Insurance Companies Stocks: Manulife, Sun Life, Intact and Great West Life
What You Should Know
- Manulife and Sun Life are more concentrated on life insurance, while Intact is more concentrated on property and casualty insurance, and Great West Life is more concentrated on health insurance.
- Among large-cap Canadian insurers, iA Financial and Manulife are the cheapest, and Intact is the most expensive in terms of the P/E ratio.
- Over the medium and long term, Intact has provided the best return among large Canadian insurers, with iA Financial being second. Over the short term, Manulife’s return has been impressive.
- Higher interest rates should be positive for insurance companies after the initial shock is absorbed.
List of Top Canadian Insurance Stocks
| Company | Ticker | Market cap | P/E | P/B | D/E |
|---|---|---|---|---|---|
| MFC | $58.7 B | 8.9 | 1.5 | 0.3 | |
| IFC | $41.3 B | 16.3 | 2.9 | 0.4 | |
| SLF | $42.5 B | 10.7 | 2 | 0.5 | |
| GWO | $39.3 B | 10.2 | 1.6 | 0.38 | |
| IFC | $8.5 B | 8.3 | 1.3 | 0.28 | |
| MSCA CADG | $2,220 B | - | - | - |
Data from morningstar.ca as of 27 February 2024.
| Company | Ticker | Total annual return | ||
|---|---|---|---|---|
| (1-year) | (5-year) | (15-year) | ||
| MFC | 28% | 11.4% | 8% | |
| IFC | 21% | 18% | 15.5% | |
| SLF | 17% | 11.3% | 11% | |
| GWO | 20% | 11.1% | 9.3% | |
| IFC | -1.7% | 13.6% | 12.7% | |
| MSCA CADG | 9.9% | 9.3% | 9.9% | |
Data from morningstar.ca as of 27 February 2024. Morningstar Can GR CAD is an index representing Canadian equities and is shown for comparison.
Canadian bank stocks, Canadian insurers and asset managers constitute most of the financial sector, which in turn is the largest component of the S&P/TSX Composite index. While the energy sector, which mostly consists of Canadian oil and gas stocks, is the second largest component of the S&P/TSX Composite.
Investing in Insurance
The North American insurance market is competitive and close to saturation. Thus, large Canadian insurers must look to Asian markets and new innovative products to grow.
In the table at the top of this page, we can compare the return of Canadian insurance stocks with the Morningstar Canada GR CAD index over 3 time horizons. Morningstar Canada index represents the top 97% of Canadian stocks by market capitalization and, thus, is a suitable barometer for the Canadian stock market.
We should note that property and casualty insurers often invest in more liquid short-term debt instruments while life insurers often invest in higher yield long-term debt instruments. All insurers suffered during financial repression between 2008 and 2021, when rates were kept artificially low by central banks. In 2022 and 2023, interest rates rose. Property and casualty insurers (with their short-duration portfolios) immediately start benefiting in such an environment. In contrast, life insurers will initially suffer from a decline in the market value of their longer-term portfolio until rates plateau. Then they start benefitting from higher rates.
Insurance stocks are also affected by the interest rate through the investor demand for their securities. When interest rates rise some investor might dump their stocks and move into safe bonds negatively affecting insurance stock returns. In contrast, when interest rates fall investors would increase their investment in dividend stocks like large insurance stocks and positively affect their return.
Insurance companies operate on a distinctive business model wherein they assume financial risk in exchange for premiums. Central to their operations is the calculation of expected payouts from underwriting policies, a practice known as actuarial science.
To ensure profitability, insurers must set premiums higher than the anticipated payouts. However, these premiums must also remain competitive with those offered by industry rivals to attract clientele.
Given the interval between premium collection and claims disbursement, insurers often invest collected funds to generate returns. Consequently, many insurance firms engage in wealth management services.
Typically, insurers adopt a conservative investment approach, favoring higher interest rates as they yield greater returns on fixed-income investments. Yet, they face challenges during rate hikes, as bond prices decline, and conversely benefit from rate reductions, which boost bond values.
The insurance business model assumes independence among policyholder risks, ensuring a stable income-expenditure flow. However, certain events, such as pandemics or natural disasters, can simultaneously heighten risks across a broad spectrum, leading to increased payouts and potential financial strain for insurers.
To mitigate this risk, insurers often secure reinsurance to protect against payouts surpassing predetermined thresholds, thereby safeguarding against bankruptcy. This practice underscores the importance of the reinsurance sector within the insurance industry.
Manulife Financial Corporation
Manulife Financial Corporation | Exchange | TSX:MFCNYSE:MFCSEHK:945PSE:MFCXMEX:MFC |
| Indices | S&P/TSX Composite, S&P/TSX 60 | |
| Main business | Selling insurance policies and wealth management products | |
| Forward dividend yield | 5% | |
| Trailing dividend yield | 4.6% | |
| Price/Sales | 1.4 | |
| Data from morningstar.ca as of March 1 2024. | ||
Manulife, headquartered in Toronto, is a leading multinational insurance and financial services provider. Operating under the Manulife brand in Asia and Canada and as John Hancock Financial in the USA, the company boasts a robust presence across various markets. Among its notable subsidiaries are:
- John Hancock Financial
- Manulife Investment Management
- Manulife Bank of Canada
Established in 1887, the Manufacturers Life Insurance Company, later rebranded as Manulife, was initially overseen by prominent figures such as Sir John A. Macdonald, then Prime Minister of Canada and Sir Alexander Campbell, the Lieutenant Governor of Ontario. Manulife's expansion saw a significant milestone in 1901 with its merger with the Temperance and General Life Assurance Company.
In 1931, Manulife made its inaugural foray into China by inaugurating a branch in Hong Kong, marking the beginning of its enduring presence in the region.
In 1958, the joint stock company underwent a transformation into a mutual organization. A mutual organization, as distinguished by its ownership structure, is owned by its customers, akin to a cooperative where ownership rests with its users (in the context of insurance companies, this ownership lies with policyholders). However, a notable contrast between the two lies in the mode of capital contribution.
While cooperative members contribute capital to the cooperative through membership fees, mutual company users solely pay for the services they receive and are not burdened with membership fees. Historically, mutual companies, characterized by their not-for-profit orientation, enjoyed popularity among financial institutions in North America. However, since the 1980s, this organizational form has waned in favor.
In 1984, Manulife acquired Dominion Life Assurance Company, established in Waterloo in 1889. Subsequently, in 1996, Manulife amalgamated its operations with another Toronto-based insurer, North American Life. Concurrently, the company forged a joint venture with Sinochem to establish Zhong Hong Life Insurance Co. Ltd, headquartered in Shanghai. Presently, this joint venture operates across 50 Chinese cities.
Headquarters of Manufacturers Life Insurance Company (Manulife) in Toronto, Canada
In 1999, Manulife policyholders endorsed demutualization, leading to Manulife's transition into a joint stock company, with policyholders receiving shares in the company. Subsequently, in 2004, Manulife and the Boston-based insurance firm John Hancock Financial merged in an all-stock transaction valued at $10.4 billion.
In 2009, Manulife expanded its portfolio through the acquisition of the Canadian mutual fund company AIC Limited. Concurrently, the company acquired Pottruff & Smith Travel Insurance Brokers Inc., further augmenting its service offerings.
Continuing its growth trajectory, in 2010, Manulife secured a 49% stake in ABN AMRO TEDA Fund Management Co. Ltd., subsequently rebranded as Manulife TEDA Fund Management Company Ltd. This strategic joint venture specializes in asset management services tailored for the Chinese market, positioning Manulife as a key player in China's financial landscape.
Manulife income (loss) attributable to shareholders from different segments over the fiscal year 2023.
| Reporting segment | Income in millions of $ | Relative contribution |
|---|---|---|
| Asia | 995 | 19% |
| Canada | 1,191 | 23% |
| US | 473 | 9% |
| Global Wealth and Asset Management | 1,297 | 25% |
| Corporate and other | 1,147 | 22% |
| Net income (Loss) | 5,103 | 100% |
In 2014, Canadian operations of Standard Life were bought for about US$3.7 billion. In 2015, Manulife partnered with DBS Bank. Manulife paid US$1.2 billion for exclusive access to DBS Bank customers in Singapore, Hong Kong, China and Indonesia. In the same year, Manulife’s joint venture with Sinochem became authorized to sell mutual funds in China. In 2010, Manulife bought 49% of Mahindra AMC of India; it was renamed JV Mahindra Manulife Investment Management Company.
As of the end of June 2022, Manulife portfolio was worth $402.3 B. This portfolio included 31% corporate debt, 18% government debt, 13% mortgages, 11% private placement debt, 6% public equities and 5% cash and short term securities.
| Quality of $243.6 B debt securities held by Manulife as of 30 June 2022. | |
|---|---|
| AAA | 15% |
| AA | 17% |
| A | 39% |
| BBB | 25% |
| BB, lower and unrated | 4% |
Intact Financial Corporation
Intact Financial Corporation | Exchange | TSX:IFCXMEX:IFC |
| Indices | S&P/TSX Composite, S&P/TSX 60 | |
| Main business | Selling insurance policies and wealth management products | |
| Forward dividend yield | 2.2% | |
| Trailing dividend yield | 2% | |
| Trailing annual revenue | $22.1 B | |
| Price/Sales | 1.8 | |
| Data from morningstar.ca as of April 9 2024. | ||
Intact Financial is a leading multinational property and casualty insurance company with a rich history. Its origins trace back to 1809 when the Halifax Fire Insurance Association was established. Over time, the company underwent several transformations, reflecting its growth and adaptability to changing market landscapes.
In the 1950s, Halifax Insurance Company emerged as a subsidiary of the esteemed Dutch financial institution, Nationale-Nederlanden. Later, during the expansive era of the 1990s, it became a pivotal part of ING Canada, operating under the umbrella of the Dutch multinational conglomerate, ING Group. This transformation stemmed from the merger of Nationale-Nederlanden and NMB Postbank in 1991, which laid the foundation for the ING Group's emergence.
Throughout its evolution, Halifax Insurance Company demonstrated strategic acumen by making significant acquisitions. During the 1980s, it expanded its footprint by acquiring Commerce Group and Blair in Quebec, as well as Western Union in Alberta. These acquisitions solidified its presence across different regions of Canada, enhancing its market position and service offerings.
Under the umbrella of ING Canada, the company continued its growth trajectory. In 1998, ING Canada further bolstered its portfolio by acquiring the Guardian Insurance business. Subsequently, in 2001, it made another strategic move by acquiring Zurich Canada's home, auto, and small to medium business insurance divisions. These acquisitions demonstrated ING Canada's commitment to diversifying its offerings and strengthening its competitive edge in the insurance industry.
ING Canada acquired Allianz Canada in 2004 and subsequently sold 30% of Allianz through an IPO. In 2009, there was a name change from ING Insurance Company of Canada to Intact Insurance. Intact Insurance Acquired Axa Canada for $2.6 billion in 2011.
In 2012, Intact bought Jevco Insurance Company for $530 million. This was followed in 2014 by the purchase of Newfoundland concentrated Metro General Insurance Corporation and Canadian Direct Insurance Incorporated (CDI) acquisition in 2015.
In 2017, Intact purchased the American specialty insurer OneBeacon Insurance Group, Ltd., for US$1.7 billion. Intact acquired On Side Developments Ltd., the parent company of On Side Restoration, in 2019. Intact also acquired North American specialty insurer, The Guarantee Company of North America and it acquired Frank Cowan Company Limited, a specialty insurance managing general agent, in 2019.
The intact sign is seen on top of their Headquarters building in Toronto.
Later, Frank Cowan Company Limited was renamed Intact Public Entities Inc. In 2020, The US subsidiaries of Intact, OneBeacon Insurance Group and The Guarantee Company of North America were rebranded as Intact Insurance Specialty Solutions.
Intact and Danish insurer Tryg A/S together bought RSA Insurance Group in 2021 for £7.2 billion. Intact gained Canada, UK and international operations of RSA Insurance Group. In contrast, Tryg gained Sweden and Norway operations of RSA, and finally, Danish operations became co-owned by Intact and Tryg.
Sun Life Financial Inc
Sun Life Financial Inc | Exchange | TSX:SLFNYSE:SLFPSE:SLF |
| Indices | S&P/TSX Composite, S&P/TSX 60 | |
| Main business | Selling insurance policies and wealth management products | |
| Forward dividend yield | 4.5% | |
| Trailing dividend yield | 4.4% | |
| Price/Sales | 1.25 | |
| Data from morningstar.ca as of April 17, 2024. | ||
Sun Life is a financial services company primarily engaged in selling insurance policies and investment management. Life insurance has been the most important specialty of Sun Life over its long history. The Sun Life Insurance Company of Montreal was founded in 1865, but its operations began in 1871. The company very soon expanded to international markets.
In 1978 in response to the sovereigntist Quebec government, Sun Life decided to move its headquarters to Toronto. Subsequently, the Sun Life Centre was built at University Avenue and King Street. After WWII, Sun Life exited the Chinese and Indian markets due to economic and political changes.
In 1962, Sun Life repurchased all of its shares for $65 million and became a mutual company. In 1973, Sun Life opened its new US headquarters in Wellesley Hills, Massachusetts. In 1982, Sun Life acquired Massachusetts Financial Services, a Boston-based investment management and mutual fund company.
Ground sign of Sun Life Financial, Inc. outside their head office in Toronto.
In 1987, it formed Spectrum Mutual Fund Services to participate in Canada’s mutual fund services industry. Spectrum was later sold to CI Financial. This transaction gave Sun Life a 37% stake in CI Financial, which it sold to Scotiabank in 2008.
Sun Life also acquired Canadian investment management firm McLean Budden through Massachusetts Financial Services. In 1995, Sun Life entered the Indonesian market through a company now called PT Sun Life Indonesia.
In 1999, Sun Life entered into a joint venture with Aditya Birla Group to reenter the Indian market through Birla Sun Life. In the same year, Sun Life entered a joint venture with China Everbright Group called Sun Life Everbright to reenter the Chinese market.
In 2000, Sun Life demutualized and started trading on the Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE), and the Philippines Stock Exchange (PSE). In 2002, Sun Life merged with Clarica Life Insurance which was headquartered in Waterloo, Ontario. Clarica was founded in 1870 and went public in 1999.
In 2005, Sun Life purchased the Hong Kong insurance and pension operations of the Commonwealth Bank of Australia. They were CMG Asia and CommServe Financial. In 2007, the employee benefits business of Genworth Financial was bought by Sun Life.
In 2016, Sun Life acquired the Employee Benefits business of Assurant Inc. In 2019, the Sun Life Investment Management unit was rebranded as SLC management. Furthermore, its real estate division was consolidated under the name BentallGreenOak Real Estate.
In 2021, Kevin Strain, the company's former chief financial officer, replaced Dean Connor as president and chief executive officer as Connor retired.
Great-West Lifeco
Great-West Lifeco | Exchange | TSX:GWOXDUS:GWSXSTU:GWS |
| Indices | S&P/TSX Composite | |
| Main business | Selling insurance policies | |
| Forward dividend yield | 6.46% | |
| Trailing dividend yield | 6.46% | |
| Trailing annual revenue | $53.78 B | |
| Price/Sales | 0.53 | |
| Data from morningstar.ca as of September 22 2022. | ||
The Canada Life Assurance Company was a financial services company known as Canada Life and headquartered in Winnipeg, Manitoba. The Great West Life Assurance Company, London Life Insurance Company and the Canada Life Assurance Company combined in 2020 to make up the Canada Life Assurance Company which is a subsidiary of the Great-West Lifeco.
Great West Life was founded in Winnipeg in 1891. It entered the accident and health insurance business in 1942. In 1969, Great-West became a wholly owned subsidiary of Power Corporation. Rapid growth in the US business resulted in the separation of US and Canadian operations of the Great West in 1979.
Power Financial Corporation became a holding company for the Great West in 1984. In 1993, Great-West Life realty was established in Toronto as the property and asset management division of Great-West Life.
London Life was established in London, Ontario, in 1874. It was best known for its slogan “freedom 55”, meaning one should save enough to retire comfortably at the age of 55.
Canada Life Assurance Company (CLAC) was the first Canadian insurance company which was established in 1847 and incorporated in 1849. In 2003, it rejected a takeover bid by Manulife and was then acquired by Great West Life. CLAC was initially headquartered in Hamilton, Ontario. Its headquarters moved to Toronto in 1900. UK operations began in 1903 under Canada Life, UK. Crown Life Insurance company of Canada, founded in 1900, was acquired in 1998 by CLAC.
72% of Great-West Lifeco belongs to Power Financial Corporation (PFC). PFC was founded in 1984 and is headquartered in Montreal, Canada. PFC is a subsidiary of Power Corporation of Canada. Power Corporation was initially an electric utility holding company. It later became a conglomerate.
IGM Financial is another Power Financial subsidiary which trades on the Toronto Stock Exchange. Power Corporation was majority owned by the Nesbitt family. They sold most of their interest in Power Corporation in 1968 to Paul Desmarais.