Canada’s second-biggest life insurer, Sun Life Financial Inc., raised premium rates on some life insurance and critical illness policies by up to 27 per cent for new applicants, to help offset the hit from decade-low interest rates in Canada.
The move highlights the hit to the sector from a slide in the benchmark interest rate to 0.25 per cent and economic uncertainties from the COVID-19 pandemic. Insurers around the world are facing higher payouts on business and life insurance policies due to the outbreak, while market volatility and plunging yields threaten investment losses, limiting their ability to make the payments.
Sun Life has not raised rates for less interest-sensitive products in this round of adjustments, and the change is not related to “current or anticipated claims experience.
Great-West LifeCo Inc. subsidiary Canada Life has not changed its rates due to COVID-19. But it did raise them in February for its universal life product due to low interest rates and the long-term guarantees associated with these products.
All of the life insurance industry would have to think about repricing products, and likely will, in response to lower interest rates. In the short term, insurers expects a decline in life insurance sales, but sees that reversing over the next 12 to 18 months as health concerns override higher prices, similar to the aftermath of the SARS outbreak. Beyond that, price increases and lower investment yields will be a drag on sales.
While existing policyholders may not face premium increases, those whose products include dividends will likely see the payouts fall.
Sun Life is raising premium rates by 5 per cent and 23 per cent on average on its SunUniversalLife II product, depending on the type, and by 7 per cent and 27 per cent on Sun Permanent Life offerings, for new applications received from 12 a.m.
In a 0% rate world … the first thing they (life insurers) do is they raise premiums to try to offset that. But the longer this goes on, there’s only so much they can do.
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