The Empire Life Insurance Company
Annual Report 2023
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Table of Contents
Our History
Financial Highlights
Message from the Chairman of the Board
Message from the President and Chief Executive Officer
Management's 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
1. Description of Company and Summary of Operations
2. Material Accounting Policies
3. Financial Instruments
4. Other Assets
5.
6. Goodwill
7. Business Acquisition
8. Segregated Funds
9. Accounts Payable and Other Liabilities
10. Insurance Contracts and Reinsurance Contracts Held Assets/Liabilities
11. Employee Benefit Plans
12. Subordinated Debt
13. Claims, Operating Expenses, Commissions and Interest Expense
14. Income Taxes
15. Earnings Per Share
16. Capital Stock
17. Dividends
18. Participating Account
19. Segmented Information by Product Line
20. Commitments and Contingencies
21. Related Party Transactions
22. Capital Management
23. Risk Management
Glossary of Terms
Participating Account Management Policy
Participating Policyholder Dividends Policy
Participating Account Financial Disclosure
Corporate Governance over Risk Management
Corporate Information
Board of Directors
Corporate Management
Empire Life - Annual Report 2023
2
3
5
6
7
9
40
41
42
47
48
49
50
51
52
52
52
76
81
81
82
82
82
83
84
96
101
102
102
104
104
105
106
106
109
109
110
110
123
125
128
131
132
134
135
136
1923 – Then
Our story begins in 1923, when our founders chose the name The Empire Life Insurance
Company to convey strength, security and life. The Empire Life Insurance Company is
founded in Toronto, Ontario by Milton Palmer Langstaff and his four business partners,
W.B. Peace, Dr. H.C. Parsons, S. Casey Wood and Edward “Ward” Wright.
Our first policy was issued on February 22, 1923—a $5,000 whole life policy with
an annual premium of $103.
1933
Charles (Percy)
Fell becomes
Empire Life’s third
president, marking the
beginning of an era.
1936
We move our head
office to Kingston,
Ontario into what is
now known as the
Historic Building
at the corner of
King East and
William streets.
1956
The Jackman family
becomes shareholders and
Henry (Harry) R. Jackman is
elected as Chairman of the
Board of Directors.
1964
We begin selling segregated
funds—one of the first
companies to introduce
investment funds into its
product portfolio.
1926 - 1945
1948 - 1964
1968 - 1992
1934
Empire Life takes over the policies
and sick benefit funds of the
General Lodge of the Canadian
Order of Oddfellows and
amalgamates with the
Mutual Relief Life Insurance
Company two years later.
1957
We begin selling
employee benefits
plans in Canada and
more than double our
new business in six
years—from $15 million
to $36 million.
1970
Henry (Hal) N.R.
Jackman succeeds his
father as Chairman of
the Board.
Our inforce insurance
business grows
to $1 billion.
1968
E-L Financial Corporation
Limited, owned by the
Jackman family, is formed
as a holding company of
Empire Life.
2023 – Now
Today, we are one of the top 10 life insurance companies in Canada*. Our
story has been one of steady growth and innovation. We manage $19 billion
in assets** with more than 550,000 individual customers and 252,000 group
plan members. We are 100% Canadian owned and operated and our focus is
on understanding and meeting the financial needs of Canadians.
* Based on total assets as reported in December 31, 2022 OSFI filings
** As at December 31, 2023
2003
Henry (Hal) N.R. Jackman retires
from the Board of Directors and
becomes Honorary Chairman.
His son, Duncan N.R. Jackman,
is named Chairman.
2005
Empire Life breaks into
National Post Business
magazine’s Top 10 Life
Insurance Companies
list, based on assets, for
the first time.
2012
We launch our Group
eClaims service, which
allows plan members to
submit their claims online.
2015
Canadians now have the ability
to buy term insurance online
directly from us at empirelife.ca
Our parent company,
E-L Financial Corporation
Limited, increases its ownership
share to 98.3%, solidifying its
commitment to our company.
2021
We are the first
Canadian insurer to
issue Limited Recourse
Capital Notes.
We purchase
six financial
services firms and
amalgamate them
into one wholly-
owned subsidiary of
Empire Life under
the name TruStone
Financial Inc.
1987
E-L Financial Corporation
Limited brings together,
through merger and
acquisition activities, The
Empire Life Insurance
Company, The Montreal
Life Insurance Company and
the life insurance section of
The Dominion of Canada
General Insurance Company.
1992 - 1997
2000 - 2012
2013 - 2022
1992
We acquire a
block of group
business from
The Metropolitan
Life Insurance
Company.
2002
We amalgamate
Concordia Life
Insurance Company
into our operations.
1997
We acquire the Colonia
Life Insurance Company
(later renamed Concordia
Life Insurance Company)
and enter into the
managing general agent
(MGA) channel.
2011
We set up a new
wholly-owned
subsidiary, Empire
Life Investments Inc.
(ELII), which begins
selling mutual funds
the next year.
2022
We invest in EXOS
Wealth Systems
Inc. as a minority
shareholder.
We enhance our
digital life insurance
application process
with the creation of
eVision Illustrator.
2013
We launch Fast & Full®,
a simple, fast and easy
way for advisors to sell life
insurance to their clients
online. A major update
to the app was released
in 2019.
2019
We launch a new retirement
and savings tool to help
Canadians plan and achieve
their financial goals.
We invest in The Gryphin
Advantage Inc. as a
minority shareholder.
2023 Financial Highlights
155%
LICAT total ratio
as at December 31, 2023
Product
diversification
Capital Strength
Our Life Insurance Capital Adequacy
Test (LICAT) ratio is above the minimum
requirements set by OSFI. The company
continues to have a strong capital position
under the LICAT framework.
What is a LICAT ratio?
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. OSFI has established supervisory
target levels of 70% for Core and 100% for
Total ratio.
Product diversification
Net insurance service result for
the year ended December 31, 2023
is across three product lines:
Wealth Management
49%
Group Solutions
13%
Individual Insurance
39%
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 25, 2023)
Common Shareholders’
Net Income
2023 (in millions)
$156
Common Shareholders’
Net Income
2022 (in millions): $55
Net insurance service result
2023 (in millions)
$181
Net insurance service result
2022 (in millions): $193
Total Assets Under Management
2023 (in millions)
$18,668
Total Assets Under Management
2022 (in millions): $17,574
Note: The selected financial information presented above is derived from the audited Consolidated Financial Statements of The Empire Life Insurance Company
and Management’s Discussion and Analysis included in the Empire Life 2023 Annual Report.
Message from the Chairman of the Board
2023 Annual Report – Message from the Chair of the Board
The Empire Life Insurance Company celebrated our 100th anniversary in 2023. Interestingly, when reflecting on our 90th
anniversary a decade ago, I mentioned that history repeats itself. Regardless of the era, it seems that industry changes
and regulatory matters continued to play a significant role in how we do business. The same is true today as we mark a
centennial of serving Canadians.
After 100 years, Empire remains the leading, independently owned Canadian financial services company. Empire started
with a capital base of $500,000 and a first policy of $5,000. Today, we manage $19 billion in assets. We provide service
and solutions to 550,000 individual customers, 11,300 group employer customers and over 252,000 group life and health
plan members. That’s a remarkable achievement.
When asked what I think the future holds for Empire, I stated the next 100 years will look a lot like the last. Through the
hard work of our teams—employees, management and distribution partners—we are well positioned to remain
competitive while providing Canadians with the products they need to help build wealth and protect their financial security.
Future challenges are like past challenges, and we will continue to meet these head on with innovative and financially
sound solutions.
Despite the pandemic and some economic uncertainty of late, we’ve had some of the best years ever thanks to the
commitment and dedication of our employees. We have earned a reputation for fairness, integrity and respect in our
dealings with customers, employees and business partners. With the support of the Board of Directors, Empire will
continue to be a people-based organization by Canadians and for Canadians.
It is for all these reasons that I am proud to be the third generation behind this great company. The strong foundation built
by my grandfather and father continues to thrive today thanks to the employees of Empire Life. Congratulations to all on
this exceptional milestone.
Duncan N. R. Jackman
Chair of the Board
February 29, 2024
Empire Life - Annual Report 2023
6
Message from the President and Chief Executive Officer
2023 Annual Report – Message from the President and Chief Executive Officer
It’s rare for a company to reach 100 years in business and Empire Life is proud to have reached this milestone
in 2023. At the heart of Empire’s longstanding success is its focus on people, purpose and strategy.
Everything that we've done for the last 100 years has been about relationships with people—providing financial
services to our customers, support to our advisors and distribution partners, and a rewarding and mutually
beneficial workplace for our employees.
Business strategy
Building and maintaining relationships and knowing our purpose are critical to implementing our 3D strategy—
data, digital, distribution—especially during periods of rapid change or upset such as the pandemic. Our
industry continues to experience rapid change in several areas. Customer expectations have been impacted by
the availability of technology. We must increase the speed of transactions and ensure financial information is
available to customers immediately. Our regulatory framework is also changing rapidly as government entities
attempt to ensure oversight reflects the digital world in which we now live.
We have embraced change. We are investing heavily in our data management and digital infrastructure. We
are measuring our customer service performance to ensure we meet expectations. We are fully committed to
continuous improvement and offering the right solutions to Canadians. We believe we are well positioned to
meet and exceed our goals.
Products and distribution
We have continued to focus on solving business problems that emerge, improving our productivity and
customer service and seeking new ways to grow our business. I am immensely proud of all that we
accomplished. It was a successful year due to the teamwork and focus on innovation that makes our company
unique. We continued to streamline and improve processes in addition to several exciting launches.
Some highlights of our centennial year include:
•
•
•
the launch of two new segregated funds under our Guaranteed Investment Fund contract that expands
our ability to offer investors choice and diversification;
the launch of digital enrolment for group plan members and a new mobile app for the group plan
member website as well as a pilot of our Group Retirement Savings Plan; and
the launch of a new eVision Investment Illustrator that gives advisors the power to create segregated
fund portfolio illustrations for clients.
Corporate responsibility
We believe that corporate responsibility is a hallmark of corporate quality. In 2023, we continued a number of
foundational Environmental, Social and Governance (ESG)-related activities including climate risk reporting,
energy-saving and efficiency programs, essential cyber security and data privacy measures, and creating a
safe and positive work environment.
We forged ahead on our diversity and inclusion (D&I) journey. In 2023, we added two new employee resource
groups to provide support, promote collaboration, foster networking and encourage advancement of these
communities and allies at Empire.
Our community investment program allows us to support people and organizations in our communities by
providing both financial contributions and volunteer support. In honour of our 100th anniversary, we launched
three special projects. The Empire Cares grant challenge encouraged employees to nominate and vote for
Empire Life - Annual Report 2023
7
Message from the President and Chief Executive Officer
registered charities across the country with 10 each receiving a $10,000 donation, for a total donation of
$100,000. The new Empire Cares volunteer program provides regular employees with one full working day
each calendar year to volunteer in their community. Finally, we provided a three-year commitment to the
Actuarial Foundation of Canada (AFC) Equality of Opportunity Fund that helps financially challenged Black,
Indigenous and People of Colour (BIPOC) students attend university or college in actuarial, mathematics, data
management and computer science programs.
Looking ahead
In 2023, we celebrated our 100th anniversary. Our mission is to assist individuals, families and small
businesses build wealth and achieve financial security. This mission remains unchanged as we enter our
second century. Our steadfast commitment to service has made us successful and is an enduring legacy.
Mark Sylvia
President and Chief Executive Officer
February 29, 2024
Empire Life - Annual Report 2023
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dated as of February 29, 2024
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,
2023 and 2022. This MD&A should be read in conjunction with the Company’s Consolidated Financial Statements for
the year ended December 31, 2023, which form part of The Empire Life Insurance Company 2023 Annual Report
dated February 29, 2024. 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.sedarplus.ca. 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 such 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 as issued by the International Accounting Standards Board (IASB) (IFRS Accounting Standards). This
MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS
Accounting Standards and do not have a standardized meaning prescribed by IFRS Accounting Standards. Therefore,
they are unlikely to be comparable to similar measures presented by other companies. Rather, these measures are
provided as additional information and complement IFRS Accounting Standards 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
Accounting Standards. Refer to 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)
2023
2022 restated
2023
2022 restated
Common shareholders' net income (loss)
Earnings per share - basic and diluted
$
$
111 $
5 $
156 $
112.15 $
5.32 $
158.70 $
55
55.72
Fourth quarter
Year
Empire Life reported fourth quarter common shareholders’ net income of $111 million for 2023, compared to net
income of $5 million for the fourth quarter of 2022. Full year common shareholders’ net income was $156 million
compared to $55 million in 2022. The increase in common shareholders' net income for the fourth quarter and full year
compared to the prior year was primarily due to higher net investment and insurance finance results driven by a more
favourable economic environment from interest rate movements and positive equity returns.
Empire Life - Annual Report 2023
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selected Financial Information
Statement of Operations Information
(in millions of dollars)
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Net investment result, excluding segregated funds
Net insurance finance income (expense), excluding segregated funds
Segregated funds net investment and insurance finance result
Net investment and insurance finance result
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Other comprehensive income (loss), net of income taxes:
Remeasurements of post-employment benefit liabilities
Total comprehensive income (loss)
Return on common shareholders' equity
Earnings per share - basic and diluted ($)
Statement of Financial Position Information, as at
(in millions of dollars)
Assets
Cash and cash equivalents
Investments
Other assets
Segregated fund assets
Total assets
Liabilities
$
For the years ended
December 31
2023
2022 restated
$
254
(73)
181
789
(653)
—
136
(81)
236
(46)
190
(1)
189
237
(44)
193
(1,654)
1,568
—
(86)
(50)
57
2
59
25
84
10.5 %
158.70
4.0 %
55.72
December 31, December 31,
January 1,
2023
2022 restated
2022 restated
$
348
$
176 $
8,917
587
8,813
8,160
656
8,566
$
18,665
$
17,558 $
193
9,839
516
9,257
19,805
Insurance contract liabilities, excluding segregated fund account balances
$
6,708
$
6,145 $
7,598
Reinsurance contracts held liabilities
Investment contract liabilities, excluding segregated fund account balances
Subordinated debt
Insurance and investment contract liabilities for account of segregated fund holders
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
253
490
399
8,813
113
16,776
1,888
217
335
399
8,566
111
15,772
1,785
$
18,665
$
17,558 $
339
322
399
9,257
105
18,020
1,785
19,805
Empire Life - Annual Report 2023
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other Financial Information, as at
(in millions of dollars)
Assets under management(1)
General fund assets(¹)
Segregated fund assets(1)
Subordinated debt
Preferred shares and other equity
(1) See Non-IFRS Measures.
LICAT Ratio Information
(in millions of dollars)
Available regulatory capital
Tier 1
Tier 2
Total
Surplus allowance and eligible deposits
Base solvency buffer
December 31, December 31,
January 1,
2023
2022 restated 2022 restated
$
9,852
$
8,992 $
8,813
8,566
399
297
399
297
10,548
9,257
399
250
As at December 31
2023
2022(1)
2021(1)
$
2,135
$
1,776 $
714
2,849
651
2,252
600
2,376
916
2,393
1,898
591
2,489
1,115
2,508
LICAT total ratio
155%
138%
144%
LICAT core ratio
(1) Amounts prior to January 1, 2023 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. For additional details on the 2022 amounts,
115%
101%
107%
please refer to Note 2.4 New and amended standards and interpretations in our Consolidated Financial Statements.
Cash dividends per share
Preferred shares series 1
Preferred shares series 3
Common shares
For the years ended December 31
2023
2022
2021
$
$
$
— $
1.55 $
76.32 $
— $
1.23 $
73.80 $
0.72
1.23
53.27
Empire Life - Annual Report 2023
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results by Product Line
The following tables provide a summary of Empire Life results segmented by product line for the periods ended December
31, 2023 and December 31, 2022. A discussion of results is provided in the Product Line Results sections of the MD&A.
For the three months ended December 31, 2023
(in millions of dollars)
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
$
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated
fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding
segregated funds
Segregated funds net investment and insurance finance
result
Investment income (loss) on investments for segregated fund
account balances
Insurance finance income (expenses) segregated fund
account balances
Segregated funds net investment and insurance finance
result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Less: net income (loss) attributable to the participating account
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on
other equity instruments
Common shareholders' net income (loss)
58 $
(38)
20
—
20
67
(19)
48
(33)
1
(32)
538
(538)
—
16
—
(8)
—
(8)
28
163 $
(149)
14
(5)
9
17
—
17
(20)
10
(10)
—
—
—
7
2
(4)
—
(2)
14
114 $
(78)
36
(17)
19
721
—
721
(699)
(61)
(760)
1
(1)
—
— $
—
—
—
—
158
—
158
—
—
—
—
—
—
(39)
158
—
(5)
—
(5)
(25)
7
(11)
2
(2)
156
$
335
(265)
70
(22)
48
963
(19)
944
(752)
(50)
(802)
539
(539)
—
142
9
(28)
2
(17)
173
(35)
138
20
118
(7)
111
Empire Life - Annual Report 2023
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three months ended December 31, 2022 restated
(in millions of dollars)
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated
fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding
segregated funds
Segregated funds net investment and insurance finance
result
Investment income (loss) on investments for segregated fund
account balances
Insurance finance income (expenses) segregated fund
account balances
Segregated funds net investment and insurance finance
result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Less: net income (loss) attributable to the participating account
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on
other equity instruments
Common shareholders' net income (loss)
$
58 $
(31)
27
4
31
(1)
(4)
(5)
(5)
—
(5)
519
(519)
—
(10)
1
(8)
—
(7)
14
156 $
(142)
14
(8)
6
109 $
(74)
35
(14)
21
1
—
1
(3)
1
(2)
—
—
—
(1)
2
(4)
—
(2)
3
(3)
—
(3)
(41)
8
(33)
(1)
1
—
(36)
(1)
(4)
—
(5)
(20)
— $
—
—
—
—
3
—
3
—
—
—
—
—
—
3
6
(3)
3
6
9
$
Total
323
(247)
76
(18)
58
—
(4)
(4)
(49)
9
(40)
518
(518)
—
(44)
8
(19)
3
(8)
6
7
13
1
12
(7)
5
Empire Life - Annual Report 2023
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the year ended December 31, 2023
(in millions of dollars)
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
— $
—
—
—
—
1,326
(1,072)
254
(73)
181
452 $
(327)
125
(56)
69
598
—
598
(557)
(51)
(608)
2
(2)
—
131
—
131
—
—
—
—
—
—
(10)
131
—
(19)
—
(19)
40
22
(30)
(17)
(25)
106
$
817
(28)
789
(613)
(40)
(653)
736
(736)
—
136
31
(95)
(17)
(81)
236
(46)
190
22
168
(12)
156
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated
fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding
segregated funds
Segregated funds net investment and insurance finance
result
Investment income (loss) on investments for segregated fund
account balances
Insurance finance income (expenses) segregated fund
account balances
Segregated funds net investment and insurance finance
result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Less: net income (loss) attributable to the participating account
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on
other equity instruments
Common shareholders' net income (loss)
$
235 $
(147)
88
—
88
639 $
(598)
41
(17)
24
72
(28)
44
(34)
1
(33)
734
(734)
—
11
1
(30)
—
(29)
70
16
—
16
(22)
10
(12)
—
—
—
4
8
(16)
—
(8)
20
Empire Life - Annual Report 2023
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the year ended December 31, 2022 restated
(in millions of dollars)
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated
fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding
segregated funds
Segregated funds net investment and insurance finance
result
Investment income (loss) on investments for segregated fund
account balances
Insurance finance income (expenses) segregated fund
account balances
Segregated funds net investment and insurance finance
result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Less: net income (loss) attributable to the participating account
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on
other equity instruments
Common shareholders' net income (loss)
$
234 $
(126)
108
3
111
(77)
10
(67)
52
(1)
51
(353)
353
—
(16)
1
(23)
—
(22)
73
604 $
(585)
19
(13)
6
(15)
—
(15)
24
(9)
15
—
—
—
—
6
(13)
—
(7)
(1)
417 $
— $
(307)
110
(34)
76
(1,336)
—
(1,336)
1,409
93
1,502
(1)
1
—
—
—
—
—
(236)
—
(236)
—
—
—
—
—
—
166
(236)
—
(11)
—
(11)
231
17
(15)
(12)
(10)
(246)
$
1,255
(1,018)
237
(44)
193
(1,664)
10
(1,654)
1,485
83
1,568
(354)
354
—
(86)
24
(62)
(12)
(50)
57
2
59
(6)
65
(10)
55
Empire Life reported fourth quarter common shareholders’ net income of $111 million for 2023, compared to net income of
$5 million for the fourth quarter of 2022. The increase in fourth quarter compared to the prior year was primarily due to
higher net investment and insurance finance results driven by a more favourable economic environment from interest rate
movements and positive equity returns.
Net insurance service result decreased $10 million in the fourth quarter compared to the same period in 2022, primarily
due to higher expenses in our Wealth Management product line.
Net investment and insurance finance result increased $186 million in the fourth quarter compared to the same period in
2022. This was mainly due to gains from equity market movements and favourable yield curve movements relative to the
fourth quarter in 2022.
Total other income and expenses changed by $9 million in the fourth quarter compared to the same period in 2022 due to
increased employee expenses and project spend.
Empire Life - Annual Report 2023
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
Full year common shareholders’ net income was $156 million compared to $55 million in 2022. The increase over prior
year is primarily due to higher net investment and insurance finance results driven by a more favourable economic
environment driven by interest rate movements and equity market returns.
Net insurance service result decreased $12 million in 2023 compared to the same period in 2022, primarily due to higher
expenses in our Wealth Management product line, which was partially offset by favourable claims experience and
insurance contract liability assumption updates in our Group Solutions product line.
Net investment and insurance finance result increased $222 million in 2023 compared to the same period in 2022. This
was mainly due to gains from equity market movements relative to 2022. Net losses experienced in 2022 were driven by
the impact from rising interest rates and credit spreads on our investments.
The year-over-year change in total other income and expenses of $31 million in 2023 compared to the same period in
2022 relates to higher employee expenses and project spend.
Empire Life - Annual Report 2023
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
Product Line Results - Wealth Management
(in millions of dollars)
Fixed annuities
Assets under management(1),(2)
Gross sales(1)
Net sales(1)
Segregated funds
Assets under management(1),(2)
Gross sales(1)
Net sales(1)
(1) See Non-IFRS Measures section.
(2) 2022 figures have been restated.
(in millions of dollars)
Net insurance service result
Net investment and insurance finance result
Fee and other income
Non-insurance operating expenses
Net income (loss) before taxes
Fourth quarter
Year
2023
2022
2023
2022
$
918 $
754
$
79
51
62
32
918 $
242
140
754
148
44
$
8,813 $
8,566
$
8,813 $
189
(99)
199
(26)
751
(305)
8,566
841
(91)
Fourth quarter
Year
2023
2022 restated
2023
2022 restated
$
$
20 $
16
—
(8)
28 $
31
$
(10)
1
(8)
14
$
88 $
11
1
(30)
70 $
111
(16)
1
(23)
73
Fixed annuities assets under management were 22% higher relative to the same period in 2022. Gross sales in the
fourth quarter were 27% higher than the same period in 2022, relating to strong demand for GICs, driven by higher
interest rates.
Segregated fund assets under management are 3% higher relative to the same period in 2022, reflecting favourable
market movements, partially offset by net outflows. For the fourth quarter of 2023, gross sales of segregated funds
were 5% lower than the same period in 2022, and 11% lower over the year, as consumers continue to favour Empire
Life's fixed annuity products.
Net income for the fourth quarter increased $14 million compared to the same period in 2022 mainly from the net
investment and insurance finance result for our fixed annuity business due to decreasing interest rates in the fourth
quarter. This increase was partially offset by higher expenses and onerous contracts.
Net income for 2023 decreased $3 million or 4% compared to the same period in 2022 due to higher expenses. This
was partially offset by favourable interest rate movements impacting our fixed annuities business.
Empire Life - Annual Report 2023
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
Product Line Results - Group Solutions
(in millions of dollars)
Annualized premium sales
Core
Other
Total annualized premium sales(1)
(1) See Non-IFRS Measures section.
(in millions of dollars)
Insurance revenue, gross
Net insurance service result
Net investment and insurance finance result
Fee and other income
Non-insurance operating expenses
Net income (loss) before taxes
Fourth quarter
Year
2023
2022
2023
2022
12 $
6
18 $
15 $
7
22 $
49 $
25
74 $
59
25
84
Fourth quarter
Year
2023
2022 restated
2023
2022 restated
163 $
156 $
639 $
604
9 $
7
2
(4)
14 $
6 $
(1)
2
(4)
3 $
24 $
4
8
(16)
20 $
6
—
6
(13)
(1)
$
$
$
$
$
Total annualized premium sales decreased 18% in the fourth quarter compared to the same period in 2022 and 12%
compared to prior year, due to a large block sale in Q4 of 2022.
Total insurance revenue increased 4% in the fourth quarter and 6% for the year compared to the same period in 2022,
primarily due to organic growth in specialty partnerships.
For the fourth quarter, net income before taxes increased $11 million compared to the same period in 2022 due to an
increase in the net investment and insurance finance result and favourable insurance contract liability assumption
updates on life and long-term disability (LTD) products. For 2023, net income before taxes of $20 million improved
from prior year, due to favourable claims experience and insurance contract liability assumption updates for life and
LTD products, and an increase in net investment and insurance finance result. These gains were partially offset by
adverse claims experience on the health and dental products.
Empire Life - Annual Report 2023
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
Product Line Results - Individual Insurance
(in millions of dollars)
Shareholders'
Shareholders' annualized premium sales(1)
Net income (loss) before taxes(2)
Policyholders'
Policyholders' annualized premium sales(1)
Net income (loss) before taxes(2)
(1) See Non-IFRS Measures section.
(2) 2022 figures have been restated.
(in millions of dollars)
Net insurance service result
Net investment and insurance finance result
Fee and other income
Non-insurance operating expenses
Net income (loss) before taxes
Fourth quarter
Year
2023
2022
2023
2022
10 $
(29)
3 $
4
9 $
(20)
4 $
—
40 $
35
14 $
5
32
236
15
(5)
Fourth quarter
Year
2023
2022 restated
2023
2022 restated
19 $
(39)
—
(5)
(25) $
21 $
(36)
(1)
(4)
(20) $
69 $
(10)
—
(19)
40 $
76
166
—
(11)
231
$
$
$
$
Shareholders’ annualized premium sales increased by 11% in the fourth quarter and 25% for the year, compared to
the same period in 2022, primarily from strong sales of our non-participating term insurance products.
Policyholders’ annualized premium sales declined slightly from the prior year, and decreased 7% from 2022, due to
higher demand for non-participating term products.
Shareholders' net income before taxes for the fourth quarter of 2023 decreased $9 million or 45% in 2023 compared
to 2022. Higher mortality losses in our traditional and universal life products were the main driver of the decrease.
The insurance contract liability assumption updates for individual insurance reduced the CSM amortization compared
to the prior period, which also contributed to the lower net income result.
Shareholders’ net income before taxes decreased $201 million or 85% in 2023 compared to 2022, primarily due to
strong gains from interest rate movements in 2022 that did not occur in 2023, along with higher operating expenses in
2023. Higher mortality losses in our universal life products also contributed to the decrease.
Results - Capital and Surplus
(in millions of dollars)
Net investment result
Other income and expenses
Net income (loss) before taxes
Fourth quarter
Year
2023
2022 restated
2023
2022 restated
$
$
158 $
(2)
156 $
3 $
6
9 $
131 $
(25)
106 $
(236)
(10)
(246)
Compared to the prior year, net income before taxes increased in the Capital and Surplus segment. The positive net
income for 2023 was mainly driven by the fourth quarter results due to the impact decreasing interest rates had on our
investment portfolio. For the year, losses in 2022 were driven by increasing interest rates which did not repeat in
2023.
Empire Life - Annual Report 2023
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results - Net Contractual Service Margin
(Amounts are net of reinsurance contracts held, in millions of dollars)
2023
2022
2023
2022
Net contractual service margin, beginning of period
$
1,567 $
1,452 $
1,544 $
1,358
Fourth quarter
Year
Impact of new insurance business
Interest accretion
Insurance experience(1)
Economic experience(1)
Assumption updates(1)
CSM recognized for services provided
15
6
10
(17)
(125)
(41)
17
6
2
104
5
(42)
62
25
3
71
(126)
(164)
64
25
17
281
(38)
(163)
Net contractual service margin, end of period
$
1,415 $
1,544 $
1,415 $
1,544
(1) Insurance experience, Economic experience and Assumption updates are components of our Changes in estimates that adjust the CSM. Insurance experience
represents the current period impacts of insurance experience, resulting in a change in future cash flows that adjust CSM. Economic experience represents the
changes in the effect of time value of money and financial risk relating to contracts measured using the VFA for our Wealth Management and Individual Insurance
product lines. Assumption updates represent the future period impacts of changes in fulfilment cash flows that adjust CSM.
The Net contractual service margin (CSM) decreased $129 million in 2023 largely driven by the impact of insurance
contract liability assumption updates. Additional details on these assumption updates can be found in the section
below. Other components of the CSM movement include:
•
•
•
New insurance business: Strong Traditional Non-Participating sales helped offset the shift away from
Segregated Funds to fixed annuity products.
Economic experience: Increase for the year was driven by the positive impact of equity market returns on the
Company's Segregated Funds, partially offset by the lower interest rates.
CSM amortization: Remained relatively consistent throughout the year.
Results - Impact of Insurance Contract Liability Assumption Updates
Impacts from the update of insurance contract liability assumption for the year ended December 31, 2023
(Amounts are net of reinsurance contracts held, in millions of dollars)
Components of insurance contract liability assumption updates
Mortality
Lapse
Expense
Other
Pre-tax
income
CSM
$
13 $
3
1
2
(80)
(38)
(7)
(1)
Total change from the update of insurance contract liability assumptions (excludes policyholders' portion) $
19 $
(126)
In 2023, insurance contract liability assumption updates primarily related to expected mortality and lapse rates.
The individual life line of business was impacted by mortality updates related to revised expectations to future
mortality experience, which was unfavourable to the CSM. This is partially offset by similar updates for the fixed
annuity business.
The assumption updates also reflected lapse impacts on segregated fund and universal life products. In addition,
updates to the expense assumptions were made in order to reflect Company experience with respect to inflation and
changes to operations.
Shareholder Dividends
The declaration and payment of common 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.
Empire Life - Annual Report 2023
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
On February 28, 2024, the Board of Directors declared dividends for common shareholders and series 3 preferred
shareholders. The following table provides details of the amounts and dates for Empire Life’s per share dividends.
Common shares
Non-Cumulative Rate Reset Preferred Shares, Series 3
Amount of Dividend
per share
Payable Date
Record Date
$
$
20.31
April 9, 2024
March 14, 2024
0.3866875
April 17, 2024
March 18, 2024
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
2023
2022 restated
$
$
632 $
(358)
(102)
172 $
301
(224)
(94)
(17)
Cash flows provided from operating activities include insurance premiums, net investment income and fee income.
Cash outflows from operating activities include policy benefit payments, commissions, operating expenses and
policyholder dividends. Cash flows from investing activities primarily relate to purchases and sales of investments
supporting insurance contract 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 period, cash and cash equivalents increased by $172 million. Cash flows provided by operating activities
increased by $331 million, in line with overall business growth. Cash used for investing activities increased by $134
million compared to the same period in 2022 as the prior period was attributable to higher net purchases on
investments. Cash used for financing activities was higher than the corresponding period in 2022, primarily due to the
higher dividend payments to common shareholders and preferred shareholders.
For an analysis of liquidity for Empire Life, refer to Notes 23.3. and 23.4. of our Consolidated Financial Statements for
the year ended December 31, 2023.
Financial Instruments
Empire Life buys investment quality bonds to support the liabilities under the insurance and investment contracts 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 contracts and its Capital and Surplus segment. Cash
flows arising from these financial instruments are intended to match the liquidity requirements of Empire Life’s
insurance and investment contract liabilities, 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 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 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
Empire Life - Annual Report 2023
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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.
For additional information on our financial instruments, refer to Note 3 Financial Instruments of our Consolidated
Financial Statements for the year ended December 31, 2023.
Effective January 1, 2023, we adopted IFRS 9 Financial Instruments. Except for assets impacted by the overlay
approach, results from periods prior to January 1, 2023 are reported in accordance with IAS 39 Financial Instruments:
Recognition and Measurement. For further details on the impacts of the adoption of IFRS 9, including the description
of accounting policies selected, refer to Note 2.4.2 IFRS 9 Financial Instruments and Note 2.6 Financial instruments,
of our Consolidated Financial Statements for the year ended December 31, 2023.
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
Details of the Company’s outstanding subordinated debentures are as follows:
Earliest
As at
December 31, 2023 December 31, 2022
$
$
399 $
297
1
298 $
As at
399
297
1
298
(in millions of dollars)
Date Issued
Redemption Date
Yield
December 31, 2023 December 31, 2022
Subordinated debentures, Series 2017-1(1)
Subordinated debentures, Series 2021-1(2)
Subordinated debentures, Series 2023-1(3)
September 2017
March 15, 2023
3.664% $
September 2021
September 24, 2026
2.024% $
January 2023
January 13, 2028
5.503% $
— $
199 $
199 $
200
199
—
(1) All of the outstanding Series 2017-1 Subordinated 3.664% Unsecured Debentures were redeemed on March 15, 2023.
(2) Series 2021-1 Subordinated 2.024% Unsecured Debentures due 2031. From September 24,2026, interest is payable at 0.67% over CDOR.
(3) Series 2023-1 Subordinated 5.503% Unsecured Debentures due 2033. From January 13, 2028, interest is payable at 2.26% over CORRA.
On January 13, 2023, the Company issued $200 million principal amount of unsecured debentures, Series 2023-1,
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 is
payable semi-annually until the interest reset date, which is January 13, 2028. The Company may call for redemption
of the debentures any time after January 13, 2028 subject to the prior written approval of the Office of the
Superintendent of Financial Institutions (OSFI). The debentures are subordinated in right of payment to all insurance
contract liabilities of the Company and all other senior indebtedness of the Company.
On March 15, 2023, the Company redeemed all of its outstanding $200 million 3.664% Unsecured Subordinated
Debentures, Series 2017-1 due March 15, 2028. The redemption was approved by OSFI.
Empire Life - Annual Report 2023
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
Details of the Company’s outstanding preferred shares and other equity instruments are as follows:
Limited Recourse Capital Notes, Series 1
February 2021
April 17, 2026
3.625% $
Date Issued
Redemption Date
Yield
December 31, 2023 December 31, 2022
Earliest
As at
November 2017
January 17, 2028
6.187% $
100 $
197 $
100
197
(in millions of dollars)
Preferred shares, Series 3
Empire Life did not exercise its right to redeem all or part of the outstanding Series 3 Preferred Shares on January 17,
2023. E-L Financial Corporation Limited elected not to exercise its right to convert all or part of their Series 3 Preferred
Shares into Non-Cumulative Rate Reset Preferred Shares, Series 4. As a result, 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, payable commencing April 17, 2023 until 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%.
Securities Rating
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
Regulatory Capital
Rating
A
A
A (low)
Pfd-2
BBB (high)
Trend
Stable
Stable
Stable
Stable
Stable
Date of last rating action
May 25, 2023
May 25, 2023
May 25, 2023
May 25, 2023
May 25, 2023
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%. 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
Dec 31
2023
Sep 30
2023
Jun 30
2023
Mar 31
2023
Dec 31
2022 (1)
(A) $
2,135 $
2,190 $
(B)
714
626
2,180 $
663
(C) $
2,849 $
2,816 $
2,843 $
2,213 $
647
2,860 $
598
2,276
152%
116%
1,776
600
2,376
916
2,393
138%
101%
Surplus allowance and eligible deposits
Base solvency buffer
LICAT total ratio
LICAT core ratio
(D)
(E)
((C+D)/E * 100)
((A+70%D)/E * 100)
651
2,252
155%
115%
561
2,228
152%
116%
608
2,293
151%
114%
(1) LICAT results prior to January 1, 2023 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. For additional details on the 2022 amounts,
please refer to Note 2.4 New and amended standards and interpretations in our Consolidated Financial Statements.
The increase in the LICAT total ratio from December 31, 2022 is due to the adoption of IFRS 17 and IFRS 9 and the
related changes to OSFI’s regulatory capital calculations. Empire Life's LICAT total ratio increased in the fourth
quarter due to strong earnings in the period, partly offset by the impact of insurance contract liability assumption
updates.
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.
Empire Life - Annual Report 2023
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 group benefits
and 3% market share for new life insurance premiums. Empire Life focuses 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. The Company offers competitively priced products and more personal
service, while also providing long-term value to our shareholders. Empire Life, as a mid-sized company, must
continue to be cost competitive with the larger companies that may have the advantage of economies of scale. By
focusing on particular market segments and providing competitive product offerings for our independent advisors,
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.
Empire Life has invested in distribution companies whose leadership teams are respected in the industry and have a
proven track record of growing the business, such as TruStone Financial (a MGA subsidiary). These investments
support the Company’s commitment to facilitating access to independent financial advice for Canadians.
The Wealth Management product line at Empire Life consists of segregated fund products and guaranteed interest
products. 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. Empire Life has focused on
developing long-term investment performance through the diversification of the investment styles and strategies of its
segregated funds. Management will continue to improve competitiveness by focusing on delivering consistent long-
term performance, providing new and differentiated 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.
Within the broader group benefits marketplace in Canada, Empire Life continues to focus on the small and medium-
sized group employer market, 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.
Empire Life offers both traditional non-participating and participating individual insurance products, with a range of
terms to suit the needs of Canadians. Long-term mortality trends continue to be favourable for life insurance products.
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. Individual Insurance products are very long-
term in nature and consequently are subject to long-term reserve and capital requirements. 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, group solutions and individual insurance products.
The Company is exposed to a number of risks as a result of its business activities. Effective risk management is
critical to the overall profitability, competitive market positioning and long-term financial viability of the Company. While
all risks cannot necessarily be eliminated or known with certainty, 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.
Empire Life - Annual Report 2023
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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 risks related to its products provided they are properly designed, priced and managed
to add 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;
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' assets 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. The
Company's risk appetite is the primary mechanism to operationalize the guiding principles outlined above and
includes a wide array of qualitative and quantitative standards.
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
2023 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
Empire Life - Annual Report 2023
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, strategy and risk appetite.
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 respective calculation dates. The sensitivities are
calculated independently for each risk variable, generally 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. The sensitivities are provided for the consolidated entity. 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 between these risk factors, model errors, or changes in other assumptions such as business
mix, effective tax rates, policyholder behaviour and other market variables relative to those underlying the calculation
of the sensitivities. 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, CSM, Equity 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.
Market Risk
Empire Life has equity market risk related to its segregated fund products and from equity assets backing life
insurance contract liabilities and surplus. Empire Life maintains 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 as well as liabilities on the statement of financial position related to
segregated fund guarantees. Some net income volatility can result from the hedging instruments, as gains or losses
are not directly offset by changes in the value of other assets and liabilities exposed to equity risk. For the year ended
December 31, 2023, Empire Life experienced a loss of $14.2 million pre-tax on the hedging program, due to realized
and unrealized fair value gains. This compares to a hedge loss of $8.4 million pre-tax in 2022.
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, 2023, Empire Life had $8.8 billion of segregated fund
assets and liabilities. Of this amount, approximately $8.5 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)
Total
December 31
December 31
2023
2022
9%
43%
7%
41%
100%
8%
44%
7%
41%
100%
Empire Life - Annual Report 2023
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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 framework includes the use of various constraints that provide a partial
cushion against impacts. As a result, the sensitivity impacts are often non-linear or asymmetric. In addition, the
contractual service margin provides a significant offset to potential impacts in the segregated fund guarantee liability.
This significantly reduces the net income impacts from changes in interest rates or stock market levels.
Empire Life also has equity market risk related to its equity assets backing life insurance contract liabilities and
surplus. The Company is in the process of changing its asset mix and reducing its exposure to equity risk in 2024. As
at December 31, 2023 and December 31, 2022, the sensitivity of Empire Life shareholders’ net income resulting from
changes in equity market prices is provided in the following table:
Sensitivity to equity risk:
As at December 31, 2023
Net income, before-tax
Total equity
CSM
As at December 31, 2022
Net income, before-tax
Total equity
CSM
Increase
Decrease
20%
10%
10%
20%
$
$
58 $
43
187
77 $
57
208
28 $
21
100
(27) $
(20)
(116)
39 $
29
111
(29) $
(21)
(125)
(42)
(31)
(254)
(53)
(39)
(271)
Based on equity market prices as at December 31, 2023 and December 31, 2022, the sensitivity of Empire Life's
LICAT Total ratio resulting from increases and decreases on equity market prices is provided in the following table:
Sensitivity to equity risk:
Impact on LICAT (1)
Segregated fund guarantees
Other equity risk
Equity hedge
As at December 31, 2023
Segregated fund guarantees
Other equity risk
Equity hedge
As at December 31, 2022
Increase
Decrease
20%
10%
10%
20%
30%
13 %
1 %
(2) %
12 %
17 %
— %
(2) %
15 %
5 %
— %
(1) %
4 %
9 %
— %
(1) %
8 %
(1) %
— %
1 %
— %
(2) %
— %
1 %
(1) %
(11) %
(1) %
1 %
(11) %
(7) %
— %
1 %
(6) %
(23) %
(2) %
1 %
(24) %
(14) %
— %
2 %
(12) %
(1) LICAT results prior to January 1, 2023 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. For additional details on the 2022 amounts,
please refer to Note 2.4 New and amended standards and interpretations in our Consolidated Financial Statements.
Empire Life - Annual Report 2023
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The amount at risk related to segregated fund maturity guarantees and segregated fund death benefit guarantees,
and the resulting insurance contract 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
at risk Fund value
at risk Fund value
Amount
Amount
Amount
at risk
Insurance
Contract
Liabilities(2)
December 31, 2023
December 31, 2022
$
$
2,557 $
2,651 $
952 $
1,048 $
44 $
160 $
2 $
10 $
1,101 $
3,073 $
12 $
104 $
102 $
79
LICAT
capital(1)
422
(1) LICAT results prior to January 1, 2023 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. For additional details on the 2022 amounts,
please refer to Note 2.4 New and amended standards and interpretations in our Consolidated Financial Statements.
(2) December 31, 2022 amount has been adjusted to reflect the impacts from the adoption of IFRS 17.
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. At December 31, 2023, the aggregate amount at risk for all three
categories of risk was $966 million. At December 31, 2022, the aggregate amount at risk for these three categories of
risk was $1,162 million. For these three categories of risk, the amount at risk is not currently payable, as payment is
contingent on future outcomes, including fund performance, deaths, deposits, withdrawals and maturity dates.
The level of insurance contract 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 a
50 basis point parallel shift in interest rates for December 31, 2023 and December 31, 2022, is shown in the table
below. No change to credit spreads is assumed.
Sensitivity to market interest rates - LICAT
December 31, 2023 LICAT total ratio
December 31, 2022 LICAT total ratio (1)
Impact of
50 bps Decrease
2%
2%
(1) LICAT results prior to January 1, 2023 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. For additional details on the 2022 amounts,
please refer to Note 2.4 New and amended standards and interpretations in our Consolidated Financial Statements.
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.
(1) Legal and Regulatory Compliance Risk
Empire Life is governed by the Insurance Companies Act and supervised by OSFI and is also subject to extensive
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 - Annual Report 2023
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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, information/cyber security 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.
liabilities,
(2) Model Risk
Empire Life uses models to support many business functions including product development and pricing, valuation of
insurance contract
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 models and
their 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 services 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 different types of goods and/or services through a number of third-party arrangements 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.
(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.
Empire Life - Annual Report 2023
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Information security breaches, including various forms of cyber-attacks, are occurring at an increasing pace across
industry sectors, governments and individuals. These malicious activities pose a significant risk to Empire Life 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. The Company continues to invest in people, processes and technology to
strengthen its abilities to respond to the evolving landscape.
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, incident management 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 unanticipated events, including pandemics. Such a disruption could impact 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.
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.
Empire Life - Annual Report 2023
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, they are integrated into our enterprise risk
management framework and the 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 and social risks include but are not limited to events and developments related to impacts
of climate change and the transition to a lower-carbon economy, emerging regulatory and public policy developments,
public health issues and issues of inequality. These risks may occur in the Company's direct operations, investment
activities or other areas, such as through third party arrangements.
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 Statement, available at www.empire.ca/about-us/community.
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.sedarplus.ca. Additional
disclosures of Empire Life’s sensitivity to risks are included in Note 23 of the 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, 2023. Based on that evaluation, management
concluded that Empire Life’s disclosure controls and procedures were effective as at December 31, 2023.
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 Accounting Standards. Under the supervision of
management, an evaluation of Empire Life’s internal control over financial reporting was carried out as at December
Empire Life - Annual Report 2023
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
31, 2023. Based on that evaluation, management concluded that Empire Life’s internal control over financial reporting
was effective as at December 31, 2023.
As a result of the adoption of IFRS 17 on January 1, 2023, the Company revised its internal controls over financial
reporting. The revisions were principally for implementation governance and controls over the initial implementation of
IFRS 17 and ongoing controls in the Company’s actuarial and financial reporting processes, including the adoption of
IFRS 17 accounting policies and significant judgements and estimates, the use of new information technology
systems and the reconciliation of financial data between existing reporting processes and IFRS 17.
Outlook
Across all business lines, Empire Life is focused on growth and diversification of distribution as well digital enablement
and adoption, all while maintaining exceptional personalized service. The Company is well-positioned following
investments made in product development, digital capabilities and operational improvements throughout 2023. While
the Canadian financial services regulatory landscape continues to evolve, Empire Life is proud to continue serving
Canadian individuals and small business owners.
2023 started off with turbulence as a regional banking crisis in March was triggered by the failure of Silicon Valley
Bank, leading to widespread fears of a broader banking crisis. However, credit spreads and other risky assets rallied
and priced in the potential for a soft landing in the economy.
Central banks across the developed world continued their monetary tightening campaigns in 2023. The Bank of
Canada increased rates from 5% in Q1 2023 to 5.5% in Q3 before holding rates steady for the remainder of the year.
The Federal Reserve held rates at 5.25-5.5% at its last policy meeting of the year and indicated that rate cuts were
likely in the coming year.
Out-sized enthusiasm surrounding the technology sector was a key performance driver of the S&P 500 in 2023. A
handful of stocks dubbed the “Magnificent Seven” accounted for about two-thirds of the gains in the S&P 500 in 2023.
Most major indexes ended the year strong in 2023. The S&P/TSX Composite and S&P 500 were up 11.8% and 26.3%
respectively. The Dow Jones Industrial Average was up more than 16% and the tech-heavy Nasdaq closed the year
up 44.6%.
Heading into 2024, monetary policy and its impact on global growth, is expected to slightly decline from 3.0% to 2.9%
in 2024. We expect to see the lagged effects of tighter policy, especially in Canada where high consumer debt levels
and shorter duration mortgages make the economy more sensitive to interest rates.
We continue to monitor the impact of emerging technologies, particularly around generative AI, the transition to a
green economy and other innovative technologies in healthcare, to ensure that the Empire Life products are
appropriately positioned to withstand volatility and benefit from opportunities as they arise.
The individual insurance market continues to grow modestly even with the increase in long-term interest rates. Empire
Life has increased its emphasis on long-term life insurance products while continuing to maintain its position in
shorter-term products, such as 10-year renewable term life insurance. Long-term interest rates, product mix and
product pricing are expected to continue to be challenges for Empire Life’s Individual Insurance product line. The
segregated fund product line saw a decline in net sales while experiencing a market shift toward fixed income and
guaranteed interest products; increased competition and fee pressures may impact this line going forward. Empire
Life will continue to develop low-cost efficient products and new digital services to satisfy consumer needs.
Empire Life maintained market share for group solutions for small to medium-sized employers amid a challenging
environment with inflationary headwinds and competitive pricing pressures from increased rate guarantees and
renewal caps. Across the industry, the previous upward trajectory on long-term disability claims, particularly mental
health claims, has leveled off. Plan flexibility and sustainability remains a key focus, balancing access with affordability
for plan sponsors. Empire Life will continue to closely manage drug costs via transition to biosimilars, use of prior
authorization, agreements negotiated with pharmaceutical manufacturers and other cost managing levers.
Empire Life - Annual Report 2023
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
In 2023, digital capabilities were strengthened, including a new mobile app for benefit plan members, a new digital
enrollment tool for plan administrators, as well as continued emphasis on connectivity with distribution partners.
Heading into 2024, Empire Life is focused on profitable growth and service excellence with our distribution partners.
On the product expansion side, Empire Life has introduced a digital retirement savings ecosystem along with five new
target date segregated funds. The Group Solutions line of business, including a new Group Retirement Savings
offering, enables plan sponsors to facilitate physical, mental and financial well-being for their employees; the market
has seen an increase in groups placing benefits and retirement savings with the same carrier.
In March 2023, OSFI released its final Guideline B-15 - Climate Risk Management, which will require disclosure of
Empire Life’s management of climate-related risks, effective fiscal year-end 2025. In June 2023, the International
Sustainability Standards Board (ISSB) also finalized its standards for disclosure of sustainability-related financial
information. As these are subject to jurisdictional adoption, the Company continues to monitor communication from
Canadian Securities Administrators for further guidance. In November 2023, the Quebec regulator, the Autorité des
marchés financiers (AMF) released its draft Climate Risk Management Guideline, with broader requirements than
OSFI’s Guideline B-15, including consideration of product design and marketing, and underwriting processes. The
Company has initiated work to comply with these regulatory requirements and continues to monitor requirements
related to climate risk.
In April 2023, OSFI released its final Guideline B-10 - Third-Party Risk Management, which sets out expectations for
managing risks associated with third-party arrangements for federally regulated financial institutions (FRFIs), which is
effective May 1, 2024. In addition, Guideline B-13 Technology and Cyber Risk Management came into effect on
January 1, 2024, which is intended to help FRFIs develop greater resilience to technology and cyber risks. The
Company has assessed these requirements and does not anticipate any issues with compliance by the effective date.
OSFI is developing a new framework for determining capital requirements for segregated fund guarantees. Changes
to the capital required for products with guaranteed income may ultimately impact the industry’s ability to offer some of
these products at reasonable prices to the consumer. OSFI has indicated that the new requirements will become
effective in January 2025.
In October 2023, OSFI released its draft Integrity and Security Guideline outlining expectations for all FRFIs to have in
place adequate policies and procedures to protect against threats to integrity and security threats, including foreign
interference. The final guideline was released in January 2024, with a phased implementation timeline.
OSFI also announced its comprehensive update to its supervisory framework, effective April 2024, which will provide a
structure to OSFI’s risk assessment, guide oversight activities and help in the identification and management of risks.
The Company has existing risk management programs in place covering a broad range of risks. The program is
continually reviewed for relevance and in response to emerging regulatory guidance. In addition, the Company
continues to manage the cost of increasing regulatory requirements. The insurance industry faces increasing
consumer and financial solvency regulation which the Company must absorb. Empire Life must continue to grow its
business and improve operating efficiency to absorb these costs while creating shareholder value.
Selected Financial Information
The following table summarizes various financial results on a quarterly basis for the most recent eight quarters:
Selected quarterly financial results
(in millions of dollars, except per share
amounts)
Dec 31
2023
Sep 30
2023
Jun 30
2023
Mar 31
2023
Dec 31
2022
restated
Sep 30
2022
restated
Jun 30
2022
restated
Insurance revenue - Gross
Common shareholder's net income
$
$
335 $
111 $
337 $
328 $
(5) $
(1) $
326 $
52 $
323 $
5 $
310 $
36 $
318 $
(34) $
Mar 31
2022
restated
304
47
Earnings per share - basic and diluted
$ 112.15 $
(5.25) $
(0.86) $
52.66 $
5.32 $
36.61 $
(34.08) $
47.87
Empire Life - Annual Report 2023
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table summarizes various financial results on an annual basis for the most recent three years:
Selected annual financial information
(in millions of dollars, except per share amounts)
Insurance revenue
Net investment result, excluding segregated funds
Fee and other income
Total revenue
Common shareholders' net income (loss)
Earnings per share - basic and diluted ($)
For the years ended December 31
2023
2022 restated
2021(1)
$
1,326
$
789
31
156
158.70
1,255
(1,654)
24
55
55.72
1,259
239
242.66
19,531
Total assets
(1) Amounts prior to January 1, 2022 have not been adjusted for the impacts from the adoption of IFRS 17 and IFRS 9. Amounts were reported under IFRS 4 and IAS
17,558
18,665
39.
Critical Accounting Estimates
Empire Life’s significant accounting policies are described in Note 2 of the Consolidated Financial Statements. Certain
of these policies require management to make estimates and assumptions that affect the application of accounting
policies and 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 on-going basis, management evaluates its
judgements, estimates, and critical assumptions in relation to assets, liabilities, revenue and expenses.
Insurance and reinsurance contracts held
Key assumptions and sources of estimation can result in a material adjustment to the carrying amounts of assets and
liabilities. The Company bases assumptions and estimates on parameters available when the insurance and
reinsurance contracts held are measured. Actuarial assumptions relate to events that are anticipated to occur,
however, these may not be realized due to market changes, developing experience or circumstances arising that are
unpredictable. Management applied judgement in determining the level of aggregation of information in which the
disclosures are presented in Note 10 of the Consolidated Financial Statements.
The methods used to measure insurance contracts
The Company uses the probability weighted average of cash flows to estimate the present value of expected future
cash flows. Product guarantees for universal life, participating products and segregated funds are valued using
stochastic models. Assumptions relating to mortality rates, morbidity rates, longevity, expenses, and policyholder
behavior are discussed further in Note 2 of the Consolidated Financial Statements.
Discount rates
IFRS 17 differentiates the requirements for discount rates for cash flows that do not vary based on the returns of any
underlying items from cash flows that do vary based on the returns of any underlying items. For those that do not vary,
cash flows are discounted using risk free rates, plus an illiquidity premium. For the observable period (30 years), risk
free rates are determined by reference to the yields of highly liquid AAA-rated Canadian sovereign securities. The
ultimate (year 70) risk free rate was determined to be 3.15%, with an ultimate illiquidity premium of 1.50% for both
2022 and 2023. The total discount rate between the observable and the ultimate periods were derived using linear
interpolation. For additional information refer to Note 2.3.1 Insurance and reinsurance contracts held, of our
Consolidated Financial Statements.
Investment contracts, which represent deferred annuities and guaranteed annuities, require discount rates that
include a provision to reflect the Company's own credit risk and an illiquidity adjustment.
Risk adjustment for non-financial risk
The risk adjustment (RA) for non-financial risk represents the compensation that the Company requires for bearing
the uncertainty about the amount and timing of the cash flows that arise from non-financial risk as the entity fulfills
Empire Life - Annual Report 2023
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
insurance contracts. The risk adjustment reflects an amount that an insurer would rationally pay to remove the
uncertainty that future cash flows will exceed the current estimate amount.
The Company derives risk adjustment for non-financial risk using a margin for adverse deviation (MfAD) approach.
The approach adds a margin (conservatism) to each insurance risk assumption.
Amortization of the CSM
The CSM is a component of the carrying amount of the asset or liability for a group of insurance contracts
representing the expected future profits the Company will recognize as it provides insurance contract services under
the insurance contracts in the group. An amount of the CSM for a given group of insurance contracts is recognized in
insurance service revenue in each period to reflect the insurance services provided.
For universal life contracts, the coverage units are defined as the total current death benefit. Empire Life's position is
that universal life products contain investment return services, whereas products with fixed Cash Surrender Values
(CSVs) do not contain investment return services. Hence, the coverage units for individual non-participating contracts
with fixed or no CSVs, are the sum insured less the CSVs.
Coverage units for fixed life contingent payout annuities (immediate annuities) are the expected annualized payment
amounts. For participating products, coverage units are the total death benefit amount which approximates the
benefits provided under the insurance coverage and investment return service.
For contracts measured using the GMM, coverage units are discounted at locked-in rates in order to determine the
CSM amortization.
Amortization of the segregated funds CSM's use fund values as the coverage units and incorporates adjustments that
reflect the impact of economic returns.
The total coverage units of each group of insurance contracts are reassessed at the end of each reporting period to
adjust for the reduction of remaining coverage for claims paid, expectations of lapses and cancellation of contracts in
the period.
For reinsurance contracts held, the CSM amortization reflects the expected pattern of underwriting of the underlying
contracts because the level of service provided depends on the number of underlying contracts in-force.
Accounting model eligibility
IFRS 17 requires the application of one of three models to groups of insurance contracts:
• General Measurement Model (GMM);
•
•
Variable Fee Approach (VFA);
Premium Allocation Approach (PAA).
For further details on the application of each model, refer to Note 2.3.1 of the Consolidated Financial Statements.
Fair value estimates
In measuring the fair value of financial instruments, management exercises judgment in the selection of fair value
inputs and in determining their significance to the fair value estimate. Judgment is also required in the classification of
fair value measurements within the levels of the fair value hierarchy, in particular those items categorized within Level
3 of the hierarchy. Additional information regarding the fair value of financial instruments in Note 3 of the Consolidated
Financial Statements.
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 Statements of Operations. If actual experience differs from the assumptions used, the resulting experience
Empire Life - Annual Report 2023
35
MANAGEMENT'S DISCUSSION AND ANALYSIS
gain or loss is recorded in OCI. Additional information regarding Pension and other post-employment benefits is
included in Notes 2.19 and 11 of the Consolidated Financial Statements.
Changes in Accounting Policies
IFRS 17 Insurance Contracts (IFRS 17) and IFRS 9 Financial Instruments (IFRS 9) adopted in 2023
For periods beginning on or after January 1, 2023, the Company adopted IFRS 17, which replaces IFRS 4 Insurance
Contracts, and has restated comparative information for 2022 applying the transition provisions in IFRS 17. IFRS 17
establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts.
Effective January 1, 2023, we have also adopted IFRS 9, which replaces IAS 39 Financial Instruments: Recognition
and Measurement.
IFRS 17
The adoption of IFRS 17 did not change the classification of the majority of the Company’s insurance or investment
contract liabilities. 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 and investment contract
liabilities. The exception is deferred annuities which were classified as insurance contracts under IFRS 4 and are now
classified as investment contracts under IFRS 9. IFRS 17 establishes specific principles for the recognition and
measurement of insurance contracts issued and reinsurance contracts held by the Company.
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.
Identifies and separates distinct investment components and distinct services other than insurance contract
services from insurance contracts and accounts for them in accordance with other standards.
Aggregates insurance contracts issued and reinsurance contracts held into portfolios of contracts which represent
similar insurance risks to the Company and which are managed together. Portfolios of contracts consist of groups
of insurance contracts which are separated at initial recognition between contracts expected to produce a loss
(onerous contracts) and the remaining contracts. Each group contains contracts which are issued no more than
one year apart except those transitioned to IFRS 17 under the Fair Value method.
Recognizes each group of insurance contracts separately at initial recognition and measures each separately in
each future accounting period.
Recognizes and measures groups of insurance contracts at the risk-adjusted present value of the expected future
cash flows that incorporates all available information about the fulfilment cash flows in a way that is consistent
with observable market information.
Establishes a contractual service margin (CSM), representing the unearned profit in the group of insurance
contracts.
Recognizes insurance service revenue from a group of insurance contracts over the period that insurance
contract services are provided. If a group of insurance contracts is expected to be onerous (loss making,
exclusive of ceded risks) over the remaining coverage period, losses are recognized immediately.
•
•
•
•
•
•
• Measures insurance contract liabilities as the total of the following measurement components:
◦
◦
◦
probability weighted, discounted, future cash flows;
a risk adjustment for non-financial risk; and
CSM.
Transition
IFRS 17 transition is applied using a full retrospective approach unless impracticable. Due to the lack of historical
data, the Company applied the fair value approach (defined below) in determining the transition values for all lines of
business except for group insurance. Full retrospective approach was used for the Group insurance contracts which
qualified for the PAA. The Company has derecognized any existing balances that would not exist had IFRS 17 always
applied. Resulting net differences are recognized in equity.
Empire Life - Annual Report 2023
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
For additional information on IFRS 17 refer to Note 2.3 Estimates, assumptions and judgments and Note 2.4.1 IFRS
17 Insurance Contracts, in the Consolidated Financial Statements.
IFRS 9
IFRS 9 includes three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (FVOCI) and FVTPL. IFRS 9 eliminates the previous IAS 39 categories of held-
to-maturity investments, loans and receivables, and available-for-sale (AFS) financial assets. Financial assets are
measured at initial recognition at fair value, and are classified and subsequently measured at FVTPL, FVOCI or
amortized cost based on the Company's business model for managing the financial assets and the contractual cash
flow characteristics of the assets.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of IFRS 9 are not
separated. Instead, the hybrid financial instrument as a whole is assessed for classification. IFRS 9 maintains the IAS
39 classification for financial liabilities that may be measured at either amortized cost or FVTPL.
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.
For additional information on the change to the classification and measurement of financial assets and liabilities upon
the adoption of IFRS 9, refer to Note 2.4.2 IFRS 9 Financial Instruments in the Consolidated Financial Statements.
Overlay approach
As permitted, the Company has elected to apply the overlay approach which allows the classification and
remeasurement requirements of IFRS 9 to be applied to all financial assets held in comparative periods, including
those that were derecognized during that period, in order to reduce the volatility in profit or loss arising from the
different effective dates of IFRS 9 and IFRS 17.
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 was initially applied on January 1, 2023 without
restatement of comparatives. For additional information on the impact of the Overlay approach and the IFRS 9
transition, refer to Note 2.4.2 IFRS 9 Financial Instruments and Note 2.6 Financial instruments, of our Consolidated
Financial Statements.
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 anticipates 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: investment risk, including market risk (including equity risk, interest rate risk, and foreign exchange rate
risk), liquidity risk, credit risk (including counterparty risk), and hedging risk; product risk, including 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; pension risk, and risk with respect to risk management policies; business and strategic risk,
including environmental and social risk, risk with respect to financial strength, capital adequacy risk, risk with respect
to competition, risk with respect to distribution channels, risk with respect to changes to applicable income tax
Empire Life - Annual Report 2023
37
MANAGEMENT'S DISCUSSION AND ANALYSIS
legislation, risk with respect to brand, risk with respect to intellectual property and risk with respect to significant
ownership of common shares; risk relating to the securities of Empire Life, including risk with respect to market value,
and risk with respect to regulatory constraints. Please see the section titled “Risk Factors” in Empire Life’s Annual
Information Form available at www.sedarplus.ca 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 insurance contract liabilities; and that 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.
Non-IFRS Measures
Empire Life uses non-IFRS measures including return on common shareholders’ equity, assets under management,
annualized premium sales, gross and net sales for 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 Accounting Standards 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 Accounting
Standards and a comparable measure under IFRS Accounting Standards 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, on a trailing 4-quarters basis.
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.
Empire Life - Annual Report 2023
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2023
December 31, 2022
restated
$
$
9,855 $
8,813
18,668
—
18,668 $
8,992
8,566
17,558
16
17,574
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
Other
December 31, 2023 December 31, 2022
$
$
227 $
—
227 $
209
16
225
Empire Life - Annual Report 2023
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 as issued by the International Accounting Standards Board (IASB) (IFRS Accounting Standards).
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 Accounting Standards. 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, 2023. Based on that evaluation, management concluded that the Company’s internal control over financial reporting
was effective as at December 31, 2023.
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 insurance contract 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
insurance contract liabilities at the consolidated statement of financial position date and are appropriate for its purpose.
Examination of supporting data for accuracy and completeness and analysis of Company assets for their ability to support
the amount of insurance contract 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
President and Chief Executive Officer
Kingston, Ontario
Rebecca Rycroft
Senior Vice-President and Chief Financial Officer
Kingston, Ontario
Empire Life - Annual Report 2023
40
Appointed Actuary's Report
To the policyholders and shareholders of The Empire Life Insurance Company
I have valued the policy liabilities of Empire Life for its Consolidated Financial Statements prepared in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) (IFRS
Accounting Standards) for the year ended 31 December 2023.
In my opinion, the amount of policy liabilities is appropriate for its purpose. The valuation conforms to accepted actuarial
practice in Canada 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 29, 2024
Empire Life - Annual Report 2023
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, 2023
and 2022 and January 1, 2022, and its financial performance and its cash flows for the years ended December 31, 2023
and 2022 in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS Accounting Standards).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated statements of financial position as at December 31, 2023 and 2022 and January 1, 2022;
the consolidated statements of operations for the years ended December 31, 2023 and 2022;
the consolidated statements of comprehensive income for the years ended December 31, 2023 and 2022;
the consolidated statements of changes in equity for the years ended December 31, 2023 and 2022;
the consolidated statements of cash flows for the years ended December 31, 2023 and 2022; and the notes to the
consolidated financial statements, comprising material accounting policy information 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.
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, 2023. 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.
Empire Life - Annual Report 2023
42
Independent Auditor's Report
Key audit matter
How our audit addressed the key audit matter
Valuation of insurance contract liabilities – Estimation
of fulfilment cash flows
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 2 – Material accounting policies and note 10 –
Insurance contracts and reinsurance contracts held to the
consolidated financial statements.
•
The Company has insurance contract liabilities of $15.2
billion, reinsurance contracts held liabilities of $0.3 billion
and reinsurance contracts held assets of $0.3 billion as at
December 31, 2023. Insurance contract liabilities consist of:
•
fulfilment cash flows (FCFs) comprising unbiased and
probability weighted estimates of future cash flows,
discounted to present value to reflect the time value of
money and financial risks, plus a risk adjustment for
non-financial risk (risk adjustment) and;
contractual service margin (CSM) representing the
unearned profit in the group of insurance contracts.
•
Reinsurance contracts held consist of FCFs ceded to
reinsurers and a CSM representing the net cost or net gain
deferred in the group of reinsurance contracts.
Measurement of the FCFs requires management
judgments in estimating the probability weighted mean of
future cash flows on a present value basis, in addition to
applying a risk adjustment. Estimates of expected cash
flows incorporate assumptions used in the stochastic
modelling of guarantees for segregated funds and
best-estimate assumptions for mortality, morbidity,
longevity, expenses, and policyholder behaviour, as well as
assumptions for discount rates and the risk adjustment.
These assumptions are reviewed and updated at least
annually by the Company’s Appointed Actuary.
We considered this a key audit matter due to the judgment
applied by management when determining the FCFs, which
in turn led to a high degree of auditor judgment and effort in
evaluating specifically the significant best-estimate
assumptions for mortality, policyholder behaviour, discount
rates, the assumptions used in the stochastic modelling of
guarantees for segregated funds, and the risk adjustment.
Professionals with specialized skill and knowledge in the
field of actuarial sciences assisted us in performing our
procedures.
Tested how management determined the FCFs, which
included the following:
–
Tested the operating effectiveness of certain
controls over the actuarial models used in
management’s determination of FCFs and certain
controls related to the completeness and accuracy
of data used in the calculation of FCFs.
Tested accuracy and completeness of data used in
the estimates of future cash flows.
–
– 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
mortality, policyholder behaviour, discount rates,
assumptions used in the stochastic modelling of
guarantees for segregated funds, and the risk
adjustment by:
•
Evaluating these assumptions in accordance
with the requirements of the Canadian Institute
of Actuaries (CIA).
Evaluating the Company’s internal experience
studies for appropriateness and considering the
relationship of the results with recent CIA
industry experience and observable market
information.
•
– With the assistance of professionals with
specialized skill and knowledge in the field of
actuarial science, evaluated a sample of actuarial
models used in management’s determination of the
FCFs, by:
•
Assessing the appropriateness of the modelling
of product features.
Assessing the appropriateness of the
application of best-estimate assumptions for
mortality, policyholder behaviour, discount
rates, assumptions used in the stochastic
modelling of guarantees for segregated funds
and the risk adjustment.
•
•
Assessed the disclosures made in the consolidated
financial statements, particularly on the sensitivity of
best-estimate assumptions on insurance contract
liabilities.
Empire Life - Annual Report 2023
43
Independent Auditor's Report
Key audit matter
How our audit addressed the key audit matter
Our approach to addressing the matter included the
following procedures, among others:
•
Evaluated the appropriateness of management’s IFRS
17 accounting policies and tested that they were
appropriately implemented.
Tested how management determined the fair value of
the group of insurance contracts to measure the
transition CSM as at January 1, 2022, which included
the following:
– With the assistance of professionals with
specialized skill and knowledge in the field of
actuarial science and valuations, assessed the
reasonableness of the market participant
assumptions used for the WACC and the LICAT
targets by independently constructing a WACC and
capital target benchmarking against industry
experience.
– Reconciled underlying insurance assumptions to
the assumptions used in the FCFs.
– With the assistance of professionals with
specialized skill and knowledge in the field of
actuarial science, evaluated the appropriateness of
the actuarial methodology
•
Assessed the disclosures made in the consolidated
financial statements about the adoption of IFRS 17,
including the CSM at transition determined using the
fair value approach.
Adoption of IFRS 17, Insurance Contracts – Contractual
service margin (CSM) determined using the fair value
approach as at January 1, 2022
Refer to note 2 – Material accounting policies and note 10 –
Insurance contracts and reinsurance contracts held to the
consolidated financial statements.
•
On January 1, 2023, the Company has retrospectively
adopted IFRS 17, Insurance Contracts (IFRS 17) which
impacted how the Company recognizes, measures,
presents and discloses insurance contracts. In adopting the
new standard, the Company used judgment in
implementing accounting policies, including accounting
policy choices specific to transition.
Due to the lack of historical data, the Company applied the
fair value approach in determining the transition CSMs as
at January 1, 2022 for all lines of business except for group
insurance.
This transition CSM of $1.5 billion for insurance contracts
issued and $0.2 billion for reinsurance contracts held was
determined as the difference between the fair value of the
groups of insurance contracts and the FCFs measured at
the date of transition.
Management used an income approach to calculate the fair
value of the insurance contracts liabilities at the transition
date. The weighted average cost of capital (WACC), Life
Insurance Capital Adequacy Test (LICAT) targets and
underlying insurance assumptions used in applying the fair
value approach were determined using market rates for a
company of Empire Life Insurance Company’s size and
capital sources as at January 1, 2022, which were
considered to be consistent with those of a market
participant in Canada. Allowances were made for the
uncertainty around changes to segregated fund regulatory
capital requirements expected in 2025.
We considered this a key audit matter due to (i) the
judgment used by management when adopting IFRS 17,
specifically determining the transition CSM using the fair
value approach, (ii) a high degree of auditor judgment,
subjectivity and effort in performing procedures and
evaluating audit evidence related to management’s
judgments and assumptions used to determine the
transition CSM using the fair value approach, specifically
the actuarial methodology used in the income approach
and the market participant assumptions for the WACC and
the LICAT targets, and (iii) the audit effort involved the use
of professionals with specialized skills and knowledge.
Empire Life - Annual Report 2023
44
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 Accounting Standards, 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.
• 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.
•
Empire Life - Annual Report 2023
45
Independent Auditor's Report
•
•
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 29, 2024
Empire Life - Annual Report 2023
46
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at
Assets
Cash and cash equivalents
Investments
Accrued investment income
Current tax asset
Other assets
Reinsurance contracts held assets
Property and equipment
Deferred tax asset
Investment in associates
Intangible assets
Goodwill
Segregated fund assets
Total assets
Liabilities
Insurance contract liabilities, excluding segregated fund account balances
Reinsurance contracts held liabilities
Investment contract liabilities, excluding segregated fund account balances
Accounts payable and other liabilities
Current tax liability
Subordinated debt
Total liabilities, excluding those for account of segregated fund holders
Insurance contract liabilities for segregated fund account balances
Investment contract liabilities for segregated fund account balances
Insurance and investment contract liabilities for account of segregated fund holders
Total liabilities
Equity
Preferred shares
Common shares
Other equity instruments
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total shareholders' equity
Participating account surplus
Total equity
Total liabilities and equity
Notes December 31, 2023 December 31, 2022
restated
January 1, 2022
restated
3
3
4
10
14
5
6
8
10
10
3
9
12
10
3
16
16
16
$
347,707 $
175,523 $
8,916,945
8,160,299
49,068
—
32,193
281,359
13,751
89,444
34,891
61,511
24,950
48,645
46,644
32,725
310,044
13,642
89,623
29,816
60,571
24,465
193,218
9,839,335
40,789
15,241
16,765
283,299
14,889
93,123
22,504
28,511
—
8,812,724
8,565,675
9,257,298
18,664,543 $
17,557,672 $
19,804,972
6,708,434 $
6,145,378 $
7,598,470
$
$
253,230
490,020
97,318
15,780
398,897
7,963,679
8,507,285
305,439
8,812,724
217,056
334,664
110,308
—
399,129
7,206,535
8,278,948
286,727
8,565,675
338,922
322,208
104,615
—
398,858
8,763,073
8,947,820
309,478
9,257,298
16,776,403
15,772,210
18,020,371
100,000
985
196,664
19,387
1,498,732
26,215
1,841,983
46,157
1,888,140
100,000
985
196,664
19,387
1,417,584
26,787
1,761,407
24,055
1,785,462
100,000
985
196,664
19,387
1,435,391
2,245
1,754,672
29,929
1,784,601
$
18,664,543 $
17,557,672 $
19,804,972
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 2023
47
10
13
10
3
3
3
3
3
3
3
3
13
13
Notes December 31, 2023 December 31, 2022
restated
$
1,325,508 $
1,255,349
(1,071,549)
(1,018,110)
253,959
(72,637)
181,322
237,239
(44,428)
192,811
816,789
(28,171)
788,618
(613,392)
(39,503)
(652,895)
735,834
(735,834)
—
135,723
30,701
(95,525)
(16,615)
(81,439)
235,606
(45,650)
189,956
22,102
167,854
(11,525)
156,329 $
158.70 $
(1,663,952)
10,331
(1,653,621)
1,484,918
83,005
1,567,923
(353,668)
353,668
—
(85,698)
24,184
(62,116)
(11,648)
(49,580)
57,533
1,722
59,255
(5,874)
65,129
(10,237)
54,892
55.72
Consolidated Statements of Operations
(in thousands of Canadian dollars except per share amounts)
For the year ended
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding segregated funds
Segregated funds net investment and insurance finance result
Investment income (loss) on investments for segregated fund account balances
Insurance finance income (expenses) segregated fund account balances
Segregated funds net investment and insurance finance result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
Total other income and expenses
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
Less: net income (loss) attributable to the participating account
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on other equity instruments
Common shareholders' net income (loss)
Earnings per share - basic and diluted
(2,000,000 shares authorized; 985,076 shares outstanding)
17
15
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2023
48
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
For the year ended
Net income (loss) after taxes
Other comprehensive income (loss), net of income taxes:
Items that will not be reclassified to net income:
Remeasurements of post-employment benefit liabilities
Total other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive income (loss) attributable to:
Participating account
Shareholders
Total comprehensive income (loss)
Notes December 31, 2023 December 31, 2022
restated
$
189,956 $
59,255
14
$
$
$
(572)
(572)
189,384 $
22,102 $
167,282
189,384 $
24,542
24,542
83,797
(5,874)
89,671
83,797
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2023
49
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
Previously reported balance as
at December 31, 2021
Impact of initial application of IFRS
17, net of taxes
Impact of initial application of IFRS
9 overlay, net of taxes
Restated balance as at
January 1, 2022
Preferred
Shares
Common
Shares
Other Equity
Instruments
Contributed
Surplus
Retained
Earnings
AOCI
(AOCL)
Total
Shareholders'
Equity
Participating
Account
Surplus
Total
Equity
$ 100,000 $
985 $
196,664 $
19,387 $ 1,746,945 $ 52,217 $
2,116,198 $
55,380 $ 2,171,578
100,000
985
196,664
19,387 1,435,391
2,245
1,754,672
29,929 1,784,601
(361,940)
—
(361,940)
(27,951)
(389,891)
50,386
(49,972)
414
2,500
2,914
Restated for the year ended December 31, 2022
Comprehensive income (loss)
Preferred share dividends and
distributions on other equity
instruments
Common share dividends
Restated balance as at
December 31, 2022
100,000
985
196,664
19,387 1,417,584
26,787
1,761,407
24,055 1,785,462
65,129
24,542
(10,237)
89,671
(10,237)
(72,699)
(72,699)
(5,874)
83,797
(10,237)
(72,699)
For the year ended December 31, 2023
Comprehensive income (loss)
Preferred share dividends and
distributions on other equity
instruments
Common share dividends
167,854
(572)
(11,525)
167,282
(11,525)
(75,181)
(75,181)
22,102
189,384
(11,525)
(75,181)
Balance as at December 31, 2023 $ 100,000 $
985 $
196,664 $
19,387 $ 1,498,732 $ 26,215 $
1,841,983 $
46,157 $ 1,888,140
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2023
50
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For the year ended
Operating activities
Net income before tax
Adjustments for:
Accrued investment income
Depreciation of right-of-use assets
Amortization of (premium) discount on invested assets
Amortization related to property and equipment and intangible assets
Accrued Interest on Lease Liabilities
Net unrealized (gains)/losses on invested assets
Amortization of (premium) discount on subordinated debts
Accrued interest on subordinated debts
Share of loss (income) of associates
Changes in:
Other assets
Accounts payable and other liabilities
Insurance contracts liabilities
Reinsurance contracts held
Investment contract liabilities
Cash generated from (used for) operating activities
Tax refund received (paid)
Cash provided from (used for) operating activities
Investing activities
Portfolio investments
Purchases and advances
Sales and maturities
Purchase of property and equipment and intangible assets
Dividends from associates
Investment in associates
Payments for acquisition of subsidiary, net of cash acquired
Cash provided from (used for) investing activities
Financing activities
Dividends paid to common shareholders
Dividends paid to preferred shareholders and distributions from other equity instruments
Redemption of subordinated debt
Issuance of subordinated debt
Payment of lease liabilities
Interest paid on subordinated debt
Cash provided from (used for) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
Supplementary cash flow information related to operating activities:
Income taxes paid, net of (refunds)
Interest income received
Dividend income received
Note
December 31, 2023 December 31, 2022
restated
$
235,606 $
57,533
(423)
1,386
(81,855)
16,137
176
(342,482)
468
7,667
(1,300)
(320)
(4,219)
544,344
62,950
174,068
612,203
19,310
631,513
(7,856)
5,596
(76,850)
15,870
804
1,896,302
871
4,735
(1,466)
15,960
18,720
(1,430,341)
(148,611)
(10,295)
340,972
(40,277)
300,695
(2,022,167)
(2,014,246)
1,685,826
(16,682)
985
(4,760)
(988)
(357,786)
(75,181)
(11,204)
(200,000)
199,300
(1,243)
(13,215)
(101,543)
172,184
175,523
$
$
347,707 $
(19,310) $
256,610
56,724
17
3
3
1,873,830
(19,779)
495
(6,340)
(57,910)
(223,950)
(72,699)
(10,238)
—
—
(726)
(10,777)
(94,440)
(17,695)
193,218
175,523
40,277
224,779
49,857
The accompanying notes are an integral part of these consolidated financial statements.
Empire Life - Annual Report 2023
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)
1. Description of Company and Summary of Operations
The Empire Life Insurance Company (the Company or Empire Life) celebrated its 100th anniversary, as it 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 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 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) and subject to regulations in all of the provinces in which we conduct business.
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 subsidiary, Empire Life Investments
Incorporated. (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.
TruStone Financial Inc. (TSFI), an Empire Life subsidiary, was established in 2022. Empire Life owns 100% of the voting
shares and maintains control of its subsidiary. 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
29, 2024.
2. Material Accounting Policies
2.1. Basis of preparation
The Consolidated Financial Statements of the Company for the year ended December 31, 2023 have been prepared in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(IASB) (IFRS Accounting Standards).
IFRS 17 Insurance Contracts (IFRS 17) replaces IFRS 4 Insurance Contracts (IFRS 4) for annual periods beginning on or
after January 1, 2023. The Company has restated comparative information for 2022 applying the transition provisions in
IFRS 17. Details of the Company’s material accounting policies are included in this note.
The IASB issued IFRS 9 Financial Instruments (IFRS 9), replacing IAS 39 Financial Instruments: Recognition and
Measurement (IAS 39). IFRS 9 is effective for annual periods beginning on or after January 1, 2023.
All amounts included in the Consolidated Financial Statements are presented in thousands of Canadian dollars except for
per share amounts and where otherwise stated.
2.2. 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. Inter-company transactions, balances, income and
expenses are eliminated on consolidation.
Empire Life - Annual Report 2023
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)
2.3. Estimates, assumptions and judgments
The preparation of the Consolidated Financial Statements, in accordance with IFRS Accounting Standards, requires
management to make estimates and assumptions that affect the application of accounting policies and 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 on-going basis, management evaluates its judgements, estimates, and
critical assumptions in relation to assets, liabilities, revenue and expenses. Actual results may differ from the Company's
estimates thereby impacting the Consolidated Financial Statements. Information on the Company's use of estimates and
assumptions related to measurement of insurance contract liabilities and investment contract liabilities are discussed in
this Note.
2.3.1. Insurance and reinsurance contracts held
Key assumptions and sources of estimation that can result in a material adjustment to the carrying amounts of assets and
liabilities are discussed below. The Company bases assumptions and estimates on parameters available when the
insurance and reinsurance contracts held are measured. Actuarial assumptions relate to events that are anticipated to
occur, however, these may not be realized due to market changes, developing experience or circumstances arising that
are unpredictable. Management applied judgement in determining the level of aggregation of information in which the
disclosures are presented in Note 10 of the Consolidated Financial Statements.
Product guarantees for universal life, participating products and segregated funds are valued using stochastic models.
Assumptions are discussed in more detail below and in Note 23.
Mortality rates (life insurance business)
Current estimates are based on a combination of Company and industry experience. Mortality projections are further
adjusted for expected future mortality improvements. Assumptions are differentiated by policyholder gender, underwriting
class and contract size.
Morbidity rates (health insurance business)
Morbidity rates relate to insurance contracts that have health risks. Morbidity refers to both the rates of accident or
sickness and the rates of recovery from the accident or sickness. Assumptions are based on a combination of Company
and industry experience.
Longevity (immediate annuity business)
Assumptions are based on a combination of Company and industry experience. An appropriate allowance is made for
expected future mortality improvements.
Expenses
Expenses that are directly attributable to the fulfilment of insurance contracts are within the contract boundary (defined in
Note 2.5.4) and included in the measurement of the group of insurance contracts. These expenses include costs of
administering policies in-force, renewal commissions, acquisition costs, general expenses, transactional taxes, investment
income tax and an allocation of fixed and variable overhead expenses. Overhead expenses are allocated to groups of
insurance contracts using methods that are systematic and rational. The current level of expenses is taken as an
appropriate expense base, projections adjusted for expected inflation. Expected inflation rates are based on management
current estimates.
Policyholder behaviour
Policy lapse, surrender and premium payment assumptions (collectively policyholder behaviour) are based on Company
and industry experience.
Empire Life - Annual Report 2023
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)
Discount rates
IFRS 17 differentiates the requirements for discount rates for cash flows that do not vary based on the returns of any
underlying items from cash flows that do vary based on the returns of any underlying items. For those that do not vary,
cash flows are discounted using risk free rates, plus an illiquidity premium. For the observable period (30 years), risk free
rates are determined by reference to the yields of highly liquid AAA-rated Canadian sovereign securities. The ultimate
(year 70) risk free rate was determined to be 3.15%, with an ultimate illiquidity premium of 1.50% for both 2022 and 2023.
The total discount rate between the observable and the ultimate periods were derived using linear interpolation.
Discount rates applied to cash flows that do not vary based on the returns of any underlying items use the following rates
for discounting of expected future cash flows:
For contracts whose cash flows do not vary with the underlying items
Portfolio duration
December 31, 2023 December 31, 2022
1 year
3 years
5 years
10 years
20 years
30 years
Ultimate (year 70)
5.36 %
4.76 %
4.55 %
4.74 %
4.83 %
4.89 %
4.65 %
5.53 %
5.25 %
5.07 %
5.15 %
5.31 %
5.29 %
4.65 %
The illiquidity premium, determined using guidance outlined in Canadian Institute of Actuaries (CIA) Standards of Practice,
references observable market rates for corporate debt. Empire Life applies the same illiquidity premium to all groups of
insurance contracts where the General Measurement Model (GMM) applies. It was determined that these insurance
contracts were very illiquid, which is reflected in the illiquidity premium used.
Risk adjustment for non-financial risk
The risk adjustment (RA) for non-financial risk represents the compensation that the Company requires for bearing the
uncertainty about the amount and timing of the cash flows that arise from non-financial risk as the entity fulfills insurance
contracts. The risk adjustment reflects an amount that an insurer would rationally pay to remove the uncertainty that future
cash flows will exceed the current estimate amount.
The Company derives risk adjustment for non-financial risk using a margin for adverse deviation (MfAD) approach. The
approach adds a margin (conservatism) to each insurance risk (mortality, morbidity, longevity, expenses, policyholder
behaviour) assumption. These MfADs are aggregated to derive the Company’s total risk adjustment. The risk adjustment
recognizes the benefits of diversification and is further adjusted to achieve the target confidence level.
The net direct and ceded risk adjustment for non-financial risk for the Company corresponds to a confidence level target
range of 80% to 85% as at December 31, 2023 and December 31, 2022.
Amortization of the CSM
The CSM is a component of the carrying amount of the asset or liability for a group of insurance contracts representing
the expected future profits the Company will recognize as it provides insurance contract services under the insurance
contracts in the group. An amount of the CSM for a given group of insurance contracts is recognized in insurance service
revenue in each period to reflect the insurance services provided.
For universal life contracts, the coverage units are defined as the total current death benefit. Empire Life's position is that
universal life products contain investment return services, whereas products with fixed Cash Surrender Values (CSVs) do
not contain investment return services. Hence, the coverage units for individual non-participating contracts with fixed or no
CSVs, are the sum insured less the CSVs.
Empire Life - Annual Report 2023
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)
Coverage units for fixed life contingent payout annuities (immediate annuities) are the expected annualized payment
amounts. For participating products, coverage units are the total death benefit amount which approximates the benefits
provided under the insurance coverage and investment return service.
For contracts measured using the GMM, coverage units are discounted at locked-in rates in order to determine the CSM
amortization.
Amortization of the segregated funds CSM's use fund values as the coverage units and incorporates adjustments that
reflect the impact of economic returns.
The total coverage units of each group of insurance contracts are reassessed at the end of each reporting period to adjust
for the reduction of remaining coverage for claims paid, expectations of lapses and cancellation of contracts in the period.
For reinsurance contracts held, the CSM amortization reflects the expected pattern of underwriting of the underlying
contracts because the level of service provided depends on the number of underlying contracts in-force.
Accounting model eligibility
IFRS 17 requires the application of one of three models to groups of insurance contracts:
• General Measurement Model (GMM);
•
•
Variable Fee Approach (VFA);
Premium Allocation Approach (PAA).
The GMM is the default measurement model under IFRS 17. The GMM applies to all individual non-participating business
including fixed life-contingent annuities and universal life insurance contracts. The universal life business contains some
features of risk pass through where the VFA model might apply, however, management determined that there was not a
link to clearly identified pool of underlying items, therefore the GMM applies.
The VFA applies to all groups of insurance contracts that are substantially investment-related service contracts under
which the policyholder receives a substantial share of the investment returns on the linked underlying items. The VFA
applies to the segregated fund business and eligible participating policies. There was judgment involved in deciding to
apply the VFA model to the Company's participating business. Empire Life’s approach is to define the underlying as the
entire participating account, including any surplus. The policyholders benefit from a substantial share of the return on
these assets.
The PAA model is applicable when the coverage period of each contract in the group is one year or less or the Company
reasonably expects that the resulting measurement of the liability for remaining coverage (LRC) would not differ materially
from that of applying the GMM. The PAA is therefore applied to the Company's short-term group insurance business as it
does not differ materially from that of applying the GMM. The Company does not adjust the LRC to reflect the time value
of money and effect of financial risk if at initial recognition it does not expect that the time between providing each part of
the services and the related premium due date will be more than one year.
2.3.2. 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
Statements of Operations. 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 2.19 and 11.
2.3.3. Fair value estimates
In measuring the fair value of financial instruments, management exercises judgment in the selection of fair value inputs
Empire Life - Annual Report 2023
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)
and in determining their significance to the fair value estimate. Judgment is also required in the classification of fair value
measurements within the levels of the fair value hierarchy, in particular those items categorized within Level 3 of the
hierarchy.
Additional information regarding the fair value of financial instruments is included in Note 3.
2.4. New and amended standards and interpretations
The Company adopted the amendments to IFRS Accounting Standards for IAS 1, Presentation of Financial Statements
and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. The adoption of these amendments did not
have a material impact on the Company's financial statements. See 2.4.1 and 2.4.2 for summaries of the nature of
changes in accounting policies as a result of adopting IFRS 17 and IFRS 9 respectively.
The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet
effective.
2.4.1. IFRS 17 Insurance Contracts
IFRS 17 was adopted on January 1, 2023 with a transition date of January 1, 2022. It is effective beginning on January 1,
2023. The Company has restated comparative information for 2022 applying the transition provisions in IFRS 17. The
nature of changes in accounting policies are summarized below.
Changes to classification and measurement
The adoption of IFRS 17 did not change the classification of the majority of the Company’s insurance or investment
contract liabilities. 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 and investment contract liabilities. The
exception is deferred annuities which were classified as insurance contracts under IFRS 4 and are now classified as
investment contracts under IFRS 9. IFRS 17 establishes specific principles for the recognition and measurement of
insurance contracts issued and reinsurance contracts held by the Company.
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.
Identifies and separates distinct investment components and distinct services other than insurance contract services
from insurance contracts and accounts for them in accordance with other standards.
Aggregates insurance contracts issued and reinsurance contracts held into portfolios of contracts which represent
similar insurance risks to the Company and which are managed together. Portfolios of contracts consist of groups of
insurance contracts which are separated at initial recognition between contracts expected to produce a loss (onerous
contracts) and the remaining contracts. Each group contains contracts which are issued no more than one year apart
except those transitioned to IFRS 17 under the Fair Value method.
Recognizes each group of insurance contracts separately at initial recognition and measures each separately in each
future accounting period.
Recognizes and measures groups of insurance contracts at the risk-adjusted present value of the expected future
cash flows that incorporates all available information about the fulfilment cash flows in a way that is consistent with
observable market information.
Establishes a contractual service margin (CSM), representing the unearned profit in the group of insurance contracts.
Recognizes insurance service revenue from a group of insurance contracts over the period that insurance contract
services are provided. If a group of insurance contracts is expected to be onerous (loss making, exclusive of ceded
risks) over the remaining coverage period, losses are recognized immediately.
•
•
•
•
•
•
• Measures insurance contract liabilities as the total of the following measurement components:
◦
◦
probability weighted, discounted, future cash flows;
a risk adjustment for non-financial risk; and
Empire Life - Annual Report 2023
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)
◦
CSM.
The Company’s classification and measurement of insurance contracts issued and reinsurance contracts held is explained
in Note 2.5.
Changes to presentation and disclosure
IFRS 17 introduces changes to the way in which the Company is required to present and disclose financial results.
Under IFRS 17, a number of insurance-related assets and liabilities that were previously reported on the Consolidated
Statement of Financial Position are now incorporated into the insurance contract liabilities caption. Examples include
loans on policies, insurance receivables, insurance payables, policyholders’ funds on deposit and provision for profit to
policyholders.
Under IFRS 17 the changes to the Consolidated Statement of Operations are significant. The Consolidated Statement of
Operations no longer reports gross and ceded premiums written, gross and ceded benefits and claims paid, change in
insurance and reinsurance contract liabilities or commissions. Instead, it reports insurance service result comprising
insurance revenue and insurance service expenses, net recovery (expense) from reinsurance contracts held, net
investment result and net insurance finance result.
IFRS 17 requires additional detailed disclosures about amounts recognized in the financial statements, at a more granular
level than under IFRS 4. This includes roll-forward schedules on insurance contract liabilities and reinsurance contracts
held, as well as disclosure information on discount rates, new business, the expected emergence pattern of CSM and
significant judgments made when applying IFRS 17. There are expanded disclosures about the nature and extent of risks
from insurance contracts issued and reinsurance contracts held.
Transition Impact
IFRS 17 transition is applied using a full retrospective approach unless impracticable. Due to the lack of historical data,
the Company applied the fair value approach (defined below) in determining the transition values for all lines of business
except for group insurance. Full retrospective approach was used for the Group insurance contracts which qualified for the
PAA. The Company has derecognized any existing balances that would not exist had IFRS 17 always applied. Resulting
net differences are recognized in equity.
Fair value approach
For all in-force business at transition, for each portfolio, the Company grouped insurance contracts from multiple cohorts
into a single group for measurement purposes. The Company determined the CSM included in the LRC at the transition
date as the difference between the fair value of the group of insurance contracts and the fulfilment cash flows (FCFs) (as
defined in Note 2.5.5) measured at January 1, 2022. In determining fair value, the Company applied the principles of IFRS
13 Fair Value Measurement.
For the application of the fair value approach, the Company has used reasonable and supportable information available at
the transition date in order to:
•
•
•
•
Identify groups of insurance contracts and whether they are within the scope of IFRS 17
Determine which measurement model (GMM, VFA, PAA) applies to each group of insurance contracts
Determine appropriate fulfilment cash flow assumptions and project them into the future
Project policy values and regulatory capital amounts
The Company used an income approach to calculate the fair value of the insurance contract liabilities at the transition
date. CSM balances were derived separately for non-participating life, health, universal life, fixed life-contingent annuities,
segregated funds and participating business.
Empire Life - Annual Report 2023
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)
The weighted average cost of capital (WACC), Life Insurance Capital Adequacy Test (LICAT) targets and underlying
insurance assumptions used in applying the fair value approach were determined using market rates for a company of
Empire Life’s size and capital sources as at January 1, 2022, which were considered to be consistent with those of a
market participant in Canada. Allowances were made for the uncertainty around changes to segregated fund regulatory
capital requirements expected in 2025. The fair value calculations are based on a number of actuarial assumptions,
including discount rates, and involves consideration of the most appropriate assumptions for use by a market participant.
Empire assumed that the market participant would have the same characteristics (size, market, risk appetite) as itself.
Projected cash flows use Empire Life’s valuation assumptions.
The CSM derived at transition is as follows:
Transition CSM as at January 1, 2022
($ millions)
Gross
Ceded
Net
$
$
1,544
(186)
1,358
The total transition CSM is made up of approximately 40% wealth business (including segregated funds) and 60%
individual life insurance.
2.4.2. IFRS 9 Financial Instruments
In 2014, the IASB issued IFRS 9, replacing IAS 39. IFRS 9 includes guidance on the classification and measurement of
financial assets, including impairment requirements and a new general hedge accounting model. IFRS 9 contains a new
classification and measurement approach for financial assets that reflects the business model in which assets are
managed and their cash flow characteristics and determines how a financial instrument is subsequently measured. The
impairment model under IFRS 9 applies to all financial assets not measured at fair value through profit or loss (FVTPL)
and requires recognition of full lifetime expected credit losses if certain criteria are met.
Financial assets that would otherwise fall into a different category are permitted to be voluntarily designated at FVTPL.
This designation is irrevocable and can only be applied if reliable fair values are available and when doing so eliminates or
significantly reduces a measurement inconsistency that would otherwise arise from measuring assets and liabilities on
different bases.
Changes to classification and measurement
IFRS 9 includes three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (FVOCI) and FVTPL. IFRS 9 eliminates the previous IAS 39 categories of held-to-
maturity investments, loans and receivables, and available-for-sale (AFS) financial assets. Financial assets are measured
at initial recognition at fair value, and are classified and subsequently measured at FVTPL, FVOCI or amortized cost
based on the Company's business model for managing the financial assets and the contractual cash flow characteristics
of the assets.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of IFRS 9 are not
separated. Instead, the hybrid financial instrument as a whole is assessed for classification. IFRS 9 maintains the IAS 39
classification for financial liabilities that may be measured at either amortized cost or FVTPL.
Additional information regarding the classification and measurement of the Company's financial assets and liabilities is
included in Note 3.
Empire Life - Annual Report 2023
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)
The following table provides the original measurement categories under IAS 39 and the new measurement categories
under IFRS 9 for each class of financial assets and liabilities as at January 1, 2023, as well as the impacts of IFRS 9 on
January 1, 2023, including any reclassification and measurement changes.
Financial instrument
IAS 39 Classification
IFRS 9 Classification
Carrying amount
as at December 31,
2022
(IAS 39)(1)
Impact of
classification and
measurement
Carrying amount
as at January 1,
2023 (IFRS 9)
Financial assets
Cash and cash equivalents
Cash and cash equivalents
Short-term investments (2)
Short-term investments
Bonds (2)
Bonds (2)
Bonds
Bonds
Preferred shares (3)
Preferred shares
Common shares (3)
Common shares
Derivative assets
Mortgages
Loans (4)(5)
Segregated fund assets
Total financial assets
Financial liabilities
Accounts payable and other liabilities
Investment contract liabilities, excluding segregated
fund account balances (6)
Investment contract liabilities for account of
segregated fund holders(7)
Total financial liabilities (8)
FVTPL (Designated)
FVTPL
$
FVTPL (Designated)
FVTPL (Designated)
AFS
FVTPL
FVTPL (Designated)
FVTPL (Designated)
AFS
AFS
FVTPL
FVTPL (Designated)
FVTPL (Designated)
FVTPL
FVTPL (Designated)
FVTPL (Designated)
AFS
FVTPL (Designated)
AFS
FVTPL (Designated)
FVTPL (Designated)
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Loans and receivables
FVTPL (Designated)
Loans and receivables
FVTPL (Designated)
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
FVTPL (Designated)
$
$
2,346 $
173,177
592
8,439
397,072
1,285,373
207,699
4,854,613
17,238
384,927
41,064
789,569
9,776
113,901
50,036
8,565,675
16,901,497 $
— $
—
—
—
—
—
—
—
(17,238)
17,238
(41,064)
41,064
—
—
—
—
2,346
173,177
592
8,439
397,072
1,285,373
207,699
4,854,613
—
402,165
—
830,633
9,776
113,901
50,036
8,565,675
— $
16,901,497
110,308 $
27,246
— $
307,418
110,308
334,664
FVTPL
FVTPL
—
286,727
286,727
$
137,554 $
594,145 $
731,699
(1) Amounts for the year ended December 31, 2022 include the impact of the overlay approach.
(2) Certain amounts classified as AFS under IAS 39 were reclassified to FVTPL under IFRS 9 because they do not pass the SPPI test or because doing so can eliminate or
significantly reduce an accounting mismatch.
(3) Under IAS 39, certain preferred shares and common shares were classified as AFS. Under IFRS 9, these financial assets are classified as FVTPL. and we have not elected
to designate them as FVOCI.
(4) Certain balances, such as $59,979 in Loans on policies, that were previously presented separately as financial instruments, are excluded from the above table and are now
included in the determination and reported balance of Insurance contract liabilities.
(5) Certain non-current balances have been reclassified from Accounts receivable.
(6) Deferred annuities of $291,293 were classified as insurance contracts under IFRS 4 and are now classified as investment contracts under IFRS 9.
(7) Investment contract liabilities for account of segregated fund holders $286,727 are now classified as investment contracts under IFRS 9.
(8) Total financial liabilities excludes Subordinated debt (Note 12), which has had no impact from IFRS 9 and remains classified as amortized cost.
Impairment of Financial Assets
IFRS 9 replaces the ‘incurred loss’ impairment model in IAS 39 with a forward-looking ‘expected credit loss’ impairment
model. The new impairment model applies to financial assets measured at amortized cost and FVOCI. After adoption of
IFRS 9, the majority of the Company's financial assets are reported at FVTPL so the expected credit loss model does not
have a significant impact.
Transition Impact
Except for the application of the overlay approach (see discussion below), changes in accounting policies resulting from
the adoption of IFRS 9 were initially applied on January 1, 2023 without restatement of comparatives. In addition, the
following assessments have been made on the basis of the facts and circumstances that existed at January 1, 2023:
•
The determination of the business model within which a financial asset is held;
Empire Life - Annual Report 2023
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 designation and revocation of previous designations of certain financial assets and financial liabilities as
measured at FVTPL.
Overlay approach
As permitted, the Company has elected to apply the overlay approach which allows the classification and remeasurement
requirements of IFRS 9 to be applied to all financial assets held in comparative periods, including those that were
derecognized during that period, in order to reduce the volatility in profit or loss arising from the different effective dates of
IFRS 9 and IFRS 17.
The overlay approach involves reclassifying between net income and other comprehensive income (OCI), for designated
financial assets, the difference between the amount reported in the Consolidated Statements of Operations under IFRS 9
and the amount that would have been reported under the application of IAS 39. In determining this amount, the Company
considered gains and losses on sales of securities, as well as impairment losses on equity instruments using accounting
policies required by IAS 39. For financial assets in which the impairment requirements of IFRS 9 applies, the Company
has elected to continue presenting in the comparative periods the loss allowance that was determined in accordance with
IAS 39.
The following provides a summary of the impact from applying the overlay approach on the classification and
measurement of financial assets for the comparative year:
Financial instrument
IAS 39 Measurement
IFRS 9 Measurement
Original carrying
amount as at
December 31, 2021
Impact of overlay
application
Adjusted carrying
amount as at
January 1, 2022
Financial assets impacted by the overlay application
Short-term investments
Bonds (1)
Preferred shares (2)
Common shares (2)
Mortgages
AFS
AFS
AFS
AFS
FVTPL
FVTPL
FVTPL
FVTPL
Loans and receivables
FVTPL
Financial assets not impacted by the overlay application(3)
Cash and cash equivalents
Short-term investments
Bonds
Preferred shares
Common shares
Segregated fund assets
Derivative assets
Loans
Total financial assets
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Loans and receivables
FVTPL
$
4,998 $
1,891,988
8,044
57,725
153,564
193,218
3,649
6,257,472
433,295
961,709
9,257,298
6,302
52,808
— $
—
—
—
5,094
—
—
—
—
—
—
—
—
4,998
1,891,988
8,044
57,725
158,658
193,218
3,649
6,257,472
433,295
961,709
9,257,298
6,302
52,808
$
19,282,070 $
5,094 $
19,287,164
(1) Certain bonds classified as AFS under IAS 39 were reclassified to FVTPL under IFRS 9 because they do not pass the IFRS 9 Solely Payments of Principal and Interest
(SPPI) test or because doing so can eliminate or significantly reduce an accounting mismatch.
(2) Under IAS 39, certain preferred shares and common shares were classified as AFS. Under IFRS 9, these financial assets are classified as FVTPL. and we have not elected
to designate them as FVOCI.
(3) Certain balances, such as Loans on policies, that were previously presented separately as financial instruments, are excluded from the above table and are now included in
the determination and reported balance of Insurance contract liabilities or Reinsurance contracts held liabilities under IFRS 17.
Empire Life - Annual Report 2023
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)
2.5. Insurance contracts and reinsurance contracts held
The Company issues insurance contracts in the normal course of business, under which it accepts significant insurance
risk from its policyholders by agreeing to compensate the policyholder if a specified uncertain future event adversely
affects the policyholder. The Company determines whether it has significant insurance risk by comparing benefits payable
after an insured event with benefits payable if the insured event had not occurred. The Company issues a broad suite of
insurance contracts including life, health, wealth and group benefits solutions. IFRS 17 requires one of three accounting
models to be applied to insurance contracts. Empire Life has applied the following models depending on the underlying
contract type. Group benefits contracts generally apply the simplified PAA. Segregated fund contracts and participating
insurance contracts contain direct participation features and are measured using the VFA. All other insurance contracts
apply the GMM.
2.5.1. Separating components from insurance and reinsurance contracts held
The Company has assessed its insurance contracts and reinsurance contracts held products to determine whether they
contain distinct components which must be accounted for under another IFRS Accounting Standard rather than IFRS 17.
After separating any distinct components, an entity must apply IFRS 17 to all remaining components of the (host)
insurance contract.
Some insurance contracts issued by the Company include a surrender option under which the surrender value is paid to
the policyholder on maturity or earlier lapse of the contract. These surrender options have been assessed to meet the
definition of a non-distinct investment component under IFRS 17. IFRS 17 defines investment components as the
amounts that an insurance contract requires an insurer to repay to a policyholder in all circumstances. For participating
contracts, the non-distinct investment component includes the CSV (including dividends on deposit) and the policyholder
dividends. The policyholder account value is the non-distinct component for segregated fund contracts. Investment
components which are highly interrelated with the insurance contract of which they form a part are considered non-distinct
and are not separately accounted for. However, receipts and payments of the investment components are excluded from
insurance service revenue and insurance service expenses. Differences between expected and actual cash surrender
payouts flow through the CSM and, as such, impact future profitability.
2.5.2. Level of aggregation
IFRS 17 requires an entity to determine the level of aggregation for applying its requirements. The level of aggregation for
the Company is determined by dividing business written into portfolios of contracts which have similar risks and are
managed together. IFRS 17 also requires that no new groups contain contracts issued more than one year apart.
Portfolios are further divided based on each contract’s expected profitability at inception.
The direct insurance portfolios are divided into groups of insurance contracts:
•
•
•
That are onerous at initial recognition;
That at initial recognition have no significant possibility of becoming onerous subsequently; and
All other remaining contracts in the portfolio.
The Company evaluates the expected profitability of each new contract issued by comparing its specific policy
characteristics, including coverage, age, sex, amount and smoker status to a pre-defined modeled profitability of a similar
contract. The Company has identified six portfolios of insurance contracts issued based on the fact that these portfolios
contain products that are subject to similar risks and managed together. The expected profitability of these portfolios is
based on the current actuarial valuation assumptions which includes existing and new business. For financial reporting,
the Company has assigned portfolios to one of three reporting segments, namely, Individual Insurance, Wealth
Management and Group Solutions.
For PAA business, groups of insurance contracts are assumed to not be onerous unless the facts and circumstances
indicate otherwise.
Empire Life - Annual Report 2023
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)
The reinsurance contracts held portfolios are divided into similar groups as the direct insurance contracts, and follow the
underlying direct contracts that they support:
•
•
•
A group of insurance contracts on which there is a net gain on initial recognition;
A group of insurance contracts that have no significant possibility of a net gain arising subsequent to initial recognition;
A group of the remaining contracts in the portfolio.
The Company has identified portfolios of reinsurance contracts held based products that are subject to similar risks and
managed together. The expected profitability of these portfolios is based on the current actuarial valuation assumptions
which includes existing and new business. For financial reporting, the Company has assigned portfolios to one of three
reporting segments, namely, Individual Insurance, Wealth Management and Group Solutions.
2.5.3. Recognition
The Company recognizes groups of insurance contracts that it issues from the earliest of the following:
•
•
•
The beginning of the coverage period of the group of insurance contracts; or
The date when the first payment from a policyholder in the group becomes due; or
For a group of onerous contracts, when a group becomes onerous.
The Company recognizes a group of reinsurance contracts held from the beginning of the coverage period of the group or
when the first underlying direct contract is recognized for proportionate reinsurance. The Company adds new contracts to
the group when they are issued or initiated.
2.5.4. Contract boundary
The Company includes in the measurement of a group of insurance contracts all the expected future cash flows within the
boundary of each contract in the group. Cash flows are within the boundary of an insurance contract if they arise from
substantive rights and obligations that exist during the reporting period in which the Company can compel the policyholder
to pay the premiums, or in which the Company has a substantive obligation to provide the policyholder with services.
For life contracts with renewal periods, the Company assesses whether premiums and related cash flows that arise from
the renewed contract are within the contract boundary. The Company reassesses contract boundary of each group at the
end of each reporting period.
2.5.5. Measurement models
Insurance contracts – initial measurement
Insurance contract liabilities under IFRS 17 include two components: an LRC and a liability for incurred claims (LIC). The
LRC reflects the Company’s obligation to pay valid claims for insured events that have not yet occurred.
The LIC reflects the Company’s obligation to pay claims for insured events that have already occurred, including events
that have occurred but for which claims have not been reported, and other incurred insurance expenses. At initial
recognition of a group of insurance contracts, the LIC is nil as no insured events have occurred.
Outlined below are the requirements for initial measurement of the LRC for the three measurement models included in
IFRS 17.
Empire Life - Annual Report 2023
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)
GMM and VFA
For non-onerous GMM and VFA insurance contracts, the LRC of a group of insurance contracts is the total of:
•
•
Fulfilment cash flows (FCFs) which represent the present value of the expected future cash flows, and
CSM representing the unearned profit the Company will recognize as it provides service to the insurance contracts in
the group.
FCFs comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect
the time value of money and financial risks, plus a risk adjustment for non-financial risk. The CSM on initial recognition is
an amount that, unless the group of insurance contracts is onerous, results in no net income arising from initial recognition
of the FCFs.
The Company’s objective in estimating expected future cash flows is to determine the expected value, or the probability-
weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available
at the reporting date without undue cost or effort. The Company estimates expected future cash flows considering a range
of scenarios which have commercial substance and give a good representation of possible outcomes. The cash flows
from each scenario are probability-weighted and discounted using current assumptions.
When estimating expected future cash flows, the Company includes all cash flows that are within the contract boundary
including:
•
•
•
•
•
•
•
Premiums and related cash flows;
Claims and benefits including reported claims not yet paid, incurred claims not yet reported and expected future
claims:
◦
◦
Payments to policyholders resulting from embedded surrender value options;
An allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs.
Claims handling costs;
Acquisition costs;
Policy administration and maintenance costs, including recurring commissions that are expected to be paid to
intermediaries;
An allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts; and
Investment and premium taxes.
The Company estimates the probabilities and amounts of future payments under existing contracts based on information
obtained, including:
Information about claims already reported by policyholders;
•
• Other information about the known or estimated characteristics of the insurance contracts;
•
Historical data about the Company’s own experience, supplemented, when necessary, with data from other sources
and adjusted to reflect current conditions; and
Current pricing information.
•
Insurance acquisition cash flows arise from selling and underwriting activities required to initiate a group of contracts. The
measurement of fulfilment cash flows includes insurance acquisition cash flows which are allocated as a portion of
premium to profit or loss (through insurance service revenue) over the period of the contract in a systematic and rational
way based on the passage of time. For policies accounted for under the GMM and VFA, acquisition costs are deferred
and amortized into income using the same coverage units as the CSM amortization.
A loss component represents a notional record within the LRC of the losses attributable to each group of onerous
insurance contracts (or contracts profitable at inception that have become onerous). For groups of contracts assessed as
onerous on initial recognition, the Company recognizes a loss in insurance service expenses in the Consolidated
Statement of Operations for the net outflow, resulting in the carrying amount of the liability for the group being equal to the
FCFs and the CSM of the group being zero.
Empire Life - Annual Report 2023
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)
PAA
Measurement on initial recognition under the PAA consist of premiums received. If a group of PAA contracts is onerous on
initial recognition, then the Company recognizes a loss in insurance service expenses and increases the LRC for the
difference between the current estimates of the FCFs that relate to remaining coverage and the carrying amount of the
LRC. The Company has selected the accounting policy option to expense acquisition costs as incurred when applying the
PAA.
Insurance contracts – subsequent measurement
Subsequent measurement of the LRC included in the insurance contract liability is different depending on the
measurement model being applied to the group of insurance contracts. Outlined below are the requirements for
subsequent measurement of the LRC for the three IFRS 17 measurement models.
For all measurement models, the LIC is measured as cash flows for claims and expenses that relate to past service and
have not yet been paid, including a risk adjustment for non-financial risk and the time value of money.
GMM
For a group of insurance contracts where the GMM applies, the carrying amount of the CSM of the group at the end of the
reporting period equals the carrying amount at the beginning of the reporting period adjusted, as follows:
•
•
•
•
The effect of any new contracts added to the group;
Interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at
initial recognition;
The changes in FCFs relating to future service, except to the extent that:
◦
◦
Such increases in the FCFs exceed the carrying amount of the CSM, giving rise to a loss; or
Such decreases in the FCFs are allocated to the loss component of the LRC.
The amount recognized as insurance service revenue because of the transfer of services in the period, determined by
the allocation of the CSM remaining at the end of the reporting period (before any allocation) over the current and
remaining coverage period.
The locked-in discount rate is set at the date of initial recognition for contracts that joined a group over a 12-month period.
The discount rate used for accretion of interest on the CSM is determined using a bottom-up approach (Note 2.3.1) at
inception.
The changes in FCFs relating to future service that adjust the CSM comprise:
•
•
•
•
•
Experience adjustments that arise from the difference between the premium receipts (and any related cash flows such
as insurance acquisition cash flows and insurance premium taxes) and the estimate, at the beginning of the period, of
the amounts expected. Differences in premiums received (or due) related to current or past services are recognized
immediately in profit or loss while differences related to premiums received (or due) for future services are adjusted
against the CSM.
Changes in estimates of the present value of expected future cash flows in the LRC, except those relating to the time
value of money and changes in financial risk (recognized in the Consolidated Statement of Operations rather than
adjusting the CSM).
Differences between any investment component expected to become payable in the period and the actual investment
component that becomes payable in the period.
Differences between any loan to a policyholder expected to become repayable in the period and the actual amount
repaid in the period.
Changes in the risk adjustment for non-financial risk that relate to future service.
Except for changes in the risk adjustment, adjustments to the CSM noted above are measured at the locked-in discount
rates.
Empire Life - Annual Report 2023
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)
VFA
For a group of insurance contracts where the VFA applies, the carrying amount of the CSM of the group at the end of the
reporting period equals the carrying amount at the beginning of the reporting period adjusted, as follows:
•
•
The effect of any new contracts added to the group;
The change in the entity's share of the fair value of underlying items, except to the extent a decrease exceeds the
carrying amount of the CSM;
The changes in FCFs relating to future service, except to the extent that:
◦
◦
Such increases in the FCFs exceed the carrying amount of the CSM, giving rise to a loss; or
Such decreases in the FCFs are allocated to the loss component of the LRC.
The amount recognized as insurance service revenue because of the transfer of services in the period, determined by
the allocation of the CSM remaining at the end of the reporting period (before any allocation) over the current and
remaining coverage period.
•
•
For VFA and GMM contracts, the Company chose an accounting policy to not change the treatment of accounting
estimates made in previous Interim Consolidated Financial Statements when applying IFRS 17 in subsequent Interim or
Annual Consolidated Financial Statements. Therefore, the CSM at the end of the reporting period is the CSM at the
beginning of the reporting period adjusted as described above, rather than the CSM at the beginning of the calendar year
adjusted as described above.
For onerous VFA and GMM groups of contracts, the loss component is released based on a systematic allocation of the
subsequent changes in the FCFs to: (i) the loss component; and (ii) the LRC excluding the loss component. The loss
component is also updated for subsequent changes in estimates of the FCFs related to future service. The systematic
allocation of subsequent changes to the loss component results in the total amounts allocated to the loss component
being equal to zero by the end of the coverage period of a group of contracts (since the loss component will have been
materialized in the form of incurred claims). The Company uses a systematic allocation percentage calculated as a ratio of
the loss component amount expressed as a percentage of the liability for remaining coverage, where adjustments are
made to include or exclude particular cash flows in the allocation.
PAA
For subsequent measurement of insurance contracts measured applying the PAA, the LRC is increased for any additional
premiums received and decreased by amounts recognized as insurance service revenue for services provided during the
period.
For onerous PAA groups of contracts, the LRC is adjusted to reflect reversals or increases in the loss component by
comparing the current estimates of the FCFs that relate to remaining coverage and the carrying amount of the LRC. If a
loss component did not exist on initial recognition but there are indications that a group of contracts is onerous on
subsequent measurement, then the Company establishes the loss component using the same methodology as on initial
recognition.
Reinsurance contracts held
The initial measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued,
with the exception of the following:
• Measurement of the cash flows include an allowance on a probability-weighted basis for the effect of any non-
•
•
performance by the reinsurers, including the effects of collateral and losses from disputes.
The Company determines the risk adjustment for non-financial risk so that it represents the amount of risk being
transferred to the reinsurer.
The Company defers both profits and losses at initial recognition in the statement of financial position as a CSM and
releases this to profit or loss as the reinsurer renders services.
Empire Life - Annual Report 2023
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)
For subsequent measurement of reinsurance contracts held, the carrying amount of the CSM of the group at the end of
the reporting period equals the carrying amount at the beginning of the reporting period adjusted, as follows:
•
•
•
The effect of any new contracts added to the group;
Interest accretion on the carrying amount of the CSM;
Income recognized in profit or loss in the period for the recovery of losses recognized on initial recognition of onerous
underlying contracts (see below);
Reversals of loss recovery components to the extent that the reversals are not changes in fulfilment cash flows of the
reinsurance contract held (see below);
The changes in FCFs relating to future service, except to the extent that the change results from a change in the
fulfilment cash flows allocated to a group of underlying insurance contracts that does not adjust its CSM;
The amount recognized in income due to services rendered in the period.
•
•
•
When a loss component is recognized on underlying insurance contracts, the CSM of the reinsurance contract held is
adjusted to establish a loss-recovery component and a recovery is simultaneously recognized in profit or loss relating to
the recovery of that loss. The Company calculates the loss-recovery component by multiplying the loss recognized on the
underlying insurance contracts and the percentage of claims on the underlying insurance contracts the Company expects
to recover from the group of reinsurance contracts held. Where only some contracts in the onerous underlying group are
covered by the group of reinsurance contracts held, the Company uses a systematic and rational method to determine the
portion of losses recognized on the underlying group of insurance contracts to insurance contracts covered by the group
of reinsurance contracts held.
Loss-recovery components are tracked, similar to the loss component, and determines the amounts that are subsequently
presented in the Consolidated Statement of Operations within net reinsurance results. The loss recovery component is
adjusted on subsequent measurement to reflect changes in the loss component of the onerous group of underlying
contracts, however it cannot exceed the portion of the loss component of the onerous group of underlying contracts that
the Company expects to recover from the reinsurance contracts held. On this basis, the loss-recovery component
recognized at initial recognition is reduced to zero in line with reductions in the onerous group of underlying insurance
contracts and is nil when loss component of the onerous group of underlying insurance contracts is nil.
2.5.6. Modification and derecognition
The Company derecognizes insurance contracts when the rights and obligations relating to the contract are extinguished
(i.e., discharged, cancelled or expired), or the contract is modified such that the modification would result in a different
insurance contract or a change in measurement model.
Reinsurance assets and liabilities held are derecognized when the contractual rights and obligations are extinguished or
expire or when the contract is transferred to another party.
2.5.7. Presentation
The Company has presented separately in the Annual Statement of Financial Position the carrying amount of portfolios of
insurance contracts issued that are assets, portfolios of insurance contracts issued that are liabilities, portfolios of
reinsurance contracts held that are assets and portfolios of reinsurance contracts held that are liabilities.
The Company disaggregates the amounts recognized in the Consolidated Statement of Operations and other
comprehensive income into an insurance service result, comprising insurance service revenue, insurance service
expenses, insurance finance income or expenses and net expense from reinsurance contracts held. The Company
chooses not to disaggregate insurance finance income or expenses between profit or loss and other comprehensive
income and instead presents the total amount within net finance and investment result. Insurance finance income related
to segregated fund account liabilities and the corresponding income on segregated fund assets are separately presented
in the Consolidated Statement of Operations.
The Company disaggregates the change in risk adjustment for non-financial risk between the financial and non-financial
portion and includes the non-financial change as part of risk adjustment movements in the insurance service result.
Empire Life - Annual Report 2023
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)
The Company separately presents income and expenses from reinsurance contracts held from the expenses or income
from insurance contracts issued.
Insurance service revenue
Insurance service revenue from a group of insurance contracts is the amount that is earned in the period arising from:
Expected future cash outflows in the period, including claims and directly attributable expenses expected to be
•
incurred;
Release of the risk adjustment for non-financial risk as risk expires throughout the term of the contract;
CSM earned over the service period, based on coverage units for each period of service;
Allocation of expected premium receipts from PAA contracts;
Amortization of insurance acquisition cash flows;
Revenue excludes non-distinct investment components described in Note 2.5.1.
•
•
•
•
•
For approaches applied to the amortization of CSM, please refer to Note 2.3.1.
Insurance finance income or expense
For insurance contracts issued and reinsurance contracts held measured using the GMM, insurance finance income or
expense comprise the change in the carrying amount of the group of insurance contracts arising from:
•
•
The effect of the time value of money and changes in the time value of money; and
The effect of financial risk and changes in financial risk.
For insurance contracts issued that are measured using the VFA, insurance finance income or expense includes the
changes in the fair value of underlying items, while changes in the effect of time value of money and financial risk not
arising from underlying items adjusts the CSM.
Net recovery (expense) from reinsurance contracts held
The Company presents net recovery (expense) from reinsurance contracts held on the face of the Consolidated
Statement of Operations as the amounts expected to be recovered from reinsurers, and an allocation of the reinsurance
premiums paid. The Company treats reinsurance cash flows that are contingent on claims on the underlying contracts as
part of the claims that are expected to be reimbursed under the reinsurance contracts held and excludes investment
components and commissions from an allocation of reinsurance premiums presented on the face of the Consolidated
Statement of Operations. Amounts relating to the recovery of losses relating to reinsurance of onerous direct contracts are
included as amounts recoverable from the reinsurer.
2.5.8. Participating insurance policies
The Company maintains an account in respect of participating policies (“participating account”), separate from those
maintained in respect of other policies, as required by sections 456-464 of the Insurance Companies Act (Canada) (ICA).
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 certain older
plans paying dividends every five years as per contractual provisions. Participating policyholder dividends are projected in
the FCFs of the insurance contract liabilities and are excluded from insurance service revenue and insurance service
expenses.
At the end of the reporting period, all participating insurance contract liabilities, both guaranteed and discretionary, are
held within insurance contract liabilities. Related participating policy reinsurance contracts held at the end of the reporting
period are held within reinsurance contracts held assets or reinsurance contracts held liabilities. Net income attributable to
the participating account is shown on the Consolidated Statements of Operations. Comprehensive income attributable to
the participating account is shown on the Consolidated Statements of Comprehensive Income.
Empire Life - Annual Report 2023
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)
2.6. Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provision of the
financial instrument.
Financial assets are classified and measured based on three categories: amortized cost, FVOCI and FVTPL. Financial
liabilities are classified and measured based on two categories: amortized cost or FVTPL.
The classification and measurement of financial assets is based on the business model for managing these financial
assets and their contractual cash flow characteristics:
•
•
•
Assets held for the purpose of collecting contractual cash flows that represent solely payments of principal and
interest (SPPI) are measured at amortized cost;
Assets held within a business model where assets are held for both the purpose of collecting contractual cash flows
and selling financial assets prior to maturity, and the contractual cash flows represent solely payments of principal and
interest, are measured at FVOCI; and
Assets held within another business model or assets that do not have contractual cash flow characteristics that are
SPPI are measured at FVTPL.
Financial assets are not reclassified subsequent to their initial recognition, unless there is a change in the business model
in managing the financial asset that would cause the Company to reassess the classification of financial assets. Financial
liabilities are measured subsequently at amortized cost using the effective interest method or at FVTPL. Refer to Note 2.7
Investment contracts for additional details on the classification and measurement of our Investment contract liabilities.
Financial assets that would otherwise fall into a different category are permitted to be voluntarily designated at FVTPL.
This designation is irrevocable and can only be applied if reliable fair values are available and when doing so eliminates or
significantly reduces a measurement inconsistency that would otherwise arise from measuring assets and liabilities on
different bases. Financial liabilities may also be designated at FVTPL when they are part of a portfolio which is managed
on a fair value basis in accordance with the Company's risk management strategy and are reported internally on that
basis.
See Note 2.4.2 for a summary of the classification and measurement of financial assets and liabilities.
Prior to January 1, 2023, with the exception of the overlay approach (See Note 2.4.2), 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 investment income in the
Consolidated Statements of Operations in the period in which they occur.
All transactions are recorded on the trade date. Transaction costs are expensed for FVTPL instruments and capitalized for
all others.
2.6.1. 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.
Empire Life - Annual Report 2023
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)
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, short-term investments, government bonds, certain corporate and private bonds, loans, 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.
2.6.2. Cash and cash equivalents
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.
2.6.3. 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 included in the reported balance of Accounts payable and other
liabilities. Changes in fair value are recorded in investment income in the Consolidated Statements of Operations.
2.6.4. Other
Trade accounts receivables are measured at amortized cost and presented as other assets. The simplified approach is
used when calculating the expected credit loss for trade accounts receivables, which represents the lifetime expected
credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point
during the life of the financial instrument. Historical experience, external indicators and forward-looking information is used
to calculate the expected credit losses.
Accounts payable and other liabilities (excluding derivative liabilities) are measured at amortized cost. For these financial
instruments, carrying value approximates fair value due to their short-term nature.
2.6.5. AFS instruments (IAS 39)
Prior to January 1, 2023, with the exception of the overlay approach (See Note 2.4.2), most financial assets supporting
capital and surplus and participating account surplus were classified as AFS. These assets comprised of short-term
investments, bonds and debentures or common and preferred shares. AFS assets were 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 were recorded, net of income taxes, in Other comprehensive income
(OCI). Gains and losses realized on sale or maturity of AFS assets were reclassified from OCI to realized gain (loss) on
AFS assets in the Consolidated Statements of Operations.
Empire Life - Annual Report 2023
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)
AFS debt instruments
Prior to January 1, 2023, 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 was recognized through net income. Impairment losses previously
recorded in net income were reversed if the fair value subsequently increases and can be objectively related to an event
occurring after the impairment loss was recognized.
AFS equity instruments
Prior to January 1, 2023, objective evidence of impairment of an equity instrument existed if there had been a significant
or prolonged decline in the fair value of the investment below its cost or if there was a significant adverse change in the
technological, market, economic or legal environment in which the issuer operated or the issuer was experiencing
financial difficulties.
The accounting for an impairment that was 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.
2.6.6. Policy loans and insurance receivables (IAS 39)
Prior to January 1, 2023, with the exception of the overlay approach (See Note 2.4.2), loans and receivables include
insurance and trade accounts receivables. These assets were recorded at amortized cost, using the effective interest rate
method, net of provisions for impairment losses, if any. Mortgages were secured by real estate and in most instances,
loans are secured by policy values. Loans and receivables were defined as non-derivative financial assets with fixed or
determinable payments that are not quoted in active markets. Loans on policies are included in insurance contract cash
flows under IFRS 17.
Prior to January 1, 2023, mortgages and loans were individually evaluated for impairment in establishing the allowance for
impairment.
Objective evidence of impairment exists if there was no longer reasonable assurance of full collection of loan principal or
loan interest related to a mortgage or loan. Events and conditions considered in determining if there was objective
evidence of impairment included the value of the security underlying the mortgage or 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 was found,
allowances for credit losses were established to adjust the carrying value of these assets to their net recoverable amount
and the impairment loss was recorded in net income. If, in a subsequent period, the amount of the impairment loss
decreased and the decrease could be objectively related to an event occurring after the impairment was recognized, the
impairment loss was reversed by adjusting the allowance account and the reversal is recognized in net income.
2.6.7. 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 have been retained, the assets are derecognized if the asset is not controlled through rights
to sell or pledge the asset.
2.6.8. 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 3.4.
Empire Life - Annual Report 2023
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)
2.7. Investment contracts
Investment contracts include products that do not involve the transfer of significant insurance risk, either at inception or
during the life of the investment contract. For the Company, these products are limited to certain segregated funds,
deferred annuities and term certain annuities that provide for income payments for a specified period of time.
Investment contract liabilities are designated at FVTPL. As the Company's segregated fund products have fair values
dependent on the fair value of underlying financial assets, the designation at FVTPL will eliminate the accounting
mismatch that would otherwise arise from measuring the assets or liabilities or recognizing the gains or losses on them on
different bases. Deferred annuity products are designated at FVTPL as they are managed on a fair value basis, in
accordance with the Company's risk management strategy, and are reported internally on that basis. Similarly, the
Company's term certain annuity products are designated at FVTPL.
Prior to January 1, 2023, under IAS 39, investment contract liabilities are measured at amortized cost or FVTPL.
Investment contracts recorded at amortized cost 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 expected future cash flows using the financial liability’s original effective interest rate. Any
adjustment is immediately recognized in the Consolidated Statements of Operations. If investment contracts have fair
values dependent on the fair value of underlying financial assets, then they are designated at inception at FVTPL to
eliminate the accounting mismatch that would otherwise arise from measuring the assets or liabilities or recognizing the
gains or losses on them on different bases. Deposits and withdrawals are recorded in investment contract liabilities on the
Consolidated Statements of Financial Position.
2.8. Foreign currency translation
The Company uses the Canadian dollar as both its functional and presentational currency.
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 and non-monetary financial assets classified as FVTPL and amortized cost, translation differences are
recognized in the Consolidated Statements of Operations.
2.9. Comprehensive income
Comprehensive income consists of net income and OCI. OCI includes items that will not be reclassified to net income
(i.e., remeasurements of post-employment benefit liabilities). All OCI amounts are presented net of taxes.
Prior to January 1, 2023, with the exception of the overlay approach (see Note 2.4.2), OCI includes items that may be
reclassified subsequently to net income, which included 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.
2.10. 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 segregated fund's investment performance. Segregated fund assets are not
available to pay liabilities of the Company's general fund. The assets of these segregated funds are carried at their period-
end fair values based on quoted market prices or, where quoted market prices are not readily available, on prevailing
market prices for instruments with similar characteristics and risk profiles or by using internal or external valuation models
with observable market-based inputs. The Company provides minimum guarantees on certain segregated fund contracts,
Empire Life - Annual Report 2023
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)
these include death, maturity and withdrawal benefit guarantees. The Company presents an insurance contract liability for
account of segregated fund holders equal to the fair value of the assets and any benefit guarantees are presented as a
separate line on the Statement of Financial Position within insurance contract liabilities, excluding segregated fund
account balances.
The Company earns a fee for the management of these segregated funds which is included in the determination of
expected future cash flows.
2.11. Fee income
Fee income, earned from policy administration and distribution service, is recognized on an accrual basis for investment
contracts issued.
2.12. Investment income
Changes in the fair value of financial assets are recorded in investment income, excluding segregated funds in the
Consolidated Statements of Operations in the period in which they occur.
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, excluding amounts from segregated funds, are included in investment income in the
Consolidated Statements of Operations for all financial assets.
2.13. 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.
Current tax assets and liabilities for the current and prior periods are measured as 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.
On January 1, 2022, the Company recorded a deferred tax asset on transition to IFRS 17 in the amount of $138,700.
During 2022, all of the restatements related to the adoption of IFRS 17 were treated as temporary differences and
reflected in the net Deferred tax asset balance.
The federal tax legislation related to the adoption of IFRS 17 became effective January 1, 2023. The transition adjustment
was calculated at this date and taken over five years.
Empire Life - Annual Report 2023
72
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
2.14. 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 allocated between insurance service expenses and non-insurance 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.
2.15. Intangible assets
Intangible assets include customer and distributor relationships, 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 allocated between insurance service expenses and non-
insurance 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 2023
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)
2.16. 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.
2.17. 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
Consolidated 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.
2.18. 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.
2.19. 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.
Empire Life - Annual Report 2023
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)
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.
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.
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.
2.20. 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.
Empire Life - Annual Report 2023
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)
2.21. 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. The interest expense is allocated between insurance service expenses
and non-insurance expenses. The depreciation on the corresponding right-of-use asset is allocated between insurance
service expenses and non-insurance expenses.
The Company has elected to apply the option to recognize lease payments for short-term and low value assets on a
straight-line basis over the lease term.
2.22. 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.
3. Financial Instruments
The carrying values of the Company's financial assets and liabilities, excluding subordinated debt (Note 12), are shown in
the following table:
As at
December 31, 2022 restated
December 31, 2023
Assets
Cash and cash equivalents
Short-term investments
Bonds
Preferred shares
Common shares
Derivative assets
Mortgages
Loans
Segregated funds
Liabilities
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Mandatory
Designated
Total
Mandatory
Designated
Total
$
6,897 $
340,810 $
347,707 $
2,346 $
173,177 $
175,523
4,957
4,957
6,760,099
7,456,183
—
—
—
98,679
47,165
519,359
776,777
13,825
98,679
47,165
592
604,771
402,165
830,633
9,776
—
—
—
696,084
519,359
776,777
13,825
—
—
2,012,942
8,812,724
8,439
9,031
6,139,986
6,744,757
—
—
—
113,901
50,036
402,165
830,633
9,776
113,901
50,036
8,335,822
8,565,675
7,251,710
9,264,652
1,850,283
6,485,539
—
8,812,724 $
8,565,675 $
—
10,825,666
7,251,710
18,077,376
10,415,958
6,485,539
16,901,497
Accounts payable and other
liabilities
Amortized cost
Investment contract liabilities,
excluding segregated fund account
balances
FVTPL
Investment contract liabilities for
account of segregated fund holders
FVTPL
97,318
110,308
—
—
490,020
490,020
305,439
305,439
—
—
334,664
334,664
286,727
286,727
$
— $
795,459 $
892,777 $
— $
621,391 $
731,699
(1) December 31, 2022 amounts include the impact of the overlay approach. See Note 2.4.2 for additional details.
Empire Life - Annual Report 2023
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)
3.1. Summary of cash and cash equivalents and investments
The following table presents the fair value of cash and cash equivalents and investments classified by the fair value
hierarchy:
As at
December 31, 2022 restated
December 31, 2023
Level 1
Level 2
Level 3
Total FVTPL
Level 1
Level 2
Total FVTPL
Assets
Cash and cash equivalents
$
68,486 $
279,221 $
Short-term investments
Bonds
Preferred shares
Common shares
Derivative assets
Mortgages
Loans
—
—
519,359
686,225
2,641
—
—
4,957
7,427,458
—
79,260
11,184
98,679
47,165
— $
—
4,957
28,725
7,456,183
—
11,292
—
—
—
519,359
776,777
13,825
98,679
47,165
347,707 $
78,310 $
97,213 $
175,523
—
—
299,524
687,798
7,604
—
—
9,031
9,031
6,744,757
6,744,757
102,641
142,835
2,172
113,901
50,036
402,165
830,633
9,776
113,901
50,036
1,276,711
7,947,924
40,017
9,264,652
1,073,236
7,262,586
8,335,822
Liabilities
Investment contract liabilities,
excluding segregated fund account
balances
Investment contract liabilities for
segregated fund account balances
—
—
490,020
305,439
—
—
490,020
305,439
—
—
334,664
334,664
286,727
286,727
$
— $
795,459 $
— $
795,459 $
— $
621,391 $
621,391
Level 2 investments use fair values 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 fair value of mortgages and loans have been calculated by
discounting cash flows of each mortgage or loan at a discount rate appropriate to its remaining term to maturity. The
discount rates are determined based on regular competitive rate surveys.
Included in Level 3 are investments in notes, common shares and units of certain limited partnerships. The fair value of
limited partnership investments are based on fair values determined and reported by the respective investment managers,
which are principally based on net asset value (NAV). The Financial Statements used in calculating the NAV are generally
audited annually. We review the NAV of the limited partnership investments and perform analytical and other procedures
to ensure the fair value is reasonable.
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 during the year ended December 31,
2023, during the fourth quarter of 2023 there was a transfer between Level 2 and Level 3. There were no transfers
between Level 1, Level 2 and Level 3 during the year ended December 31, 2022.
A summary of changes in the fair values of Level 3 financial instruments measured at FVTPL for the year:
For the year ended
December 31, 2023
Balance beginning of year
Transfer-in
Purchases
Sales
Net fair value change
Balance end of year
$
$
—
40,666
536
(72)
(1,113)
40,017
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 23 Risk Management.
Empire Life - Annual Report 2023
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)
3.2. Investment income
Net investment result recognized in net income
For the year ended
Net investment result, excluding segregated funds
Interest and other investment income
Change in fair value of investments
Investment income, excluding segregated funds
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense) from insurance contracts, excluding segregated fund account balances
Interest accreted
Effect of changes in interest rates and other financial assumptions
Changes in fair value of underlying items in insurance contracts with direct participation features
Insurance finance income (expense) from insurance contracts, excluding segregated fund account balances
Finance income (expense) from reinsurance contracts held
Interest accreted
Effect of changes in interest rates and other financial assumptions
Reinsurance finance income (expense) from reinsurance contracts held
Investment income (loss) related to segregated fund net assets
Investment income (loss) on investments related to segregated fund net assets, insurance contacts
Investment income (loss) on investments related to segregated fund net assets, investment contacts
Investment income (loss) related to segregated fund net assets
Changes in underlying items of the segregated funds
Insurance finance income (expenses), insurance contracts segregated fund account balances
Change in investment contracts, segregated fund account balances
Changes in underlying items of the segregated funds
Net finance and investment result
December 31, 2023 December 31, 2022
restated
$
397,297 $
358,991
419,492
816,789
(28,171)
788,618
(179,411)
(364,332)
(69,649)
(613,392)
4,409
(43,912)
(39,503)
711,118
24,716
735,834
(711,118)
(24,716)
(735,834)
$
135,723 $
(2,022,943)
(1,663,952)
10,331
(1,653,621)
(113,687)
1,484,067
114,538
1,484,918
4,024
78,981
83,005
(342,957)
(10,711)
(353,668)
342,957
10,711
353,668
(85,698)
With regards to general fund assets and liabilities, the duration of insurance contract liability cash flows is greater than the
assets supporting them. Hence, the liabilities are generally more sensitive to interest rate changes than the assets.
Changes in equity values and other non-fixed income assets that are not passed through to policyholders generally have
an impact on investment income with no offsetting change in insurance finance expense.
Amounts related to changes in investment contracts, which includes deferred annuities and guaranteed annuities, arise
from discount rates that include a provision to reflect the Company's own credit risk and an illiquidity adjustment.
With regards to VFA contracts (participating insurance and segregated funds), the change in the underlying items would
be recognized both as insurance finance income (or expense) and investment income, with offsetting impacts. For these
contracts, changes in the effect of time value of money and financial risk not arising from underlying items adjusts the
CSM and are not included in the insurance finance income (expense) amounts presented in the table above.
Empire Life - Annual Report 2023
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)
Investment income, excluding segregated funds
For the year ended
Investment income (loss), excluding segregated funds
Interest and other investment income
Interest income (1)
Dividend income (2)
Income from investments in associates
Other
Total interest and other investment income
Net realized and unrealized gain (loss)
December 31, 2023 December 31, 2022
restated
$
339,199 $
56,724
1,300
74
397,297
419,492
816,789 $
308,509
48,960
1,466
56
358,991
(2,022,943)
(1,663,952)
Total investment income (loss), excluding segregated funds
$
(1) Primarily from financial assets designated as fair value through profit or loss.
(2) Primarily from financial assets mandatorily classified as fair value through profit or loss.
Net realized and unrealized gains (losses) from financial instruments classified and designated as FVTPL
Financial instruments classified and designated as FVTPL are measured at fair value with realized and unrealized gains
and losses recognized in investment income.
For the year ended
December 31, 2023 December 31, 2022
restated
Net realized and unrealized gain (loss)
Mandatorily classified as fair value through profit or loss
Designated as fair value through profit or loss
Total net realized and unrealized gain (loss)
3.3. Derivative financial instruments
$
$
57,969 $
(245,544)
361,523
(1,777,399)
419,492 $
(2,022,943)
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, 2023
December 31, 2022
Notional
principal
Fair value
assets
Fair value
liabilities
Notional
principal
Fair value
assets
Fair value
liabilities
Exchange-traded
Equity index futures
Equity options
Over-the-counter
Foreign currency forwards
Cross currency swaps
Total
$
— $
765,152
204,756
66,484
— $
2,835
6,243
4,747
— $
—
57,846 $
430,061
1,008 $
6,268
—
672
172,979
44,943
19
2,481
$
1,036,392 $
13,825 $
672 $
705,829 $
9,776 $
2,193
—
32
1,388
3,613
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.
Empire Life - Annual Report 2023
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)
Cross currency swaps are valued by discounting the expected 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 23.
3.4. 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.
As at December 31, 2023 and December 31, 2022, the aggregate fair values of the Company's securities loaned and the
collateral received were as follows:
As at
December 31, 2023
General Funds
Segregated
Funds
December 31, 2022
Total General Funds
Segregated
Funds
Total
Value of securities loaned
Value of collateral received
$
$
1,421,820 $
1,479,136 $
2,900,956 $
1,183,898 $
1,839,056 $
3,022,954
1,450,283 $
1,510,186 $
2,960,469 $
1,207,628 $
1,877,197 $
3,084,825
Income recognized from securities lending activities was as follows:
For the year ended
General funds
Segregated funds
Total
December 31, 2023 December 31, 2022
$
$
2,055 $
2,012
4,067 $
2,184
2,036
4,220
Empire Life - Annual Report 2023
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)
4. Other Assets
Other assets consist of the following:
As at
Other assets
Trade accounts receivable
Prepaid expenses
Right-of-use assets
Net post-employment benefit asset (Note 11)
Total other assets
December 31, 2023 December 31, 2022
restated
$
$
4,423 $
9,288
4,009
14,473
32,193 $
7,725
8,422
5,192
11,386
32,725
Of the above total, $18,482 (2022 $16,578) 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 assets, the actuarial
determined value provides a reasonable approximation of fair value.
5. Intangible Assets
Cost
As at January 1, 2022
Additions
Disposals
As at December 31, 2022
Additions
Disposals
As at December 31, 2023
Amortization
As at January 1, 2022
Charge for the year
Disposals
As at December 31, 2022
Charge for the year
Disposals
As at December 31, 2023
Carrying amount
December 31, 2023
December 31, 2022
There were no asset impairments during 2023 or 2022.
Intangible assets
$
$
$
$
$
$
95,845
50,590
—
146,435
15,178
—
161,613
(67,334)
(18,530)
—
(85,864)
(14,238)
—
(100,102)
61,511
60,571
Empire Life - Annual Report 2023
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)
6. 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.
As at
Balance beginning of year
Business acquisitions and dispositions
Balance end of year
December 31, 2023 December 31, 2022
$
$
24,465 $
485
24,950 $
—
24,465
24,465
There was no impairment charge booked against goodwill in 2023 or 2022.
7. 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. (TSFI). 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 TSFI 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 agreements.
The fair values of the identifiable assets acquired and liabilities assumed were:
For the year ended
Business acquisitions
Intangible assets
Other net assets
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total consideration
8. Segregated Funds
December 31, 2022
$
$
32,500
945
33,445
24,465
57,910
8.1. The following table identifies segregated fund assets by category of asset:
As at
Cash
Short-term investments
Bonds
Common and preferred shares
Add other assets
Less segregated funds held within general fund
investments
December 31, 2023
December 31, 2022
Insurance
contracts
Investment
contracts
Total
Insurance
contracts
Investment
contracts
$
9,897 $
402 $
10,299 $
7,344 $
393 $
627,676
1,690,358
6,157,983
14,345
131,286
253,647
642,021
1,821,644
6,411,630
564,500
1,651,525
6,046,280
14,648
102,993
254,978
Total
7,737
579,148
1,754,518
6,301,258
8,485,914
399,680
8,885,594
8,269,649
373,012
8,642,661
28,734
(7,363)
216
(94,457)
28,950
(101,820)
14,533
(5,234)
827
(87,112)
15,360
(92,346)
Total
$
8,507,285 $
305,439 $
8,812,724 $
8,278,948 $
286,727 $
8,565,675
All segregated fund assets are categorized as FVTPL.
Empire Life - Annual Report 2023
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)
8.2. 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
Cash
Short-term investments
Bonds
December 31, 2023
December 31, 2022
Level 1
Level 2
Total
Level 1
Level 2
Total
$
10,299 $
— $
10,299 $
7,737 $
— $
—
—
642,021
642,021
1,821,644
1,821,644
—
—
579,148
1,754,518
7,737
579,148
1,754,518
6,301,258
Common and preferred shares
6,411,630
—
6,411,630
6,301,258
—
Total
$
6,421,929 $
2,463,665 $
8,885,594 $
6,308,995 $
2,333,666 $
8,642,661
There were no transfers between Level 1 and Level 2 during the year ended December 31, 2023 or during the year ended
December 31, 2022. There were no Level 3 investments as at December 31, 2023 or December 31, 2022.
8.3. The following table presents the change in segregated fund assets:
For the year ended
Segregated fund assets at beginning of year
Additions to segregated funds:
Amount received from policyholders
Interest
Dividends
Other income and (expense)
Net realized gains on sale of investments
Net unrealized increase in fair value of investments
Total
Deductions from segregated funds:
Amounts withdrawn or transferred by policyholders
Net unrealized decrease in fair value of investments
Management fees and other operating costs
Total
Net change in segregated funds held within general fund investments
December 31, 2023 December 31, 2022
$
8,565,675 $
9,257,298
887,284
88,396
196,582
28,349
238,020
184,487
872,244
77,045
178,688
23,332
102,624
—
1,623,118
1,253,933
(1,117,282)
—
(249,302)
(964,437)
(735,370)
(250,261)
(1,366,584)
(1,950,068)
(9,485)
4,512
Segregated fund assets at end of year
$
8,812,724 $
8,565,675
9. Accounts Payable and Other Liabilities
Accounts payable and other liabilities consist of:
As at
Accounts payable
Accrued interest on subordinated debt
Derivative liabilities (Note 3.3)
Lease liabilities
Accounts payable and other liabilities
December 31, 2023 December 31, 2022
restated
$
84,597 $
96,451
7,667
672
4,382
4,735
3,613
5,509
$
97,318 $
110,308
Of the above total, $3,300 (2022 $4,408) is expected to be settled more than one year after the Consolidated Statements
of Financial Position date. Derivative liabilities are carried at fair value, as disclosed in Note 3.3. All other amounts are
short-term in nature and their fair value approximates carrying value.
Empire Life - Annual Report 2023
83
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
10. Insurance Contracts and Reinsurance Contracts Held Assets/Liabilities
Assets and liabilities
The breakdown of groups of insurance contracts and reinsurance contracts held, that are in an asset position and those in
a liability position is set out in the table below:
As at
December 31, 2022 restated
January 1, 2022 restated
December 31, 2023
(Assets)
Liabilities
Total
(Assets)
Liabilities
Total
(Assets)
Liabilities
Total
Insurance contracts
Insurance contracts not measured under PAA,
excluding segregated fund account balances
$
— $ 6,311,068 $ 6,311,068 $
— $ 5,791,737 $ 5,791,737 $
— $ 7,238,640 $ 7,238,640
Insurance contracts measured under PAA
—
397,366
397,366
—
353,641
353,641
—
359,830
359,830
Insurance contracts, excluding segregated
fund account balances
Insurance contracts for segregated fund
account balances
— 6,708,434 6,708,434
— 6,145,378 6,145,378
— 7,598,470 7,598,470
— 8,507,285 8,507,285
— 8,278,948 8,278,948
— 8,947,820 8,947,820
Total insurance contracts
— 15,215,719 15,215,719
— 14,424,326 14,424,326
— 16,546,290 16,546,290
Less insurance contracts measured under
PAA
Total insurance contracts not measured
under PAA
Reinsurance contracts held
Reinsurance contracts held not measured
under PAA
Reinsurance contracts held measured under
PAA
—
(397,366)
(397,366)
—
(353,641)
(353,641)
—
(359,830)
(359,830)
$
— $ 14,818,353 $ 14,818,353 $
— $ 14,070,685 $ 14,070,685 $
— $ 16,186,460 $ 16,186,460
$ (113,071) $ 253,230 $ 140,159 $ (150,168) $ 217,056 $
66,888 $ (132,336) $ 338,922 $ 206,586
(168,288)
—
(168,288)
(159,876)
—
(159,876)
(150,963)
—
(150,963)
Total reinsurance contracts held
$ (281,359) $ 253,230 $
(28,129) $ (310,044) $ 217,056 $
(92,988) $ (283,299) $ 338,922 $
55,623
10.1. Effect on measurement components of insurance contracts initially recognized in the period
The components of new business for insurance contracts issued applying the VFA or the GMM are disclosed in the table
below. There were no insurance contracts acquired in a business combination or portfolio transfer in 2023 or 2022.
For the year ended
December 31, 2022 restated
December 31, 2023
Non-onerous
contracts
issued
Onerous
contracts
issued
Total
Non-onerous
contracts issued
Onerous
contracts issued
Total
Insurance contracts initially recognized in the
period
Insurance acquisition cash outflows
$
94,724 $
67,368 $
162,092 $
100,300 $
Claims and other cash outflows
Estimates of the present value of future cash outflows
262,938
357,662
151,487
218,855
414,425
576,517
345,049
445,349
Estimates of the present value of future cash inflows
(434,162)
(255,842)
(690,004)
(544,602)
44,844 $
90,677
135,521
(152,214)
26,075
—
145,144
435,726
580,870
(696,816)
86,680
38,648
9,382
Risk adjustment for non-financial risk
Contractual service margin
Increase in insurance contract liabilities from
contracts recognized in the year
39,392
37,108
56,572
—
95,964
37,108
60,605
38,648
$
— $
19,585 $
19,585 $
— $
9,382 $
Empire Life - Annual Report 2023
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)
10.2. Analysis by measurement component for insurance contracts
The tables below present the net asset or liability for insurance contracts issued showing estimates of the present value of
expected future cash flows, risk adjustment and CSM by product line.
As at December 31, 2023
Contractual service margin
Total
Estimates of
present value of
future cash
flows
Risk adjustment
for non-
financial risk
Fair value
approach
Post transition
Insurance contracts
Insurance contracts not measured under PAA, excluding segregated
fund account balances
Wealth Management
Group Solutions
Individual Insurance
Total
Insurance contracts for segregated fund account balances
Wealth Management
Individual Insurance
Total
$
(316,719) $
81,186 $
718,604 $
40,162 $
523,233
4,580
227
—
4,052,159
1,025,096
658,104
3,740,020
1,106,509
1,376,708
—
47,669
87,831
8,489,371
17,914
8,507,285
—
—
—
—
—
—
—
—
—
4,807
5,783,028
6,311,068
8,489,371
17,914
8,507,285
Total Insurance contracts not measured under PAA
$
12,247,305 $
1,106,509 $
1,376,708 $
87,831 $
14,818,353
As at December 31, 2022 restated
Estimates of
present value of
future cash flows
Risk adjustment
for non-financial
risk
Contractual service margin
Total
Fair value
approach
Post transition
Insurance contracts
Insurance contracts not measured under PAA, excluding segregated fund
account balances
Wealth Management
Group Solutions
Individual Insurance
Total
Insurance contracts for segregated fund account balances
Wealth Management
Individual Insurance
Total
$
(333,408) $
56,239 $
766,220 $
25,034 $
514,085
5,197
3,447,753
3,119,542
8,260,834
18,114
8,278,948
196
879,168
935,603
—
922,995
1,689,215
—
22,342
47,376
—
—
—
—
—
—
—
—
—
5,393
5,272,258
5,791,736
8,260,834
18,114
8,278,948
Total Insurance contracts not measured under PAA
$
11,398,490 $
935,603 $
1,689,215 $
47,376 $
14,070,684
Empire Life - Annual Report 2023
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 tables below present a roll-forward of the net asset or liability for insurance contracts issued showing estimates of the
present value of expected future cash flows, risk adjustment and CSM. These tables exclude insurance contracts
measured using the PAA.
For the year ended December 31, 2023
Contractual service margin
Total
Estimates of
present value of
future cash
flows
Risk adjustment
for non-
financial risk
Fair value
approach
Post transition
Insurance contracts at beginning of year
Insurance contract liabilities
$
3,119,542 $
935,603 $
1,689,215 $
47,376 $
5,791,736
Insurance contract liabilities for segregated fund account balances
8,278,948
—
—
—
8,278,948
Net insurance contracts at beginning of year
11,398,490
935,603
1,689,215
47,376
14,070,684
Changes that relate to current services
CSM recognized for services provided
Change in risk adjustment for non-financial risk for risk expired
Experience adjustments
Changes that relate to future services
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust the CSM
Changes that relate to past services
Adjustments to liabilities for incurred claims
Insurance service result
Insurance finance (income) expense, excluding segregated fund account
balances
(176,342)
(6,505)
(182,847)
13,568
(113,487)
116,231
3,383
(802)
18,893
453,336
(53,408)
95,964
39,324
(19,951)
43
61,972
108,934
—
(163,681)
37,108
8,126
—
(340,023)
27,516
—
38,729
1,726
(53,408)
13,568
19,585
—
(16,568)
(759)
(220,429)
591,512
711,118
Insurance finance (income) expenses segregated fund account balances
711,118
Total changes in the Consolidated Statement of Operations
1,183,347
170,906
(312,507)
40,455
1,082,201
Cash flows
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Movements related to insurance contract liabilities for segregated fund
account balances
872,649
(547,837)
(176,563)
148,249
(482,781)
872,649
(547,837)
(176,563)
148,249
(482,781)
Net insurance contracts at end of year
$
12,247,305 $
1,106,509 $
1,376,708 $
87,831 $
14,818,353
Insurance contracts at end of year
Insurance contract liabilities
Insurance contract liabilities for segregated fund account balances
Net insurance contracts at end of year
$
$
3,740,020 $
1,106,509 $
1,376,708 $
87,831 $
6,311,068
8,507,285
—
—
—
8,507,285
12,247,305 $
1,106,509 $
1,376,708 $
87,831 $
14,818,353
—
Empire Life - Annual Report 2023
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)
For the year ended December 31, 2022 restated
Insurance contracts at beginning of year
Insurance contract liabilities
Estimates of
present value of
future cash flows
Risk adjustment
for non-financial
risk
Contractual service margin
Total
Fair value
approach
Post transition
$
4,503,851 $
1,190,973 $
1,543,816 $
— $
7,238,640
Insurance contract liabilities for segregated fund account balances
8,947,820
—
—
Net insurance contracts at beginning of year
13,451,671
1,190,973
1,543,816
—
—
8,947,820
16,186,460
Changes that relate to current services
CSM recognized for services provided
Change in risk adjustment for non-financial risk for risk expired
Experience adjustments
Changes that relate to future services
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust the CSM
Changes that relate to past services
Adjustments to liabilities for incurred claims
Insurance service result
Insurance finance (income) expense, excluding segregated fund account
balances
(182,808)
(2,082)
(184,890)
13,776
(115,946)
(256,905)
(63)
(49,774)
86,680
(51,176)
(6,248)
—
297,714
38,648
10,367
(49,774)
13,776
9,382
—
(6,311)
(185)
12
(359,323)
(20,506)
(1,257,299)
(234,864)
—
114,906
30,493
—
(173)
46,933
(217,990)
443
(1,461,227)
Insurance finance (income) expenses segregated fund account balances
(342,957)
(342,957)
Total changes in the Consolidated Statement of Operations
(1,959,579)
(255,370)
145,399
47,376
(2,022,174)
Cash flows
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Movements related to insurance contract liabilities for segregated fund
account balances
830,212
(437,005)
(160,894)
232,313
(325,915)
830,212
(437,005)
(160,894)
232,313
(325,915)
Net insurance contracts at end of year
$
11,398,490 $
935,603 $
1,689,215 $
47,376 $
14,070,684
Insurance contracts at end of year
Insurance contract liabilities
Insurance contract liabilities for segregated fund account balances
Net insurance contracts at end of year
$
$
3,119,542 $
935,603 $
1,689,215 $
47,376 $
5,791,736
8,278,948
—
—
—
8,278,948
11,398,490 $
935,603 $
1,689,215 $
47,376 $
14,070,684
—
Analysis of contractual service margin for insurance contracts by product line
For the year ended
December 31, 2023
December 31, 2022 restated
Wealth
Management
Individual
Insurance
Total
Wealth
Management
Individual
Insurance
Total
Contractual service margin at beginning of year
$
791,254 $
945,337 $
1,736,591 $
567,288 $
976,528 $
1,543,816
CSM recognized for services provided
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
Interest accretion
(100,360)
13,920
53,223
729
(82,487)
23,188
(182,847)
37,108
(208,778)
(155,555)
28,513
29,242
(98,995)
20,500
301,942
519
(85,895)
18,148
6,139
30,417
(184,890)
38,648
308,081
30,936
Contractual service margin at end of year
$
758,766 $
705,773 $
1,464,539 $
791,254 $
945,337 $
1,736,591
Changes in estimates that adjust the CSM for direct insurance contracts is $155,555. Net of reinsurance contracts held of
$99,288 (Note 10.7), changes in estimates that adjust the CSM is a decrease of $56,267 and include assumption updates
that relate to:
•
•
Lapse impacts of $38,000 to the Segregated fund and Universal life products;
Expense assumptions of $7,000 to reflect the Company's experience with respect to inflation and changes to
operations; and
• Mortality updates of $80,000 to future mortality experience, which was unfavourable to the CSM for the Individual
life line of business, partially offset by similar updates for the Fixed annuity business.
Empire Life - Annual Report 2023
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)
Total changes in estimates that adjust the CSM also includes an increase of $71,000 (2022 $281,000) of changes in the
effect of time value of money and financial risk relating to contracts measured using the VFA in the Company's Wealth
Management and Individual Insurance product lines.
10.3. Analysis by remaining coverage and incurred claims for insurance contracts
The table below present a roll-forward of the net asset or liability for all insurance contracts issued showing liabilities for
remaining coverage and liability for incurred claims by product line. These tables include insurance contracts measured
using the PAA.
As at December 31, 2023
Remaining coverage
Incurred claims
Total
Excluding
loss
component
Loss
component
Contracts not
using PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
Insurance contracts
Wealth Management
Group Solutions
Individual Insurance
$
8,981,914 $
1,448 $
29,242 $
— $
— $
9,012,604
(7,685)
—
—
375,077
34,781
402,173
5,666,506
5,629
128,807
—
—
5,800,942
Total insurance contracts
$ 14,640,735 $
7,077 $
158,049 $
375,077 $
34,781 $ 15,215,719
As at December 31, 2022 restated
Remaining coverage
Incurred claims
Total
Insurance contracts
Wealth Management
Group Solutions
Individual Insurance
Total insurance contracts
Excluding loss
component
Loss
component
Contracts not
using PAA
Contracts using PAA
Estimate of PV
of future cash
flows
Risk
adjustment
$
8,748,487 $
(6,945)
— $
—
26,432 $
— $
— $
8,774,919
—
332,098
33,882
359,035
5,148,630
3,794
137,948
—
—
5,290,372
$ 13,890,172 $
3,794 $
164,380 $
332,098 $
33,882 $ 14,424,326
Empire Life - Annual Report 2023
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)
The table below present a roll-forward of the net asset or liability for all insurance contracts issued showing liabilities for
remaining coverage and liability for incurred claims. These tables include insurance contracts measured using the PAA.
For the year ended December 31, 2023
Remaining coverage
Incurred claims
Total
Excluding
loss
component
Loss
component
Contracts
not using
PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
Insurance contracts at beginning of year
Insurance contract liabilities
$ 5,611,224 $
3,794 $
164,380 $
332,098 $
33,882 $ 6,145,378
Insurance contract liabilities for segregated fund account balances
8,278,948
—
—
—
—
8,278,948
Net insurance contracts at beginning of year
13,890,172
3,794
164,380
332,098
33,882 14,424,326
Insurance service revenue
Contracts under fair value approach
Contracts post transition
Insurance service expenses
Incurred claims and other expenses
(634,813)
(690,695)
(634,813)
(690,695)
Amortization of insurance acquisition cash flows
35,524
Losses and reversal of losses on onerous contracts
Adjustments to liabilities for incurred claims
Investment components
Insurance service result
Insurance finance (income) expense from insurance contracts, excluding
segregated fund account balances
(334)
434,736
601,482
—
1,035,884
3,016
—
—
—
—
—
35,524
3,016
(1,651)
(1,224)
(2,875)
(106,770)
106,770
—
(1,396,754)
2,682
541,506
599,831
(1,224)
(253,959)
590,951
601
—
19,717
2,123
613,392
Insurance finance (income) expenses, insurance contracts segregated
fund account balances
711,118
711,118
Total changes in the Consolidated Statement of Operations
(94,685)
3,283
541,506
619,548
899
1,070,551
Cash flows
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Movements related to insurance contract liabilities for segregated
fund account balances
1,504,592
(176,563)
1,328,029
(482,781)
(547,837)
(576,569)
(547,837)
(576,569)
—
1,504,592
(1,124,406)
(176,563)
203,623
(482,781)
Net insurance contracts at end of year
$ 14,640,735 $
7,077 $
158,049 $
375,077 $
34,781 $ 15,215,719
Insurance contracts at end of year
Insurance contract liabilities
$ 6,133,450 $
7,077 $
158,049 $
375,077 $
34,781 $ 6,708,434
Insurance contract liabilities for segregated fund account balances
8,507,285
—
—
—
—
8,507,285
Net insurance contracts at end of year
$ 14,640,735 $
7,077 $
158,049 $
375,077 $
34,781 $ 15,215,719
Empire Life - Annual Report 2023
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)
For the year ended December 31, 2022 restated
Remaining coverage
Incurred claims
Total
Excluding loss
component
Loss
component
Contracts not
using PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
Insurance contracts at beginning of year
Insurance contract liabilities
$ 7,133,726 $
— $
98,749 $
332,151 $
33,844 $ 7,598,470
Insurance contract liabilities for segregated fund account balances
8,947,820
Net insurance contracts at beginning of year
16,081,546
—
—
—
—
—
8,947,820
98,749
332,151
33,844 16,546,290
Insurance service revenue
Contracts under fair value approach
Contracts post transition
Insurance service expenses
Incurred claims and other expenses
(623,380)
(631,969)
(623,380)
(631,969)
Amortization of insurance acquisition cash flows
24,992
Losses and reversal of losses on onerous contracts
Adjustments to liabilities for incurred claims
Investment components
Insurance service result
Insurance finance (income) expenses, excluding segregated funds
Insurance finance (income) expenses, segregated funds
(97,016)
(1,327,373)
(1,462,032)
(342,957)
(104)
405,620
555,774
—
961,290
3,071
—
—
—
97,016
—
—
26,064
2,693
24,992
3,071
28,757
—
2,967
502,636
581,838
2,693
(237,239)
827
—
(21,058)
(2,655)
(1,484,918)
(342,957)
Total changes in the Consolidated Statement of Operations
(3,132,362)
3,794
502,636
560,780
38
(2,065,114)
Cash flows
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Movements related to insurance contract liabilities for segregated fund
account balances
1,427,797
(160,894)
1,266,903
(325,915)
(437,005)
(560,833)
(437,005)
(560,833)
—
1,427,797
(997,838)
(160,894)
269,065
(325,915)
Net insurance contracts at end of year
$ 13,890,172 $
3,794 $
164,380 $
332,098 $
33,882 $ 14,424,326
Insurance contracts at end of year
Insurance contract liabilities
$ 5,611,224 $
3,794 $
164,380 $
332,098 $
33,882 $ 6,145,378
Insurance contract liabilities for segregated fund account balances
8,278,948
—
—
—
—
8,278,948
Net insurance contracts at end of year
$ 13,890,172 $
3,794 $
164,380 $
332,098 $
33,882 $ 14,424,326
10.4. Insurance service revenue
For the year ended
Insurance service revenue
Contracts not measured under the PAA
Amounts relating to changes in liabilities for remaining coverage
CSM recognized for services provided
Change in risk adjustment for non-financial risk for risk expired
Expected claims and other insurance service expenses
Recovery of insurance acquisition cash flows
Total
Contracts measured under the PAA
Total insurance service revenue
December 31, 2023 December 31, 2022
restated
$
182,848 $
53,284
415,177
35,524
686,833
638,675
184,890
49,730
391,808
24,992
651,420
603,929
$
1,325,508 $
1,255,349
Empire Life - Annual Report 2023
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)
10.5. Expected remaining CSM recognition for insurance contracts
Less than 1
year
1 - 2 years
2 - 3 years
3 - 4 years
4 - 5 years
5 - 10 years More than 10
years
Total
December 31, 2023
December 31, 2022
$
$
150,637 $
136,156 $
123,865 $
111,999 $
101,043 $
366,474 $
474,365 $
1,464,539
171,216 $
155,474 $
141,915 $
129,078 $
117,001 $
430,019 $
591,888 $
1,736,591
10.6. Effect on measurement components of reinsurance contracts held initially recognized in the period
For the year ended
New business reinsurance contracts held
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Amount included in reinsurance contracts held (assets) liabilities for the year
December 31, 2023 December 31, 2022
restated
$
$
203,826 $
(192,384)
(45,207)
25,000
(8,765) $
177,055
(168,940)
(39,626)
25,714
(5,797)
10.7. Analysis by measurement component for reinsurance contracts held
The tables below present the net asset or liability for reinsurance contracts held showing estimates of the present value of
future cash flows, risk adjustment and CSM by product line.
As at December 31, 2023
Contractual service margin
Total
Estimates of
present value of
future cash
flows
Risk adjustment
for non-
financial risk
Fair value
approach
Post transition
Reinsurance contracts held
Reinsurance contracts held not measured under PAA
Wealth Management
Individual Insurance
Total
As at December 31, 2022 restated
Reinsurance contracts held
Reinsurance contracts held not measured under PAA
Wealth Management
Individual Insurance
Total
$
$
(12,364) $
(603) $
945 $
— $
(12,022)
602,699
(400,031)
(95,529)
590,335 $
(400,634) $
(94,584) $
45,042
45,042 $
152,181
140,159
Estimates of
present value of
future cash flows
Risk adjustment
for non-financial
risk
Contractual service margin
Total
Fair value
approach
Post transition
$
$
(14,136) $
(730) $
1,232 $
— $
(13,634)
618,123
(343,812)
(214,397)
603,987 $
(344,542) $
(213,165) $
20,608
20,608 $
80,522
66,888
Empire Life - Annual Report 2023
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)
The tables below present a roll-forward of the net asset or liability for reinsurance contracts held showing estimates of the
present value of future cash flows, risk adjustment and CSM. These tables exclude reinsurance contracts held measured
using the PAA.
For the year ended December 31, 2023
Reinsurance contracts held at beginning of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
Estimates of
present
value of
future cash
flows
Risk
adjustment
for non-
financial risk
Contractual service margin
Total
Fair value
approach
Post
transition
$
343,690 $
(264,761) $
(249,563) $
20,466 $
(150,168)
260,297
(79,781)
36,398
142
217,056
Net reinsurance contracts held at beginning of year
603,987
(344,542)
(213,165)
20,608
66,888
19,076
21,510
16,491
(8,765)
—
3,852
4,016
3,781
59,961
49,974
Changes that relate to current services
CSM recognized for services received
Risk adjustment recognized for non-financial risk expired
Experience adjustments
Changes that relate to future services
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
22,797
(3,721)
21,510
16,491
11,442
(45,207)
—
(109,634)
10,346
100,461
25,000
(1,173)
Changes in estimates that adjust recoveries of losses on onerous underlying contracts
4,147
(295)
Changes in recoveries of losses on onerous underlying contracts that adjust the CSM
1,448
2,568
Changes that relate to past services
Changes in amounts recoverable arising from changes in liability for incurred claims
3,781
—
Reinsurance service result
Reinsurance finance (income) expenses
Total changes in the Consolidated Statement of Operations
Cash flows
Premiums paid
Amounts received
Total cash flows
(73,773)
(13,646)
124,706
22,674
96,785
23,012
(127,090)
90,426
(36,664)
(42,446)
(6,125)
1,760
(56,092)
118,581
24,434
109,935
(127,090)
90,426
(36,664)
Net reinsurance contracts held at end of year
$
590,335 $
(400,634) $
(94,584) $
45,042 $
140,159
Reinsurance contracts held at end of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
Net reinsurance contracts held at end of year
$
$
338,565 $
(318,235) $
(178,218) $
44,817 $
(113,071)
251,770
(82,399)
83,634
225
253,230
590,335 $
(400,634) $
(94,584) $
45,042 $
140,159
Empire Life - Annual Report 2023
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)
For the year ended December 31, 2022 restated
Reinsurance contracts held (excluding PAA contracts)
Estimates of
present value
of future cash
flows
Risk
adjustment for
non-financial
risk
Contractual service margin
Total
Fair value
approach
Post transition
Reinsurance contracts held (assets) at beginning of year
$
408,519 $
(300,711) $
(240,144) $
— $
(132,336)
Reinsurance contracts held liabilities at beginning of year
Net reinsurance contracts held at beginning of year
Changes that relate to current services
CSM recognized for services received
Risk adjustment recognized for non-financial risk expired
Experience adjustments
Changes that relate to future services
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
388,181
(103,581)
54,322
796,700
(404,292)
(185,822)
—
—
338,922
206,586
22,917
(1,143)
18,368
(2,922)
8,115
(39,626)
—
59,510
(8,646)
(44,729)
25,714
(6,135)
21,774
18,368
(2,922)
(5,797)
—
450
Changes in estimates that adjust recoveries of losses on onerous underlying contracts
486
(36)
Changes in recoveries of losses on onerous underlying contracts that adjust the CSM
505
1,676
2,181
Changes that relate to past services
Changes in amounts recoverable arising from changes in liability for incurred claims
—
—
—
Reinsurance service result
Reinsurance finance (income) expenses
Total changes in the Consolidated Statement of Operations
65,189
(29,940)
(21,307)
20,112
34,054
(176,589)
(111,400)
89,690
59,750
(6,036)
496
(27,343)
20,608
(92,439)
(58,385)
Cash flows
Premiums paid
Amounts received
Total cash flows
(177,060)
95,747
(81,313)
(177,060)
95,747
(81,313)
Net reinsurance contracts held at end of year
$
603,987 $
(344,542) $
(213,165) $
20,608 $
66,888
Reinsurance contracts held (excluding PAA contracts)
Reinsurance contracts held (assets) at end of year
Reinsurance contracts held liabilities at end of year
Net reinsurance contracts held at end of year
$
$
343,690 $
(264,761) $
(249,563) $
20,466 $
(150,168)
260,297
(79,781)
36,398
142
217,056
603,987 $
(344,542) $
(213,165) $
20,608 $
66,888
Analysis of contractual service margin for reinsurance contracts held by product line
For the year ended
December 31, 2023
December 31, 2022 restated
Wealth
Management
Individual
Insurance
Total
Wealth
Management
Individual
Insurance
Total
Contractual service margin at beginning of year
$
1,232 $
(193,789) $
(192,557) $
252 $
(186,074) $
(185,822)
CSM recognized for services received
Contracts initially recognized in the period
Changes in estimates that adjust the CSM
Changes in recoveries of losses on onerous
underlying contracts that adjust the CSM
Interest accretion
Contractual service margin at end of year
$
(267)
—
(59)
—
39
945 $
19,343
25,000
99,347
4,016
19,076
25,000
99,288
4,016
(4,404)
(4,365)
(149)
—
1,113
—
16
21,923
25,714
(51,977)
2,181
21,774
25,714
(50,864)
2,181
(5,556)
(5,540)
(50,487) $
(49,542) $
1,232 $
(193,789) $
(192,557)
Empire Life - Annual Report 2023
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)
10.8. Analysis by remaining coverage and incurred claims for reinsurance contracts held
The tables below present a roll-forward of the net asset or liability for all reinsurance contracts held showing (assets)
liabilities for remaining coverage and amounts recoverable on incurred claims by product line.
As at December 31, 2023
Remaining coverage
Incurred claims
Total
Reinsurance contracts held
Wealth Management
Group Solutions
Individual Insurance
Excluding
loss recovery
component
Loss
recovery
component
Contracts not
using PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
$
(16,608) $
(4,375)
— $
—
4,586 $
— $
— $
(12,022)
—
(154,192)
(14,096)
(172,663)
153,437
(2,539)
5,658
—
—
156,556
Total reinsurance contracts held
$
132,454 $
(2,539) $
10,244 $
(154,192) $
(14,096) $
(28,129)
As at December 31, 2022 restated
Remaining coverage
Incurred claims
Total
Reinsurance contracts
Wealth Management
Group Solutions
Individual Insurance
Excluding loss
recovery
component
Loss recovery
component
Contracts not
using PAA
Contracts using PAA
Estimate of PV
of future cash
flows
Risk
adjustment
$
(22,412) $
—
— $
—
8,778 $
— $
— $
(13,634)
—
(145,837)
(14,039)
(159,876)
80,109
(2,789)
3,202
—
—
80,522
Total reinsurance contracts
$
57,697 $
(2,789) $
11,980 $
(145,837) $
(14,039) $
(92,988)
Empire Life - Annual Report 2023
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 tables below present a roll-forward of the net asset or liability for all reinsurance contracts held showing (assets)
liabilities for remaining coverage and amounts recoverable on incurred claims.
For the year ended December 31, 2023
Remaining coverage
Incurred claims
Total
Reinsurance contracts held (assets) liabilities at beginning of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
Net reinsurance contracts held (assets) liabilities at beginning of
year
Allocation of premiums paid
Contracts under fair value approach
Contacts post transition
Amounts recoverable from reinsurers
Excluding
loss
recovery
component
Loss
recovery
component
Contracts
not using
PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
$
(147,379) $
(2,789) $
— $
(145,837) $
(14,039) $
(310,044)
205,076
—
11,980
—
—
217,056
57,697
(2,789)
11,980
(145,837)
(14,039)
(92,988)
141,464
157,089
141,464
157,089
Amounts recoverable for claims and other expenses incurred in the period
1,408
(95,943)
(136,325)
—
(230,860)
Changes in amounts recoverable from changes in liability for incurred
claims
Changes in fulfilment cash flows which relate to onerous underlying
contracts
Net income or expense from reinsurance contracts held
Reinsurance finance (income) expenses
Total changes in the Consolidated Statement of Operations
Cash flows
Premiums paid
Amounts received
Total cash flows
3,781
1,177
882
5,840
(896)
512
(262)
250
(92,162)
(135,148)
—
(9,532)
(92,162)
(144,680)
882
(939)
(57)
90,426
90,426
136,325
136,325
(896)
72,637
39,503
112,140
(274,032)
226,751
(47,281)
298,553
50,236
348,789
(274,032)
(274,032)
Net reinsurance contracts held (assets) liabilities at end of year
$
132,454 $
(2,539) $
10,244 $
(154,192) $
(14,096) $
(28,129)
Reinsurance contracts held (assets) liabilities at end of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
$
(114,315) $
(2,539) $
3,783 $
(154,192) $
(14,096) $
(281,359)
246,769
—
6,461
—
—
253,230
Net reinsurance contracts held (assets) liabilities at end of year
$
132,454 $
(2,539) $
10,244 $
(154,192) $
(14,096) $
(28,129)
Empire Life - Annual Report 2023
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)
For the year ended December 31, 2022 restated
Remaining coverage
Incurred claims
Total
Excluding loss
recovery
component
Loss recovery
component
Contracts not
using PAA
Contracts using PAA
Estimate of
PV of future
cash flows
Risk
adjustment
Reinsurance contracts held (assets) liabilities at beginning of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
Net reinsurance contracts held (assets) liabilities at beginning of year
$
(132,335) $
317,203
184,868
— $
—
—
— $
(136,674) $
(14,290) $
(283,299)
21,719
—
—
338,922
21,719
(136,674)
(14,290)
55,623
Allocation of premiums paid
Contracts under fair value approach
Contracts post transition
Amounts recoverable from reinsurers
138,191
153,107
138,191
153,107
Amounts recoverable for claims and other expenses incurred in the period
443
(105,486)
(120,427)
—
(225,470)
—
(17,505)
(729)
(18,234)
Changes in amounts recoverable from changes in liability for incurred
claims
Changes in fulfilment cash flows which relate to onerous underlying
contracts
(3,166)
Net income or expense from reinsurance contracts held
Reinsurance finance (income) expenses
Total changes in the Consolidated Statement of Operations
291,298
(92,261)
199,037
(2,723)
(105,486)
(137,932)
(66)
—
8,342
(2,789)
(105,486)
(129,590)
(729)
980
251
Cash flows
Premiums paid
Amounts received
Total cash flows
(326,208)
(326,208)
95,747
95,747
120,427
120,427
(3,166)
44,428
(83,005)
(38,577)
(326,208)
216,174
(110,034)
Net reinsurance contracts held (assets) liabilities at end of year
$
57,697 $
(2,789) $
11,980 $
(145,837) $
(14,039) $
(92,988)
Reinsurance contracts held (assets) liabilities at end of year
Reinsurance contracts held (assets)
Reinsurance contracts held liabilities
$
(147,379) $
(2,789) $
— $
(145,837) $
(14,039) $
(310,044)
205,076
—
11,980
—
—
217,056
Net reinsurance contracts held (assets) liabilities at end of year
$
57,697 $
(2,789) $
11,980 $
(145,837) $
(14,039) $
(92,988)
10.9. Expected remaining CSM recognition for reinsurance contracts held
Less than 1
year
1 - 2 years
2 - 3 years
3 - 4 years
4 - 5 years
5 - 10 years More than 10
years
Total
December 31, 2023
December 31, 2022
$
$
(9,277) $
(8,223) $
(7,244) $
(6,311) $
(5,424) $
(15,374) $
2,311 $
(49,542)
(22,658) $
(20,648) $
(18,658) $
(16,802) $
(14,986) $
(51,078) $
(47,727) $
(192,557)
11. 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 enrollments 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
Empire Life - Annual Report 2023
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)
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:
As at
Present value of obligations
Fair value of plan assets
Post-employment benefit asset (liability)
Effect of asset limit
Net post-employment benefit asset (liability)
Pension benefits
Other post-employment benefits
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
$
$
(212,182) $
236,215
24,033
(2,554)
21,479 $
(197,258) $
218,165
20,907
(2,736)
18,171 $
(7,006) $
—
(7,006)
—
(7,006) $
(6,785)
—
(6,785)
—
(6,785)
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 Other assets (Note 4).
The movement in the present value of the defined benefit obligations over the year is as follows:
As at
Pension benefits
Other post-employment benefits
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
Present value of defined benefit obligation - beginning of year
$
197,258 $
245,593 $
6,785 $
Current service cost
Interest expense
Decrease (increase) in net income before tax
Remeasurements
(Gain) loss from changes in financial assumptions
Actuarial (gain) loss from member experience
Decrease (increase) in OCI before tax
Employee contributions
Benefits paid
3,215
10,011
13,226
9,994
59
10,053
1,192
(9,547)
5,512
7,476
12,988
(53,121)
3,715
(49,406)
1,213
(13,130)
—
341
341
454
(222)
232
—
(352)
Present value of defined benefit obligation - end of year
$
212,182 $
197,258 $
7,006 $
8,706
—
253
253
(1,581)
(162)
(1,743)
—
(431)
6,785
Empire Life - Annual Report 2023
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)
The movement in the fair value of the Plan’s defined benefit assets over the year is as follows:
As at
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
Pension benefits
December 31, 2023 December 31, 2022
$
218,165 $
232,426
11,292
(385)
10,907
9,181
9,181
6,317
1,192
(9,547)
7,181
(337)
6,844
(16,758)
(16,758)
7,570
1,213
(13,130)
218,165
Fair value of defined benefit assets - end of year
$
236,215 $
The change in the asset ceiling/onerous liability over the year is as follows:
As at
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
December 31, 2023 December 31, 2022
$
$
2,736 $
144
(326)
2,554 $
1,630
51
1,055
2,736
The actual return on defined benefit assets net of administrative expense, for the year ended December 31, 2023 was a
gain of $20,088 (2022 loss of $9,914).
Defined benefit plan expense is recognized and allocated between insurance service expenses and non-insurance
expenses. Remeasurements in the defined benefit plan are included in OCI. Allocated between insurance service
expenses and non-insurance expenses is $4,014 (2022 $2,964) 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, 2024 are approximately $7,136.
Empire Life - Annual Report 2023
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)
The Plan invests primarily in Empire Life segregated and exchange traded funds (ETFs). The fair value of the underlying
assets of the funds and other investments are included in the following table:
As at
December 31, 2023
December 31, 2022
Equity
Canadian
Foreign
Equity ETFs
Canadian
Foreign
Total equity
Debt
Canadian
Foreign
Total debt
Cash, cash equivalent, accruals
Mutual funds
Other
Total fair value of assets
$
35,385
82,623
3,010
6,758
127,776
94,923
2,134
97,057
3,313
—
8,069
15 % $
35 %
1 %
3 %
54 %
40 %
1 %
41 %
1 %
0 %
4 %
38,626
90,731
—
—
129,357
67,801
—
67,801
3,864
8,970
8,173
18 %
41 %
0 %
0 %
59 %
31 %
0 %
31 %
2 %
4 %
4 %
$
236,215
100 % $
218,165
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:
Pension benefits
Other post-employment benefits
As at
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
Defined benefit obligation as at December 31:
Discount rate - defined benefit obligation
Discount rate - net interest
Rate of compensation increase (3% after 2023)
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
4.65 %
5.25 %
4.00 %
n/a
n/a
n/a
5.25 %
3.15 %
5.00 %
n/a
n/a
n/a
4.65 %
5.25 %
n/a
5.3 %
4.0 %
2040
5.25 %
3.00 %
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, 2023 December 31, 2022
Males aged 65 at measurement date
Females aged 65 at measurement date
Males aged 40 at measurement date
Females aged 40 at measurement date
22.29
24.95
23.40
25.96
22.21
24.88
24.04
26.54
Empire Life - Annual Report 2023
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 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, 2023
Discount rate
Rate of compensation increase
Health care cost increase
Life expectancy
Impact on Pension Benefit Obligation
Impact on Other Post Employment
Benefit Obligations
Increase
Decrease
Increase
Decrease
(17,754) $
7,398 $
n/a
3,589 $
22,025 $
(6,493)
n/a $
(3,732) $
(651) $
n/a
577 $
591 $
574
n/a
(658)
(761)
Change in
assumption
1 % $
1 % $
1 %
1 year $
As at December 31, 2022
Change in
assumption
Impact on Pension Benefit Obligation
Impact on Other Post Employment
Benefit Obligations
Increase
Decrease
Increase
Decrease
Discount rate
Rate of compensation increase
Health care cost increase
Life expectancy
1 % $
1 % $
1 %
1 year $
(15,443) $
6,351 $
n/a
3,137 $
19,111 $
(5,653)
n/a
(3,265) $
(644) $
n/a
512
185 $
531
n/a
(636)
(384)
The weighted average duration, in number of years, of the defined benefit obligations are:
As at
Staff pension plan
Supplemental employee retirement plan
Other post-employment benefits
Risks
December 31, 2023 December 31, 2022
10
7
9
9
7
9
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:
Deterioration of asset values
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.
Empire Life - Annual Report 2023
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)
Longevity risk
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 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.
Interest rate risk
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.
In February 2023, the Plan withdrew 100% of its investment in Empire Life Aggressive Growth Mutual Fund. The proceeds
were reinvested in ETFs 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
12. Subordinated Debt
The table below presents the obligations included in Subordinated debt.
As at
Series 2017-1 (1)
Series 2021-1 (2)
Series 2023-1 (3)
Total Subordinated Debt
Fair Value
December 31, 2023 December 31, 2022
Interest rate Earliest par call or
redemption date
Maturity
Carrying value
3.664 %
March 15, 2023
2.024 % September 24, 2026
5.503 %
January 13, 2028
2028 $
2031
2033
$
$
— $
199,435
199,462
398,897 $
385,674 $
Carrying
value
199,964
199,165
—
399,129
374,616
(1) All of the outstanding Series 2017-1 Subordinated 3.664% Unsecured Debentures were redeemed on March 15, 2023
(2) Series 2021-1 Subordinated 2.024% Unsecured Debentures due 2031. From September 24, 2026, interest is payable at 0.67% over CDOR
(3) Series 2023-1 Subordinated 5.503% Unsecured Debentures due 2033. From January 13, 2028, interest is payable at 2.26% over CORRA
Empire Life - Annual Report 2023
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)
13. Claims, Operating Expenses, Commissions and Interest Expense
Claims, operating expenses, commissions and interest expense include the following:
For the year ended
Insurance contracts claims and benefits
Salary and benefit expenses
Professional services
Rent, maintenance and amortization of right-of-use assets
Amortization of property and equipment and intangibles
Miscellaneous operating expenses
Insurance contracts commissions
Premium and other taxes
Interest expense
Subtotal
Amounts attributed to insurance contracts acquisition cash flows
Amortization of insurance contracts acquisition cash flows
Total
Represented by:
Insurance service expenses
Non-insurance expenses
Interest expenses
Total
14. Income Taxes
14.1. Income tax expense
December 31, 2023
December 31, 2022
restated
$
733,534 $
134,883
33,951
26,833
16,028
31,679
304,142
27,063
16,615
1,324,728
(176,563)
35,524
707,504
116,533
21,420
27,238
9,924
26,949
280,751
25,809
11,648
1,227,776
(160,894)
24,992
$
$
$
1,183,689 $
1,091,874
1,071,549 $
1,018,110
95,525
16,615
62,116
11,648
1,183,689 $
1,091,874
The tax provision for December 31, 2023 has been prepared in accordance with the Canadian federal tax legislation
effective January 1, 2023 which includes the adoption of IFRS 17.
January 1, 2022 opening Statement of Financial Position differences between the IFRS 4 and IFRS 17 actuarial liabilities
reflected in Retained earnings on adoption have been treated as temporary differences and reflected in the net Deferred
tax asset balance. The tax transition adjustment for the impact of converting actuarial liabilities and the non-deductible
portion of the CSM was calculated at January 1, 2023 and taken over 5 years.
The Company’s income tax expense includes provisions for current and deferred taxes as follows:
For the year ended
Current income tax expense
Deferred income tax expense (benefit)
Income tax expense (benefit)
December 31, 2023 December 31, 2022
restated
$
$
44,774 $
876
45,650 $
3,566
(5,288)
(1,722)
During 2023, the Company's net income tax paid (recovered) totaled ($19,310) (2022 $40,277).
Empire Life - Annual Report 2023
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)
14.2. Variance from statutory provision
Income taxes provided varies from the expected statutory provision as follows:
For the year ended
Net income before income taxes
Income tax provision at statutory rates
Increase (decrease) resulting from:
Tax paid on dividends
Miscellaneous
Income tax expense
December 31, 2023 December 31, 2022
restated
$
235,606 $
62,153
(13,562)
(2,941)
45,650 $
$
57,533
15,177
(10,074)
(6,825)
(1,722)
The current enacted corporate tax rates as they impact the Company in 2023 stand at 26.38% (2022 26.38%). Expected
future tax rates are as follows:
26.38 %
2024
2025
2026
2027
2028
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.
14.3. 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
Insurance contracts
Portfolio investments
Post-employment benefit plans
Other, net
Deferred income tax asset (liability)
December 31, 2023 December 31, 2022
restated
$
$
91,150 $
973
(3,798)
1,119
89,444 $
94,051
(1,545)
(2,981)
98
89,623
Of the above total, $89,444 is expected to be paid (2022 $37,050 paid) more than one year after the Consolidated
Statements of Financial Position date.
The net movement on the deferred income tax account is as follows:
For the year ended
Deferred income tax asset (liability) - beginning of year
Deferred income tax benefit (expense)
Consolidated Statement of operations
Other comprehensive income
Other adjustments
December 31, 2023 December 31, 2022
restated
$
89,623 $
93,123
(876)
206
491
5,288
(8,794)
6
89,623
Deferred income tax asset (liability) - end of year
$
89,444 $
Empire Life - Annual Report 2023
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)
14.4. Income taxes included in other comprehensive income
Other comprehensive income (loss) is presented net of income taxes and includes the following income tax amounts.
For the year ended
December 31, 2022 restated
December 31, 2023
Remeasurements of post-employment benefit liabilities
Total other comprehensive income (loss)
$
$
(778) $
(778) $
206 $
206 $
(572) $
(572) $
33,336 $
33,336 $
(8,794) $
(8,794) $
Before tax
Tax (provision)
recovery
After tax
Before tax
Tax (provision)
recovery
After tax
24,542
24,542
15. Earnings Per Share
Earnings per share (EPS) is calculated by dividing common shareholders' net income by the weighted average number of
common shares outstanding. The preferred shares issued (refer to Note 16) 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
Basic and diluted EPS
Shareholders' net income (loss)
Less: preferred share dividends declared and distributions on other equity instruments
Common shareholders' net income
Weighted average number of common shares outstanding
Basic and diluted EPS
December 31, 2023 December 31, 2022
restated
$
$
167,854 $
(11,525)
156,329
985,076
158.70 $
65,129
(10,237)
54,892
985,076
55.72
16. Capital Stock
As at
Preferred shares - series 3
Limited recourse capital notes
Common shares
December 31, 2023
Shares
authorized
Shares issued
and outstanding
unlimited
4,000,000 $
2,000,000
200,000 $
985,076 $
Amount
100,000
200,000
December 31, 2022
Shares
authorized
Shares issued
and outstanding
unlimited
4,000,000 $
985
2,000,000
200,000 $
985,076 $
Amount
100,000
200,000
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
were entitled to receive fixed non-cumulative quarterly dividends yielding 4.90% annually, as and when declared by the
Board 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 Empire Life, at a rate equal to the 3-month Government of Canada
Treasury Bill yield plus 3.24%.
Empire Life - Annual Report 2023
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)
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 Empire Life, for the renewal period ending on and including January 17,
2028.
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 Consolidated 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 or principal at the discretion of the Company, or in the event of bankruptcy, insolvency or liquidation of the
Company, the sole remedy of note holders 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 $1,000 per Series 5. Holders of the LRCN Series 1
are entitled to receive semi-annual payments at a rate of 3.625% per annum until April 17, 2026. Thereafter, the yield will
reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.082%.
Interest paid on LRCNs have been reclassified in 2023 and 2022 from interest expense on the Consolidated Statement of
Operations to Preferred share dividends and distributions on other equity instruments in the Consolidated Statement of
Changes in Equity.
17. Dividends
Common shareholder dividends
Common shares
Preferred shareholder dividends
Series 3
Dividend
declaration date
Shares issued
and outstanding
Dividend rate
per share
Total dividend
($ 000's)
Dividend
payment date
October 26, 2023
August 4, 2023
May 9, 2023
February 23, 2023
October 27, 2022
July 28, 2022
April 28, 2022
February 23, 2022
985,076 $
985,076 $
985,076 $
985,076 $
985,076 $
985,076 $
985,076 $
985,076 $
19.290000 $
19.290000 $
19.290000 $
18.450000 $
18.450000 $
18.450000 $
18.450000 $
18.450000 $
October 26, 2023
4,000,000 $
0.3866875 $
August 4, 2023
4,000,000 $
0.3866875 $
May 9, 2023
4,000,000 $
0.3866875 $
February 23, 2023
4,000,000 $
0.3866875 $
October 27, 2022
4,000,000 $
0.3062500 $
July 28, 2022
4,000,000 $
0.3062500 $
April 28, 2022
4,000,000 $
0.3062500 $
February 23, 2022
4,000,000 $
0.3062500 $
19,002
December 5, 2023
19,002 September 13, 2023
19,002
18,175
June 14, 2023
April 4, 2023
18,175
December 6, 2022
18,175
September 7, 2022
18,175
18,175
June 7, 2022
March 31, 2022
1,547
1,547
1,547
1,547
1,225
1,225
1,225
1,225
January 17, 2024
October 17, 2023
July 17, 2023
April 17, 2023
January 17, 2023
October 17, 2022
July 17, 2022
April 17, 2022
On February 28, 2024, the Board approved the following cash dividends:
•
•
$20,007 ($20.31 per share) on the issued and outstanding Common Shares, payable on April 9, 2024.
$1,547 ($0.3866875 per share) on the issued and outstanding Series 3 Preferred Shares, payable on April 17, 2024.
Empire Life - Annual Report 2023
105
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
18. Participating Account
The participating account surplus balance is considered to be equity of the Company; however, its distribution is restricted
by the Insurance Companies Act. Transfers from the participating account to the shareholders account is contingent upon
future payment of dividends to participating policyholders.
Participating policyholders share in the returns of the underlying items. The entire participating fund is considered as the
underlying. The fair value of the underlying items as at December 31, 2023 is $1,040,923 (December 31, 2022 $892,093).
The following table sets out the composition and fair value of the underlying assets supporting the Company's
participating account at the reporting date.
As at
Underlying assets supporting participating account
Cash and cash equivalents
Bonds
Preferred shares
Common shares
Derivative assets
Mortgages
Other
Total underlying assets supporting participating account
Components of participating account
Insurance contracts and reinsurance contracts held net assets (liabilities)
Participating account surplus
Total
December 31, 2023 December 31, 2022
restated
$
53,337 $
660,889
107,777
170,313
1,676
14,997
31,934
1,040,923 $
994,766 $
46,157
1,040,923 $
$
$
$
13,220
579,144
91,801
154,814
—
15,321
37,793
892,093
868,038
24,055
892,093
19. Segmented Information by Product Line
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, 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’ equity, the participating account surplus, and
other corporate items not allocated to other segments.
Empire Life - Annual Report 2023
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)
Operating results are segmented into three product lines along with the Company’s capital and surplus as follows:
For the year ended December 31, 2023
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding segregated
funds
Segregated funds net investment and insurance finance result
Investment income (loss) on investments for segregated fund account
balances
Insurance finance income (expenses) segregated fund account
balances
Segregated funds net investment and insurance finance result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
$
234,762 $
638,675 $
452,071 $
— $
1,325,508
(147,080)
(598,019)
87,682
340
88,022
40,656
(17,234)
23,422
(326,450)
125,621
(55,743)
69,878
—
—
—
—
(1,071,549)
253,959
(72,637)
181,322
72,285
(28,171)
44,114
16,001
597,946
130,557
—
—
—
16,001
597,946
130,557
(34,335)
964
(33,371)
(21,879)
10,473
(11,406)
(557,178)
(50,940)
(608,118)
734,263
(734,263)
—
10,743
1,076
(29,685)
—
—
—
—
1,571
(1,571)
—
4,595
(10,172)
130,557
135,723
7,549
(15,739)
—
317
(21,154)
—
21,759
(28,947)
(16,615)
(23,803)
—
—
—
—
—
—
816,789
(28,171)
788,618
(613,392)
(39,503)
(652,895)
735,834
(735,834)
—
30,701
(95,525)
(16,615)
(81,439)
235,606
(45,650)
189,956
Total other income and expenses
(28,609)
(8,190)
(20,837)
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
$
70,156 $
19,827 $
38,869 $
106,754 $
$
Empire Life - Annual Report 2023
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)
For the year ended December 31, 2022 restated
Wealth
Management
Group Solutions
Individual
Insurance
Capital &
Surplus
Total
Insurance service result
Insurance revenue
Insurance service expenses
Insurance service result
Net recovery (expense) from reinsurance contracts held
Net insurance service result
Investment and insurance finance result
Investment income (loss), excluding segregated funds
Investment income
Change in investment contracts
Net investment result, excluding segregated funds
Insurance finance income (expense), excluding segregated fund account balances
Insurance contracts
Reinsurance contracts held
Net insurance finance income (expense), excluding segregated funds
Segregated funds net investment and insurance finance result
Investment income (loss) on investments for segregated fund account
balances
Insurance finance income (expenses) segregated fund account
balances
Segregated funds net investment and insurance finance result
Net investment and insurance finance result
Other income and expenses
Fee and other income
Non-insurance expenses
Interest expenses
$
233,864 $
603,929 $
417,556 $
— $
1,255,349
(126,344)
107,520
2,823
110,343
(584,679)
19,250
(13,053)
6,197
(307,087)
110,469
(34,198)
76,271
—
—
—
—
(1,018,110)
237,239
(44,428)
192,811
(77,040)
10,331
(66,709)
51,711
(1,368)
50,343
(353,104)
353,104
—
(16,366)
749
(21,743)
—
(15,037)
(1,336,007)
(235,868)
(1,663,952)
—
—
—
10,331
(15,037)
(1,336,007)
(235,868)
(1,653,621)
24,011
(9,435)
14,576
1,409,196
93,808
1,503,004
—
—
—
(461)
(564)
564
—
—
—
—
—
—
—
1,484,918
83,005
1,567,923
(353,668)
353,668
—
166,997
(235,868)
(85,698)
6,134
(12,785)
—
115
(12,416)
—
17,186
(15,172)
(11,648)
(9,634)
24,184
(62,116)
(11,648)
(49,580)
57,533
1,722
59,255
Total other income and expenses
(20,994)
(6,651)
(12,301)
Net income (loss) before taxes
Income taxes
Net income (loss) after taxes
$
72,983 $
(915) $
230,967 $
(245,502) $
$
Assets are segmented into three product lines along with the Company’s capital and surplus as follows:
As at
December 31, 2023
Assets excluding segregated funds
Segregated funds
Total assets
As at
Assets excluding segregated funds
Segregated funds
Total assets
Wealth
Management
Group
Solutions
Individual
Insurance
Capital &
Surplus
Total
996,530 $
388,145 $
5,976,494 $
2,490,650 $
9,851,819
8,794,810
—
17,914
—
8,812,724
9,791,340 $
388,145 $
5,994,408 $
2,490,650 $
18,664,543
December 31, 2022 restated
Wealth
Management
Group Solutions
Individual
Insurance
Capital &
Surplus
Total
840,646 $
369,204 $
5,436,326 $
2,345,821 $
8,991,997
8,547,561
—
18,114
—
8,565,675
9,388,207 $
369,204 $
5,454,440 $
2,345,821 $
17,557,672
$
$
$
$
While specific general fund assets are nominally matched against specific types of general fund liabilities or held in the
shareholders’ equity and participating account surplus, 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.
Empire Life - Annual Report 2023
108
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
20. Commitments and Contingencies
20.1. Investment commitments
In the normal course of business, outstanding investment commitments are not reflected in the Consolidated Financial
Statements. There were $4,141 (December 31, 2022, $5,543) of outstanding commitments as at December 31, 2023. The
outstanding commitments are payable at any time up to and including December 31, 2033.
20.2. 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.
21. Related Party Transactions
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.
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
Salaries and other short-term and long-term employee benefits
Post-employment benefits
Total
December 31, 2023 December 31, 2022
$
$
8,033 $
392
8,425 $
7,861
508
8,369
Post-employment benefits are comprised of employer current service costs for pension and other post-employment
benefits.
Empire Life - Annual Report 2023
109
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
22. Capital Management
The Company manages its capital in order to meet the requirements of the Life Insurance Capital Adequacy Test
("LICAT") guideline, the capital framework issued by the OSFI. 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. OSFI has established a Supervisory Target Total Ratio of 100% and a Supervisory Target Core Ratio of 70%. As at
January 1, 2022, December 31, 2022 and December 31, 2023, the Company was in compliance with the applicable
regulatory capital ratios.
23. Risk Management
The Company is exposed to risks arising from its investing activities and its insurance operations. The following sections
describe some of the principal risks and associated risk management strategies for the risks related to market, liquidity,
credit and product.
23.1. 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
variable, 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, CSM, Equity 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.
23.2. Market risk
Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates, 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 adequacy
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
net income may be adversely affected.
Empire Life - Annual Report 2023
110
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Furthermore, a decrease in the fair value of the Company's common stock portfolio results in reduced shareholders’
equity, reduced participating account surplus and a reduced LICAT ratio. Regulatory pressure to increase capital escalates
as the LICAT ratio approaches OSFI’s supervisory minimum. Net income would also be reduced if the declines in value
are realized through dispositions.
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 market risk by defining investment objectives, eligible investments, diversification criteria, exposure,
concentration and asset quality limits for eligible investments by product line. 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 the position
of Empire Life’s investments in relation to its liabilities within the Company's various product lines. The process is
designed so that assets supporting insurance contract liabilities align with 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 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 ratio on a regular basis and reports at least quarterly to the Board on the Company’s
LICAT ratio.
For the Company, the most significant market risks are equity risk, interest rate risk and to a lesser extent foreign
exchange risk.
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 and on index funds within
universal life contracts and insurance contract 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 ratio 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 protect the Company from possible future LICAT ratio declines that might
result from adverse stock market price changes. The program employs put options and futures on key equity indices.
Empire Life - Annual Report 2023
111
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Improper use of these instruments could have an adverse impact on net income. 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 liabilities in accordance with IFRS 17 and the CIA Standards of Practice. 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. CSM sensitivity included in the following table
relates to insurance contracts measured applying the VFA.
The impacts of one-time changes in equity markets are found below:
As at December 31, 2023
CSM
Profit or loss before tax
Total equity
Insurance and reinsurance
contracts held
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
$ 99,702 $ (116,002) $ 186,603 $ (254,170) $ (37,983) $ 34,751 $ (76,011) $ 67,366 $ (27,963) $ 25,583 $ (55,959) $ 49,595
Financial assets (equities)
—
—
—
— 66,274
(61,315) 134,072 (109,796) 48,791
(45,140) 98,704
(80,832)
Total
$ 99,702 $ (116,002) $ 186,603 $ (254,170) $ 28,291 $ (26,564) $ 58,061 $ (42,430) $ 20,828 $ (19,557) $ 42,745 $ (31,237)
As at December 31, 2022
CSM
Profit or loss before tax
Equity
Insurance and reinsurance
contracts held
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
10%
Increase
10%
Decrease
20%
Increase
20%
Decrease
$ 110,588 $ (125,176) $ 208,342 $ (270,626) $ (30,046) $ 36,260 $ (64,790) $ 68,039 $ (22,120) $ 26,695 $ (47,699) $ 50,090
Financial assets (equities)
—
—
—
— 69,407
(65,319) 141,915 (121,527) 51,098
(48,088) 104,478
(89,468)
Total
$ 110,588 $ (125,176) $ 208,342 $ (270,626) $ 39,361 $ (29,059) $ 77,125 $ (53,488) $ 28,978 $ (21,393) $ 56,779 $ (39,378)
The following table identifies the concentration of the Company's common equity holdings in Empire Life's investment
portfolios (excluding segregated funds):
As at
December 31, 2023 December 31, 2022
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
$
$
439,222 $
4.7 %
244,095 $
2.6 %
574,892
6.9 %
348,714
4.2 %
Empire Life - Annual Report 2023
112
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Interest rate risk
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.
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. 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 net income.
The products offered within the Company's Individual Insurance product line and Segregated Funds included in the
Wealth Management product line are more exposed to interest rate risk due to the longer term nature of the products.
Products offered in the Group product line are less sensitive to interest rates due to their short term nature.
The following table outlines the impact on the Company’s CSM, Profit and Equity resulting from specific changes in
interest rates as at December 31, 2023 and December 31, 2022 assuming all other variables remain constant.
As at December 31, 2023
Profit or loss before tax
Equity
CSM
Insurance and reinsurance
contracts held
Financial assets
Total
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
$ 64,397 $ (77,504) $ 116,996 $ (167,980) $ 411,218 $ (463,998) $ 772,718 $ (989,627) $ 302,739 $ (341,596) $ 568,875 $ (728,563)
—
—
—
— (438,553) 488,904 (831,057) 1,032,770 (322,863) 359,931 (611,824) 760,325
$ 64,397 $ (77,504) $ 116,996 $ (167,980) $ (27,335) $ 24,906 $ (58,339) $ 43,143 $ (20,124) $ 18,335 $ (42,949) $ 31,762
As at December 31, 2022
CSM
Profit or loss before tax
Equity
Insurance and reinsurance
contracts held
Financial assets
Total
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
50 bps
Increase
50 bps
Decrease
100 bps
Increase
100 bps
Decrease
$ 64,245 $ (77,459) $ 116,935 $ (167,137) $ 353,297 $ (402,866) $ 668,025 $ (859,807) $ 260,097 $ (296,590) $ 491,800 $ (632,990)
—
—
—
— (380,665) 423,340 (722,195) 893,067 (280,246) 311,663 (531,680) 657,476
$ 64,245 $ (77,459) $ 116,935 $ (167,137) $ (27,368) $ 20,474 $ (54,170) $ 33,260 $ (20,149) $ 15,073 $ (39,880) $ 24,486
For insurance contracts with a fund component, the computation of insurance contract liabilities takes into account
projected investment income net of investment expenses from the assets supporting insurance contract liabilities, and
investment income expected to be earned on reinvestments.
In order to match the savings component of insurance contract 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.
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.
Empire Life - Annual Report 2023
113
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 exchange 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. As at December 31, 2023 and December 31, 2022, the Company has minimal exposure to currency risk.
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.
23.3. 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 insurance contract liabilities, the duration of which varies by
product line 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 12 Subordinated Debt) and the
Limited Recourse Capital Notes (refer to Note 16 Capital Stock), and to ongoing operating expenses as they fall due,
which are expected to settle in a very short period of time.
The Company maintains a liquidity policy requiring an assessment of the Company’s liquidity risk and specific procedures
so that liquidity needs are met in order to support all financial commitments and obligations as they become due.
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 positions as at December 31 is noted below.
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
policyholder commitments, debt service obligations and to pay other expenses.
The following tables show details of the expected maturity profile of the Company's undiscounted obligations with respect
to its financial liabilities and estimated cash flows of insurance contract 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.
Insurance contract 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.
These estimated cash flows are based on the probability weighted current estimate assumptions, with a risk adjustment
for non-financial risk, used in the determination of insurance contract liabilities. Due to the use of assumptions, actual cash
flows will differ from these estimates. Liability for remaining coverage for groups measured under the PAA has been
excluded from this analysis.
As at
December 31, 2023
Less than 1
year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Over 5 years
Total
Insurance contract liabilities
$
(39,635) $
(31,230) $
8,515 $
51,043 $
85,836 $
30,082,705 $
30,157,234
Reinsurance contract liabilities
2,704
7,764
9,442
9,767
Segregated fund liabilities
(166,380)
(142,845)
(124,112)
(108,005)
10,792
(95,112)
60,324
630,674
100,793
(5,780)
Total
$
(203,311) $
(166,311) $
(106,155) $
(47,195) $
1,516 $
30,773,703 $
30,252,247
Empire Life - Annual Report 2023
114
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, 2022 restated
Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Over 5 years
Total
Insurance contract liabilities
$
(40,413) $
(15,973) $
(11,593) $
28,336 $
67,964 $
28,041,558 $
28,069,879
Reinsurance contract liabilities
Segregated fund liabilities
2,427
(167,801)
(2,394)
(146,559)
12,219
(128,837)
13,353
(114,308)
13,687
(101,536)
451,124
662,776
490,416
3,735
$
(205,787) $
(164,926) $
(128,211) $
(72,619) $
(19,885) $
29,155,458 $
28,564,030
December 31, 2023
Less than 1
year
1 - 5 years
5 - 10 years
Over 10 years
Total
$
181,283 $
335,277 $
31,557 $
8,932 $
17,188
6,187
7,250
133,661
274,937
120,108
43,449
—
231,405
—
234,386
—
—
—
—
—
557,049
523,530
126,295
285,085
133,661
$
345,569 $
773,771 $
497,348 $
8,932 $
1,625,620
Investment contract liabilities (restated)
$
139,281 $
200,875 $
25,732 $
6,673 $
Less than 1 year
1 - 5 years
5 - 10 years
Over 10 years
December 31, 2022 restated
14,726
5,865
7,250
330,508
69,672
24,748
39,024
30,117
439,308
101,547
248,668
—
—
—
—
—
$
497,630 $
364,436 $
815,255 $
6,673 $
1,683,994
Total
372,561
523,706
132,160
294,942
360,625
Total
As at
Investment contract liabilities
Subordinated debt
Preferred shares
Limited recourse capital notes
Accounts payable and other liabilities
Total
As at
Subordinated debt
Preferred shares
Limited recourse capital notes
Accounts payable and other liabilities
Total
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, 2023, 3.7% (2022 2.2%) of cash and investments were held in
these shorter duration investments.
Empire Life - Annual Report 2023
115
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
23.4. Liquidity position
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, 2023 December 31, 2022
restated
Assets
Cash and cash equivalents & Short-term investments
$
352,664 $
Canadian federal and provincial bonds
Other readily marketable bonds and stocks
Total liquid assets
Liabilities
Demand liabilities (1) with fixed values
Demand liabilities with market value adjustments
Total liquidity needs
(1) Demand liabilities consist of CSVs plus funds on deposit less policy loans.
23.5. Credit risk
3,345,471
5,406,848
9,104,983
1,038,114
1,376,074
$
2,414,188 $
184,554
2,916,849
5,060,706
8,162,109
915,899
1,178,857
2,094,756
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 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.
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.
Empire Life - Annual Report 2023
116
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 has the following assets that are exposed to credit risk:
As at
Cash and cash equivalents
Short-term investments
Bonds
Preferred shares
Derivative assets
Mortgages
Loans
Accrued investment income
Trade accounts receivable
Total
December 31, 2023 December 31, 2022
restated
$
347,707 $
4,957
7,456,183
519,359
13,825
98,679
47,165
49,068
4,423
175,523
9,031
6,744,757
402,165
9,776
113,901
50,036
48,645
8,506
$
8,541,366 $
7,562,340
In addition to the assets disclosed above, the Company is exposed to credit risk for loans on policies and insurance
receivables which are presented within insurance contract liabilities in the amount of $63,770 (2022 $59,979) and $35,305
(2022 $32,471 restated) respectively. Mortgages, loans on policies and loans are fully or partially secured.
Concentration of credit risk for financial instruments
Concentration of credit risk arises from exposures to a single debtor, a group of related debtors or groups of debtors that
have similar credit risk characteristics, such as groups of debtors in the same economic or geographic regions or in similar
industries. The following tables provide the carrying values of bonds and debentures by industry sector.
Bonds and debentures
The concentration of the Company’s bond portfolio by investment grade is as follows:
As at
December 31, 2023
December 31, 2022
AAA
AA
A
BBB
BB (and lower ratings)
Total
Fair value % of Fair value
Fair value
% of Fair value
$
303,418
4 % $
351,680
1,967,382
3,048,351
2,081,353
55,679
26 %
41 %
28 %
1 %
1,537,528
3,078,452
1,731,033
46,064
5 %
23 %
45 %
26 %
1 %
$
7,456,183
100 % $
6,744,757
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
Provincial bond holdings
Percentage of total bond holdings
December 31, 2023 December 31, 2022
$
3,148,856
$
2,730,730
42.2 %
40.5 %
Empire Life - Annual Report 2023
117
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 profiles the bond portfolio by contractual maturity, using the earliest contractual maturity date:
As at
December 31, 2023
December 31, 2022
1 year or less
1 - 5 years
5 - 10 years
Over 10 years
Total
Fair value % of Fair value
Fair value
% of Fair value
$
54,742
334,167
248,349
1 % $
4 %
3 %
393,179
816,633
504,238
6,818,925
92 %
5,030,707
$
7,456,183
100 % $
6,744,757
6 %
12 %
7 %
75 %
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 has the greatest exposure, as well as exposure to the largest single issuer of
corporate bonds.
As at
December 31, 2023 December 31, 2022
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.
$
$
3,992,543 $
3,384,587
43.1 %
367,246 $
4.0 %
40.6 %
167,572
2.0 %
Derivative financial instruments by counterparty credit rating
Credit risk from derivative transactions is generated by the potential for the counterparty to default on its contractual
obligations when one or more transactions have a positive market value to the Company. Therefore, derivative-related
credit risk is represented by the positive fair value of the instrument and is normally a small fraction of the contract’s
notional amount.
The following table summarizes derivative financial instruments with a positive fair value by counterparty rating.
As at
December 31, 2023 December 31, 2022
Credit rating
AA
BBB+
Total
Derivatives without counterparty credit risk
Total derivative assets
Credit risk for reinsurance
$
$
6,151 $
4,228
10,379
3,446
13,825 $
1,385
—
1,385
8,391
9,776
The Company reinsures excess risks with Canadian registered reinsurance companies. The Company enters into
reinsurance agreements only with reinsurance companies that have an independent credit rating of "A-" or better. The
following table summarizes the potential maximum exposure to loss of reinsurance assets, by the rating assigned to the
reinsurers by external rating agencies.
As at
December 31, 2022 restated
December 31, 2023
Credit rating
A
Total
Reinsurance
assets
Collateral from
reinsurers
Net exposure
Reinsurance
assets
Collateral from
reinsurers
Net exposure
$
$
28,129 $
28,129 $
— $
— $
28,129 $
28,129 $
92,988 $
92,988 $
— $
— $
92,988
92,988
Empire Life - Annual Report 2023
118
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Preferred shares
The Company’s preferred share investments are all issued by Canadian companies, with 1% (2022 1%) rated as P1, 99%
rated as P2 (2022 99%) and 0% (2022 0%) rated as P3.
Mortgages
Mortgages in the Province of Ontario represent the largest concentration with $98,679 or 100% (2022 $119,556 or 100%)
of the total mortgage portfolio.
23.6. Product risk
The Company provides a broad range of life insurance, health insurance and wealth management products, group
insurance and employee benefit plans, and financial services that are concentrated by product line as follows:
(millions of dollars)
Group Solutions
Total
Wealth
Management
Individual
Insurance
Capital
& Surplus
For the year ended December 31
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Insurance service revenue
$
234.8 $
233.9 $
638.7 $
603.9 $
452.0 $
417.5 $
— $
— $ 1,325.5 $ 1,255.3
Net expense from reinsurance
0.3
2.8
(17.2)
(13.1)
(55.7)
(34.1)
—
—
(72.6)
(44.4)
Total
$
235.1 $
236.7 $
621.5 $
590.8 $
396.3 $
383.4 $
— $
— $ 1,252.9 $ 1,210.9
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 products, 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/surrender or lapse), expenses, morbidity, longevity (collectively also referred to as insurance risk), product
design and pricing risk, underwriting and claims risk and reinsurance risk.
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 future claims, policy lapses and expenses
will not emerge as expected. To the extent that emerging experience is more favourable than assumed in the valuation,
income will emerge in addition to increases in the CSM. If emerging experience is less favourable, losses will result in
addition to decreases in the CSM. Therefore, the objective of the Company is to establish sufficient insurance contract
liabilities to cover these obligations with reasonable certainty.
The tables below provide sensitivities to changes in insurance variables impacting profit before tax, equity and CSM both
gross and net of reinsurance. The products offered within the Company's Individual Insurance product lines are most
exposed to insurance risk.
Mortality
Morbidity
Longevity
Expenses
December 31, 2023
Change in
assumptions
Impact on profit
before tax gross
of reinsurance
Impact on profit
before tax net of
reinsurance
Impact on
equity gross of
reinsurance
Impact on
equity net of
reinsurance
Impact on CSM
before tax gross
of reinsurance
Impact on
ceded CSM
before tax
+2% $
+5% $
-2% $
+5% $
6,123 $
(4,339) $
— $
799 $
265 $
(2,631) $
— $
889 $
4,508 $
(3,194) $
— $
588 $
195 $
(1,937) $
— $
655 $
(78,805) $
(15,483) $
(6,268) $
(12,425) $
50,402
6,587
187
(299)
Lapse and surrenders rate
+/-10% $
7,095 $
2,794 $
5,224 $
2,057 $
(193,608) $
38,936
Empire Life - Annual Report 2023
119
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Mortality
Morbidity
Longevity
Expenses
Lapse and surrenders rate
December 31, 2022 restated
Change in
assumptions
Impact on profit
before tax gross
of reinsurance
Impact on profit
before tax net of
reinsurance
Impact on equity
gross of
reinsurance
Impact on equity
net of
reinsurance
Impact on CSM
before tax gross
of reinsurance
Impact on ceded
CSM before tax
+2% $
+5% $
-2% $
+5% $
+/-10% $
11,122 $
(2,470) $
— $
1,534 $
33,661 $
793 $
(1,541) $
— $
1,534 $
22,145 $
8,188 $
(1,818) $
— $
1,130 $
24,781 $
584 $
(1,134) $
— $
(75,638) $
(15,132) $
(6,195) $
1,129 $
(12,454) $
16,303 $
(192,917) $
48,868
6,428
(3,037)
(143)
51,341
The computation of insurance contract liabilities and related reinsurance contracts held requires “probability weighted
current 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 premium taxes. Due to the long-term risks and measurement uncertainties inherent in the life insurance business, a
risk adjustment for non-financial risk is calculated separately for each variable and included in insurance contract
liabilities. The effect of the risk adjustment for non-financial risk is to increase insurance contract liabilities over the
probability weighted current estimate assumptions.
Insurance contract liability assumptions are reviewed and updated at least annually by the Company’s Appointed Actuary.
Details related to the changes in assumptions are discussed with the Audit Committee of the Board. The methods for
arriving at the most material of these assumptions are outlined below.
Mortality assumptions
The Company carries out an annual mortality study. The valuation mortality assumptions are based on a combination of
Company and 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, an increase in the probability weighted current estimate mortality
assumption would increase insurance contract benefits thereby decreasing the CSM. For annuity business, lower mortality
(or higher longevity) is financially adverse so a decrease in the current estimate mortality assumption would increase
insurance contract benefits thereby decreasing the CSM.
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 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 insurance contract benefits thereby decreasing the CSM. 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.
Empire Life - Annual Report 2023
120
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
Expenses
Insurance contract liabilities provide for the future expense of administering policies in-force, renewal commissions,
general expenses and premium taxes. 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.
For non-participating insurance business and annuity business combined, a 5% increase in the maintenance expense
assumption would result in reducing the CSM.
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 Company and 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 policyholder benefits thereby reducing the CSM.
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 insurance contract liabilities in
accordance with standards set forth by the IASB and CIA Standards of Practice. Experience studies (both Company-
specific and industry level) are factored into ongoing valuation, renewal and new business processes so that insurance
contract 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.
Empire Life - Annual Report 2023
121
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars except for per share amounts, shares authorized and outstanding and where otherwise stated)
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.
Reinsurance held 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 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 product categories, 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.
Segregated fund guarantee risk
Segregated fund products issued by Empire Life contain minimum death, maturity, and withdrawal benefit guarantees.
Market price fluctuations impact the Company's estimated liability for those guarantees.
Empire Life - Annual Report 2023
122
Glossary of Terms (unaudited)
Accumulated Other Comprehensive Income (AOCI)
A separate component of shareholders’ equity and policyholders’ account which includes 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) Financial Assets
Non-derivative financial assets that are designated as AFS under IAS 39 or that are not classified as loans and
receivables, held to maturity investments, or held for trading under IAS 39. Prior to the adoption of IFRS 9, most financial
assets allocated to the Capital and Surplus segment were classified as AFS under IAS 39.
Canadian Institute of Actuaries (CIA)
The CIA is the qualifying and governing body of the actuarial profession in Canada. The CIA develops and upholds
rigorous standards, shares its risk management expertise, and advances actuarial science to improve lives in Canada and
around the world. Its more than 6,000 members apply their knowledge of math, statistics, data analytics, and business in
providing services and advice of the highest quality to help Canadian people and organizations face the future with
confidence.
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 association 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.
Contractual Service Margin (CSM)
A component of the carrying amount of the asset or liability for a group of insurance contracts representing the unearned
profit the entity will recognize as it provides insurance contract services under the insurance contracts in the group.
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 Credit Loss (ECL)
An expected loss amount as a result of credit deterioration of the party that has been issued the credit.
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.
Fulfilment Cash Flows (FCF)
An explicit, unbiased and probability-weighted estimate (ie expected value) of the present value of the future cash
outflows minus the present value of the future cash inflows that will arise as the entity fulfils insurance contracts, including
a risk adjustment for non-financial risk.
Empire Life - Annual Report 2023
123
Glossary of Terms (unaudited)
International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB)
(IFRS Accounting Standards)
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.
Other Comprehensive Income (OCI)
Under IAS 39 unrealized gains and losses, primarily on financial assets supporting the Capital and Surplus segment, were
recorded as Other Comprehensive Income (“OCI”) or Other Comprehensive Loss (“OCL”). When these assets were sold
or written down the resulting gain or loss was reclassified from OCI to net income. Upon the Company’s adoption of IFRS
9, these assets were designated at FVTPL so unrealized gains and losses are now immediately recognized in 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 mandate of OSFI is to regulate and supervise federally regulated financial institutions and pension plans in Canada to
contribute to public confidence in the financial system.
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.
Risk Adjustment (RA)
The compensation an entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises
from non-financial risk as the entity fulfills insurance contracts.
Empire Life - Annual Report 2023
124
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 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
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.
Experience for the participating account is measured by comparing policy factors and experience factors. Policy factors
are elements that reflect the assumptions against which experience is to be measured, while experience factors are
elements that reflect actual experience and are consistent with the underlying experience of the participating account.
These factors encompass a variety of elements, including investment income, mortality, expenses, and policyholder
behaviour.
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.
Although the participating account is open to new business, many dividend classes within the participating account are
closed to new business. Being in a dividend class that is closed to new business has no material implications to
policyholders.
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 tax-adjusted investment yields while managing the default, liquidity and reinvestment risks at acceptable
and measurable low levels.
The investment guidelines allow investments in the following asset classes for the participating fund: short-term securities,
bonds (including private debt and limited recourse capital notes), preferred shares, mortgages, equities, real estate,
commercial loans, and alternative assets (including private equity, infrastructure, and high yield mortgages). Various
criteria apply to each asset class with respect to diversification, minimum credit quality, and liquidity. The investment
guidelines permit the use of derivatives in the participating account to hedge certain exposures (e.g., foreign exchange
risk, interest rate risk, etc.) or to create effective exposures to certain markets.
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.
Empire Life - Annual Report 2023
125
Participating Account Management Policy
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.
The Company has minimal reliance on income generated by assets that support both the participating and non-
participating accounts, as these assets are limited to non-financial assets which make up a small portion of the
Company’s balance sheet.
The investment income allocation methodology can be changed at the discretion of the Board. This could occur if the
Company’s asset segmentation approach were fundamentally changed.
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 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.
The Company could elect to charge expenses to the participating account at an amount other than the allocated cost in
circumstances where doing so would improve fairness to the participating policyholders.
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 Company manages the level of surplus in the participating account taking into consideration the continuing solvency
of the participating account, the participating account’s ability to fulfill its contractual obligations and the extent to which
existing participating business is financing new participating business. The participating account surplus is funded by
contributions from participating account income.
Transfers to shareholder accounts
Empire Life intends to transfer the full permitted percentage of distributable participating profits to the shareholder
accounts as allowed by section 461 of the Insurance Companies Act.
Empire Life - Annual Report 2023
126
Participating Account Management Policy
Roles and Responsibilities
Board of Directors
The Company’s Board of Directors is responsible for approving the Participating Account Management Policy. The Board
should be satisfied that the policy is being carried out in an approved manner.
CEO and Executive Leadership Team
The Board has delegated primary responsibility and accountability for the dividend policy to the Company’s CEO. The
CEO shares this responsibility and accountability with the Executive Leadership Team (ELT). The CEO and ELT carry out
their responsibilities by delegating responsibility to members of their management team. Members of the ELT are
responsible for establishing the appropriate management framework to carry out the objectives of this policy within their
business area.
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 prompt changes to the policy include
changes in legislation, regulation of participating accounts, 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.
Monitoring, Controls and Procedures
The Vice President & Product Actuary oversees the operation of this policy. Management is responsible for ensuring
procedures are in place to support compliance with this policy and for periodically reviewing these procedures for ongoing
compliance with this policy. This policy is audited by Audit Services on a periodic basis at the discretion of Audit Services
and in accordance with its audit plan.
Empire Life - Annual Report 2023
127
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
Principles used to determine the policy respecting participating policyholder dividends
The Company has determined this policy using the following principles: fairness to policyholders, consistency with
policyholder reasonable expectations, and compliance with applicable laws, regulations, actuarial standards of practice,
and contractual obligations.
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 shall 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
Policyholders participate in the experience of the Company through policyholder dividends, which are based on the results
of the participating account to which their policy belongs.
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.
Empire Life - Annual Report 2023
128
Participating Policyholder Dividends Policy
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. Policyholder dividends are affected by the differences between
actual experience and assumed levels of experience for these factors. 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 for the
purpose of avoiding undue yearly fluctuations in the dividend scales. The Company does not apply smoothing
differently by dividend class. While an internal guideline to govern the practices of dividend smoothing has not been
established, the Company relies on established practice that is guided by fairness to policyholders and policyholder
reasonable expectations, and is compliant with applicable laws, regulations, and standards of practice. The experience
factors to determine policyholder dividends can be changed post-issue. The objective of such changes to the experience
factors would be to improve the accuracy and equity of the experience measurement methodology. Changes to the
experience factors would be made in accordance with the contractual terms of the policy, and do not contravene any laws,
regulations, standards of practice, or other restrictions.
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. The
Company employs these contributions to surplus to ensure the continuing solvency of the participating account, to fulfill its
contractual obligations, and to finance new business. As such, circumstances may arise that result in policyholders’
contributions to surplus being returned only in part, or not at all.
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.
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.
Empire Life - Annual Report 2023
129
Participating Policyholder Dividends Policy
Roles and Responsibilities
Board of Directors
The Company’s Board of Directors is responsible for approving the dividend policy. The Board should be satisfied that the
policy is being carried out in an approved manner.
CEO and Executive Leadership Team
The Board has delegated primary responsibility and accountability for the dividend policy to the Company’s CEO. The
CEO shares this responsibility and accountability with the Executive Leadership Team (ELT). The CEO and ELT carry out
their responsibilities by delegating responsibility to members of their management team. Members of the ELT are
responsible for establishing the appropriate management framework to carry out the objectives of this policy within their
business area.
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 prompt changes
to 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.
Monitoring, Controls and Procedures
The Vice President & Product Actuary oversees the operation of this policy. Management is responsible for ensuring
procedures are in place to support compliance with this policy and for periodically reviewing these procedures for ongoing
compliance with this policy. This policy is audited by Audit Services on a periodic basis at the discretion of Audit Services
and in accordance with its audit plan.
Empire Life - Annual Report 2023
130
Participating Account Financial Disclosure
As at December 31, 2023
5 years
10 years
20 years
Dividend scale interest rate1
Participating account insurance contracts and reinsurance contracts held2
Participating account surplus2
6.00 %
9.70 %
10.54 %
6.00 %
3.45 %
4.26 %
6.29 %
4.64 %
4.14 %
6.60 %
4.93 %
3.75 %
Current year
Historical average annual rate
1 The 20 year average dividend scale interest rate reflects estimated dividend scale interest rates for 2010 and earlier.
2 The 20 year participating account insurance contracts and reinsurance contracts held and participating account surplus reflect estimated returns for 2006 and earlier.
For the year ended
December 31, 2023 December 31, 2022
restated
Participating account surplus at beginning of year
$
24,055
$
Net income (loss) (before amounts transferred to shareholders)
Amounts transferred to shareholders per S.462(a) of the ICA (included in net income)
Adjustments to previous amounts transferred to shareholders
Net income (loss)
Participating account surplus at end of year
Policyholder dividends (excluding ERRs)
Section 462 transfer as a % of Distributable Profits
$
$
21,155
(3,014)
3,961
22,102
46,157
$
29,929
(3,192)
(2,682)
—
(5,874)
24,055
39,800
$
39,773
7.04 %
6.79 %
Approximately 30% of policyholder dividends are based on investment experience while the remaining 70% of
policyholder dividends are based on other factors. Investment returns from the participating account surplus are
considered in the determination of dividends.
The following table sets out the target and actual composition of the underlying assets supporting the Company's
participating account at the reporting date.
As at December 31, 2023
Target
Actual
Underlying assets supporting participating account
Cash and cash equivalents
Bonds
Preferred shares
Common shares
Derivative assets
Mortgages
Other
1.0 %
65.0 %
9.5 %
22.5 %
— %
2.0 %
— %
5.0 %
63.5 %
10.4 %
16.4 %
0.2 %
1.4 %
3.1 %
Total underlying assets supporting participating account
100.0 %
100.0 %
The Participating Account Management Policy and Participating Policyholder Dividends Policy are available upon request.
Empire Life - Annual Report 2023
131
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 an
executive committee, which reports 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 effectiveness of the Company's processes for
controlling its activities and managing its risks. 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 12 times in 2023
and is scheduled to meet at least six times in 2024.
The risk management functions overseen by the Board include those relating to market risk (including interest rate risk,
equity 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.sedarplus.ca 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.
Empire Life - Annual Report 2023
132
Corporate Governance over Risk Management
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, fair treatment of customers and
outsourcing.
The Risk and Capital Committee is responsible for oversight of the Company’s risk and capital management activities.
The Committee assists the Board in its oversight role with respect to the management of the Company’s enterprise 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 2023
133
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 in the unlikely event that their life and health
insurance company fails.
Details about Assuris’ protection are available at www.assuris.ca.
ONTARIO
Burlington Retail Sales Office
QUEBEC
Montréal Retail Sales Office
WESTERN CANADA
Vancouver Retail Sales Office
108-1100 Burloak Drive
1600-600 de Maisonneuve Boulevard W.
707-1177 West Hastings Street
Burlington, Ontario L7L 6B2
Montréal, Quebec H3A 3J2
Vancouver, British Columbia, V6E 2K3
905 335-6558
1 888 548-4729
514 842-9151
1 800 371-9151
604 232-5557
1 888 627-3591
Toronto Retail Sales Office
Québec Retail Sales Office
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
ONTARIO
Burlington Group Sales Office
QUEBEC
Montréal Group Sales Office
WESTERN CANADA
Vancouver Group Sales Office
108-1100 Burloak Drive
1600-600 boul. de Maisonneuve
707-1177 West Hastings Street
Burlington, Ontario L7L 6B2
Montréal, Quebec H3A 3J2
Vancouver, British Columbia, V6E 2K3
905 335-6558
1 800 663-9984
514 842-0003
1 800 561-3738
604 232-5558
1 888 547-0628
Toronto Group Sales Office
200-36 York Mills Road
Toronto, Ontario M2P 2E9
416 494-6834
1 800 361-7980
Empire Life - Annual Report 2023
134
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, 4, 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
President and Chief Executive Officer
The Empire Life Insurance Company
Duncan N.R. Jackman 4, 6
Chair of the Board
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 2023
135
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 2023
136
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EMPIRE LIFE ANNUAL REPORT 2023
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.
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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-03/24