Wealth management helped drive first quarter growth for the big three Canadian life insurers, says Moody’s Investors Service in a new report.
The rating agency says that wealth management sales in both North America and Asia were important sources of growth for the big three Canadian insurers, Manulife Financial Corp., Sun Life Financial Inc. and Great West Lifeco Inc., during the first quarter.
“Asian franchises yielded double-digit wealth sales growth and continued to provide valuable exposure to higher growth rates and expanding markets,” says Moody’s vice president, David Beattie, in the report.
“Profitability lags the top line momentum as Canadian insurers active in Asia are investing heavily in these businesses. At some point we expect higher levels of profitability to emerge,” he adds.
The firm also notes that the growth in wealth management comes as the firms are carrying out reductions in the sale of products with policyholder friendly guarantee features, such as segregated funds and universal life, which dampened the insurers’ results.
It also says that spread compression, declining investment income, and the costs of hedging, is creating pressure on earnings, which may increase insurers’ appetite for risk. That said, there is no evidence of increased credit provisions or impairments yet, it adds.
“The challenge of how to return to pre-crisis levels of profitability absent a rise in interest rates remains the most significant strategic dilemma facing the sector,” says Beattie.