CLHIA-ACCAP

16 Assets, liabilities and capital The nature of the industry's business, with its steady flow of premiums from policyholders and predictable benefit payments, enables life and health insurers to securely invest policyholder savings, and put those savings to work as one of the country's most important sources of stable and long-term investment capital. The industry's long-term investments of over $690 billion help drive economic growth and innovation across Canada, and the earnings from these investments reduce the cost of insurance to Canadians. Segregated fund investments support segregated fund contracts of life and health insurers, where the investment risk under the contract is retained by policyholders. As a result, total segregated fund assets equal segregated fund liabilities. The general fund assets cover the remaining policyholder liabilities, other liabilities and capital. These policyholder liabilities are measured based on insurers' best estimates of their obligations to pay future benefits to policyholders (calculated as the net present value of future benefits, expenses, premiums and investment income) plus a provision for uncertainties for insurance, investment and other risks. In addition, life and health insurers maintain capital for solvency purposes by retaining profits and by issuing equity and qualifying debt instruments in capital markets. The industry's capital ratio* for 2015 of 231% is substantially higher than the regulatory target of 150%, ensuring the security of consumers 79% Long-Term 72% Policyholder liabilities 87% Long-term investments Assets $762B 2015 General fund: $470B Segregated fund: $292B Liabilities + capital $665B + $97B 8% Other 21% Equity and debt 5% Short-term investments 7% Other liabilities Investments Policyholder liabilities * Measured as available capital to regulatory capital required to cover risks

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