Dividend Policy - November 2023
This Policy is for all types of Individual participating policies issued by the Company:
- Traditional Participating policies
- Life insurance with fixed premiums
- Life insurance with adjustable premiums
- Any new types of Traditional Participating policies introduced by the Company in the future.
- Non-Traditional Participating policies
- Participating Universal Life
The Company issues both participating policies and non-participating policies. Participating policies are policies that have the potential to share in the profits of the Company. The contract says whether or not a policy is participating.
Dividends are money paid by the Company on participating policies. There are two types of dividends:
- Experience dividends
- Extraordinary dividends
After reviewing the dividend recommendation and Appointed Actuary opinions, dividends are declared at the sole discretion of the Board of Directors.
Traditional Participating policies can receive experience dividends. The name experience dividends is used because dividends are paid based on the experience of the Traditional Participating policies. We describe experience factors in more detail below.
Non-Traditional Participating policies do not receive experience dividends.
Experience dividends reviews
We review Traditional Participating policies at least once a year. Based on our findings, our Board of Directors may then declare dividends.
Traditional Participating Account earnings
Earnings include all the gains and losses that come from Traditional Participating policies. This is based on premiums paid less benefits, expenses and contributions to the Company's surplus and any investment returns on those net cashflows.
Experience dividends are based on the earnings that can be shared from the Traditional Participating Account. These earnings are known as distributable earnings. They include earnings from insurance policies and riders. We adjust these earnings to make sure the amount given out is fair over different periods of time.
Investment returns earned have the largest effect on the Traditional Participating Account. However, the account is also affected by policy loans, mortality or death claims, terminated policies, taxes, expenses and other policyholder behaviour. These are called experience factors.
For the most part, the types of experience factors do not change after the policy is issued unless:
- Legal, regulatory or tax issues come up, or
- Fairness between different classes of participating policies requires changes.
To determine earnings, we review the difference between the conservative assumptions used to set the policy guarantees and the actual experience of the account. That difference can have a positive or negative impact on earnings. We do not include earnings from the Traditional Participating Account surplus or the Contractual Service Margin when determining dividends. (See Participating Account Management Policy for further description.)
Calculation of experience dividends
We want to make sure we pay out dividends fairly for all clients with Traditional Participating policies. In order to do this, the Company uses the Contribution Principle. This helps us find the individual policy dividends for classes of participating policies. Most insurance companies in Canada use the Contribution Principle (also known as the Source of Earnings Method) to determine dividends. It states that over the long term, dividends should be shared in the same proportion as policies are considered to have contributed to the earnings in the Traditional Participating Account. Practical considerations and constraints are also factored in.
To find out the contribution, we group policies into classes that have similar experience factors. Classes are set for policies when they are issued. We don’t normally expect them to change.
When a client takes out a loan from the Company using a participating insurance policy, they must pay interest. These types of loans are called policy loans. The policy loan interest affects the dividends of the class.
To make things fair and more stable, the actual dividends received may reflect adjustments or smoothing based on the Company’s Internal Guideline. This means that we factor in any big changes to the experience of the Traditional Participating Account and spread it out over time. This helps avoid sudden increases or decreases in dividends paid.
A terminal dividend is a type of dividend that is paid when an insurance policy terminates. We do not pay terminal dividends on policies.
Dividends need to be consistent with policy contracts, this Policy, and the applicable law. This Policy will be applied consistently over time.
The law requires that we have a designated person, the Appointed Actuary, whose job it is to make sure that participating policyholder fairness is respected. The Appointed Actuary’s fairness opinions and the related dividend recommendations are prepared in compliance with any relevant standards of practice of the Canadian Institute of Actuaries. If the actual distribution were to differ materially from the dividend recommendations, this would be disclosed and explained.
Experience dividends are not guaranteed
Experience dividends are not guaranteed. Since they are based on the experience of the Participating Account, we don’t know how they will perform in the future. They could change based on how well investments do, how many claims are made, and other factors. As time goes on, the experience may get worse. As a result, the amount of money paid as dividends could be lower.
The Company’s surplus
The extra money that is used to help run the Company is called surplus. The Company needs surplus to support its guaranteed policy values to clients. It is also used to build financial strength and support new business growth.
Earnings that are not paid as dividends go to the Company’s surplus or the Company’s Contractual Service Margin. This is called permanent contribution to surplus. This is described more fully in the Participating Account Management Policy.
Earnings from all lines of business help support the Company’s capital and surplus position. When we set the dividend scale, we review the Company’s capital and surplus both now and what we think they may look like in the future.
All participating policies can receive extraordinary dividends. These are types of dividends that are rarely declared. The Board of Directors may choose to give out an extraordinary dividend when the Company is expected to have strong earnings and capital both now and in the future. Extraordinary dividends can be paid in any way the Company decides makes sense.
About this Policy
This Policy is approved by the Board of Directors and is subject to review at least triennially. From time to time, the Board of Directors may change this Policy at their sole discretion. The Board of Directors may review or edit this Policy for various reasons, including:
- Corporate structure changes
- Accounting or actuarial standards changes
- Regulatory or legislative changes
- Material unexpected events