Hand Filling Life Insurance Policy

Economic conditions for the coming year should remain favourable for the Canadian life insurers, supporting their earnings and their financial strength, according to a recent report from New York-based credit rating agency Fitch Ratings.

The agency’s fundamental outlook for the Canadian life sector continues to be stable for 2019, the report says.

The underlying economy is expected to support continued growth for life insurers, says the report, and firms’ fundamentals should stay in line with its rating expectations over the next 12-24 months.

The three large Canadian life insurers — Manulife Financial Corp., Sun Life Financial Inc. and Great-West Life Inc. — will continue to dominate the market, the report says. Their capital positions are also expected to remain a strength in the year ahead, with their leverage remaining “manageable and consistent with the high investment-grade end of the spectrum.”

For 2019, Fitch expects the big life insurers to produce strong results, with returns in the low to mid-double-digit range.

“However, legacy underperforming business is expected to remain a drag on earnings with insurers continuing to pursue avenues to remediate the business through restructuring and/or divestitures,” Fitch says in a news release.

“We expect Canadian life insurers to maintain their strong capital positions and for profitability metrics to exhibit a stable to improving trend supported by rising interest rates and generally benign credit markets,” says Jamie Tucker, director at Fitch Ratings, in a statement.

“However, partially offsetting this is the protracted low interest rate environment, which remains a headwind,” he adds. “The sector remains vulnerable to an outsized market shock, which we view as inevitable due to global central bank tightening and global trade uncertainty.”