AM Best announced April 2 that it has revised its market segment outlook on Canada’s life insurance industry to negative due to the financial market disruption caused by the COVID-19 pandemic. The ratings agency, however, is maintaining its stable outlook on Canada’s property & casualty (P&C) insurance industry.
In its Best’s Market Segment Report on Canada’s life insurance market outlook, AM Best says that while “most of Canada’s life/annuity insurers maintain strong balance sheets and likely will be able to absorb regulatory capital changes resulting from volatility in the global financial markets, their near-term operating performance will be affected negatively.”
Low interest rate environment
AM Best says expectations of a significant contraction in the global economy, is one of the factors that influenced its negative outlook for the life insurance industry. This contraction “is likely to challenge the top line growth of Canada’s life insurers and suppress spread- and fee-driven income,” says the agency. Another factor affecting the outlook for life insurers is the likelihood of a prolonged low interest rate environment.
The ratings agency underlined that a negative outlook for the industry “does not necessarily correlate to an increase in negative rating actions by AM Best; rather, it anticipates headwinds to the operating performance metrics of Canada’s insurers. Over the past decade, Canadian companies have stress-tested multiple pandemic scenarios using better data and modeling techniques, which has placed them in solid positions to manage this risk, and they are generally well-prepared to quantify the impact in their financial metrics.”
Sophisticated underwriting
The stable outlook on Canada’s P&C industry is being maintained “based on the segment’s solid risk-adjusted capital and increasingly sophisticated underwriting and distribution capabilities and enterprise risk management practices.
