Research

Key credit metrics will remain in line with rating expectations over the next one to two years

By James Langton |

Fitch Ratings has raised the rating outlook for the Canadian life insurance sector for 2018 to stable from negative for 2018, the rating agency announced on Monday.

Stronger earnings performance "due to better than expected operating performance and a benign credit environment, which is expected to persist over the near term," is the reason for the increase, the firm says in its announcement.

As a result, life insurers' key credit metrics will likely remain within their rating expectations over the next couple of years. "Existing ratings reflect the Canadian life insurance industry's very strong balance sheet fundamentals, strong earnings and favorable liquidity profile, which help to mitigate the impact of low interest rates and potential credit market losses," Fitch says says.

Insurers' recent results have benefited from favourable conditions in the equity and credit markets, and rising interest rates. In 2018, Fitch forecasts modestly higher rates, which will help further alleviate earnings pressure.

Additionally, the stable rating outlook "assumes sustained improvement in economic growth and relatively stable unemployment levels over the near term. The outlook does not incorporate potential exogenous shocks to the economy and/or capital markets, and will factor in such events should they occur," Fitch says.