Last September, the Insurance Journal revealed data from ISS Market Intelligence (ISS MI), according to which total gross sales of segregated funds had fallen by 27.7% between 2021 and 2022, and by a further 17% between 2022 and 2023, in Canada. The data included funds with guaranteed withdrawal benefits, as is the case in the data to follow.
The picture was quite different last year. With total gross sales of $16.3 billion in 2024, the segregated fund industry grew by 39.3% compared to 2023, according to the latest statistics from ISS MI. The trend continues, according to the investment fund research and analysis firm. In the first quarter of 2025, total gross sales of segregated funds reached $5.2 billion, compared with $3.9 billion in the first quarter of 2024, an increase of 33.3%.
In contrast, net flows (net redemptions or net sales) have been consistently negative for segregated funds for the past three years. After net sales of $4 billion in 2021, 2022 was less encouraging, with net redemptions of $200 million. In 2023, net redemptions peaked at $5.5 billion, only to fall back to $2 billion in 2024, the fourth quarter being the only year in which net sales totaled $300 million.
The first quarter of 2025 marks a return to net redemptions ($100 million), but gross sales are on the rise, according to ISS MI.
In an exclusive interview with the Insurance Portal, Carlos Cardone, CEO of ISS MI, explained that the ups and downs of segregated funds reflect how households allocate their investments and “what's happening in the marketplace overall with investment products.” He added that economic conditions also play a predominant role in decisions on whether or not to invest in segregated funds.
A turbulent story
Cardone traced recent movements in segregated funds. " In 2021, the markets were going through the roof and everybody wanted market exposure. ETFs (exchange traded funds), mutual and segregated funds were selling extremely well," he recalls.
Interest rates began to rise and markets crashed later in 2021. It was “catastrophic. It was a very unique situation. You had both equity markets and fixed income markets doing poorly.”
Driven by rising interest rates in 2022, “reallocations of money started to go towards GICs (guaranteed interest certificates) bank products, for the most part fixed term deposits,” says Cardone. " From early 2021 until the end of 2023, $350 billion dollars of net new money went into GICs. Mutual funds and segregated funds went into net redemptions in 2022 and then continued in net redemptions into 2023," he points out.
Net redemptions were milder in 2023 than in 2022, and this trend continued into 2024, ISS MI data reveals. In addition, gross sales are back on the rise.
According to Carlos Cardone, the economic interest rate environment has a lot to do with it. "In 2024, the interest rates came down. That had already a positive impact on market valuations. We are now seeing an environment where slowly but surely, money seems to be going back into some market exposed categories: equities to some extent, and fixed income in particular, where valuations have been coming up," observes Cardone.
On April 16, 2025, the Bank of Canada left its key rate unchanged at 2.75%. On December 11, 2024, the Canadian central bank rate was set at 3.25%.
A small asset class
Cardone points out the difference in scale between segregated fund flows and those of mutual funds during this period. Mutual funds experienced net redemptions of $43.7 billion in 2022, and $57.1 billion in 2023, according to statistics from the Securities and Investment Management Association (SIMA), formerly the Investment Funds Institute of Canada. For segregated funds, net redemptions reached $200 million in 2022, and $5.5 billion in 2023.
In contrast, SIMA's statistics reveal that exchange-traded funds (ETFs) achieved net sales of $36.1 billion in 2022, and $37.6 billion in 2023.
Cardone adds that segregated funds are a small asset class compared to mutual funds and ETFs. Segregated fund assets reached $144.2 billion in 2024, according to ISS MI statistics. By comparison, mutual fund assets reached $2,242.4 billion in 2024, and exchange-traded fund (ETF) assets $517.6 billion, according to SIMA statistics.
Estate benefits and lower fees
Cardone observes that insurers have been focusing on features unique to segregated funds for some time. He points out, among other things, that insurers are now positioning their segregated fund products as estate planning solutions. As a life insurance policy, segregated funds allow accumulated sums to be bequeathed directly to beneficiaries, without having to probate the deceased policyholder's will. What's more, beneficiaries will avoid paying probate fees, which are imposed in all Canadian provinces and territories except Quebec and Manitoba.
Cardone also reports that insurers have been focusing on the most affordable segregated fund guarantees for some time. For example, the 75% capital guarantee at maturity and 75% capital guarantee at death (75-75) option is proving very popular. "The insurance companies have been putting more emphasis on the fact that if you buy into a 75-75 guarantee, for example, say that you're buying into a fund that wraps an underlying mutual fund, the management expense ratio (MER) that you're paying on a segregated fund these days are a few basic points from the underlying mutual fund in A series (trailing fees)," he explains.
High net worth clients
To a lesser extent, the 75% capital guarantee at maturity and 100% capital guarantee at death (75-100) option is also attracting interest, despite its higher cost. In the high-net-worth market, it represents a strong argument. It's possible to create a policy of $1 million or more that can be paid directly to beneficiaries with a 100% capital guarantee, he gives as an example.
"Many companies have been trying to reposition segregated funds for high-net-worth investors. This is a product that high-net-worth investors have not necessarily taken into account (in the past)," he adds.
