Issue link: http://clhia.uberflip.com/i/220638
them and effective risk management activities of the insurers, including portfolio diversification. It is important for regulators strike the right balance in setting prudential regulation and not create major disincentives in the selling of long-term products or in the investing in a well-diversified, well-managed product portfolio. Taxation Taxation has the potential to influence the flow of policy premiums and hence the investment strategy an insurer will adopt. Insurers' liability profiles and investment strategies are strongly influenced by personal taxation rules, as their products are often designed to be tax-efficient for policyholders. Therefore, personal tax rules relating to insurance products and, especially, retirement savings may impact the flow of funds to the insurance industry. The taxation of investment gains also influences insurers' allocation of funds to specific asset classes and/or to specific securities. Whether returns are treated as capital gains or as income can make a significant difference to the appeal of an asset class and the ultimate cost to the policyholder. In addition, any tax benefits associated with specific asset characteristics (e.g., tax benefits for long-term assets) will have the potential to impact insurers' investment decisions. Moreover, the timing of taxation is an important factor in a long-term business model, as well as the alignment of tax policy for the insurer and the insured. Conclusion Long-term investment is critical to economic stability and growth. It is therefore important for Canada to have a framework that supports a vibrant long-term investment market. The Canadian life and health insurance industry is an integral part of Canada's long-term investment market. The nature of Canada's life and health insurance industry's business results in the industry having a natural and strong demand for long-term investments. Moreover, the industry plays an important countercyclical role in stabilizing the economy during periods of economic stress. As a result, the industry is an ideal source of long-term investment. The industry also supports Canadians' longer-term savings goals in a number ways. Investing through life and health insurers allows individual Canadians to leverage the scale and expertise of their insurer, to access asset classes that are otherwise unavailable to them, as well as to benefit from professional asset management at low cost. This ultimately helps Canadians reach their savings objectives, including for retirement -- something that is increasingly important in light of the continuing shift of responsibility to individuals to save for their own retirement. 11