NEWS
03/30/2016 15:44 EDT | Updated 03/31/2017 01:12 EDT

Life insurance companies say they could withstand Japan-like economic scenario

TORONTO — Two of Canada's largest life insurance companies say they are prepared to weather the storm if interest rates continue to trend lower, or even turn negative as they have in Japan, over the next decade or so.

Executives at Manulife Financial (TSX:MFC) and Sun Life Financial (TSX:SLF) were asked during a financial services conference hosted by National Bank on Wednesday how their businesses would fare if economic conditions in Canada mirrored those in Japan.

The Bank of Japan adopted negative interest rates earlier this year, a policy that seeks to stimulate spending by charging financial institutions for depositing money with the central bank.

Manulife chief financial officer Stephen Roder said the company has been gradually shifting towards less interest-rate sensitive products over recent years.

"Today we sell a lot of product that really has no interest rate sensitivity, so we're far less exposed in terms of new business today than we would have been five years ago," Roder said.

Low interest rates are typically bad for life insurance companies, which invest the revenues from premiums in investments such as bonds and stocks.

Roder noted Manulife's experience in Japan leaves the company well-positioned to cope with similar challenges in Canada, should they emerge.

"We're an active player in Japan and we've learned how to navigate these low interest rate markets, and in fact we've had very, very strong growth in Japan," he said.

That growth was achieved by selling products that are not exposed to interest rate risk, Roder said.

"I'm not pretending I like them. But I think in many ways we've mitigated the impact of them. So it's not something that keeps me awake at night," he said.

Colm Freyne, the chief financial officer at Sun Life, was also asked about how the company would fare under a Japan-style economic scenario.

Freyne said that despite the headwinds of rock-bottom rates, there are also some opportunities created by such a scenario — for instance, to sell consumers on investment products such as mutual funds and segregated funds.

"We're seeing opportunity, notwithstanding the impacts," Freyne said. "Yes it's a headwind, but it's not insurmountable."

 

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Alexandra Posadzki, The Canadian Press