Two Decades of Financial Intermediation by the Canadian Insurance Business - ARCHIVED

This paper describes the financial intermediation activity of insurance companies and its similarities to the activity of the other financial intermediaries. The financial intermediation activity encompasses the issue of financial instruments such as claims, the use of the funds collected to make loans and the acquisition of a variety of other financial assets. An insurance policy is a claim on the insurance company, albeit a contingent one, just as a bank deposit is a claim on the bank.

Several major trends seem to be emerging regarding the product mix of these companies. With regard to life insurance, the decline of whole life policies in favour of term policies for almost 20 years seems to be irreversible. Furthermore, there has been a substantial increase in the share of annuities (especially individual annuities) at the expense of life insurance.

The paper also outlines a cross country comparison of life and non-life insurance industry asset structures. Each type of company establishes its own investment strategy to suit its own needs: life insurance companies prefer long-term assets with returns that maintain purchasing power, and non-life insurance companies generally prefer more liquid assets. Regulation also seems to affect the asset structure at the national and international levels. For a number of countries, including Canada, regulation seems to favour investments in less risky assets, such as government bonds, instead of in the stock market.