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Julie Dickson, Superintendent for the Office of the Superintendent of Financial Institutions (OSFI). (Fred Lum/The Globe and Mail)
Julie Dickson, Superintendent for the Office of the Superintendent of Financial Institutions (OSFI). (Fred Lum/The Globe and Mail)

Financial regulator delivers warning to life insurers Add to ...

Canada’s life insurers are in the midst of reporting ugly third-quarter results as they continue to be battered by low interest rates and stock markets. So when the industry’s managers gathered at a forum in Cambridge, Ont., Monday, they were in need of a little cheering up. What they got was doom and gloom.

Julie Dickson, the head of Canada’s banking and insurance watchdog, delivered a speech that was 10 per cent pep talk, 90 per cent warning.

The ten per cent was this: “I should not leave here without commending the success of the life insurance industry over its long history,” she said. “Many strong leaders have led their companies to success despite the difficulties in the environment.”

The remainder of the speech was along the lines of her next comment: “However, I caution that the environment will likely be getting more difficult in the coming years.”

It’s a warning that’s particularly dire given that Manulife, Sun Life and Industrial Alliance each delivered disappointing financial results last week (Manulife, for instance, lost $1.28-billion during the quarter - although, on an unrelated note, that would have been a profit if the company were American - for more on its earnings you can read here.

Ms. Dickson cautioned that insurers must be careful when setting their prices, and suggested that some life insurers had not been charging lower-risk customers enough. Insurers will no longer be able to mask pricing mistakes with stellar investment returns, she noted.

“Should rates continue at the current low level - below three per cent on government bonds for a 30-year term - it will be a real game changer for the life insurance sector,” she said. And she urged life insurers not to search for additional sources of profits in ways that will create other risks.

Some insurers were grumbling recently about “stress tests” that the regulator sprung on them to test how they would do in a crisis. They said that the tests were too detailed and required them to come up with too much information too quickly.

Not good enough, Ms. Dickson suggested. “We were struck by some of the weaknesses in the operating capacity of companies to provide the material in a timely manner,” she said.

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