By Nichola Saminather
TORONTO (Reuters) - Canada's second-biggest life insurer, Sun Life Financial Inc (TO:SLF), raised premium rates on some life insurance and critical illness policies by up to 27% for new applicants on Monday to offset the hit from shrinking bond yields globally.
Market volatility and plunging yields have slammed returns from investment portfolios for Sun Life and other insurers, even as the COVID-19 pandemic has boosted payout expenses. Canada's benchmark interest rate is down at 0.25%.
Higher payouts are somewhat offset by fewer claims on dental, vision and extended coverage, allowing Sun Life, Manulife Financial Corp (TO:MFC) and Great-West Lifeco
Sun Life and Great-West will also return 20% of premiums for other extended coverage excluding prescription drugs, with all the reductions applied retroactively to the beginning of April, and re-assessed on a monthly basis. Manulife said it will reduce premiums by 10%, including prescription drugs, for the month of May.
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," Vineet Kochhar, senior vice-president for insurance solutions, said by email.
A spokeswoman for Manulife, Canada's largest life insurer, declined to say if it had raised premiums on its life insurance products.
Canada Life has not changed its life insurance 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," Katrina Lee-Kwen, senior vice president for non-par insurance solutions, said.
"All of the life insurance industry would have to think about repricing products, and likely will, in response to lower interest rates," CIBC World Markets analyst Paul Holden told Reuters.
In the short term, Holden 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, he said.
Sun Life is raising premium rates by 5% and 23% on average on its SunUniversalLife II product, depending on the type, and by 7% and 27% on Sun Permanent Life offerings, for new applications received from 12 a.m. EDT onward on Monday, it said in a release https://www.sunlife.ca/slfas/Resources/News/Life+and+health+insurance/Rate+changes+for+SunUniversalLife+II+Sun+Permanent+Life+and+Sun+Critical+Illness+Insurance?vgnLocale=en_CA.
The higher level of increases apply to more specialized products, Holden said.
Sun Life is also increasing rates by 10% on some adult critical illness plans.