Canadian Life Insurance Industry

Transcription

1 A.M. Best Company s 11 th Annual Insurance Market Briefing Canada Canadian Life Insurance Industry Edward Kohlberg, CPA, FLMI, CLU Associate Director Anthony McSwieney Senior Financial Analyst Toronto, Ontario

2 Disclaimer AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling. 2

3 Rating Outlook Is Stable Outlook is stable, but remains cautious Rating outlook reflects limited rating actions Company specific results remain key to rating actions Does not preclude positive or negative rating actions 3

4 Pretax Earnings CAD Billions Source: A.M. Best data and research 4

5 Industry Trends: Direct Premiums Written Canada and United States only CAD Billions Life Annuity A&S Participating Other Source: A.M. Best data and research 5

6 DPW Geographic Diversification % Canada U.S. Europe Asia/Other Source: A.M. Best data and research 6

7 Mutual Fund Deposits by Geographical Distribution Canada U.S. Other 80 CAD Billions Source: A.M. Best data and research

8 Growth Through Acquisitions Build scale Add to mutual fund managers Focus on core capabilities New players in the Canadian market 8 November 10, 2016

9 Regulatory LICAT IFRS Phase II Tax exempt rule changes Unknowns from growth in international expansion 9

10 Polling Question What do you view as the biggest headwind for the industry? Expanding Technology and Customer Centricity Regulatory Changes Longevity Risks Low Interest Rate Environment Macroeconomic Challenges 10

11 Interest Rate and MacroConcerns Bank of Canada increased overnight rate in July basis points to.75% Economic uncertainty in Canada Declining household ownership of life insurance Housing bubble? Home sale price up 15.8% year over year June 2017 Heightened demand 15% Foreign buyer tax Tighter underwriting "Mortgage rates are expected to continue climbing with the Bank of Canada likely to hike its policy rate three times in the next year and a half. As such, housing affordability is likely to deteriorate broadly across Canada. TD Bank Analyst 11

12 Oil Prices Oil Prices: West Texas Intermediate (WTI) USD Source: U.S. Energy Information Administration 12

13 FX Rate 1.0 CAD/USD CAD/Euro CAD/GBP

14 10-Yr Government Bond Yield % Source: Bank of Canada 14

15 TSX vs. S&P 500: 1 Year Performance Toronto Composite Index (CAD) S&P 500 (USD) TSX Composite Index S&P Index Source: Bank of Canada 15

16 Investment Income Invested Assets (CAD Billions) Investment Income (CAD Billions) Invested Assets Interest, Dividends & Income Invest. Income Excluding Derivatives 0 Source: A.M. Best data and research 16

17 Canadian Life Companies Investments Distribution of Invested Assets (%) Category Bonds Total Stock Mortgage Loans Real Estate Policy Loans Cash & Short-term Derivatives Other Invested Assets Total

18 Polling Question Which asset allocation do you view as the most prudent for risk return in the current environment? Commercial Mortgage Loans CLOs Private Placements Stocks Provincial Bonds Other 18

19 Bond Segmentation Canadian Life Bond Portfolio Distribution Portfolio Components Government Municipal, Public Authority, Schools Corporate - Public Corporate - Private Total *Totals may not sum to 100 due to rounding. Portfolio Components Government 129,469, ,901, ,767, ,372, ,683,942 Municipal, Public Authority, Schools 14,602,314 15,506,571 20,504,740 22,826,810 27,773,107 Corporate - Public 137,424, ,400, ,467, ,728, ,059,665 Corporate - Private 48,638,888 51,395,701 59,712,982 67,175,742 68,525,939 Total 330,134, ,204, ,452, ,103, ,042,653 *Totals may not sum to 100 due to rounding. Source: A.M. Best data and research 19

20 Corporate Segmentation (%) Sector/Country Energy Basic Materials Industrial Consumer Cyclical Consumer Non-Cyclical Diversified/(Health Care) Financial Technology Communications Utilities Other Total All Sectors Canada United States Other Total *Totals may not tie to 100 due to rounding Source: A.M. Best data and research 20

21 Capital Management Dividends Share buybacks Debt financing Capital deployment 21

22 Q&A 22

23 A.M. Best Company s 11 th Annual Insurance Market Briefing Canada Thank You Edward Kohlberg, CPA, FLMI, CLU Associate Director Anthony McSwieney Senior Financial Analyst Toronto, Ontario