BoC announces interest rates

by Nicolas Heffernan04 Mar 2015
The life insurance industry is still under interest rate pressure as the Bank of Canada (BoC) held the key overnight rate at 0.75 per cent.

“As long term rates stay low there is more and more pressure on profitability for the insurance companies,” said Nazir Valani, KPMG’s senior actuary for Life and Pensions. “So it will create a significant problem if interest rates stay where they are for an extended period.”

The Bank of Canada argued that it is already delivering an “appropriate” amount of monetary stimulus to counter the hit from lower oil prices.

“At present, we judge that the current degree of monetary stimulus is still appropriate,” the bank said in statement, noting that the risks to the inflation outlook and financial stability are now “more balanced.”

While the industry can be thankful the rates didn’t go lower, the news does nothing to alleviate the effects of interest rate trends from the last five years.

“The thing is, when rates go down it makes life insurance much more expensive,” said Mike Stocks, vice president of insurance marketing at Empire Life. “So over the last five to 10 years, many whole life insurance plans have become unaffordable for many Canadians.”

Many economists are still anticipating a second interest rate cut at the bank’s next rate announcement April 15.

“Obviously that’s creating challenges for the industry generally, to price competitive products,” said Hendrik Verdurmen, Forester’s VP of Product Development, North America Life Insurance. “The interest rate environment is probably the predominant topic in the life insurance industry.”


  • by Chantal Marr 2015-03-05 3:19:49 PM

    Great article and interesting view. Many industry experts are saying not to worry too much about this rate cut in particular, since rates have been so low for so long as it is.