Ratings agency, AM Best has published a recent segment report, Canadian Life/Annuity: Insurers Look to the Future amid Economic Uncertainty. In it, they say Canada’s life and annuity industry performed well in 2023, thanks to economic growth and favourable interest rates. The capital and financial impacts of IFRS 17 were largely as expected and insurers continue to accelerate their digitalization efforts.
All of these led AM best to maintain its stable outlook for the industry. In the report, they note the industry’s prudent regulatory capital levels, adequate liquidity, favourable earnings and underwriting efforts as interest rates begin to decline.
Sales growth
“Canadian L/A insurers have performed relatively well over the past year due to sales growth and favourable interest rates, but they still face a number of headwinds, including the following: Rising costs due to persistent inflationary pressures, ongoing uncertainty about domestic and global economy due to inflation and the potential for further interest rate cuts and concerns about L/A insurers’ exposures to real estate and private credit investments.”
Favourable investment returns
They say positive operating results in insurers’ core lines of business were thanks in part to favourable investment returns, higher interest rates and accelerated demand for participating whole life products and fixed-rate annuities. Both the U.S. and Canada posted record sales in the past year, they add.
“Canadian L/A insurers remain in a solid position, with strong balance sheets marked by high levels of regulatory capital, deployable excess capital and good financial flexibility,” they write. “In addition, L/A insurers continue to focus on enterprise risk management programs to manage current, as well as new and emerging risks. As a result, Canada’s L/A insurers are well equipped to navigate changing conditions over the near term, including the current economic uncertainty.”
