Modestly Improving Earnings & Stable Capital Levels Expected for Canadian Life Insurers in 2024 Amid Economic Uncertainty

DBRS Morningstar released a commentary discussing its outlook for Canada’s life insurers (lifecos) in 2024.

Key highlights include the following:

-- Despite a slowing economy, life insurers' overall growth prospects in 2024 are likely to remain resilient, reflecting their diversified and expansive product suites. Conversely, sales of market-linked insurance and investment products may be challenged by continuing macroeconomic uncertainty.

-- There may be an increase in impairments in insurers' invested assets portfolios, particularly in the private credit, mortgage loan, and real estate asset classes, although we expect any increases to be manageable in nature.

-- Positively, higher interest rates should serve as a tailwind for investment income and insurance liabilities, partially offset by higher debt financing costs.

-- With the implementation of IFRS 17, there has been an improvement in the LICAT ratio for most insurers, leaving them well positioned to deploy the excess capital to pursue both organic and inorganic growth opportunities.

“The outlook for Canadian lifecos continues to be stable, with insurers likely to benefit from the higher interest rate environment in the medium to long term,” said Komal Rizvi, Vice President, Canadian Insurance. “Diversified operations, good risk management practices and high capital levels should help lifecos successfully navigate an uncertain macroeconomic environment.”