Failure of Confederation Life (1994)
Canada's fourth-largest life insurer, put into liquidation in August 1994 after real estate losses, the first test of the Canadian policyholder protection fund.
A life insurer can reach for extra yield by investing beyond bonds, notably in commercial mortgages and real estate, assets that pay more but sell poorly and lose value together when the market turns. Confederation Life had pursued a diversification strategy heavily exposed to commercial real estate, and the fall in prices in the early 1990s revealed losses the accounts had not recognized in time. A rescue attempt by a group of Canadian insurers failed, and the authorities took control of the company. The case illustrates the concentration risk of an illiquid asset portfolio, and it was the first real test of the Canadian life policyholder protection fund, then called CompCorp and now Assuris.
The liquidation of Confederation Life began on August 11, 1994; the company, Canada's fourth-largest insurer, held 19 billion Canadian dollars of assets. According to Assuris, its 260,000 individual Canadian policyholders and 1.5 million group plan participants were fully protected.
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