How is the dividend scale actually decided?

How it works

two columns, two different documents

How to read an illustration honestly

1. 01Read the guaranteed column on its own, first
2. 02Treat the other column as an assumption
3. 03Ask which dividend scale the projection uses
4. 04Ask what changes if that scale is reduced
5. 05A projection is not a promise

Premiums from participating contracts are pooled and managed apart from the rest of the company. Each year the actuary measures what that pool earned, paid in claims and cost to run, against the assumptions used at pricing. Where reality was kinder, a surplus exists and the board decides what to release.

An appointed actuary, a role every federally and provincially regulated insurer is required to have, prepares the analysis and a recommendation each year, drawing on the investment results of the participating account, the mortality actually experienced against what was priced for, and the expenses actually incurred running the block of business. The board of directors then reviews that recommendation and votes on it, and the declaration that follows applies to every participating contract that shares that account, not to any one contract individually, which is why the same scale change reaches an old contract and a newly issued one in the same announcement.

The cost or the catch

different taxation, different timing

Where retirement income comes from

1. 01Government benefits
2. 02Registered plans
3. 03Savings held outside a registered plan
4. 04Employer plans, where there is one
5. 05A business or a property, for many households

Two things follow. The figure describes a year already finished, so it cannot be promised ahead and no contract pretends otherwise. And a board with a poor year behind it may declare less, or nothing, which is why the same board can print rising values without owing anything beyond the guaranteed row.

No insurer publishes the full formula applied to a given contract, but each publishes a history of scales declared year after year, which at least allows the consistency of its past decisions to be judged.

None of this is limited to new contracts being sold today. A scale reduction applies to contracts already decades into their life just as much as to one issued last month, because every participating contract in the account shares in whatever the year produced, for better or worse. A sales conversation that leaned on the current scale as though it described a fixed feature of the contract rather than a figure the same board can revise was describing something the contract itself never promised.

What varies by insurer, province and year

Provincial oversight of the insurer sits alongside, rather than instead of, this federal actuarial process. A federally incorporated insurer answers to the Office of the Superintendent of Financial Institutions for its solvency and its reserving, while the sale of its contracts and the conduct of the representative selling them are still governed provincially, by the Autorité des marchés financiers in Quebec, by the Financial Services Regulatory Authority of Ontario, or by the Insurance Council of British Columbia elsewhere. None of these bodies sets the scale itself or reviews it before it is declared; that decision stays with the insurer's own board and appointed actuary.

Insurers also differ from one another in how they have structured their participating account in the first place, and two companies can hold philosophically different views on how much surplus to release in a strong year versus how much to hold back to smooth a weaker one that has not happened yet. Neither approach is stated as better on this page, since that judgment depends on the insurer's own risk appetite and history rather than on any rule this page could state generally.

And the year still matters more than any of the above. Two consecutive declarations from the same insurer, using the same account and the same board, can differ from each other simply because investment markets, mortality experience and expenses moved differently in the two years being measured, which is exactly why a single year's scale, however recent, was never meant to be read as a permanent feature of the contract.

Two insurers publishing what looks like a similar scale in the same year are not necessarily describing the same experience underneath it, since each company's scale is calculated against its own pricing assumptions from years earlier, and a scale that looks generous against one company's own older assumptions can look modest against another's, without either number being wrong. And how the declared amount is actually applied to a specific contract depends on the dividend option recorded on that contract, a choice the owner made or defaulted into at some point, which is itself a variable independent of the scale announcement and worth checking on its own rather than assumed from the headline figure alone.

Requesting the insurer's own explanation of why a given year's scale moved the way it did, rather than accepting the number alone, sometimes surfaces which of the three drivers, investment results, mortality experience or expenses, actually explains the change, and that explanation is worth keeping alongside the declaration itself for comparison the next year the scale changes again. Not every insurer publishes this level of detail voluntarily, so the request itself is sometimes what produces it.

What to ask, and of whom

different timelines, different failures

Two questions inside a succession plan

1. 01A succession planThe two run on different timelines, and they fail in different ways.
2. 02Who will lead the businessA plan covering only leadership leaves the harder one open.
3. 03Who will own the businessThe ownership question is the one that is usually left open.

Two questions belong to your own file rather than to the industry in general: which dividend option is currently recorded on your contract, and when it was last changed, and the amount actually credited to your own contract in each of the last five years, read from your own annual statements rather than from a general scale announcement.

Two further questions belong to the insurer's public disclosures rather than to a representative's memory: the insurer's own published scale announcement for the current year and the year before it, and the insurer's financial strength ratings alongside the Assuris protection limits that would apply if the company itself ran into difficulty.

Who this matters to most

four rules that are frequently mixed up

Tax when a benefit is paid on death

1. A life insurance benefit reaches a named beneficiary untaxed
2. The public pension death benefit is taxable to the recipient
3. Employer death benefits are exempt up to a stated limit
4. Canada has no estate tax
5. The deemed disposition at death can still be large

This matters most to an owner who has been funding paid up additions for years and is counting on the scale to keep compounding at roughly its recent pace, since that owner's future values move the most when a declaration changes, and to anyone comparing two insurers by pointing to their current scales alone, since a comparison of one year's declarations says little about either company's consistency over decades.

It matters less to an owner early in a short funding period who is not yet relying on scale driven growth for a specific goal, and not at all to an owner whose contract carries no participating features, since a scale reduction has nothing in that contract left to reduce.

What this page will not tell you

No page, and no advisor, can say what any insurer will declare next year, because the declaration itself is made after the year it describes has already closed, on results that do not yet exist while this is being read. What can be checked is a company's own history of declarations, published year after year, which at least shows how that company's board has behaved in the past without predicting how it will behave next.

Judging whether a particular insurer's history is strong enough to justify the assumptions built into a specific proposal is a professional's task, informed by the insurer's public filings and its Assuris standing, and it is a judgment this page leaves to the representative or actuary reviewing that proposal rather than making on a reader's behalf.