Their soaring stock prices would suggest that major Canadian life insurers are going to have a good year.
The Big Three lifecos' share prices climbed by an average of nearly 28 per cent last year, far outpacing the Big Five banks' average gain of 11.1 per cent. The trend continued through January. Sun Life Financial Inc. is up 10.5 per cent since Jan. 1, and Manulife Financial Corp. has risen 6.9 per cent.
In Manulife's case, its stock is riding the wave of the financial markets. The company is heavily exposed to equities because of guaranteed-return products it has sold to customers, but as the global rally has gained momentum, investors have had less reason to worry about its capital levels.
And if Canada's largest life insurer reports a return to profitability after two straight quarters of losses, as some analysts expect to see on Thursday, it will be spurred by this same factor.
Since the financial crisis, which ultimately forced Manulife to cut its dividend in half to preserve capital, the company has worked to protect its balance sheet through hedging and reducing its exposure to riskier product offerings.
But nothing helps the bottom line quite like favourable financial markets.
Tom MacKinnon, an analyst at BMO Nesbitt Burns, said that the group of insurers have become a "show-me story" with market valuations that "reflect some fairly ambitious growth targets."
Manulife changed its own growth goals when it reported a third quarter loss in November. It pushed out its target to achieve $4-billion in "core" earnings by one year, to 2016. (Core earnings are a new measure that strips out the effect of certain accounting rules that have caused the company's results to swing wildly between large profits and losses.) It also had to choke down more than $1-billion in actuarial and goodwill charges.
"Manulife's reported earnings are likely to be below core once again," said John Aiken, an analyst at Barclays Capital, in a note to clients.
Investors will be watching closely for Manulife's update on its cornerstone Asian operation. "Manulife needs to demonstrate it can surface value," Mr. MacKinnon said of the unit. Along with meeting its ambitious growth targets, Manulife must show that its operations in 10 Asian countries are as profitable as its competitors in the region.
Peter Routledge, analyst at National Bank Financial, said in his earnings preview he views Manulife's Asian operations as "one of the most attractive and compelling Pacific Rim growth stories in Canadian financial services."
In the coming year, analysts expect that all the life insurers will be aided by improvements in the economic environment. For Manulife, that's likely to lead to gradual, not robust, growth.