(October 2 – 10:35 ET) – New Jersey-based insurance rating agency A.M. Best Co. says Canada’s post-demutualization life insurance industry is strong, with all five former mutual life companies succeeding in converting themselves into stock operations.
Best says that Canada’s life insurers will no longer be able to retain marginal lines of business, noting that the new capital requirements for segregated funds will put additional pressure on Canadian life insurers offering seg funds. It points out the life industry as a whole returned a 9.5% return on equity for 1999. Of the five largest former mutuals, Canada Life, Clarica and Manulife all garnered a return on equity above 11%. Sun Life, dragged down largely by its British operations came in with a return on equity of only 2.8%.
Best says it believes consolidation in the life industry will continue, as the larger players will likely acquire the smaller uncompetitive companies. Among the larger companies, it expects that over the medium term at least one will be acquired by either a Canadian bank or a large European financial services organization.
Although the life business is healthy, if pressured, the Canadian property and casualty insurers continue to struggle, suffering from poor underwriting results, decreased investment income and the inability to reduce expenses. The industry as a whole returned a return on equity of only 6.6% in 1999, which compares to 1998 industry composite of 7%.
In 1999, Canadian P&C insurers’ financial performance was negatively impacted by an extremely competitive market, over-capacity, a soft primary market, adverse results in eastern Canada and an ever-shifting distribution landscape. Though Best has seen some price hardening, particularly in the reinsurance and retrocessional markets, tough conditions continue to plague P&C insurers through 2000.
-IE Staff