Canada's Sun Life raises some premiums, highlighting rate-cut challenges for insurers

By Nichola Saminather

TORONTO, April 20 (Reuters) - Canada's second-biggest life insurer, Sun Life Financial Inc SLF.TO , raised premium rates on some life insurance and critical illness policies by up to 27% for new applicants on Monday, 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% 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. 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 Canada's largest life insurer, Manulife Financial Corp MFC.TO , declined to say if it had raised premiums.

Great-West LifeCo Inc GWO.TO 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," 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.

While existing policyholders may not face premium increases, those whose products include dividends will likely see the payouts fall, said Moshe Milevski, finance professor at York University's Schulich School of Business in Toronto.

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.

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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.

"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," said Bryden Teich, portfolio manager at Avenue Investment Management.