Canadian insurers aren’t immune to the effects a low interest rate environment has on business. But the effects are more serious now that in the past. That’s according to a recent report by reinsurer Swiss Re.
According to the report, interest rates in Canada have been on a down-trend for the last 30 years, with real rates falling to near zero by 2011 in the wake of the 2008 financial crisis. So, though Canadian insurers are no strangers to low rates, the proportion of interest rate-sensitive products in the market in Canada today is higher than in the past, which creates issues on the profitability side of business, as the cart below illustrates.
Other areas of impact from low interest rates include quarterly reporting and economic valuation since both take interest rate changes into account from the outset. But it’s not all bad news.