With low interest rates and a complex regulatory environment, U.S.-rating agency A. M. Best has given the Canadian life insurance industry a stable but cautious rating.

“The concern continues to be the low interest rate environment and how long can companies maintain current margins in this environment,” Edward Kohlberg, an A.M. Best associate director told a conference in Toronto on Sept. 5.

Kohlberg said the low interest rate environment has caused some Canadian insurers to move out of annuities and into less-capital intensive mutual funds.

However, Kohlberg said all of the 29 companies A.M. Best rates in Canada are in the excellent or superior category with the exception of one company, which has a very restricted line of products.

The outlook is contrary to the situation in the United States, where A.M. Best has given life insurers a negative outlook since 2016.

Aging distribution network

On top of the rate situation, Anthony McSwieney, a senior financial analyst with A.M. Best, said the industry faces a number of challenges, including capital management, an aging distribution network and regulatory changes.

There is also the challenge of limited prospects for organic growth in Canada because it is considered a mature industry. But it is benefiting from the ongoing increase in participating insurance which was the only line of business to grow in 2017.

Property and casualty insurers continue to face risk from major natural disasters, as well as cyber security, developing technologies like blockchain and cannabis.

Despite these challenges, A.M. Best is maintaining its stable outlook on the P&C industry in Canada.