The rating agency A.M. Best says that the Canadian financial system has, without a doubt, performed better than most industrialized nations, and that a conservative regulatory regime and tightened underwriting standards proved to be prudent.
According to data supplied by MSA Research and compiled by The Insurance Journal, overall life insurance premiums in Canada increased more in 2008 than in 2007. Despite the heavy tolls the financial crisis took near the end of the year, life insurance industry premium volume increased by 7% in 2008 over 2007. This is an even higher growth rate than experienced in 2007, when the rate was 5.7%.
Nevertheless, the crisis has still affected life insurers’ business on several levels.
Back in March 2009, A.M. Best reduced the outlook for the Canadian life insurance industry from stable to negative.
This September in Toronto, A.M. Best discussed its newly released report on the life industry and the challenges it must overcome in the coming months.
The agency’s special report noted that the industry is still dealing with several challenges, including reduced growth in 2009, rising unemployment, a weak real estate market (especially in the commercial sector), a drop in household net worth, falling consumer confidence, a volatile currency and stock market, as well as low interest rates.
A.M. Best outlined several steps companies can take to address the effects of the crisis, suggesting that insurers could reduce the risk of their insurance and retirement products, increase liquidity, review their exposure to credit risk, and reduce their expenses by cutting back on their workforce.
In addition, the rating agency believes that preserving and rebuilding capital is the cornerstone to these strategies and points out that listed companies have succeeded in increasing their capital despite very difficult market conditions. These capital raising initiatives took different forms, including the issuance of common or preferred stock, as well as debt.
At the end of 2008, the asset allocation of Canadian life insurers remained fairly constant despite the economic storm. Companies had invested primarily in high quality debt (63% of assets), a significant portion of which included bonds issued by federal and provincial governments. Mortgages represented nearly 18% of portfolios, while common shares made up an average of just 6%. Most equity investments were in the financial services sector (32.6%) and in utilities (17.6%).