Four insurers posted losses for the Canadian operations last year. This is what was revealed in an analysis by The Insurance and Investment Journal based on data compiled by MSA Research.
Manulife Financial’s loss was the most striking (see below). In 2010, it reached $147 million for its main Canadian operation. In 2009, its Canadian operations reported net income of $2.7 billion, but a loss of $67.8 million in 2008.
In 2010, Transamerica saw a loss of $23 million. After a loss of $583 million in 2008, the insurer had a brief respite in 2009, when it reported net income of $87 million.
The other insurers who posted losses in Canada in 2010 are Assurant Life of Canada and Promutuel Life.
The three big Canadian multinational insurers continue to dominate the industry. Great-West Lifeco, Manulife Financial, and Sun Life Financial account for $23.5 billion in individual life insurance premiums in Canada, which is more than half of the $42.8 billion that MSA lists as the national total.
In Canadian rankings, MSA’s results show that Sun Life Financial obtained the best growth of profitability among the top three. Its net income went from $714.7 million in 2009 to $1.572 billion in 2010 for growth of 120%.
In 2010, Sun Life Financial tripled its net profits, increasing it to $1.583 billion from the $534 million reported in 2009. The return on equity was 9.9% in 2010 compared to 3.4% in 2009. The insurer’s MCCSR stood at 228% in 2010, while it was 221% in 2009. As for premiums and deposits, they reached $13.5 billion in 2010 compared to the $15.5 billion recorded in 2009, which is a decrease of 13.0%.
Great-West Lifeco reported net income of $1.657 billion compared to $1.627 billion a year earlier, an increase of 1.8%. Its return on equity reached 14.4% in 2010 versus 13.8% in 2009. Premiums and deposits reached $59.1 billion in 2010, an increase of 4.2% over 2009. Great-West Lifeco reported an MCCSR ratio of 203% in 2010, compared to 204% in 2009. Individual life insurance sales rose by 23% between 2009 and 2010, while wealth management increased by 25% during the same period.
Great-West Lifeco’s three Canadian subsidiaries posted differing results. Only Canada Life saw its profits increase in 2010 compared to 2009; Great-West’s net income declined by 21% from $1.743 billion in 2009 to $1.377 billion in 2010, while London Life’s saw its net income reduced from $396.4 million in 2009 to $158.6 million in 2010, a drop of 60%.
Manulife and IFRS
The big three insurers’ annual reports show the extent of their international activities, and Manulife’s reveals its loss. The insurer is the only one to have been seriously affected by the new International Financial Reporting Standards (IFRS). Introduced on January 1, IFRS only had a minimal effect on the results of the other two major players in the industry. (The three largest insurers issued a second version of their 2010 results under the IFRS guidelines. All insurers were required to present their first quarter results for 2011 in IFRS format).
Under generally accepted accounting principles, Manulife Financial reported a net loss of $391 million in 2010. Its net income was $1.402 billion in 2009. The return on common shareholders’ equity was -7.04% in 2010, while it had been 5.2% in 2009. The net loss experienced by Manulife is due to a $1.039 billion impairment of goodwill related to the repositioning of its American insurance activities, and to reserve strengthening. This increase in reserves came at a cost of $2.072 billion.
These burdens became heavier under IFRS. Under the new guidelines, the insurer was required to declare a net loss of $1.667 billion for 2010. Under the IFRS, the goodwill impairment charge also totalled $ 3.064 billion. This impairment test could result in future losses. One internal source told The Insurance and Investment Journal that the decrease due to IFRS was not a surprise, and that its impact had been fully anticipated.
The insurer also believes that the January 1 transition to IFRS will lower its Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio by about three points starting with first quarter of 2011, and by about six points during the two year transition period ending at the end of the fourth quarter of 2012. In 2010, Manulife had an MCCSR ratio of 249%, 9% higher than in 2009.
MSA Research data indicate several highlights among midsize players.
Two Québec heavyweights are in a class of their own in the industry. Leaving the midsize league behind, they have now joined the top five insurers in Canada. Both stalwarts posted strong results in 2010.
In its annual report, Industrial Alliance calls 2010 a record year for growth and profitability. The insurer garnered net earnings of $250.8 million in 2010, passing its 2007 record of $242.2 million. The 2010 earnings are 22% ahead of those of 2009, which stood at $205.8 million. Return on equity reached 12.6% in 2010, up from 11.9% in 2009. Premiums and deposits totalled $6.6 billion in 2010, a 27% rise. The solvency ratio dipped from 208% in 2009 to 205% in 2010.
Individual life insurance sales climbed 27% between 2009 and 2010, to reach a new peak of $186.6 million. Wealth management sales soared by 56% in 2010, to $3.7 billion.
Nose to nose with its main Québec competitor in terms of direct premiums, Desjardins Financial Security ended 2010 with net earnings of $234.7 million, compared with $193.8 million in 2009, amounting to growth of 21.1%. Its return on equity was 24.1%. Income from insurance premiums and annuities stood at $3,034.1 million in 2010, up 1.7% from 2009.
Insurance sales totalled $183.5 million in 2010 and individual insurance sales rose by 12.0%. The savings sector continues to advance, propelled by vigorous sales of $1,807.4 million. Group retirement savings sales totalled $371.7 million and individual savings sales were $958.7 million. Investment funds swelled from $314.5 million in 2009 to $477.0 million in 2010.
The strategy of diversifying outside Québec has borne fruit for DFS. Insurance sales outside Québec surged by 26.6% in 2010 compared with 2009. Group savings pension sales gained 37.0% outside Québec in 2010 compared with the previous year. Caissassurance continued to fuel DFS sales, as growth of sales insurance from this network rose by 13.0% since 2009. DFS also saw mutual funds advance by 51.7% in 2010 over 2009.
Standard Life, the six largest insurer in Canada in terms of direct premiums, was the profitability champion in this class in 2010, as its net earnings ballooned from $110.4 million in 2009 to $288.8 million a year later…a staggering increase of 162%! This feat is even more impressive given that its income slipped from $3.2 billion in 2009 to $3.1 billion in 2010.
SSQ Life’s earnings climbed from $35.0 million in 2009 to $40.5 million in 2010, a 15.6% increase. Total income also rose, from $1.4 billion in 2009 to $1.5 billion in 2010, for growth of 5.4%. In its annual report, SSQ Groupe financier announced a return on equity of 16.2%.
After sustaining heavy losses in 2008, BMO Life Insurance regained profitability in 2009. In 2010, net earnings were $22.5 million, for a stellar rise of over 73%
AXA Insurance boosted its profitability by 35.5%, bringing sales to $16.2 million in 2010. All the same, the insurer, which was just acquired by Intact, saw its income slump by 11.7% between 2009 and 2010, to reach $199.7 million
La Capitale’s annual report mentioned net earnings of $50.9 million, 6.9% higher than the previous fiscal year. Its return on equity was 12%. Individual life insurance sales rose to $15.5 million, up 16.8% compared with 2009. Sales of deposits and savings products advanced by 16% since 2009, reaching $96.6 million.
By combining the MSA Research data on La Capitale Insurance and Financial Services with that of La Capitale Civil Service Mutual, the personal insurance mutual hoisted its net earnings by 18.0%, from $39.3 million in 2009 to $46.4 million in 2010. Growth of net earnings was particularly strong for La Capitale Insurance and Financial Services. From $5.0 million in 2009, it rocketed 31.7%, to $6.6 million. This entity reported income growth, whereas income declined in the Civil Service Mutual.
The MSA data also point to downturns for some players. RBC Insurance saw its earnings plummet by 82.4%, from $118.8 million in 2009 to $20.9 million in 2010. Income edged down to $1.9 billion in 2010.
Empire Life also sustained a drop in profitability: net earnings sank from $50.7 million to $28.8 million. Medavie Blue Cross saw its earnings fall 43.8% between 2009 and 2010, despite a slight increase in income from $1.4 billion to $1.5 billion during this period. Earnings at Co-Operators were down 25.0% and those of National Bank Life Insurance dropped by 19.3%