increases, the rate per thousand dollars of insurance increases somewhat. However, typically once over the $10-million threshold, clients pay the same rate per thousand as someone who buys $50 million or $100 million.

The $190 million level of insurance must be approved by the companies’ board of directors and signed off by the appointed actuary of the company.

And because they are of such a great amount, insurance companies must increase their reserves to ensure the company can meet its obligation when it comes due, she said.