Bank Run Scenario Unlikely To Hit Canada's Lifecos But Impacts May Arise From Broader Market Panic

DBRS Morningstar published a commentary discussing the impact of unrealized investment losses on Canadian life insurance companies’ balance sheets and solvency levels in the context of rising interest rates.

Key highlights include the following:

-- Canadian insurers' unrealized losses are considered insignificant in relation to their invested assets as a result of asset-liability matching and accounting measurement that provides for a largely offsetting movement in liabilities.

-- Insurance liabilities are more liquid for certain life insurance products that have a savings or investment component.

-- While a potential run on insurance companies is unlikely, heightened market volatility and negative sentiment may have broader macroeconomic and financial market implications with potential negative effects on Canadian insurers.

“Offsetting changes in actuarial liabilities act to mitigate the impact of interest rate movements on invested assets of Canadian insurers. The remaining unrealized losses flow through other comprehensive income, but they are insignificant relative to the value of their invested assets” said Nadja Dreff, SVP, Head of Canadian Insurance. “In our view, a potential run on Canadian insurance companies is unlikely. Insurers’ capital position remains robust and is reflective of any unrealized losses. We will continue to closely monitor the situation.”