Canada's ongoing economic recovery will drive earnings growth in the Canadian life insurance industry in 2015, according to a new report from Moody's Investors Service.
"In addition to the improving economy, the Canadian life insurance industry benefits from a favorable structure, with three dominant players sharing 60 per cent to 70 per cent of premiums, and from strong asset valuations," said David Beattie, a Moody's Senior Vice President.
Moody's expects that a gradual rise in interest rates in 2015 will help sustain revenue and improve the earnings of Canadian life insurers.
Despite risks such as continued low oil prices, which could reduce the projected federal government surplus, the credit profiles of Canadian life insurers will likely continue to improve.
Robust growth in assets under management will continue in 2015, driving earnings growth. While a credit positive, this growth is repositioning the business mix of the Canadian insurers and could increase earnings volatility under depressed market conditions.
Furthermore, enhanced hedging programs will continue to minimize liability risk and support earnings stability. They will mitigate charges driven by the mark-to-market increases to equity market-sensitive actuarial liabilities.
In addition, Canadian insurers will continue to exercise discipline in pricing and designing new products, as well as better manage their in-force business, improving profitability and limiting the risk profile of their in-force liabilities over time.
However, Moody's notes that a prolonged market correction, along with sustained low interest rates, is a major risk to the industry's recovery.
There’s good news on the horizon for life insurers.