AS OF DECEMBER 31, 2020

 

 

December 31, 2020

December 31, 2019*

 

$ Thousands

Percentage

$ Thousands

Percentage

Short term

Cash and equivalents

$                7,730

1%

$                  6,077

1%

Total short term

$            7,730

1%

$                6,077

1%

Fixed income

Government bonds

$          93,387

11%

$           124,037

17%

Corporate bonds

$          207,715

24%

$           180,225

25%

Private placements

$            87,310

10%

$             53,797

7%

Commercial mortgages

$            84,215

10%

$             77,687

11%

Total fixed income

$          472,627

55%

$           435,746

60%

Non-fixed income

 

 

Real estate

$            117,635

13%

$             80,771

11%

Common equity

$            109,250

12%

$             82,602

11%

Preferred equity

$            39,901

5%

$             24,307

3%

Total non-fixed income

$          266,786

30%

$           187,680

25%

 

 

 

 

 

Total invested assets

$          747,143

86%

$           629,503

86%

Policy loans

$            99,839

12%

$             88,565

12%

Other assets

$            19,863

2%

$             17,264

2%

Total participating assets

$          866,845

100%

$           735,332

100%

The investments in the participating account are managed by the Equitable Asset Management Group, which is ideal for clients who are looking for a more stable, hands-off investment approach.

* Values are published in the guide Understanding Participating  Whole Life Insurance (1038).  See guide for more information on dividends and the calculation method.

 

Quarterly Commentary

Canadian economy GDP growth is expected to have declined by -5.6% in 2020. A deterioration in household consumption of over -6% and business investment of more than -5% are the likely contributors. Not surprisingly, government spending is forecasted to be the strongest component of GDP in 2020, with an estimated decline of only -0.3%. The Bank of Canada remains in accommodative mode with interest rates set to stay in the range of 0.0 to 0.25%. Not surprisingly this has been positive for the housing market, reflected in new housing starts at their highest levels since 2017

US economy GDP growth south of the border is forecasted to be stronger than Canada with consensus estimates suggesting -3.5% growth for 2020. While both the consumer and business investment were weak, similar to Canada, the US consumer proved to be more resilient with the retail spending falling by -3.9%, less than the -5.3% decline in business investment. While the macro-economic backdrop has seen improvement in retail and manufacturing sectors, sluggish conditions remain in industrial production and export markets suggesting economic headwinds may remain.

Participating account positioning The portfolio currently remains underweight shorter-term fixed income offset with longer higher yielding private investments. We entered 2020 with our corporate bond positions concentrated in higher quality investment grade issues in anticipation of a slowing economic environment. As the year progressed however, we reduced duration risk and transitioned assets to higher yielding investments (private placements, real estate, preferred equity) as rates declined to all time lows and as opportunity/stability returned to market.

DIVIDEND SCALE INTEREST RATE

30-year historical performance

The dividend scale interest rate reflects the investment performance of the participating account which is smoothed to reduce volatility. The dividend scale interest rate is just one factor used to determine the dividends paid in a participating policy. Other factors include mortality, expense, lapse, claims experience, taxes, and other experience of the participating block of policies. The dividend scale interest rate does not include policy loans. Dividends are paid at the sole discretion of the Board of Directors. This chart shows Equitable Life’s dividend scale interest rate over 30 years compared to other well-known economic indicators

 

Year

Equitable Life dividend scale interest rate

S&P/TSX

total return index

Government of Canada 5 to 10 Year Bonds

 

5-year GIC

Consumer price index

1991

11.3%

12.0%

9.4%

9.3%

3.8%

1992

10.7%

-1.4%

8.2%

7.1%

1.8%

1993

10.7%

32.6%

7.2%

6.4%

1.7%

1994

10.2%

-0.2%

8.3%

7.4%

0.2%

1995

10.2%

14.5%

7.9%

7.1%

1.8%

1996

9.6%

28.3%

6.9%

5.6%

2.2%

1997

10.0%

15.0%

5.9%

4.7%

0.8%

1998

9.1%

-1.6%

5.3%

4.4%

1.0%

1999

8.8%

31.7%

5.6%

4.8%

2.6%

2000

8.8%

7.4%

6.0%

5.3%

3.2%

2001

8.8%

-12.6%

5.3%

4.0%

0.7%

2002

8.8%

-12.4%

5.1%

3.9%

3.8%

2003

8.4%

26.7%

4.5%

3.1%

2.1%

2004

8.2%

14.5%

4.3%

2.9%

2.1%

2005

8.2%

24.1%

3.9%

2.7%

2.1%

2006

7.9%

17.3%

4.2%

3.2%

1.7%

2007

7.9%

9.8%

4.3%

3.3%

2.4%

2008

7.9%

-33.0%

3.4%

3.0%

1.2%

2009

7.4%

35.1%

2.8%

2.0%

1.3%

2010

7.1%

17.6%

2.9%

2.0%

2.4%

2011

7.1%

-8.7%

2.5%

1.9%

2.3%

2012

6.8%

7.2%

1.6%

1.7%

0.8%

2013

6.8%

13.0%

2.0%

1.6%

1.2%

2014

6.8%

10.6%

1.9%

1.9%

1.5%

2015

6.8%

-8.3%

1.2 %

1.5%

1.6%

2016

6.5%

21.1%

1.0%

1.4%

1.5%

2017

6.5%

9.1%

1.6%

1.4%

1.9%

2018

6.4%

-8.9%

2.2%

1.7%

2.0%

2019

6.2%

22.9%

1.5%

2.1%

2.2%

2020

6.2%

5.6%

0.7%

1.3%

0.7%

Average annualized returns

5 Years

6.5%

6.3%

1.5%

1.6%

1.8%

10 Years

6.7%

6.9%

1.8%

1.7%

1.7%

20 Years

7.5%

6.3%

3.1%

2.5%

1.9%

30 Years

8.2%

8.3%

8.4%

3.6%

1.8%

Standard deviation since 1991

1.5%

15.8%

2.5%

2.2%

0.9%

Data as of December 31 each year. All average returns are calculated using a geometric mean.

Notes:

  • Dividends are not guaranteed and are paid at the sole discretion of the Board of Directors. Dividends may be subject to taxation. Dividends will vary based on the actual investment returns and experience in the participating account and the participating block of policies. Improvements in some of the components can help offset declines in other components. For example, improvements in mortality can help offset the impact of declining interest rates on investment performance.
  • Past performance is not indicative of future performance.
  • Information Sources: Equitable Life of Canada; Statistics Canada; Bank of Canada