Sales of life insurance policies spiked in the fourth quarter (Q4) of 2016 as Canadians scrambled to get policies in place in advance of the new, more restrictive tax rules that kicked in on Jan. 1.
Quarterly earnings reports from Canada’s major life insurers reveal that sales of individual life insurance policies in Canada were considerably higher in 2016 vs. 2015, with a particularly pronounced bump in Q4 sales compared with the same period the previous year.
At Toronto-based Manulife Financial Corp., for example, retail insurance sales in Q4 were $94 million, up by 92% from Q4 2015, driven by higher universal life (UL) sales.
“Some of our sales were a little elevated on the retail side because of the tax-exempt rule changes that were coming through, so we saw a bit of a fire sale happening there,” said Marianne Harrison, president and CEO of Manulife Canada, during the company’s Q4 earnings conference call on Feb. 9.
New rules that kicked in at the beginning of January have resulted in substantially less room for clients to hold tax-exempt investments in permanent life insurance policies, among other things.
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As such, insurers have been forced to eliminate features and raise premiums on many of their permanent life insurance products and, in some cases, discontinue products altogether to accommodate the new rules. As policies purchased by the end of 2016 were grandfathered under the previous tax rules, many advisors and clients rushed to get policies in place before the end of the year.
At Winnipeg-based Great-West Lifeco Inc. (GWL), individual life insurance sales in Canada more than doubled in Q4, reaching $341 million, compared with $137 million in the corresponding quarter the previous year. The increase was driven largely by participating life sales, which increased by 183% year-over-year while UL and term life insurance sales increased by 73%.
Toronto-based Sun Life Financial Inc. also doubled its individual insurance sales in Q4, year-over-year, to reach $203 million.
At Quebec City-based Industrial Alliance Insurance and Financial Services Inc. (IA), total retail insurance sales in Canada amounted to $71.4 million in Q4, up by 37% from the same period the previous year.
Similarly, Kingston, Ont.-based Empire Life Insurance Co. also saw a boost in individual insurance sales in Q4, despite its move to discontinue UL policy sales during the quarter in response to the low interest rate environment and the tax changes. The company reported on Feb. 24 that individual insurance annualized premium sales increased by 17.5% in Q4, compared with Q4 2015, driven by higher sales of participating products.
The increase in Canadian sales was also noticeable for 2016 overall: Manulife’s retail insurance sales rose by 30% to $235 million in 2016 over 2015; GWL’s individual insurance sales rose by 48% to $785 million compared with the previous year; Sun Life’s individual insurance sales for the full year were up by 36%; and IA’s individual insurance sales jumped by 20% in Canada.
Waterloo, Ont.-based Equitable Life of Canada also reported a record year for individual sales, which reached $93 million, up by 60% from 2015.
Life insurance sales in 2017 are likely to be considerably slower compared with the exceptional sales boost in the lead up to the tax changes. However, companies such as Sun Life are optimistic that 2017 will be another strong year despite the new rules.
“We’ve got very strong underlying sales momentum in our retail life business in Canada, even when you take the sort of spike effect out,” said Kevin Dougherty, president of Sun Life Financial Canada, during the company’s Q4 earnings conference call on Feb. 16.
Sun Life made a variety of major changes to its product lineup and underwriting process in advance of the tax changes, he noted.
“We’re probably the only provider in Canada that took the opportunity of the tax changes to effectively relaunch our entire life insurance product line,” Dougherty said. “So, we [are] very optimistic about 2017 and how our product line is positioned to sell in what will be, hopefully, a better underlying interest rate environment as well.”
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