Hon. H. A. BRUCE (Parkdale):

May I

refer for a moment to the offer made to the opposition yesterday by the Prime Minister when he asked them if they would like to have any particular department called? In looking over the business for to-day as announced last night by the Minister of Pensions and National Health, who was leading the house, I find that the first order is the bill introduced yesterday afternoon by the Minister of Finance; then supply, post office, national revenue, secretary of state, mines and resources, trade and commerce, and at the end pensions and health. I believe that the question of health should have priority over the others. Might it be considered as the first item of business this morning?

Right. Hon. W. L. MACKENZIE KING (Prime Minister):

May I say to my hon.

friend that on these matters I generally arrange the order of business with the official leader of the opposition (Mr. Graydon). The announcement that was made last night was made to the house as a whole and we ought therefore, I think, to follow the announcement as made.

Mr. GORDON GRAYDON (Leader of the Opposition):

May I say to the Prime Minister that the hon. member for Parkdale is specially interested in the Department of Pensions and National Health.

: We all are.

Mr. GRAYDON:

Am I going to have an

opportunity to say a word? I hope so. As I say, my hon. friend is interested in the Department of Pensions and National Health, and I have already indicated that I should like to have it come on as soon as possible in order to facilitate the business of the house and to give those who wish to say something on it an opportunity to do so at the earliest moment. The reason my hon. friend is so interested is that this department covers one of the wartime activities in a special way. Perhaps the Prime Minister will reconsider the matter and make some change in the order of business as indicated last night.

Mr. MACKENZIE KING:

I have every desire to accommodate hon. members in all parts of the house. Perhaps during the course

of the day my hon. friend and I might have a word together and we may be able to arrange a suitable time. In the meantime we shall proceed with the order as arranged.

Mr. GORDON GRAYDON (Leader of the Opposition):

May I ask the minister to give at this stage a full statement with respect to this matter? When the bill was introduced a number of questions were asked and some explanation given. Perhaps the minister might combine with the statement he made last night some information with respect to the original act of 1932, which I think is necessary at this time to lay the foundation upon which the discussion can be based.

Mr. ILSLEY:

The information asked for is now found in the explanatory note in the bill. Section 60 of the act provides as follows:

(1) Save as hereinafter provided, any company registered under this act may invest its funds, or any portion thereof, in the purchase of

(c) ground rents, mortgages or hypothecs on real estate in Canada, or elsewhere where such company is carrying on its business, provided that the amount paid for any such mortgage or hypothec shall in no case exceed sixty per cent of the value of the real estate covered thereby;

Subsection 2 of section 60 reads at the present time:

Any such company may lend its funds or any portion thereof on the security of

(b) real estate or leaseholds for a term or terms of years or other estate or interest therein in Canada or elsewhere where the company is carrying on business; provided, however, that no such loan shall exceed sixty per cent of the value of the real estate or interest therein which forms the security for such loan, but this proviso shall not be deemed to prohibit a company from accepting as part payment for real estate sold by it, a mortgage or hypothec thereon for more than sixty per cent of the sale price of such real estate.

In other words, as the law stands at the present time the company may invest in mortgages on real estate, but only to an amount up to sixty per cent of the value of the real estate. It may also lend on the security of the real estate, but only up to an amount of sixty per cent of the value of such real estate. It will be noted that at the present time theTe is power to invest outside of Canada. Note the words, "or elsewhere, where such company is carrying on its business-"

Life Insurance Companies

The bill extends the powers of the companies in this way. At the present time they may only invest in real estate in the United States up to sixty per cent of the value. That provision debars them from investing on the security of real estate in the United States where the loan i? insured by the federal housing administration of the United States, and it is desirable to extend the powers of the companies to invest without that limitation of sixty per cent of the value provided the loan is insured by the federal administration of the United States. That is the purpose of the bill, and as I said last night the effect is merely to put our companies in a fair competitive position with regard to the United States companies who have the power to invest in these insured securities on real estate in the United States, and who do so heavily and increasingly. I may say that loans under title II of the national housing act of the United States, protected by the insurance provisions of that title, have been made since 1935. Up to date nearly four and a half billion of insured loans have been made. The usual rate borne by the mortgage is four and a half per cent, and after allowing for expenses and charges it is estimated that approximately three and a half per cent is the net yield to the lender. Under the act, if foreclosure becomes necessary the property is transferred to the administrator and a debenture is issued by the administrator to the lender bearing two and three-quarter per cent per annum interest and maturing three years after the maturity date of the mortgage, subject to redemption on three months' notice at the option of the administrator. The number of properties transferred up to date has been remarkably small, -4 of one per cent of the number of mortgages insured, and of those properties transferred 95 per cent have been sold, leaving less than two hundred out of the million properties mortgaged now on hand.

The Canadian companies are required to cover United States liabilities with deposits with governments or trustees there. Until recently, Canadian securities were permitted to form part of those deposits, but in later years the companies have been pressed to substitute United States securities for any Canadian securities now held and to cover increases in liabilities with United States securities only, and it has become a problem for the companies to get acceptable United States securities for that purpose to yield a rate equal to the rate on which their reserves are based, usually three per cent or at the most three and a half per cent. United States government bonds yield from two and a half per cent to two and three-quarters per cent and high

grade utility and corporation bonds approximately the same rate. State and municipal bonds, by reason of the tax exemption feature, yield substantially lower rates, .most of them less than two per cent.

The permission to the companies to lend on these mortgages will permit the Canadian companies to share in a comparatively remunerative investment field now open to all - United States companies with which the former are in competition. The loans in question will be made from the. proceeds of the United States business of the companies; even if any company should think of lending funds derived from its Canadian business on such mortgages the permission of the foreign exchange control board would have to be first obtained, but the yield rate on the mortgage is not sufficiently high to attract Canadian funds.

Mr. GRAYDON:

There are some questions which will have to be asked in committee, but I believe second reading may properly be given.

Before this measure is proceeded with may I say that I am sorry this bill has been brought down at this stage of the session. I was unavoidably absent from the chamber last evening, but when I heard about it I considered whether it did not afford an opportunity to discuss the whole question of life insurance, and I considered very carefully last night and this morning whether I should not seize this opportunity to do just that. I have been awaiting an appropriate chance to do so throughout the session, and that opportunity has not arisen. However, I realize that the house wants to rise, and under the circumstances I do not feel that I should take advantage of this opportunity of discussing this matter, as I might otherwise have done.

So' far as I can see, this is not a very important right that is being given the insurance companies of Canada, and I do not think serious objection can be taken to it. Like the leader of the opposition (Mr. Graydon) I think we can ask in committee any questions we may have in mind with regard to the matter.

Mr. GRAYDON:

I followed carefully the

explanation given by the minister, which seemed to indicate that in the United States

Life Insurance Companies

there is a different basis of lending in the insurance investment field from that which prevails in Canada. So far as I know we here do not have a situation quite comparable to the situation the minister described as existing in the United States. Up to the time the federal housing administration entered the guaranteed field, if I may call it that, in the United States, in connection with these loans, evidently the same provisions applied with respect to the protection of policyholders; that is, a sixty per cent ceiling was placed upon loans on real estate which are accepted by the insurance companies. That, of course, would be in compliance with certain legal protection which has been afforded trust funds of this character in both countries. The investments of the public in insurance companies in Canada and elsewhere are very large. The popularity of insurance as a means of saving and protection combined has increased during the years, and we have seen it reach the point where the savings of many people find their way first of all into the coffers of the insurance companies by way of premiums, and then from the insurance companies into investments such as those envisaged in this act.

One point which was not very clear to me I think has been clarified to' some extent by the minister's statements. When the bill was first introduced I was afraid we were inventing a departure from the system of protection which exists in Canada, under which the loan may not exceed sixty per cent of the value of the real estate, which was the system under which our companies operated in the United States.

I was fearful that perhaps the funds of those who are paying premiums in Canada might be utilized in a less protected fashion, when the company outside could utilize its funds for investment in the United States. But the minister points out that there is a definite limitation, a definite boundary line with respect to the investment of our funds in the United States, the same as there is in respect of the investment by the same company of United States funds in Canada. In other words, as I understand the minister's statement, this bill would apply only to the funds which are invested by a Canadian life insurance company doing business in the United States, but which will be utilized onlj' for United States investments. In other words unless the foreign exchange control board authorizes differently, this will prevent Canadian funds by way of premiums going into the investment market in the United States under a different system, and perhaps under a lesser protection-although it is not clear as to that-than we have in Canada.

My understanding-and the minister will correct me if I am wrong-is that only funds of policyholders in the United States are the ones actually affected by this legislation, with the one exception, namely, in the event of this government's allowing, through the foreign exchange control board, a movement of funds from Canada to United States account to be invested in real estate there.

That, of course, is true now. But the first question which enters one's mind is that this legislation will apply for years to come. The foreign exchange control board will pass out of existence legally as soon as the War Measures Act becomes inoperative. This would be at some time after the War, or when the policy of the government then in power might be changed in respect of the movement of funds. So that the answer given by the minister is not the only possible answer in respect of the movement of Canadian funds for United States investment. It may be at this time, but it would not be in the future, when the war -is over. So that I suggest the minister's argument falls to the ground. If the operations of the foreign exchange control board would cease within the next year, this legislation would still be in operation, and there would be nothing to hinder investment in the United States of Canadian funds paid in by Canadian policyholders to a Canadian insurance company under the provisions of this bill, and on terms which may be less safe and less protected than provided by Canadian law. Has this phase of the matter been considered by the government, as to whether the law in respect of investments in the United States under this act is different from the law which applies if the money is invested in Canada?

Mr. ILSLEY:

The superintendent of insurance is now looking up the section of our Insurance Act which is applicable. My understanding is-and I shall confirm it in a moment -that Canadian insurance companies cannot leave investments in the United States greater than the reserves required to cover their liabilities there. That is set out in section 81 (2) of the Insurance Act.

Mr. GRAYDON:

All right. .

Mr. ILSLEY:

The second answer is that they would not, if they eouldi, under any condition that exists to-day, or that can be foreseen, because the interest rates are not as attractive in the United States as they are here. Then, the third answer is found in the foreign exchange control board. There is a fourth answer, and that is that under the act as it exists to-day they can invest in United

Life Insurance Companies

States real estate, but only up to sixty per cent of the value-and that is a little outmoded. The owners or purchasers of real estate for the most part do not pay forty per cent into it, and therefore it is most desirable to have the power to invest in real estate where the security is greater.

Mr. ROSS (St. Paul's):

Is it not a fact that it is necessary for Canadian companies doing business in the United States to keep deposits equal to or greater than their reserves in various states? Is it not also true that it is becoming more difficult all the time for them to get investments which will yield what their rates are based on, namely three per cent? Therefore they are endeavouring under this measure to get investments which will help out the yield on that business.