A.M. Best Company's Insurance Market Briefing Canada September 8, 2011

Transcription

1 A.M. Best Company's Insurance Market Briefing Canada September 8, 2011 Stephen Irwin, Vice President Raj Shah, Assistant Vice President Kenneth Monahan, Financial Analyst

2 Current FSR & ICR Ratings Company Name AMB # FSR Rating ICR Rating Assumption Mutual Life Insurance Company 8074 A- a- Assurant Life of Canada A- a- Aurigen Reinsurance Company A- a- Blue Cross Life Insurance Company of Canada A- a- BMO Life Assurance Company A a Canada Life Assurance Company 6183 A+ g aa Canadian Premier Life Insurance Company A a Canassurance Hospital Service Association A a Canassurance Insurance Company A g a Co-operators Life Insurance Company 6290 A a Empire Life Insurance Company 6329 A a First Canadian Insurance Corporation A- a- Great-West Life Assurance Company 6493 A+ g aa Independent Order of Foresters A a+ Industrial Alliance Insurance and Financial Services Inc A g a+ Industrial Alliance Pacific Insurance and Financial Services Inc A g a+ London Life Insurance Company 6667 A+ g aa Manufacturers Life Insurance Company 6688 A+ aa- Optimum Reassurance Inc A- g a- Primerica Life Insurance Company of Canada A+ g aa- RBC Life Insurance Company A a RGA Life Reinsurance Company of Canada A+ g aa- Sun Life Assurance Company of Canada 7101 A+ aa Transamerica Life Canada B++ bbb+ Unity Life of Canada A- a- Wawanesa Life Insurance Company A a Western Life Assurance Company A- a-

3 Canadian Life/Health Companies Rating Distribution 33.3% 28.0% 26.9% 25.9% 25.9% 62.5% 68.0% 65.4% 66.7% 70.4% 4.2% 4.0% 7.7% 7.4% 3.7% YE 2007 YE 2008 YE 2009 YE Jul-11 Good Excellent Superior

4 A.M. Best s Market Perspective Solid regulatory capitalization Good risk management Steady earnings stream Positive investment performance Mature market

5 A.M. Best s Market Perspective Focus on expense control continues Deployment of liquidity yields better returns Product pricing generally within assumptions Product de-risking for seg fund writers

6 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

7 Solid Capitalization MCCSR trends BCAR Ability to raise capital is strong Expect capital targets to be higher

8 Risk Management Important part of rating reviews SRQ: Review risk culture, potential areas of earnings and capital at risk New regulatory guidelines coming in place

9 Business Segment-NPW Lines of business 100% 80% 38.0% 38.8% 37.1% 29.9% 29.9% 60% 40% 5.6% 6.1% 4.9% 4.9% 5.2% 10.1% 9.6% 9.2% 9.1% 10.3% 8.1% 7.5% 6.2% 15.0% 12.6% 7.6% 8.0% 8.7% 7.6% 8.0% 20% 31.4% 30.9% 31.7% 31.0% 33.2% 0% Life Individual Life Group Annuity Individual Annuit y Group A&S Individual A&S Group Reinsurance Source: A.M. Best data

10 Industry Earnings (pre-tax) Some earnings volatility billions Source: A.M. Best data

11 But Headwinds Are Emerging Potential challenges Persistent low interest rates Volatile equity markets Contagion impact from the global economy

12 Low Interest Rates Reduced demand for fixed products Pressure on earnings from declining reinvestment rate Reserve impact Reaching for long duration not a silver bullet Year Govt. Bond Yield Source: Trading Economics

13 Sep -11 Volatile Equity Markets Movement from seg funds to mutual funds Product de-risking globally 16,000 14,000 12,000 10,000 Rising hedging 8,000 costs 6,000 Jan -08 M ar-0 8 May-08 Ju l-0 8 Sep-08 N o v -08 Jan -09 M ar-0 9 May-09 Ju l-0 9 Sep-09 N o v -09 Ja n -10 M ar-1 0 M ay-10 Ju l-1 0 Sep-10 Nov-10 Ja n -11 Mar-11 M ay-11 Ju l-1 1 Toronto Stock Exchange Source: Yahoo Finance

14 Global Contagion United States recovery wobbly Eurozone troubles Weaker than expected Canadian growth emerging

15 Investments Generally high quality/liquid Bonds largest asset class Equity and real estate exposure Bonds and Debentures Common Shares Real Estate Other Equity Investments Mortgage Loans Short Term Investments Other Loans and Invested Assets Preferred Shares

16 Market Perspective Still the Big Three Sales momentum in individual life Shift to less interest and equity sensitive products Reducing non-core businesses

17 Product Viewpoint Individual products Combo products Group products Competition remains aggressive Wealth Management and Retirement products De-risking

18 Life Reinsurance Three major players Counterparty diversification concerns Exit from retrocession

19 IFRS It s here! January 1, 2011 opening balance sheet Phase I-mostly limited impact Phase II-more to come No rating action

20 A.M. Best Company's Insurance Market Briefing Canada September 8, 2011