From the outside, financial underwriting may seem mysterious and a little intimidating. But at Canada Life™, our team of experts works hard to demystify and streamline the financial underwriting process.

Our Financial Underwriting Practices Team consists of individuals with accounting, tax and finance backgrounds. They offer a unique advantage in the large-case market by working in tandem with you to navigate financial underwriting. They help ensure the information needed to justify the face amount and premium affordability are obtained, while collaborating with you and your client’s accountant, if requested. They’re experts at interpreting complex business structures, financial planning and tax information to innovatively reduce time and documentation requirements resulting in a simpler, more streamlined process. They also have extensive experience packaging financial information for reinsurance negotiations to ensure the most favourable underwriting outcomes for your clients.

Below is an example of an actual case the Financial Underwriting Practices Team assisted with. They’re ready to help you as well when you submit your next large case.

What were the facts of the case?

A Canadian family with significant exposure in real estate requested $70 million of insurance on two of their four children. The parents created a trust that owned the growth shares of the company and the parents directly owned immaterial frozen shares. The common shares were held in a family trust that would be subject to a deemed disposition in 2025 if the trust retained the assets. The children had indirect ownership of the shares through the trust, as they were irrevocable beneficiaries.

The family’s corporate group had a total fair market value of $220 million, based on real-estate assets.

What was the issue?

The reinsurers were having difficulty seeing the estate tax liability on the children, and they believed the tax would be payable by the trust in 2025. The Financial Underwriting Practices Team helped the reinsurers understand that although the children may not owe taxes when they initially receive assets from the trust, as legal owners of those assets, they would have a potential tax liability upon their death. This explanation established the insurable need for the children and the reinsurer agreed with this approach.

To support the $220 million valuation, the team worked with the advisor to obtain existing appraisals totaling the majority of the value. For the remainder, the team compiled a detailed list of the real estate holdings. Then they compared the list to the formal appraisal reports. Using online research and their background in construction/real estate, the team arrived at reasonable estimates for the value of the remaining properties that were not formally appraised. The result was support for a total valuation higher than the $220 million. The clients were using a conservative total fair market value and the team accepted this valuation as reasonable based on its analysis and the third-party appraisals.

What was the outcome?

The reinsurer requested that the team walk them through this analysis to arrive at sufficient support for the valuation. The team demonstrated the steps they had taken. The reinsurer agreed that combining independent appraisals with comparisons and making adjustments for similar properties was a valid and reasonable approach to support the overall fair market value. With this greater understanding of the work performed by the Canada Life team, the reinsurer approved the amount requested.

With this reinsurer’s support, we were able to provide the requested $70-million coverage for each of the two applicants as applied for.

The Financial Underwriting Practices Team is ready to help you on cases like this and many others. If you have any questions, please reach out to your wholesaler.