The big three Canadian life insurers are benefiting from growth in their asset management businesses, says Moody’s Investors Service in a new report.
In a new report which focuses Canada’s top three life insurers —Sun Life Financial Inc., Manulife Financial Corp. and Great-West Lifeco Inc — the rating agency says that growth in the insurers’ wealth and asset management sales and assets under management (AUM) is a positive for insurance creditors. In particular, Moody’s says that growth in AUM is positive for the insurer’s holding company and operating company creditors, because of the diversification it adds to the insurance earnings mix.
“Asset management has quietly grown in prominence in the earnings mix of Canada’s top life insurers in the last five and a half years,” says David Beattie, a Moody’s senior vice president. “Asset management generates low-risk, recurring fee-based earnings and is a low-capital-intensive business, which is credit positive in our view.”
Moody’s notes that the big insurers are also benefiting from additional economies of scale in their wealth management businesses. Additionally, it says that their asset management growth initiatives “leverage an existing core competency as well as their existing distribution strengths, in both retail and group insurance.”
However, the growth in wealth management is not without risks, too. “Our positive view is limited by a concern that, at some point, disproportionate growth in asset management could turn into a credit negative,” added Beattie. Moody’s notes that earnings from asset management are subject to equity market trends and could increase volatility in insurance earnings under depressed market conditions.