As of March 31, 2020

 

 

March 31, 2020

December 31, 2019*

 

$ Thousands

Percentage

$ Thousands

Percentage

Short term

Cash and equivalents

$                38,397

5 %

$                  6,077

1 %

Total short term

$             38,397

5 %

$                6,077

1 %

Fixed income

Government bonds

$           122,749

17%

$           124,037

17%

Corporate bonds

$           181,238

24%

$           180,225

25%

Private placements

$             58,570

8%

$             53,797

7%

Commercial mortgages

$             79,431

11%

$             77,687

11%

Total fixed income

$           441,988

60%

$           435,746

60%

Non-fixed income

 

 

Real estate

$             81,556

11%

$             80,771

11%

Common equity

$             50,904

7%

$             82,602

11%

Preferred equity

$             21,314

3%

$             24,307

3%

Total non-fixed income

$           153,775

21%

$           187,680

25%

 

 

 

 

 

Total invested assets

$           634,160

85%

$           629,503

86%

Policy loans

$             94,073

13%

$             88,565

12%

Other assets

$             18,453

2%

$             17,264

2%

Total participating assets

$           746,686

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 Economists anticipate that GDP will decline 30% in Q2, and 5% for 2020 as a result of the negative impacts to the economy from COVID-19. Early indications from labour markets support this view with employment falling by 1 million positions in March and expected to decline by 4 million in April. The fiscal response has been aggressive with estimates that the fiscal deficit will equal roughly 20% of GDP. The Bank of Canada has as well responded quickly with three interest rate cuts bringing the overnight lending rate to 0.25%.

US economy Consensus GDP estimates indicate recessionary conditions will materialize in 2020, yet the range of forecasts suggest uncertainty remains high due to significant unknowns surrounding infection curves and resultant quarantining impacts. Government spending   is expected to be the largest contributor to growth, as a result of fiscal spending which will likely run above +$5  trillion. Similar to the Bank    of Canada, the US Federal Reserve has responded aggressively with monetary policy bringing the overnight interest rate down to a targeted range of 0-0.25%, and adding a number of debt buying programs.

Participating account positioning Given the duration of the business cycle, we recognized increased downside risks to financial markets and as such positioned the portfolio in higher quality credits with shorter term maturities to offer downside protection. In our equity portfolio a combination of price discovery as well as underweighting equities has kept defensive exposures to Canadian and US markets as high valuations and ongoing pandemic risks potentially offer more downside risk. Greater visibility on corporate impacts from the pandemic will be needed to better assess valuation and risk.

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.