NEW RULES GIVE LIFE INSURERS A BREAK

It’s been a tough road for the Canadian life insurers these past few years.

First the financial crisis evaporated a chunk of their capital, then along came the tough new IFRS accounting standards that forced players to assume that the current rock-bottom interest rate environment is here to stay. It was a case of, if the crisis didn’t get them then the new rules certainly would.

But now the pressure may be about to ease up. The Actuarial Standards Board is getting set to introduce new rules around how insurers make long-term interest rate assumptions and that could provide more breathing room to hard-pressed lifecos, according to Canaccord Genuity analyst Mario Mendonca.

“Although in its communication we believe the ASB is vague, it is reasonable to suggest that among other changes, future [ultimate rate of return] charges should be much less punitive than what we would see under current actuarial practice,” Mr. Mendonca said in a note to clients.

The low interest rates have already caused much pain in the industry, pushing down investment returns so far that some players have already been forced to revamp their business model, even abandoning traditional businesses. The situation is exacerbated by IFRS accounting rules — they’re still being phased in — that result in earnings and capital volatility.

Mr. Mendonca said the impact of changes by the ASB “would not be uniform,” likely strongest for Manulife Financial Corp. and Industrial Alliance Insurance and Financial Services Inc. since both have significant holdings of non fixed income investments.