Large Canadian Life Insurers' CRE Exposure Poses a Threat to Their Otherwise Positive Operating Environment

Morningstar DBRS published a commentary discussing the commercial real estate (CRE) exposures of the Big 4 Canadian life insurance companies (Manulife Financial Corporation, Great-West Lifeco Inc., Sun Life Financial Inc., and iA Financial Corporation Inc.) and the adverse impact on their 2023 financial results.

Key highlights include the following:
-- The Big 4 Canadian life insurance companies' exposure to CRE is in the form of mortgages as well as holdings of investment properties.
-- The recent CRE deterioration has had a negative impact on the Big 4's earnings, primarily stemming from decreases in investment property valuations, rather than credit impairments.
-- As long-term investors with a significant asset base, substantial capital, and strong earnings, the Big 4 are well positioned to manage further CRE-related pressures.

“The CRE-related writedowns in 2023 were easily absorbed by the Big 4, given the offset of the positive operating environment characterized by high interest rates and generally strong performance in their various insurance and asset management lines of business,” said Nadja Dreff, Senior Vice President, Sector Lead, North American Insurance Ratings. “We believe capital levels will not be affected in the likely event of further CRE deterioration over the remainder of the year.”