Insurers battle to improve profitabilityBy Alain Thériault | July 06 2011 07:38PM
Several insurers reported profits in 2010 and a significant majority saw an increase in their revenues despite low interest rates and uncertain economic conditions. However, some insurers did register losses, including Manulife Financial. As for 2011, however, insurers are struggling to improve earnings. Out of the 56 insurers and subsidiaries listed in our Financial Results of the Major Life Insurers in Canada tables, half saw their profits increase in 2010 compared to 2009. According to data compiled by MSA Research for The Insurance and Investment Journal, more than two thirds of insurers reported increases in their Canadian income during this same comparison period. Insurance premiums in Canada also grew during 2010 (For a summary of 2010 results, read Four insurers posted losses in 2010 published on www.insurance-journal.ca/extra).
Manulife Financial reported net income of $985 million in the first quarter of 2011, which is 20% less than it did in the same quarter of 2010, when net income reached $1.224 billion. In the first quarter, the insurer’s MCCSR was 243%, while it was 250% in the first quarter of 2010. Premiums and deposits for the first quarter of 2011 totalled $17.7 billion compared to $17.2 billion in first quarter 2010, an increase of 3%. The return on equity was 17.4% in first quarter 2011, compared to 19.2% in the same quarter a year earlier.
Manulife says it is pleased with these results which represent progress in regard to its strategic plan. The insurer said it beat its deadline for dealing with sensitivity to interest rates and equity markets. It improved the composition and profitability of its product portfolio. It also maintained high levels of capital. In his first quarter message to shareholders, Manulife’s president and CEO, Donald Guloien said that these results were achieved despite much higher hedging costs in the stock market as well as events related to the earthquake in Japan.
In the first quarter, Sun Life Financial’s net income rose to $472 million compared to $434 million for the same quarter in 2010, an increase of 9%. The return on equity stood at 13.5% for this period. Premiums and deposits increased slightly from $20.5 billion to $21 billion. The MCCSR ratio increased from 210% in the first quarter of 2010 to 229% in the first quarter of 2011.
In Canada, individual life insurance sales surpassed $47 million in the first quarter of 2011, an increase of 21% compared to the same period in 2010. However, segregated funds sales dropped by 30% during this period, coming to $386 million.
In the first quarter of 2011, Great-West Lifeco reported $390 million of net income, compared to $409 million in first quarter 2010, a decrease of 4.5%. Great-West Lifeco’s first quarter financial results were impacted by a loss of $5 million caused by the earthquake in Japan. A subsidiary of Great-West Lifeco, London Reinsurance Group, was selling property and casualty reinsurance contracts in that country.
As for the insurer’s MCCSR ratio, it stood at 200% in the first quarter of 2011, while it had been 202% in the first quarter of 2010. Premiums and deposits increased slightly from $7.2 billion in the first quarter of 2010 to $7.3 billion in the first quarter of 2011.
In the first quarter of 2011, Industrial Alliance’s net earnings were $66.1 million, versus $59.2 million in the first quarter of 2010, for an 11.7% increase. Return on equity was 12.6% in Q1 2011, edging down from 12.7% a year earlier. Premiums and deposits totalled $2.0 billion in the first quarter, up from $1.8 billion in the first quarter of 2010, a 7.8% increase. The insurer’s solvency ratio was 196% at March 31, 2011 under the new IFRS financial reporting standards, compared with 223% in the same period a year earlier, according to generally accepted accounting principles.
The insurer attributes the increased profitability to initiatives to mitigate the impact of the drop in interest rates, among other factors. CEO Yvon Charest opted for contrarian risk management. “Most people thought that 30-year long-term rates would increase in 2011. They rose slightly early in the year, but since then they reverted to their previous level. In risk management, you should never take anything for granted,” he told The Insurance and Investment Journal in an interview. Mr. Charest said that one tactic was to aim for better matching of long-term commitments.
One item on Mr. Charest’s to-do list: make individual disability insurance products of Industrial Alliance’s subsidiary L’Excellence available throughout Canada in 2011. There are no plans to withdraw any products. “We are the only one of the four large Canadian public insurance companies to have regained our pre-crisis sales level,” he states, underlining the speed of the insurer’s rebound.