AS OF SEPTEMBER 30, 2020

 

 

September 30, 2020

December 31, 2019*

 

$ Thousands

Percentage

$ Thousands

Percentage

Short term

Cash and equivalents

$                2,163

0 %

$                  6,077

1 %

Total short term

$             2,163

0 %

$                6,077

1 %

Fixed income

Government bonds

$           121,687

14%

$           124,037

17%

Corporate bonds

$           238,395

27%

$           180,225

25%

Private placements

$             78,375

9%

$             53,797

7%

Commercial mortgages

$             81,765

9%

$             77,687

11%

Total fixed income

$           520,226

59%

$           435,746

60%

Non-fixed income

 

 

Real estate

$             112,134

13%

$             80,771

11%

Common equity

$             100,240

11%

$             82,602

11%

Preferred equity

$             38,158

4%

$             24,307

3%

Total non-fixed income

$           250,532

28%

$           187,680

25%

 

 

 

 

 

Total invested assets

$           772,921

87%

$           629,503

86%

Policy loans

$             98,562

11%

$             88,565

12%

Other assets

$             19,372

2%

$             17,264

2%

Total participating assets

$           890,855

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 After the second quarter’s GDP loss of -38.7%, expectations for the third quarter indicate a strong bounce back of 45%, driven primarily by household consumption and Gross fixed investment. Forecasts for household spending suggest a 50% recovery from Q2’s -43% drawdown. Business investment is expected to see a similar recovery from -45% in Q2 to 38.9% in Q3. The housing market remains in good standing as ultra low interest rates continue to support healthy housing starting. Inflation forecasts remain unchanged for 2020 with a consensus view of 0.7%, which increases to 1.6% in 2021.

US economy Preliminary results indicate Q3 GDP was up 33% after the Q2 lows of -33%. Consumer spending significantly contributed growing 40.7% over the quarter. Business investments saw notably strong performance and was up 83% on a sequential basis. The view that the worst is behind us has quickly become consensus and is supported by soft economic data such as the ISM Manufacturing indexes although these are opinion based and we will need to see whether the economic data can continue to support this.

Participating account positioning The fund increased its investment in Private Debt, Equity, and Real Estate during the quarter, taking advantage of attractive opportunities with strong risk/reward characteristics. The increase in Private Debt, Direct Equity, and Real Estate were funded by reducing exposure to Public Bonds, primarily Provincial and Federal bonds. Within the Public Bond holdings of the fund, the sector weighting was shifted away from Government bonds, and into Corporate Bonds.

DIVIDEND SCALE INTEREST RATE

25-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, expenses, 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.

The following chart shows a 25-year history of Equitable Life’s dividend scale interest rate 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

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%

Average annualized returns

1 Year

6.2%

22.9%

1.5%

2.1%

2.2%

3 Years

6.3%

6.9%

1.8 %

1.7%

2.0%

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%

25 Years

7.9%

8.3%

3.7 %

3.1%

1.9%

Standard deviation since 1995

1.2%

16.4%

1.9 %

1.5%

0.7%

Data as of December 31 each year except for dividend scale interest rate which is as of July 1 each year.

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.
  • All average returns are calculated using a geometric mean.
  • Historical results are not indicative of future performance.
  • Information Sources: Equitable Life of Canada; Statistics Canada; Bank of Canada.