Investment portfolio performance may be a key factor driving company’s stock performance through the remainder of 2020, says John Aiken, director and analyst, Canadian financial institutions, with Barclays. In addition, he will also be watching sales, credit and long term disability claims.

“I think we’re probably going to see more pressure before we get to see eventual relief or a return to profitability for the industry.” - John Aiken

“I think we’re probably going to see more pressure before we get to see eventual relief or a return to profitability for the industry,” says Aiken. “We just don’t know how this is going to impact their portfolio, how severe it is going to be. We’re going to have to unravel this mystery over time – there is no roadmap for this. There’s nothing that we can point to in the past and say yes, this is very similar. Companies themselves, along with investors, are struggling to figure out what’s happening.”

Investor sentiment

In the near term and ongoing, he says because all of the life insurance companies have very significant wealth management operations to manage savings on behalf of customers, investor sentiment towards the markets will be one factor to watch.

“It’s going to be curious to see how it all shakes out. If retail investors become spooked on the markets again, you’re going to see lower level of wealth sales, which has been a very strong generator of both top and bottom line numbers for the industry.”

Longer term, he says he expects to see some increase in company’s actuarial liabilities which will flow through the income statement, putting pressure on earnings and ultimately on capital as well – an incremental change, not a disastrous one, he adds.

COVID-19 and mortality assumptions

“We also have to take a look and see what the actual implications COVID-19 will have on mortality assumptions, life expectancy – even if you are able to fight off the virus, does this shorten your lifespan? Issues like this. Actuaries will have to sort through, which could again, require more reserves on the actuarial side which could flow through on the income statement,” Aiken says. “What does this do to actuarial assumptions and does that have a material impact on reserves – good or bad? That’s not going to get resolved for a couple of years at least.”