Insurers see profit gains despite 'tough year' of COVID-19 fatalities

·5 min read
Insurers see profit gains despite 'tough year' of COVID-19 fatalities

Amid the grim backdrop of COVID-19 fatalities, Canadian insurers have also found some consumers have an increased interest in life and health insurance.

Sun Life chief executive Dean Connor said it was a "tough year" as the insurer paid out $200 million to the families of clients who died of COVID-19. But Sun Life also said it saw lower benefits usage brought about by the pandemic as it extended grace periods for premium payments.

The comments were part of conference calls with analysts about the insurers' fourth-quarter financial results. Both Manulife and Sun Life grew profits during the last three months of 2020 and beat average analyst expectations from financial data firm Refinitiv. Great-West Lifeco also reported higher net earnings than a year ago, although it also received a $143-million boost from the sale of GLC Asset Management Group Ltd.

When announcing the results, Manulife chief executive Roy Gori said the “events of the past year have reinforced the value of insurance, well-being, retirement and wealth management programs.” Manulife chief actuary Steven Finch said the company had "shored up" in anticipation during the pandemic and was prepared for the COVID-19-related claims.

Manulife said there were mortality losses from excess deaths in its U.S. life insurance business, alongside claim terminations in the long-term care insurance business due to the impact of COVID-19. In addition to life insurance, the company offers policies that cover the cost of long-term services and support.

Michael Doughty, the chief executive of Manulife Canada, said the COVID-19 pandemic may have also increased the appetite for insurance in Canada.

"We do know that, you know, coming out of the SARS crisis, we did see an increase in interest in life insurance. And I think that is one trend that we'll see around the globe, frankly, as we move forward.

"We certainly see it already," said Doughty, who added that sales of individual health and dental insurance were up in Canada, as well as mortgage creditor business.

During the early stages of COVID-19 lockdowns last year, Doughty said, traditional individual life insurance sales initially suffered in Canada as people weren't able to get paramedical testing. But between the third and fourth quarters last year, sales bounced back, rising 17 per cent, Doughty said

"There certainly is more frequency of short-term disability claims caused by COVID-19," said Daniel Fishbein, president of Sun Life Financial U.S. "The other aspect of this is sales. Sales have remained strong for us. They were up year-over-year, and strong in all of our businesses."

The Canadian insurers have been vying for growth internationally as they try to hedge their businesses against various risks and diversify their portfolios. Asia has become a key market for both Manulife and Sun Life, in established financial centres like Hong Kong and emerging markets.

Manulife's Gori called Asia the "crown jewel" of the business, rising from 35 per cent of earnings in 2016 to 41 per cent in 2020. By 2025, Asia could represent about half of the company's earnings base, Gori said. Sun Life executives called Asia a market with "huge potential" where they are focused on building scale.

Great-West, meanwhile, saw lower base earnings in its European business due to tax issues. However, the Winnipeg-based company said it added 2.5 million participants and US$190 billion in assets under administration through its acquisition of MassMutual's retirement services business. Great-West, which also added the retirement services business of Fifth Third Bank to its portfolio late last year, says it now owns the second largest retirement services provider in the U.S.

The insurers also pointed analysts toward their digital initiatives. Sun Life said it had tripled the number of workers using its digital Maxwell Health tools between 2019 and 2020. Manulife subsidiary John Hancock launched a collaboration with Amazon in the U.S., where it gave free wearable health trackers to life insurance customers. Great-West said 1.5 million plan members in Canada joined its all-digital benefits portal, adding that individual insurance and individual wealth sales in the country were strong and saw "increased momentum through digital channels."

"From a Canadian perspective, we certainly have also taken advantage of the pandemic to digitize a lot of our processes," Manulife's Doughty said. "I think that will help with the ability to process sales and make it easier for both customers and advisers going forward."

Sun Life's Connor also noted the company's focus on improving climate change-related disclosures and boosing diversity within in the company. Connor said Sun Life plans to have gender parity at the executive level by 2025, and have 25 per cent of executive roles staffed by underrepresented ethnicities in North America.

Gabriel Dechaine of National Bank of Canada Equity Research wrote that despite the spectre of setting aside reserves to deal with mortalities, Manulife ended the year on a strong note.

"Although we are generally averse to corporate buzzwords, (Sun Life's fourth quarter) was emblematic of the company’s 'resilient business mix.' That is, despite weaker than normal investment performance ... the company delivered a solid earnings beat," wrote Dechaine in a client note.

This report by The Canadian Press was first published Feb. 11, 2021.

Companies in this story: (TSX:MFC, TSX: SLF)

Anita Balakrishnan, The Canadian Press