August 31, 2021 by Greg Meckbach
Brokers will probably not be directly affected by a Liberal election promise to raise corporate tax rates on insurance companies making over $1 billion a year in profits, the CEO of the national brokerage association suggests.
As quoted by The Canadian Press, Prime Minister Justin Trudeau proposed Aug. 26 to raise the corporate income tax rate, by three percentage points, on banks and insurance companies with earnings over $1 billion.
CP quoted Trudeau as saying banks and insurance companies had come into “windfall” profits because of economic stimulus measures from the government.
Peter Braid, CEO of the Insurance Brokers Association of Canada, told Canadian Underwriter Monday he does not anticipate that election promise would directly affect brokerages, though election promises tend to be short on specifics.
“While this announcement may be good politics, it is not good economic policy. In my view, specific industry sectors should not be segmented with different taxation levels. This not only adds unnecessary complexity to the corporate taxation system, but it may also cause some capital to flow to other jurisdictions with lower rates,” Braid said Monday.
A federal election is scheduled Sept. 20.
“This week, Canada’s biggest banks are posting their latest massive profits of billions of dollars … so as we rebuild, we’re going to ask big financial institutions to pay a little back,” Trudeau said last week, as quoted by CP.
Most Canadian property and casualty insurers do not earn nearly $1 billion a year in premiums, let alone profits. Canada’s largest insurer, Intact Financial Corp. met the $1 billion profit threshold in 2020. Intact reported this past February net income of $1.082 billion in 2020, up 44% from $784 million in 2019.
For their part, the Big 3 life insurers had profits of over $1 billion last year. Sun Life Assurance Company of Canada, Great-West Lifeco Inc. and The Manufacturers Life Insurance Company reported 2020 net income of $2.4 billion, $3.1 billion and $5.9 billion respectively.
None of the P&C insurers listed in the 2021 Canadian Underwriter Statistical Guide had underwriting profit of $1 billion or more in 2020. The stats guide uses data from MSA Research. Of 127 insurers listed, 114 had net premiums written of less than $1 billion in 2020.
The Liberal election promise announced Aug. 26 includes establishing an unspecified “recovery dividend” for the banking and insurance industries that would last four years, which together with the tax increase would bring in at least $2.5 billion a year, CP reported.
Although most Canadian insurers are not publicly traded, the Office of the Superintendent of Financial institutions publishes financial data of federally-regulated property and casualty insurers.
OSFI figures show some of the largest insurers reported 2020 net income of over $100 million. Examples include: Lloyd’s Underwriters, $591 million; Allstate Insurance Company of Canada, $351 million; The Co-operators General Insurance Company, $290 million; and Security National, $183 million.
Desjardins General Insurance Group did not have a consolidated report from OSFI but Certas Home and Auto reported 2020 net income of $148 million while The Personal reported $137 million.
Feature image via iStock.com/Julen Arabaolaza