Wealth management sales in both North America and Asia were important sources of growth for the big three Canadian insurers during the first quarter of 2013, says Moody’s Investors Service in a new report on first quarter results for the three largest Canadian life insurers.
"Asian franchises yielded double-digit wealth sales growth and continued to provide valuable exposure to higher growth rates and expanding markets," says David Beattie, senior credit officer at Moody’s Canada.
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"Profitability lags the top line momentum as Canadian insurers active in Asia are investing heavily in these businesses," Beattie added. "At some point we expect higher levels of profitability to emerge."
According to the report, the growth in wealth management comes as the big three insurers–Manulife Financial Corporation, Sun Life Financial and Great West Lifeco — carry out planned reductions in the sale of products with policyholder friendly guarantee features, which dampened their results. Such products include segregated funds and universal life.
Spread compression, declining investment income and the costs of hedging, however, is creating pressure on earnings, which may increase insurers’ appetite for risk, although there is yet no evidence of increased credit provisions or impairments, the report says.
"The challenge of how to return to pre-crisis levels of profitability absent a rise in interest rates remains the most significant strategic dilemma facing the sector," Beattie added.
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By GlobalDataMoody’s says the first quarter passed uneventfully for the big three Canadian insurers in terms of impact from the financial markets, with the exception of Manulife Financial Corporation (MFC)’s C$350 million charge arising from interest rate exposure, which was partially offset by a gain on equity markets exposure.
