Who Killed Confederation Life?: The Inside Story

Duncan McDowall is a professor of history at Carleton University, and
the author of Quick to the Frontier: Canada’s Royal Bank.

In the 1970s and 1980s, Canadians grew inured to watching governments
“bail out” sick companies with timely subsidies and loan guarantees.
In August 1994, that pattern ended abruptly when Confederation Life, the
fourth-largest insurance company in Canada, failed and its $19 billion
in assets were placed under federal receivership. On a global scale, it
was the fourth-largest financial services collapse ever—not at all the
sort of thing that one would have expected to overtake the sober-sided
Canadian insurance industry. Veteran journalist Rod McQueen has now
given us “the whodunit tale of who killed Confederation Life.” The
result is a masterpiece of business journalism, the worthy recipient of
the 1996 National Business Book Award.

This is no witch hunt. McQueen resists the temptation to pin the whole
blame on Confederation Life’s hard-drinking, reckless dreamer of a
CEO, Pat Burns, who succumbed to the temptations of investing too much
of his policyholders’ money in real estate in the heady deregulating
1980s. Burns’s aggressive strategy went against the conservative grain
of Canadian insurance, but McQueen points out that neither the
company’s directors nor—except belatedly—federal regulators
questioned Burns’s policies. Only when real-estate prices collapsed
did Confederation’s precarious state become apparent. Asset shedding
and a desperate rescue attempt by Great West Life and other insurance
companies followed. Ottawa dithered. All implicitly seemed to trust in
the notion that Confederation was “too big to fail.” Between these
cracks, the company slipped into oblivion. “Greed, stupidity, and
sloth were the culprits,” McQueen concludes. The victims:
Confederation’s 4400 employees and its 450,000 policy- and
annuity-holders worldwide.

McQueen writes a gripping, fluid story, drawing on the 125 interviews
he conducted and on a close reading of the financial press. He excels at
presenting complex financial matters lucidly and with drama. He weighs
his evidence carefully, providing the reader with a candid appendix on
the dangers of “retrospective journalism” that relies so heavily on
interview recollection. Also praiseworthy are the recommendations that
McQueen lists in an appendix to ensure that federal regulators,
corporate auditors, and boards of directors are in future more vigilant
and companies more prudent in running and reporting their operations.
McQueen thus provides a powerful antidote to the oft-heard criticism
that our business journalism is hasty and shallow. In fact, McQueen
conforms to a professional standard of judicious and balanced judgment
that policyholders once mistakenly believed prevailed in the management
of Confederation Life.