Best’s Market Segment Report: Solid Performance by Canada’s Life/Annuity Insurers Boosted by Customer-Focused Technology Shift; AM Best Maintains Stable Outlook on Segment

Sales growth and favorable interest rates over the past year have bolstered the performance of Canada’s life/annuity (L/A) insurers amid their smooth transition to IFRS 17 accounting standards, according to a new AM Best report.

The capital and financial impacts of IFRS 17, which took effect Jan. 1, 2023, were largely as expected and have been incorporated into L/A insurers’ financial plans. This shift was helped by the overall segment’s prudent regulatory capital levels, adequate levels of liquidity and financial flexibility that helped insurers navigate through any uncertainty. Favorable earnings and top-line growth, in addition to technology enhancements, were also factors that contributed to AM Best maintaining its stable outlook on Canada’s L/A insurance industry.

However, the Best’s Market Segment Report notes that a number of headwinds persist for Canada’s L/A segment, including:

• Rising costs due to persistent inflationary pressures;
• Ongoing uncertainty about domestic and global economy due to inflation and the potential for further interest rate cuts;
• Concerns about L/A insurers’ exposures to real estate and private credit investments through uncertainty.

In 2023, the segment’s L/A insurers continued to post generally favorable operating results in their core lines of business due to favorable investment returns owing to higher interest rates, as well as accelerated demand for products such as participating whole life and fixed-rate annuities. Both of these product lines continue to achieve record sales in Canada and the United States the past year. Canadian life insurance new annualized premium increased 4% in 2023 to CAD 1.86 billion, per LIMRA.

“Sales growth has been supported by technology-driven, customer-centric business models and the increased accessibility of customer data,” said Ed Kohlberg, director, AM Best. “Results are positive overall but can be sensitive to movements in interest rates, although the industry has done a good job at hedging interest rates risks.”

According to the report, two notable outlier positive years for pre-tax net income and other operating metrics following COVID-19 in 2021 and 2022, results in 2023 were a reversion to the mean for the insurance segment. A direct comparison is more difficult owing to the IFRS 17 update, but comparing 2023 results to 2022 results restated under IFRS 17 indicates a strong year of earnings.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=347967.

To view a video with Ed Kohlberg, please visit https://www.ambest.com/video/video.aspx?s=1&rc=ambmbcla1024.

AM Best will host an insurance market briefing on the state of Canada’s insurance industry in Toronto on Friday, Oct. 25, 2024. During the half-day event, AM Best analysts will deliver market insights and present overviews of Canada’s main insurance sectors. For more information, please visit the event website.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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