Rock-bottom interest rates and strong economic headwinds are doing little to hold back Canada’s top life insurance companies, according to new research. Here’s why.
The four largest publicly traded companies saw net income increases in 2014 of 23 per cent year over year, according to an A.M. Best special report.
Manulife Financial Corporation, Sun Life Financial Inc., Great-West Lifeco Inc. and Industrial Alliance Insurance and Financial Services, Inc., “were aided by favorable equity markets, low credit impairments, growth in asset management business and international expansion. Continued low interest rates and limited domestic organic growth due to the maturity of the Canadian life insurance marketplace remained as headwinds.”
Actuarial changes to the Canadian Asset Liability Method in the fourth quarter provided the industry a boost accounting for international business thanks to the weakening of the Canadian dollar.
Assets under management increased 13.5 per cent last year for the big four largest because of positive market performance and the focus on less capital intensive retirement products and fee income generation.
Net premiums saw a more modest increase of 4.1%, as organic growth remains a challenge.
Product re-pricing has also continued due to low interest rates and unfavorable policyholder behavior in products such as disability income and long-term care.
Despite the good news, the idnsutry was challenged by the volatility in commodity markets such as oil and gas and the Bank of Canada’s unexpected reduction in the overnight rate target from 1 per cent to 0.75 per cent in January.
“A.M. Best expects that risk-focused actions such as hedging, proactive price actions and product portfolio re-positioning in light of the low interest rate environment will continue to help companies withstand these challenges,” the report says.
“As observed in the year-end 2014 reported results, some of the volatility in earnings seen in past results has been reduced through management actions and more recently, to modifications to actuarial standards such as the Ultimate Reinvestment Rate.”
Manulife Financial Corporation, Sun Life Financial Inc., Great-West Lifeco Inc. and Industrial Alliance Insurance and Financial Services, Inc., “were aided by favorable equity markets, low credit impairments, growth in asset management business and international expansion. Continued low interest rates and limited domestic organic growth due to the maturity of the Canadian life insurance marketplace remained as headwinds.”
Actuarial changes to the Canadian Asset Liability Method in the fourth quarter provided the industry a boost accounting for international business thanks to the weakening of the Canadian dollar.
Assets under management increased 13.5 per cent last year for the big four largest because of positive market performance and the focus on less capital intensive retirement products and fee income generation.
Net premiums saw a more modest increase of 4.1%, as organic growth remains a challenge.
Product re-pricing has also continued due to low interest rates and unfavorable policyholder behavior in products such as disability income and long-term care.
Despite the good news, the idnsutry was challenged by the volatility in commodity markets such as oil and gas and the Bank of Canada’s unexpected reduction in the overnight rate target from 1 per cent to 0.75 per cent in January.
“A.M. Best expects that risk-focused actions such as hedging, proactive price actions and product portfolio re-positioning in light of the low interest rate environment will continue to help companies withstand these challenges,” the report says.
“As observed in the year-end 2014 reported results, some of the volatility in earnings seen in past results has been reduced through management actions and more recently, to modifications to actuarial standards such as the Ultimate Reinvestment Rate.”
