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Canadian Life Insurance: Stable 2023 Outlook Despite Elevated Inflation And Slowing Growth

DBRS Morningstar released a commentary discussing our outlook for the Canadian life insurance industry in 2023.

Key highlights include the following:

-- Despite continued market uncertainty, the outlook for Canadian life insurers is stable, reflecting their strong fundamentals, diversified businesses, and high levels of capital. High current ratings and previous upgrades make rating movements less likely, particularly on the upside.

-- Premium growth and net sales of managed funds may be limited as inflation cuts into the discretionary purchasing power of consumers. Growth in assets under management and administration will also likely be muted, given the expectation of lower returns and investor confidence.

-- In a departure from prior years, 2022 saw lifecos generally report lower earnings. The decline can be attributed in part to equity market volatility as well as to interest rate movements.

“The year 2023 brings with it the possibility of a recession, which dampens the outlook both for premiums written for insurance products, as well as for net sales of mutual and segregated funds,” said Komal Rizvi, Vice President, Insurance. “The level of defaults or impairments in the investment portfolios may also increase from current levels, although increases are expected to remain low and manageable, given the high credit quality of the investment portfolios. Lastly, the transition to the IFRS 17 accounting regime may result in increased volatility in reported net income, even as underlying insurance earnings are expected to remain steady. Regulatory capital ratios are expected to remain stable.”