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Canadian life insurers’ investment portfolios have performed “exceedingly well” since the beginning of the pandemic, according to commentary released by DBRS Morningstar on Tuesday.

Insurers’ portfolios saw minimal credit losses in 2020 and some credit gains in 2021 thanks to strong diversification, conservative investment policies, and the positive effects of fiscal and monetary stimulus, DBRS Morningstar stated.

For example, insurers tended to avoid “non-investment-grade corporate bonds and equity securities in sectors affected by social-distancing restrictions such as retail, airlines and hospitality.”

In 2020, Canadian life insurers held 68% of their portfolio in bonds, the same proportion as their U.S. counterparts. However, 40% of the Canadian insurers’ allocation was to government issues, while the U.S. insurers allocated just 19% to government bonds.

The vast majority of the Canadian insurers’ allocation was to investment-grade bonds, DBRS Morningstar found. The Big 4 insurers — Manulife Financial Corp., Sun Life Financial Inc., Great-West Lifeco Inc. and iA Financial Corp. Inc. — held only 2% of their bond portfolio in non-investment-grade issues from December 2019 to June 2021.

DBRS Morningstar also reported that Canadian insurers did not materially increase their exposure to riskier assets from 2009 to 2020, with asset mixes staying relatively constant.

Canadian lifecos held more real estate than their U.S. counterparts in 2020 — 3% vs. 1% — but chose those holdings carefully.

“Traditionally, Canadian life insurers have been very selective with the real estate assets they include in their portfolios, with the majority of them being office buildings in urban central business districts, thereby mitigating the impact of the pandemic on this asset class,” DBRS Morningstar said.

Together, these factors point to an industry that should be able to withstand future headwinds.

“There could still be a negative impact from credit downgrades in investment portfolios during the next few quarters if governments around the world need to tighten restrictions because of the resurgence of coronavirus cases,” said Marcos Alvarez, senior vice-president and head of insurance with DBRS Morningstar, in a statement. “We expect that most Canadian life insurers will able to successfully navigate this scenario given their strong capitalization buffers and conservative investment portfolios.”