The Canadian Life and Health Insurance Association Inc. (CLHIA) is warning policymakers and regulatory bodies that various policy changes could adversely affect the insurance industry’s ability to make long-term investments that contribute to economic growth.
In a report released on Tuesday, the association points to a variety of regulatory developments that influence the extent to which the industry is able to invest in long-term asset classes. These include changes to taxation rules, accounting standards, capital requirements and macroeconomic policies.
“There are a lot of policies that are occurring which have an impact on our ability to contribute to long-term investing,” says Frank Swedlove, president of CLHIA. “All of those things have an impact on the amount of money that’s available for long-term investing, and we think those are issues that should be taken into account.”
The report highlights the role that the insurance industry plays in supporting the long-term investment market. Given the long-term liabilities associated with life insurance products, the industry invests heavily in asset classes that are similarly long-term in nature, such as long-term bonds and long-term capital investments, such as infrastructure projects.
This type of investment has become increasingly important as municipalities face a growing infrastructure deficit, CLHIA notes. However, it says this need has not been reflected in the development of policy and legislation.
“We think that the issue of long-term investing has been somewhat put on the sidelines in some of the policy development that’s come into place over the last several years,” says Swedlove. “We think that it’s time to start to focus again on some of the long-term investing issues.”
With respect to accounting standards, CLHIA notes that the proposed International Financial Reporting Standard (IFRS) for insurance contracts is expected to result in increased volatility in financial statements. That could hamper the ability of industry firms to offer long-term guaranteed products, the association warns, which, in turn, would reduce their long-term investments.
The report suggests that unnecessarily high capital requirements could also create a disincentive in the selling of long-term products, which would have a similar effect on investment.
In these and other policy areas, CLHIA urges policymakers to pursue changes in an informed way, taking into consideration the potential impact on the long-term investment market. In the coming months, the association plans to release more specific policy recommendations.