16 September 2019 13:30
The rating agency AM Best has announced on 13 September that it maintains rating outlooks stable for the canadian segment of the life insurance, thanks to the willingness of the industry to maintain strong capital levels to the regulatory and of the benefits and a subscription to the favourable given the low interest rate. Insurers are also welcomed for the diversification of their profits and their business profile in the international.
The concerns of the regulatory figure prominently in the report, which also examines the investments in the sector, accounting changes and their potential impact on the financial statements, as well as the growing importance of risk management systems of the company.
The test of sufficiency of the capital of life insurance companies (TSAV), for example, “is now a known element that has been absorbed with little concern in the strategic planning process of the industry,” says the report, entitled Canada Insurance : Still profitable amid growing challenges.
“AM Best believes that the insurance industry in canada life is well-capitalized,” says the firm’s rating. Capitalization (as measured by the TSAV) testifies to the structural integrity of the sector, while nearly all of the companies exceed the targets and conditions of 120 %. In fact, most have reached or exceeded 130 %. Total equity continues to grow organically, with strong net profits, which has allowed insurers to continue to pay dividends to shareholders. “
Although the growth opportunities on the domestic market remain limited, the authors of the report argue that the pricing discipline remains strong, helping canadian life insurers to remain focused on the growth of their major sectors of activity.
“The capital of insurers continues to grow thanks to profits solid made in the course of the last year due to solid fundamentals in underwriting, growth of direct premiums, and strong performance of equity markets during the year, despite the weak performance of the stock markets in the last quarter,” one can read in the report.
A trend towards a lower risk
Although the pressures on the interest rates continue to increase, the pricing of new products as well as the passage of liabilities less risky and more short-term, offset the pressure on interest rates, ” says AM Best.
“These events have also been supported by initiatives to reduce ongoing expenses through the automation and elimination of process redundancy. As a result, insurers have been able to unlock more capital from the insurance operations, that they have either returned to shareholders or used to support growing activities. “
Direct premiums have increased in all regions in 2018, under the effect of the improvement of the life, annuity and accident. The report highlights that Asia and Europe are the main responsible of the growth, given the maturity of the domestic market of Canada.
Transfer of the risk of pension
Niche markets such as the canadian market the transfer of risks related to pension plans are also growing for several years. Despite the decline in the growth of mutual funds, AM Best said that the deposits in mutual funds would also continue to have a positive impact on the activities of the sector.
Quick facts :
The net income before tax of life insurance companies of Canada, established in accordance with the international financial reporting standards (IFRS), has improved from 25% to 2018, to reach $ 14.2 billion canadian dollars.
The insurance assets were increased by approximately 5 %, or 60.1 billion in 2018, compared to a little less than 1 %, or $ 10.3 billion in 2017.
Source : AM Best.