Side accounts could bring two life insurance giants to their knees

Two predecessor companies of Industrial Alliance Insurance and Financial Services Inc. and Manulife Financial Corp. issued life insurance policies that allowed holders to invest in side accounts that guaranteed rates of up to five per cent and four per cent, respectively.Aaron Vincent Elkaim/The Canadian Press files

In an era of higher interest rates in the late 1990s, two predecessor companies of Industrial Alliance Insurance and Financial Services Inc. and Manulife Financial Corp. issued life insurance policies that allowed holders to invest in side accounts that guaranteed rates of up to five per cent and four per cent, respectively.

These side accounts did not contain an explicit limit on the size of investment, which means in today’s low-rate environment they are potentially lucrative for their holders and a significant liability for the companies that wrote them.

At least three limited partnerships purchased such policies several years ago in Saskatchewan, one of only four Canadian provinces that permit the purchase of insurance policies from their original holders. These investors are in court in Saskatoon to force the insurers to accept their money.

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