Industry Committee on Nov. 27th, 2007

[Mark Eyking, Liberal, Sydney—Victoria, NS]

You alluded to the investments we have abroad. There's one clip here where you say that finance and insurance contributed 44.1% of Canadians' direct investment abroad in 2006. I think it has been talked about a little bit today, but how much is this going to affect what's happening in the United States, with that amount of investment that we have in foreign...I guess it's in the United States? How is it going to ricochet and rebound to our Canadian economy over the year 2008?

[Nancy Hughes Anthony]

I don't have the breakdown of how much is in the U.S. versus, let's say, Asia or Latin America, where I know some of our members are certainly extremely active.

Is your concern about a slowdown in the U.S. economy?

[Mark Eyking, Liberal, Sydney—Victoria, NS]

No, I think that's probably inevitable. I think it's how this is going to react to the amount of investment we have in the U.S., and especially some of the so-called bad investments that we might have down there dealing with the mortgage situation.

[Terry Campbell]

As Nancy was saying earlier, we're seeing the banks report this week and next. There is an impact of the slowdown, but in terms of the specific issue in the United States that has caused a problem, sub-prime mortgages and so on, most of our members have been fairly clear that their exposure to that particular aspect is quite minimal. The impact we're seeing up here is this unique Canadian financial instrument, the asset-backed commercial paper—at least the problem is sort of unique here.

In terms of your specific question regarding the housing problem in the United States and the sub-prime mortgages, we had very little exposure to that. That was very much a U.S. kind of phenomenon, and the way the Canadian banks did their investments in the United States avoided that particular aspect.

As you said, the question is—

[The Chair, Conservative, James Rajotte]

Sorry, we're over time here, and Mr. Swedlove indicated he wanted to answer as well.

You have 10 seconds.

[Frank Swedlove]

On the insurance side, the tradition is, in each market, to have assets match liabilities on behalf of the policyholders in that location. Also, in the life insurance industry there's very little short-term paper that's purchased, because our liabilities tend to be long term. So with respect to the life insurance industry, I guess the quick answer would be that it shouldn't have any effect on the life insurance industry operating in Canada.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Eyking.

We'll go to Mr. Stanton.

[Bruce Stanton, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

I have one brief question. It's actually for Mr. Swedlove.

In your opening remarks you made a comment with respect to international trade arrangements, bilateral arrangements, and so on, in referring to the Doha Round, the now-resumed round with the WTO, that the service sector not be held hostage. I think that was the term you used. Could you explain what you meant by that?

[Frank Swedlove]

Thank you for the question.

I think this is a very important issue for all financial services. It's very important that we get access to these markets, if we want our companies to have opportunities to expand, to operate effectively, and to be able to use that head office expertise I talked about earlier.

One of the concerns we have with the Doha negotiations is that the focus tends to be on agriculture and some manufacturing activity, and the services sector has been given less consideration in the debate. We want to encourage all of those in the federal government who are involved—and we are doing this internationally with our colleagues in other services sectors—to ensure we have a meaningful participation of services, and financial services, in this round of negotiations.

So we think it's vital for the Canadian economy. As we talk about our economy evolving and services becoming an increasingly important part of it, if we still want to be internationally active, we need to be pushing a strong services agreement in Doha and in bilateral agreements.

[Bruce Stanton, Conservative, Simcoe North, ON]

But you would do so more or less in conjunction with the other sectors, so you meant that we not try to pit one sector against the other but that we all should be...?

[Frank Swedlove]

Correct.

[Bruce Stanton, Conservative, Simcoe North, ON]

Excellent.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Stanton.

We'll go to Mr. Simard.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much, Mr. Chair.

Thank you for being here this morning.

I'd like to come back to the 44% of Canada's direct investment that's abroad. I think it's a very interesting figure, and it would be interesting for this committee to know exactly where these funds are invested. Three or four years ago the international trade committee did a study of the Asia-Pacific region, and one of the things that was almost embarrassing for Canada was the lack of presence of our financial institutions and insurance companies out there. If it weren't for Manulife and Scotiabank, and CIBC to a lesser extent, we just weren't present.

So I think it would be interesting for us to know why we're not there, or whether we've increased our presence there in the last couple of years, because if we're not in the emerging markets and all our investment is in the United States, maybe we will have a problem down the road. So I think that would be important.

[Nancy Hughes Anthony]

If I could comment, I would agree. As I mentioned, that specific figure was in the recently issued report of the Competition Policy Review Panel. This is the panel that has been struck by Mr. Prentice's department, which did a backgrounder on this. Perhaps between our efforts and your committee's efforts we could find a breakdown of that and find that further information.

[Frank Swedlove]

For us, obviously the United States is a very good market. The Manulife acquisition of John Hancock, for example, was significant. Sun Life and Great West Life both have major investments in the United States.

Outside of the United States, the very large focus is on Asia, and both Manulife and Sun Life have very active, major operations in a number of countries in Asia. Those two Canadian providers are among some of the leading life insurers in those countries and perceive their greatest opportunities as being in China and India.

[Raymond Simard, Liberal, Saint Boniface, MB]

Obviously, we were told that size does matter in those areas, so mergers might be one of the solutions we may want to propose, or at least consider. If we're going to penetrate those markets, we may at least want to look at partnerships of Canadian banks.

One of the fascinating things I heard today was an insurance industry person talking to us about the importance of our governments getting a hold of this whole global warming issue. I thought it was fascinating that it was one of your priorities, as I had never thought of it in that respect.

If the insurance industry is looking down the road now and taking into account global warming in terms of pricing, are we going to be faced in five or ten years with major increases because of this?

[Mark Yakabuski]

First of all, we look ahead a lot more than five or ten years, I can tell you that much. That's why I wanted to talk to you today about this infrastructure challenge, because the degree to which Canada adapts more quickly to the forces of climate change—and we're talking principally about frequent severe weather—Canada will be more successful than other countries. I'm saying this is one of our tremendous challenges today. We have to get on with the challenge of adapting to climate change, and there are a number of things that have to happen. Most importantly, we must have the infrastructure to deal with it, and the faster we get on with that challenge....

Don't talk to me about price increases; I don't want to talk about price increases. I want to talk about what we need today to ensure that we can handle these forces, that we can protect Canadian communities, because that's the real challenge. You can only factor in the price if these things don't happen.

[Raymond Simard, Liberal, Saint Boniface, MB]

That was my question. Basically you will be factoring this in if these things don't happen; you have no choice.

[Mark Yakabuski]

Ultimately insurance will represent the cost of protecting Canadians, and it will incorporate those prices.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thanks.

I'd like to talk briefly about research and development. This is a factor in Canada. We have been lacking in that respect in a lot of the manufacturing sector.

Do you know how the banking and insurance industries here compare with other countries? For instance, are we investing more or less than other countries in that sector?

[Nancy Hughes Anthony]

Mr. Chair, I could provide further information to the committee. I might need to do that.

Clearly banks are leaders specifically in development of technology, and clearly it is an area in which there is huge investment.

Are there other aspects, Terry, that you would raise?

[Terry Campbell]

Nancy is absolutely right. We really are a high-tech sector.

Comment was made earlier about our partnerships with universities, and a lot of that is directed toward the research angle, particularly in the technology area.

[Raymond Simard, Liberal, Saint Boniface, MB]

Is Canada doing well internationally? Are we investing our share, a proportional share, of our revenues into research and development? Do we know?

[Nancy Hughes Anthony]

That is the question we'd like to take back to see if we can get you further information.