Canada's life and annuity insurers posted favourable operating results in 2025, according to a new AM Best report, "Canadian Life/Annuity: A Focus on Digitization Bolsters Growth," with year-over-year pretax and post-tax operating gains of 4% and 7% respectively.
Insurance revenue rose a modest 2% to $102.8 billion, and total new annualized life insurance premium hit a record $2.3 billion, driven largely by a 10% jump in whole life premiums.
AM Best credits much of that sales growth to digitization efforts aimed at making life insurance faster and easier to buy, including AI applied directly to underwriting decision-making. But the report flags a structural problem underneath the positive headline numbers: coverage gaps are widening, and the market is shifting toward wealthier clients.
"Coverage gaps are being driven by policies that have been acquired in previous years that are not keeping pace with inflation, including higher mortgages and salaries," said Kevin Varvaro, AM Best's senior financial analyst. "This is where technology comes in to attempt to address these issues through innovation and streamlining the sales process."
AM Best's finding lines up closely with independent research covered separately. PolicyMe's 2026 Life Insurance Gap Report found 68% of Canadians now report having some life insurance, up sharply from 58% in 2025, yet nearly a quarter remain unsure their coverage would actually protect their family financially.
Separate research cited in that same piece found the average Canadian household holds roughly $509,000 in coverage against an estimated $595,000 in actual need. AM Best's "not keeping pace with inflation" framing describes essentially the same phenomenon from the insurer side: policies purchased years ago, before mortgages, salaries and cost of living rose as fast as they have, simply haven't been updated to reflect what policyholders would actually need today.
AM Best's digitization framing also matches a competitive dynamic tracked closely through 2026. Manulife's MAUDE underwriting engine has pushed automatic approval rates higher throughout the year, and BMO Insurance entered the same race this summer with SmartDecision, delivering underwriting decisions in as little as 14 seconds on policies up to $5 million.
That kind of speed is precisely what AM Best credits for record new premium sales in 2025, faster, friendlier application processes lower the friction that keeps people from buying coverage in the first place. But speed at the point of sale doesn't automatically solve the separate problem AM Best flags: an existing policyholder base whose coverage amounts haven't been revisited in years.
Faster new-business underwriting and stale in-force coverage are two different problems, and this report suggests the industry has made real progress on the former while the latter continues to widen.
Net investment results fell 24% in 2025 to just over $6.7 billion, a sharp reversal from 2024's 33% increase, illustrating how much year-to-year earnings volatility in this sector still depends on markets rather than core insurance operations.
Despite that swing, AM Best-rated insurers kept their LICAT and CARLI capital ratios well above supervisory targets, supporting the agency's stable outlook on the sector overall.
Edward Kohlberg, AM Best's director, tempered that stability outlook with a specific caveat: "the escalating trade dispute with the United States, as well as inflationary pressures and cyber threats, is creating challenges and growing uncertainty for carriers."
International operations continue to outgrow the mature domestic market by a wide margin, with European revenue up over 8% and Asian revenue up nearly 18% in 2025.
For life insurance advisors, this report offers a specific, credible talking point for renewal and review conversations: a client's coverage amount set five or ten years ago is exactly the kind of policy AM Best says is now falling behind actual financial need.
Advisors shouldn't wait for clients to raise the issue themselves, proactively flagging older policies for a coverage review, particularly where a mortgage or income has grown substantially since the policy was purchased, addresses precisely the gap this report identifies as a growing structural problem for the industry rather than an individual oversight.
