Rarely have segregated funds with guaranteed withdrawal benefits been under such regulatory pressure. On one hand, new capital requirements took effect in the New Year. On the other, obligations to better inform clients about their segregated funds are spreading from province to province.
In a joint effort to further ensure the solvency of segregated fund guarantees, regulators have tightened their regulatory capital requirements.
At the federal level, the Office of the Superintendent of Financial Institutions (OSFI), an independent government agency, has revised its Life Insurance Capital Adequacy Test (LICAT) guideline to reflect this. Quebec regulator, the Autorité des marchés financiers, has followed suit, revising its Capital adequacy requirements guideline - Life and Health Insurance. The two new guidelines have been in force since January 1, 2025.
Working in step with the Canadian Securities Administrators (CSA) to harmonize regulations between segregated funds and mutual funds, Canadian insurance regulators are forcing insurers to better inform their customers about fees and their impact on segregated fund performance.
Published on Jan. 22 in the Gazette officielle du Québec, the Autorité des marchés financiers' Regulation respecting information to be provided to holders of individual variable insurance contracts relating to segregated funds sets out specific information requirements for guaranteed withdrawals.
For example, the insurer's annual statement must specify the amount of the guaranteed annual withdrawal when all or part of the guaranteed withdrawal fund is in the guarantee payment phase. It must specify the period during which the guaranteed withdrawal amount will be payable.
Business opportunities
These challenges are opportunities for advisors to extol the virtues of the withdrawal benefit, justify its price and point out that it is one of the few individual products capable of providing an income for life.
Three insurers sell segregated fund products with withdrawal benefit guarantees, as shown in the following comparative table prepared by InsuranceINTEL for the Insurance Portal. Empire Life offers Class Plus 3.0 and iA Financial Group, Life Series. Sun Life stands out with two products: Sun GIF Lifetime Advantage and Sun GIF Solutions - Income Series.
Regulators' disclosure requirements will put the spotlight on the features revealed in this comparison chart, particularly those relating to lifetime income. Your clients will discover that this income will be higher if they are able to defer the time of disbursement, as some public plans allow. An article published on Jan. 10, 2025 on this subject on the Insurance Portal emphasized that life expectancy must be viewed from the angle of attained age.
As the comparison table prepared by InsuranceINTEL shows, the longer a customer waits before requesting the start of payments, the higher his or her lifetime income will be. iA Financial Group and Sun Life allow customers to receive a guaranteed income for life as early as age 50. At Empire Life, they can do so from the age of 55.
In Canada, life expectancy for people reaching age 65 between 2020 and 2022 averages 85.8 years. It is 87.1 years for women and 84.3 years for men (Statistics Canada, Life expectancy and other elements of the complete life table, 2023).
Several other features
Financial advisors who subscribe to the InsuranceINTEL product monitoring centre can access a wealth of additional information on guaranteed withdrawal products. For example, the guaranteed withdrawal fund has no maximum withdrawal limit. In addition, the guaranteed withdrawal benefit reset options at death and maturity are explained in detail.
According to further information from InsuranceINTEL, insurers offering a withdrawal benefit product describe more than one target market. All three are aimed at consumers seeking lifetime income for retirement.
iA Financial Group’s target markets include those who do not have a pension fund, as well those who hold guaranteed investment certificates and mutual funds and fear market risks as they approach retirement.
Sun Life specifies the age niche of its target market, i.e. people aged 55 to 75 who will be retiring in 5 years or more (Sun Lifetime Advantage GIF), or who are preparing for retirement or have already retired (Sun GIF Solutions - Income Series).
Beyond the features of these current products, many customers have products that are no longer sold with guaranteed withdrawal benefits. The market has shrunk considerably over the past 10 years, with the withdrawal of players such as Beneva (formerly SSQ Insurance), Desjardins Financial Security, ivari (then Transamerica) and Manulife. Many advisors remember Manulife's IncomePlus and DFS' Helios products. Customers who own these products should seek advice on them before retirement from their insurance advisors.