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, Manulife is the cheapest and Intact the most expensive in terms of P/E ratio.
- Over the medium term, Intact has provided the best return among large Canadian insurers, with Sun Life being a distant second.
- 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 | $41.2 B | 6.77 | 0.87 | 0.27 | |
| IFC | $34.3 B | 14.6 | 2.41 | 0.34 | |
| SLF | $32.2 B | 8.62 | 1.24 | 0.25 | |
| GWO | $27.8 B | 7.91 | 1.12 | 0.39 | |
| IFC | $7.4 B | 7.62 | 1.14 | 0.23 | |
| MSCA CADG | $2110 B | - | - | - |
Data from morningstar.ca as of 30 September 2022. Morningstar Can GR CAD is an index representing Canadian equities and is shown for comparison.
| Company | Ticker | Total annual return | ||
|---|---|---|---|---|
| (1-year) | (5-year) | (15-year) | ||
| MFC | -5.66% | 9.85% | -1.29% | |
| IFC | 19.1% | 14% | 11.52% | |
| SLF | -11.6% | 12.4% | 2.95% | |
| GWO | -17.5% | 7.24% | 2.27% | |
| IFC | 1.22% | 11.81% | 5.77% | |
| MSCA CADG | -5.48% | 7.21% | 4.88% | |
Data from morningstar.ca as of 30 September 2022. 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.
Traditionally, insurance stocks are considered desirable investments over the long term. This point can be seen in the fact that Warren Buffet and later Prem Watsa have used an insurance company as the backbone of their portfolios.
In the table at the top of this page, we can compare the medium-term return of Canadian insurance stocks with the Morningstar Canada GR CAD index. Morningstar Canada index represents the top 97% of Canadian stocks by market capitalization and, thus, is a suitable barometer for the Canadian stock market.
Insurers have underperformed the Canadian market except for Intact Financial and iA Financial. To understand this large divergence, 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, rates are rising. 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.
We think currently, Manulife, Sun Life, Great West and iA are all reasonably priced concerning their expected earnings. Their share price is likely to be under pressure as rates are likely to continue their accent over the next couple of months. But they should be very good investments over the medium term.
Insurance companies have a unique business model. They take money in exchange for accepting risk. They should calculate the expected payout from underwriting a policy (selling insurance). The science of calculating the expected payout from a policy is called actuarial science.
The premium they charge should be higher than the expected payout in order for the insurer to make a profit. This premium should also be lower than or equal to the premium charged by their competitors in order for the insurance company to attract customers.
Often there is a considerable time lag between the time premiums are collected and the time claims are paid. Insurance companies often use this time to earn a return on their collected premiums. As a result, it is common for insurance companies to enter the wealth management business.
Insurance companies are often conservative investors; thus, higher interest rates favour them because higher rates allow them to earn more interest on their fixed-income investments. These companies often hold large amounts of financial assets. Consequently, they endure pain in the process of rate rises. In contrast, they gain from the process of falling rates. This is because when rates rise, the price of bonds on their books declines. On the other hand, when interest rates fall, the price of bonds on their books appreciates.
The insurance business model assumes that the risks for different policyholders are independent of one another. As long as the risk faced by any policyholder is independent of the risk faced by other policyholders, the insurance company would have a stable flow of income and expenses.
Unfortunately, some phenomena correlate with the risks faced by different policyholders. For example, a pandemic can simultaneously raise the risk of hospitalization or death for many people, or a hurricane causes a simultaneous rise in the risk of property damage across a whole region. Such risk correlations can cause a sudden surge in insurance payout and potentially bankrupt an insurance company. To avoid financial squeeze due to sudden surges in payouts, insurers often insure themselves for the risk of the claims they are facing passing over a specific threshold. This gives rise to the reinsurance business.
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 | 5.86% | |
| Trailing dividend yield | 5.86% | |
| Trailing annual revenue | $29.7 B | |
| Price/Sales | 1.47 | |
| Last Price | $23 | |
| Data from morningstar.ca as of 22 September 2022. | ||
Manulife is a multinational insurance and financial services provider headquartered in Toronto. Their brand name in Asia and Canada is Manulife, while their brand name in the USA is John Hancock Financial. The most important subsidiaries of Manulife Financial Corporation are
- John Hancock Financial,
- Manulife Investment Management, and
- Manulife Bank of Canada.
Parliament incorporated the Manufacturers Life Insurance Company in 1887. It was initially managed by Macdonald and Campbell, who were Prime Minister of Canada and Lieutenant Governor of Ontario at the time. Manulife merged with the Temperance and General Life Assurance Company in 1901. In 1931, its first presence in China was established by opening a branch in Hong Kong.
In 1958, the joint stock company was changed into a mutual organization. A mutual organization is a company which is owned by its customers. It is similar to a cooperative in that both belong to their users (in the case of insurance companies, to their policyholders). Still, these two differ in that cooperative members contribute capital to the cooperative through membership fees which is not the case for mutual companies.
In contrast, mutual company users only pay for the service they receive and do not pay a membership fee. The mutual company, a form of not-for-profit organization, was a popular form for financial institutions in North America but has fallen out of favour since the 1980s.
In 1984, Manulife purchased Dominion Life Assurance Company, founded in Waterloo in 1889. In 1996, Manulife combined its business with another Toronto-headquartered insurer, North American Life. That year, the company entered into a joint venture with Sinochem to form Zhong Hong Life Insurance Co. Ltd, headquartered in Shanghai. This joint venture is currently operating in 50 Chinese cities.
Headquarters of Manufacturers Life Insurance Company (Manulife) in Toronto, Canada
In 1999, Manulife policyholders approved demutualization, as a result of which Manulife became a joint stock company, and they received Manulife shares. In 2004, in an all-stock deal valued at $10.4 billion, Manulife and the Boston-based insurance company John Hancock Financial merged.
In 2009, Manulife acquired the Canadian mutual fund company AIC Limited. The same year, Manulife bought Pottruff & Smith Travel Insurance Brokers Inc. In 2010, Manulife bought 49% ownership in ABN AMRO TEDA Fund Management Co. Ltd. It was renamed Manulife TEDA Fund Management Company Ltd. This joint venture offers asset management in China.
Manulife income (loss) from different segments over the first half of the fiscal year 2022.
| Reporting segment | Income in millions of $ | Relative contribution |
|---|---|---|
| Asia | 1134 | 28% |
| Canada | 632 | 16% |
| US | 2899 | 71% |
| Global Wealth and Asset Management | 629 | 16% |
| Corporate and other | -1238 | -31% |
| Net income (Loss) | 4056 | 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 | 2.03% | |
| Trailing dividend yield | 1.98% | |
| Trailing annual revenue | $21.23 B | |
| Price/Sales | 1.64 | |
| Last Price | $197 | |
| Data from morningstar.ca as of 22 September 2022. | ||
Intact Financial is a multinational property and casualty insurance company. Halifax Fire Insurance Association was established in 1809. Its name changed to Halifax Insurance company as a subsidiary of the Dutch Nationale-Nederlanden in the 1950s and to ING Canada as a subsidiary of the Dutch multinational ING Group between 1993 and 2009. ING Group was created from a merger between Nationale-Nederlanden and NMB Postbank in 1991.
During the 1980s, Halifax Insurance company acquired Commerce Group and Blair in Quebec and Western Union in Alberta. ING Canada acquired Guardian Insurance business in 1998 and Zurich Canada home, auto and small and medium business insurance in 2001.
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 | 4.99% | |
| Trailing dividend yield | 4.89% | |
| Trailing annual revenue | $23.86 B | |
| Price/Sales | 1.37 | |
| Last Price | $55 | |
| Data from morningstar.ca as of 22 September 2022. | ||
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 | |
| Last Price | $30 | |
| Data from morningstar.ca as of 22 September 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.