Pillars of the nation's financial community, Canada's life and health insurance providers have built their businesses by bringing stability to the lives of Canadians. In a new physical twist on that tradition, major players in this stalwart industry are now turning their attention to public infrastructure investing as a means of bolstering their foundations and further enhancing Canada's well-being.
Canada is facing an infrastructure deficit: at least $350-billion is needed to build or repair the public assets that keep our economy moving and secure a high quality of life. With governments facing budgetary constraints and unable to make these investments on their own, public-private partnerships (P3s) are an increasingly popular way to get these much-needed projects built. Canada's insurance companies are natural partners for this long-term performance-based approach where the private sector takes on a majority of the risk of building public assets.
"The appropriate risk allocation between parties is a major benefit with P3s," says Rupesh Amin, managing partner of Forum Equity Partners, a Toronto-based P3 developer. "For example, the government can focus on risks as they relate to the programs and policy of the asset, whereas the developers and the contractors can focus on risks related to designing, building, financing, planning, performance and long-term maintenance."
$540 BILLION - Value of long-term assets held by Canadian insurance companies, which could be used to fund P3 projects
Ottawa's Confederation Line is an example of a P3 project financed by an insurance company; the project, which won a North American PPP Deal of the Year Award, was underwritten by National Bank Financial and Sun Life Financial. City of Ottawa
In a traditional model, government, whether federal or provincial, secures the project and then holds onto it while assuming all of the risk. "With P3s," says Mr. Amin, "you have lenders, operators and equity sponsors in it for the full term."
P3s have an excellent record of being on time and on budget, and they have the added benefit that governments only pay once a project is successful. Traditionally, contractors were paid in full right away, but John McBride, CEO of PPP Canada, says that doesn't make sense.
"If you're renovating your bathroom, do you want to pay the contractor at the beginning or the end of the project? Of course at the end. With P3s, if a company is going to build a highway, the company will only be paid once the highway is successful."
Further, with costs agreed upon up front, any additional costs, repairs or construction delays are the responsibility of the builder and not the taxpayer.
"With P3s, if a company is going to build a highway, the company will only be paid once the highway is successful."
John McBride is CEO of PPP Canada
Among the major projects now backed by insurers is Ottawa's Confederation Line, a rapid transit initiative supported in part by Sun Life Financial. Other high-profile projects include the Iqualuit Airport, Thunder Bay Courthouse and Edmonton's Anthony Henday highway.
"There is always the legitimate question of 'how will this get funded?' It makes sense to leverage money that is available in the private sector," says Frank Swedlove, president and CEO of the Canadian Life and Health Insurance Association.
"From the government's perspective, P3s make sense because they do not want to pay for the cost of a project
up front. With P3s, governments have the opportunity to pay for infrastructure costs over a much longer period of time that properly reflects the asset that is being built," he adds.
As private sector project partners, insurance companies bring a high level of due diligence to P3 initiatives. "They make sure that the project gets delivered on time and that it performs over its expected lifespan," says Mr. McBride.
The long-term time horizon of infrastructure projects matches many insurance companies' objectives. "Many investors – with life insurance companies being at the top of that list – have 35-year liabilities. Since it takes that long to be involved in a bridge, for example, it absolutely fits their business," he adds.
Mr. Swedlove concurs, noting that "Life insurance companies are a great source for long-term investments."
For Mr. Amin, P3s bring value to all involved. He notes that the competitive P3 procurement process forces a competitive marketplace for contractors, which fosters innovation and results in a higher level of quality bids at optimal pricing.
"Overall," he says, "one of the greatest benefits of P3s is that they allow for greater value for money for taxpayers, who are also the end users of these assets."
ABOUT CLHIA
Established in 1894, the CLHIA is a voluntary association whose member companies account for 99 per cent of Canada's life and health insurance business. The industry provides a wide range of financial security products such as life insurance, annuities (including RRSPs, RRIFs and pensions) and supplementary health insurance to almost 28 million Canadians. It also holds close to $647-billion of assets in Canada and employs over 150,000 Canadians.
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation.
