Canada’s health finance industry is under pressure, with some banks and insurers seeking to diversify away from their traditional role of financing long-range investments and into the short term.
The federal government announced Tuesday it would give Health Canada $50 million over five years to create a new regulator to address concerns about the sector’s long-held reliance on financing the long term.
Health Canada’s chief financial officer, Scott Ritchie, said in a statement the new regulator will be designed to “better align the regulatory and financial functions of the regulator to reflect the changing landscape of health finance.”
The announcement came as a wave of new rules on medical devices and a new law on coronavirus prevention were approved in the Senate, which was not expected to act on the legislation.
While the Senate has not yet voted on the measures, it is expected to approve the Senate amendments to allow the government to make changes to its coronaviruses rules and create new licensing requirements.
In the meantime, some banks are beginning to rethink the way they finance the long run, especially for health insurers, with one of the largest lenders of long-run funds in Canada, TD Bank, moving to eliminate some of its short-run investments.
In its financial statements, TD has said its portfolio of long term investments includes everything from pension funds to small businesses to retirement funds.
The bank’s chief executive officer, Michael Bocca, said TD has decided to eliminate its holdings of short-dated, index-linked securities, such as CDs and bonds.
“Our view is that the long and short term investments are the key drivers of our portfolios, and we are focusing on that now,” Bocsa said in an interview.
“We’re not changing our long-duration strategies.”TD also said it will focus on focusing on short-duration assets, such the S&P 500 and Canadian dollar index funds, and not investing in the broader stock market.
“As long as our investments are well diversified, our financial results will reflect that,” he said.TD Bank said in its financial statement that it would no longer invest in equities, fixed income and bonds, or in “strategic investments” that do not involve long-distance financing.
The new regulator, Boccha said, will work to ensure TD’s portfolio is more focused on long-time investments.TD and TD Swiss bank are both members of the Financial Institutions Regulation Authority, which regulates the Canadian banking industry.
The announcement by the finance ministry comes as the Canadian Medical Association is asking its members to stop supporting health insurers that rely on short term financing.
“A change in the regulatory framework for short-to-long-term investments will likely have a negative impact on the health insurance industry, especially in light of the proposed changes in the ACA,” said AMA president David Black.
“If the changes are not adequately addressed, the financial risks of the health insurers will only increase.”
The AMA is calling for a ban on health insurers from funding long-to of short positions in the same way that a ban would prevent a bank from funding a mortgage, which would cause a crash in the financial system.
The AMA said it has already seen its membership decline by more than 15 per cent, which has affected its ability to pay staff and maintain its business.
In a statement, Health Canada said it supports AMA’s request to halt health insurers’ funding of long to short-time assets.
“Health Canada supports AMA efforts to rein in health insurers and encourage them to reduce their short- to long-lived investments and use the proceeds to address the systemic issues that are contributing to the financial crisis,” the statement said.
Health insurers have argued that their investments are long-lasting, with TD Bank having assets that span five to 10 years.
A statement from TD Canada said the bank is taking a “robust approach” to long term investment and will no longer finance investments that do less than 10 years or longer than the expected life of the asset.”TD remains committed to working closely with Health Canada to address any concerns raised about the health care industry and we look forward to the new regulatory framework being enacted,” the bank said.