The rating agency says that double-digit growth for the Canadian life insurers’ wealth management business in the second quarter helped continue the first quarter’s positive trend.
“Wealth management sales saw double digit growth for all three insurers across geographies, in many cases setting new highs for [assets under management] which bodes well for future fee income,” said David Beattie, a Moody’s vice president and senior credit officer, and author of the report. “Renewed customer investment activity and strong investment performance have both contributed to this trend.”
Moody’s says that it expects that, as the Canadian economy continues to recover, consumers will allocate more funds to retirement savings. Additionally, it suggests that higher interest rates and reduced equity market volatility will continue to encourage investment activity and mutual funds AUM, which is a stable source of recurring earnings for Canadian life insurers.
Separately, Moody’s notes that the second quarter also saw significant corporate development activity, with Sun Life Financial Inc. (SLF) completing the sale of its U.S. annuity business, and Great-West Lifeco Inc.’s (GWO) acquisition of Irish Life.
“SLF’s sale is credit positive for the insurer as it eliminates the group’s exposure to the chronically poor earnings of the U.S. subsidiary,” it says, adding that, “The GWO-Irish Life transaction has strategic benefits but Irish Life’s relatively weak credit profile will negatively affect GWO’s credit profile, given the attendant sovereign and economic risks associated with expanding operations in Ireland.”
Moody’s says that the quarter was relatively free of significant negative market impacts, with the exception of a $291 million charge taken by Manulife Financial Corp. (MFC) arising from the direct impact of equity markets and interest rates and investment-related losses. Although, it notes that $180 million of this may be reversed in future quarters. “[Manulife] remains the most exposed to earnings volatility arising largely from policyholder friendly guarantee features,” says the rating agency.