Canadian life insurance sector outlook stable – Moody’s

The respective outlooks for the Canadian life insurance sector and the property and casualty (P&C) industry in 2020 are both stable, owing to a healthy economic backdrop, albeit low interest rates will weigh on life insurers' profitability and P&C investment performance, Moody's Investors Service said in a new report.

It said that a healthy economy supports life insurers earnings growth and P&C premiums. IFRS-17 will add uncertainty for the Canadian life insurance sector, while catastrophes are a persistent threat to P&C insurers.

"Low long-term rates are also having the dual effect of forcing Canadian life insurers to reinvest maturing assets at lower yields, weighing on their investment income, and of increasing the prospect for seeking higher-yielding, and higher risk assets," David Beattie, a Moody's senior vice president said. "Canadian P&C companies have experienced an increase in loss cost trends in personal lines, which is offset by firming market conditions."

Both life and P&C companies have the scale to invest in technology in order to remain competitive as well as to protect from disruption. Moody’s said the investment in digitalization should enhance client interface and drive opportunities for life insurers and P&C insurers are poised to benefit from claims efficiencies and risk segmentation.

Another driver of the stable outlook for life insurers is solid asset quality, which remained strong in the third quarter 2019. The outlook for P&C insurers is underpinned by rate increases in personal and commercial lines, which will improve combined ratios.

Moody's outlooks for 2020 consider fundamental credit conditions that will affect sectors for the next 12-18 months.