Low Interest Rates to Remain a Challenge for Life Insurers' Profitability

Last month, the Bank of Canada signaled that interest rates are expected to stay low in the near to midterm, with the Central Bank pledging to keep the overnight rate at 0.25% as long as employment remains weak and inflation targets are not met. This marks a change from the prior year, prior to the Coronavirus Disease (COVID-19) pandemic, when interest rates were exhibiting a slow upward trend. The announcement came in response to the need to spur economic growth as Canada seeks to recover from a pandemic-driven economic contraction. While the announced monetary policy may be helpful to the economy in general, the consequences of sustained low interest rates are largely negative for the insurance industry.