The Empire Life Insurance Company
Annual Report 2022
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TABLE OF CONTENTS
Financial Highlights
Message from the Chairman of the Board and
Message from the President and Chief Executive Officer
Sources of Earnings
Management Discussion and Analysis
Management's Responsibility for Financial Reporting
Appointed Actuary's Report
Independent Auditor's Report
Consolidated Statements of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Intangible Assets
Insurance Receivables
1. Description of Company and Summary of Operations
2. Significant Accounting Policies
3. Financial Instruments
4.
5. Other Assets
6. Property and Equipment
7.
8. Goodwill
9. Segregated Funds
10. Insurance Payables
11. Insurance Contract Liabilities and Reinsurance Assets/Liabilities
12. Accounts Payable and Other Liabilities
13. Employee Benefit Plans
14. Subordinated Debt
15. Insurance Premiums
16. Fee Income
17. Benefits and Expenses
18. Operating Expenses
19. Income Taxes
20. Earnings Per Share
21. Capital Stock
22. Dividends
23. Shareholders' Equity Entitlement
24. Segmented Information
25. Commitments and Contingencies
26. Related Party Transactions
27. Capital Management
28. Risk Management
29. Business Acquisition
30. Subsequent Events
Glossary of Terms
Empire Life - Annual Report 2022
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5
6
7
9
11
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41
42
46
47
48
49
50
51
51
51
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71
71
72
72
73
73
74
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79
83
83
83
84
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84
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87
88
89
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92
93
93
94
107
108
109
TABLE OF CONTENTS
Participating Account Management Policy
Participating Policyholder Dividends and Bonus Policy
Participating Account Financial Disclosure
Corporate Governance Over Risk Management
Corporate Information
111
113
115
116
118
Empire Life - Annual Report 2022
4
2022 FINANCIAL HIGHLIGHTS
138%
LICAT total ratio
as at December 31, 2022
Product
diversification
Strength of our capital base
Product diversification
Our Life Insurance Capital Adequacy Test
(LICAT) ratio is well above the minimum
requirements set by the industry regulator.
A high LICAT ratio demonstrates our
long-term ability to pay claims and our
prudent capital management.
What is an LICAT ratio?
The LICAT is intended to measure the
life insurer’s solvency position by
recognizing the long-term economics
of the life insurance business. OSFI has
established supervisory target levels of
70% for Core and 100% for Total ratio.
by net premium and fee income for the
12 months ended December 31, 2022
Empire Life is well-diversified across
three product lines:
Wealth Management
30%
Group Solutions
36%
Individual Insurance
34%
Financial ratings
These financial ratings give you an
independent opinion of our financial
strength as an insurer and our ability
to meet policyholder obligations.
Financial Strength Rating: A
Issuer Rating: A
Subordinated Debt Rating: A (low)
DBRS (as at May 30, 2022)
Note: The selected financial information presented above is derived from the audited financial statements of
The Empire Life Insurance Company and Management’s Discussion and Analysis included in the Empire Life 2022 Annual Report.
Empire Life - Annual Report 2022
5
Common Shareholders’
Net Income
2022 (in millions)
$204
Common Shareholders’
Net Income
2021 (in millions): $239
Net Premium and Fee Income
2022 (in millions)
$1,325
Net Premium and Fee Income
2021 (in millions): $1,188
Total Assets Under Management
2022 (in millions)
$17,320
Total Assets Under Management
2021 (in millions): $19,644
MESSAGE FROM THE
CHAIRMAN OF THE BOARD
An annual report is a comprehensive report detailing a company’s activities throughout the preceding year. Its
purpose is to provide shareholders or potential investors with information about the company’s operations and
financial performance.
For me, this 2022 report also includes reflecting on my 25 years serving with the Empire Life Board of Directors,
almost 20 of those as its Chair. Over that time, much has changed—in the industry and indeed the world. As an
insurance company, our business is to manage risk and help our customers plan for the unexpected. Nothing was
more unexpected than COVID-19 pandemic, whose impacts continue to affect each of us.
What was not unexpected, however, is how Empire Life rallied to support our customers and investors and deliver
outstanding results despite ongoing and exceptional circumstances. Our products and services are more vital than
ever, and we continue to lead industry innovations and make strategic and significant investments. The creation of
TruStone Financial Inc. and our minority shareholder investment in EXOS Wealth Systems Inc., for example, clearly
demonstrate our continuing commitment to helping our customers meet their financial goals.
It is because of this dedication and commitment that I am most proud to lead and serve with our Board members who
provide careful counsel and strategic leadership to the management team.
After more than a decade of service on the Empire Life Board of Directors, we said farewell to Harold Hillier who did
not seek re-election. On behalf of the Board, we thank Harold for his lengthy and dedicated service for which we have
all benefited greatly.
The Board continues to be impressed by the work of management and employees during these challenging times. As
I told staff during a recent webinar, the continued strength and success of Empire Life is due to its people. Despite all
the changes and challenges over the past 100 years, employees remain focused on service and innovation. That is
what fuels our success.
No one has a crystal ball to predict what the coming years will bring; however, I do know we will continue to be a
people-centric organization. As we celebrate our centennial anniversary in 2023, Empire Life will continue to help
individuals, families and small businesses build wealth and achieve financial security—just as we have done
since 1923.
Duncan N. R. Jackman
Chair of the Board
February 24, 2023
Empire Life - Annual Report 2022
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MESSAGE FROM THE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Purpose, people, and progress. Three words that accurately tell the story of Empire Life as we look back at 2022 and
ahead to 2023—our centennial anniversary year.
Purpose
While adapting and meeting the challenges and changes in how we work and live as a result of the continuing
pandemic, we have stayed true to our purpose to make it simple, fast and easy for Canadians to get the products and
solutions they need to build wealth, generate income and achieve financial security.
Our approach to managing our business has always been to concentrate on doing the fundamental things to provide
great value in our products and good service to our customers. We only do business in Canada, and that gives us a
unique perspective and understanding of our customers. Our careful management style will serve us and our
customers well as we continue to embrace the emerging technology age.
People
People and relationships are the foundation of our business. We have succeeded in fulfilling our mission during these
difficult times because our people make the difference. Every time I meet with advisors, they tell me about the
exceptional customer service they receive from the people who work at Empire Life. It makes a real difference to them
and to their customers. A commitment to service, resilience and optimism is what has made Empire Life stand apart
for the past 100 years.
Strong and engaged leadership is key to setting our vision for the future and supporting our teams to achieve results.
In 2022, we welcomed two new senior executives: Mark Rogers as Senior Vice-President, Corporate Development
and Paul Holba as Senior Vice-President and Chief Investment Officer. I continue to be proud of how our senior
leadership team remains focused on the health and safety of our employees and providing service to our customers
and distribution partners no matter the obstacle or circumstance. I would also like to thank our Board of Directors for
their ongoing support and guidance.
Working together, our Empire team is extraordinary.
Progress
Technology continues to drive change. The world refuses to stand still. As an organization, we have adapted and
made continuous progress in several areas of our business.
At Empire Life, we are always focused on our 3D strategy of digital, data and distribution. This strategy has been
buoyed by innovations accelerated by the pandemic and the shift to more virtual and hybrid operations. Our
innovation as a digital leader was recognized by NMG Group which recently produced its first-ever Canadian
Individual Life Insurance study, collecting data from key decision makers in group benefits consultancies, brokerages,
third-party administrators (TPAs) and managing general agencies (MGAs) across Canada. The survey explored
industry challenges, trends shaping the individual life insurance industry and insurer competitive positioning. Empire
Life was ranked number one in two areas where we have been striving to differentiate ourselves from the rest of the
industry: digital technology leadership and service excellence.
Ensuring an optimal online experience for our customers and advisors is an important part of our digital strategy. In
June 2022, we launched a new enhanced web-based illustrator based on advisor feedback. The eVision Insurance
Illustrator ™ (‘eVision’) improves the digital life insurance application process and makes it faster and easier for
advisors to run insurance illustrations. This new addition aligns nicely with existing digital tools like our Fast & Full Life
Application and our advisor portal.
We continued to enhance our product line including a new “juvenile experience” for customers. We introduced a
simpler application process with fewer medical questions and a higher probability for automatic approvals for
consumers applying for life insurance coverage for their children and grandchildren. In most cases, policies for
children are approved instantly through our electronic Fast & Full® Life Application process.
Empire Life - Annual Report 2022
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MESSAGE FROM THE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Next, we added two new features to support the mental health and well-being of Canadians. We added a new grief
counselling service to our Voyageur Global Benefits (VGB) life insurance plans administered by MetLife Worldwide
Benefits for globally mobile employees who are experiencing personal challenges. In addition to counselling, the
service provides information to help plan members address financial or legal needs. In December 2022, we
introduced a new service through Medaca to provide plan members with rapid access to psychiatric care within days,
not months, for those who are on disability leave due to a mental health condition. These new products will provide
enormous value to our plan members and plan sponsors.
We are measuring service and performance levels and investing in innovation to continuously improve our products
and process. We are well on our way; there will always be more to do and higher levels to aspire to and we are ready
to meet those challenges head-on.
Empire Life continues to be a leader in our industry thanks, in part, to our focus on corporate development and
acquisitions. In March 2022, we purchased 100% of the shares of six financial services firms and amalgamated them
into one wholly owned subsidiary of Empire Life under the name TruStone Financial Inc. Two months later, in May, we
invested in EXOS Wealth Systems Inc. (EXOS) as a minority shareholder. These strategic investments clearly
demonstrate our commitment to independent financial advice and the critical role it plays in helping Canadians select
the financial products and solutions that best match their needs.
Environmental, social and governance (ESG)
We are continuing to make progress in environmental, social and governance (ESG) by focusing on areas that are
important to all Canadians. We believe that corporate responsibility and a sustainable approach to business
operations is a hallmark of quality. We also believe that strong corporate governance aligns management and
shareholder interests, and that analyzing environmental and social factors can assist in identifying business models
that may create sustainable value while reducing risk.
In 2022, we launched a five-year diversity and inclusion action plan to support our goal to cultivate an engaged and
sustainable organization while building an inclusive community. Our plan includes addressing topics such as
communications, training, human resources, policy and talent processes.
We continue to adapt to our new hybrid working environment to ensure we are providing our employees with flexibility,
job satisfaction and work/life balance while maintaining productivity. We remain committed to recruiting and retaining
the best people in the industry to provide the best solutions and service to our customers.
What’s next
This year, Empire Life celebrates 100 years of serving Canadians—a remarkable milestone for any organization. In
2023, we will mark our centennial by looking back and recognizing our people, our purpose, our innovation, our
community and our culture–but most of all, we will be looking forward to what the next 100 years will bring for future
generations of Empire Life customers, advisors, employees and shareholders.
Mark Sylvia
President and Chief Executive Officer
February 24, 2023
Empire Life - Annual Report 2022
8
SOURCE OF EARNINGS DISCLOSURE
Source of earnings is a methodology for identifying and quantifying the various sources of International Financial
Reporting Standards (IFRS) income of a life insurance company. It presents shareholders’ net income in a different
format from the traditional income statement form and provides a better understanding of Empire Life’s sources of
profit for each major product line.
Expected Profit from In-Force Business
This source of earnings represents the profit the Company expects to generate on in-force business if experience is in
line with the Company’s best estimate assumptions for mortality, morbidity, persistency, investment returns, expenses
and taxes.
Impact of New Business
Writing new business typically adds economic value to a life insurance company. However, as of the point of sale, new
business may have a positive or negative impact on earnings. A negative impact (new business strain) will result when
the assumptions used in determining the profits in the actuarial liabilities at the point of sale exceeds the expected
profit margin assumed in the product pricing. The impact of new business also includes acquisition expenses not
covered by product pricing at the point of issue.
Experience Gains and Losses
This item represents gains or losses due to the difference between actual experience and the best estimate
assumptions. Possible areas of variances include benefit claims, policy persistency, expenses, investment income
and others.
Management Actions and Changes in Assumptions
This component includes earnings generated by management actions during the year (e.g., acquisition or sale of a
block of business, changes to product price, fees or asset mix, etc.) or the impact of changes in assumptions or
methodology used for the calculation of actuarial liabilities for in-force business.
Other
This item includes any source of earnings from operations not included above.
Earnings on Surplus
This component represents the pre-tax earnings on the shareholders’ capital and surplus funds.
Source of Earnings by Line of Business
For the twelve months ended December 31
Wealth
Management
Group
Solutions
Individual
Insurance
Capital and
Surplus
Total
(in millions of dollars)
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Expected profit on in-force business
$ 142 $ 118 $
28 $
26 $
47 $
55
$ 217 $ 199
Impact of new business
Experience gains & losses
(14)
(16)
(7)
(8)
168
(23)
Management actions and changes in assumptions
(18)
16
Earnings (losses) on operations before income taxes
102
287
(1)
(3)
(11)
(17)
(1)
(3)
16
(22)
118
159
7
7
(53)
(5)
(20)
(53)
159
99
(38)
16 — —
258
299
Earnings on surplus
Income (loss) before income tax
Income taxes
Shareholders' net income (loss)
— — — — — —
102
287
27
75
72
215
(3)
(1)
(2)
(4)
(2)
(3)
159
34
125
16
(5)
21
14
14
3
11
14
14
1
14
14
272
313
63
67
13
209
246
Empire Life - Annual Report 2022
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SOURCE OF EARNINGS DISCLOSURE
Wealth Management
Wealth Management profits were below expected primarily due to below expected fund growth on Segregated Funds
which was attributable to equity markets performing below expected and market value reductions on bond funds due
to rising interest rates. These negative variances were partially offset through better than expected income in the
Investment Products results due to favourable annuitant mortality experience and gains from access to higher interest
rates in 2022. Wealth Management's 2021 results were abnormally high due to a significant decrease in Segregated
Fund reserves and this was not expected to be a recurring event in 2022.
Group Solutions
Group Solutions experienced a loss in 2022, primarily due to unfavourable claims experience within the long term
disability (LTD) and extended health benefit (EHB) product lines. Losses on the LTD product line are primarily
attributable to temporary operational staffing disruptions that caused delays in claim management activity, extending
claim durations. On the EHB product line, losses were primarily attributable to higher-than-priced for drug trend
experience as well as adverse industry drug claim pooling assessments.
Individual Insurance
Individual Insurance Non-Participating net income was substantially greater in 2022 than 2021. The 2022 results were
materially impacted by increased market interest rates - leading to lower liability levels and increased income. This
was partially offset by continued reserve strengthening for lapses on universal life and term business. Offsetting this
were policyholder claims greater than expected. In 2021 policy liabilities increased significantly primarily due to the
update of lapse assumptions on renewable term business.
Capital & Surplus
Earnings from Capital and Surplus in 2022 were lower than 2021. In 2021, Capital and Surplus results were high due
to opportunistic asset trades as credit spreads widened, which resulted in realized gains on the sale of fixed income
assets.
Empire Life - Annual Report 2022
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Dated as of February 24, 2023
This document provides Management’s Discussion and Analysis (MD&A) of the operating results and financial
condition of The Empire Life Insurance Company (Empire Life or the Company) for the years ended December 31,
2022 and 2021. This MD&A should be read in conjunction with the Company’s December 31, 2022 consolidated
financial statements, which form part of The Empire Life Insurance Company 2022 Annual Report dated February 24,
2023. Unless otherwise noted, both the consolidated financial statements and this MD&A are expressed in Canadian
dollars. Some variances may not reconcile, and analysis of components may not sum to the analysis for the grouped
components due to rounding.
MD&A contains forward-looking information and involves numerous risks and uncertainties, including, but not limited
to, those described in the “Risk Factors” section of the Annual Information Form which is available at www.sedar.com.
No assurance can be given that results, performance or achievement expressed in or implied by any of the forward-
looking information will occur, or, if they do, that any benefits may be derived from them. Actual results may differ
materially from those expressed or implied by forward-looking information. See the Forward-Looking Statements and
Information section in this report.
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS), and the accounting requirements of the Office of the Superintendent of Financial Institutions
(OSFI). This MD&A refers to certain non-IFRS measures. These measures are not recognized measures under IFRS
and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar
measures presented by other companies. Rather, these measures are provided as additional information to
complement IFRS measures by providing further understanding of the Company’s results of operations from
management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of
the Company’s financial information under IFRS. See the Non-IFRS Measures section in this report. Note that certain
comparative amounts have been reclassified and restated to conform with the presentation adopted in the current
period.
Financial Analysis
Overview
(in millions of dollars except per share amounts)
Common shareholders' net income
Earnings per share - basic and diluted
Fourth quarter
2022
87 $
2021
17 $
Year
2022
204 $
2021
239
88.93 $
16.96 $
207.32 $
242.66
$
$
Empire Life reported fourth quarter common shareholders’ net income of $87 million for 2022, compared to $17 million
for 2021. Full year common shareholders’ net income was $204 million compared to $239 million in 2021. The
increase in fourth quarter earnings was due to the effect of assumption updates applied in the Individual Insurance
line which had a favourable impact on fourth quarter earnings in 2022 compared to an unfavourable impact in 2021.
For the year, earnings were lower than 2021, primarily due to the non-recurring release of segregated fund guarantee
related policy liabilities which occurred in the first quarter of 2021. In addition, the increase in the yield curves through
the year has had a positive impact on 2022 results.
Empire Life - Annual Report 2022
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table provides a breakdown of the sources of earnings for the fourth quarter and year.
Sources of Earnings
(in millions of dollars)
Expected profit on in-force business
Impact of new business
Experience gains (losses)
Management actions and changes in assumptions
Earnings on operations before income taxes
Earnings on surplus
Income before income tax
Income taxes
Shareholders' net income
Dividends on preferred shares
Common shareholders' net income
Fourth quarter
Year
2022
2021
2022
2021
$
56
$
51
$
217
$
(3)
1
52
106
7
113
25
88
(1)
(4)
15
(55)
6
7
13
(5)
18
(1)
(5)
(53)
107
266
3
269
60
209
(5)
$
87
$
17
$
204
$
199
(20)
159
(38)
299
14
313
67
246
(7)
239
The expected profit on in-force business for the fourth quarter and for the year increased primarily due to higher
expected levels of assets under management and higher levels of in-force business at the start of the year for all three
business lines.
Experience gains for the fourth quarter were lower than the comparable period primarily due to the negative impacts
of equity market performance. For the year, experience gains (losses) were significantly lower in 2022 as the
comparable period in 2021 included a non-recurring release of segregated fund guarantee related policy liabilities
which occurred in the first quarter of 2021. Experience in 2022 included the impact of the current market conditions;
positive yield curve impacts offset by poor equity market performance. In addition, the full year line of business
experience included increased expenses in the Wealth Management line from an enhanced commission program on
large deposits, Individual Insurance had small lapse gains offset by mortality losses and poor Group Solutions
experience caused by both adverse LTD claim experience and the impact of inflation on pricing for Health and Dental
lines.
Management actions and changes in assumptions in the fourth quarter of 2022 were more favourable than 2021,
primarily due to the impact of increasing yield curves during the year on the discount rate and actuarial assumptions
reflected in the third and fourth quarter of 2022.
Earnings on surplus were lower for the full year primarily due to lower realized gains on Available for Sale (AFS)
assets caused by the increasing yield curve.
Empire Life - Annual Report 2022
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Selected Financial Information
Income Statement Financial Information
(in millions of dollars)
Revenue
Net premium income
Fee income
Investment income
Realized gain on FVTPL investments
Realized gain (loss) on AFS investments including impairment write downs
Fair value change in FVTPL investments
Total revenue
Expenses
Benefits and expenses
Income and other taxes
Total expenses
Net income (loss) after tax
Participating policyholders' portion
Shareholders' net income
Dividends on preferred shares
Common shareholders' net income
For the years ended December 31
2022
2021
2020
$
1,043
$
282
358
21
(34)
(1,737)
(67)
$
916
273
330
106
(1)
(363)
1,259
860
251
329
155
29
357
1,982
$
(356) $
913
$
1,758
79
(277)
210
1
86
1,000
259
13
$
$
209
$
246
$
5
7
204
$
239
$
67
1,825
157
4
153
13
140
Return on common shareholders' equity
11.9%
13.8%
8.5%
Revenue variability is driven primarily by the impact of market interest rate and equity movements on the change in
fair value through profit or loss investments. The impact of these movements on net income is significantly reduced
due to corresponding changes in insurance contract liabilities (included in Benefits and expenses in the above table).
Balance Sheet Financial Information
(in millions of dollars)
Assets
Total cash and investments
Other assets
Segregated fund assets
Total assets
Liabilities
Insurance contract liabilities
Reinsurance liabilities
Subordinated debt
Other liabilities
Segregated fund policy liabilities
Total liabilities
Total equity
Total liabilities and equity
As at December 31
2022
2021
2020
$
8,398
$
10,082
$
10,045
340
8,566
192
9,257
214
8,457
$
17,304
$
19,531
$
18,716
$
5,640
$
7,091
$
7,145
163
399
399
8,566
15,167
2,137
253
399
359
9,257
17,359
2,172
385
399
382
8,457
16,769
1,947
$
17,304
$
19,531
$
18,716
Empire Life - Annual Report 2022
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
As at December 31
2022
2021
2020
$
8,738
$
10,273
$
10,259
8,566
9,257
8,457
399
297
399
297
$
1,776
$
1,898
$
600
2,376
916
2,393
$
$
138%
101%
591
2,489
1,115
2,508
$
$
144%
107%
399
250
1,623
677
2,300
1,156
2,541
136%
96%
For the years ended December 31
2022
2021
2020
—
1.23
73.80
$
$
$
0.72
1.23
53.27
$
$
$
1.44
1.23
179.65
$
$
$
$
$
Other Financial Information
(in millions of dollars)
Assets under management1
General fund assets¹
Segregated fund assets¹
Subordinated debt
Preferred shares and other equity
Available regulatory capital
Tier 1
Tier 2
Total
Surplus allowance and eligible deposits
Base solvency buffer
LICAT total ratio
LICAT core ratio
Cash dividends per share
Preferred shares series 1
Preferred shares series 3
Common shares
1 See Non-IFRS Measures
Empire Life - Annual Report 2022
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results by Major Product Line
The following tables provide a summary of Empire Life results by major product line for the three months and for the
year ended December 31, 2022 and 2021. A discussion of results is provided in the Product Line section of the
MD&A.
For the three months ended
December 31
Wealth
Management
Group Solutions
Individual
Insurance
Capital
and Surplus
Total
(in millions of dollars)
2022 2021 2022
2021 2022 2021 2022 2021 2022
2021
$
54 $
20 $ 116 $
109 $ 117 $ 112 $ — $ — $ 287 $
240
Revenue
Net premiums
Investment income
9
Fair value change in FVTPL investments
(9)
Realized gain (loss) on FVTPL
investments
Realized gain (loss) on AFS investments
including impairment write downs
Fee income
Total revenue
Expenses
Net benefits and claims
Net change in insurance and investment
contract liabilities
Policy dividends
Operating, commission and interest
expenses
Income and other taxes
Total expenses
—
—
58
112
34
10
—
39
8
91
7
2
1
—
66
96
42
(29)
—
39
9
61
2
(1)
—
—
3
120
85
1
—
30
3
119
1
—
—
—
4
114
80
11
—
27
—
118
67
60
(73)
244
4
—
—
115
14
—
—
431
47
39
(65)
367
11
40
12
44
18
56
20
(4)
(2)
18
(2)
(3)
98
(87)
2
86
245
12
(4)
1
(4)
1
5
15
—
—
—
10
—
14
—
—
—
7
1
8
66
362
166
(54)
12
123
28
275
70
655
161
350
11
114
(3)
631
(14)
(1)
444
9
Net income (loss) after tax
$
21 $
35 $
1 $
(4) $
59 $
(13) $
6 $
6 $
87 $
24
Participating policyholders' portion
Dividends on preferred shares
Common shareholders' net income
1
(1)
(6)
(1)
$
87 $
17
Empire Life - Annual Report 2022
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the years ended
December 31
(in millions of dollars)
Revenue
Net premiums
Investment income
Wealth
Management
Group Solutions
Individual
Insurance
Capital
and Surplus
Total
2022 2021 2022
2021 2022 2021 2022 2021 2022
2021
Fair value change in FVTPL investments
(102)
(10)
(23)
(4) (1,613)
(344)
(5) (1,737)
(363)
$ 140 $
75 $ 452 $
407 $ 451 $ 434 $ — $ — $ 1,043 $
33
36
8
4
250
226
64
358
916
330
Realized gain (loss) on FVTPL
investments
Realized gain (loss) on AFS investments
including impairment write downs
Fee income
Total revenue
Expenses
—
—
251
322
1
—
259
360
—
—
15
452
—
—
14
421
Net benefits and claims
149
171
329
286
195
(88)
(241)
(3)
26
(1,449)
Net change in insurance and investment
contract liabilities
Policy dividends
Operating, commission and interest
expenses
Income and other taxes
Total expenses
—
152
27
240
—
143
72
145
—
117
11
454
9
42
4
423
(1,008)
407
(1)
37
67
1
16
41
—
—
—
38
—
—
—
—
(882)
439
173
30
37
162
—
103
40
164
—
39
282
273
(67) 1,259
—
673
630
—
(1,540)
(185)
—
23
1
24
40
471
37
432
79
86
(277) 1,000
30
123
(9)
(18)
21
106
(34)
(3)
(34)
(1)
Net income (loss) after tax
$
82 $ 215 $
(2) $
(3) $ 126 $
32 $
4 $
15 $ 210 $
259
Participating policyholders' portion
Dividends on preferred shares
Common shareholders' net income
Total Revenue
(1)
(5)
(13)
(7)
$ 204 $
239
Net premiums for the fourth quarter and the year were higher relative to the same periods in 2021 primarily due to
growth in Wealth Management.
Investment income for the fourth quarter and the year was generally consistent with the amounts recorded in the
same periods in 2021.
Fair value losses on assets classified as FVTPL were higher in 2022 primarily due to increasing interest rates which
drive down the fair value of bonds. These assets back policy liabilities which tend to experience offsetting changes
within the Net change in insurance and investment contract liabilities in the Expenses section of the results.
Total Expenses
A substantial portion of Total expenses is driven by the impact that equity market movements and market interest rate
movements have on the Net change in insurance contract liabilities. This change in expenses is significantly offset by
corresponding changes in the Fair value change in FVTPL investments, as noted in the Revenue section. In the first
quarter of 2021, the net change in insurance and investment contract liabilities included a non-recurring release of
$147 million for segregated fund guarantee related policy liabilities.
Empire Life - Annual Report 2022
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net benefits and claims for the year to date were higher than the comparative period in 2021, primarily from higher
claims in the Individual Insurance and Group Solutions lines. Net benefits and claims variability is dependent on the
claims incurred. Generally, claims rise year over year due to growth of the insurance blocks. Variability in claims
amounts does not, in isolation, impact net income as insurance contract liabilities are released when claims occur.
The insurance contract liabilities released may be larger or smaller than the claims incurred depending on whether
claims experience has been more or less than what was estimated in the insurance contract liabilities. Claims
experience gains and losses are a combination of claims incurred compared to claims expected in product pricing and
in insurance contract liabilities.
Operating expenses, commissions and interest expenses increased for the fourth quarter and for the year compared
to 2021 primarily due to higher commissions incurred as a result of higher premiums across all lines.
Product Line Results - Wealth Management
(in millions of dollars)
Fixed Annuities
Assets under management¹
Gross sales
Net sales
Segregated Funds
Assets under management¹
Gross sales
Net sales
Fee income
Fourth quarter
Year
2022
2021
2022
2021
$
754 $
853
$
754 $
62
32
75
(40)
148
44
8,566
198
(26)
57
9,257
268
(145)
65
8,566
841
(91)
249
853
130
(71)
9,257
959
(259)
256
Net income after tax
$
21
$
35
$
82
$
215
Fixed annuity assets under management decreased by 12% from their levels at the end of 2021, as a result of the
increase in market interest rates which resulted in a reduction of the value of fixed income securities. Gross sales
were lower in the fourth quarter but higher for the year.
Segregated fund assets under management are lower relative to the same period in 2021, reflecting the poor equity
market conditions. For the fourth quarter and the year, gross sales were lower than the same period in 2021.
Segregated fund fee income was lower to the comparable period in 2021, due to lower average assets under
management. Fee income from segregated funds is calculated daily for most products.
Empire Life - Annual Report 2022
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
Product Line Results - Group Solutions
(in millions of dollars)
Selected financial information
Core
Other
Annualized premium sales
Net premiums
Net income (loss) after tax
Fourth quarter
Year
2022
2021
2022
2021
15
7
22
116
1
$
$
$
11
6
17
109
$
$
59
25
84
452
$
$
(4) $
(2) $
74
25
99
407
(3)
$
$
$
For the fourth quarter, total annualized premium sales for Group Solutions increased relative to 2021, primarily due to
a small block transfer acquired during the quarter. For the year, annualized premium sales were 18% lower than 2021,
as Group Solutions took a prudent approach to pricing of renewal caps on the health and dental product lines in
response to the current high inflation environment. Over the last several years, Empire Life has entered into a number
of strategic arrangements to expand market share in this space.
Net premiums for the fourth quarter and year increased by 8% and 11% respectively, compared to the same periods in
2021, as premium growth in new distribution channels and strong renewal increases on inforce business more than
offset lower sales versus prior year. Empire Life continues to focus on profitable sales in the employee benefits market
where price competition continues for all major product lines.
Group Solutions delivered a modest profit in the quarter as improvements in long-term disability claims experience
were partially offset by unfavourable extended health claim costs in the quarter. Losses for the full year were primarily
due to unfavourable claims experience in long-term disability and extended health care benefits.
Product Line Results - Individual Insurance
(in millions of dollars)
Shareholders'
Shareholders' annualized premium sales
$
Shareholders' net premiums
Net income (loss) after tax
Policyholders'
Policyholders' annualized premium sales
Policyholders' net premiums
Net income (loss) after tax
Fourth quarter
2022
2021
Year
2022
9 $
74
58
4
42
1
7 $
73
(18)
4
39
5
32 $
294
125
15
156
1
Net income after tax
$
59 $
(13) $
126 $
2021
34
291
21
16
143
11
32
Shareholders' annualized premium sales and Shareholders’ net premiums were flat compared with 2021, sales
growth was not as strong as expected in 2022 due to unfavourable market conditions. Policyholders' annualized
premium sales for the full year were consistent with 2021 from the Company's core participating life products, while
Policyholders' net premiums grew by 9%.
Total net income for Individual Insurance was $125 million for year-to-date 2022 compared to $32 million in 2021,
mostly driven by actuarial assumption updates, specifically the net investment assumption update.
Empire Life - Annual Report 2022
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in millions of dollars)
Components of pre-tax income increase from update of policy liability assumptions
Lapse/premium assumptions
Net investment assumptions
Mortality experience
Reinsurance recapture
Other
Year
2022
2021
$
(35) $
(113)
96
22
—
(14)
82
(25)
11
(2)
(47)
Total gain (loss) from update of policy liability assumptions (excludes policyholders' portion)
$
69
$
The lapse/premium assumption change for both 2022 and 2021 is related to updates of assumed lapse rates on
renewable term and universal life policies, reflecting current Company and industry experience.
The net investment assumption change for 2022 includes the positive impact of a net increase in the reinvestment
rates used in the valuation of policy liabilities, reflecting current interest rates. The primary driver of the net investment
assumption change for 2021 was a decrease in segregated fund liabilities related to equity returns for the year. In
addition, updates were made to the future reinvestment asset mix, which adds to expected credit spreads, resulting in
a decrease in policy liabilities.
The mortality assumption change for 2022 is due to a normal update of our studies which combine industry and
Company experience. In 2021, there was an additional update (unfavorable) related to the calculation of mortality
improvement used in the valuation of policy liabilities.
In 2021, provisions related to the 2019 reinsurance recapture models were released. In 2019, the Company enacted
significant changes to its reinsurance programs which resulted in an increase in its individual life retention.
Results - Capital and Surplus
(in millions of dollars)
Net income (loss) after tax shareholders' portion
Net income (loss) after tax policyholders' portion
Net income (loss) after tax
Fourth quarter
2022
2021
$
$
7 $
(1)
6 $
6 $
1
7 $
Year
2022
3 $
1
4 $
2021
13
2
15
In addition to the three major lines of business, Empire Life maintains distinct accounts for the investment income
attributable to Shareholders’ Capital and Surplus and to Policyholders’ Surplus.
Net income decreased in 2022 in the capital and surplus segment primarily due to realized losses on sales of fixed
income assets recorded as AFS, due to the increasing yield curve.
Empire Life - Annual Report 2022
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
Shareholder Dividends
The declaration and payment of shareholder dividends and the amounts thereof are at the discretion of the Board of
Directors.
Common shareholder dividends are reviewed on a quarterly basis and depend upon various factors, including the
results of operations, the economic environment and the financial condition of Empire Life, taking into account
regulatory restrictions on the payment of shareholder dividends as well as any other factors deemed relevant by the
Board of Directors.
On February 23, 2023, the Board of Directors declared a dividend of $18.45 per common share of Empire Life. The
following table provides details of the amounts and dates for Empire Life’s per share common and preferred share
dividends.
Common shares
Non-Cumulative Rate Reset Preferred Shares, Series 3
Amount of Dividend
per share
Payable Date
Record Date
$
$
18.45
April 4, 2023
March 10, 2023
0.3866875
April 17, 2023
March 17, 2023
Empire Life advises that the above referenced dividends are eligible dividends for the purposes of the Income Tax Act,
Canada and any similar provincial tax legislation.
Total Cash Flow
(in millions of dollars)
Cash flow provided from (used for)
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Year
2022
376 $
(298)
(96)
(18) $
$
$
2021
317
(282)
(31)
4
Cash flows from operating activities include insurance premiums, net investment income and fee income. These funds
are primarily used to pay policy benefits, commissions, operating expenses and policyholder dividends. Cash flows
from investing activities primarily relate to purchases and sales of investments supporting policy liabilities and the
capital and surplus accounts. Cash flows related to financing activities include issuance and redemption of capital
instruments and related dividend and interest payments.
For the year, cash and cash equivalents decreased by $18 million. Cash flows provided by operating activities
increased by $59 million primarily due to lower cash outflows related to changes in working capital levels, as
compared to 2021. Cash used for investing activities increased by $16 million compared to 2021 as the prior period
included a non-recurring investment of the proceeds from financing activities which was partially offset by business
acquisitions in 2022. Cash used for financing activities was $65 million higher compared to 2021, primarily due to the
net effect of non-recurring transactions in 2021, when the Company issued Limited Recourse Capital Notes ($197
million) and redeemed preferred shares ($149.5 million).
For an analysis of liquidity for Empire Life, see note 11(e) and note 28(b) in the audited consolidated financial
statements for the year ended December 31, 2022.
Empire Life - Annual Report 2022
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Instruments
Empire Life buys investment quality bonds to support, to a very large extent, the liabilities under the insurance and
annuity policies of the Company. Empire Life’s investment strategy also includes the use of publicly-listed common
stocks or exchange-traded funds (ETFs) to support the liabilities under its insurance policies. Cash flows arising from
these financial instruments are intended to match the liquidity requirements of Empire Life’s policies, within the limits
prescribed by the Company. Empire Life is subject to credit and market risk on these financial instruments.
Credit risk on these financial instruments could result in a financial loss should the other party fail to discharge an
obligation. This credit risk is derived primarily from investments in bonds, debentures, preferred shares, short-term
investments and mortgages. Empire Life manages market risk exposure mainly through investment limits and
oversight of its in-house investment managers and external investment firms by the Chief Investment Officer, Chief
Actuary, Asset Management Committee and Investment Committee of the Board. The Investment Committee actively
monitors the portfolio and asset mix. Empire Life has a semi-static hedging program as part of its approach to
managing this risk. Empire Life manages credit risk by applying its investment guidelines established by the
Investment Committee of the Board of Directors. The investment guidelines establish minimum credit ratings for
issuers of bonds, debentures and preferred share investments, and provide for concentration limits by issuer of such
debt instruments. Management reviews credit quality relative to investment purchases and monitors the credit quality
of invested assets over time. Management reports regularly to the Investment Committee of Empire Life’s Board on
the credit risk to which the portfolio is exposed.
Empire Life manages credit risk with respect to derivatives by applying limits and credit rating restrictions established
by the Investment Committee in its investment guidelines, which set out permitted derivatives and permitted uses for
derivatives, as well as limits to the use of these instruments. In particular, no leverage is permitted in the use of
derivatives and strict counterparty credit restrictions are imposed. Additional information regarding financial
instruments is included in notes 2(d), 3, 11(c), and 28 to the consolidated financial statements for the year ended
December 31, 2022.
Sources of Capital
Empire Life has issued private and public securities to strengthen its capital position and fund new business growth.
The securities outstanding are summarized in the following table.
(in millions of dollars)
Subordinated debentures
Equity
Preferred shares and other equity instruments
Common shares
Total Equity
As at
December 31, 2022 December 31, 2021
$
$
$
$
399
297
1
298
399 $
297 $
1 $
298 $
As at
Details of the Company’s outstanding preferred shares and subordinated debt are as follows:
(in millions of dollars)
Date Issued
Earliest Redemption
Date
Yield
December 31, 2022 December 31, 2021
Subordinated debentures, Series
2017-1 (1)
Subordinated debentures, Series
2021-1 (2)
September 2017
March 15, 2023
3.664 % $
September 2021 September 24, 2026
2.024 % $
200 $
199 $
200
199
(1) Series 2017-1 Subordinated 3.664% Unsecured Debentures due 2028. From March 15, 2023, interest is payable at 1.53% over the 3-month CDOR.
(2) Series 2021-1 Subordinated 2.024% Unsecured Debentures due 2031. From September 24, 2026, interest is payable at 0.67% over the 3-month CDOR.
Empire Life - Annual Report 2022
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
Preferred Shares and Other equity Instruments
(in millions of dollars)
Date Issued
Earliest Redemption
Date
Yield
December 31, 2022 December 31, 2021
As at
Preferred shares, Series 3
November 2017
January 17, 2023
Limited Recourse Capital Notes,
Series 1
February 2021
April 17, 2026
4.900 % $
3.625 % $
100 $
197 $
100
197
In the fourth quarter of 2022, Empire Life provided notice to E-L Financial Corporation Limited that it did not intend to
exercise its right to redeem all or any part of the currently outstanding 4,000,000 Series 3 Preferred Shares of Empire
Life on January 17, 2023 and, as a result and subject to certain conditions, the holders of the Series 3 Preferred
Shares had the right, at their option on the Series 3 Conversion Date, to convert all or part of their Series 3 Preferred
Shares on a one-for-one basis into Series 4 Preferred Shares. In early 2023, E-L Financial irrevocably elected not to
exercise this right. Effective January 18, 2023, holders of Series 3 Preferred Shares are entitled to receive fixed non-
cumulative quarterly dividends yielding 6.187% annually, as and when declared by the Board of Directors of Empire
Life, for the renewal period ending on and including January 17, 2028. Thereafter, the dividend rate will be reset every
five years at a rate equal to the 5-year Government of Canada bond yield plus 3.24%.
Debenture Issue
On January 13, 2023, the Company issued $200 million principal amount of unsecured debentures with a maturity
date of January 13, 2033. The net proceeds of the issue will be used for regulatory capital purposes and for general
corporate purposes which may include the redemption of outstanding debt.
The interest rate from January 13, 2023 to January 13, 2028 is 5.503% payable semi-annually until the interest reset
date, which is January 13, 2028. The interest rate from January 13, 2028 until January 13, 2033 is the daily
compounded Canadian Overnight Repo Rate Average (CORRA) plus 2.26%, payable quarterly.
The Company may call for redemption of the debentures any time after January 13, 2028 subject to the prior written
approval of OSFI.
The debentures are subordinated in right of payment to all policy contract liabilities of the Company and all other
senior indebtedness of the Company.
Debenture Redemption
On February 7, 2023, the Company announced that it intends to redeem, on March 15, 2023 (the “Redemption Date”),
all of its outstanding $200 million 3.664% Unsecured Subordinated Debentures, Series 2017-1 due March 15, 2028
(the “Notes”). Notice will be delivered to the Note holders in accordance with the terms and conditions set forth in the
related trust indenture. Interest on the Notes will cease to accrue from and after the Redemption Date.
The redemption has been approved by the OSFI.
The securities issued by Empire Life are rated by DBRS Limited (DBRS). DBRS has assigned the following ratings to
the Company's securities:
Evaluation Type
Financial Strength Rating
Issuer Rating
Subordinated Debt
Preferred Shares
Limited Recourse Capital Notes
Rating
A
A
A(low)
Pfd-2
BBB(high)
Trend
Stable
Stable
Stable
Stable
Stable
Date of last rating action
May 30, 2022
May 30, 2022
May 30, 2022
May 30, 2022
May 30, 2022
Empire Life - Annual Report 2022
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
Regulatory Capital
The Life Insurance Capital Adequacy Test (LICAT) is intended to measure a life insurer's solvency position by
recognizing the long-term economics of the life insurance business. The Company continues to have a strong capital
position under the LICAT framework. Empire Life is required to maintain a minimum Core Ratio of 55% and a Total
Ratio of 90%. The Office of the Superintendent of Financial Institutions (OSFI) has established supervisory target
levels of 70% for Core and 100% for Total ratio.
LICAT
(in millions of dollars)
Available capital
Tier 1
Tier 2
Total
Surplus allowance and eligible deposits
Base solvency buffer
(A)
(B)
(C)
(D)
(E)
LICAT total ratio
LICAT core ratio
((C+D)/E * 100)
((A+70%D)/E * 100)
Dec 31
2022
Sep 30
2022
Jun 30
2022
Mar 31
2022
Dec 31
2021
$
$
1,776 $
1,729 $
1,695 $
1,775 $
600
587
576
573
2,376 $
2,316 $
2,271 $
2,348 $
916
2,393
138%
101%
933
2,366
137%
101%
1,001
2,363
139%
101%
1,074
2,410
142%
105%
1,898
591
2,489
1,115
2,508
144%
107%
The modest increase in the LICAT ratios in the fourth quarter are due to strong net income offset by reduced surplus
allowances and shareholder dividends. Surplus allowances are provisions for conservatism in the actuarial liabilities.
Their value was reduced due to higher discount rates linked to higher market interest rates. This overall increase is
offset by an increase in the base solvency buffer (BSB). The BSB value increased slightly in the quarter as new
business is acquired, resulting in reducing the LICAT ratios.
Other Comprehensive Income
(in millions of dollars)
OCI, attributable to shareholders
OCI, attributable to policyholders
Total other comprehensive income
Fourth quarter
Year
2022
2021
2022
2021
$
$
—
$
1
1
$
14
—
14
$
$
(164) $
(4)
(168) $
(23)
1
(22)
Other comprehensive income (OCI) decreased in 2022 primarily due to higher unrealized fair value losses on AFS
investments. The loss on these components of OCI was primarily due to increases in interest rates and credit spreads
during 2022. The OCI loss was partially offset by a gain on the remeasurement of the post-employment defined
benefit plans.
Re-measurement of defined benefit pension plans does not immediately impact LICAT as each quarter’s
remeasurement gain or loss is amortized over 12 quarters for LICAT purposes.
Empire Life - Annual Report 2022
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
IFRS 17 Insurance Contracts ("IFRS 17") and IFRS 9 Financial Instruments ("IFRS 9") to be Adopted in 2023
For periods beginning on or after January 1, 2023, the Company will be adopting IFRS 17, which replaces IFRS 4
Insurance Contracts. IFRS 17 establishes the principles for the recognition, measurement, presentation and
disclosure of insurance contracts. Effective January 1, 2023, we will also be adopting IFRS 9, which replaces IAS 39
Financial Instruments: Recognition and Measurement.
IFRS 17
IFRS 17 replaces IFRS 4 for Insurance Contracts for annual periods beginning on January 1, 2023, with a transition
date of January 1, 2022. Up to and including December 31, 2022, the insurance industry has been permitted to
continue using IFRS 4 and the Canadian Asset Liability Method (CALM) to measure insurance contract liabilities.
IFRS 17 will change the fundamental principles used by the Company for recognizing and measuring insurance
contracts. In addition, IFRS 17 will change the presentation of the Company’s financial statements and related note
disclosures.
The primary principles of IFRS 17 are that the Company:
•
•
Identifies insurance contracts as those under which the Company accepts significant insurance risk from
another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future
event (the insured event) adversely affects the policyholder.
Recognizes profit from a group of insurance contracts over the period that insurance coverage is provided, as
the Company is released from risk. If a group of insurance contracts is expected to be onerous (loss making)
over the remaining coverage period, losses are recognized immediately.
• Measures insurance contract liabilities as the total of the following measurement components:
a) the best-estimate liability (BEL);
b) a risk adjustment (RA); and
c) the contractual service margin (CSM)
IFRS 9
Financial asset classification is based on the cash flow characteristics and the business model in which an asset is
held. The classification determines how a financial instrument is accounted for and measured. IFRS 9 includes three
measurement categories for financial assets:
1. Measured at amortized cost
2. Fair Value Other Comprehensive Income (FVOCI)
3. Fair Value Through Profit and Loss (FVTPL)
Most financial assets are designated as FVTPL under IAS 39 and will continue to be measured at FVTPL under IFRS
9.
Equity investments that are classified as available for sale under IAS 39 will be measured at FVTPL under IFRS 9.
Mortgages and loans measured at amortized cost under IAS 39 will be designated as FVTPL under IFRS 9. Some
investment contracts that were treated as insurance under IFRS 4 will be treated as financial liabilities under IFRS 9.
Investment contracts will be designated as FVTPL under IFRS 9.
Because the majority of financial assets are measured at fair value both before and after the transition to IFRS 9, the
new classification requirements will not have a material impact on total equity upon adoption.
IFRS 9 replaces the incurred loss impairment model in IAS 39 with a forward-looking expected credit loss
impairment model. After adoption of IFRS 9, the majority of financial assets will be reported at FVTPL so the
expected credit loss model will not have a significant impact.
Empire Life - Annual Report 2022
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
Transition
Changes in accounting policies resulting from the adoption of IFRS 17 will be applied using a full retrospective
approach where practicable. If it is impracticable to apply the full retrospective approach, then the Company can
choose between the modified retrospective approach and the fair value approach. For group insurance contracts the
full retrospective approach was applied. For all other insurance business, the fair value approach was applied.
At the date of transition, the Company derived its actuarial liabilities and CSM in accordance with the requirements of
the standard. The Company currently expects the CSM (expected future profits) to be in the range of $1.1 billion to
$1.4 billion, and the impact on retained earnings to be a reduction in the range of $300 million to $500 million.
These assessments are preliminary as the Company is still finalizing implementation and testing of controls over
financial reporting. The new accounting policies, judgements and estimations are subject to change until Q1 2023
financial statements are finalized.
For additional information on IFRS 17 refer to and note 2(w) in the audited consolidated financial statement for the
year ended December 31, 2022.
Industry Dynamics and Management’s Strategy
Empire Life’s operations are organized by product line with each line of business having responsibility for product
development, product pricing, marketing, distribution and customer service within their particular markets. This
structure recognizes that there are distinct marketplace dynamics in each of the three major product lines.
Management believes this structure enables each line of business to develop strategies to achieve the enterprise-
wide objectives of business growth and expense management while recognizing the unique business environment in
which each operates. The lines of business are supported by corporate units that provide administrative and
technology services to the lines of business, manage invested assets, and oversee enterprise risk management
policies.
Based on general fund and segregated fund assets, Empire Life is among the 10 largest life insurance companies in
Canada. Empire Life has approximately 6% market share of segregated funds, 6% market share for employee
benefits and 2% market share for new life insurance premiums. To be priced competitively in the marketplace while
simultaneously providing acceptable long-term financial contribution to shareholders, Empire Life, as a mid-sized
company, must find a way to continue to be cost competitive with the larger companies that have some natural
economy of scale advantages. Empire Life has focused exclusively on the Canadian marketplace and, within it, on
particular market segments where management feels there are opportunities to build solid, long-term relationships
with its distribution partners by offering competitive products and more personal service. By focusing on particular
market segments and by being seen by these independent advisors as a viable alternative to broadly focused
competitors, management believes these solid relationships will enable profitable growth. Across all business lines,
Empire Life is focused on growth and diversification of distribution as well digital enablement and adoption, all while
maintaining personalized service.
The Wealth Management product line at Empire Life is comprised of segregated fund products, guaranteed interest
products and mutual funds. These products compete against products offered by a variety of financial institutions. A
key element of any competitive strategy in this market is providing a competitive rate of return to customers. The
value-oriented equity investment strategy used by Empire Life has focused on developing long-term performance in
the fund marketplace. Management will continue to improve competitiveness by focusing on long-term performance,
providing low-cost products to customers along with broadening distribution reach. Empire Life continues to achieve
strong growth in assets under management from its segregated fund business as a result of net new sales and equity
market appreciation. Empire Life is continuing to monitor and manage guaranteed minimum withdrawal benefit
(GMWB) risk exposure and the competitive landscape for this product.
Empire Life - Annual Report 2022
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
Within the broader employee benefits marketplace in Canada, Empire Life continues to focus on the small group
employer market with fewer than 200 employees, representing the majority of Canadian companies. This niche
strategy, coupled with an ongoing focus on balancing growth and profit, has enabled Empire Life to be cost
competitive within this market segment and is expected to enable this product line to grow its market share while
generating acceptable returns.
Individual Insurance products are very long-term in nature and consequently can be subject to new business strain.
New business strain occurs when the provisions for adverse deviation included in the actuarial policy liabilities
exceeds the profit margin in the product pricing. At current reinsurance price levels in the Canadian marketplace, a
company may reduce new business strain and improve profitability in the short term by opting to increase the amount
of insurance risk reinsured to third parties. Mortality trends continue to be favourable for life insurance products. Low
long-term interest rates continue to have an unfavourable impact on this product line. In the past few years, industry
prices for longer term life insurance products have increased. Empire Life has also increased prices for these
products and has focused its growth efforts on shorter term products, such as 10-year renewable term life insurance.
Because of the reasonable long-term returns of this product line, management continues to focus on steady growth,
technology development and process improvement to continue to have a cost structure that allows the Company to
compete while generating an acceptable long-term financial contribution. Empire Life is continuously reviewing its
Individual Insurance product mix to improve profitability, reduce interest rate risk, reduce required regulatory capital,
develop web-based products and processes, and improve the customer and advisor experience.
Risk Management
Empire Life is a financial institution offering wealth management, employee benefits and individual insurance
products. The Company is exposed to a number of risks as a result of its business activities. The goal of the
Company’s risk management program is to ensure that risk-taking activities are aligned with its strategy, in order to
achieve business goals and deliver acceptable shareholder returns. When making decisions about risk taking and risk
management, Empire Life considers:
•
•
•
•
The need to meet the expectations of its customers, employees, shareholders and creditors and to protect the
commitments that have been made to them;
The need to be adequately compensated for the capital it deploys to support business activities and strategic
objectives;
The need to protect its brand, which includes building and maintaining trust, fair treatment of its customers,
consideration of corporate social responsibility, and embedding sustainability into its strategic plans; and
The need to maintain (or improve) its external financial strength rating.
Empire Life’s risk appetite defines the aggregate level of risk the Company is willing to take to achieve its business
strategies. The risk appetite supports the pursuit of sustainable shareholder value but does not compromise the
Company’s ability to pay claims and fulfil policyholder commitments.
Empire Life’s risk management framework is structured based on a number of guiding principles:
•
•
•
•
Due to the long-term nature of the majority of its commitments, the Company accepts capital market risk
provided it is managed within specific risk tolerances and limits. The Company takes a low-risk, value-oriented
approach to managing its investments - it accepts credit and alternative asset risk provided it is rewarded
through appropriately enhanced returns;
The Company manages liquidity across the business to provide a high level of confidence that all obligations
(to customers, employees, creditors and shareholders) will be met when they fall due;
The Company accepts product risks provided they are properly priced and managed to deliver value to its
customers and shareholders;
The Company is forward-looking in its business planning and takes a prudent approach to capital
management. It strives to have a high level of confidence that capital is sufficient to support planned future
activities;
• Management is active in industry committees and, through a network of oversight functions, monitors the
landscape so that the Company is appropriately positioned to manage regulatory, tax, accounting and
actuarial changes;
Empire Life - Annual Report 2022
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
•
•
The Company accepts that operational risks are a part of doing business and knows that risk management is
a key part of decision-making. It protects its business and customers by engaging in cost-effective risk
mitigation, and
The Company expects ethical conduct by all of its employees, and it acts with integrity at all times.
The Board of Directors oversees and monitors Empire Life’s risk management framework, processes and practices,
and reviews and approves the Company’s Enterprise Risk Management Framework and overall risk appetite. Senior
management shares responsibility and accountability for risk management across the organization. This enables a
cross-functional perspective on risk management, enhanced by the frequency of contact across the management
team. The Company has an Asset Management Committee with responsibility for overseeing the management of
corporate policies established by both the Investment Committee and Risk and Capital Committee of the Board, with
specific focus on market, credit and liquidity risk including asset/liability management as well as capital management.
The Product Management Review Committee is responsible for overseeing management of corporate policy
established by the Risk and Capital Committee of the Board, with specific focus on product risk. Activities not
delegated to one of these two committees remain under the oversight of senior management. More information
related to governance can be found under the Corporate Governance over Risk Management section of Empire Life’s
2022 Annual Report. The Chief Risk Officer is a member of the Asset Management Committee and Product
Management Review Committee and has Board reporting responsibility with respect to risk and capital management,
the latter of which is shared with the Chief Actuary. All risk management policies and procedures are regularly
reviewed for relevance and changes in the risk environment. Accountability, application, day-to-day management and
procedural elements are the responsibility of area management, supported by business unit compliance officers,
security champions and the risk management department. There is senior management representation and oversight
on various interdisciplinary risk committees. The Company formally establishes and documents its values and risk
tolerances through several company-wide policies including a code of business conduct, corporate disclosure
principles, enterprise risk management, capital management and whistleblower policies. The Company’s strategic risk
management policies (including those related to product design and pricing, investment and capital management) are
also approved by its Board, or a Board committee. Subsidiaries have adopted practices for risks to which they are
exposed, appropriate to their business plan, and have access to Empire Life’s oversight functions to assist and
support them.
Caution Related to Sensitivities
In the sections that follow, Empire Life provides sensitivities and risk exposure measures for certain risks. These
include sensitivities due to specific changes in market prices and interest rates, based on market prices, interest rates,
assets, liabilities and business mix in place as at the calculation dates. The sensitivities are calculated independently
for each risk factor, assuming that all other risk variables remain constant. The sensitivities do not take into account
indirect effects such as potential impacts on goodwill impairment or valuation allowances on deferred tax assets.
Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or
distribution of market shocks, the interaction among these factors when more than one factor changes; changes in
actuarial and investment return and future investment activity assumptions; actual experience differing from the
assumptions; changes in business mix, effective tax rates and other market factors; and the general limitations of
Empire Life’s internal models used for purposes of these calculations. Changes due to new sales or maturities, asset
purchases/sales, or other management actions could also result in material changes to these reported sensitivities.
For these reasons, the sensitivities should only be viewed as directional estimates of the underlying sensitivities for
the respective factors based on the assumptions outlined and should not be viewed as predictors for Empire Life’s
future net income, OCI, and capital sensitivities. Given the nature of these calculations, Empire Life cannot provide
assurance that the actual impact will be consistent with the estimates provided. Changes in risk variables in excess of
the ranges illustrated may result in other than proportionate impacts.
Empire Life - Annual Report 2022
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
Significant Developments
The global economy saw a strong recovery through the first part of 2022, supported by gradual easing and reversal of
public health restrictions related to the COVID pandemic, accommodating central bank monetary and fiscal policies,
strong household and corporate balance sheets and large amounts of consumer demand. These factors led to large
increases in inflation which triggered re-assessment of policy setting in many central banks, including Canada.
Interest rates are now at levels not seen for over a decade. The second half of 2022 has been characterized by
significant volatility across global markets. COVID risks remain, but many countries are now treating COVID as
endemic, suggesting that further variants will be countered with far less stringent public health restrictions. The
Company continues to adjust its operations, where necessary, as government restrictions and measures evolve.
Continued economic and political uncertainty, including international conflicts, may give rise to increased business
and strategic risks. In addition, adverse economic conditions often arise in conjunction with volatile and deteriorating
market conditions which may have an adverse impact on customer behaviour, sales and future financial results.
The Company has considered these events and their effects when applying the measurement techniques for critical
accounting estimates and judgments provided in Note 2(c). The potential effects on the Company's financial results
due to fluctuations in equity markets and interest rates are provided in Note 28(a).
Acquisition
On March 10, 2022, the Company acquired 100% of the shares of six financial services firms and amalgamated them
into one wholly-owned subsidiary of Empire Life under the name TruStone Financial Inc. ("TruStone Financial"). The
six purchased agencies are Life Management Financial Group Ltd., LMF Investor Services Inc., Paradigm Financial
Advisors (North) Inc., Paradigm Financial Advisors Inc., Dwight Goertz & Associates Insurance Agency Limited, and
Pacific Place Financial Services Inc. The acquisitions support the Company's commitment to facilitating access to
independent financial advice for Canadians.
Market Risk
Empire Life has equity market risk related to its segregated fund products and from equity assets backing life
insurance liabilities. Empire Life has a semi-static hedging program. The objective of the hedging program is to
partially protect the Company from regulatory capital (LICAT) ratio declines that might result from adverse stock
market price changes. The hedging program may employ derivatives positions including put options and futures. The
extent of derivatives used is monitored and managed on an ongoing basis, giving consideration to equity market risk
and the level of available capital.
There is income statement volatility from this hedging program. Based on current equity market levels, Empire Life
has required capital for LICAT purposes and policy liabilities on the statement of financial position related to
segregated fund guarantees. A byproduct of hedging LICAT exposure is net income volatility, as the gains or losses
from hedging instruments are not necessarily offset by changes in policy liabilities related to segregated fund
guarantee risk as a result of the use of "zero floor", explained further below. For the year, Empire Life experienced a
loss of $6 million after tax primarily due to realized fair value losses. This compares to a hedge loss of $15 million after
tax for 2021.
Empire Life - Annual Report 2022
28
MANAGEMENT'S DISCUSSION AND ANALYSIS
Empire Life’s LICAT ratio is also sensitive to stock market volatility, due primarily to liability and capital requirements
related to segregated fund guarantees. As of December 31, 2022, Empire Life had $8.6 billion of segregated fund
assets and liabilities. Of this amount, approximately $8.3 billion have guarantees. The following table provides a
percentage breakdown by type of guarantee.
Percentage of Segregated Fund Liabilities with:
75% maturity guarantee and a 75% death benefit guarantee
75% maturity guarantee and a 100% death benefit guarantee
100% maturity and death benefit guarantee (with a minimum of 15 years between deposit and maturity date)
Guaranteed minimum withdrawal benefit (GMWB)
Dec 31
2022
Dec 31
2021
8%
44%
7%
41%
7%
44%
7%
42%
All Empire Life segregated fund guarantees are policy-based (not deposit-based), thereby generally lowering Empire
Life’s stock market sensitivity relative to products with deposit-based guarantees. Policy-based guarantees consider
all the deposits in the customer’s policy (whether the fund value is below or above the guaranteed amount) to arrive at
an overall net guarantee payment, whereas deposit-based guarantees consider only the deposits where the fund
value is below the guaranteed amount and ignore all the deposits in the customer’s policy where the fund value is
above the guaranteed amount. Therefore, policy-based guarantees generally pay less than deposit-based
guarantees. For segregated fund guarantee insurance contract liabilities, the level of sensitivity is highly dependent on
the level of the stock market at the time of performing the sensitivity test. If period-end stock markets are high relative
to market levels at the time that segregated fund policies are issued, the sensitivity is reduced. If period-end stock
markets are low relative to market levels at the time that segregated fund policies are issued, the sensitivity is
increased.
The segregated fund regulatory capital and liability framework includes the use of "zero floors" (i.e., negative liability
amounts are not permitted so zero is used instead, as described below) and other regulatory constraints, and this
often makes the sensitivity impacts non-linear. The liabilities are the greater of: (i) the average of the amounts
determined by averaging the results from adverse economic scenarios; and (ii) zero.
Empire Life also has equity market risk related to its equity assets backing life insurance liabilities. Based on stock
market levels as at December 31, 2022 and December 31, 2021, the sensitivity of Empire Life shareholders’ net
income and LICAT Total ratio resulting from stock market increases and decreases is provided in the following table.
Sensitivity to equity risk:
Increase
Decrease
Impact on net income (in millions of dollars after tax)
20 %
10 %
10 %
20 %
30 %
As at December 31, 2022
Segregated fund guarantees
Other equity risk
Equity hedge
Total
As at December 31, 2021
Segregated fund guarantees
Other equity risk
Equity hedge
Total
$
$
$
$
$
$
2
22
(4)
20
—
40
(2)
2
10
(3)
$
(11) $
(8)
6
(87) $
(15)
20
(200)
(35)
40
9
$
(13) $
(82) $
(195)
—
19
(2)
$
(10) $
(60) $
(189)
(18)
4
(32)
12
(44)
27
$
38
$
17
$
(24) $
(80) $
(206)
Empire Life - Annual Report 2022
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
Sensitivity to equity risk:
Impact on LICAT
As at December 31, 2022
Segregated fund guarantees
Other equity risk
Equity hedge
Total
As at December 31, 2021
Segregated fund guarantees
Other equity risk
Equity hedge
Total
Increase
Decrease
20 %
10 %
10 %
20 %
30 %
17 %
— %
(2) %
15 %
11 %
— %
(2) %
9 %
9 %
— %
(1) %
8 %
5 %
— %
(1) %
4 %
(2) %
— %
1 %
(1) %
(1) %
1 %
1 %
1 %
(7) %
— %
1 %
(6) %
(7) %
1 %
2 %
(4) %
(14) %
— %
2 %
(12) %
(16) %
— %
3 %
(13) %
In 2022, Empire Life increased the segregated fund guarantee liability due to the decline in stock markets, which was
partially offset by the impact of higher interest rates. In addition, the Company reduced the size of its portfolio of equity
assets backing life insurance liabilities. These factors combined to cause a decrease in the potential negative net
income impacts of a decrease in stock markets at the end of 2022 relative to the end of 2021, along with a decrease
in the potential positive net income impacts of an increase in stock markets. These factors also caused an increase in
the potential positive LICAT ratio impacts of an increase in stock markets.
Empire Life - Annual Report 2022
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
The amount at risk related to segregated fund maturity guarantees and segregated fund death benefit guarantees,
and the resulting policy liabilities and LICAT base solvency buffer for Empire Life’s segregated funds is provided in the
following table.
Segregated Funds
Withdrawal Benefit >
Fund Value
Maturity Guarantee >
Fund Value
Death Benefit >
Fund Value
(in millions of dollars)
Fund Value
Amount
At Risk
Fund Value
Amount
At Risk
Fund Value
Amount
At Risk
Policy
Liabilities
LICAT
Capital
December 31, 2022
December 31, 2021
$
$
2,651 $
2,617 $
1,048 $
766 $
160 $
27 $
10 $
2 $
3,073 $
200 $
104 $
3 $
2 $
— $
575
658
The first six columns of the above table show all segregated fund policies where the future withdrawal benefit, future
maturity guarantee, or future death benefit guarantee is greater than the fund value. The amount at risk represents the
excess of the future withdrawal benefit, future maturity guarantee or future death benefit guarantee amount over the
fund value for these policies. The withdrawal benefit amounts in the above table relate to GMWB products. The
GMWB withdrawal benefit amount at risk represents the amount that could be paid by Empire Life to GMWB
policyholders if the net return on each GMWB policyholder’s assets is zero for the remainder of each GMWB
policyholder’s life, based on life expectancy. As at December 31, 2022, the aggregate amount at risk for all three
categories of risk was $1,162 million. At December 31, 2021, the aggregate amount at risk for these three categories
of risk was $770 million. For these three categories of risk, the amount at risk is not currently payable. Payment is
contingent on future outcomes, including fund performance, deaths, deposits, withdrawals and maturity dates.
The level of policy liabilities and required regulatory capital in the above table is calculated based on the probability
that Empire Life will ultimately have to make payment to the segregated fund policyholders for any fund value
deficiency that may exist on future payments to GMWB policyholders, or upon future maturity of the segregated fund
policies, or upon future death of the segregated fund policyholders.
In addition, Empire Life considers the sensitivity of its LICAT ratio to changes in market interest rates. The impact of
an immediate 50 basis point decrease in interest rates and a 50 basis point decrease in assumed initial reinvestment
rate (IRR) for non-participating insurance business and segregated fund guarantees for December 31, 2022 and
December 31, 2021, is shown in the table below. This assumes no change in the ultimate reinvestment rate (URR).
Sensitivity to Market Interest Rates LICAT
December 31, 2022 LICAT total ratio
December 31, 2021 LICAT total ratio
Impact of
50 bps Decrease
2%
1%
Empire Life has some policy liabilities that are linked to measures of inflation. Certain group long-term disability
contracts and a small, closed block of annuity contracts have benefit payments that are linked to an indexing formula
containing an inflation price index. These exposures are considered as part of the Company’s asset/liability
management activities and are not material.
Operational Risk
Operational risk is broadly defined as the risk of loss resulting from human error, decisions, actions or failure to act,
inadequate or failed internal processes and systems, or from external events that affect business operations.
Operational risk is naturally present in all of Empire Life’s business activities, as well as those of its subsidiaries.
Effective management of operational risk contributes to and influences the operational resilience of the Company. The
following is a further description of some operational risks and their associated risk management strategies.
Empire Life - Annual Report 2022
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) Legal and Regulatory Compliance Risk
Empire Life is governed by the Insurance Companies Act and supervised by OSFI and is also subject to various
requirements imposed by legislation and regulation in each of the provinces and territories of Canada applicable to
insurance companies and companies providing other financial services. Material changes in the regulatory framework
could have an adverse effect on Empire Life. Failure to comply with regulatory requirements or public expectations
could adversely impact Empire Life’s reputation and ability to conduct business. Empire Life is subject to litigation from
time to time, in the normal course of business, and currently has outstanding lawsuits. There can be no assurance
that the present or any future litigation will not have a material adverse effect on Empire Life.
Empire Life’s corporate compliance department, headed by the Chief Compliance Officer, oversees the regulatory
compliance framework. This framework promotes risk-based management of regulatory compliance risk and includes
Company-wide policies, operating guidelines, programs to promote awareness of laws and regulations impacting
Empire Life, ongoing monitoring of emerging compliance issues and regulatory changes and employee education
programs that include anti-money laundering and anti-terrorist financing, privacy and information security risk
management as well as reporting breaches and Empire Life’s code of business conduct. The framework is supported
by a network of business unit compliance officers as well as the corporate legal services department. Subsidiaries
maintain regulatory compliance frameworks for their respective operations with regular reporting to Empire Life’s Chief
Compliance Officer. The Chief Compliance Officer reports regularly to the Conduct Review Committee of the Board on
the state of compliance, key compliance risks and emerging regulatory trends. The General Counsel reports regularly
to the Audit Committee of the Board on litigation activity and trends for both the Company and the industry.
(2) Model Risk
Empire Life uses models to support many business functions including product development and pricing, valuation of
policy liabilities, financial planning, asset/liability management, capital management, project management, investment
analysis, risk management and advanced analytics (such as artificial intelligence, predictive modeling and decision-
making algorithms). The risk of inappropriate use or interpretation of Empire Life’s models or their output, or the use of
deficient models, data or assumptions could result in financial losses or inappropriate business decisions. Empire Life
has developed management and mitigation processes related to model use and oversight of models to limit financial,
operational and strategic impacts from misinterpretation or misuse of model results. Senior management has overall
responsibility and accountability for models in use to support activities within their business area. The Chief Risk
Officer reports regularly to senior management and the Risk and Capital Committee of the Board on model use and
related oversight activities.
(3) Human Resources Risk
Competition for qualified employees, including executives, is intense both in the financial services industry and non-
financial industries. If Empire Life is unable to retain and attract qualified employees and executives, and is unable to
maintain and effectively deploy resources with the in-depth knowledge and necessary skills needed to support
business activities, the results of its operations and financial condition, including its competitive position, could be
adversely affected. To mitigate this risk, Empire Life has human resources policies, processes and practices in place.
Management reports regularly to the Human Resources Committee of the Board on recruitment, workforce and
succession planning, employee development, and diversity and inclusion program initiatives, as well as compensation
practices and programs, all of which are designed to attract, motivate and retain a highly skilled workforce whose
differences, stories, experiences and ideas contribute to high-performing, high-potential employees. Empire Life is
committed to cultivating a diverse, engaged and sustainable organization while building an inclusive community.
(4) Third-Party Risk
Empire Life obtains many different types of services from a number of third-party service providers and has
outsourced certain business functions or processes to third parties. Should these third parties fail to deliver systems
and/or services in compliance with contractual or other service arrangements, Empire Life’s business may be
adversely impacted. To mitigate this risk, Empire Life has established policies and guidelines that set out requirements
to identify, assess, manage, monitor, and report on third-party risks commensurate with the risks associated with the
service provider and the nature of the arrangement. Quarterly reporting is provided to the Risk and Capital Committee
of the Board. Annually, management reports to the Conduct Review Committee of the Board on outsourcing activities
including details on those arrangements deemed to be most material to Empire Life.
Empire Life - Annual Report 2022
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
(5) Technology and Information Security Risk
Empire Life relies on technology in virtually all aspects of its business and operations, including the creation and
support of new products and services, and the nature of life insurance business necessitates a substantial investment
in technology. The Chief Technology Officer is responsible for the digital and data technology strategy for the
Company and oversees technology initiatives and transformation projects and reports regularly to the IT Oversight
Committee of the Board on strategic information technology-related project, initiatives and technology architecture.
Operational integrity, data integrity and security of information and systems infrastructure are all relied upon for normal
business operations. Disruptions due to system failure, information security breaches, privacy breaches, cyber-
attacks, human errors, criminal activity, fraud or the loss of certain software licensing agreements could have a
material adverse impact on Empire Life.
Information security breaches, including various forms of cyber-attack, could occur and may result in inappropriate
disclosure or use of personal or confidential information. To mitigate this risk, Empire Life has an information security
program overseen by the Chief Information Security Officer, who reports regularly to the IT Oversight Committee of
the Board and at least annually to the Risk and Capital Committee of the Board. This program is comprised of
standards, procedures and guidelines focused on management of cybersecurity risk and maintenance of the security
and integrity of the data entrusted to Empire Life. An incident management process is in place for monitoring and
managing security events.
Privacy breaches could occur and may result in unauthorized disclosure or use of private and confidential information.
To manage this risk, Empire Life has a privacy program overseen by the Chief Privacy Officer. The program includes
policies and standards, ongoing monitoring of emerging privacy legislation and a network of business unit privacy
officers. Processes have been established to provide guidance to employees on the handling of personal information
and the reporting of privacy incidents and issues to appropriate management for response and resolution. The Chief
Privacy Officer reports regularly to the Conduct Review Committee of the Board on privacy and data security risks and
emerging trends.
(6) Business Continuity Risk
Empire Life has an enterprise-wide business continuity and disaster recovery program overseen by the Business
Continuity Management Committee and senior management. The program includes policies, plans and procedures
designed so that, to the extent practically possible, key business functions can continue and normal operations can
resume effectively and efficiently should a major disruption of key business functions occur as a result of an event,
including pandemic, impacting the availability of trained employees, physical locations to conduct operations and/or
access to technology. Each business unit is accountable for preparing and maintaining detailed business continuity
plans and processes. Empire Life establishes and regularly tests business continuity and disaster recovery plans and
maintains services and failover capability designed to minimize downtime and accelerate system recovery. The
Business Continuity Management Committee Chair reports at least annually to the Risk and Capital Committee of the
Board on business continuity preparedness and operational resiliency.
Business and Strategic Risk
Business and strategic risk includes risks related to the uncertainty in future earnings and capital related to the
potential inability to implement appropriate business plans and strategies, make decisions and allocate resources,
risks related to the economic, political or business environment, that may impact distribution channels and customer
behaviour, such as the competitive landscape, regulatory and tax changes or changes in accounting and actuarial
standards; risks to our brand and; environmental and social risks. Empire Life and its subsidiaries regularly review and
adapt its business strategies and plans in consideration of changes in the external business environment, economic,
political and regulatory environment. Empire Life’s financial performance is dependent upon its ability to implement
and execute business strategies and plans for growth.
Empire Life - Annual Report 2022
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
There is alignment across the Company's business strategies and plans and its risk appetite, capital position and
financial performance objectives. Empire Life periodically reassesses risk appetite taking into consideration the
economic, regulatory and competitive environments in which it operates. The current environment requires Empire
Life to adapt rapidly to new opportunities and challenges and to refine its strategies accordingly. If Empire Life fails to
revise its strategies on a timely basis or adapt to the changing environment, it may not be able to achieve its growth
objectives.
Empire Life’s business strategies and plans are dependent on the successful execution of organizational and strategic
initiatives designed to support the growth of its business. The ability to effectively manage these changes and
prioritize initiatives directly affects Empire Life’s ability to execute these strategies. Identifying and implementing the
right set of initiatives is critical to achieving Empire Life’s business plan targets. Failure to implement these initiatives
could also lead to cost structure challenges.
Successful execution of Empire Life’s business strategies and plans depends on a number of factors including its
ability to (i) generate sufficient earnings to maintain an adequate level of capital; (ii) generate sustained investment
performance; (iii) meet regulatory requirements; (iv) manage risk exposures effectively; (v) attract and retain
customers, employees and distributors;(vi) have the right set of products; and (vii) reduce operating expenses while
maintaining the ability to hire, retain and motivate key personnel.
Empire Life’s business and strategic plans are reviewed and discussed by its senior management team and are
subject to approval by the Board of Directors, which also receives regular updates on implementation progress
against key business plan objectives. The Board and its subcommittees receive regular updates on key risks.
Environmental and Social Risk
Empire Life’s business strategies are influenced by attitudes towards societal issues. Factors such as diversity, equity
and inclusion and climate change are considered as part of the strategic planning process and are reflected in Empire
Life’s risk management program and associated policies. Collectively referred to as “ESG” (environmental, social,
governance), these risks are not a stand-alone risk category, but rather underlie all risk categories (credit, market,
liquidity, product, operational and business and strategic). As such, processes for managing them are embedded in
the processes for managing each risk category.
As a long-term oriented underwriter and investor, Empire Life’s financial performance, operations and reputation may
be adversely affected if it does not adequately prepare for the direct or indirect negative impacts of environmental and
social risks. Environmental risk reflects events and developments related to impacts of climate change and the
transition to a lower-carbon economy that may include increased frequency and severity of natural or human-made
environmental disasters, longer-term shifts in climate patterns, emerging regulatory and public policy developments,
and their impacts on the Company’s operations, invested assets, suppliers, customers and reputation. Social risk
includes public health issues and issues of inequality. Awareness and concern about mental health and well-being
was amplified throughout the pandemic. The Company remains committed to improving health outcomes, including
physical and mental well-being, for both its employees and customers through expansion of health products and
related services.
Empire Life’s investment management team integrates ESG considerations in their investment decision-making for
Company and customer assets. The Company is committed to diversity and inclusion and has reviewed its policies
and practices to ensure equity and clarity. The Company is actively monitoring environmental, social and sustainability
developments and has initiated efforts to embed ESG practices in all aspects of its business. Management reports
regularly to the Board on emerging issues and related progress, recognizing that its strategy will evolve over time,
building on experience and external developments. Additional information may be found in the Company’s annual
Public Accountability Report, available at empire.ca/about-us/community.
Empire Life - Annual Report 2022
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
Pandemic Risk
Pandemics, epidemics or outbreaks of an infectious disease in Canada or worldwide could have an adverse impact
on Empire Life’s business, including changes to the way it operates, and on financial results and condition. The
COVID-19 pandemic and the measures imposed by governments around the world to limit its spread disrupted the
global economy, financial markets, supply chains, business activity and productivity in unprecedented ways. While
COVID risks remain, many countries are now treating COVID as endemic, suggesting that further variants will be
countered with far less stringent public health restrictions. Empire Life continues to adjust its operations, where
necessary, as government restrictions and measures evolve.
The Company has taken proactive measures through its business continuity plans and normal operations have
continued effectively. Processes supporting ongoing systems availability, stability and security are being monitored
closely and are operating effectively. The majority of employees continue to work from home and associated
strategies continue to operate effectively.
The continuing or worsening of the economic and market conditions caused by the COVID pandemic, and its impact
on customers, industries and individual countries could have a material adverse effect on our future financial results
and may also have the effect of heightening other risk categories (credit, market, liquidity, product and operational).
Sustained adverse effects could negatively impact net income and our financial condition.
In addition to the discussion of risks included in this MD&A, a comprehensive discussion of the material risks that
impact Empire Life is included in Empire Life’s Annual Information Form available at www.sedar.com. Additional
disclosures of Empire Life’s sensitivity to risks are included in note 28 to the 2022 consolidated financial statements.
Disclosure Controls and Procedures
Empire Life’s disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by Empire Life under Canadian securities laws is recorded, processed, summarized and
reported within the specified time periods, and include controls and procedures that are designed to ensure that
information is accumulated and communicated to management on a timely basis to allow appropriate decisions
regarding public disclosure. Under the supervision of management, an evaluation was carried out on the effectiveness
of Empire Life’s disclosure controls and procedures as of December 31, 2022. Based on that evaluation, management
concluded that Empire Life’s disclosure controls and procedures were effective as at December 31, 2022.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with IFRS. Under the supervision of management, an
evaluation of Empire Life’s internal control over financial reporting was carried out as at December 31, 2022. Based
on that evaluation, management concluded that Empire Life’s internal control over financial reporting was effective as
at December 31, 2022. No changes were made in Empire Life’s internal control over financial reporting during the
year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, Empire
Life’s internal control over financial reporting.
Critical Accounting Estimates
Empire Life’s significant accounting policies are described in note 2 to the consolidated financial statements. Certain
of these policies require management to make estimates and assumptions about matters that are inherently
uncertain. The most critical of these accounting estimates for Empire Life are the valuation of policy liabilities, financial
instrument classification, pension and other employee future benefits and the determination of allowances for
impaired investments.
Empire Life - Annual Report 2022
35
MANAGEMENT'S DISCUSSION AND ANALYSIS
Policy Liabilities
The determination of policy liabilities requires best estimate assumptions that cover the remaining life of the policies
for mortality, morbidity, investment returns, persistency, expenses, inflation and taxes and include consideration of
related reinsurance effects. Due to the long-term risks and measurement uncertainties inherent in the life insurance
business, a margin for adverse deviation from best estimates is included in each assumption. These margins allow for
possible deterioration in future experience and provide for greater confidence that policy liabilities are adequate to pay
future benefits. The resulting provisions for adverse deviations have the effect of increasing policy liabilities and
decreasing the income that otherwise would have been recognized at policy inception. A range of allowable margins is
prescribed by the Canadian Institute of Actuaries. Assumptions are reviewed and updated at least annually and the
impact of changes in those assumptions is reflected in earnings in the year of the change. Empire Life’s sensitivities to
risks related to policy liabilities are included in note 28 to the consolidated financial statements.
Financial Instrument Classification
Management judgment is used to classify financial instruments as fair value through profit or loss, available for sale or
loans and receivables. Most financial assets supporting insurance contract liabilities and investment contract liabilities
are designated as FVTPL. Most financial assets supporting capital and surplus and participating accounts are
classified as AFS. Loans and receivables support both contract liabilities and capital and surplus. The designation of a
financial instrument as FVTPL or AFS dictates whether unrealized fair value changes are reported in net income or
other comprehensive income. Additional information regarding financial instrument classification is included in notes
2(d), 3(a), 3(b), and 11(c).
Pension and Other Employee Future Benefits
Pension and other employee future benefits expense is calculated by independent actuaries using assumptions
determined by management. The assumptions made affect the pension and other employee future benefits expense
included in net income. If actual experience differs from the assumptions used, the resulting experience gain or loss is
recorded in OCI. Additional information regarding pension and other employee future benefits is included in notes 2(l),
and 13.
Provision for Impaired Investments
Empire Life maintains a prudent policy in setting the provision for impaired investments. When there is no longer
reasonable assurance of full collection of loan principal and loan interest related to a mortgage or policy contract loan,
management establishes a specific provision for loan impairment and charges the corresponding reduction in carrying
value to income in the period the impairment is identified. In determining the estimated realizable value of the
investment, management considers a number of events and conditions. These include the value of the security
underlying the loan, geographic location, industry classification of the borrower, an assessment of the financial
stability of the borrower, repayment history and an assessment of the impact of current economic conditions. Changes
in these circumstances may cause subsequent changes in the estimated realizable amount of the investment and
changes in the specific provision for impairment.
Available for sale securities are subject to a regular review for losses that are significant or prolonged. Objective
evidence of impairment exists if there has been a significant or prolonged decline in the fair value of the investment
below its cost or if there is a significant adverse change in the technological, market, economic or legal environment in
which the issuer operates or the issuer is experiencing financial difficulties.
Empire Life - Annual Report 2022
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
Outlook
Asset markets performed poorly in 2022. Stocks tumbled. Bonds were hit by one of their worst selloffs ever. Global
stocks and bonds lost more than $30 trillion over the year. The losses came after central banks, led by the US Federal
Reserve, executed their most aggressive interest rate increases since the 1980s to control the worst inflation in
decades. The rising inflation, interest rate hikes, war in Ukraine, and fear of a recession triggered the heaviest losses
in capital markets since the global financial crisis in 2008. Interest rates shifted up across the yield curve while short-
term yields moved up higher than that of long-term. Government of Canada 10-year bond yields more than doubled,
rising from 1.45% to 3.30%, while the 2-year yields more than quadrupled, going from 0.95% to 4.05% by the end of
the year, making the yield curve deeply inverted; which implies a possible recession on the horizon.
The S&P 500 Index finished the year down 12.2%, and its Canadian counterpart, the S&P/TSX Composite Index was
down 5.8%. Internationally, the MSCI EAFE index ended the year down 7.8%. Despite a strong surge towards the end
of the year, the MSCI Europe Index ended the year down 8.3%. Stock market conditions impact the in-force profit
margins and new business growth for the segregated fund portions of Empire Life’s Wealth Management product line.
Looking forward to 2023, there will likely be many challenges for both the global economy and investors. Recent
indicators show inflation has likely peaked especially in Canada, but further central bank tightening outside Canada is
expected in the first half of the year. So, some challenges might ease up in the second half of the year if inflation
calms down and monetary policies loosen up.
Investor focus will likely be on central banks, particularly the U.S. Federal Reserve, for signs on when there may be a
change in policy. All these moving parts, interest rate, inflation, unemployment rate, and GDP growth, suggest 2023 to
be another uncertain year for investors.
Empire Life investment strategies across product lines reflect the Company's cautious view of the current
environment. The Company is taking a defensive stance in the selection of investee companies, by keeping more
cash to deploy as opportunities arise, and diversifying its investments.
Quarterly Results
The following table summarizes various financial results on a quarterly basis for the most recent eight quarters:
(in millions of dollars, except per share amounts)
2022
2022
2022
2022
2021
2021
2021
2021
Revenue
Common shareholder's net income
$
$
362 $
380 $
(414) $
(396) $
655 $
251 $
618 $
(265)
87 $
45 $
34 $
38 $
17 $
33 $
32 $
157
Earnings per share - basic and diluted
$ 88.93 $ 45.27 $ 34.42 $ 38.69 $ 16.96 $ 33.78 $ 32.09 $ 159.82
Dec 31
Sep 30
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
Mar 31
Empire Life - Annual Report 2022
37
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements and Information
Certain statements in this MD&A about Empire Life’s current and future plans, expectations and intentions, results,
market share growth and profitability, strategic objectives or any other future events or developments constitute
forward-looking statements and information within the meaning of applicable securities laws. The words “may”, “will”,
“would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”,
“predicts”, “likely” or “potential” or the negative or other variations of these words or other comparable words or
phrases, are intended to identify forward-looking statements and information. Although management believes that the
expectations and assumptions on which such forward-looking statements and information are based are reasonable,
undue reliance should not be placed on the forward-looking statements and information because there can be no
assurance that they will prove to be correct. By their nature, such forward-looking statements and information are
subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially
from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to,
market risk including equity risk, hedging risk, interest rate risk, foreign exchange rate risk; liquidity risk; credit risk
including counterparty risk; product risk including mortality risk, policyholder behaviour risk, expense risk, morbidity
risk, product design and pricing risk, underwriting and claims risk, reinsurance risk; operational risk, including legal
and regulatory compliance risk, model risk, human resources risk, third-party risk, technology and information security
risk, and business continuity risk; and business and strategic risk, including environmental and social risk, risk with
respect to competition, risk with respect to financial strength, capital adequacy risk, risk with respect to distribution
channels, risk with respect to changes to applicable income tax legislation, risk with respect to litigation, risk with
respect to reputation, risk with respect to risk management policies, risk with respect to intellectual property, risk with
respect to significant ownership of common shares, and pandemic risk. Please see the section titled “Risk Factors” in
Empire Life’s Annual Information Form available at www.sedar.com for more details on these risks.
Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the
forward-looking statements and information include that the general economy remains stable; assumptions on interest
rates, mortality rates and policy liabilities; and capital markets continue to provide access to capital. These factors are
not intended to represent a complete list of the factors that could affect Empire Life; however, these factors should be
considered carefully, and readers should not place undue reliance on forward-looking statements made herein or in
the documents reproduced herein.
To the extent any forward-looking information in this MD&A constitutes future-oriented financial information or financial
outlooks within the meaning of securities laws, such information is being provided to demonstrate potential benefits
and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented
financial information and financial outlooks are, without limitation, based on the assumptions and subject to the risks
set out above.
The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.
When relying on Empire Life’s forward-looking statements and information to make decisions, investors and others
should carefully consider the foregoing factors, assumptions and other uncertainties and potential events. Readers
are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof or
the date indicated, and to not use such forward-looking information for anything other than its intended purpose.
Empire Life undertakes no obligation to update publicly or revise any forward-looking statements and information,
whether as a result of new information, future events or otherwise after the date of this document, except as required
by law.
Empire Life - Annual Report 2022
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
Non-IFRS Measures
Empire Life uses non-IFRS measures including return on common shareholders’ equity, source of earnings, assets
under management, annualized premium sales, gross and net sales for mutual funds, segregated funds and fixed
annuities to provide investors with supplemental measures of its operating performance and to highlight trends in its
core business that may not otherwise be apparent when relying solely on IFRS financial measures. Empire Life also
believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the
evaluation of issuers. Empire Life’s management also uses non-IFRS measures to facilitate operating performance
comparisons from period to period, to prepare annual operating budgets and to determine components of
management compensation. Empire Life believes that these measures provide information useful to its shareholders
and policyholders in evaluating the Company's underlying financial results.
Return on common shareholders’ equity is a profitability measure that is not prescribed under IFRS and a
comparable measure under IFRS is not available. Empire Life calculates this measure as the net income available to
common shareholders as a percentage of the average capital deployed to earn the income.
Sources of earnings breaks down Empire Life’s earnings into several categories which are useful to assess the
performance of the business. These categories include expected profit from in-force business, impact of new
business, experience gains and losses, management actions and changes in assumptions, and earnings on surplus.
The sources of earnings components are reconciled to net income. See the Overview section earlier in this report.
Annualized premium sales is used as a method of measuring sales volume. It is equal to the premium expected to
be received in the first 12 months for all new individual insurance and employee benefit policies sold during the
period. For segregated funds and annuity contracts, sales include new and renewal deposits to policy contracts. Net
sales in the Wealth Management line reflect the gross sales less the effect of redemptions and surrenders.
Assets under management is a non-IFRS measure of the assets managed by Empire Life, which includes general
fund assets, mutual fund assets and segregated fund assets. It represents the total assets of Empire Life and the
assets its customers invest in.
The following table provides a reconciliation of assets under management to total assets in Empire Life’s financial
statements.
Reconciliation of Assets Under Management
As at
(in millions of dollars)
Assets Under Management
General fund assets
Segregated fund assets
Total assets per financial statements
Mutual fund assets
Assets under management
December 31, 2022 December 31, 2021
$
$
8,738 $
8,566
17,304
16
17,320 $
10,273
9,257
19,530
114
19,644
The previous table includes the following amounts held by Empire Life’s defined benefit (DB) pension plans.
As at
(in millions of dollars)
DB plan assets
Segregated fund assets
Mutual fund assets
December 31, 2022 December 31, 2021
$
209 $
16
223
17
Empire Life - Annual Report 2022
39
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements in this annual report have been prepared by management, who is responsible
for their integrity, objectivity and reliability. This responsibility includes selecting and applying appropriate accounting
policies, making judgments and estimates, and ensuring information contained throughout the annual report is
consistent with these statements. The consolidated financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS) and the accounting requirements of the Office of the Superintendent of
Financial Institutions, Canada (OSFI).
The Company maintains a system of internal control over financial reporting which is designed to provide reasonable
assurance that assets are safeguarded, expenditures are made in accordance with authorizations of management
and directors, transactions are properly recorded, and the financial records are reliable for preparing the consolidated
financial statements in accordance with (IFRS). Under the supervision of management, an evaluation of the
effectiveness of the Company’s internal control over financial reporting was carried out as at December 31, 2022.
Based on that evaluation, management concluded that the Company’s internal control over financial reporting was
effective as at December 31, 2022.
The Board of Directors, acting through the Audit Committee which is comprised of directors who are not officers or
employees of the Company, oversees management’s responsibility for financial reporting and for internal control
systems. The Audit Committee is responsible for reviewing the consolidated financial statements and annual report
and recommending them to the Board of Directors for approval. The Audit Committee meets with management,
internal audit and the external auditors to discuss audit plans, internal controls over accounting and financial reporting
processes, auditing matters, and financial reporting issues.
The Appointed Actuary is appointed by the Board of Directors and is responsible for ensuring that the assumptions
and methods used in the valuation of the policy liabilities are in accordance with accepted actuarial practice and
regulatory requirements. The Appointed Actuary is required to provide an opinion regarding the appropriateness of the
policy liabilities at the consolidated statement of financial position date to meet all policyholder obligations of the
Company. Examination of supporting data for accuracy and completeness and analysis of Company assets for their
ability to support the amount of policy liabilities are important elements of the work required to form this opinion. The
Appointed Actuary is also required each year to analyze the financial condition of the Company and prepare a report
for the Board of Directors. The analysis tests the capital adequacy of the Company under adverse economic and
business conditions for the current year and the next four years.
PricewaterhouseCoopers’ responsibility as external auditor is to report to the policyholders and shareholders
regarding the fairness of presentation of the Company’s annual consolidated financial statements. The external
auditors have full and free access to, and meet periodically with, the Audit Committee to discuss their audit. The
Independent Auditor’s Report outlines the scope of their examination and their opinion.
Mark Sylvia
Rebecca Rycroft
President and Chief Executive Officer
Kingston, Ontario
February 24, 2023
Senior Vice-President and Chief Financial Officer
Kingston, Ontario
February 24, 2023
Empire Life - Annual Report 2022
40
APPOINTED ACTUARY'S REPORT
To the Policyholders and Shareholders of The Empire Life Insurance Company
I have valued the policy liabilities and reinsurance liabilities of The Empire Life Insurance Company for its
Consolidated statements of financial position at December 31, 2022 and their change in the Consolidated statements
of operations for the year then ended in accordance with accepted actuarial practice in Canada including selection of
appropriate assumptions and methods.
In my opinion, the amount of policy liabilities net of reinsurance liabilities, makes appropriate provision for all policy
obligations and the Consolidated financial statements fairly present the results of the valuation.
Dan Doyle, FSA, FCIA, MAAA
Fellow, Canadian Institute of Actuaries
Kingston, Ontario
February 24, 2023
Empire Life - Annual Report 2022
41
INDEPENDENT AUDITOR'S REPORT
To the Policyholders and Shareholders of The Empire Life Insurance Company
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial
position of The Empire Life Insurance Company and its subsidiaries (together, the Company) as at December 31,
2022 and 2021, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated statements of financial position as at December 31, 2022 and 2021;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and other
explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with
these requirements.
Empire Life - Annual Report 2022
42
INDEPENDENT AUDITOR'S REPORT
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements for the year ended December 31, 2022. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key audit matter
Valuation of insurance contract liabilities
Refer to note 2 – Significant Accounting Policies and
note 11 – Insurance Contract Liabilities and
Reinsurance Assets/Liabilities to the consolidated
financial statements.
The Company has gross insurance contract liabilities
of $5.6 billion and reinsurance liabilities of $0.2 billion
as at December 31, 2022 on its consolidated
statement of financial position (collectively, insurance
contract liabilities). Insurance contract liabilities
represent an estimate of the amount that, together with
estimated future premiums and investment income, will
be sufficient to pay future benefits, dividends,
expenses and premium taxes on policies in force.
Insurance contract liabilities are determined using the
Canadian Asset Liability Method (CALM), as
established by the Canadian Institute of Actuaries
(CIA) (actuarial models). The CALM incorporates best-
estimate assumptions for mortality, policy lapses,
surrenders and future investment yields that require
management judgment. The assumptions are based
on experience studies, industry studies and
requirements of the CIA.
We considered this a key audit matter due to the
judgment applied by management when developing
their valuation of the insurance contract liabilities,
which in turn led to a high degree of auditor judgment
and effort in evaluating the best-estimate assumptions.
Professionals with specialized skill and knowledge in
the field of actuarial sciences assisted us in performing
our procedures.
How our audit addressed the key audit matter
Our approach to addressing the matter included the
following procedures, among others:
•
Tested how management determined the valuation of
the insurance contract liabilities, which included the
following:
– Understood management’s method (CALM) for
determining the valuation of insurance contract
liabilities.
–
Tested the operating effectiveness of relevant
controls over the completeness and accuracy of
the underlying policy data used in management’s
valuation of insurance contract liabilities.
– With the assistance of professionals with
specialized skill and knowledge in the field of
actuarial science assessed the reasonableness
of management’s best-estimate assumptions for
policy lapses, surrenders, mortality and future
investment yields by:
◦
◦
Evaluating these assumptions in accordance
with actuarial principles and requirements of
the CIA.
Evaluating experience studies conducted by
the Appointed Actuary for appropriateness
and considering the relationship of the results
with industry studies.
– With the assistance of professionals with
specialized skill and knowledge in the field of
actuarial science, tested the appropriateness of
the actuarial models used in developing the
valuation of insurance contract liabilities, by:
◦
◦
Assessing a sample of actuarial models to
ensure the correct modelling of product
features.
Assessing a sample of actuarial models to
ensure the correct application of best-
estimate assumptions for policy lapses,
surrenders, mortality and future investment
yields.
•
Tested the disclosures made in the consolidated
financial statements, particularly on the sensitivity of
best-estimate assumptions on insurance contract
liabilities.
Empire Life - Annual Report 2022
43
INDEPENDENT AUDITOR'S REPORT
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion
and Analysis, which we obtained prior to the date of this auditor’s report and the information, other than the
consolidated financial statements and our auditor’s report thereon, included in the annual report, which is expected to
be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard. When we read the information, other than the consolidated financial
statements and our auditor’s report thereon, included in the annual report, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Empire Life - Annual Report 2022
44
INDEPENDENT AUDITOR'S REPORT
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Company to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Owen Thomas.
PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 24, 2023
Empire Life - Annual Report 2022
45
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
As at December 31
Assets
Cash and cash equivalents (Note 3)
Investments
Short-term investments (Note 3)
Bonds (Note 3)
Preferred shares (Note 3)
Common shares (Note 3)
Derivative assets (Note 3)
Mortgages (Note 3)
Loans on policies (Note 3)
Policy contract loans (Note 3)
2022
2021
$
175,523 $
193,217
9,031
6,744,757
402,165
830,633
9,776
119,556
59,979
46,865
8,647
8,149,460
441,339
1,019,434
6,302
153,564
56,917
52,808
Total cash and cash equivalents and investments
8,398,285
10,081,688
Accrued investment income
Insurance receivables (Note 4)
Current income taxes
Other assets (Note 5)
Property and equipment (Note 6)
Intangible assets (Note 7)
Goodwill (Note 8)
Investment in associates
Segregated fund assets (Note 9)
Total assets
Liabilities
Accounts payable and other liabilities (Note 12)
Insurance payables (Note 10)
Reinsurance liabilities (Note 11)
Insurance contract liabilities (Note 11)
Investment contract liabilities
Policyholders' funds on deposit
Provision for profits to policyholders
Deferred income taxes (Note 19)
Subordinated debt (Note 14)
Segregated fund policy liabilities
Total liabilities
Equity
Preferred shares (Note 21)
Other equity instruments (Note 21)
Common shares (Note 21)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total equity
Total liabilities and equity
$
$
50,291
81,083
46,946
33,506
13,642
60,571
24,465
29,815
42,379
48,700
15,242
19,452
14,889
28,511
—
22,504
8,565,675
9,257,298
17,304,279 $
19,530,663
100,638 $
156,585
163,212
5,640,342
27,246
35,652
41,490
37,646
399,129
8,565,675
15,167,615
100,000
196,664
985
19,387
1,935,141
(115,513)
2,136,664
95,583
115,793
253,330
7,091,053
27,872
35,094
38,665
45,539
398,858
9,257,298
17,359,085
100,000
196,664
985
19,387
1,802,325
52,217
2,171,578
$
17,304,279 $
19,530,663
Duncan N. R. Jackman
Chairman of the Board
Mark Sylvia
President and Chief Executive Officer
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2022
46
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Canadian dollars except per share amounts and shares authorized and outstanding)
For the year ended December 31
Revenue
Gross premiums (Note 15)
Premiums ceded to reinsurers (Note 15)
Net premiums (Note 15)
Investment income (Note 3)
Fair value change in fair value through profit or loss assets
Realized gain (loss) on fair value through profit or loss assets sold
Realized gain (loss) on available for sale assets including impairment write downs (Note 3)
Fee income (Note 16)
Total revenue
Benefits and expenses
Gross benefits and claims paid (Note 17)
Claims recovery from reinsurers (Note 17)
Gross change in insurance contract liabilities (Note 17)
Change in insurance contract liabilities ceded (Note 17)
Change in investment contracts provision
Policy dividends
Operating expenses (Note 18)
Commissions
Commission recovery from reinsurers
Interest expense
Total benefits and expenses
Premium tax
Investment and capital tax
Net income before income taxes
Income taxes (Note 19)
Net income
Less: net income (loss) attributable to participating policyholders
Shareholders' net income (loss)
Less: preferred share dividends declared (Note 22)
Common shareholders' net income
Earnings per share - basic and diluted (Note 20)
(2,000,000 shares authorized; 985,076 shares outstanding)
2022
2021
$
1,339,836 $
1,182,899
(297,282)
1,042,554
358,068
(1,737,377)
20,727
(33,914)
283,136
(66,806)
865,858
(192,648)
(1,450,711)
(90,118)
1,088
39,773
202,064
281,148
(31,785)
18,898
(356,433)
22,359
3,452
263,816
53,401
$
210,415 $
1,292
209,123
4,900
204,223 $
207.32 $
$
$
(267,356)
915,543
329,693
(363,415)
105,609
(1,477)
272,774
1,258,727
789,050
(158,932)
(54,408)
(131,431)
471
36,820
176,513
265,337
(31,559)
21,472
913,333
18,229
3,822
323,343
64,409
258,934
12,849
246,085
7,049
239,036
242.66
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2022
47
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of Canadian dollars)
For the year ended December 31
Net income
Other comprehensive income (loss), net of income taxes:
Items that may be reclassified subsequently to net income:
2022
2021
$
210,415 $
258,934
Unrealized fair value change on available for sale investments (Note 19)
(217,174)
(57,228)
Fair value change on available for sale investments reclassified to net income, including
impairment write downs (Note 19)
Net unrealized fair value increase (decrease)
Items that will not be reclassified to net income:
Remeasurements of post-employment benefit liabilities (Note 19)
Total other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Participating policyholders
Shareholders
Total
24,902
(192,272)
24,542
(167,730)
1,201
(56,027)
33,961
(22,066)
$
$
$
42,685 $
236,868
(2,147) $
44,832
42,685 $
14,064
222,804
236,868
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2022
48
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands of Canadian dollars)
For the year ended December 31
2022
2021
Shareholders' Policyholders'
Total
Shareholders'
Policyholders'
Total
Preferred shares (Note 21)
$
100,000 $
Other equity instruments (Note 21)
$
196,664 $
Common shares (Note 21)
Contributed surplus
Retained earnings
985
19,387
— $
— $
—
—
100,000 $
100,000 $
196,664 $
196,664 $
985
985
19,387
19,387
— $
— $
—
—
100,000
196,664
985
19,387
Retained earnings - beginning of year
1,746,945
55,380
1,802,325
1,560,384
42,531
1,602,915
Net income (loss)
Preferred share dividends declared
Common share dividends declared
Retained earnings - end of period
209,123
(4,900)
(72,699)
1,292
210,415
246,085
12,849
258,934
—
—
(4,900)
(7,049)
(72,699)
(52,475)
—
—
(7,049)
(52,475)
1,878,469
56,672
1,935,141
1,746,945
55,380
1,802,325
Accumulated other comprehensive income (loss)
Accumulated other comprehensive
income (loss) - beginning of year
Other comprehensive income (loss)
Accumulated other comprehensive
income (loss) - end of period
49,385
(164,291)
2,832
52,217
(3,439)
(167,730)
72,666
(23,281)
1,617
1,215
74,283
(22,066)
(114,906)
(607)
(115,513)
49,385
2,832
52,217
Total equity
$
2,080,599 $
56,065 $
2,136,664 $
2,113,366 $
58,212 $
2,171,578
Composition of accumulated other comprehensive income (loss) - end of period
Unrealized gain (loss) on available for
sale financial assets
Remeasurements of post-employment
benefit liabilities
Shareholder portion of policyholders'
accumulated other comprehensive
income
Total accumulated other
comprehensive income (loss)
$
(138,962) $
(3,338) $
(142,300) $
47,840 $
2,132 $
49,972
24,288
2,499
26,787
1,397
848
2,245
(232)
232
—
148
(148)
—
$
(114,906) $
(607) $
(115,513) $
49,385 $
2,832 $
52,217
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2022
49
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
For the year ended December 31
Operating activities
Net income
Non-cash items affecting net income:
Change in contract liabilities
Change in reinsurance liabilities
Fair value change in fair value through profit or loss assets
Realized (gain) loss on assets including impairment write downs on available for sale assets
Amortization related to discount on debt instruments
Amortization related to property and equipment and intangible assets (Notes 6 & 7)
Share of loss (income) from associates
Deferred income taxes (Note 19)
Other items
Cash provided from (used for) operating activities
Investing activities
Portfolio investments
Purchases and advances
Sales and maturities
Loans on policies
Advances
Repayments
(Increase) decrease in short-term investments
Purchases of property and equipment and intangible assets (Notes 6 & 7)
Investment in associates
Dividends from associates
Acquisition of business (Note 29)
Cash provided from (used for) investing activities
Financing activities
Dividends paid to common shareholders (Note 22)
Dividends paid to preferred shareholders (Note 22)
Interest paid on subordinated debt and limited recourse capital notes issue
Issuance of subordinated debt (Note 14)
Subordinated debt redemption (Note 14)
Preferred share redemption (Note 21)
Limited recourse capital notes issue (Note 21)
Cash provided from (used for) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents - beginning of year (Note 3)
Cash and cash equivalents - end of year (Note 3)
Supplementary cash flow information related to operating activities:
Income taxes paid, net of (refunds)
Interest income received
Dividend income received
2022
2021
$
210,415 $
258,934
(1,449,623)
(90,118)
1,737,377
13,187
(76,850)
21,466
(1,466)
(16,688)
29,116
376,816
(53,937)
(131,431)
363,415
(104,132)
(71,236)
13,181
(1,323)
(2,342)
45,814
316,943
(2,091,096)
1,873,830
(2,726,524)
2,443,363
(9,107)
12,006
(384)
(19,779)
(6,340)
495
(57,910)
(298,285)
(72,699)
(4,900)
(18,626)
—
—
—
—
(96,225)
(17,694)
193,217
175,523 $
40,277 $
224,779
49,857
(8,541)
15,701
4,361
(10,845)
(150)
270
—
(282,365)
(52,475)
(9,198)
(15,508)
199,300
(200,000)
(149,500)
196,664
(30,717)
3,861
189,356
193,217
22,790
201,253
56,482
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2022
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
1. Description of Company and Summary of Operations
The Empire Life Insurance Company (the Company or Empire Life) was founded in 1923 when it was
organized under a provincial charter in Toronto, Ontario. Authorization to continue as a federal corporation was
obtained in 1987. The Company underwrites life and health insurance policies and provides segregated funds,
mutual funds and annuity products for individuals and groups across Canada. The Company is a subsidiary of
E-L Financial Corporation Limited (the Parent or E-L). The head office, principal address and registered office
of the Company are located at 259 King Street East, Kingston, Ontario, K7L 3A8. Empire Life is a Federally
Regulated Financial Institution, regulated by the Office of the Superintendent of Financial Institutions, Canada
(OSFI). Empire Life became a public company on August 5, 2015 and registered as a reporting issuer with the
Ontario Securities Commission. The Company owns 100% of the voting shares and maintains control of its
mutual fund subsidiary, Empire Life Investments Inc. (ELII), which was established in 2011. ELII became a
registered Investment Funds Manager on January 5, 2012. The head office for ELII is located at 165
University Avenue, 9th Floor, Toronto, Ontario, M5H 3B8. The Company owns 100% of the voting shares and
maintains control of its subsidiary, TruStone Financial Inc. (TSFI), which was established in 2022. The head
office for TSFI is located at 259 King Street East, Kingston, Ontario, K7L 3A8.
These Consolidated Financial Statements were approved by the Company’s Board of Directors (the Board) on
February 24, 2023.
2. Significant Accounting Policies
(a) Basis of preparation
The annual Consolidated Financial Statements of the Company for the year ended December 31, 2022
have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB).
These Consolidated Financial Statements have been prepared on a fair value measurement basis, with
the exception of certain assets and liabilities. Insurance contract liabilities and Reinsurance assets/
liabilities are measured on a discounted basis in accordance with accepted actuarial practice. Investment
contract liabilities, Mortgages, Policy contract loans and Loans on policies are carried at amortized cost.
Certain other assets and liabilities are measured on a historical cost basis, as explained throughout this
note. All amounts included in the Consolidated Financial Statements are presented in thousands of
Canadian dollars except for per share amounts and where otherwise stated. These Consolidated
Financial Statements also comply with the accounting requirements of OSFI, none of which are an
exception to IFRS.
(b) Basis of consolidation
The Company’s Consolidated Financial Statements include the assets, liabilities, results of operations and
cash flows of the Company and its subsidiaries. The Company controls an entity when the Company is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Company. They are deconsolidated from the date that control ceases.
The financial statements of subsidiaries are prepared for the same reporting period as the Company,
using consistent accounting policies. All significant inter-company transactions, balances, income and
expenses are eliminated in full on consolidation.
(c) Critical accounting estimates and judgments
The preparation of the Consolidated Financial Statements, in accordance with IFRS, requires
management to make judgments and estimates and form assumptions that affect the reported amounts of
assets and liabilities as at the date of the Consolidated Financial Statements, and the reported amounts of
revenue and expenses during the year. On an ongoing basis, management evaluates its judgments,
estimates and critical assumptions in relation to assets, liabilities, revenues and expenses. Actual results
could differ from these estimates and changes in estimates are recorded in the accounting period in which
they are determined.
Empire Life - Annual Report 2022
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The Company considers the following items to be particularly susceptible to changes in estimates and
judgments:
(i)
Insurance-related liabilities
Liabilities for insurance contracts are determined using the Canadian Asset Liability Method (CALM),
as permitted by IFRS 4 - Insurance Contracts, which incorporates best-estimate assumptions for
mortality, morbidity, policy lapses, surrenders, future investment yields, policy dividends and,
administration costs and also incorporates margins for adverse deviation. These assumptions are
reviewed at least annually and are updated to reflect actual experience and market conditions.
Changes in the best-estimate assumptions and margins for adverse deviation can have a significant
impact on the valuation of insurance related liabilities.
Additional information regarding insurance-related liabilities is included in Notes 2(e), 2(m),11 and 28.
(ii) Financial instruments classification
Management judgment is used to classify financial instruments as fair value through profit or loss
(FVTPL), available for sale (AFS) or loans and receivables. Most financial assets supporting insurance
contract liabilities and investment contract liabilities are designated as FVTPL. Most financial assets
supporting capital and surplus and participating accounts are classified as AFS. Loans and
receivables support both contract liabilities and capital and surplus. The designation of a financial
instrument as FVTPL or AFS dictates whether unrealized fair value changes are reported in Net
income or Other comprehensive income (OCI).
Additional information regarding financial instrument classification is included in Notes 2(d), 3(a), 3(b)
and 11(c).
(iii) Pension and other post-employment benefits
Pension and other employee future benefits expense is calculated by independent actuaries using
assumptions determined by management. The assumptions affect the pension and other employee
future benefits expense included in Net income. If actual experience differs from the assumptions
used, the resulting experience gain or loss is recorded in OCI.
Additional information regarding pension and other post-employment benefits is included in Notes 2(l)
and 13.
(iv) Impairment
AFS securities and loans and receivables are reviewed at each quarter-end reporting period to identify
and evaluate investments that show indications of possible impairment. For AFS securities and loans
and receivables, impairment losses are recognized if there is objective evidence of impairment as a
result of an event that reduces the estimated future cash flows of the instrument and the impact can
be reliably estimated. Objective evidence of impairment includes, but is not limited to, bankruptcy or
default, delinquency by a debtor, and specific adverse conditions affecting an industry or a region. In
addition, for equity securities, a significant or prolonged decline in the fair value of a security below its
cost is objective evidence of impairment. The decision to record a write-down, its amount and the
period in which it is recorded could change if management’s assessment of those factors were
different. Impairment write-downs on debt securities are not recorded when impairment is due to
changes in market interest rates, if future contractual cash flows associated with the debt security are
still expected to be recovered.
Additional information regarding impairment is included in Notes 2(d), 3(b), 11(c) and 28(c).
Empire Life - Annual Report 2022
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(d) Financial instruments
(i) Fair value
Fair value is the amount of consideration that would be agreed upon in an arm’s length transaction
between knowledgeable, willing parties who are under no compulsion to act. When a financial
instrument is initially recognized, its fair value is generally the value of the consideration paid or
received. Subsequent to initial recognition, the fair value of a financial asset or liability quoted in an
active market is generally the closing price. For financial instruments such as cash equivalents and
short-term investments that have a short duration, the carrying value of these instruments
approximates fair value.
Fair value measurements used in these Consolidated Financial Statements have been classified using
a fair value hierarchy based upon the transparency of the inputs used in making the measurements.
The three levels of the hierarchy are:
Level 1 - Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active
market. The types of financial instruments classified as Level 1 generally include cash and
exchange traded common and preferred shares and derivatives.
Level 2 - Fair value is based on quoted prices for similar assets or liabilities in active markets,
valuation that is based on significant observable inputs, or inputs that are derived principally
from or corroborated with observable market data through correlation or other means. The
types of financial instruments classified as Level 2 generally include cash equivalents,
government bonds, certain corporate and private bonds, short-term investments, certain
common shares (real estate limited partnership units) and over the counter derivatives.
Level 3 - Fair value is based on valuation techniques that require one or more significant inputs that
are not based on observable market inputs. These unobservable inputs reflect the
Company’s expectations about the assumptions market participants would use in pricing the
asset or liability.
All of the Company’s financial instruments requiring fair value measurement meet the requirements of
Level 1 or Level 2 of the fair value hierarchy.
(ii) Cash and cash equivalents and investments
Cash and cash equivalents are short-term, highly liquid investments that are subject to insignificant
changes in value and are readily convertible into known amounts of cash. Cash equivalents comprise
financial assets with maturities of three months or less from the date of acquisition.
Short-term investments comprise financial assets with maturities of greater than three months and
less than one year when acquired.
Most financial assets supporting insurance contract liabilities and investment contract liabilities are
designated as FVTPL. These assets may be comprised of cash and cash equivalents, short-term
investments, bonds and debentures, common and preferred shares, futures, forwards and options.
Changes in the fair value of these financial assets are recorded in Fair value change in FVTPL assets
in the Consolidated Statements of Operations in the period in which they occur.
Empire Life - Annual Report 2022
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Most financial assets supporting capital and surplus and participating accounts are classified as AFS.
These assets may be comprised of short-term investments, bonds and debentures or common and
preferred shares. AFS assets are carried at fair value in the Consolidated Statements of Financial
Position. Except for foreign currency gains and losses on monetary AFS assets and impairment
losses, any changes in the fair value are recorded, net of income taxes, in OCI. Gains and losses
realized on sale or maturity of AFS assets are reclassified from OCI to Realized gain (loss) on AFS
assets in the Consolidated Statements of Operations.
Loans and receivables may include mortgage loans, loans on policies and policy contract loans.
These assets are recorded at amortized cost, using the effective interest rate method, net of
provisions for impairment losses, if any. Mortgage loans are secured by real estate. Loans on policies
and policy contract loans are secured by policy values. Loans and receivables are defined as non-
derivative financial assets with fixed or determinable payments that are not quoted in active markets.
All transactions are recorded on the trade date. Transaction costs are expensed for FVTPL
instruments and capitalized for all others.
(iii) Derivative financial instruments
The Company uses derivative financial instruments to manage exposure to foreign currency, equity and
other market risks associated with certain assets and liabilities. Derivative financial assets and liabilities
are classified as FVTPL. Therefore, they are initially recorded at fair value on the acquisition date and
subsequently revalued at their fair value at each reporting date. Derivative financial instruments with a
positive fair value are disclosed as Derivative assets while derivative financial instruments with a negative
fair value are disclosed as Other liabilities. Changes in fair value are recorded in Fair value change in
FVTPL assets in the Consolidated Statements of Operations.
(iv) Impairment
All investments other than FVTPL instruments are assessed for impairment at each reporting date.
Impairment is recognized in Net income when there is objective evidence that a loss event has
occurred which has impaired the estimated future cash flows of an asset.
(1) AFS debt instruments
An AFS debt instrument would be identified as impaired when there is objective evidence
suggesting that timely collection of the contractual principal or interest is no longer reasonably
assured. This may result from a breach of contract by the issuer, such as a default or delinquency
in interest or principal payments, or evidence that the issuer is in significant financial difficulty.
Impairment is recognized through Net income. Impairment losses previously recorded in Net
income are reversed if the fair value subsequently increases and can be objectively related to an
event occurring after the impairment loss was recognized.
(2) AFS equity instruments
Objective evidence of impairment of an AFS equity instrument exists if there has been a
significant or prolonged decline in the fair value of the investment below its cost or if there is a
significant adverse change in the technological, market, economic or legal environment in which
the issuer operates or the issuer is experiencing financial difficulties.
The accounting for an impairment that is recognized in Net income is the same as described for
AFS debt instruments above with the exception that impairment losses previously recognized in
Net income cannot be subsequently reversed through Net income. Any subsequent increase in
value is recorded in OCI.
Empire Life - Annual Report 2022
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(3) Loans and receivables
Mortgages and loans are individually evaluated for impairment in establishing the allowance for
impairment.
Objective evidence of impairment exists if there is no longer reasonable assurance of full
collection of loan principal or loan interest related to a mortgage, policy contract loan or a loan on
a policy. Events and conditions considered in determining if there is objective evidence of
impairment include the value of the security underlying the loan, geographic location, industry
classification of the borrower, an assessment of the financial stability and credit worthiness of the
borrower, repayment history or an assessment of the impact of current economic conditions. If
objective evidence of impairment is found, allowances for credit losses are established to adjust
the carrying value of these assets to their net recoverable amount and the impairment loss is
recorded in Net income. If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be objectively related to an event occurring after the impairment was
recognized, the impairment loss is reversed by adjusting the allowance account and the reversal
is recognized in Net income.
(v) Derecognition
A financial asset is derecognized when the contractual rights to its cash flows expire or the Company
has transferred its economic rights to the asset and substantially all risks and rewards. In instances
where substantially all risks and rewards have not been transferred or retained, the assets are
derecognized if the asset is not controlled through rights to sell or pledge the asset.
(vi) Other
Insurance receivables and trade accounts receivables have been classified as loans or receivables
and are carried at amortized cost. Trade accounts receivables are presented as Other assets.
Accounts payable and other liabilities (excluding derivative liabilities) and Insurance payables have
been classified as Other financial liabilities and are carried at amortized cost. For these financial
instruments, carrying value approximates fair value due to their short-term nature.
(vii) Securities lending
The Company engages in securities lending through its custodian as lending agent. Loaned securities are
not derecognized and continue to be reported within Investments in the Consolidated Statements of
Financial Position, as the Company retains substantial risks and rewards and economic benefits related
to the loaned securities. For further details, refer to Note 3(e).
(e) Reinsurance
The Company enters into reinsurance agreements in order to limit its exposure to excess risk. The
Company has a Reinsurance Risk Management policy which requires that such arrangements be placed
with well-established, highly rated reinsurers. Reinsurance is measured consistently with the amounts
associated with the underlying insurance contracts and in accordance with the terms of each reinsurance
treaty. Amounts due to or from reinsurers with respect to premiums received or claims paid are included in
Insurance receivables and Insurance liabilities in the Consolidated Statement of Financial Position.
Premiums for reinsurance ceded are presented as Premiums ceded to reinsurers in the Consolidated
Statements of Operations. Reinsurance recoveries on claims incurred are recorded as Claims recovery
from reinsurers in the Consolidated Statements of Operations. The reinsurers’ share of Insurance contract
liabilities is recorded as Reinsurance assets or Reinsurance liabilities in the Consolidated Statements of
Financial Position at the same time as the underlying insurance contract liability to which it relates.
Empire Life - Annual Report 2022
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an
indication of impairment arises during the reporting year. Impairment occurs when objective evidence
exists that not all amounts due under the terms of the contract will be received. If a reinsurance asset is
determined to be impaired, it is written down to its recoverable amount and the impairment loss is
recorded in the Consolidated Statements of Operations.
Gains or losses on buying reinsurance are recognized in the Consolidated Statements of Operations
immediately at the date of purchase and are not amortized.
(f) Property and equipment
Property and equipment comprises own use land, buildings, leasehold improvements and furniture and
equipment. All classes of assets are carried at cost less accumulated amortization including any
impairment losses, except for land, which is not subject to amortization. Cost includes all expenditures that
are directly attributable to the acquisition of an asset. Subsequent costs are included in the asset’s
carrying amount only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost can be measured reliably.
Amortization is calculated to write down the cost of property and equipment to their residual values over their
estimated useful lives as follows:
Land
Building
Furniture and equipment
Leasehold improvements
No amortization
Five percent (declining balance)
Three to five years (straight-line)
Remaining lease term (straight-line)
Amortization is included in Operating expenses in the Consolidated Statements of Operations.
The estimated useful lives, residual values and amortization methods are reviewed at each year-end, with
the effect of any changes in estimate accounted for on a prospective basis. Impairment reviews are
performed when there are indicators that the carrying value may not be recoverable. An impairment loss is
recognized for the amount by which the carrying value of the asset exceeds its expected recoverable
amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Impairment
losses are recognized in the Consolidated Statements of Operations.
(g) Intangible assets
Intangible assets include computer software, related licenses and software development costs, which are
carried at cost less accumulated amortization and any impairment losses. Amortization of intangible
assets is calculated using the straight-line method to allocate the costs over their estimated useful lives,
which are generally between three and seven years. Amortization is included in Operating expenses in the
Consolidated Statements of Operations. For intangible assets under development, amortization begins
when the asset is available for use. The Company does not have intangible assets with indefinite useful
lives.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the amortization period or method, as appropriate,
and are treated as changes in accounting estimates.
Impairment reviews are performed when there are indicators that the carrying value may not be
recoverable. An impairment loss is recognized for the amount by which the carrying value of the asset
exceeds its expected recoverable amount. The recoverable amount is the higher of fair value less costs to
sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows. Impairment losses are recognized in the
Consolidated Statements of Operations.
Empire Life - Annual Report 2022
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(h) Goodwill
Goodwill represents the portion of purchase price that is in excess of the net fair value assigned to assets
purchased and liabilities assumed in a business acquisition. It is initially recorded at cost and
subsequently measured at cost less any impairment charges incurred.
An impairment assessment is conducted at least annually or when circumstances indicate possible
presence of goodwill impairment, which is when there is evidence that the carrying amount exceeds the
recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use.
Impairment losses are recognized in the Consolidated Statement of Operations during the period in which
they occur and cannot be reversed in future periods.
Impairment assessment involves significant judgments and use of a variety of forward-looking inputs,
estimates, and assumptions, including but not limited to factors such as discount rates, projected cash
flow patterns, expenses, and external market and competitive environment. Due to these uncertainties,
the actual experience may differ materially from the results obtained from impairment assessment
modelling.
(i)
Investment in associates
Associates are entities over which the Company has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates
are accounted for using the equity method of accounting. Under the equity method, the investment is
initially recognized at cost, and the carrying amount is increased or decreased to recognize the
Company’s share of the income or loss of the investee after the date of acquisition.
The Company’s share of post-acquisition income or loss is recognized in the Consolidated Statements of
Operations, and its share of OCI is recognized in the Consolidated Statements of Comprehensive Income.
The Company determines at each reporting date whether there is any objective evidence that each
investment in associates is impaired. The Company calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying value and recognizes the amount as
share of income (loss) of associates in the Consolidated Statements of Operations. Income and losses
resulting from transactions between the Company and its associates are recognized in the Company’s
financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses
are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates have been changed where necessary to ensure consistency with the
policies adopted by the Company.
(j) Segregated funds
Certain insurance contracts allow the policyholder to invest in segregated investment funds managed by
the Company for the benefit of these policyholders. Although the underlying assets are registered in the
Company's name and the policyholder has no direct access to the specific assets, the contractual
arrangements are such that the segregated fund policyholder bears the risk and rewards of the fund's
investment performance. Segregated fund assets are not available to pay liabilities of the general fund.
The assets of these funds are carried at their period-end fair values. The Company records a segregated
fund policy liability equal to the fair value of the assets and any guarantees are recorded as an insurance
contract liability. The Company's Consolidated Statements of Operations includes fee income earned for
management of the segregated funds, as well as expenses related to the acquisition, investment
management, administration and death benefit, maturity benefit and withdrawal guarantees of these
funds. See Note 9 for details on segregated fund assets and changes in segregated fund assets.
The Company provides minimum guarantees on certain segregated fund contracts. These include
minimum death, maturity and withdrawal benefit guarantees which are accounted for as insurance
contracts. The actuarial liabilities associated with these minimum guarantees are recorded within
Insurance contract liabilities. Sensitivity of the Company’s liability for segregated fund guarantees to
market fluctuations is disclosed in Note 28(a)(1).
Empire Life - Annual Report 2022
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(k) Subordinated debt
Subordinated debt is recorded at amortized cost using the effective interest rate method. Interest on
subordinated debt is reported as Interest expense in the Consolidated Statements of Operations.
(l) Employee benefits
The Company provides employee pension benefits through either a defined benefit or a defined
contribution component of its pension plan. The Company discontinued new enrolments in the defined
benefit component effective October 1, 2011 and introduced a defined contribution component effective
January 1, 2012 for new enrolments and for any existing employees who chose to transfer from the
defined benefit component. The Company also provides other post-employment benefits.
(i) Pension benefits
The defined benefit plan defines an amount of pension benefit that an employee will receive on
retirement, dependent on factors such as age, years of service and compensation. The liability
recognized in the balance sheet in respect of the defined benefit component is the present value of
the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using current interest rates of high-quality corporate bonds.
Defined benefit expense includes the net interest on the net defined benefit liability (asset) calculated
using a discount rate based on market yields on high quality bonds as of prior-year end. Actuarial
gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to OCI in the period in which they arise, and remain in Accumulated other
comprehensive income (AOCI). Past-service costs are recognized immediately in net income.
The defined contribution component of the Plan is a component under which the Company pays fixed
contributions into a separate entity. The Company has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay employees the benefits relating
to employee service in the current and prior periods. The contributions are recognized as employee
benefit expense when they are due.
(ii) Other post-employment benefits
The Company also provides other post-employment benefits to their retirees. The entitlement to these
benefits is conditional on the employee remaining in service up to retirement age and the completion
of a minimum service period. The expected costs of these benefits are accrued over the period of
employment using the same accounting methodology as used for defined benefit pension plans.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are charged or credited to OCI in the period in which they arise and remain in AOCI. These obligations
are valued annually by independent actuaries and are not funded.
(iii) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company
recognizes termination benefits when it is demonstrably committed to either terminating the
employment of current employees according to a detailed formal plan without realistic possibility of
withdrawal or providing termination benefits as a result of an offer made to encourage voluntary
redundancy.
Empire Life - Annual Report 2022
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(m) Insurance and investment contracts
(i) Product classification
Insurance contracts are those contracts that transfer significant insurance risk at the inception of the
contract. Insurance risk is transferred when the Company agrees to compensate a policyholder if a
specified uncertain future event (other than a change in a financial variable) adversely affects the
policyholder and the insurance contract has commercial substance. Any contracts not meeting the
definition of an insurance contract under IFRS are classified as investment contracts or service
contracts, as appropriate. Products issued by the Company that transfer significant insurance risk
have been classified as insurance contracts in accordance with IFRS 4 Insurance Contracts.
Otherwise, products issued by the Company are classified as either investment contracts in
accordance with IAS 39 Financial Instruments: Recognition and Measurement or service contracts in
accordance with IFRS 15 Revenue from Contracts with Customers. The Company defines significant
insurance risk as the possibility of paying at least 2% more than the benefits payable if the insured
event did not occur. When referring to multiple contract types, the Company uses the terminology
policy liabilities.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the
remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all
rights and obligations are extinguished or expire. Investment contracts, however, can be reclassified
as insurance contracts after inception if insurance risk becomes significant.
The Company classifies its insurance and investment contracts into three main categories: short-term
insurance contracts, long-term insurance contracts and investment contracts.
(1) Insurance contracts
The Company’s insurance contract liabilities are determined using Canadian Actuarial Standards
of Practice and the requirements of OSFI. The Company uses CALM for valuation of insurance
contracts, which satisfies the IFRS 4 Insurance Contracts requirements for eligibility for use under
IFRS.
(a) Short-term insurance contracts
These contracts include both annuity products and group benefits.
The annuity products classified as short-term insurance contracts are guaranteed investment
options that provide for a fixed rate of return over a fixed period. Contracts include certain
guarantees that are initiated upon death of the annuitant. The liabilities are determined using
CALM.
The group benefits classified as short-term insurance contracts include short-term disability,
health and dental benefits. Benefits are typically paid within one year of being incurred.
Liabilities for unpaid claims are estimated using statistical analysis and Company experience
for claims incurred but not reported.
(b) Long-term insurance contracts
These contracts include insurance products, annuity products and group benefits. In all cases,
liabilities represent an estimate of the amount that, together with estimated future premiums
and investment income, will be sufficient to pay future benefits, dividends, expenses and
premium taxes on policies in force.
Empire Life - Annual Report 2022
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The insurance products so classified are life insurance and critical illness that provide for
benefit payments related to death, survival or the occurrence of a critical illness. Terms extend
over a long duration. The annuity products classified as long-term insurance contracts include
both annuities that provide for income payments for the life of the annuitant and guarantees
associated with the Company’s segregated fund products. The group benefits classified as
long-term insurance contracts are life benefits which are payable upon death of the insured
and disability benefits that provide for income replacement in case of disability.
The determination of long-term insurance contract liabilities requires best estimate
assumptions that cover the remaining life of the policies. Due to the long-term risks and
measurement uncertainties inherent in the life insurance business, a margin for adverse
deviation from best estimates is included in each assumption. These margins allow for
possible deterioration in future experience and provide for greater confidence that insurance
contract liabilities are adequate to pay future benefits. The resulting provisions for adverse
deviation have the effect of increasing insurance contract liabilities and decreasing the income
that otherwise would have been recognized at policy inception. Assumptions are reviewed and
updated at least annually and the impact of changes in those assumptions is reflected in
Gross change in insurance contract liabilities and/or change in insurance contract liabilities
ceded in the Consolidated Statements of Operations in the year of the change.
Annually, the Appointed Actuary determines whether insurance contract liabilities (for both
short-term and long-term categories) make appropriate provision for all policy obligations and
the consolidated financial statements fairly present the results of the valuation. A number of
valuation methods are applied, including CALM, discounted cash flows and stochastic
modeling. Aggregation levels and the level of prudence applied in assessing liability adequacy
are consistent with requirements of the CIA. Any adjustment is recorded as a Gross change in
insurance contract liabilities and/or change in insurance contract liabilities ceded in the
Consolidated Statements of Operations.
(2) Investment contracts
These contracts include annuity products that do not involve the transfer of significant insurance
risk, either at inception or during the life of the contract. For the Company, products so classified
are limited to term certain annuities that provide for income payments for a specified period of
time.
Investment contract liabilities are recognized when contracts are entered into and deposits are
received. These investment contract liabilities are initially recognized at fair value, and
subsequently they are carried at amortized cost based on expected future cash flows using the
effective interest rate method. The expected future cash flows are re-estimated at each reporting
date and the carrying amount of the financial liability is recalculated as the present value of
estimated future cash flows using the financial liability’s original effective interest rate. Any
adjustment is immediately recognized in the Consolidated Statements of Operations. Deposits
and withdrawals are recorded in Investment contract liabilities on the Consolidated Statements of
Financial Position.
(ii) Premiums
Gross premiums for all types of insurance contracts are recognized as revenue when due and
collection is reasonably assured. When premiums are recognized, policy liabilities are computed, with
the result that benefits and expenses are matched with such revenue. Annuity premiums are
comprised solely of new deposits on general fund products with a guaranteed rate of return and
exclude deposits on segregated fund and investment contract products.
Empire Life - Annual Report 2022
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(iii) Benefits and claims paid
Benefits are recorded as an expense when they are incurred. Annuity payments are expensed when
due for payment. Health insurance claims are accounted for when there is sufficient evidence of their
existence and a reasonable assessment can be made of the monetary amount involved. Benefits and
claims paid include the direct costs of settlement. Reinsurance recoveries are accounted for in the
same period as the related claim.
(iv) Deferred acquisition costs
Distribution costs of segregated funds having a deferred sales charge are deferred and amortized
over the term of the related deposits or the applicable period of such sales charge, as appropriate.
These deferred costs form part of Insurance contract liabilities on the Consolidated Statements of
Financial Position. The costs deferred in the period and amortization of deferred costs form part of the
Gross change in insurance contract liabilities on the Consolidated Statements of Operations.
(n) Participating policies
The Company maintains an account in respect of participating policies (“participating account”), separate
from those maintained in respect of other policies, in the form and manner determined by OSFI under
sections 456-464 of the Insurance Companies Act. The participating account includes all policies issued
by the Company that entitle its policyholders to participate in the profits of the participating account. The
Company has discretion as to the amount and timing of dividend payments which take into consideration
the continuing solvency of the participating account. Dividends are paid annually, with a few older plans
paying dividends every five years as per contractual provisions. Participating policyholder dividends are
recognized as Policy dividends expense in the Consolidated Statements of Operations.
At the end of the reporting period all participating insurance contract liabilities, both guaranteed and
discretionary, are held within Insurance contract liabilities, Policyholders’ funds on deposit and Provision
for profits to policyholders. All participating policy reinsurance ceded at the end of the reporting period is
held within Reinsurance assets or Reinsurance liabilities. Net income attributable to participating
policyholders is shown on the Consolidated Statements of Operations. Comprehensive income
attributable to participating policyholders is shown on the Consolidated Statements of Comprehensive
Income. The portion of Retained earnings and AOCI in respect of participating policies is reported
separately in the Policyholders’ equity section of the Consolidated Statements of Changes in Equity.
(i)
Investment policy
The investments in the participating account are subject to limits established by the Insurance
Companies Act and to investment guidelines established by the Investment Committee of the Board.
The investment guidelines are designed to limit overall investment risk by defining investment
objectives, eligible investments, diversification criteria, exposure, concentration and asset quality limits
for eligible investments. The objective is to maximize investment yields while managing the default,
liquidity and reinvestment risks at acceptable and measurable low levels.
(ii) Investment income allocation
Investment income is recorded directly to each asset segment. When there is a deficiency of funds
over assets, a portion of investment income is allocated to the Shareholders’ Capital and Surplus
segment from the participating account’s asset segments in proportion to the deficiency of funds over
assets of each segment. When there is an excess of funds over assets, a portion of investment
income is allocated from the Shareholders’ Capital and Surplus segment to the participating account’s
asset segments in proportion to the excess of funds over assets of each segment.
Empire Life - Annual Report 2022
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(iii) Expense allocation
For purposes of allocation of profits to the participating account, expenses associated directly with the
participating account will be attributed to the participating account. Expenses arising from or varying
directly with various functional activities are charged to the participating account in proportion to
statistics appropriate to each cost centre. Expenses incurred by overhead cost centres are charged to
the participating account in proportion to expenses directly charged. Investment expenses are
allocated monthly to the participating account in proportion to the Company’s total funds at the
beginning of each month. Premium taxes are allocated in proportion to taxable premiums. Other
taxes, licenses, and fees are allocated to lines of business using cost centre methods.
(iv) Income tax allocation
For the purpose of allocation of profits to the participating account, income taxes are allocated to the
participating account in proportion to total taxable income for the Company.
(o) Fee income
Fee income includes investment management, policy administration and guarantee fees that are
recognized on an accrual basis, and surrender charges that are recognized as incurred. Fee income
earned for investment management, administration and guarantees of the investment funds is based on
the funds’ closing net asset values.
(p) Investment income
Interest income is recognized using the effective interest rate method. Fees that are an integral part of the
effective yield of the financial asset are recognized as an adjustment to the effective interest rate of the
instrument.
Dividend income is recognized when the right to receive payment is established, which is usually the ex-
dividend date.
Interest income and dividend income are included in Investment income in the Consolidated Statements of
Operations for all financial assets.
(q) Income taxes
Income tax expense for the period is comprised of current and deferred tax. Tax is recognized in the
Consolidated Statements of Operations except to the extent that it relates to items recognized in OCI or
directly in equity. In these cases, the tax is recognized in OCI or directly in equity, respectively.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to
be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the
amount are those that are enacted or substantively enacted at the end of each reporting period.
Deferred income tax assets and liabilities are recorded for the expected future income tax consequences
of events that have been reflected in the consolidated financial statements. Deferred income taxes are
provided for using the liability method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between tax and financial statement bases for assets and liabilities
and for certain carry-forward items.
Deferred income tax assets are recognized only to the extent that, in the opinion of management, it is
probable that the deferred income tax assets will be realized. Deferred income tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates, on the date of their substantive enactment.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable
entity.
(r) Foreign currency translation
The Company uses the Canadian dollar as both its functional and presentational currency.
Empire Life - Annual Report 2022
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the
transactions. Gains and losses resulting from the settlement of such transactions, and from the translation
of monetary assets and liabilities denominated in foreign currencies, are recognized in the Consolidated
Statements of Operations.
For monetary financial assets designated as AFS, translation differences are recognized in the
Consolidated Statements of Operations. Translation differences on non-monetary items, such as foreign
denominated AFS common equities, are recognized in OCI and included in the AFS component within
AOCI. On derecognition of an AFS non-monetary financial asset, the cumulative exchange gain or loss
previously recognized in AOCI is recognized in the Consolidated Statements of Operations.
(s) Comprehensive income
Comprehensive income consists of Net income and OCI. OCI includes items that may be reclassified
subsequently to Net income: Unrealized fair value change on AFS investments, net of amounts
reclassified to net income and the Amortization of loss on derivative investments designated as cash flow
hedges. OCI also includes items that will not be reclassified to net income: Remeasurements of post-
employment benefit liabilities. All OCI amounts are net of taxes.
(t) Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation and the
amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability
is disclosed unless the possibility of an outflow of economic benefits is remote. Any change in estimate of
a provision is recorded in Net income. Provisions are not recognized for future operating losses.
Provisions are measured as the present value of the expected expenditures to settle the obligation using a
discount rate that reflects current market assessments of the time value of money and the risks specific to
the obligation.
(u) Leases
The Company leases certain property and equipment. When the Company enters into a lease as a lessee,
a right-of-use asset and a lease liability is recognized in the Statements of Financial Position. The initial
lease liability is computed based on the present value of the lease payments, discounted at the
Company's incremental borrowing rate. Subsequent to the initial recognition the lease liability is measured
at the amortized cost using the effective interest rate method and is included in Accounts payable and
other liabilities. Interest expense is included in operating expenses. The depreciation on the corresponding
right-of-use asset is included in operating expenses.
The Company has elected to apply the option to recognize lease payments for short-term and low level
assets on a straight-line basis over the lease term in operating expenses.
(v) Earnings per share (EPS)
Basic EPS is calculated by dividing the Net income for the period attributable to common shareholders of
the Company by the weighted average number of common shares outstanding during the period. The
Company does not have any potentially dilutive instruments. As a result, diluted EPS are the same as
basic EPS.
Empire Life - Annual Report 2022
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(w) Accounting changes
New and Amended International Financial Reporting Standards to be Adopted in 2023 or Later
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17) to establish a comprehensive global
standard which provides guidance on the recognition, measurement, presentation and disclosure of insurance
contracts. Amendments to IFRS 17 were issued in June 2020 which deferred the effective date of IFRS 17 to
January 1, 2023, with a transition date of January 1, 2022. IFRS 17 is to be applied retrospectively unless
impracticable, in which case the Company may elect to use a modified retrospective or fair value method. The
Company has chosen the fair value method.
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments ("IFRS 9") which replaces IAS
39 Financial Instruments: Recognition and Measurement. IFRS 9 includes guidance on the classification and
measurement of financial instruments, impairment of financial assets and hedge accounting, and does not
require restatement of comparative periods.
Under the amendments to IFRS 17 issued in June 2020, eligible insurers were also permitted the option of
deferring the adoption of IFRS 9 to coincide with the adoption of IFRS 17 (the "temporary exemption"). We
have elected to apply this deferral option, and the effective date of both IFRS 17 and IFRS 9 will be January
1, 2023. Companies applying the temporary exemption are required to disclose fair value information with
respect to their investments in financial assets whose contractual cash flows reflect solely payments of
principal and interest on the principal amount outstanding (SPPI), to enable users of financial statements to
compare insurers applying the temporary exemption with entities applying IFRS 9. The Company’s fixed
income invested assets presented in Note 3(a) include cash equivalents, short-term investments, bonds,
mortgages, loans on policies and policy contract loans and primarily have cash flows that qualify as SPPI.
Fixed income invested assets which do not have SPPI qualifying cash flows as at December 31, 2022 include
bonds and mortgages with fair values of $460 million (2021 $257 million) and $7 million (2021 $8 million),
respectively.
In December 2021, the IASB issued an amendment to IFRS 17 to allow for a transition option, the overlay
approach, that permits insurers to present comparative information on financial assets as if IFRS 9 were
applicable during the comparative period. The Company opted to adopt the overlay approach.
IFRS 17
IFRS 17 replaces IFRS 4 for Insurance Contracts for annual periods beginning on January 1, 2023, with a
transition date of January 1, 2022. Up to and including December 31, 2022, the insurance industry has been
permitted to continue using IFRS 4 and the Canadian Asset Liability Method (CALM) to measure insurance
contract liabilities. IFRS 17 will change the fundamental principles used by the Company for recognizing and
measuring insurance contracts. In addition, IFRS 17 will change the presentation of the Company’s financial
statements and related note disclosures.
The primary principles of IFRS 17 are that the Company:
•
•
Identifies insurance contracts as those under which the Company accepts significant insurance risk
from another party (the policyholder) by agreeing to compensate the policyholder if a specified
uncertain future event (the insured event) adversely affects the policyholder.
Recognizes profit from a group of insurance contracts over the period that insurance coverage is
provided, as the Company is released from risk. If a group of insurance contracts is expected to be
onerous (loss making) over the remaining coverage period, losses are recognized immediately.
• Measures insurance contract liabilities as the total of the following measurement components:
a) the best-estimate liability (BEL);
b) a risk adjustment (RA); and
c) the contractual service margin (CSM)
The measurement of insurance contracts under IFRS 17 differs from the CALM approach applied under IFRS
4. The most significant differences by measurement component are as follows:
Empire Life - Annual Report 2022
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Best-estimate liability (BEL):
The best-estimate liability under IFRS 17 represents the present value of future cash flows, which are
projected under best-estimate assumptions. The discount rates used are based on current market interest
rates, adjusted to reflect the liquidity characteristics of the insurance contracts. Under IFRS 4, projected cash
flows are discounted using rates that are based on the portfolio of assets supporting the insurance contract
liabilities.
Estimates for financial guarantees under IFRS 17 are calculated to be consistent with market information
where available. Under IFRS 4 the value was estimated as the expected future cost of the guarantee.
Expenses included in the cash flows under IFRS 17 are limited to those directly attributable to fulfillment of the
obligations under the insurance contracts. Under IFRS 4, future cash flows include an allocation for expenses,
some of which would be considered non-attributable under IFRS 17.
The effect of income taxes is excluded from IFRS 17 insurance contract liabilities whereas the effect of
income tax differences is included in IFRS 4 insurance contract liabilities.
Risk adjustment (RA):
Under IFRS 4 the provision for adverse deviations includes the compensation required for uncertainty related
to non-financial risk, such as mortality, morbidity, surrender and expenses, as well as providing for uncertainty
related to asset/liability mismatch risk (financial risk).
Under IFRS 17, the risk adjustment measures the compensation required for uncertainty related to non-
financial risk, such as mortality, morbidity, surrender and attributable expenses. No amount is provided for
asset/liability mismatch risk.
Contractual service margin (CSM):
The CSM represents an estimate of unearned future profits. This is a new component of insurance contract
liabilities under IFRS 17, which was not required under IFRS 4.
For new business issued under IFRS 4, the estimated profit or loss over the lifetime of the business is
recognized in income at the date of issue. Expected future profits on new business under IFRS 17 are
deferred and recorded in the CSM and amortized into income as insurance services are provided over the
term of the contract. Under IFRS 17, expected losses on new business are recognized at the date of issue. In
addition, the Company established a CSM on in-force insurance contracts at the date of transition, which will
be amortized into income over the term of the contracts.
IFRS 9
Financial asset classification is based on the cash flow characteristics and the business model in which an
asset is held. The classification determines how a financial instrument is accounted for and measured. IFRS 9
includes three measurement categories for financial assets:
1. Measured at amortized cost
2. Fair Value Other Comprehensive Income (FVOCI)
3. Fair Value Through Profit and Loss (FVTPL)
Most financial assets are designated as FVTPL under IAS 39 and will continue to be measured at FVTPL
under IFRS 9.
Equity investments that are classified as available for sale under IAS 39 will be measured at FVTPL under
IFRS 9.
Empire Life - Annual Report 2022
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Mortgages and loans measured at amortized cost under IAS 39 will be designated as FVTPL under IFRS 9.
Some investment contracts that were treated as insurance under IFRS 4 will be treated as financial liabilities
under IFRS 9. Investment contracts will be designated as FVTPL under IFRS 9.
Because the majority of financial assets are measured at fair value both before and after the transition to
IFRS 9, the new classification requirements will not have a material impact on total equity upon adoption.
IFRS 9 replaces the incurred loss impairment model in IAS 39 with a forward-looking expected credit loss
impairment model. After adoption of IFRS 9, the majority of financial assets will be reported at FVTPL, so the
expected credit loss model will not have a significant impact.
Transition
Changes in accounting policies resulting from the adoption of IFRS 17 will be applied using a full retrospective
approach where practicable. If it is impracticable to apply the full retrospective approach, then the Company
can choose between the modified retrospective approach and the fair value approach. For group insurance
contracts the full retrospective approach was applied. For all other insurance business, the fair value
approach was applied.
At the date of transition, the Company derived its actuarial liabilities and CSM in accordance with the
requirements of the standard. The Company currently expects the CSM (expected future profits) to be in the
range of $1.1 billion to $1.4 billion and the impact on retained earnings to be a reduction in the range of $300
million to $500 million.
These assessments are preliminary as the Company is still finalizing implementation and testing of controls
over financial reporting. The new accounting policies, judgements and estimations are subject to change until
Q1 2023 financial statements are finalized.
Presentation and disclosure
IFRS 17 introduces changes to the way in which the Company will present and disclose financial results.
On the Statement of Financial Position, insurance contracts issued and reinsurance contracts held will be
separated into portfolios of insurance/reinsurance contracts that are in an asset versus a liability position.
Under IFRS 17, a number of insurance related assets and liabilities that were previously reported on the face
of the statement of financial position will be incorporated into the Insurance contract liabilities line item.
Examples include Loans on policies, Policy contract loans, Insurance receivables, Insurance payables,
Policyholders’ funds on deposit (insurance A/P) and Provision for profit to policyholders.
Under IFRS 17 the changes to the Statement of Operations will be significant. The Statement of Operations
will no longer report gross and ceded premiums written, benefits and claims paid, change in insurance
contract liabilities or commissions. Instead it will report an insurance service result comprising insurance
revenue and insurance service expenses, reinsurance service result, investment results and net insurance
finance result.
IFRS 17 requires significant new disclosures about amounts recognized in the Financial Statements, at a
more granular level than under IFRS 4. There will be extensive roll-forward schedules on Insurance contract
liabilities, as well as disclosure information on discount rates, new business, the expected emergence pattern
of CSM and significant judgements made when applying IFRS 17. There will also be expanded disclosures
about the nature and extent of risks from insurance, investment and reinsurance contracts.
Empire Life - Annual Report 2022
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
3. Financial Instruments
(a) Summary of Cash and cash equivalents and investments
The carrying values of cash and cash equivalents and investments are as follows:
As at December 31
Asset category
Cash and cash equivalents
Cash
Cash equivalents
Total cash and cash equivalents
Short-term investments
Canadian federal government
Corporate
Foreign
Total short-term investments
Canadian government bonds
Fair value
through profit
or loss
2022
Available for
sale
Total
carrying
value
Fair value
through profit
or loss
2021
Available for
sale
Total
carrying
value
$
78,310 $
97,213
175,523
— $
—
—
78,310 $
62,512 $
97,213
175,523
130,705
193,217
— $
—
—
62,512
130,705
193,217
8,439
—
—
8,439
—
—
592
592
8,439
3,499
4,998
—
592
150
—
—
—
9,031
3,649
4,998
8,497
150
—
8,647
Canadian federal government
16,871
169,248
186,119
16,558
326,450
343,008
Canadian provincial governments
2,359,257
371,473
2,730,730
3,186,187
552,848
3,739,035
Canadian municipal governments
80,378
29,535
109,913
107,940
89,463
197,403
Total Canadian government bonds
2,456,506
570,256
3,026,762
3,310,685
968,761
4,279,446
Canadian corporate bonds by industry sector:
Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Health care
Financial services
Information Technology
Communication services
Utilities
Real estate
Infrastructure
295,613
136,918
432,531
258,757
100,759
10,880
67,245
34,682
160,552
69,391
3,989
29,901
17,253
16,390
6,806
14,869
97,146
51,935
12,999
87,008
24,616
176,942
190,959
76,197
87,831
10,898
47,090
13,433
43,407
8,578
359,516
23,897
134,098
38,049
234,366
96,409
648,221
534,646
1,182,867
728,328
473,799
1,202,127
259
258,323
498,000
40,305
377,142
3,882
49,236
83,107
21,694
66,371
4,141
307,559
581,107
61,999
469
363,448
589,261
50,984
443,513
448,848
4,424
58,522
80,637
12,782
68,898
4,893
421,970
669,898
63,766
517,746
Total Canadian corporate bonds
2,460,613
970,193
3,430,806
2,843,508
923,227
3,766,735
Foreign bonds
Government
Corporate
Total foreign bonds
Total bonds
79,200
65,993
69,605
72,391
145,193
141,996
148,805
138,384
287,189
103,279
—
103,279
—
—
—
103,279
—
103,279
5,062,312
1,682,445
6,744,757
6,257,472
1,891,988
8,149,460
Total preferred shares - Canadian
384,927
17,238
402,165
433,295
8,044
441,339
Empire Life - Annual Report 2022
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
As at December 31
Asset category
Common shares
Canadian common shares
Exchange-traded funds
Canadian real estate limited
partnership units
U.S.
Other
Total common shares
Total derivative assets
Loans and receivables
Mortgages
Loans on policies
Policy contract loans
Fair value
through profit
or loss
2022
Available for
sale
Total
carrying
value
Fair value
through profit
or loss
2021
Available for
sale
235,186
348,714
136,029
50,474
19,166
41,064
—
—
—
—
276,250
348,714
136,029
50,474
19,166
240,742
503,434
138,352
50,020
29,161
57,725
—
—
—
—
Total
carrying
value
298,467
503,434
138,352
50,020
29,161
789,569
41,064
830,633
961,709
57,725
1,019,434
9,776
—
9,776
6,302
—
6,302
—
—
—
—
—
—
119,556
59,979
46,865
—
—
—
—
—
—
153,564
56,917
52,808
Total financial instruments
$
6,430,546 $
1,741,339 $
8,398,285 $
7,855,644 $
1,962,755 $
10,081,688
The following table presents the fair value of cash and cash equivalents and investments classified by the
fair value hierarchy:
As at December 31
Fair value through profit or loss:
2022
Level 1
Level 2
Total fair
value
2021
Level 1
Level 2
Total fair
value
Cash and cash equivalents
$
78,310 $
97,213 $
175,523 $
62,512 $
130,705 $
193,217
Short-term investments
Bonds
Preferred shares
Common shares
Derivative assets
Available for sale:
Short-term investments
Bonds
Preferred shares
Common shares
Loans and Receivables
Mortgages
Loans on policies
Policy contract loans
Total
—
—
296,924
646,734
7,604
8,439
8,439
5,062,312
5,062,312
88,003
142,835
2,172
384,927
789,569
9,776
—
—
3,649
3,649
6,257,472
6,257,472
433,295
821,560
6,301
—
140,149
1
433,295
961,709
6,302
—
—
592
592
1,682,445
1,682,445
2,600
14,638
41,064
17,238
41,064
—
—
8,044
57,725
4,998
4,998
1,891,988
1,891,988
—
—
8,044
57,725
—
—
—
113,901
113,901
59,979
46,865
59,979
46,865
—
—
—
158,658
158,658
56,917
52,808
56,917
52,808
$
1,073,236 $
7,319,394 $
8,392,630 $
1,389,437 $
8,697,345 $
10,086,782
The fair value of mortgages has been calculated by discounting cash flows of each mortgage at a
discount rate appropriate to its remaining term to maturity. The discount rates are determined based on
regular competitive rate surveys. The fair values of Loans on policies and Policy contract loans
approximates their carrying values, due to the life insurance contracts that secure them.
Empire Life - Annual Report 2022
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The classification of a financial instrument into a level is based on the lowest level of input that is
significant to the determination of the fair value. There were no transfers between Level 1 and Level 2 and
there were no Level 3 investments during the year ended December 31, 2022 or during the year ended
December 31, 2021.
For additional information on the composition of the Company’s invested assets and analysis of the
Company’s risks arising from financial instruments refer to Note 28 Risk Management.
(b) Impairments
(i) Loans and receivables
Investments in individual assets have been reduced by the following specific allowances for
impairment:
As at December 31
Impaired Loans
Mortgages
Policy contract loans
Total
2022
2021
Recorded
investment
Allowance for
impairment
Carrying
value
Recorded
investment
Allowance for
impairment
Carrying
value
$
$
3,354 $
1,573 $
1,781 $
3,939 $
1,550 $
813
406
407
813
424
4,167 $
1,979 $
2,188 $
4,752 $
1,974 $
2,389
389
2,778
The Company holds collateral with a fair value of $1,789 (2021 $2,389) in respect of these mortgages
and $407 (2021 $389) in respect of these policy contract loans as at December 31, 2022. Mortgage
loans are secured by real estate, and policy contract loans are secured by life insurance.
For the year ended December 31
Continuity of allowance for loan impairment:
Allowance - beginning of year
Provision for loan impairment
Write-off of loans
Allowance - end of year
2022
2021
$
$
1,974 $
465
(460)
1,979 $
3,591
(44)
(1,573)
1,974
The Company has recorded interest income of $450 (2021 $513) on these assets.
(ii) Available for sale
For the year ended December 31, 2022, the Company performed quarterly impairment testing and did
not experience any impairment on AFS common or preferred shares. For the year ended December
31, 2021, the Company reclassified a pre-tax gain of $1,506 from OCI to Net income due to write
downs of impaired AFS common and preferred shares.
For additional information on the fair values of the Company’s AFS investments, refer to Note 3(a).
For analysis of the Company’s risks arising from financial instruments, refer to Note 28.
(c) Investment income
Investment income is comprised of the following:
For the year ended December 31
Interest income
Dividend income
Other
Provision for loan impairment
Investment income
2022
308,480 $
48,960
1,093
(465)
2021
271,391
55,761
2,171
370
358,068 $
329,693
$
$
Interest income includes $70,196 (2021 $60,827) relating to assets not classified as FVTPL.
Empire Life - Annual Report 2022
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(d) Derivative financial instruments
The values of derivative instruments are set out in the following table. The use of derivatives is measured
in terms of notional principal amounts, which serve as the basis for calculating payments and are
generally not actual amounts that are exchanged.
As at December 31
Notional
principal
2022
Fair value
assets
Fair value
liabilities
Notional
principal
2021
Fair value
assets
Fair value
liabilities
Exchange-traded
Equity index futures
$
57,846 $
Equity options
Over-the-counter
Foreign currency forwards
Cross currency swaps
430,061
172,979
44,943
Total
$
705,829 $
1,008 $
6,268
19
2,481
9,776 $
2,193 $
69,166 $
—
448,381
2,669 $
3,632
32
1,388
33,158
20,980
1
—
1,170
—
663
596
3,613 $
571,685 $
6,302 $
2,429
All contracts mature in less than one year, except for cross currency swaps which mature in more than
five years. Fair value asset amounts are reported in the Consolidated Statements of Financial Position as
Derivative assets. Fair value liability amounts are reported in the Consolidated Statements of Financial
Position as part of Accounts payable and other liabilities. Fair value of exchange traded derivatives is
determined based on Level 1 inputs. Foreign currency forward contracts are valued based primarily on
the contract notional amount, the difference between the contract rate and the forward market rate for the
same currency, interest rates and credit spreads.
Cross currency swaps are valued by discounting the future cash flows for both legs at the underlying
market interest rate curves in each currency applicable at the valuation date. The sum of the cash flows
denoted in the foreign currency is converted with the spot rate applicable at that time. The foreign
currency leg, where Empire Life owes interest and principal, produces a negative fair value to Empire Life
while the Canadian dollar leg produces a positive fair value to Empire Life. The net of these amounts
represents the reported fair value of the cross currency swap. Contracts for which counterparty credit
spreads are observable and reliable, or for which the credit-related inputs are determined not to be
significant to fair value, are classified as Level 2.
For analysis of the Company’s risks arising from financial instruments, refer to Note 28.
(e) Securities Lending
The Company has a securities lending agreement with its custodian. Under this agreement, the custodian
may lend securities from the Company’s portfolio to other institutions, as approved by the Company, for
periods of time. In addition to a fee, the Company receives collateral which exceeds the market value of the
loaned securities, which is retained by the Company until the underlying security has been returned to the
Company. In the event that any of the loaned securities are not returned to the custodian, at its option the
custodian may either restore to the Company securities identical to the loaned securities or it will pay to the
Company the value of the collateral up to but not exceeding the market value of the loaned securities on the
date on which the loaned securities were to have been returned (Valuation Date) to the custodian. If the
collateral is not sufficient to allow the custodian to pay such market value to the Company, the custodian shall
indemnify the Company only for the difference between the market value of the securities and the value of
such collateral on the Valuation Date. As a result, there is no significant exposure to credit risk associated with
this securities lending agreement.
Empire Life - Annual Report 2022
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Income recognized from securities lending activities was as follows:
For the year ended December 31
General funds
Segregated funds
Total
$
$
2022
2,184 $
2,036
4,220 $
2021
1,748
1,564
3,312
As at December 31, 2022 and December 31, 2021, the aggregate fair values of the Company's securities
loaned and the collateral received were as follows:
As at December 31
General Funds
2022
Segregated
Funds
Total General Funds
2021
Segregated
Funds
Total
Value of securities loaned
Value of collateral received
$
$
1,183,898 $
1,839,056 $
3,022,954 $
1,514,071 $
1,508,807 $
3,022,878
1,207,628 $
1,877,197 $
3,084,825 $
1,544,381 $
1,539,045 $
3,083,426
4. Insurance Receivables
As at December 31
Due from policyholders
Due and accrued from reinsurers
Fees receivable
Other
Insurance receivables
2022
5,802 $
47,941
13,451
13,889
81,083 $
2021
4,786
21,287
13,806
8,821
48,700
$
$
All amounts are expected to be recovered within one year of the Consolidated Statements of Financial
Position date. These financial instruments are short-term in nature and their fair values approximate carrying
values.
5. Other Assets
Other assets consist of the following:
As at December 31
Trade accounts receivable
Prepaid expenses
Right-of-use assets
Net post-employment benefit asset (Note 13)
Other assets
2022
8,506 $
8,422
5,192
11,386
33,506 $
2021
6,696
7,336
5,420
—
19,452
$
$
Of the above total, $16,578 (2021 $5,420) is expected to be settled more than one year after the Consolidated
Statements of Financial Position date. Trade accounts receivable are short-term in nature and their fair values
approximate carrying value. In the absence of an active market for post-employment benefit liabilities, the
actuarially determined value provides a reasonable approximation of fair value.
Empire Life - Annual Report 2022
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
6. Property and Equipment
Cost
As at January 1, 2021
$
2,318 $
13,039 $
47,259 $
9,730 $
Land
Buildings
Furniture and
equipment
Leasehold
improvements
Additions
Disposals
—
—
—
—
As at December 31, 2021
2,318
13,039
Total
72,346
1,379
—
73,725
1,689
—
75,414
(54,045)
(4,791)
—
(58,836)
(2,936)
—
1,351
—
48,610
1,224
—
28
—
9,758
465
—
—
—
—
—
2,318 $
13,039 $
49,834 $
10,223 $
— $
(5,584) $
—
—
—
—
—
(372)
—
(5,956)
(355)
—
(40,777) $
(3,976)
—
(44,753)
(2,178)
—
(7,684) $
(443)
—
(8,127)
(403)
—
— $
(6,311) $
(46,931) $
(8,530) $
(61,772)
2,318 $
2,318 $
6,728 $
7,083 $
2,903 $
3,857 $
1,693 $
1,631 $
13,642
14,889
Additions
Disposals
As at December 31, 2022
Amortization
As at January 1, 2021
Charge for the year
Disposals
As at December 31, 2021
Charge for the year
Disposals
As at December 31, 2022
Carrying amount
December 31, 2022
December 31, 2021
$
$
$
$
$
There were no asset impairments in 2022 or 2021.
7. Intangible Assets
Cost
As at January 1, 2021
Additions
Disposals
As at December 31, 2021
Additions
Disposals
As at December 31, 2022
Amortization
As at January 1, 2021
Charge for the year
Disposals
As at December 31, 2021
Charge for the year
Disposals
As at December 31, 2022
Carrying amount
December 31, 2022
December 31, 2021
There were no asset impairments during 2022 or 2021.
Empire Life - Annual Report 2022
72
Intangible assets
$
$
$
$
$
$
86,926
9,363
(444)
95,845
50,590
—
146,435
(58,943)
(8,605)
214
(67,334)
(18,530)
—
(85,864)
60,571
28,511
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
8. Goodwill
The goodwill represents the excess amount after the allocation of the purchase price to identifiable tangible
and intangible net assets. Goodwill is not subject to amortization however is assessed annually for
impairment. There was no impairment charge booked against goodwill in 2022.
As at December 31
Goodwill
Total
9. Segregated Funds
$
$
2022
24,465 $
24,465 $
2021
—
—
(a) The following table identifies segregated fund assets by category of asset:
As at December 31
Cash
Short-term investments
Bonds
Common and preferred shares
Add other assets
Less segregated funds held within general fund investments
Total
2022
$
7,737 $
579,148
1,754,518
6,301,258
8,642,661
15,360
(92,346)
2021
39,880
467,829
1,880,326
6,935,850
9,323,885
30,271
(96,858)
$
8,565,675 $
9,257,298
(b) The following table presents the investments of the segregated funds measured on a recurring
basis at fair value classified by the fair value hierarchy:
As at December 31
2022
2021
Cash
Short-term investments
Bonds
Level 1
Level 2
Total
Level 1
Level 2
$
7,737 $
— $
7,737 $
39,880 $
— $
—
—
579,148
579,148
1,754,518
1,754,518
—
—
467,829
1,880,326
1,880,326
Total
39,880
467,829
Common and preferred shares
6,301,258
—
6,301,258
6,935,850
6,935,850
Total
$
6,308,995 $
2,333,666 $
8,642,661 $
6,975,730 $
2,348,155 $
9,323,885
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2022 and
December 31, 2021. There were no Level 3 investments as at December 31, 2022 and December 31, 2021.
Empire Life - Annual Report 2022
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(c) The following table presents the change in segregated fund assets:
For the year ended December 31
Segregated fund assets - beginning of year
Additions to segregated funds:
Amount received from policyholders
Interest
Dividends
Other income
Net realized gains on sale of investments
Net unrealized increase in fair value of investments
Deductions from segregated funds:
Amounts withdrawn or transferred by policyholders
Net unrealized decrease in fair value of investments
Management fees and other operating costs
2022
2021
$
9,257,298 $
8,457,417
872,244
77,045
178,688
23,332
102,624
—
997,002
58,995
204,465
22,441
382,696
538,711
1,253,933
2,204,310
964,437
735,370
250,261
1,950,068
1,131,098
—
258,979
1,390,077
Net change in segregated funds held within general fund investments
4,512
(14,352)
Segregated fund assets - end of year
$
8,565,675 $
9,257,298
(d) Exposure to segregated fund guarantee risk
Segregated fund products issued by Empire Life contain death, maturity, and withdrawal benefit
guarantees. Market price fluctuations impact the Company's estimated liability for those guarantees.
10. Insurance Payables
As at December 31
Claims due and accrued
Payable to agents
Premiums paid in advance
Due to reinsurance companies
Other
Insurance payables
$
2022
72,915 $
24,544
1,639
8,430
49,057
2021
47,237
20,342
1,506
18,289
28,419
$
156,585 $
115,793
Of the above total, $721 (2021 $786) is expected to be settled more than one year after the Consolidated
Statements of Financial Position date. Most of these financial instruments are short-term in nature and their
fair value approximates carrying values.
Empire Life - Annual Report 2022
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
11. Insurance Contract Liabilities and Reinsurance Assets/Liabilities
(a) Nature and composition of insurance contract liabilities and related reinsurance
Insurance contract liabilities include life, health and annuity contracts on a participating and
non-participating basis.
Changes in actuarial assumptions are made based on emerging and evolving experience with respect to
major factors affecting estimates of future cash flows and consideration of economic forecasts of
investment returns, industry and internal studies and the Standards of Practice of the Canadian Institute of
Actuaries (CIA) and OSFI guidelines.
Insurance contract liabilities represent an estimate of the amount that, together with estimated future
premiums and investment income, will be sufficient to pay future benefits, dividends, expenses, and
premium taxes on policies in force. Insurance contract liabilities are determined using accepted actuarial
practice according to standards established by the CIA and the requirements of OSFI.
The Company reinsures excess risks with Canadian registered reinsurance companies. The reinsurance
assets (liabilities) are determined based on both the premiums expected to be paid by the Company under
reinsurance agreements over the duration of the insurance contracts that they support and the insurance
claims expected to be received by the Company when an insured event occurs under those insurance
contracts. The liability position of some of the reinsurance is due to the excess of future premiums payable
over the expected benefit of reinsurance. The change in reinsurance liabilities is primarily related to the
Company's revised mortality assumptions, which reduce the present value of insurance claims expected
to be recovered from the reinsurance companies. The Company enters into reinsurance agreements only
with reinsurance companies that have an independent credit rating of "A-" or better.
Reinsurance transactions do not relieve the original insurer of its primary obligation to policyholders.
The Company is active in most life insurance and annuity product lines across Canada and does not
operate in foreign markets. The table below shows the concentration of insurance contract liabilities and
related reinsurance assets (liabilities) by type of contract:
As at December 31
Participating Individual
Life
Annuity
Non-participating Individual
Life
Health
Annuity
Non-participating Group
Life
Health
Annuity
2022
Reinsurance
(assets)
liabilities
Gross
insurance
contract
liabilities
Net
Gross
insurance
contract
liabilities
2021
Reinsurance
(assets)
liabilities
Net
$
781,827 $
5,153 $
786,980 $
878,191 $
6,975 $
885,166
82
—
82
79
—
79
3,613,338
341,985
3,955,323
4,836,301
413,301
5,249,602
203,021
700,728
(7,130)
(5,719)
195,891
695,009
260,617
792,840
(8,332)
(7,314)
252,285
785,526
43,040
(9,416)
33,624
41,063
(6,880)
34,183
333,058
(161,661)
171,397
318,024
(144,420)
173,604
Segregated fund deferred acquisition costs
(70,922)
36,170
—
—
36,170
41,178
(70,922)
(77,240)
—
—
41,178
(77,240)
Total
$
5,640,342 $
163,212 $
5,803,554 $
7,091,053 $
253,330 $
7,344,383
Empire Life - Annual Report 2022
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The Company expects to pay $5,529,304 (2021 $6,996,900) of Insurance contract liabilities and $197,935
(2021 $279,162) of Reinsurance liabilities more than one year after the Consolidated Statements of
Financial Position date. The remaining balance is expected to be settled within one year.
The following segregated fund deferred acquisition costs are included in Insurance contract liabilities:
Segregated funds deferred acquisition costs - beginning of year
Deferred during year
Amortized during year
Segregated funds deferred acquisition costs - end of year
2022
77,240 $
23,522
(29,840)
70,922 $
2021
78,412
28,170
(29,342)
77,240
$
$
Of the above total, $29,903 (2021 $31,701) is expected to be amortized during the next year.
(b) Change in insurance contract liabilities and reinsurance assets/liabilities
For the year ended December 31
2022
Reinsurance
(assets)
liabilities
Gross
insurance
contract
liabilities
Net
Gross
insurance
contract
liabilities
2021
Reinsurance
(assets)
liabilities
Net
Balance - beginning of year
$ 7,091,053 $
253,330 $ 7,344,383 $ 7,145,461 $
384,761 $ 7,530,222
Changes in methods and assumptions
Non-participating policies
Changes for expected mortality/morbidity
Lapse/premium assumption updates
Update of investment return assumptions
Model enhancements and
other changes
Reinsurance recapture
Participating policies
(68,557)
28,972
(91,606)
20,711
46,421
(22,136)
83,021
(57,640)
25,381
6,429
(4,615)
(7,021)
35,401
150,691
(37,459)
113,232
(96,221)
(79,112)
(3,352)
(82,464)
13,690
2,480
2
2,482
—
—
—
(11,357)
—
(11,357)
Model enhancements and other changes
486
(4)
482
145
(53)
92
Normal changes
New business
In-force business
Balance - end of year
60,778
(8,199)
52,579
(31,000)
213
(30,787)
(1,401,495)
(123,129)
(1,524,624)
(169,276)
(33,142)
(202,418)
$ 5,640,342 $
163,212 $ 5,803,554 $ 7,091,053 $
253,330 $ 7,344,383
Net changes in methods and assumptions summarized in the above tables are further explained as
follows:
Liability reduction related to changes in mortality assumptions are due to normal updates of the Company's
experience studies while changes in 2021 are related to experience updates and changes to the calculation of
mortality improvement used in the valuation of liabilities.
In both 2022 and 2021 the lapse/premium assumption change is related to updates of assumed lapse rates
on renewable term and universal life polices as experience continues to unfold.
The investment return assumption in 2022 is primarily related to an increase in the initial reinvestment rate
(IRR) used in the valuation of the liabilities. This change reflects the increased market rates in 2022. The
changes in 2021 were for similar reasons but to a smaller scale. In addition, 2021 changes were made to the
assumed reinvestment mix used in the calculation of valuation credit spreads and to the CALM risk-free
reinvestment scenario. Also, regular annual updates were made to the preferred share maturity value
assumption.
Empire Life - Annual Report 2022
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
In 2019, the Company enacted significant changes to its reinsurance programs. Specifically, the reinsurers of
the Company’s individual life policies were notified that in 2020 the Company would increase its individual life
retention from $500,000 to $1.5 million and the recapture provisions of all eligible reinsurance treaties would
be enacted. The recapture resulted in a substantial net liability decrease on both the universal life and non-
participating blocks of business as the present value of future reinsurance premiums was greater than the
estimated future claims. Additional amounts were recognized in 2020 and 2021 as provisions from the
actuarial liabilities were released. No such releases occurred in 2022.
(c) Mix of assets allocated to insurance, annuity, investment contract liabilities and equity
Cash and cash equivalents & Short-term investments
$
130,341 $
19,340 $
723 $
34,150 $
184,554
As at December 31, 2022
Insurance
liabilities
Annuity
liabilities
Investment
contract
liabilities
Equity and
other
liabilities
Total
Bonds
Mortgages
Preferred shares
Common shares
Derivative assets
Loans on policies
Policy contract loans
Other
Total
4,124,128
484,377
18,120
2,118,132
6,744,757
93,275
120,282
1,902
11,780
17,359
251,758
789,463
3,492
59,071
269
31,297
—
—
—
14,622
4,804
7,020
18,345
41,064
6,268
—
31,974
119,556
402,165
830,633
9,776
59,979
46,865
106
16
908
—
1,442
291,390
328,933
$
5,407,178 $
736,700 $
34,997 $
2,548,343 $
8,727,218
As at December 31, 2021
Insurance
liabilities
Annuity
liabilities
Investment
contract
liabilities
Equity and
other
liabilities
Total
Cash and cash equivalents & Short-term investments
$
154,696 $
46,514 $
2,499 $
(1,845) $
201,864
Bonds
Mortgages
Preferred shares
Common shares
Derivative assets
Loans on policies
Policy contract loans
Other
Total
5,102,016
25,885
216,149
961,671
2,670
56,197
256
27,041
587,909
114,628
149,182
—
—
—
16,852
4,893
198,079
2,261,456
8,149,460
5,877
8,354
37
—
720
—
971
7,174
67,654
153,564
441,339
57,726
1,019,434
3,632
—
35,700
6,302
56,917
52,808
158,772
191,677
$
6,546,581 $
919,978 $
216,537 $
2,590,269 $
10,273,365
Provisions made for anticipated future losses of principal and interest on investments and included as a
component of insurance contract liabilities are $204,900 (2021 $259,200).
(d) Fair value of insurance and investment contract liabilities and reinsurance assets/liabilities
In the absence of an active market for the sale of insurance and investment contract liabilities and
reinsurance assets/liabilities, the actuarially determined values provide a reasonable approximation of
their fair value. Investment contract liabilities are term certain annuities with a relatively short duration.
(e) Liquidity
The Company defines liquid assets as high quality marketable investments that may be easily sold,
meaning there exists an active market and observable prices for the investments. Liquid asset values are
based on fair value as at the reporting date.
Empire Life - Annual Report 2022
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The Company defines cash demands or demand liabilities as those policyholder obligations that may be
called on immediately at the discretion of the policyholder. More specifically, demand liabilities include
cash surrender values under whole life insurance products as well as current accumulated values of
annuity products. Amounts would be gross of any surrender charge or market value adjustment allowed
under the terms of the contract. Demand liabilities are determined as though all such policyholders made
their call at the same time and as such cannot be readily compared to insurance contract liabilities that are
determined based on actuarial assumptions associated with lapse as well as other decrements.
The Company maintains a high level of liquid assets so that cash demands can be readily met. The
Company’s liquidity position is as follows:
As at December 31
Assets:
Cash and cash equivalents & Short-term investments
Canadian federal and provincial bonds
Other readily-marketable bonds and stocks
Total liquid assets
Liabilities:
Demand liabilities with fixed values
Demand liabilities with market value adjustments
Total liquidity needs
12. Accounts Payable and Other Liabilities
Accounts payable and other liabilities consist of:
As at December 31
Accounts payable
Net post-employment benefit liability (Note 13)
Accrued interest on subordinated debt
Derivative liabilities (Note 3d)
Lease liabilities
Other
Accounts payable and other liabilities
2022
2021
$
$
$
$
184,554 $
2,916,849
4,658,541
7,759,944 $
915,899 $
1,192,870
2,108,769 $
2022
$
82,893 $
—
4,735
3,613
5,509
3,888
$
100,638 $
201,864
4,082,043
4,816,579
9,100,486
875,418
1,227,633
2,103,051
2021
46,406
23,503
4,735
2,429
5,690
12,820
95,583
Of the above total, $4,408 (2021 $28,236) is expected to be settled more than one year after the Consolidated
Statements of Financial Position date. In the absence of an active market for post-employment benefit
liabilities, the actuarially determined value provides a reasonable approximation of fair value. Derivative
liabilities are carried at fair value, as disclosed in Note 3(d). All other amounts are short-term in nature and
their fair value approximates carrying value.
Empire Life - Annual Report 2022
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
13. Employee Benefit Plans
Empire Life sponsors pension and other post-employment benefit plans for eligible employees. The Empire
Life Insurance Company Staff Pension Plan (the Plan) consists of a defined benefit component and a defined
contribution component. The Company discontinued enrolments in the defined benefit component effective
October 1, 2011. The Company has supplemental arrangements that provide defined pension benefits in
excess of statutory limits. In addition to pension benefits, the Company also provides for post-employment
health and dental care coverage and other future benefits to qualifying employees and retirees.
The defined benefit component of the Plan is a final average salary pension plan, which provides benefits to
members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends
on members’ age, length of service and their salary in the final years leading up to retirement. Pensions
generally do not receive inflationary increases once in payment. In the past, however, the Company has
provided ad-hoc pension increases on its defined benefit staff pension plan. Increases take place at the
discretion of the Board. The pension benefit payments are from trustee-administered funds.
The Plan is governed by the Pension Benefits Act of the Province of Ontario, as amended, which requires that
the plan sponsor fund the defined benefits determined under the plan. The Company’s supplemental
employee retirement benefit plan is governed by provisions of the plan, which requires that the plan sponsor
fund the defined benefits determined under the plan. The amount of funds contributed to these defined benefit
pension plans is determined by an actuarial valuation of the Plans.
Under the defined contribution component, contributions are made in accordance with the provisions of the
Plan documents.
A pension committee, composed of selected senior members of management and that of its parent, E-L
Financial Corporation, oversees the Pension Plan of the Company. The Pension Committee reports to the
Human Resources Committee of the Board at least three times each year. The Audit Committee of the Board
approves the audited annual financial statements of the Pension Plan.
The other post-employment benefit plan provides for health, dental care, and other future defined benefits to
qualifying employees and retirees. It is unfunded and the Company meets the benefit payment obligation as it
falls due.
The following tables present financial information for the Company’s defined benefit plans:
Pension benefits
Other post-employment
benefits
As at December 31
Present value of obligations
Fair value of plan assets
Post-employment benefit asset (liability)
Effect of asset limit
2022
2021
2022
$
197,258 $
245,593 $
6,785 $
218,165
20,907
(2,736)
232,426
(13,167)
(1,630)
—
(6,785)
(8,706)
—
—
2021
8,706
—
Net post-employment benefit asset (liability)
$
18,171 $
(14,797) $
(6,785) $
(8,706)
The post-employment benefit asset (liability), net of the cumulative impact of the asset ceiling, is included in
the Consolidated Statements of Financial Position in Accounts payables and other liabilities (Note 12).
Empire Life - Annual Report 2022
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The movement in the present value of the defined benefit obligations over the year is as follows:
Pension benefits
Other post-employment
benefits
As at December 31
2022
2021
2022
Present value of defined benefit obligation - beginning of year
$
245,593 $
280,587 $
8,706 $
Current service cost
Interest expense
Decrease (increase) in net income before tax
Remeasurements
(Gain) loss from changes in demographic assumptions
(Gain) loss from changes in financial assumptions
Actuarial (gain) loss from member experience
Decrease (increase) in OCI before tax
Employee contributions
Benefits paid
5,512
7,476
6,811
6,936
12,988
13,747
—
—
(53,121)
(25,650)
3,715
(112)
(49,406)
(25,762)
1,213
1,249
(13,130)
(24,228)
—
253
253
—
(1,581)
(162)
(1,743)
—
(431)
Present value of defined benefit obligation - end of year
$
197,258 $
245,593 $
6,785 $
The movement in the fair value of the Plan’s defined benefit assets over the year is as follows:
2021
8,919
—
207
207
155
(563)
377
(31)
—
(389)
8,706
As at December 31
Fair value of defined benefit assets - at beginning of year
Interest income
Administrative expense
Increase (decrease) in net income before tax
Remeasurements
Return on plan assets, excluding amounts included in interest income
Increase (decrease) in OCI before tax
Employer contributions
Employee contributions
Benefits paid
Fair value of defined benefit assets - end of year
The change in the asset ceiling/onerous liability over the year is as follows:
As at December 31
Asset ceiling/onerous liability beginning year
Interest income
Change in asset ceiling/onerous liability (excluding interest income)
Asset ceiling/onerous liability end of year
Pension benefits
2022
2021
$
232,426 $
220,979
7,181
(337)
6,844
(16,758)
(16,758)
7,570
1,213
5,519
(291)
5,228
21,969
21,969
7,229
1,249
(13,130)
(24,228)
$
218,165 $
232,426
Pension benefits
2022
1,630 $
51
1,055
2,736 $
2021
—
—
1,630
1,630
$
$
The actual return on defined benefit assets net of administrative expense, for the year ended December 31,
2022 was a loss of $9,914 (2021 gain of $27,197).
Empire Life - Annual Report 2022
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Defined benefit plan expense is recognized in Operating expenses. Remeasurements in the defined benefit
plan are included in OCI. Operating expenses also include $2,964 (2021 $2,488) of employer contributions
related to the defined contribution component of the Plan.
Expected contributions (including both employer and employee amounts) to the Company’s defined benefit
pension plans for the year ending December 31, 2023 are approximately $7,413.
The Plan invests primarily in Empire Life segregated and mutual funds. The fair value of the underlying assets
of the funds and other investments are included in the following table:
As at December 31
2022
2021
Equity
Canadian
Foreign
Total equity
Debt
Canadian
Cash, cash equivalent, accruals
Mutual funds
Other
Total fair value of assets
$
38,626
90,731
129,357
18 % $
41 %
59 %
82,532
57,173
139,705
67,801
31 %
71,278
3,864
8,970
8,173
2 %
4 %
4 %
3,551
9,229
8,663
36 %
24 %
60 %
31 %
2 %
4 %
3 %
$
218,165
100 % $
232,426
100 %
Fair value is determined based on Level 1 inputs for equities and Level 2 inputs for debt.
The following weighted average assumptions were used in actuarial calculations:
As at December 31
Defined benefit obligation as at December 31:
Discount rate - defined benefit obligation
Discount rate - net interest
Rate of compensation increase
Assumed health care cost trend rates at December 31:
Initial health care cost trend rate
Cost trend rate declines to
Year ultimate health care cost trend rate is reached
Pension benefits
Other post-employment
benefits
2022
2021
2022
2021
5% in 2022, 4% in 2023 and 3% thereafter
5.25 %
3.15 %
n/a
n/a
n/a
3.15 %
2.55 %
3.00 %
n/a
n/a
n/a
5.25 %
3.00 %
n/a
5.4 %
4.0 %
2040
3.00 %
2.40 %
n/a
5.4 %
4.0 %
2040
Assumptions (in number of years) relating to future mortality, to determine the defined benefit obligation and the net
benefit cost for the defined benefit pension plans are as follows:
As at December 31
Males aged 65 at measurement date
Females aged 65 at measurement date
Males aged 40 at measurement date
Females aged 40 at measurement date
2022
22.21
24.88
24.04
26.54
2021
22.13
24.81
23.97
26.47
Empire Life - Annual Report 2022
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The following table provides the sensitivity of the defined benefit pension and other post-employment benefit
obligations to changes in significant actuarial assumptions. For each sensitivity test, the impact of a
reasonably possible change in a single factor is shown with other assumptions left unchanged. In practice, this
is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been
applied as when calculating the Post-employment benefit liability recognized within the Consolidated
Statements of Financial Position.
As at December 31, 2022
Discount rate
Rate of compensation increase
Health care cost increase
Life expectancy
As at December 31, 2021
Discount rate
Rate of compensation increase
Health care cost increase
Life expectancy
Impact on Pension Benefit
Obligation
Impact on Other Post
Employment Benefit
Obligations
Change in
assumption
Increase
Decrease
Increase
Decrease
1 % $
1 % $
1 %
(15,443) $
19,111 $
6,351 $
(5,653)
n/a
n/a $
1 year $
3,137 $
(3,265) $
(644) $
n/a
512 $
185 $
531
n/a
(636)
(384)
Impact on pension benefits
Impact on other post
employment benefits
Change in
assumption
Increase
Decrease
Increase
Decrease
1 % $
1 % $
1 %
(24,760) $
31,816 $
10,665 $
(10,099)
n/a
n/a $
1 year $
5,121 $
(5,197) $
(968) $
n/a
760 $
285 $
820
n/a
(932)
(575)
The weighted average duration, in number of years, of the defined benefit obligations are:
As at December 31
Staff pension plan
Supplemental employee retirement plan
Other post-employment benefits
2022
2021
9
7
9
12
9
10
Risks
Through its defined benefit pension plan and the other post-employment benefit plan, the Company is
exposed to a number of risks, the most significant of which are detailed below:
Asset volatility
The Plan obligations are calculated using a discount rate set with reference to corporate bond yields. If Plan
assets underperform against this yield, this will create a deficit. The Plan holds a significant proportion of
equities, which are expected to outperform corporate bonds in the long-term while producing volatility and risk
in the short-term.
Changes in bond yields
A decrease in corporate bond yields will increase Plan obligations, although this will be partially offset by an
increase in the value of the Plans’ bond holdings.
Life expectancy
The majority of the Plans’ obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the Plans’ liabilities. In case of the funded plans, the Pension
Committee ensures that the investment positions are managed in accordance with the investment philosophy
outlined in the investment policy approved by the Human Resources Committee of the Board. The
fundamental philosophy is to achieve acceptably high investment return over the long term without
Empire Life - Annual Report 2022
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
jeopardizing the level of security of the members’ benefits and without introducing too much volatility into the
Company’s future expense. The Company's objective is to match assets to the pension obligations by
investing in equities as well as fixed interest securities. The Company monitors how the duration and the
expected yield of the investments are matching the expected cash outflows arising from the pension
obligations. The Plan has not changed the processes used to manage its risks from previous periods.
Investments are well diversified, such that the failure of any single investment would not have a material
impact on the overall level of assets. The Plan invests primarily in Canadian Bonds and Equities through its
ownership of units in Empire Life segregated and mutual funds.
In February 2023, the Plan withdrew 100% of its investment in Empire Life Aggressive Growth Mutual Fund. The
proceeds were reinvested in exchange traded funds with exposure to Canadian (30%), US (35%) and
International (35%) markets.
The last triennial valuation on the Staff Pension Plan was completed in August 2022, as at December 31,
2021. The next triennial valuation will be completed in 2025, as at December 31, 2024
14. Subordinated Debt
The table below presents the obligations included in Subordinated debt as at December 31.
As at December 31
Series 2017-1(1)
Series 2021-1(2)
Total Subordinated Debt
Fair Value
Interest rate
Earliest par call or
redemption Date
3.664 %
March 15, 2023
2.024 % September 24, 2026
Maturity
Carrying value
Carrying value
2022
2021
2028
2031
$
$
199,964
199,165
399,129 $
374,616 $
199,790
199,068
398,858
401,850
(1) Series 2017-1 Subordinated 3.664% Unsecured Debentures due 2028. From March 15, 2023, interest is payable at 1.53% over CDOR.
(2)
Series 2021-1 Subordinated 2.024% Unsecured Debentures due 2031. From September 24, 2026, interest is payable at 0.67% over CDOR
15. Insurance Premiums
For the year ended December 31
2022
Gross
Reinsurance
ceded
Net
Gross
2021
Reinsurance
ceded
Life premiums
$
609,163 $
(140,415) $
468,748 $
583,034 $
(132,918) $
Health premiums
Total life and health premiums
Annuity premiums
590,879
1,200,042
139,794
(156,651)
(297,066)
(216)
434,228
902,976
139,578
525,119
1,108,153
74,746
(134,295)
(267,213)
(143)
Total insurance premiums
$
1,339,836 $
(297,282) $
1,042,554 $
1,182,899 $
(267,356) $
16. Fee Income
For the year ended December 31
Investment management, policyholder administration and guarantee fees
Surrender charges and other miscellaneous fees
Fee income
2022
272,253 $
10,883
283,136 $
$
$
Net
450,116
390,824
840,940
74,603
915,543
2021
260,409
12,365
272,774
Empire Life - Annual Report 2022
83
Net
182,882
275,935
458,817
171,301
630,118
Net
41,354
14,476
55,830
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
17. Benefits and Expenses
(a) Insurance contract benefits and claims paid
For the year ended December 31
2022
Gross
Reinsurance
ceded
Net
Gross
2021
Reinsurance
ceded
Life claims
Health claims
Total life and health claims
Annuity benefits
$
306,199 $
(100,104) $
206,095 $
260,545 $
(77,663) $
408,843
(91,003)
715,042
(191,107)
150,816
(1,541)
317,840
523,935
149,275
356,449
(80,514)
616,994
(158,177)
172,056
(755)
Benefits and claims paid
$
865,858 $
(192,648) $
673,210 $
789,050 $
(158,932) $
(b) Change in insurance contract liabilities and reinsurance ceded
For the year ended December 31
2022
Gross
Reinsurance
ceded
Net
Gross
2021
Reinsurance
ceded
Life
Health
Total life and health
Annuity
$
(1,317,354) $
(75,674) $
(1,393,028) $
144,478 $
(103,124) $
(42,560)
(16,039)
(58,599)
44,314
(29,838)
(1,359,914)
(91,713)
(1,451,627)
188,792
(132,962)
(90,797)
1,595
(89,202)
(243,200)
1,531
(241,669)
Change in insurance contract liabilities
$
(1,450,711) $
(90,118) $
(1,540,829) $
(54,408) $
(131,431) $
(185,839)
18. Operating Expenses
Operating expenses include the following:
For the year ended December 31
Salary and benefits expense
Professional services
Rent, maintenance and amortization of right-of-use assets
Amortization of property and equipment and intangibles
Other
Total
2022
2021
$
116,533 $
104,923
21,420
27,238
9,924
26,949
15,492
18,306
13,396
24,396
$
202,064 $
176,513
Empire Life - Annual Report 2022
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
19. Income Taxes
(a) Income tax expense
The Company’s income tax expense includes provisions for current and deferred taxes as follows:
For the year ended December 31
Current income tax expense
Deferred income tax expense (benefit)
Relating to the origination and reversal of temporary differences
Income tax expense
2022
70,089 $
(16,688)
53,401 $
$
$
2021
66,751
(2,342)
64,409
During 2022 the Company paid income tax installments totaling $40,277 (2021 $22,790).
(b) Variance from statutory provision
Income taxes provided varies from the expected statutory provision as follows:
For the year ended December 31
Net income before income taxes
Income tax provision at statutory rates
Increase (decrease) resulting from:
Tax paid on dividends
Miscellaneous
Income tax expense
2022
263,816 $
69,595
(10,074)
(6,120)
53,401 $
2021
323,343
85,310
(12,132)
(8,769)
64,409
$
$
The current enacted corporate tax rates as they impact the Company in 2022 stand at 26.38% (2021
26.38%). Expected future tax rates are as follows:
2022
2023
2024
2025
2026
26.38 %
26.38 %
26.38 %
26.38 %
26.38 %
The impact of future enacted corporate tax rates has been taken into consideration in the deferred tax
calculation.
(c) Deferred income taxes
In certain instances the tax basis of assets and liabilities differs from the carrying amount. These
differences will give rise to deferred income taxes, which are reflected on the Consolidated Statements of
Financial Position. These differences arise in the following items:
As at December 31
Insurance contracts
Portfolio investments
Post-employment benefit plans
Other, net
Deferred income tax asset (liability)
2022
(28,005) $
(6,279)
(2,981)
(381)
(37,646) $
2021
(39,452)
(9,553)
6,786
(3,320)
(45,539)
$
$
Of the above total, $37,050 is expected to be paid (2021 $44,663) more than one year after the
Consolidated Statements of Financial Position date.
Empire Life - Annual Report 2022
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The net movement on the deferred income tax account is as follows:
For the year ended December 31
Deferred income tax asset (liability) - beginning of year
Deferred income tax benefit (expense)
Statement of operations
Other comprehensive income
Deferred income tax asset (liability) - end of year
2022
2021
(45,539) $
(35,711)
16,688
(8,795)
(37,646) $
2,342
(12,170)
(45,539)
$
$
(d) Income taxes included in other comprehensive income
Other comprehensive income (loss) is presented net of income taxes.
The following income tax amounts are included in each component of total OCI.
For the year ended December 31
2022
Before tax Tax (provision)
recovery
After tax
Before tax
2021
Tax (provision)
recovery
After tax
Unrealized fair value change on available for
sale investments
Fair value change on available for sale
investments reclassified to net income,
including impairment write downs
Remeasurements of post-employment benefit
liabilities
$
(294,992) $
77,818 $
(217,174) $
(77,892) $
20,664 $
(57,228)
34,286
(9,384)
24,902
1,477
(276)
1,201
33,336
(8,794)
24,542
46,132
(12,171)
33,961
Total other comprehensive income (loss)
$
(227,370) $
59,640 $
(167,730) $
(30,283) $
8,217 $
(22,066)
The following income tax amounts are included in each component of shareholders’ OCI:
For the year ended December 31
2022
Before tax Tax (provision)
recovery
After tax
Before tax
2021
Tax (provision)
recovery
After tax
Unrealized fair value change on available
for sale investments
$
Fair value change on available for sale
investments reclassified to net income,
including impairment write downs
Remeasurements of post-employment
benefit liabilities
Shareholder portion of policyholder other
comprehensive income (loss)
$
(286,369) $
75,544 $
(210,825) $
(77,152) $
20,468 $
(56,684)
33,051
(9,028)
24,023
2,360
(512)
1,848
31,093
(8,202)
22,891
42,979
(11,339)
31,640
(513) $
133 $
(380) $
(116) $
31 $
(85)
Total other comprehensive income (loss) $
(222,738) $
58,447 $
(164,291) $
(31,929) $
8,648 $
(23,281)
Empire Life - Annual Report 2022
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The following income tax amounts are included in each component of policyholders’ OCI:
For the year ended December 31
2022
Before tax Tax (provision)
recovery
After tax
Before tax
2021
Tax (provision)
recovery
After tax
Unrealized fair value change on available
for sale investments
$
Fair value change on available for sale
investments reclassified to net income,
including impairment write downs
Remeasurements of post-employment
benefit liabilities
Shareholder portion of policyholder other
comprehensive income (loss)
(8,623) $
2,274 $
(6,349) $
(740) $
196 $
(544)
1,235
(356)
879
(883)
236
(647)
2,243
(592)
1,651
3,153
(832)
2,321
513
(133)
380
116
(31)
85
Total other comprehensive income (loss) $
(4,632) $
1,193 $
(3,439) $
1,646 $
(431) $
1,215
20. Earnings Per Share
Earnings per share is calculated by dividing common shareholders' net income by the weighted average number
of common shares outstanding. The preferred shares issued (refer to Note 21) do not dilute EPS as the preferred
shares are not convertible into common shares.
Details of the calculation of the net income and the weighted average number of shares used in the EPS
computations are as follows:
For the year ended December 31
Basic and diluted EPS
Common shareholders' net income
Weighted average number of common shares outstanding
Basic and diluted EPS
21. Capital Stock
2022
2021
$
$
204,223 $
985,076
207.32 $
239,036
985,076
242.66
As at
December 31, 2022
December 31, 2021
Shares
authorized
Shares issued
and outstanding
Amount
Shares
authorized
Shares issued
and outstanding
Amount
Preferred shares
Series 3
Limited recourse capital
notes
unlimited
4,000,000 $
100,000
unlimited
4,000,000 $
100,000
200,000 $
200,000
200,000 $
200,000
Common shares
2,000,000
985,076 $
985
2,000,000
985,076 $
985
In the fourth quarter of 2017, Empire Life issued to E-L Financial Corporation Limited 4,000,000 Non-Cumulative
Rate Reset Preferred Shares, Series 3 (Series 3 Preferred Shares) at $25 per share. Holders of Series 3
Preferred Shares are entitled to receive fixed non-cumulative quarterly dividends yielding 4.90% annually, as and
when declared by the Board of Directors of Empire Life, for the initial period ending on and including January 17,
2023. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of
Canada bond yield plus 3.24%. Holders of Series 3 Preferred Shares will have the right, at their option, to convert
their shares into Non-Cumulative Floating Rate Preferred Shares, Series 4 (Series 4 Preferred Shares), subject to
certain conditions, on January 17, 2023 and on January 17 every five years thereafter. Holders of the Series 4
Preferred Shares will be entitled to receive non-cumulative quarterly floating dividends, as and when declared by
the Board of Directors of Empire Life, at a rate equal to the 3-month Government of Canada Treasury Bill yield
plus 3.24%. Subject to regulatory approval, Empire Life may redeem the Series 3 Preferred Shares, in whole or in
part, at par, on January 17, 2023 and every five years thereafter.
Empire Life - Annual Report 2022
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
In the fourth quarter of 2022, Empire Life provided notice to E-L Financial Corporation Limited that it did not intend
to exercise its right to redeem all or any part of the currently outstanding 4,000,000 Series 3 Preferred Shares of
Empire Life on January 17, 2023 and, as a result and subject to certain conditions, the holders of the Series 3
Preferred Shares had the right, at their option, on the Series 3 Conversion Date, to convert all or part of their
Series 3 Preferred Shares on a one-for-one basis into Series 4 Preferred Shares. In early 2023, E-L Financial
irrevocably elected not to exercise this right. Effective January 18, 2023, holders of Series 3 Preferred Shares are
entitled to receive fixed non-cumulative quarterly dividends yielding 6.187% annually, as and when declared by
the Board of Directors of Empire Life, for the renewal period ending on and including January 17, 2028.
Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada
bond yield plus 3.24%.
On February 17, 2021, the Company issued $200 million of Limited Recourse Capital Notes Series 1 (LRCN
Series 1) with recourse limited to assets held by a third party trustee in a trust which is consolidated in these
financial statements. Payments of interest and principal in cash on the LRCN Series 1 are made at the discretion
of the Company and non-payment of interest and principal in cash does not constitute an event of default. In the
event of a non-payment of interest, the sole remedy of noteholders shall be the delivery of the holders’
proportionate share of the trust assets. In such an event, the delivery of the trust assets will represent the full and
complete extinguishment of the Company’s obligations under the LRCN Series 1.
The trust assets consist of $200 million of Empire Life Non-Cumulative 5-year Fixed Rate Reset Preferred Shares,
Series 5 which were issued concurrently with the LRCN Series 1 at a rate of $1,000 per Series 5. Holders of the
LRCN Series 1 are entitled to receive semi-annual payments at a rate of 3.625% per annum until April 17, 2026.
Thereafter, the yield will reset every five years at a rate equal to the 5-year Government of Canada bond yield
plus 3.082%.
22. Dividends
Common shareholder dividends
Common shares
Preferred shareholder dividends
Series 1
Series 3
Dividend
declaration date
Shares issued
and outstanding
Dividend rate
per share
Total dividend
($ 000's)
Dividend
payment date
October 27, 2022
July 28, 2022
April 28, 2022
February 23, 2022
October 28, 2021
July 29, 2021
April 29, 2021
February 24, 2021
February 24, 2021
October 27, 2022
July 28, 2022
April 28, 2022
February 23, 2022
October 28, 2021
July 29, 2021
April 29, 2021
February 24, 2021
985,076
$ 18.450000
985,076
$ 18.450000
985,076
$ 18.450000
985,076
$ 18.450000
985,076
$ 14.210000
985,076
$ 14.212101
985,076
$ 14.212101
985,076
$ 10.635322
5,980,000
4,000,000
4,000,000
4,000,000
4,000,000
4,000,000
4,000,000
4,000,000
4,000,000
$
$
$
$
$
$
$
$
$
0.359375
0.306250
0.306250
0.306250
0.306250
0.306250
0.306250
0.306250
0.306250
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
18,175 December 6, 2022
18,175 September 7, 2022
18,175
June 7, 2022
18,175 March 31, 2022
13,998 December 7, 2021
14,000 September 8, 2021
14,000
June 8, 2021
10,477 April 1, 2021
2,149 April 17, 2021
1,225
January 17, 2023
1,225 October 17, 2022
1,225
July 17, 2022
1,225 April 17, 2022
1,225
January 17, 2022
1,225 October 17, 2021
1,225
July 17, 2021
1,225 April 17, 2021
On February 23, 2023, the Board approved the following cash dividends:
•
•
$18,175 ($18.45 per share) on the issued and outstanding Common Shares, payable on April 4, 2023.
$1,547 ($0.3866875 per share) on the issued and outstanding Series 3 Preferred Shares, payable on April 17,
2023.
Empire Life - Annual Report 2022
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
23. Shareholders' Equity Entitlement
Shareholders’ entitlement to $3,934 (2021 $4,328) of shareholders’ equity is contingent upon future payment
of dividends to participating policyholders.
24. Segmented Information
The Company operates in the Canadian life insurance industry and follows a product line management
approach for internal reporting and decision making. A description of the product lines is as follows:
The Wealth Management product line includes segregated funds, mutual funds, guaranteed interest rate
annuities and annuities providing income for life.
The Group Solutions product line offers group benefit plans to employers for medical, dental, disability,
critical illness and life insurance coverage of their employees.
The Individual Insurance product line includes both non-participating and participating individual life and
health insurance products.
Capital and Surplus is made up of assets held in the shareholders’ and participating policyholders’ equity
accounts, TruStone and other corporate items not allocated to other segments.
Empire Life - Annual Report 2022
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Operating results are segmented into three product lines along with the Company’s capital and surplus
as follows:
For the year ended December 31, 2022
Wealth
Management
Group
Solutions
Individual
Insurance
Capital
& Surplus
Total
Revenue
Gross premiums (Note 15)
$
139,794 $
615,174 $
584,868 $
— $
1,339,836
Premiums ceded to reinsurers (Note 15)
Net premiums (Note 15)
Investment income
(216)
(162,882)
(134,184)
139,578
452,292
450,684
—
—
(297,282)
1,042,554
33,359
8,129
249,552
67,028
358,068
Fair value change in fair value through profit or loss assets
(102,404)
(23,118)
(1,613,281)
1,426
(1,737,377)
Realized gain (loss) on fair value through profit or loss
assets sold
Realized gain (loss) on available for sale assets including
impairment write downs (Note 3)
363
(61)
—
29,598
(9,234)
20,727
(48)
(10)
(33,795)
(33,914)
Fee income
Total revenue
Benefits and expenses
Gross benefits and claims paid (Note 17)
Claims recovery from reinsurers (Note 17)
Gross change in insurance contract liabilities (Note 17)
Change in insurance contract liabilities ceded (Note 17)
Change in investment contracts provision
Policy dividends
Operating expenses
Commissions
Commission recovery from reinsurers
Interest expense
Total benefits and expenses
Premium tax
Investment and capital tax
251,290
322,125
15,441
115
452,696
(883,342)
16,290
41,715
283,136
(66,806)
150,816
(1,541)
(90,797)
1,595
1,088
—
65,145
86,813
—
—
422,839
(93,487)
292,203
(97,620)
16,681
(1,376,595)
(19,354)
(72,359)
—
—
61,864
86,141
(31,429)
—
—
39,773
63,681
100,321
(356)
—
213,119
443,255
(1,050,952)
—
—
11,851
—
10,508
3,452
—
—
—
—
—
—
11,374
7,873
—
18,898
38,145
—
—
865,858
(192,648)
(1,450,711)
(90,118)
1,088
39,773
202,064
281,148
(31,785)
18,898
(356,433)
22,359
3,452
Net income (loss) before income taxes
109,006
(2,410)
153,650
3,570
263,816
Income taxes
Net income
26,537
(697)
28,081
(520)
53,401
$
82,469 $
(1,713) $
125,569 $
4,090 $
210,415
Empire Life - Annual Report 2022
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
For the year ended December 31, 2021
Wealth
Management
Group
Solutions
Individual
Insurance
Capital
& Surplus
Total
Revenue
Gross premiums (Note 15)
$
74,746 $
547,405 $
560,752 $
— $
1,182,903
Premiums ceded to reinsurers (Note 15)
Net premiums (Note 15)
Investment income
Fair value change in fair value through profit or loss assets
Realized gain (loss) on fair value through profit or loss
assets sold
Realized gain (loss) on available for sale assets including
impairment write downs (Note 3)
Fee income
Total revenue
Benefits and expenses
Gross benefits and claims paid (Note 17)
Claims recovery from reinsurers (Note 17)
Gross change in insurance contract liabilities (Note 17)
Change in insurance contract liabilities ceded (Note 17)
Change in investment contracts provision
Policy dividends
Operating expenses
Commissions
Commission recovery from reinsurers
Interest expense
Total benefits and expenses
Premium tax
Investment and capital tax
(143)
(140,075)
(127,142)
74,603
407,330
433,610
35,519
(9,725)
777
3,511
(4,030)
5
226,531
(344,918)
122,588
—
—
64,132
(4,742)
(267,360)
915,543
329,693
(363,415)
(17,761)
105,609
471
430
423
(2,801)
(1,477)
258,532
360,177
13,604
536
102
272,774
420,850
438,770
38,930
1,258,727
172,058
366,419
(757)
(243,200)
1,531
471
—
58,355
84,874
—
—
(80,840)
58,543
(33,022)
—
—
54,948
79,639
(31,170)
—
250,573
(77,335)
130,248
(99,939)
—
36,820
61,818
100,823
(388)
—
73,332
414,517
402,620
—
—
10,520
—
7,709
3,822
—
—
—
—
—
—
1,392
—
—
21,472
22,864
—
—
789,050
(158,932)
(54,409)
(131,430)
471
36,820
176,513
265,336
(31,558)
21,472
913,333
18,229
3,822
Net income (loss) before income taxes
286,845
(4,187)
24,619
16,066
323,343
Income taxes
Net income
71,897
$
214,948 $
(1,657)
(2,530) $
(7,287)
1,456
64,409
31,906 $
14,610 $
258,934
Supplemental information:
Interest income
Wealth
Management
Group
Solutions
Individual
Insurance
Capital
& Surplus
Total
For the year ended December 31, 2022
$
30,105 $
10,235 $
203,273 $
64,867 $
308,480
For the year ended December 31, 2021
27,768
7,416
182,072
54,135
271,391
Amortization of property and equipment and intangibles
For the year ended December 31, 2022
$
For the year ended December 31, 2021
3,836 $
2,394
7,531 $
10,099 $
4,700
6,302
— $
—
21,466
13,396
Empire Life - Annual Report 2022
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Assets are segmented into three product lines along with the Company’s capital and surplus as follows:
Assets excluding segregated funds
Segregated funds
Total assets
For the year ended December 31, 2022
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
$
$
755,544 $
218,208 $
5,205,123 $
2,559,729 $
8,738,604
8,547,562
—
18,113
—
8,565,675
9,303,106 $
218,208 $
5,223,236 $
2,559,729 $ 17,304,279
For the year ended December 31, 2021
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
Assets excluding segregated funds
$
919,978 $
216,545 $
6,546,573 $
2,590,269 $ 10,273,365
Segregated funds
Total assets
9,237,282
—
20,016
—
9,257,298
$
10,157,260 $
216,545 $
6,566,589 $
2,590,269 $ 19,530,663
While specific general fund assets are nominally matched against specific types of general fund liabilities
or held in the shareholders’ and policyholders’ equity accounts, all general fund assets are available to
pay all general fund liabilities, if required. Segregated fund assets are not available to pay liabilities of the
general fund.
25. Commitments and Contingencies
Investment Commitments
In the normal course of business, outstanding investment commitments are not reflected in the Consolidated
Financial Statements. There were $5,543 (December 31, 2021, $21,742) of outstanding commitments as at
December 31, 2022. The outstanding commitments are payable at any time up to and including June 30,
2025.
Other contingencies
The Company operates in the insurance industry and is subject to legal proceedings in the normal course of
business. While it is not practicable to forecast or determine the final results of all pending or threatened legal
proceedings, management does not believe that such proceedings (including litigation) will have a material
effect on its results and financial position.
The Company by-laws provide indemnification to its current and former directors, officers and employees to
the extent permitted by law, against contractual indemnities and liabilities arising from their service to the
Company. The broad general nature of these indemnification by-laws does not permit a reasonable estimate
of the maximum potential amount of any liability.
In certain cases, the Company would have recourse against third parties with respect to the foregoing items
and the Company also maintains insurance policies that may provide coverage against certain of these items.
Empire Life - Annual Report 2022
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
26. Related Party Transactions
The Company is a 98.3% owned subsidiary of E-L Financial Services Limited (ELFS) which in turn is a
100.0% owned subsidiary of E-L Financial Corporation Limited (E-L). E-L owns, directly and indirectly through
ELFS, 99.4% of the common shares of Empire Life. The Company’s ultimate controlling party is The
Honourable Henry N. R. Jackman together with a trust created in 1969 by his father, Henry R. Jackman. In the
normal course of business, the Company enters into transactions with E-L and other companies under
common control or common influence involving the leasing of office property, investment management
services and miscellaneous office services. The amounts earned and expensed were not significant. Some
directors and officers have insurance and investment policies underwritten by the Company.
In the fourth quarter of 2017, the Company issued 4,000,000 Non-Cumulative Rate Reset Preferred Shares,
Series 3 to E-L Financial Corporation Limited at $25 per share. Refer to Note 21 for further details.
Compensation of key management personnel
Key management personnel are comprised of directors and executive officers of the Company. The
remuneration of key management personnel is as follows:
For the year ended December 31
Salaries and other short-term and long-term employee benefits
Post-employment benefits
Total
2022
7,861 $
508
8,369 $
2021
7,260
468
7,728
$
$
Post-employment benefits are comprised of employer current service costs for pension and other post-
employment benefits.
27. Capital Management
The Company aims to manage its regulatory capital in order to meet the regulatory capital adequacy
requirements of the Insurance Companies Act (Canada) as established and monitored by OSFI. OSFI has
implemented the Life Insurance Capital Adequacy Test (LICAT) framework to monitor capital adequacy. Under
this framework, the Company’s capital adequacy is measured as a ratio of Available Capital plus Surplus
Allowance and Eligible Deposits divided by a Base Solvency Buffer. The components of the LICAT ratio are
determined in accordance with the guidelines defined by OSFI. OSFI has established a Supervisory Target
Total Ratio of 100% and a Supervisory Target Core Ratio of 70%. As at December 31, 2022 and December 31,
2021 the Company was in compliance with the applicable regulatory capital ratios.
Empire Life - Annual Report 2022
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
28. Risk Management
The Company is exposed to risks arising from its investing activities and its insurance operations and to
general reputation risk associated with these activities and its ability to manage specific risks. The following
sections describe the principal risks and associated risk management strategies for the risks that management
considers to be most significant in terms of likelihood and the potential adverse impact on the Company:
market, liquidity, credit and product.
Caution related to sensitivities
In the sections that follow, the Company provides sensitivities and risk exposure measures for certain risks.
These include sensitivities due to specific changes in market prices and interest rates, based on the market
prices, interest rates, assets, liabilities and business mix in place as at the calculation dates. The sensitivities
are calculated independently for each risk factor, assuming that all other risk variables remain constant. The
sensitivities do not take into account indirect effects such as potential impacts on goodwill impairments or
valuation allowances on deferred tax assets. Actual results can differ materially from these estimates for a
variety of reasons, including differences in the pattern or distribution of market shocks, the interaction among
these factors when more than one factor changes; changes in actuarial and investment return and future
investment activity assumptions; actual experience differing from the assumptions; changes in business mix,
effective tax rates and other market factors; and the general limitations of the Company’s internal models used
for purposes of these calculations. Changes due to new sales or maturities, asset purchases/sales, or other
management actions could also result in material changes to these reported sensitivities. For these reasons,
the sensitivities should only be viewed as directional estimates of the underlying sensitivities for the respective
factors based on the assumptions outlined, and should not be viewed as predictors for the Company’s future
Net income, OCI, and capital sensitivities. Given the nature of these calculations, the Company cannot provide
assurance that the actual impact will be consistent with the estimates provided. Changes in risk variables in
excess of the ranges illustrated may result in other than proportionate impacts.
(a) Market risk
Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates,
trading prices of equities, real estate and other securities, credit spreads, foreign exchange rates and inflation.
Market risk is directly influenced by the volatility and liquidity in the markets in which the related financial
instruments are traded, expectations of future price and yield movements and the composition of the
Company’s investment portfolio. Under the Canadian insurance accounting and regulatory regime the
Company’s results for any period reflect equity market values and interest rates at the end of the period
through mark-to-market accounting. Consequently, a decline in public equity market values or changes in
interest rates or spreads could result in material changes to net income attributed to shareholders,
increases to regulatory capital requirements and reduction in the Company’s capital ratios.
The Company buys investment quality bonds to support, to a very large extent, the liabilities under the
insurance and annuity policies of the Company. The Company’s investment strategy also includes the use
of publicly-listed common stocks or exchange-traded funds (ETFs) to support the liabilities under its
insurance policies. Cash flows arising from these investments are intended to match the liquidity
requirements of the Company’s policies, within the limits prescribed by the Company. However, if the
Company does not achieve the expected returns underlying the pricing of its products, its operating results
may be adversely affected.
Furthermore, a decrease in the fair value of the Company's common stock portfolio results in reduced
shareholders’ equity, reduced policyholders’ surplus and a reduced LICAT position. Regulatory pressure to
increase capital escalates as the LICAT position approaches OSFI’s supervisory minimum. Net income
would also be reduced if the declines in value are realized through dispositions or recognized in provisions
for impairment.
Empire Life - Annual Report 2022
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The Company manages this risk exposure mainly through investment limits and oversight of its investment
managers by the Chief Investment Officer, Chief Actuary, the Asset Management Committee, and the
Investment Committee of the Board. The Investment Committee actively monitors the investment portfolio
and asset mix.
The Company’s general fund investments are subject to limits established by the Insurance Companies
Act and to investment guidelines established by the Investment Committee of the Board. The investment
guidelines are designed to limit overall investment risk by defining investment objectives, eligible
investments, diversification criteria, exposure, concentration and asset quality limits for eligible
investments by segment. On at least a quarterly basis, management and the Company’s investment
managers report to the Investment Committee, and through the Investment Committee to the Board, on
the performance of general and segregated funds and compliance with the investment guidelines.
The Company has an Asset Management Committee, which meets regularly and reports at least quarterly
to the Investment Committee of the Board. The mandate of the Asset Management Committee includes
monitoring of the matched position of Empire Life’s investments in relation to its liabilities within the
various segments of the Company’s operations. The matching process is designed so that assets
supporting policy liabilities closely match the timing and amount of policy obligations, and to plan for the
appropriate amount of liquidity in order to meet its financial obligations as they fall due. Investments and
asset/liability management guidelines, which are reviewed regularly with the Investment Committee, have
been established to govern these activities. The Asset Management Committee reports regularly to the
Investment Committee on the Company’s matched positions, asset mixes, and investment allocation
decisions relative to the Company’s asset segments.
The Company has established a Capital Management Policy, capital management levels that exceed
regulatory minimums and Financial Condition Testing (FCT) that takes into account the potential effect of
adverse risk scenarios (including adverse market conditions and adverse interest rates) on the Company’s
capital position and liquidity. Management monitors its LICAT position on a regular basis and reports at
least quarterly to the Board on the Company’s LICAT.
For the Company, the most significant market risks are equity risk, interest rate risk and foreign exchange
rate risk.
(1) Equity risk
The Company’s investment portfolio consists primarily of bonds and equity securities and the fair
value of its investments varies according to changes in general economic and securities market
conditions, including volatility and declines in equity markets. Equity market volatility could occur
as a result of general market volatility or as a result of specific social, political or economic events.
A decline in securities markets could have an adverse impact on the return on assets backing
capital, capital adequacy, and the management fees collected on segregated fund contracts,
mutual funds and on index funds within universal life contracts and insurance policy liabilities and
capital requirements, particularly in respect of segregated fund guarantees.
The risk of fluctuation of the market value of the Company’s segregated funds and mutual funds is
generally assumed by the policyholders and unit holders, respectively. Market value variations of
such assets will result in variations in the income of the Company to the extent management fees
are determined in relation to the value of such funds. A significant and steady decline of the
securities markets may result in net losses on such products which could adversely affect the
Company. Additionally, the majority of the Company’s segregated fund products contain
guarantees upon death, maturity or withdrawal, where the guarantee may be triggered by the
market performance of the underlying funds. If a significant market decline is experienced, the
resulting increased cost of providing these guarantees could have an adverse effect on the
Company’s financial position, LICAT position and results of operations. The Company has
reinsured a portion of its segregated fund death benefit guarantee. The Company also has a semi-
static, economic hedging program. The objective of the economic hedging program is to partially
Empire Life - Annual Report 2022
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
protect the Company from possible future LICAT ratio declines that might result from adverse
stock market price changes. The program presently employs put options and futures on key equity
indices. Improper use of these instruments could have an adverse impact on earnings. The
Company manages this risk by applying limits established by the Investment Committee in its
investment guidelines, which set out permitted derivatives and permitted uses for derivatives, as
well as limits to the use of these instruments. In particular, no leverage is permitted in the use of
derivatives and strict counterparty credit restrictions are imposed.
The Company has an Equity Risk Hedging Policy to support general fund economic hedging
programs. The policy outlines objectives, risk limits and authorities associated with its economic
hedging activities. Management monitors its economic hedging activities on a regular basis and
reports, at least quarterly, to the Risk and Capital Committee of the Board on the status of the
economic hedging program.
The Company uses stochastic models to monitor and manage risk associated with segregated
fund guarantees and establishes policyholder liability provisions in accordance with the Standards
of Practice of the CIA. Product development and pricing policies also require consideration of
portfolio risk and capital requirements in the design, development and pricing of the products. The
Chief Actuary reports quarterly to the Risk and Capital Committee of the Board on the nature and
value of the Company’s segregated fund guarantee liabilities, including capital requirements.
The following table summarizes the estimated potential impact on the Company of a change in
global equity markets. The Company uses a 10% increase or decrease in equity markets as a
reasonably possible change in equity markets. The Company has also disclosed the impact of a
20% increase or decrease in its equity market sensitivity. The amounts in the following table
include the effect of Empire Life’s general fund equity risk economic hedging program (described
above). For segregated fund guarantees the level of sensitivity is highly dependent on the level of
the stock market at the time of performing the sensitivity test. If period end equity markets are high
relative to market levels at the time that segregated fund policies were issued, the sensitivity is
reduced. If period end equity markets are low relative to market levels at the time that segregated
fund policies were issued, the sensitivity is increased.
Shareholders' net income (including segregated fund guarantees)*
$
9,099 $
(12,968) $
19,396 $
(83,028)
As at December 31, 2022
10% Increase 10% Decrease
20% Increase 20% Decrease
Policyholders' net income
Shareholders' other comprehensive income
Policyholders' other comprehensive income
$ nil
$ nil
$ nil
$ nil
$
3,023 $
(3,023) $
6,046 $
(6,046)
$ nil
$ nil
$ nil
$ nil
As at December 31, 2021
10% Increase
10% Decrease
20% Increase
20% Decrease
Shareholders' net income (including segregated fund guarantees)*
$
17,836 $
(23,535) $
38,214 $
(80,708)
Policyholders' net income
Shareholders' other comprehensive income
Policyholders' other comprehensive income
$ nil
$ nil
$ nil
$ nil
$
4,250 $
(4,250) $
8,500 $
(8,500)
$ nil
$ nil
$ nil
$ nil
*Includes the estimated impact on fee income net of trailer commissions after tax for a three month period.
For the life insurance business, the Company’s policy is to use equity investments to cover a
portion of the estimated insurance liability cash flows of non-participating life and universal life
products beyond 20 years following the balance sheet date. The value of the liabilities supported
by these equity investments depends on assumptions about the future level of equity markets.
The best-estimate return assumptions for equities are primarily based on long-term historical
averages of total returns (including dividends) for the Canadian equity market, which is 8.9%
Empire Life - Annual Report 2022
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(2021 9.2%). The Company uses an assumption of 7.6% (2021 7.2%) to include provisions for
moderate changes in equity rates of return determined in accordance with Canadian actuarial
standards of practice. The returns are then reduced by margins to determine the net returns used
in the valuation. Changes in the current market would result in changes to these assumptions.
The impact of an immediate change in equity markets is described above. If the change in equity
markets persisted for one year, then a change to the actuarial future equity market return
assumption would be made. For non-participating insurance business, a 1.0% decrease in future
equity market returns would result in an increase to policy liabilities thereby reducing Net income
by approximately $87,300 (2021 $129,800).
The following table identifies the concentration of the Company's common equity holdings in
Empire Life's investment portfolios:
As at December 31
Holdings of common equities in the 10 issuers to which the Company had the greatest exposure
Percentage of total cash and investments
Exposure to the largest single issuer of common equities
Percentage of total cash and investments
(2) Interest rate risk
$
$
2022
574,892 $
6.8 %
348,714 $
4.2 %
2021
709,451
7.0 %
454,457
4.5 %
Interest rate risk arises when economic losses are incurred due to the need to reinvest or divest
during periods of changing interest rates. Changes in interest rates, as a result of the general
market volatility or as a result of specific social, political or economic events, could have an
adverse effect on the Company’s business and profitability in several ways. Certain of the
Company’s product offerings contain guarantees and, if long-term interest rates fall below those
guaranteed rates, the Company may be required to increase policy liabilities against losses,
thereby adversely affecting its operating results. Interest rate changes can also cause
compression of net spread between interest earned on investments and interest credited to
customers, thereby adversely affecting the Company’s operating results.
Rapid declines in interest rates may result in, among other things, increased asset calls and
mortgage prepayments and require reinvestment at significantly lower yields, which could
adversely affect earnings. Additionally, during periods of declining interest rates, bond
redemptions generally increase, resulting in the reinvestment of such funds at lower current rates.
Rapid increases in interest rates may result in, among other things, increased surrenders.
Fluctuations in interest rates may cause losses to the Company due to the need to reinvest or
divest during periods of changing interest rates, which may force the Company to sell investment
assets at a loss. In addition, an interest rate sensitivity mismatch between assets and the liabilities
that they are designated to support could have an adverse effect on the Company’s financial
position and operating results.
The following tables summarize the estimated immediate financial impact on Net income and OCI
as a result of an immediate change in interest rates.
Shareholders' net income
Policyholders' net income
Shareholders' other comprehensive income
Policyholders' other comprehensive income
As at December 31, 2022
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
$
$
$
$
6,049 $
199 $
(7,528) $
10,158 $
(15,641)
(218) $
382 $
(457)
(43,588) $
51,364 $
(79,519) $
110,403
(1,885) $
2,101 $
(3,551) $
4,422
Empire Life - Annual Report 2022
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Shareholders' net income
Policyholders' net income
Shareholders' other comprehensive income
Policyholders' other comprehensive income
As at December 31, 2021
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
$
$
$
$
6,366 $
281 $
(7,068) $
12,109 $
(14,929)
(310) $
538 $
(651)
(52,995) $
62,918 $
(96,042) $
135,784
(1,363) $
1,447 $
(2,647) $
2,974
The computation of policy liabilities takes into account projected investment income net of
investment expenses from the assets supporting policy liabilities, and investment income
expected to be earned on reinvestments. The assets supporting the policy liabilities are
segmented from the assets backing shareholders’ and policyholders’ equity. For life and health
insurance, the projected cash flows from the assets supporting policy liabilities are combined with
estimated future reinvestment rates based on both the current economic outlook and the
Company’s expected future asset mix. In order to provide a margin that recognizes the mismatch
of assets and liabilities, the cash flows are subjected to tests under a wide spectrum of possible
reinvestment scenarios, and the policy liabilities are then adjusted to provide for credible adverse
future scenarios.
In order to match the savings component of policy liabilities that vary with a variety of indices and
currencies, the Company maintains certain equity, bond and currency financial instruments as part
of its general fund assets. Asset-liability mismatch risk for these liabilities is monitored regularly.
For the life insurance business, where the Insurance contract liabilities have a longer term than
most available bonds and mortgages, the Company will need to reinvest net cash flows arising in
the future to extend the duration of its assets. Under the Standards of Practice of the CIA, the
yields assumed for these future reinvestments are related to current interest rates, the current
economic outlook and the Company’s expected future asset mix. The reinvestment assumption
grades from the initial reinvestment rate (IRR) assumption to the ultimate reinvestment rate (URR)
assumption over the rolling 40-year period following the balance sheet date.
The estimated impact of an immediate change in interest rates is described above. If interest rates
increase or decrease during the next year, then a change to the IRR assumption would be
required to take into account the then-current economic outlook. For non-participating insurance
business, a 1.0% decrease in interest rates would cause a decrease in reinvestment assumption
for the next 40-years, resulting in an increase to policy liabilities thereby reducing net income by
approximately $43,700 (2021 $50,800). This assumes no change in the URR assumption.
For investment income expected to be earned on reinvestments beyond the rolling 40-year period,
the Company uses an URR assumption. Under the Canadian Asset Liability Method (CALM), the
URR assumption is prescribed as a long-term ultimate risk-free reinvestment rate of 2.9% (2021
2.9%) plus a maximum amount for credit spreads minus asset default rates of 0.9% (2021 0.9%).
The Company uses a total URR of 3.8% (2021 3.8%). The prescribed level of the URR
assumption may be periodically changed by the Actuarial Standards Board.
In order to provide a margin that recognizes the longer-term mismatch, the cash flows are
subjected to tests under a wide spectrum of possible reinvestment scenarios (as prescribed under
CALM), and the insurance contract liabilities reflect amounts for credible adverse future scenarios.
Empire Life - Annual Report 2022
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
For annuity business, where the timing and amount of the benefit obligations can be more readily
determined, much closer matching of the asset and liability cash flows is possible, and applied,
which helps mitigate the potential impact on the business from a sudden increase or decrease in
interest rates. For annuity business, the impact a 1.0% decrease in assumed IRR has on policy
liabilities and subsequently on Net income is negligible as a result of the matching process
described above.
Interest rate risk in Empire Life's investment portfolio is managed through Investment Committee
established limits and regular reporting by management to the Investment Committee and the
Board. The Company’s investment guidelines establish investment objectives and eligible interest
rate sensitive investments, as well as establish diversification criteria, exposure, concentration
and asset quality limits for these investments. The Asset Management Committee oversees
sensitivity to interest rates. The objective is to maximize investment yields while managing the
default, liquidity and reinvestment risks at acceptable levels and within risk tolerances. Product
development and pricing policies and practices also require consideration of interest rate risk in
the design, development and pricing of the products.
(3) Foreign exchange rate risk
Foreign exchange rate risk arises when the fair value of cash flows of a financial instrument
fluctuate due to changes in exchange rates. This can create an adverse effect on earnings and
equity when measured in the Company’s functional currency.
The Company’s primary foreign currency exposure arises from portfolio investments denominated
in US dollars. A 10% fluctuation in the US dollar would have an impact of approximately $ nil
(2021 $ nil) on shareholders' Net income, $ nil (2021 $ nil) on policyholder's Net income, $ nil
(2021 $ nil) on shareholders’ OCI and $ nil (2021 $ nil) on policyholders’ OCI. The Company’s
exposure to foreign currency risk in its financial liabilities is not material.
The Company uses derivative instruments, including futures contracts and foreign currency
forward contracts, to manage foreign exchange risks. Improper use of these instruments could
have an adverse impact on earnings. The Company manages this risk by applying limits
established by the Investment Committee in its investment guidelines, which set out permitted
derivatives and permitted uses for derivatives, as well as limits to the use of these instruments. In
particular, no leverage is permitted in the use of derivatives and strict counterparty credit
restrictions are imposed.
The Company has a Foreign Exchange Risk Management Policy which outlines objectives, risk
limits and authority associated with any foreign exchange rate exposure. Oversight and
management of this policy falls under the responsibility of the Asset Management Committee,
which reports exposures and any breaches to the Risk and Capital Committee of the Board.
(b) Liquidity risk
Liquidity risk is the risk that an entity will not be able to fund all cash outflow commitments or
obligations as they fall due or that, in order to fund commitments, an entity may have to sell assets at
depressed prices resulting in losses at time of sale. Cash outflows could be in the form of benefit
payments to policyholders, expenses, asset purchases and interest on debt. The majority of the
Company’s obligations relate to its policy liabilities, the duration of which varies by line of business
and expectations relating to key policyholder actions or events (i.e., cash withdrawal, mortality, and
morbidity). The remaining obligations of the Company relate to the subordinated debt (refer to Note 14
- Subordinated Debt) and the Limited Recourse Capital Notes, and to ongoing operating expenses as
they fall due, which are expected to settle in a very short period of time.
The Company’s liquidity risk management strategy is to ensure that there will be sufficient cash to
meet all financial commitments and obligations as they become due.
Empire Life - Annual Report 2022
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
The Company’s liquidity risk management program is monitored by management and by the Board of
the Company through regular reporting to the Investment Committee. The Company monitors its cash
flow obligations and meets its liquidity needs by holding high quality marketable investments that may
be easily sold, if necessary, and by maintaining a portion of investments in cash and short-term
investments.
The Company maintains a liquidity policy requiring an assessment of the Company’s liquidity risk and
specific procedures so that liquidity needs are met. Compliance with the policy is monitored by the
Asset Management Committee and exposures and breaches are reported to the Investment
Committee of the Board. The Company’s current liquidity position as at December 31 is provided in a
table in Note 11(e). Based on the Company’s historical cash flows and current financial performance,
management believes that the cash flows from the Company’s operating activities will continue to
provide sufficient liquidity for the Company to satisfy debt service obligations and to pay other
expenses.
The following table shows details of the expected maturity profile of the Company's undiscounted
obligations with respect to its financial liabilities and estimated cash flows of policy liabilities.
Subordinated debt that are not due at a single maturity date are included in the tables in the year of
final maturity. Actual maturities could differ from contractual maturities because of the borrower’s right
to call or extend prepay obligations, with or without prepayment penalties. Policy liability cash flows
include estimates related to the timing and payment of death and disability claims, policy maturities,
annuity payments, policyholder dividends, amounts on deposit, commission and premium taxes offset
by contractual future premiums and fees on in-force business. Recoverables from reinsurance
agreements are also reflected. Segregated fund liabilities are excluded from this analysis. These
estimated cash flows are based on the best estimate assumptions, with margins for adverse
deviations, used in the determination of policy liabilities. The actuarial and other policy liability
amounts included in the Company's 2022 Consolidated Financial Statements are based on the
present value of the estimated cash flows. Due to the use of assumptions, actual cash flows will differ
from these estimates.
Insurance contract liabilities
Investment contract liabilities
Subordinated debt
Preferred shares
Limited recourse capital notes
Accounts payable and Other liabilities
As at December 31, 2022
1 year or less
1 - 5 years
5 - 10 years
Over 10 years
Total
$
76,242 $
271,902 $
776,718 $
26,503,823 $
27,628,685
3,554
14,726
5,865
7,250
330,508
13,637
69,672
24,748
39,024
30,117
10,092
439,308
101,547
248,668
—
7,011
—
—
—
—
34,294
523,706
132,160
294,942
360,625
Total
$
438,145 $
449,100 $
1,576,333 $
26,510,834 $
28,974,412
Insurance contract liabilities
Investment contract liabilities
Subordinated debt
Preferred shares
Limited recourse capital notes
Accounts payable and Other liabilities
As at December 31, 2021
1 year or less
1 - 5 years
5 - 10 years
Over 10 years
Total
$
69,210 $
175,021 $
706,802 $
25,147,726 $
26,098,759
3,365
11,548
4,900
7,250
266,240
13,457
228,852
101,225
33,296
40,104
10,686
206,760
—
261,646
24,339
7,840
—
—
—
—
35,348
447,160
106,125
302,192
330,683
Total
$
362,513 $
591,955 $
1,210,233 $
25,155,566 $
27,320,267
The Asset Management Committee, which meets regularly, monitors the matched position of the
Company’s investments in relation to its liabilities within the various segments of its operations. The
matching process is designed to require that assets supporting policy liabilities closely match, to the
extent possible, the timing and amount of policy obligations, and to plan for the appropriate amount of
Empire Life - Annual Report 2022
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
liquidity in order to meet its financial obligations as they fall due. The Company maintains a portion of
its investments in cash, cash equivalents and short-term investments to meet its short-term funding
requirements. As at December 31, 2022, 2.2% (2021 2.0%) of cash and investments were held in
these shorter duration investments.
(c) Credit risk
Credit risk is the possibility of loss from amounts either owed by financial counterparties, such as
debtors, reinsurers and other financial institutions, or in connection with issuers of securities held in an
asset portfolio. The Company is subject to credit risk which arises from debtors or counterparties who
are unable to meet their obligations under debt or derivative instruments. This credit risk is derived
primarily from investments in bonds, debentures, preferred shares, cash and cash equivalents,
mortgages and from reinsurers under reinsurance agreements.
The Company manages this risk by applying its investment guidelines and reinsurance risk
management policy established by the Investment Committee and Risk and Capital Committee of the
Board respectively. The investment guidelines establish minimum credit ratings for issuers of bonds,
debentures and preferred share investments, and provide for concentration limits by issuer of such
debt instruments. Management and Board committees review credit quality relative to investment
purchases and also monitor the credit quality of invested assets over time. Management reports
regularly to the Investment Committee of the Company’s Board on the credit risk to which the portfolio
is exposed. The Reinsurance Risk Management Policy (along with supporting material in the Product
Design and Pricing Risk Management Policy) establishes reinsurance objectives and limits, and
requires ongoing evaluation of reinsurers for financial soundness. The Company enters into long-term
reinsurance agreements only with reinsurance companies that have a credit rating of “A-” or better.
Credit risk analysis includes the consideration of credit spreads. From an investment perspective,
when buying credit the Company is guided by two principles; first that there is a high likelihood of
return of principal and second that there is an acceptable return on investment. The Company looks to
obtain a risk/reward balance that aligns with its objectives and risk philosophy. When determining
Insurance contract liabilities, credit spreads and changes in credit spreads are reflected in the interest
rate assumption.
The Company has the following assets that are exposed to credit risk:
As at December 31
Cash and cash equivalents
Short-term investments
Bonds
Preferred shares
Derivative assets
Mortgages
Reinsurance
Loans on policies
Policy contract loans
Accrued investment income
Insurance receivables
Trade accounts receivable
Total
$
2022
175,523 $
9,031
2021
193,217
8,647
6,744,757
8,149,460
402,165
9,776
119,556
192,058
59,979
46,865
50,291
81,083
8,506
441,339
6,302
153,564
175,933
56,917
52,808
42,379
48,700
6,696
$
7,899,590 $
9,335,962
Mortgages, Loans on policies and Policy contract loans are fully or partially secured.
The Company has made provision in its Consolidated Statements of Financial Position for credit
losses. Provisions have been made partly through reduction in the value of the assets (see Note 3(b))
and partly through a provision in policy liabilities (see Note 11(c)).
Empire Life - Annual Report 2022
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Concentration of credit risk
(1) Bonds and debentures
The concentration of the Company’s bond portfolio by investment grade is as follows:
As at December 31
2022
2021
AAA
AA
A
BBB
BB (and lower ratings)
Total
Fair value
% of Fair value
Fair value
% of Fair value
$
351,680
1,537,528
3,078,452
1,731,033
46,064
5 % $
23 %
45 %
26 %
1 %
484,746
2,059,678
3,879,522
1,681,358
44,156
6 %
25 %
47 %
21 %
1 %
$
6,744,757
100 % $
8,149,460
100 %
Credit ratings are normally obtained from Standard & Poor's (S&P) and Dominion Bond Rating
Service (DBRS). In the event of a split rating, the lower rating is used. Issues not rated by a
recognized rating agency are rated internally by the Investment Department. The internal rating
assessment is documented referencing suitable comparable investments rated by recognized
rating agencies and/or methodologies used by recognized rating agencies.
Provincial bonds represent the largest concentration in the bond portfolio, as follows:
As at December 31
Provincial bond holdings
Percentage of total bond holdings
2022
2021
$
2,730,730 $
3,739,035
40.5 %
45.9 %
The following table profiles the bond portfolio by contractual maturity, using the earliest contractual
maturity date:
As at December 31
2022
2021
1 year or less
1 - 5 years
5 - 10 years
Over 10 years
Total
Fair value
% of Fair value
Fair value
% of Fair value
$
393,179
816,633
504,238
5,030,707
6 % $
12 %
7 %
75 %
150,713
991,282
757,588
6,249,877
$
6,744,757
100 % $
8,149,460
2 %
12 %
9 %
77 %
100 %
The following table discloses the Company's holdings of fixed income securities in the 10 issuers
(excluding the federal government) to which the Company had the greatest exposure, as well as
exposure to the largest single issuer of corporate bonds.
As at December 31
Holdings of fixed income securities* in the 10 issuers (excluding federal governments) to which the
Company had the greatest exposure
Percentage of total cash and investments
Exposure to the largest single issuer of corporate bonds
Percentage of total cash and investments
*Fixed income securities include bonds, debentures, preferred shares and short-term investments.
$
$
2022
2021
3,384,587 $
4,416,034
40.3 %
167,572 $
2.0 %
43.8 %
269,638
2.7 %
(2) Preferred shares
The Company’s preferred share investments are all issued by Canadian companies, with 1%
(2021 1%) rated as P1, 99% rated as P2 (2021 96%) and 0% (2021 3%) rated as P3.
Empire Life - Annual Report 2022
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(3) Mortgages
Mortgages in the province of Ontario represent the largest concentration with $119,556 or
100% (2021 $153,564 or 100%) of the total mortgage portfolio.
(d) Product risk
The Company provides a broad range of life insurance, health insurance and wealth management
products, employee benefit plans, and financial services that are concentrated by product line as
follows:
(millions of dollars)
Wealth
Management
Group Solutions
Individual
Insurance
Capital
& Surplus
Total
For the year ended December 31
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Net premium income
Fee and other income
Total
$ 139.6 $
74.6 $ 452.3 $ 407.3 $ 450.7 $ 433.6 $
— $
— $ 1,042.6 $ 915.5
251.3
258.5
15.4
13.6
0.1
0.5
16.3
0.1
283.1
272.7
$ 390.9 $ 333.1 $ 467.7 $ 420.9 $ 450.8 $ 434.1 $
16.3 $
0.1 $ 1,325.7 $ 1,188.2
Product risk is the risk that actual experience related to claims, benefit payments, expenses, cost of
embedded product options and cost of guarantees associated with product risks, does not emerge as
expected. The Company is exposed to various categories of product risk as a result of the business it
writes, including: mortality, policyholder behaviour (termination or lapse), expenses, morbidity,
longevity, product design and pricing, underwriting and claims and reinsurance.
Economic and environmental events, such as natural disasters, human-made disasters as well as
pandemics, could occur in regions where Empire Life has significant insurance coverage, impacting
financial results. The Company regularly evaluates its exposure to foreseeable risks through stress
testing techniques including FCT analysis.
The principal risk the Company faces under insurance contracts is the risk that experience on claims,
policy lapses and operating expenses will not emerge as expected. To the extent that emerging
experience is more favourable than assumed in the valuation, income will emerge. If emerging
experience is less favourable, losses will result. Therefore, the objective of the Company is to
establish sufficient insurance liabilities to cover these obligations with reasonable certainty.
The computation of insurance liabilities and related reinsurance recoverable requires “best estimate”
assumptions covering the remaining life of the policies. Assumptions in use are based on past
experience, current internal data, external market indices and benchmarks which reflect current
observable market trends and other published information. These assumptions are made for mortality,
morbidity, longevity, lapse, expenses, inflation and taxes. Due to the long-term risks and measurement
uncertainties inherent in the life insurance business, a margin for adverse deviations from best
estimates is calculated separately for each variable and included in policy liabilities. These margins
are intended to allow for possible deterioration in experience and to provide greater confidence that
policy liabilities are adequate to pay future benefits. The effect of these margins is to increase policy
liabilities over the best estimate assumptions.
The margins for adverse deviation used by the Company are within the target range established by
the CIA. A correspondingly larger margin is included in the insurance contract liabilities if an
assumption is susceptible to change or if there is more uncertainty about the best estimate
assumption. Each margin is reviewed annually for continued appropriateness.
Empire Life - Annual Report 2022
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Policy liability assumptions are reviewed and updated at least annually by the Company’s Appointed
Actuary. The impact of changes in those assumptions is reflected in earnings in the year of the
change. Details related to the changes in assumptions are also discussed with the Audit Committee of
the Board. The methods for arriving at the most material of these assumptions are outlined below.
Also included are measures of the Company’s estimated net income sensitivity to changes in best
estimate assumptions in the non-participating insurance liabilities, based on a starting point and
business mix as of December 31, 2022. For participating business it is assumed that changes will
occur in policyholder dividend scales corresponding to changes in best estimate assumptions such
that the net change in participating insurance contract liabilities is immaterial.
(1) Mortality
The Company carries out an annual mortality study. The valuation mortality assumptions are
based on a combination of Company experience and recent CIA industry experience. An increase
in the rate of mortality will lead to a larger number of claims (and claims could occur sooner than
anticipated), which for life insurance, will increase expenditures and reduce profits for the
shareholders.
For non-participating insurance business, a 2.0% increase in the best estimate mortality
assumption would increase policy liabilities thereby decreasing Net income by approximately
$16,000 (2021 $18,600).
For annuity business, lower mortality (or longevity) is financially adverse so a 2.0% decrease in
the best estimate mortality assumption would increase policy liabilities thereby decreasing Net
income by approximately $2,800 (2021 $3,200).
(2) Policyholder behaviour (termination or lapse)
Policy termination (lapse) and surrender assumptions are based on a combination of the
Company’s own internal termination studies and recent CIA industry experience. Separate policy
termination assumptions are used for permanent cash-value business, for renewable term
insurance, term insurance to age 100 and for universal life insurance. In setting policy termination
rates for renewable term insurance, it is assumed that extra lapses will occur at each renewal
point and that healthy policyholders are more likely to lapse at that time than those who have
become uninsurable.
Acquisition costs may not be recovered fully if lapses in the early policy years exceed the
expected lapse assumptions. An increase in policy termination rates early in the life of the policy
would tend to reduce profits for shareholders. An increase in policy termination rates later in the
life of the policy would tend to increase profits for shareholders if the product is lapse supported
(such as term insurance to age 100), but decrease shareholder profits for other types of policies.
For non-participating insurance and annuity business, a 10.0% adverse change in the lapse
assumption would result in an increase to policy liabilities thereby decreasing Net income by
approximately $140,000 (2021 $173,500). For products where fewer terminations would be
financially adverse to the Company, the change is applied as a decrease to the lapse assumption.
Alternatively, for products where more terminations would be financially adverse to the Company,
the change is applied as an increase to the lapse assumption.
(3) Expenses
Policy liabilities provide for the future expense of administering policies in force, renewal
commissions, general expenses and taxes. Expenses associated with policy acquisition and issue
are specifically excluded. The future expense assumption is derived from internal cost studies and
includes an assumption for inflation.
An increase in the level of expenses would result in an increase in expenditure thereby reducing
profits for the shareholders.
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104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
For non-participating insurance business and annuity business combined, a 5% increase in the
maintenance expense assumption would result in an increase to policy liabilities thereby reducing
net income by approximately $6,800 (2021 $6,800).
(4) Morbidity
The Company carries out annual internal studies of its own morbidity experience where morbidity
refers to both the rates of accident or sickness and the rates of recovery from the accident or
sickness. The valuation assumptions are based on a combination of internal experience and
recent CIA industry experience.
For individual and group critical illness business, the incidence rates (or rates of accident or
sickness) are the key assumption related to morbidity. An increase in incidence rates would result
in an increase in the number of claims which increases expenditures and reduces shareholders’
profits. For group long-term disability business the termination rates (or rates of recovery) are the
key assumption related to morbidity. A decrease in termination rates would result in disability
claims persisting longer which increases expenditures.
For non-participating insurance business where morbidity is a significant assumption, a 5%
adverse change in the assumption would result in an increase to policy liabilities thereby reducing
Net income by approximately $8,300 (2021 $9,100).
(5) Product design and pricing risk
The Company is subject to the risk of financial loss resulting from transacting insurance business
where the costs and liabilities assumed in respect of a product exceed the expectations reflected
in the pricing of the product. This risk may be due to an inadequate assessment of market needs,
a poor estimate of the future experience of several factors, such as mortality, morbidity, lapse,
future returns on investments, expenses and taxes, as well as the introduction of new products
that could adversely impact the future behaviour of policyholders.
For certain types of contracts, all or part of this risk may be shared with or transferred to the
policyholder through dividends and experience rating refunds or through the fact that the
Company can adjust the premiums or future benefits if experience turns out to be different than
expected. For other types of contracts, the Company assumes the entire risk and thus must carry
out a full valuation of the commitments in this regard. Empire Life may transfer some of this risk
through a reinsurance arrangement.
The Company manages product design and pricing risk through a variety of enterprise-wide
programs and controls. The key programs and controls are described as follows. The Company
has established policy liabilities in accordance with standards set forth by the CIA. Experience
studies (both Company-specific and industry level) are factored into ongoing valuation, renewal
and new business processes so that policy liabilities, as well as product design and pricing, take
into account emerging experience. The Company has established an active capital management
process that includes a Capital Management Policy and capital management levels that exceed
regulatory minimums. As prescribed by regulatory authorities, the Appointed Actuary conducts
FCT and reports annually to the Audit Committee on the Company’s financial condition, outlining
the impact on capital levels should future experience be adverse. The Company has a Product
Design and Pricing Risk Management Policy governing all of its major product lines. This policy,
which is established by the Product Management Review Committee ("PMRC") and approved by
the Risk and Capital Committee of the Board, defines the Company’s product design and pricing
risk management philosophy. The policy sets out principles for prudent product design and pricing,
approval authorities, product concentration limits, and required product development monitoring
processes and controls.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(6) Underwriting and claims risk
The Company is subject to the risk of financial loss resulting from the selection and underwriting
of risks to be insured and from the adjudication and settlement of claims. Many of the Company’s
individual insurance and group disability products provide benefits over the policyholder’s lifetime.
Actual claims experience may differ from the mortality and morbidity assumptions used to
calculate the related premiums. Catastrophic events such as earthquakes, acts of terrorism or an
influenza pandemic in Canada could result in adverse claims experience.
In addition to the risk management controls described above under Product Design and Pricing
Risk, the Company also manages underwriting and claims risk through its Underwriting and
Liability Risk Management Policy which governs each of its major product lines. This policy is
established by the PMRC and approved by the Risk and Capital Committee of the Board. It
defines the Company’s underwriting and claims management philosophy and sets out principles
for prudent underwriting and claims management including, underwriting classification, claims
requirements, approval authorities and limits, and ongoing risk monitoring. The Company uses
reinsurance to mitigate excessive exposure to adverse mortality and morbidity experience. The
PMRC reviews and establishes retention limits for its various product lines and the Risk and
Capital Committee of the Board recommends changes to these retention limits for approval by the
Board.
(7) Reinsurance risk
The Company is subject to the risk of financial loss due to inadequate reinsurance coverage or a
default of a reinsurer. Amounts reinsured per life vary according to the type of protection and the
product. The Company also maintains a catastrophe reinsurance program, which provides
protection in the event that multiple insured lives perish in a common accident or catastrophic
event. Although the Company relies on reinsurance to mitigate excessive exposure to adverse
mortality and morbidity experience, reinsurance does not release it from its primary commitments
to its policyholders and it is exposed to the credit risk associated with the amounts ceded to
reinsurers. The availability and cost of reinsurance are subject to prevailing reinsurance market
conditions, both in terms of price and availability, which can also affect earnings.
The Reinsurance Risk Management Policy establishes reinsurance objectives and limits, and
requires ongoing evaluation of reinsurers for financial soundness. As reinsurance does not
release a company from its primary commitments to its policyholders, an ongoing oversight
process is critical. The PMRC reports annually to the Risk and Capital Committee of the Board on
reinsurance activities. Most of Empire Life’s reinsurance is on an excess basis, meaning Empire
Life retains 100% of the risk up to its retention level. Effective April 1, 2020, Empire Life updated
its single life retention limit for new business to $1,500 in face amount (previously $500). For
some insurance risk categories and/or products, retention levels below this maximum are applied.
Reinsurance is used to limit losses, minimize exposure to significant risks and to provide capacity
for growth. As a result of the retention limit increase, recapture provisions of all eligible
reinsurance treaties were exercised commencing April 1, 2020. These activities result in an
increase in product risk for Empire Life, which it deems acceptable.
The Company does not have any assumed reinsurance business.
Empire Life - Annual Report 2022
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
(e) Significant Developments
The Russian war with Ukraine and the resulting sanctions have negatively impacted global economic
growth forecasts. Further, the novel coronavirus (or COVID-19) continues to impact international business
operations, supply chains, travel, commodity prices, consumer confidence and business forecasts. These
factors have led to higher levels of inflation and have created increased uncertainty and volatility, which
impact the Company’s investment portfolios.
Management is monitoring the developments in equity markets generally, and their effects on the
Company’s investment portfolios in particular. The duration and impacts of these events cannot currently
be determined. Unexpected developments in financial markets and regulatory environments, may also
have adverse impacts on the Company’s financial results.
The Company has considered these events and their effects when applying the measurement techniques
for critical accounting estimates and judgments provided in Note 2(c). The potential effect on the
Company's financial results due to fluctuations in equity markets and interest rates are provided in Note
28(a).
29. Business Acquisition
On March 10, 2022, the Company acquired 100% of the shares of six financial services firms and
amalgamated them into one wholly-owned subsidiary of Empire Life under the name TruStone Financial Inc.
("TruStone Financial"). The six purchased agencies are Life Management Financial Group Ltd., LMF Investor
Services Inc., Paradigm Financial Advisors (North) Inc., Paradigm Financial Advisors Inc., Dwight Goertz &
Associates Insurance Agency Limited, and Pacific Place Financial Services Inc. The acquisitions support the
Company's commitment to facilitating access to independent financial advice for Canadians.
Total consideration for the 100% acquisition of TruStone Financial was paid with $57,910 in cash. The
purchase price is primarily comprised of goodwill and intangible assets, including customer relationships,
distributor relationships, and non-competition agreement.
The fair values of the identifiable assets acquired and liabilities assumed were:
As at
Intangible assets
Other net assets
Total identifiable net assets at fair value
Goodwill arising on acquisition (Note 8)
Total consideration
March 10, 2022
32,500
945
33,445
24,465
57,910
$
$
The fair values of the identifiable assets and liabilities are subject to refinement and may be adjusted to
incorporate new information about the facts and circumstances that existed on acquisition during the
measurement period.
Empire Life - Annual Report 2022
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
30. Subsequent Events
(a) Debenture Issue
On January 13, 2023, the Company issued $200 million principal amount of unsecured debentures with a maturity
date of January 13, 2033. The net proceeds of the issue will be used for regulatory capital purposes and for
general corporate purposes which may include the redemption of outstanding debt.
The interest rate from January 13, 2023 to January 13, 2028 is 5.503% payable semi-annually until the interest
reset date, which is January 13, 2028. The interest rate from January 13, 2028 until January 13, 2033 is the daily
compounded Canadian Overnight Repo Rate Average (CORRA) plus 2.26%, payable quarterly.
The Company may call for redemption of the debentures any time after January 13, 2028 subject to the prior
written approval of OSFI.
The debentures are subordinated in right of payment to all policy contract liabilities of the Company and all other
senior indebtedness of the Company.
(b) Debenture Redemption
On February 7, 2023 the Company announced that it intends to redeem, on March 15, 2023 (the “Redemption
Date”), all of its outstanding $200 million 3.664% Unsecured Subordinated Debentures, Series 2017-1 due March
15, 2028 (the “Notes”). Notice will be delivered to the Note holders in accordance with the terms and conditions
set forth in the related trust indenture. Interest on the Notes will cease to accrue from and after the Redemption
Date.
The redemption has been approved by the OSFI.
Empire Life - Annual Report 2022
108
GLOSSARY OF TERMS (unaudited)
Accumulated Other Comprehensive Income (AOCI)
A separate component of shareholders’ and policyholders’ equity which includes net unrealized gains and losses on
available for sale securities, unamortized gains and losses on cash flow hedges, unrealized foreign currency
translation gains and losses and remeasurement of post-employment benefit liabilities. These items have been
recognized in comprehensive income, but excluded from net income.
Active Market
An active market is a market in which the items traded are homogeneous, willing buyers and sellers can normally be
found at any time and prices are available to the public.
Available For Sale (AFS) Finance Assets
Non-derivative financial assets that are designated as AFS or that are not classified as loans and receivables, held to
maturity investments, or held for trading. Most financial assets supporting capital and surplus are classified as AFS.
Canadian Asset Liability Method (CALM)
The prescribed method for valuation of policy liabilities in Canada. CALM is a prospective basis of valuation which
uses the full gross premium for the policy, the estimated expenses and obligations under the policy, current expected
experience assumptions plus a margin for adverse deviations, and scenario testing to assess interest rate risk and
market risks.
Canadian Institute of Actuaries (CIA)
As the national organization of the Canadian actuarial profession, the CIA means to serve the public through the
provision by the profession of actuarial services and advice of the highest quality. The CIA ensures that the actuarial
services provided by its members meet accepted professional standards; and assists actuaries in Canada in the
discharge of their professional responsibilities.
Canadian Life and Health Insurance Association (CLHIA)
The Canadian Life and Health Insurance Association (CLHIA) is an organization representing life insurance and
health insurance providers in Canada. The industry develops guidelines, voluntarily and proactively, to respond to
emerging issues and to ensure consumer interests are protected.
Chartered Professional Accountants of Canada (CPA Canada)
Canada's not-for-profit association for Chartered Professional Accountants (CPA) provides information and guidance
to its members, students and capital markets. Working in collaboration with its provincial member organizations, CPA
Canada supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations
and government, and develops and delivers education programs.
Earnings on Surplus
This source of earnings represents the pre-tax earnings on the shareholders’ capital and surplus funds.
Effective Interest Method
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability
and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument
or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
Expected Profit from In-Force Business
This source of earnings represents the profit Empire Life expects to generate on in-force business if experience is in
line with the Empire Life’s best estimate assumptions for mortality, morbidity, persistency, investment returns,
expenses and taxes.
Experience Gains and Losses
This source of earnings represents gains or losses due to the difference between actual experience and the best
estimate assumptions.
Empire Life - Annual Report 2022
109
GLOSSARY OF TERMS (unaudited)
Fair Value Through Profit or Loss (FVTPL)
Invested assets are classified as financial instruments at FVTPL if they are held for trading, or if they are designated
by management under the fair value option. Most financial assets supporting insurance contract liabilities and
investment contract liabilities are classified as FVTPL.
Impact on New Business
Writing new business typically adds economic value to a life insurance company. At the point of sale, new business
may have a positive or negative impact on earnings. A negative impact (new business strain) will result when the
provision for adverse deviation included in the actuarial liabilities at the point of sale exceeds the expected profit
margin in the product pricing. The impact of new business also includes any excess acquisition expenses not covered
by product pricing at the point of issue.
International Financial Reporting Standards (IFRS)
Refers to the international accounting standards that were adopted in Canada, effective January 1, 2011; these are
now Canadian Generally Accepted Accounting Principles (CGAAP) for publicly accountable enterprises.
Life Insurance Capital Adequacy Test (LICAT)
The LICAT measures the capital adequacy of an insurer and is one of several indicators used by OSFI to assess an
insurer's financial condition. The LICAT Ratio is the ratio of eligible capital to the base solvency buffer, each as
calculated under OSFI's published guidelines.
Management Actions and Changes in Assumptions
This source of earnings component includes earnings generated by management actions during the year (e.g.,
acquisition or sale of a block of business, changes to product price, fees or asset mix, etc.) or the impact of changes
in assumptions or methodology used for the calculation of actuarial liabilities for in-force business.
Other Comprehensive Income (OCI)
Unrealized gains and losses, primarily on financial assets backing Capital and Surplus, are recorded as Other
Comprehensive Income (“OCI”) or Other Comprehensive Loss (“OCL”). When these assets are sold or written down
the resulting gain or loss is reclassified from OCI to net income. Remeasurements of post-employment benefit
liabilities are also recorded as OCI or OCL. These remeasurements will not be reclassified to net income and will
remain in AOCI.
Office of the Superintendent of Financial Institutions Canada (OSFI)
The primary regulator of federally chartered financial institutions and federally administered pension plans in Canada.
OSFI’s mission is to safeguard policyholders, depositors and pension plan members from undue loss.
Participating Policies
The participating account includes all policies issued by the Company that entitle its policyholders to participate in the
profits of the participating account. The Company has discretion as to the amount and timing of dividend payments
which take into consideration the continuing solvency of the participating account.
Return on Common Shareholders' Equity (ROE)
A profitability measure that presents the net income available to common shareholders as a percentage of the
average capital deployed to earn the income.
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110
PARTICIPATING ACCOUNT MANAGEMENT POLICY
Purpose
The Participating Account Management Policy sets out the management objectives for oversight of the participating
account of The Empire Life Insurance Company (“Empire Life” or the “Company”).
Scope
This policy applies to all policies issued in the participating account of Empire Life that entitle its policyholders to
participate in the profits of the participating account. Most policies are credited with dividends annually, while a few
older plans receive the dividends every five years as per contractual provisions.
Policy
Description of the Participating Account and its Policies
Empire Life maintains an account in respect of participating policies (“participating account”), separate from those
maintained in respect of other policies, in the form and manner determined by the Office of the Superintendent of
Financial Institutions under section 456 of the Insurance Companies Act. The participating account includes all
policies issued by Empire Life that entitle its policyholders to participate in the profits of the participating account.
Empire Life does not maintain sub-accounts within the participating account for life, disability and annuity plans, other
funds, or blocks of business acquired from other companies. Empire Life does not have any closed blocks of
participating business established as part of the demutualization of a mutual company into a shareholder company.
Investment Policy
The general fund investments in the participating account are subject to limits established by the Insurance
Companies Act and to investment guidelines established by the Investment Committee of Empire Life’s Board of
Directors (the “Board”). The investment guidelines are designed to limit overall investment risk by defining investment
objectives, eligible investments, diversification criteria, exposure, concentration and asset quality limits for eligible
investments. The objective is to maximize investment yields while managing the default, liquidity and reinvestment
risks at acceptable and measurable low levels.
Within the participating account, Empire Life has established two asset segments to nominally match the investments
to the specific type of liabilities or surplus as follows: Protection Par, and Policyholders’ Surplus. Each asset segment
is assigned specific assets in an amount approximately equal to its total liabilities or surplus.
The Investment Committee receives monthly reporting on general fund asset mix and performance and investment
transactions for all funds by asset segment. In addition, on at least a quarterly basis, management and the Company’s
investment managers report to the Investment Committee, and through the Investment Committee to the Board of
Directors, on portfolio content, asset mix, the Company’s matched position, the performance of general and
segregated funds, and compliance with the investment guidelines. The investment guidelines are reviewed at least
annually by the Board.
Investment Income Allocation
Investment income is recorded directly to each asset segment. A portion of investment income is allocated to or from
the Shareholders’ Capital and Surplus segment from or to the participating account’s asset segments in proportion to
the deficiency or excess of funds over assets of each segment.
Expense Allocation
General expenses are allocated to the participating account using cost centre methods. Expenses associated directly
with the participating account are so charged. Expenses arising from or varying directly with various functional
activities are charged to the participating account in proportion to statistics appropriate to each cost centre. Expenses
incurred by overhead cost centers are charged to the participating account in proportion to expenses directly charged.
Investment expenses are allocated monthly to the participating account in proportion to the Company’s total funds at
the beginning of each month.
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111
PARTICIPATING ACCOUNT MANAGEMENT POLICY
Premium taxes are allocated in proportion to taxable premiums. Other taxes, licenses, and fees are allocated to lines
of business using cost centre methods.
Income Tax Allocation
Income taxes are allocated to the participating account in proportion to total taxable income for the Company.
Deferred tax assets and liabilities are treated consistently between participating and non-participating accounts.
Surplus Management
The level of surplus in the participating account will be managed by Company management taking into consideration
the continuing solvency of the participating account, the participating account’s ability to fulfill all of its contractual
obligations and the extent to which existing participating business is financing new participating business.
Transfers to Shareholder Accounts
It is Empire Life’s intention to transfer the full permitted percentage of distributable participating profits to the
shareholder accounts as allowed by section 461 of the Insurance Companies Act.
Appointed Actuary
Annually, the Board will consider the Appointed Actuary’s opinion on the continuing fairness of this policy to
participating policyholders.
Process to Approve (and Frequency)
This policy is reviewed annually by the Vice President & Product Actuary. All non-material amendments must be
approved by the Product Management Review Committee. Material amendments must be approved by the Product
Management Review Committee and the Board. The principal factors that would be expected to change the policy
include changes in legislation, regulation of participating account, accepted actuarial practice, capital requirements,
taxation and accounting rules or fundamental changes to the circumstances of the Company.
This policy will also be reviewed if the Company decides to stop accepting new business in the participating account.
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112
PARTICIPATING POLICYHOLDER DIVIDENDS POLICY
Purpose
The Participating Policyholder Dividends Policy (the “dividend policy”) sets out the process for determining,
recommending and declaring dividends for policies issued in the participating account of The Empire Life Insurance
Company (“Empire Life” or the “Company”).
Scope
This dividend policy applies to each policy issued in the participating account of Empire Life that entitles its
policyholder to participate in the profits of the participating account. Most policies are credited with dividends annually,
while a few older plans receive the dividends every five years as per contractual provisions.
Policy
Dividends are Declared at the Discretion of the Board
The aggregate amount of dividend and allocation of the dividend to the different classes of participating policies is
declared annually at the discretion of the Board of Directors (the “Board”) of Empire Life under section 464(1) of the
Insurance Companies Act. Before declaring the aggregate amount of dividend, the Board will consider Company
management’s recommendations for policyholder dividends and the Appointed Actuary’s opinion on the conformity of
these recommendations to this policy, their fairness to participating policyholders, and that the recommendations were
prepared in compliance with the Standards of Practice of the Canadian Institute of Actuaries. Company management’s
recommendations and the Appointed Actuary’s opinions shall be prepared in compliance with applicable legislative
and regulatory requirements, and generally accepted actuarial practice with such changes as determined by the
Office of the Superintendent of Financial Institutions. Generally, the actual distribution of dividends will be aligned with
these recommendations, but if the actual distribution of dividends differs materially from these recommendations, this
should be disclosed and explained. Furthermore, if the Appointed Actuary were to make a recommendation for
policyholder dividends, and the actual distribution of dividends differs materially from that recommendation, then this
would be disclosed and explained.
Principal Factors that Affect the Aggregate Amount of Dividends
The aggregate amount of dividends will reflect operating income on all participating life, annuity and disability
coverages, dividends on deposit, participating paid-up additions and participating term additions, as well as income
attributable to surplus in the participating account. The aggregate amount of dividends will also be influenced by
considerations such as, solvency of the participating account, its ability to fulfill all contractual obligations, the extent to
which surplus in participating account is financing new business, changes in legislation, regulation of the participating
account, taxation, accounting rules or fundamental changes in the circumstances of the Company.
Principal Sources of Income
The principal sources of income considered for determining the aggregate amount of dividends are investment
income, asset defaults, mortality, lapses, expenses and taxes. The actual experience of the participating account will
be reviewed annually by Company management. The sources of income may be adjusted to smooth fluctuations in
experience and provide for transitions during periods of major change over a period not to exceed five years.
The Company uses a temporary contribution to policyholder surplus philosophy, so that contributions to policyholder
surplus from participating account income are expected to be returned to policyholders over the lifetime of the policy.
Since actual experience cannot be known in advance, the aggregate amount of dividends and allocation of the
dividends cannot be guaranteed. As a result, dividends will increase or decrease depending on actual experience.
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113
PARTICIPATING POLICYHOLDER DIVIDENDS POLICY
Dividend Allocation
Policyholders participate in this distribution through the setting of dividend scales, which allocate the aggregate
amount of dividends among different dividend classes. The Company establishes dividend classes for participating
policyholders based on the original pricing assumptions used when setting the guaranteed values provided by the
policies.
The Company uses a combination of factor-based and pricing methods when setting the dividend scale to allocate the
aggregate amount of dividends among different dividend classes. The basic concept of this method is to allocate the
aggregate amounts of dividends among dividend classes in the same proportion as the policies are considered to
have contributed to the aggregate amount of dividends over the long term. The fundamental objective in the allocation
of dividends is the maintenance of reasonable equity between dividend classes and between generations of
policyholders, taking into account practical considerations and limits.
Company management will review the underlying experience, assumptions and procedures for participating dividend
scales annually. Material changes in actual experience will be passed through to participating policyholders within two
years of the experience change to the extent that they are not anticipated in the current dividend scale, any additional
reserves or other similar experience leveling mechanisms. Company management will prepare a written report which
describes the underlying experience, assumptions and procedures for the proposed dividend scale recommendations.
The dividend scales may also be adjusted to reflect specific policyholder behaviour, such as experience for lapses or
for policy loans taken at guaranteed rates.
For certain blocks of policies, the policyholder dividend scale may be determined using methods which are designed
to approximate the contribution to income of those blocks.
Termination dividends are not payable under any participating policies issued by Empire Life.
Appointed Actuary
Annually and each time a policy amendment is recommended, the Board will consider the Appointed Actuary’s opinion
on the continuing fairness of this policy to participating policyholders.
Process to Approve (and Frequency)
This policy is reviewed annually by the Vice President & Product Actuary. All amendments must be approved by the
Product Management Review Committee and the Board. The principal factors that would be expected to change the
policy include changes in legislation, regulation of participating account, accepted actuarial practice, capital
requirements, taxation and accounting rules or fundamental changes to the circumstances of the Company.
This policy will also be reviewed if the Company decides to stop accepting new business in the participating account.
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114
PARTICIPATING ACCOUNT FINANCIAL DISCLOSURE
Participating Surplus
Surplus and Accumulated OCI, start of year
Net Income and OCI (before dividends)
Amounts transferred to shareholders per S.461 of the ICA
Amounts transferred to shareholders per S.462(a) of the ICA, if included in net income
Net Income and OCI
Policyholder dividends (excl ERRs)
Surplus and Accumulated OCI, end of year
Total Participating Assets
Section 462 transfer as a % of Distributable Profits
2022
2021
$
58,212 $
44,148
40,308
54,271
—
(2,682)
37,626
(39,773)
56,065 $
—
(3,387)
50,884
(36,820)
58,212
861,438 $
958,325
6.79 %
6.97 %
$
$
Empire Life - Annual Report 2022
115
CORPORATE GOVERNANCE OVER RISK MANAGEMENT
The Empire Life Insurance Company (the “Company”) is a stock company that has both shareholders and participating
policyholders. The Company also has two wholly owned subsidiaries: a mutual fund subsidiary, Empire Life Investments Inc.
(“ELII”) and an independent Managing General Agent, TruStone Financial Inc. (“TruStone Financial”).
Pursuant to the Insurance Companies Act (Canada) (the “Act”) each holder of one or more participating policies is entitled to one
vote in the election of policyholders’ directors, and each shareholder is entitled to one vote per share held in the election of
shareholders’ directors. At least one-third of directors are elected as policyholder directors and the balance are elected as
shareholder directors. The Company is governed by the Act, which contains provisions concerning corporate governance. The
Company’s governance system is supported by internal audit, internal risk management, corporate compliance, external audit by
an independent chartered professional accountants firm, and examination by the Office of the Superintendent of Financial
Institutions Canada (“OSFI”).
Management is responsible for identifying risks and determining their impact upon the Company. Management is also responsible
for establishing appropriate policies, procedures, and controls to mitigate risks. The Company has senior management level risk
committees, which report to the Board of Directors and/or its Committees and an internal risk management department, led by the
Chief Risk Officer, which supports enterprise risk management activities across the Company. An internal audit function is
responsible for assessing the adequacy and adherence to the systems of internal control. The results of internal audit’s reviews are
reported to management and to the Audit Committee of the Board of Directors regularly throughout the year.
Management is supervised in the completion of these responsibilities by the Board of Directors and its Committees. Senior
management of the Company reports regularly to the Board on its risk management policies and procedures.
The Board of Directors has plenary power. The Board’s responsibility is to oversee the conduct of the business and affairs of the
Company including oversight and monitoring of the Company’s risk management. The Board discharges these responsibilities
directly and through delegation to Board Committees and management. The Board met seven times in 2022 and is scheduled to
meet at least six times in 2023.
The risk management functions overseen by the Board include those relating to market risk (including interest rate risk, equity risk,
real estate risk and foreign exchange rate risk), liquidity risk, credit risk, product risk (including mortality risk, policyholder behavior
(termination or lapse) risk, expense risk, morbidity risk as well as product design and pricing risk, underwriting and claims risk and
reinsurance risk), operational risk (including legal and regulatory compliance risk, model risk, human resources risk, third party risk,
technology and information security risk and business continuity risk) and business and strategic risk. Please see the section titled
“Risk Factors” in the Company’s Annual Information Form available at www.sedar.com for more details on these risks. Primary
responsibility for oversight of some of these risks is delegated to six standing Committees of the Board, whose roles and
responsibilities are specifically defined. Those not delegated to a standing Committee remain with the Board. The following is a
brief summary of some of the key responsibilities of the six Committees.
The Audit Committee has statutory responsibility under the Act to oversee, on behalf of the Board, the Company’s financial
reporting, accounting and financial reporting systems and internal controls. The Committee also oversees work related to stress
testing.
The Investment Committee assists the Board in monitoring the Company’s investment and lending policies, standards and
procedures and in monitoring the Company’s investment activities and portfolios. Some of the activities of the Investment
Committee are prescribed by the Company’s Investment Guidelines, which reflect the requirements of the Act. The Committee also
monitors the Company’s asset/liability management activities.
The Human Resources Committee is responsible for reviewing and monitoring the Company’s human resources practices,
including employee and executive compensation, succession planning, diversity and inclusion programs, workforce and pension
and benefit plans.
The Conduct Review Committee is responsible for oversight of procedures established to identify material related party
transactions pursuant to the Act. The Committee also monitors certain corporate policies, including procedures with respect to the
Company’s Code of Business Conduct, conflicts of interest, the Company’s personal trading policy, confidentiality of information,
consumer complaints, privacy, regulatory compliance and outsourcing.
The Risk and Capital Committee is responsible for oversight of the Company’s risk and capital management activities.
Empire Life - Annual Report 2022
116
CORPORATE GOVERNANCE OVER RISK MANAGEMENT
The Committee assists the Board in its oversight role with respect to the management of the Company’s enterprise risk
management framework, operational risk management framework and risk appetite framework; the identification, review and
assessment of the Company’s primary risks; the review and assessment of the Company’s risk management strategies; and the
deployment and use of capital. The Committee also oversees activities related to product development and business continuity.
The IT Oversight Committee assists the Board with oversight of technology and information security related risks, as well as
management efforts to mitigate those risks. As part of its responsibilities, the IT Oversight Committee assesses the effectiveness of
the Company's IT strategy in supporting the Company's business objectives and strategic direction, including reviewing strategic
information technology-related project, initiatives and technology architecture.
Empire Life - Annual Report 2022
117
CORPORATE INFORMATION
Corporate Head Office
259 King Street East
Kingston, Ontario
Canada K7L 3A8
1 877 548-1881
info@empire.ca
www.empire.ca
RETAIL SALES OFFICES
The Empire Life Insurance Company is a member of Assuris. Assuris is the not-for-profit
organization that protects Canadian policyholders if their life insurance company fails.
Details about Assuris’ protection are available at www.assuris.ca or by calling the
Assuris Information Centre at 1 866 878-1225.
WESTERN CANADA
Vancouver Retail Sales Office
ONTARIO
Burlington Retail Sales Office
QUEBEC
Montréal Retail Sales Office
707-1177 West Hastings Street
108-1100 Burloak Drive
1600-600 de Maisonneuve Boulevard W.
Vancouver, British Columbia, V6E 2K3
Burlington, Ontario L7L 6B2
Montréal, Quebec H3A 3J2
604 232-5557
1 888 627-3591
905 335-6558
1 888 548-4729
514 842-9151
1 800 371-9151
Calgary Retail Sales Office
Toronto Retail Sales Office
Québec Retail Sales Office
310-1167 Kensington
Calgary, Alberta T2N 1X7
403 269-1000
1 800 656-2878
200 -36 York Mills Road
Toronto, Ontario M2P 2E9
416 494-0900
1 888 548-4729
100-1220 Lebourgneuf Boulevard
Québec, Quebec G2K 2G4
418 628-1220
1 888 816-1220
GROUP SALES OFFICES
WESTERN CANADA
Vancouver Group Sales Office
ONTARIO
Burlington Group Sales Office
707-1177 West Hastings Street
108-1100 Burloak Drive
QUEBEC
Montréal Group Sales Office
1600-600 boul. de Maisonneuve
Vancouver, British Columbia, V6E 2K3
Burlington, Ontario L7L 6B2
Montréal, Quebec H3A 3J2
604 232-5558
1 800 547-0628
905 335-6558
1 800 663-9984
514 842-0003
1 800 561-3738
Calgary Group Sales Office
Toronto Group Sales Office
310-1167 Kensington
Calgary, Alberta T2N 1X7
403 262-6386
1 888 263-6386
200-36 York Mills Road
Toronto, Ontario M2P 2E9
416 494-6834
1 800 361-7980
Empire Life - Annual Report 2022
118
BOARD OF DIRECTORS
SHAREHOLDERS' DIRECTORS
POLICYHOLDERS' DIRECTORS
HONORARY CHAIR
John F. Brierley 1, 2, 6
Corporate Director
Stephanie A. Bowman 3, 4, 5, 6
The Honourable Henry N.R. Jackman
Corporate Director
Honorary Chair
The Empire Life Insurance Company
Scott F. Ewert 1, 4, 6
Mark J. Fuller 2, 3, 5, 6
Vice President and Chief Financial Officer
President and Chief Executive Officer
E-L Financial Corporation Limited
Ontario Pension Board
Edward M. Iacobucci 1, 2, 3, 5
Mark Sylvia
Professor of Law
University of Toronto
Duncan N.R. Jackman 6
Chair of the Board
President and Chief Executive Officer
The Empire Life Insurance Company
Jacques Tremblay 3, 5, 6
Partner
The Empire Life Insurance Company
Oliver Wyman Actuarial Consulting
Clive P. Rowe 4, 6
Corporate Director
Patricia M. Volker 1, 2, 3, 6
Corporate Director
1 Member of Audit Committee
2 Member of Conduct Review Committee
3 Member of Human Resources Committee
4 Member of Investment Committee
5 IT Oversight Committee
6 Member of Risk and Capital Committee
Empire Life - Annual Report 2022
119
CORPORATE MANAGEMENT
Mark Sylvia
President and Chief Executive Officer
Richard Carty
General Counsel and Senior Vice-President, Human Resources
Edward Gibson
Senior Vice-President, Capital Management and Chief Actuary
Paul Holba
Senior Vice-President and Chief Investment Officer
Michael Perry
Senior Vice-President, Group Solutions
Steve Pong
Senior Vice-President, Retail
Mark Rogers
Senior Vice-President, Corporate Development
Rebecca Rycroft
Senior Vice-President and Chief Financial Officer
Kathy Thompson
Senior Vice-President and Chief Risk Officer
Chris Volk
Senior Vice-President and Chief Technology Officer
Empire Life - Annual Report 2022
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EMPIRE LIFE ANNUAL REPORT 2022
Established in 1923 and a subsidiary of E-L Financial Corporation Limited, The Empire Life Insurance
Company provides individual and group life and health insurance, investment and retirement products.
Our mission is to make it simple, fast and easy for Canadians to get the products and services they need to
build wealth, generate income, and achieve financial security.
Follow us on social media @EmpireLife or visit empire.ca for more information including current ratings
and financial results.
Transfer Agent and Registrar
TSX Trust Company
301-100 Adelaide Street West
Toronto, Ontario M5H 4H1
Phone 416 682-3860
Toll Free 800 387-0825
www.tsxtrust.com
Reporting Procedure for Accounting and Auditing Matters
If you have a complaint regarding accounting, internal controls or auditing matters or a concern regarding
questionable accounting or auditing matters, you should submit your written complaint or concern to:
Mr. John Brierley
The Empire Life Insurance Company
259 King Street East
Kingston, ON, K7L 3A8
Email: johnbrierley12@gmail.com
Phone: 705 250-3133
You may submit your complaint or concern anonymously. Your submission will be kept confidential and will
be treated in accordance with the Company’s policy for reporting accounting and auditing matters.
® Registered trademark of The Empire Life Insurance Company. ™ Trademark of The Empire Life Insurance Company.
Policies are issued by The Empire Life Insurance Company.
Insurance & Investments – Simple. Fast. Easy.®
empire.ca info@empire.ca 1 877 548-1881
A-0004-EN-03/23