Canada's Federal Budget Affects Life Insurers through New Health Benefits, Higher Taxes, and Additional Disclosures

Canada's federal budget that was tabled on April 7, 2022, contains several measures affecting life insurance companies. For example, the budget offered additional details on the government's previously announced prescription drugs and dental benefit programs as well as income tax increases arising from both permanent and temporary tax measures, including from IFRS 17 adoption. The budget also makes climate-related disclosures mandatory for insurance companies and banks starting in 2024.

Key highlights include:

-- Canada's federal budget introduces measures that negatively affect profitability of life insurance companies but are not material enough to affect credit ratings.

-- New federal prescription drugs and dental care programs may decrease the demand for private plans that are offered by employers through life insurance companies.

-- Higher corporate income taxes will decrease profitability of life insurance companies.

-- New climate-related disclosures will increase compliance costs, especially for smaller life insurance companies.

DBRS Morningstar notes that 2021 was a banner year for the majority of life insurance companies in Canada with many companies’ earnings exceeding their multi-year highs. “The measures contained in the federal budget are expected to negatively affect insurers' profitability going forward but are not material enough to affect credit ratings,” said Nadja Dreff, Senior Vice President, Insurance.