Canadian life insurers are facing weaker credit pictures as they’ve ramped up their international growth efforts, says Moody’s Investors Service in a new report.
The rating agency notes that Canadian life insurers’ international operations are riskier than their domestic businesses, and therefore, they are diluting the companies’ strong credit profiles.
Moody’s notes that the contribution to earnings by each of the big three insurers’ international operations varies greatly. Manulife Financial Corp. (TSX:MFC) has the biggest international footprint. Moody’s reports that it received 33% ($963 million) of its core earnings from its Asia division in 2012.
Meanwhile, the core European operations of Great West Lifeco Inc. (TSX:GWO) generated 21%, or $410 million of operating net income; and, Sun Life Financial Inc. (TSX:SLF) is significantly less reliant on international operations, with only 8%, or $129 million of operating net income coming from SLF Asia, Moody’s reports.
“The Canadian life insurance industry is very mature, which means that the insurers must look to other markets in order to grow,” said a Moody’s analyst and author of the report, David Beattie. “The three major Canadian life insurers have very different exposures, depending on the focus and scale of their international operations.”
Additionally, Moody’s says that a weaker operating environment — which is common in the international regions where Canadian life insurers have ventured — “will negatively affect an insurer’s overall credit profile, as the structural strength of the insurance industry and contractual agreements increasingly come into focus.”