Issue link: http://clhia.uberflip.com/i/333350
13 More punitive capitalization including, for example, deductions of amounts invested in an entity holding the assets, excessively penalizes the form of investment and could cause a serious disruption to market standards for holding such long-term assets. The policy rationale for treating a large percentage of a small, well understood investment as being more risky than a small percentage of a large, complicated investment should be revisited. In essence, capital requirements should be driven by the substance of risks of the underlying assets as opposed to the form in which the assets are held. Given the significant infrastructure investment gap in Canada currently, and the need to promote partnership with private sector investment in this space, the capital treatment of the asset should be designed appropriately in order to not create unwarranted obstacles to investing in it. Therefore, the CLHIA recommends that: • Regulators ensure that the capital levels required to support any asset focus on asset risks as opposed to the form of investment, and • Regulators review the capital treatment of "substantial investments" in entities to ensure that there are no undue disincentives to insurers to making investments in infrastructure projects going forward. 6.0 Conclusion Long-term investment plays a critical role in supporting economic stability and growth. This paper sets out specific, actionable recommendations to enhance Canada's long-term investment market. At a minimum, governments in Canada need to ensure that infrastructure projects are brought to market in a timely and predictable manner. The industry's recommendations include measures to enhance the attractiveness and number of P3 deals for smaller infrastructure projects. The paper also recommends that governments, at all levels, make a sustained commitment to issue 50-year bonds in sufficient volume to achieve a benchmark level within five years. Finally, the paper highlights the role public policy can play in the long-term investment market, particularly in the area of accounting policy and prudential regulation. The Canadian life and health insurance industry believes that reform to the long-term investment market is required to help address the existing infrastructure deficit in Canada, as well as to enhance overall economic stability and growth. The industry is committed to meaningful reform and looks forward to engaging with governments and other stakeholders.