A.M. Best Company s 9 th Annual Insurance Market Briefing Canada Canadian Life Insurance Industry Edward Kohlberg, CPA, FLMI Senior Financial Analyst Richard McMillan Senior Financial Analyst September 24, 2015 Toronto, Ontario
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Rating Outlook Is Stable Outlook is stable, but remains cautious Rating outlook reflects limited rating actions Company specific results remain key to rating actions Does not preclude positive or negative rating actions Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 3
Earnings CAD Billions 14 12 10 Canadian Life Pretax Income/Loss 8 6 4 2 0 2010 2011 2012 2013 2014 Source: A.M. Best data & research Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 4
Industry Trends: Direct Premiums Written Canadian Life Companies: DPW by Line of Business (Canada & U.S. Only) Life Annuity A&S Participating Other 100% 90% 1% 1% 1% 1% 1% 14% 15% 15% 14% 14% 80% 70% 60% 36% 39% 41% 40% 39% 50% 40% 16% 13% 10% 12% 13% 30% 20% 33% 33% 33% 32% 32% 10% 0% Source: A.M. Best data & research 2010 2011 2012 2013 2014 Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 5
Wealth Management Premiums and Deposits Wealth Management: Premium Income & Deposits 140 120 Annuity Seg Fund-Total Mutual Fund Deposits Other Deposits CAD Billions 100 80 60 40 20-2010 2011 2012 2013 2014 Source: A.M. Best data & research Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 6
Mutual Fund Deposits by Geographical Distribution 60 50 Mutual Fund Deposits (Canada & U.S.) Canada U.S. Other CAD Billions 40 30 20 10-2010 2011 2012 2013 2014 Source: A.M. Best data & research Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 7
Growth Through Acquisitions Build scale Add to mutual fund managers Expand capabilities Acquire companies with niche expertise Grow general account Pension risk transfer Life insurers expertise managing longevity risk Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 8
Interest Rate Concerns Bank of Canada lowered overnight rates 1.00% to 0.75% in January 15 0.75 to 0.50% in July 15 Economic uncertainty in Canada declining household ownership of life insurance GDP growth forecast cut to 1.5% Preserve Capital Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 9
Oil Prices $105 Crude Oil Prices: West Texas Intermediate $95 $85 $75 $65 $55 $45 $35 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 10
FX Rate CAD/USD Exchange Rate 0.86 0.84 0.82 0.8 0.78 0.76 0.74 Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 11
10-Yr Government Bond Yield 4.5 Canadian Government Bond Yield 4 3.5 3 2.5 % Yield 2 1.5 1 0.5 0 Source: Bloomberg Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 12
TSX: 1 Year Performance Toronto Composite Index 16000 15500 15000 14500 14000 13500 13000 12500 12000 11500 8/25/2014 11/25/2014 2/25/2015 5/25/2015 8/25/2015 Source: Bloomberg Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 13
Investment Income Canadian Life Investment Income 700 36 CAD Billions 600 500 400 300 200 100 30 24 18 12 6 CAD Billions 0 2010 2011 2012 2013 2014 Invested Assets Invest. Income Including Derivatives Invest. Income Excluding Derivatives 0 Source: A.M. Best data & research Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 14
Canadian Life Companies Investments Canadian Life Distribution of Invested Assets Distribution of Invested Assets (2010-2014) (%) Category 2010 2011 2012 2013 2014 Bonds 62.6 61.2 61.2 60.7 61.5 Total Stock 6.7 6.0 6.5 7.3 6.7 Mortgage Loans 15.0 13.8 13.3 13.8 12.5 Real Estate 3.7 3.4 3.7 3.9 3.6 Policy Loans 2.9 2.7 2.6 2.7 2.4 Cash & Short-term 5.5 5.3 5.2 5.1 5.3 Derivatives 0.0 3.7 3.4 2.1 3.5 Other Invested Assets 3.7 3.9 4.1 4.4 4.4 Total 100 100 100 100 100 Note: Percentages may not add due to rounding. Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 15
Capital Management Dividends Debt financing Capital deployment Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 16
BCAR Scores 1000 900 800 700 600 500 400 300 200 100 0 2014 2013 Average BCAR 350 331 300 282 250 200 2013 2014 Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 17
Regulatory Changing requirements down the road IFRS Phase II MCCSR Refresh Preparedness for changes Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 18
Q&A Canadian Life Ins - Insurance Market Briefing Canada September 24, 2015 19
A.M. Best Company s 9 th Annual Insurance Market Briefing Canada Thank You Edward Kohlberg, CPA, FLMI Senior Financial Analyst Richard McMillan Senior Financial Analyst September 24, 2015 Toronto, Ontario