Challenges affecting life insurers’ prospects

By The IJ Staff | August 12 2019 11:30AM

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Canada’s life insurance companies are well capitalized and have strong operating earnings, despite the prolonged low-yield environment as the three largest Canadian life insurers benefit from growth outside of Canada, says ratings firm DBRS. But the industry does face some challenges over the next year.

Momentum in top-line premium growth

Life insurers have seen good momentum in top-line premium growth, led by the group benefits segment and DBRS says it expects to see continued top-line growth for 2019 from domestic and international operations.

As of August 2019, most life insurance companies have stable trends with strong financial strength ratings ranging from “A” to “AA” for the sector.

However, there are several challenges and factors affecting the prospects for life insurers beyond 2019. These include economic/market uncertainties, a low-yield environment, accounting/regulatory changes and the ability to leverage advances in systems and technology.

The Canadian life insurance sector in total has experienced good growth in direct written premiums (DWP) in the last three years but DBRS cautions that growth in Canada will likely slow going into 2020.

While the majority of the DWPs written by the Canadian life insurance sector continue to be sourced in Canada, premiums sourced outside Canada are growing faster, especially by Great-West LifeManulife and Sun Life.

Growth in Asia

DBRS expects international businesses to continue to make an important contribution to premium growth for Canadian life insurance companies, particularly in Asia. Given the maturity of the Canadian market, organic growth in Canada is likely to be limited by growth in nominal GDP, says the ratings agency.

Both individual and group annuities in Canada continue to benefit from good growth as they have over the past two years while employers seek solutions to reduce the risk in their defined benefits plans.

“DBRS considers the Canadian life insurance sector to be relatively well positioned to cope with the challenges it faces, supported by its strong capital levels and earnings. In general, these life insurers have been managing their exposure to interest rate and equity market exposure by pivoting their product portfolio toward less capital-intensive offerings to maintain healthy regulatory capitalization ratios,” said Hema Singh, vice president, DBRS.

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