Canada’s life and annuity insurers posted generally positive operating results in 2023, according to an AM Best market segment report released Wednesday.
The new annualized premium of Canadian life insurance increased 4% to $1.86 billion in 2023 with participating whole life and fixed-rate annuities achieving record sales.
Carrier performance can be sensitive to interest rate changes and commercial real estate amid continued economic uncertainty. But insurers have maintained high levels of regulatory capital and good financial flexibility, AM Best said.
All 21 insurers that AM Best assessed received at least an “excellent” (A-) financial strength rating in 2023.
The ratings of three companies changed:
- Ivari was downgraded after being under review with negative implications when they were acquired by Sagicor Financial Company.
- TruStage Life of Canada was upgraded after further integration with the CMFG Life Group, as it provided more product and income diversification.
- And the rating outlook on Brookfield Annuity Company was revised to positive, “based on continued favourable risk-adjusted capitalization and qualitative balance sheet factors.”
None of the Canadian life insurance companies has a negative outlook.
“This relatively high ratings distribution for Canadian [life and annuity] insurers is partly due to Canada’s comprehensive regulatory environment,” the report said.
Carriers maintained Life Insurance Capital Adequacy Test (LICAT) ratios exceeding OSFI requirements. And entities under Quebec’s AMF also exceeded Capital Adequacy Requirements Guideline for Life and Health Insurance ratios (CARLI) requirements.
Although there was a transition to International Financial Reporting Standard (IFRS) 17, it did not materially impact most insurers’ LICAT ratios, as OSFI treats contractual service margin as available capital for LICAT, and applies similar treatment for the IFRS 17 risk adjustment, the report said. LICAT ratios will also be less sensitive to interest-rate movements under the new accounting standard.
The industry yielded $14.9 billion in pretax operational gains, in line with results from 2018-2020 after two strong years in 2021 and 2022, according to AM Best.
Asset distribution in 2023 shifted towards bonds, reflecting a desire for higher-yielding issues after two years of higher interest rates. Federal and provincial bonds and private corporate bonds took up 22.8% and 21.6% of invested assets respectively in 2023, up from 18.3% and 13.4% the year prior.
Meanwhile, bond holdings by sector remained largely the same between 2022 and 2023.
Also among the report’s findings was that insurers continued to improve the customer experience with digitization. Many insurers aim to go fully digital in the next several years.
“Insurers that were early to embrace innovation during and immediately following the height of the pandemic generally outperformed their peers and are well positioned to take advantage of future growth opportunities,” the report said.