OLDWICK, N.J.--(BUSINESS WIRE)--Net income in 2014 increased 23.0% year over year for the four largest publicly traded Canadian insurance companies, according to an A.M. Best special report.
The Best’s Special Report, titled, “Canadian Life Insurance Companies Earnings Improve As More Changes To Come,” states that the improved results in International Financial Reporting Standards earnings for Manulife Financial Corporation, Sun Life Financial Inc., Great-West Lifeco Inc. and Industrial Alliance Insurance and Financial Services, Inc., were aided by favorable equity markets, low credit impairments, growth in asset management business and international expansion. Continued low interest rates and limited domestic organic growth due to the maturity of the Canadian life insurance marketplace remained as headwinds. The industry’s earnings also benefited from actuarial changes to the Canadian Asset Liability Method, effective during the fourth quarter of 2014, and the weakening of the Canadian dollar when accounting for international business.
Positive market performance and the focus on less capital intensive retirement products and fee income generation led to strong growth in assets under management, which increased 13.5% in 2014 for the four largest Canadian insurers. Net premiums saw a more modest increase of 4.1%, as organic growth remains a challenge. Product re-pricing has also continued due to low interest rates and unfavorable policyholder behavior in products such as disability income and long-term care.
Capitalization, as measured by the Minimum Continuing Capital and Surplus Requirements (MCCSR), has also remained strong. Despite decreasing interest rates through 2014, MCCSR levels did not change much from 2013 as they continue to be above the 200% level for all four public companies. Total equity, on the other hand increased, 12.5% for the four largest insurers in 2014, and companies have looked to deploy capital in the form of increased dividends to shareholders and through acquisitions.
The start of 2015 brought challenges to the Canadian life insurance industry, due to volatility in commodity markets such as oil and gas and the Bank of Canada’s unexpected 25 basis-point reduction in the overnight rate target from 1.0% to 0.75% in January. A.M. Best expects that risk-focused actions such as hedging, proactive price actions and product portfolio re-positioning in light of the low interest rate environment will continue to help companies withstand these challenges. As observed in the year-end 2014 reported results, some of the volatility in earnings seen in past results has been reduced through management actions and more recently, to modifications to actuarial standards such as the Ultimate Reinvestment Rate.
For a full copy of this special report, which includes a look-ahead at planned financial reporting changes, please visit: http://www3.ambest.com/bestweek/purchase.asp?record_code=235421.
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