The outlook for the Canadian life insurance industry, which is dominated by three big players, is stable, says Moody’s Investors Service. That statement comes amid expectations that the big firms will continue to enjoy the advantages of their market power.
In a new report, Moody’s says that its “stable” outlook for the industry is based on the expectation that the three dominant players, Winnipeg-based Great-West Life Assurance Co., Toronto-based Manulife Insurance Co. and Waterloo, Ont.-based Sun Life Financial (Canada) Inc., “will continue to benefit from the scale and pricing power afforded them by this concentrated industry structure over the next 12 to 18 months.”
At the same time, the rating agency says, prevailing macroeconomic trends also support “stable and predictable” earnings growth for the industry in 2017. And, it says, sales and profitability will increase due to a growing demand for insurance products.
Rising interest rates in the future should alleviate earnings pressure from interest-sensitive businesses, it says.
“With so much of life insurers’ business sensitive to interest-rate fluctuations — from investments and liabilities to insurance products and sales — next year’s expected gradual rise in interest rates will be beneficial to the earnings of Canadian insurers. The drag on spread-based revenues and investment income will finally begin to slow and ultimately reverse,” says David Beattie, senior vice president at Moody’s.
The report also says that the new regulatory approach to capital should be an improvement from the current system. “The new framework will incorporate an explicit measure of operational risk for the first time and will improve the quality of capital and better align capital requirements with emerging risks,” the report says.
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