Canadian life insurance companies, the four largest in Canada in particular, are benefiting from strong equity markets and demand for financial services in North America and Asia – favourable conditions that Morningstar DBRS says will likely continue going into 2025.
“Key downside risks include high U.S. equity valuations and mounting geopolitical tensions,” they write in the commentary Canadian Life Insurance Outlook 2025: Market Conditions Favourable for Lifecos; Geopolitical Tensions Under Watch.
“Canadian lifecos have increasingly large fee-based, wealth and asset management businesses that are supported by market momentum,” the report states. “Strong gains in the shares of certain lifecos could make buybacks less attractive and favour other means of capital deployment such as dividends or acquisitions.”
Key trends
They add that aging demographics globally and growth in Asia’s middle class remain key trends benefiting insurers. “Indeed, as governments struggle to fund the retirement and healthcare needs of their populations, life insurers can play an increasingly important role.”
By company, they say lifecos are expected to focus on growth in areas where they are already established: the U.S. health insurance sector for Sun Life and U.S. pension administration for Great-West Lifeco, while Manulife is expected to source more earnings from Asia. “IA Financial, with its strong recent financial performance and lower financial leverage than peers, may look to inorganic growth opportunities,” they write, “especially in the U.S.” Later they say a large acquisition is unlikely, but that Canadian life companies do have the ability to handle medium-sized transactions.
Trade relationships
The report also looks at the company’s investment results, alternative investment products, and touches briefly on current geopolitical conditions. “While there are no indications that tariffs or other barriers to international operations will be applied to financial institutions, Manulife and Sun Life operate through joint ventures in certain Asian markets, notably in mainland China, and could be negatively affected by the deterioration of trade relationships between the U.S. and China,” they warn. (The insurers’ well diversified portfolios and stress testing exercises are both cited as elements working in the company’s favour.)
