Under current Canadian accounting standards, namely International Financial Reporting Standards (IFRS), Life, Health and Medical Insurance Carriers have to break down their financial liabilities between Insurance contracts and Investment contracts.
Life, Health and Medical Insurance Carriers record these liabilities (amounts to be paid to policyholders and investors) as part of their actuarial liabilities account and set aside resources to pay for them when due.
The resources set aside are normally invested in:
Cash, cash equivalents and short term securities
Debt securities
Equity securities
Mortgages and loans
Others (including real estate i.e. investment properties, limited partnerships, private equities)
Insurance contract liabilities are determined using actuarial methods and assumptions.
At every balance sheet day, Life, Health and Medical Insurance Carriers update their actuarial liabilities values. The amount by which the actuarial liabilities change may include:
plus/minus changes in amounts payable for existing policies;
plus/minus balances coming from new policies issued;
plus/minus changes due to methods and assumptions (i.e. mortality rate, lapse and other policy holder behaviour, expenses, investment estimated rate of return, model enhancements etc.);
plus/minus foreign exchange movements
etc.
The income statement of Life, Health and Medical Insurance Carriers reflects the addition of all these changes as a normal increase in actuarial liabilities expenses.
While the expenses related to this normal increase in actuarial liabilities are included in Statistics Canada calculation of operating profits in the Income Statement, the gains and losses from the changes in value for the assets supporting the actuarial liabilities in the Balance sheet are only considered in the calculation for net income.
