Canada's life and annuity (L/A) insurers reported solid operating results in 2023, driven by strong investment returns and increased demand for products like participating whole life and fixed-rate annuities.
According to the Life Insurance Marketing and Research Association, life insurance annualized premiums rose 4% to CA$1.86 billion from product line sales in both Canada and the US. This growth was supported by technology-driven business models that enhanced access to customer data.
However, industry experts have noted that the performance of insurers remains sensitive to interest rate movements. While the industry has successfully hedged some of this risk, ongoing monitoring of changes in rates and commercial real estate portfolios is essential.
Despite these challenges, Canadian L/A insurers are financially stable, with strong balance sheets, high regulatory capital, and excess deployable capital.
Credit impairments have been limited, though analysts warn that the industry continues to monitor risks associated with economic uncertainty. Insurers remain focused on managing both current and emerging risks through enterprise risk management programs. This preparedness positions them well to navigate changing market conditions.
The transition to IFRS 17, the new international accounting standard, impacted reported earnings. Industry data reveals that pre-tax operating income for 2023 was CA$14.9 billion, a figure comparable to pre-IFRS 17 results from 2018 to 2020.
However, restated 2022 earnings fell significantly from CA$15.7 billion to CA$4.4 billion due to IFRS 9 transitional impacts, with Manulife’s earnings notably affected, declining from CA$7.2 billion to a CA$2.0 billion loss.
Net income for the sector in 2023 amounted to CA$13.3 billion, aligning with pre-IFRS 17 results of CA$12 billion to CA$12.6 billion from 2018 to 2020.
Group life insurance led insurance revenue, reporting just under CA$25 billion, followed by individual life insurance with over CA$13 billion. Annuity business revenue was CA$4.5 billion for group and CA$2.8 billion for individual policies.
Financial reports also highlight that insurers with exposure to Asian markets experienced improved performance in 2023, as COVID-19-related restrictions were lifted. The Asian market, typically marked by higher growth rates, is expected to continue this positive trend barring any external disruptions.
Canada’s L/A insurers maintained strong capital positions, with Life Insurance Capital Adequacy Test (LICAT) ratios exceeding regulatory targets. According to AM Best, these positions were further supported by solid core earnings and minimal investment impairments.
How do you see these trends impacting the future of the insurance industry in Canada? Share your thoughts in the comments.
