Table of Contents. 1. Introduction. 2. Role of Insurers as Long-Term Investors

Table of Contents 1. Introduction 2. Role of Insurers as Long-Term Investors 3. Enhancing the Infrastructure P3 Market in Canada 3.1 Overview of P3 Market in Canada 3.2 Life and Health Insurers Demonstrated Appetite and Expertise in P3 Investments 3.3 Shifting the Balance between Short-term and Long-Term Financing 3.4 Harmonization of P3 Documentation for P3 Projects under $50 million 3.5 Pooling of Smaller Deals to Increase Supply 3.6 Increasing the Average Duration of P3s in Canada 3.7 Strengthening Government Commitment to P3 Projects 4. Increasing the Supply of "Ultra-long" Government Bonds 4.1 Issuance of 50-year Federal Bonds 4.2 Increasing the Supply of 50-year Provincial Debt 5. Impact of Government Policy on Long-term Investment Market 5.1 Accounting Standards 5.2 Prudential Regulation 6. Conclusion

1.0 Introduction The willingness of investors to commit funds for the long-term allows businesses and governments to engage in large infrastructure or other capital projects that take many years to complete. A robust longterm investment market, therefore, is critical to economic stability and growth. Policies to enhance the long-term investment market are increasingly a focus for governments at all levels in Canada as well as internationally. For example, in 2013, G20 Leaders endorsed an OECD initiative to encourage the flow of institutional investment towards longer-term assets, such as infrastructure, in order to strengthen the global economy. 1 Canada s life and health insurers are one of the largest investors in long-term assets in Canada. The fundamental nature of the life and health insurance industry's business results in the industry having a natural and strong demand for long-term investments including in a number of key asset classes that are critical for economic growth, such as infrastructure. This paper sets out a number of specific, actionable recommendations to enhance Canada s long-term investment market. The paper places particular emphasis on measures to improve the Public-Private Partnership (P3) 2 infrastructure market and the benefits to governments and the industry of a sustained commitment by all levels of government to issue more longer-term - including 50-year - debt. Finally, the paper highlights the importance of sound public policy, particularly in the areas of accounting policy and prudential regulation. Each area strongly influences the industry's ability and willingness to provide long-term insurance solutions to customers, which in turn drives insurers appetite for longer-term assets. 2.0 Role of Insurers as Long-Term Investors Life insurance and pension products often result in several decades -- up to 50-years or more in some cases -- where the insurer is receiving premiums prior to paying related claims. In exchange for premiums, the industry promises to compensate policyholders through a range of products. Insurers must invest the premiums they collect from policyholders to pay claims and benefits on their policies and to cover their operating and capital costs. An insurer s investment strategy is heavily influenced by the profile of its liabilities. To the greatest extent possible, insurers seek to match the term of their liability with their assets. As a result, the industry has a strong demand for very long-term investments. In 2012, Canada's life and health insurers held almost $540 billion, or roughly 90 per cent of their total domestic assets, for the long-term. The industry's investments often support longer-term capital investments, including infrastructure investments, which are critical to creating economic growth. As outlined in Figure 1 below, in addition to roughly $6 billion in direct infrastructure investments, the industry is one of the largest investors in a 1 http://www.oecd.org/g20/meetings/saint-petersburg/leaders-endorse-new-g20oecd-principles-on-long-terminvestment-financing.htm 2 P3s are a long-term performance-based approach to procuring public infrastructure where the private sector assumes a major share of the risks in terms of financing and construction and ensuring effective performance of the infrastructure, from design and planning, to long-term maintenance. 1

number of critical asset classes in the economy and therefore plays a key role in supporting economic growth. 3 FIGURE 1: INSURERS INVESTMENTS SUPPORT WIDER ECONOMY Policyholders pay premiums to insurers $540B in long-term investments in 2012 Corporate bonds who then invest in the wider economy via Government bonds Corporate equity $83.3 B in 2012 who also transfer risk to reinsurers 14% of all Canadian Corporate bonds Residential Mortgages 10% of all Canadian Government bonds Commercial Mortgages 4% of all Canadian Corporate equity Mutual Funds 1% of all Canadian Residential Mortgages 28% of all Canadian Nonresidential mortgages 16% of all Mutual funds Source: CLHIA In periods of market stress with significant market volatility, insurers receive a continual and steady flow of premiums (see Figure 2). This, together with predictable liability outflows, enables insurers to hold and continue to buy assets that are temporarily undervalued during a downturn and to sell or avoid assets that are temporarily overvalued during a boom. Insurers' stable demand for long-term assets, along with their long-term, conservative investment approach, plays an important counter-cyclical role in times of market stress. This helps temper the swings in the market over business cycles as was evidenced by the industry's role in providing stability during the 2008 financial crisis. 3 For a more fulsome discussion of the industry's role as a long-term investor, see the CLHIA report The important role of Canada s life and health insurers as long-term institutional investors at www.clhia.ca 2

FIGURE 2: PREMIUMS PROVIDE A STABLE SOURCE OF FUNDING EVEN DURING DOWNTURNS 40.00% STABILITY OF INSURANCE PREMIUMS 30.00% Percentage Change (Annual) 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Life and Annuity Premiums TSX Index -40.00% SOURCE: CLHIA 3.0 Enhancing the Infrastructure Private Public Partnership Market in Canada 3.1 Overview of P3 Market in Canada P3s involve a contract between a public sector authority and a private party, where the private party assumes a major share of the risks in terms of financing and construction and ensuring effective performance of the infrastructure, from design and planning through to long-term maintenance over the term of the agreement. 4 P3s are an attractive funding mechanism for long-term infrastructure projects such as hospitals, airports, roads, bridges and government facilities. They have been shown to deliver projects on time and within budget. P3s work because they engage the expertise and innovation of the private sector and the discipline and incentives of capital markets. In addition, P3s are an attractive funding option for governments because they limit the upfront investment required by governments to build public infrastructure. Canada s P3 market has evolved considerably over the years both in volume and capital size. Canada is generally acknowledged as a global leader in P3s. The continued growth of the Canadian P3 market is demonstrated in Figure 3 below. Over the last five years, 63 P3 deals have reached financial close. Together these projects accounted for a capital investment of approximately $34.2 billion. 4 http://www.p3canada.ca/about-p3s/frequently-asked-questions/ 3

Figure 3: Number and Aggregate Capital Value of P3 Projects Closed in Canada 20 12 18 16 Number of Projects Capital Value 10 Number of Projects 14 12 10 8 6 8 6 4 CAD $ Billion 4 2 2 0 2005 2006 2007 2008 2009 2010 2011 2012 0 Source: P3 Canada The increased adoption of P3s in Canada can be attributed, in part, to the creation of dedicated P3 agencies at the federal and provincial levels. At the federal level, in 2009, the government created PPP Canada, a federal Crown corporation. In addition, according to a study by the Conference Board of Canada, P3s have become an alternative financing solution for provinces such as Alberta, British Columbia, Ontario, New Brunswick, and Quebec. 5 Moreover, P3s are continuing to gain momentum in other jurisdictions. For example, the Government of Saskatchewan recently announced the creation of SaskBuilds and the SaskBuilds Fund, which includes $150 million in support of P3 delivery. The industry strongly supports recent initiatives by government to increase the number and breadth of infrastructure investments, including P3s that are available in the Canadian market. 5 Conference Board of Canada. Canada as a Global Leader: Delivering Value through Public-Private Partnerships at Home and Abroad. August 2013. 4

3.2 Life and Health Insurers Demonstrated Appetite and Expertise in P3 Investments Canadian life insurers have participated in P3 projects ranging from roadways and public transit to public buildings and hospitals across Canada. Moreover, the industry has a strong desire to do more. Select P3 Deals that Canada's Life and Health Insurers have participated in A robust infrastructure system is critical to economic growth and to maintaining Canadians' standard of living. Canada's life and health insurers have played a key role in funding a number of critical infrastructure projects across Canada. Hospital and Healthcare Rainbow Hospital Partnership Providence Care Hospital Mass Transit / Roads City of Ottawa light-rail transit Edmonton's Anthony Henday highway Restigouche Hospital Centre Airports Iqualuit Airport Government Services CSEC call intercept centre RCMP headquarters relocation (Green Timbers) Thunder Bay Courthouse P3 infrastructure investments are a particularly attractive asset class for insurers. The long-term nature and the predictable long-term cash flows provided by infrastructure assets are highly suitable for matching insurers long-term liabilities, particularly in markets where issuance of long-term bonds is limited. In addition, life and health insurers like P3 investments due to the portfolio diversification benefits they provide. The industry played a leadership role in the development of the P3 market in Canada, including through the financial crisis. As this market has matured, however, P3 investments have attracted a broader range of investors beyond the traditional long-term investor groups of the insurance and pension fund sectors. There are a number of estimates on the need for infrastructure investments in Canada but the conclusion is the same -- significant investment is required. For example, the Federation of Canadian Municipalities estimated the infrastructure deficit was $123 billion to maintain existing municipal infrastructure and a further $115 billion to fund new municipal infrastructure needs. When federal and provincial needs are included, the Canadian infrastructure deficit could be between $350 and $400 billion. 6 While Canada s P3 market is relatively robust, the above statistics demonstrate that more must be done. 6 PWC. Building Canada s Infrastructure. http://www.pwc.com/ca/en/infrastructure-project-finance/financing-thefuture.jhtml 5

At the most basic level, governments in Canada need to ensure that infrastructure projects are brought to market in a timely and predictable manner. Undue delays and uncertainty around decisions regarding whether a project will proceed, hinder the private sector's ability to play a strong partnership role in helping to finance infrastructure projects. In addition, we believe that structural reform to 1) increase the supply of P3s to the market and 2) further increase the attractiveness of this asset class for institutional long-term investors is needed. 3.3 Shifting the Balance between Short-term and Long-term Financing Prior to the 2008 financial crisis, P3 projects done on a design, build, finance, and maintain basis generally had a private capital structure consisting of long-term debt and equity. However, during the financial crisis, partially in response to the shortage of long-term capital, a shorter term milestone and completion payment was introduced into the capital structure of P3 projects. These shorter term milestone and completion payments are funded from the public sector. The practice of structuring the capital structure of P3 projects with both the shorter-term and longer-term capital structure continues today even though there is no longer a shortage of long-term capital in the market. Long-term debt plays a key role in the P3 process. By holding the various stakeholders accountable to the risks and obligations they have assumed through the construction and operation phases, it ensures that public interests are met and that the projects are maintained and handed back to the public sector consistent with expectations. In particular, with more long term capital, there is more risk transfer to the private sector of life cycle risk. In the higher risk operating period years (i.e. years 20+ when the majority of the life cycle work is performed) more long-term capital is at risk, ensuring that the projects are operated and maintained for the long-term with a view to handing back to the public sector assets in the appropriate condition. As well, a higher component of long-term private capital reduces the initial financial burden on the respective governments. This allows for a larger number of projects which, as noted above, will be required if Canada is to address the significant existing infrastructure deficit. Procurement authorities should therefore consider increasing the mix of long-term capital within their P3 projects. 3.4 Harmonization of P3 Documentation for P3 Projects under $50 million One of the key challenges to further developing the P3 market is to facilitate P3 structures for smaller sized deals. Some of the challenge to developing a robust P3 market for smaller sized deals relates to the complexity and lack of standardization of P3 project documentation. The lack of standardization in documentation limits the attractiveness of smaller P3 projects for potential investors, as the size of the potential deal may not be adequate to compensate for the up-front and ongoing management costs that investors incur. While some standardization has taken place, in particular in Ontario and British Columbia, there is room to do more, including bringing documents and processes into alignment between provinces. The complexity of structuring smaller P3 deals is also a barrier to potential issuers. Currently, smaller municipal or other issuers struggle to issue P3s due to this complexity and lack of standardization. Given the fact that a significant percentage of the existing infrastructure gap (both greenfield and brownfield) is at the municipal level, looking for ways to make smaller deals more attractive is critical. 6

To this end, we believe that governments should develop standardized project documentation and processes for P3s under $50 million. Standardization could include aligning contract terms with clear rules for amendments, consents and waivers, trust indentures, and service contracts. Not only would potential investors benefit from more standardized, and hence easier to assess project documentation, but issuers would as well. PPP Canada currently has the mandate to create and share P3 best practices within Canada and to encourage and increase the use of P3s at all levels of government in the country. It does so, in part, through its direct investments in opportunities at the federal, provincial, territorial, municipal and First Nations levels through the P3 Canada Fund. As such, it has an established thought leadership role as well as degree of direct influence over the P3 market nationally, making it a logical stakeholder to lead the effort at greater standardization of the P3 market in Canada for deals under $50 million. Therefore, the CLHIA recommends that: PPP Canada take the lead in developing, in close collaboration with key stakeholders, including provincial governments, life and health insurers and other institutional private investors, standardized P3 documentation for P3 projects under $50 million, and Governments at all levels only invest in P3 projects under $50 million that are structured in alignment with the new standard as a means to lead market adoption of these new standards. 3.5 Pooling of Smaller Deals to Increase Supply As discussed above, one of the current challenges is the relatively large number of smaller infrastructure projects that need financing -- particularly at the municipal level -- in Canada. Another option to help address this is to consider frameworks that allow for the pooling of smaller projects, where appropriate. Pooling of projects becomes more viable once a harmonization of P3 documentation has been achieved in the market. Having harmonized terms and contract language would allow for disparate and heterogeneous projects to be considered for bundling. Pools could potentially be developed for projects from similar industries or project phases as a means to attract institutional long-term investor groups. Importantly, any pooling of projects should be done in a manner that allows investors to understand the credit risk of any given project. Therefore, the CLHIA recommends that: Once a sufficient standardization of P3 documentation for smaller P3 deals has been implemented, PPP Canada and Provincial PPP agencies seek innovative ways to develop sufficiently large pools of smaller infrastructure projects, where appropriate, to attract institutional long-term investors. 7

3.6 Increasing the Average Duration of P3s in Canada The industry's demand for long-term investments is driven by the need to find matching assets for longterm liabilities that often last several decades -- up to 50-years or more in some cases. As such, the industry is keenly interested in P3 investments that have long durations. To date, in Canada, the P3s that have been issued generally cap out at a 30-year period (plus construction) or less. However, we would note that the assets in projects such as hydroelectric projects, hospitals, schools etc. have productive life spans beyond 30 years. The industry believes that there is scope to lengthen the term of the P3s in the market to more closely match the underlying life cycle of select infrastructure assets such as hydroelectric projects, roads and hospitals and generally believe that terms out to 40 years would be appropriate for such infrastructure asset classes. Therefore, the CLHIA recommends that: Governments set a goal, over time, to seek to extend the term of P3 projects. We believe terms of 40 years would find support in the market, subject to the requirements for effective infrastructure maintenance provisions. 3.7 Strengthening Government Commitment to P3 Projects In Budget 2014, the Government of Canada reaffirmed its commitment to PPP Canada and indicated that projects with eligible costs of more than $100 million submitted for federal funding under the new Building Canada Fund will be subject to a P3 screen. We commend this strong and positive commitment by the Government of Canada to P3s. As outlined in Figure 4 below, in the life and health insurance industry's experience, the commitment to P3s in the provinces is more varied. Ontario is the clear leader in its promotion and use of P3s with Quebec, B.C. and Alberta also being active in the P3 space. 8

FIGURE 4: NUMBER OF P3 DEALS BY PROVINCE Source: The Canadian Council for Public Private Partnerships We believe that there are opportunities in all provinces to do more in this regard and recommend that all provinces in Canada develop a P3 champion, analogous to PPP Canada, Infrastructure Ontario or Infrastructure Québec. As well, in order to materially increase the incentives to issue P3 investments at the provincial level, we believe that all provinces should introduce a P3 screening requirement for potential deals. Introducing a provincial P3 screening requirement would help to increase the supply of P3s to the Canadian market as well as to build out the capabilities provincially for such deals. Canada s life and health insurers have successfully completed P3 transactions of sizes as low as $20 million. The industry has the capability and appetite to take on more smaller deals going forward. As such, we believe that a lower screening threshold at both the federal and provincial levels would be beneficial. We believe a more appropriate limit would be $20 million. It can be a challenge for governments to attract sufficient bids for smaller projects given the relatively complex and expensive bidding process for potential investors. We believe, however, that a lower screening threshold would be feasible if implemented in conjunction with the other recommendations in this section that, cumulatively, will help to reduce the costs of smaller P3s for potential investors and thereby increase their overall attractiveness. Therefore, the CLHIA recommends that: The Canadian Government lower the Building Canada Fund P3 screening threshold to $20 million, All provinces in Canada put in place infrastructure agencies to promote and help support the use of P3 arrangements in their respective provinces, and All provincial infrastructure agencies commit to conducting P3 screens of all provincial infrastructure projects in excess of $20 million that are seeking provincial funding. 9

4.0 Increasing the Supply of "Ultra-long" Government Bonds 4.1 Issuance of 50-Year Federal Bonds One of the challenges faced by Canadian life and health insurers is the relative lack of ultra-long dated (out past 30 year) Canadian government bonds. The life and health insurance industry was pleased to see the announcement by the Federal Department of Finance on September 27, 2012, regarding adjustments to its debt management strategy. In particular, the government noted that given long-term interest rates were at historic lows, it would be beneficial and prudent for the government to lock in additional long-term funding. This would be achieved through a reallocation from short-term issuance towards long-term bonds. On April 28, 2014, the Government of Canada issued its first 50-year bond. The Canadian life and health insurance industry participated in the issuance and commends the government for this action. However, more must be done to achieve a balance between the demand and supply of 50-year bonds in Canada. We note that the federal government offering was oversubscribed and ultimately yielded 1 basis point lower than the yield for its benchmark 30-year issue which clearly shows the excess demand for such assets in the Canadian market. Accordingly, we believe that there should be a sustained commitment by the Government of Canada to issue 50-year bonds and to increase the supply of these bonds to a benchmark level over the next five years. Building the stock of 50-year bonds to a benchmark level is important, otherwise, the volume of secondary trading in these bonds could be quite modest as the stock of 50-year bonds may simply be acquired by long-term investors and held as core parts of their investment portfolios. We also believe that the historically low long-term interest rates in Canada present a unique opportunity for issuers to secure long-term funding for their planned long-term infrastructure expenditures. Issuing longer-dated debt will also have important intergenerational benefits as future roll-overs of shorter-term debt would be avoided and the risk to the active working population of unexpectedly higher short-term funding rates would be reduced. While not common practice currently, some degree of matching of the term of government assets and liabilities would represent a best practice. Another benefit of the Government of Canada issuing a sufficient volume of 50-year bonds is that it would enable the development an ultra-long interest rate swap market in Canada. We note that 50- year swap markets currently exist for the British Pound, Euro and US dollar. Given that interest rate swaps are priced off of the Government of Canada yield curve, Canada's interest rate swap market generally currently caps out at 30 years. The impact of the lack of such ultra-long interest rate swaps in Canada is that insurers have fewer tools to manage their ultra-long-term asset and liability mismatch than they otherwise would. This impacts the industry's risk positions and pricing ability and, ultimately, the industry's ability to issue long-dated products to Canadians. While more longer 50-year bonds will reduce the need for long dated interest rate swaps, we would expect that, in practice, some mix of more supply and continued reliance on the interest rate swap market will be required going forward. 10

Therefore, the CLHIA recommends that: The Government of Canada make a sustained commitment to issue 50-year bonds in sufficient volume to achieve a benchmark level over the coming 5-year period. 4.2 Increasing the Supply of 50-year Provincial Debt There is clearly a paucity of supply of provincial government ultra-long-term debt relative to the demand for such assets by investors. Based on the industry's experience, recent ultra-long-term bonds issues by Canadian provinces carry a yield that is lower than the corresponding 30-year benchmark issue by up to 0.5 basis points for each year past year 30. As outlined in section 4.1, we believe that the historically low long-term interest rates in Canada present a unique opportunity for issuers to secure long-term funding for their planned long-term infrastructure expenditures and that governments should be taking advantage of this situation. Therefore, the CLHIA recommends that: All provincial governments make a commitment to reallocate from short-term issuance towards long-term (20 and 30 year) bonds, and All provincial governments make a sustained commitment to issue 50-year bonds in sufficient volume to achieve a benchmark level over the coming 5-year period. 5.0 Impact of Government Policy on Long-term Investment Market A significant driver of the life and health insurance industry's willingness and ability to invest in longterm assets is the overall public policy environment that it operates within. Governments control a variety of levers, such as setting overall macroeconomic policy, prudential regulation, accounting rules and taxation policy, each of which can have important implications for the long-term investing market in Canada. Globally, the trend in government policy has resulted in a more short-term bias for financial institutions, including insurers. The general shift to a short-term bias has important and potentially negative impacts on the willingness of insurers to continue to offer long-term products to Canadians with a commensurate reduction in the industry's appetite for long-term assets. It is important, therefore, that policy choices in these areas are made with an understanding of their impacts on the long-term investment market. 5.1 Accounting Standards Accounting standards play an important role in ensuring businesses (insurers) faithfully represent their financial position and operating earnings to facilitate decision-making. The measurement and presentation principles of these standards can significantly influence capital flows to an industry, which in turn would drive the types, cost and availability of insurance products in the marketplace. As outlined above, insurers strive to match the expected duration of their liabilities to the term of the assets that support those liabilities; this is a key tool in reducing the investment risk of offering longterm insurance products. Therefore, it is important that accounting standards recognize the vital connection that exists in the overall asset-liability management strategy and practices of insurers. If this 11

vital link is ignored (i.e., we have a system of mark to market assets and mark to model liabilities), the ensuing earnings and capital volatility will negatively impact the ability of insurers to offer long-term products to Canadians at a reasonable cost. The Canadian life and health insurance industry is very concerned that the International Accounting Standards Board's (IASB) latest proposals for measurement of insurance contracts would do exactly that -- break the important measurement link that should exist between the insurers' liabilities and assets. The resulting increase in volatility in both the reported results and regulatory capital of life and health insurers would negatively impact the ability of insurers to attract capital. This, in turn, will significantly reduce the ability of Canadian insurers to offer longer-term guarantee products to Canadians, reducing the range of options available to individuals to mitigate risks and save for retirement. It will also depress the industry s appetite for long-term assets. Therefore, the CLHIA recommends that: The Canadian Accounting Standards Board not adopt the new International Financial Reporting Standard for insurance contracts unless it is established that: o it is an improvement to the existing high-quality CALM 7 standard, and o full consideration is given to whether the new standard would negatively impact insurance coverage for Canadians at competitive prices, or the flow of funds for longterm funding for the broader economy. 5.2 Prudential Regulation The prudential regulation of insurance companies seeks to protect the interests of policyholders by requiring sufficient capitalization levels to cover a variety of risks. It is important that in setting prudential capital requirements, regulators recognize and distinguish between the range of products in the marketplace and their inherent risks, the investments that support them, and effective risk management activities of the insurers, including portfolio diversification. Capital requirements, therefore, must be appropriately calibrated to reflect the substance of the underlying risks associated with an asset or liability, as opposed to its form. An example is OSFI's treatment of substantial investments. Currently, it is the industry standard to hold infrastructure or other long term assets through stand alone special purpose entities. Relative to other potential forms of taking exposure to such assets, this form of investment does not introduce additional risks, and in fact protects the interests of investors, as the entity holds only assets to which investors wish to have exposure. Accordingly, capital requirements should be no greater than what is needed to support the risk associated with having exposure to the underlying asset risk. 7 Guidance for the Canadian Asset Liability Method (CALM) of valuation of insurance contract liabilities is determined by the Canadian Institute of Actuaries and any requirements of OSFI. Under CALM, liabilities are set equal to the balance sheet value of the assets required to support them. 12

More punitive capitalization including, for example, deductions of amounts invested in an entity holding the assets, excessively penalizes the form of investment and could cause a serious disruption to market standards for holding such long-term assets. The policy rationale for treating a large percentage of a small, well understood investment as being more risky than a small percentage of a large, complicated investment should be revisited. In essence, capital requirements should be driven by the substance of risks of the underlying assets as opposed to the form in which the assets are held. Given the significant infrastructure investment gap in Canada currently, and the need to promote partnership with private sector investment in this space, the capital treatment of the asset should be designed appropriately in order to not create unwarranted obstacles to investing in it. Therefore, the CLHIA recommends that: Regulators ensure that the capital levels required to support any asset focus on asset risks as opposed to the form of investment, and Regulators review the capital treatment of "substantial investments" in entities to ensure that there are no undue disincentives to insurers to making investments in infrastructure projects going forward. 6.0 Conclusion Long-term investment plays a critical role in supporting economic stability and growth. This paper sets out specific, actionable recommendations to enhance Canada's long-term investment market. At a minimum, governments in Canada need to ensure that infrastructure projects are brought to market in a timely and predictable manner. The industry's recommendations include measures to enhance the attractiveness and number of P3 deals for smaller infrastructure projects. The paper also recommends that governments, at all levels, make a sustained commitment to issue 50-year bonds in sufficient volume to achieve a benchmark level within five years. Finally, the paper highlights the role public policy can play in the long-term investment market, particularly in the area of accounting policy and prudential regulation. The Canadian life and health insurance industry believes that reform to the long-term investment market is required to help address the existing infrastructure deficit in Canada, as well as to enhance overall economic stability and growth. The industry is committed to meaningful reform and looks forward to engaging with governments and other stakeholders. 13

APPENDIX LIST OF CLHIA RECOMMENDATIONS Enhancing the Infrastructure P3 Market in Canada 1. The CLHIA recommends that: PPP Canada take the lead in developing, in close collaboration with key stakeholders, including provincial governments, life and health insurers and other institutional private investors, standardized P3 documentation for P3 projects under $50 million, and Governments at all levels only invest in P3 projects under $50 million that are structured in alignment with the new standard as a means to lead market adoption of these new standards. 2. The CLHIA recommends that once a sufficient standardization of P3 documentation for smaller P3 deals has been implemented, PPP Canada and Provincial PPP agencies seek innovative ways to develop sufficiently large pools of smaller infrastructure projects, where appropriate, to attract institutional long-term investors. 3. The CLHIA recommends that Governments set a goal, over time, to seek to extend the term of P3 projects. We believe terms of 40 years would find support in the market, subject to the requirements for effective infrastructure maintenance provisions. 4. The CLHIA recommends that: The Canadian Government lower the Building Canada Fund P3 screening threshold to $20 million, All provinces in Canada put in place infrastructure agencies to promote and help support the use of P3 arrangements in their respective provinces, and All provincial infrastructure agencies commit to conducting P3 screens of all provincial infrastructure projects in excess of $20 million that are seeking provincial funding. Increasing the Supply of "Ultra-long" Government Bonds 5. The CLHIA recommends that The Government of Canada make a sustained commitment to issue 50- year bonds in sufficient volume to achieve a benchmark level over the coming 5-year period. 6. The CLHIA recommends that: All provincial governments make a commitment to reallocate from short-term issuance towards long-term (20 and 30 year) bonds, and All provincial governments make a sustained commitment to issue 50-year bonds in sufficient volume to achieve a benchmarks level over the coming 5-year period. 14

Impact of Government Policy on Long-term Investment Market 7. The CLHIA recommends that: The Canadian Accounting Standards Board not adopt the new International Financial Reporting Standard for insurance contracts unless it is established that: o it is an improvement to the existing high-quality CALM standard, and o full consideration is given to whether the new standard would negatively impact insurance coverage for Canadians at competitive prices, or the flow of funds for longterm funding for the broader economy. 8. The CLHIA recommends that: Regulators ensure that the capital levels required to support any asset focus on asset risks as opposed to the form of investment, and Regulators review the capital treatment of "substantial investments" in entities to ensure that there are no undue disincentives to insurers to making investments in infrastructure projects going forward. 15