Morningstar DBRS, a global credit ratings agency that provides independent analysis of financial institutions and other industries, has published commentary examining the impact of demographic shifts on the life insurance sector in Canada and the United States.
The report, The Great Demographic Shift: Challenges and Growth Opportunities for Life Insurers in Canada and the US, explores how changing population patterns are influencing customer demand, insurer strategies and potential long-term credit considerations.
Morningstar DBRS explains that demographic developments are among the key structural trends affecting the life insurance market. Across Canada and the US, population growth is slowing as birth rates decline, while advances in healthcare, medical innovation and improved living standards continue to extend lifespans.
The agency notes that the ageing of the baby boomer generation is accelerating changes in population composition, resulting in a larger share of older adults and retirees. According to Morningstar DBRS, these demographic developments create both opportunities and challenges for life insurers.
A growing retirement-age population is supporting increased demand for products that address retirement income, annuities, wealth management, estate planning and long-term financial security. However, changing population structures are also challenging traditional insurance models, requiring insurers to reassess product design, pricing, distribution strategies and risk management practices.
Morningstar DBRS highlights that demographic pressures are unlikely to immediately affect insurers’ credit profiles. However, the agency notes that longer-term consequences could emerge if insurers fail to adapt and experience weaker business growth, lower revenue generation, reduced profitability or declining internal capital generation, which could place pressure on credit ratings.
The agency states that declining fertility rates in Canada and the US are changing the future shape of insurance demand. Fertility levels have fallen well below the replacement rate of 2.1 children per woman, reducing the pace of growth among younger age groups and influencing the development of future customer segments.
Morningstar DBRS notes that a slower-growing younger population could affect demand for traditional life insurance products, particularly term insurance, which has historically been associated with younger households seeking financial protection for dependants. As fewer young people enter adulthood, form families and join the workforce, insurers may face a smaller pool of customers for these products.
At the same time, Morningstar DBRS points out that lower fertility rates contribute to population ageing, creating increased demand for retirement-focused products. The agency suggests that insurers may need to adjust their product strategies by placing greater emphasis on older customer groups and developing solutions suited to changing household structures.
Morningstar DBRS also identifies rising life expectancy as a major factor influencing the insurance industry. Improvements in healthcare, medical technology, preventative care and living conditions have enabled people in Canada and the US to live longer than previous generations. While the pace of life expectancy gains has moderated, the overall trend continues to shape consumer needs.
The agency notes that longer lifespans are increasing the number of people reaching retirement age and living into their 80s and 90s. This is contributing to a larger older population and changing financial priorities, with greater focus on retirement income, healthcare costs, long-term care planning and the transfer of wealth between generations.
Immigration is another important demographic factor highlighted by Morningstar DBRS. The agency explains that immigration has helped support population and workforce growth, particularly in Canada, where it represents a significant source of population expansion. In the US, immigrants are generally younger than the wider population and are more likely to be of working age, helping to offset some of the economic effects of ageing demographics.
Morningstar DBRS states that immigration can support the life insurance market by expanding the potential customer base. New arrivals may have financial protection needs linked to dependants, housing, business ownership and wealth preservation. The agency adds that insurers may find opportunities to develop products and distribution methods that better reflect the needs of increasingly diverse communities.
The report highlights several areas where demographic change could support growth across the life insurance sector. Morningstar DBRS notes that longer retirements are increasing demand for retirement income solutions, including annuities and other products designed to provide financial stability throughout later life.
According to Morningstar DBRS, insurers have an opportunity to play a broader role in helping customers manage longevity risk and prepare for retirement. The agency also identifies potential growth in wealth preservation, estate planning and intergenerational wealth transfer, as retirees seek ways to protect assets and pass wealth efficiently to beneficiaries.
Morningstar DBRS further notes that increasing healthcare needs among older populations may encourage demand for products that combine insurance protection with healthcare and long-term care features. Insurers that develop solutions addressing both financial and health-related risks may be better positioned to respond to changing customer expectations.
However, Morningstar DBRS also highlights the operational and financial challenges created by demographic change. A smaller younger population could reduce future demand for traditional protection products, while longer lifespans increase the complexity of managing insurance liabilities.
The agency explains that insurers will need to carefully manage longevity risk by ensuring products are appropriately priced, maintaining sufficient reserves and effectively managing long-term obligations. Morningstar DBRS also notes that slower workforce and economic growth could affect premium expansion, while increased healthcare requirements among older populations could contribute to higher claims costs.
To remain competitive, Morningstar DBRS says insurers will need to adapt through greater use of technology, advanced analytics, data-led underwriting and innovative product development. These approaches can help companies better understand changing customer needs, improve risk assessment and identify new opportunities for growth.
Morningstar DBRS concludes that insurers which respond effectively to demographic changes may be better positioned to maintain market share, support sustainable performance and preserve strong credit profiles. Companies that are slower to adjust may face greater pressure from changing customer behaviour and competitive conditions.
The agency emphasises that demographic change represents a long-term transformation for the life insurance industry. While these trends present challenges, they also create opportunities for insurers to expand their role in retirement planning, financial protection and wealth management. Morningstar DBRS notes that maintaining flexible strategies and broadening distribution channels will be important for insurers seeking to serve evolving customer groups.
“Demographic shifts alone should not affect the credit profile of an insurer in the near term. However, insurance companies that effectively adapt to demographic changes are generally better positioned to maintain market share, sustain financial performance, and maintain strong credit risk profiles,” added Victor Adesanya, Senior Vice President, Global Insurance & Pension Ratings.
“Demographic trends could have second-order effects on an insurer’s credit risk profile over time if they contribute to weak business growth, which could result in a decline in revenue generation, profitability, and internal capital generation likely pressuring the credit ratings.”
The post Morningstar DBRS says demographic change is reshaping life insurance markets in Canada and US appeared first on ReinsuranceNe.ws.
