The Canadian life insurance sector generated strong and consistent earnings in 2004 and first-quarter 2005, says a new report from Standard & Poor’s. And, it suggests, that this will continue for the rest of the year.

S&P attributes the strength to “favorable macroeconomic conditions, recovering equity markets, fairly robust risk management cultures, and a relatively stable domestic pricing environment.” The positive momentum is expected to continue for the balance of the year, it says.

Earnings generated from the U.S. and other international operations have been dampened as they are translated into the Canadian dollar. While the strong Canadian dollar has led to a decline in consolidated earnings, this has not caused any impairment in the underlying U.S. or international businesses, it says. And, it adds that the impact of currency swings on the balance sheet has been muted as the liabilities are generally matched funded with assets in the respective currency.

The market remains intensely competitive, despite the industry consolidations of Great-West Lifeco Inc., Manulife Financial Corp., and Sun Life Financial Corp., the rating agency notes. These three life insurance groups, the largest in the country, benefit from scale and diversification, controlling two-thirds or more of the in-force domestic market.

“As the major market participants are stock companies, we believe that the dominant players will continue to exercise prudent pricing discipline and will have the added advantages of capital, scale, and technology to drive down their costs further,” says Standard & Poor’s credit analyst Donald Chu.