Filed Under:Life Insurance, Life Products

Wealth management fueling Canadian insurers’ growth

Moody’s credits the double-digit growth to increased investment activity among retail customers and to the companies’ robust investment performance.
Moody’s credits the double-digit growth to increased investment activity among retail customers and to the companies’ robust investment performance.

Three Canadian insurers that serve the U.S. market enjoyed significant earnings in the second quarter, fueled in large measure by the company’s growing wealth management business.

So concludes Moody’s Investors Service in a “Special Comment” on the three carriers: Manulife Financial, Sun Life Financial and Great-West Life. The report examines the financial results and impact on creditworthiness of initiatives undertaken by the companies.

In the second quarter, Sun Life’s report net income rose by 60 percent compared to the year-ago period, rising to $391 million from $244 million (in Canadian dollars). The other two carriers likewise enjoyed earnings in the second quarter as compared to the year-ago period: a positive $227 million versus a loss of $309 million for Manulife Financial; and $521 million versus $488 million for Great-West.

Moody’s credits the double-digit growth for all three life insurers’ wealth management businesses to increased investment activity among retail customers and to the companies’ robust investment performance.

“We expect Canadian consumers to regain their confidence as the economy continues to recover and to allocate more household resources towards retirement savings,” the report states. “Higher interest rates and reduced equity market volatility would further encourage investment activity and the growth of mutual fund [assets under management], a stable source of recurring earnings for the Canadian life insurers.”

The Moody’s report describes as mostly “credit positive” corporate development efforts the insurers are spearheading. Among them:

  • Sun Life Financial’s sale of its U.S. annuity business, which eliminated the parent company’s exposure to “chronically poor earnings.”
  • The completion of Sun Life’s investment in a Malaysian joint venture, which boost’s the company’s presence in Asia.
  • Great-West’s now finalized buyout of Irish Life, which strengthens the company’s strategic positioning, though also weakens Great-West’s credit quality due to Irish Life’s “relative weak profile” and the risks connected with raising the company’s “commitment to Ireland.”

Turning to Manulife Financial Corp., the report views as negative the company’s CDN$291 million charge stemming from volatility in the equity markets and investment-related losses.

Of the three Canadian insurers, the report observes, Manulife Financial remains “the most exposed to earnings volatility arising largely from policyholder-friendly guarantee features.”

The report recaps the three insurers’ financial results in the second quarter as follows:

Reported net income (attributed to common shareholders. Figures are in CDN$ millions):

 

Q2 2013

Q1 2013

Q2 2012

Sun Life

391

410

244

Manulife

227

508

(309)

Great-West

521

517

488

Operating/core earnings (Figures are in CDN$ millions)

 

Q2 2013

Q1 2013

Q2 2012

Sun Life

431

448

250

Manulife

609

619

599

Great-West

521

517

488

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Nichole Morford

Nichole Morford
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