Home Breadcrumb caret Industry News Breadcrumb caret Industry Insurers still feeling crisis’ aftershock Canadian life insurance companies took fewer hits than their American counterparts during the financial crisis but the market convulsion continues to influence their near-term outlook. Changing consumer attitudes and reduced income from investments and fees remain a challenge, even as the crisis lets up, according to expert panelists speaking earlier today at the A. M. […] By Art Melo | September 10, 2009 | Last updated on September 10, 2009 3 min read Canadian life insurance companies took fewer hits than their American counterparts during the financial crisis but the market convulsion continues to influence their near-term outlook. Changing consumer attitudes and reduced income from investments and fees remain a challenge, even as the crisis lets up, according to expert panelists speaking earlier today at the A. M. Best Company’s 2009 Insurance Market Briefing — Canada, held in Toronto. An A. M. Best report released earlier suggested that while Canadian insurers took fewer hits than their foreign counterparts, they face several challenges which had led the company to revise its outlook on the life and health insurance market from stable to negative last March. The ongoing volatility will continue to influence lending costs and reduce fee income for insurers, suggested Stephen Irwin vice-president of A.M. Best’s life/health division, speaking on a panel focusing on the life insurance market. Meanwhile, commercial real estate problems have yet to run their complete course in Canada as businesses look for ways to keep costs down. Tight lending conditions and other factors mean challenges for life insurers with commercial property holdings, he said. Other continuing challenges include guarantees on segregated funds, according to Richard McMillan, a managing senior financial analyst, also with the company’s life/health division. “As the equity markets declined, fund values fell below what the guaranteed values were,” a combination that led to higher reserves and capital charges, he recalled, while earnings had already been under pressure due to market volatility. An increase in credit defaults could affect insurers’ investment income he said. Meanwhile, the independent advisory channel is aging, a problem compounded by the limited recruitment of new brokers. The equity market decline also pulled down sales and fee-based revenues as well as universal life premiums, since some policyholders opted not to place extra funds for the UL investment option. On the group benefits side, while companies have not cut back on employee benefits, increased unemployment has affected group insurance revenues overall. Its not all bad news, however. Although segregated and mutual fund sales have suffered, fixed annuity sales have had ‘substantial’ growth, he said. The larger insurers have benefited from an understandable move by consumers into these products. The Canadian marketplace remains dominated by the three major insurers — Manulife, Sun Life and the Great-West Life — while smaller players continue operating profitably by serving product niches and smaller constituencies. The future of enterprise risk management (ERM) as a financial strategy remains up in the air. ERM generally refers to the process of planning and controlling the activities of a company in ways that reduce the effects of risk on its capital and earnings. “Did ERM fail?” Irwin asked, answering his own question by explaining that the strategy had not been a complete failure. “We believe there is still quite a bit of work to be done”, he said. “We do know that the impact of the current global crisis on insurers and other financial institutions demonstrates that there are gaps in the ERM process.” Art Melo is a Toronto-based financial writer. (09/10/09) Art Melo Save Stroke 1 Print Group 8 Share LI logo