The Canadian life insurance market experienced sales growth in 2007. Life insurance premium volume in Canada rose by 5.7%, versus 3.5% in 2006, and segregated fund sales were the main revenue driver.

The latest report by A.M. Best shows that segregated fund sales – particularly individual segregated funds – enjoyed continued growth in 2007, with deposits increasing approximately 12%. The rating agency believes that retirement savings and income protection products continue to have greater growth potential than life protection products.

Guaranteed minimum withdrawal benefit (GMWB) products such as IncomePlus, SunWise Elite Plus, Helios and Ecoflextra provide consumers with a minimum annuity, and offer growth potential pegged to stock market performance.

"Unlike life insurance, where the customer is worried about dying too soon, the customer is now worried about outliving his income," A.M. Best reports. Canadians nearing retirement will live longer than their parents, and must set aside enough assets to generate steady income until death.

The boom in sales of GMWB products has prompted some life insurers to add their own products. Empire Life and SSQ Financial recently announced their own versions (see page 3 for details on SSQ’s new product and refer to page 46 of the September edition for more on Empire’s GMWB product plans).Aside from the zeal for variable annuities, the financial solidity of the life insurance industry has remained stable in Canada despite the global economic turmoil triggered by the burst of the real estate bubble in the United States in August 2007.

In Canada, "the mortgage markets have not experienced the subprime meltdown that has plagued the United States," A.M. Best points out, adding that the Canadian life insurance industry is well positioned to deal with the volatility in global markets due to its minimal exposure to distressed asset classes.

According to the agency, "domestic insurers continued to invest in high-quality bonds (62% of invested assets) with a significant portion in government (federal and provincial) securities. Mortgage loans, which accounted for 17% of invested assets in 2007, have minimal exposure to subprime lending."

Concentration waning

Concentration in the life insurance market has eroded since 2005. It went from 86.9% that year to 86.3% in 2006 and slipped to 86% in 2007. These figures appear in The Insurance Journal ’s annual market share compilation of the ten main life companies in Canada. The ranking takes into account holding companies. In 2007, these leaders cornered $34.3 billion of the $39.8 billion garnered by the industry.

Noteworthy changes in the rankings compared to the year previous occurred among the top ten Canadian life insurers.

AIG Group made its debut in the rankings, in tenth position, nudging out Empire Life. AIG Group, which includes AIG Life of Canada and AIG Assurance Canada, experienced the sharpest growth of the ten life insurance giants in Canada. In 2007, premium volume soared by 37.2% compared with the previous year, from $593 million to $814 million. Empire Life moved down a notch in the rankings despite premium growth of 5.5%.

Industrial Alliance was propelled to fourth from fifth place thanks to a 11.6% hike in premium revenue, from $2.5 billion to $2.8 billion between 2006 and 2007. Industrial Alliance’s move upward in the market share rankings was made at the expense of Desjardins Financial Security, which now finds itself fifth place despite reporting premium growth of 5.5%. The only insurer in the Top 10 to report a lower premium volume is Standard Life Canada, whose sales dropped from $1.6 billion to $1.4 billion, or 10.6%

The "Big Three" players, Great-West, Manulife Financial and Sun Life Financial, controlled 58.6% of the Canadian market in 2007, a proportion roughly unchanged from the previous year. The trio managed to make overall premium gains, but could not increase their market shares. The total premiums earned by the three rose from $22.2 billion to $23.3 billion between 2006 and 2007, for growth of 5.3%. The income growth coupled with stagnant market share signal that the lifeco titans are facing increasingly fierce competition.

A.M. Best reveals that smaller Canadian life insurers have continued to show favourable operating results despite the market and pricing power of the Big Three. "To distinguish themselves in the market, some smaller companies rely on product innovation and quality customer service to drive growth, especially in markets vacated by larger companies due to consolidation," the firm says.

Outside the Canadian top ten, Assurant Solutions and AXA Assurances saw the strongest growth in premium volume, with increases of 36.9% and 29% respectively.

Similarly stellar results are not a given in 2008, A.M. Best cautions. "The Canadian life insurance market has been able to maintain stable trends in recent years. The industry is in for a bumpy ride in 2008, however, as it faces the volatility in the global equity markets, inflation, low interest rates and a generally lower level of consumer confidence."