While many Canadian investors wait for the major banks to outperform again, the life insurance stocks are very healthy according to BMO analyst Tom MacKinnon,
“Excess capital positions remain robust for the Canadian Lifecos. At $10B for MFC, an estimated $7B for SLF (or $4B post an estimated $3B 2025 outlay related to SLC buy-ups), $1.1B for IAG and $250mm for GWO (lower as it reflects GWO’s outsized 29% leverage), they provide ample financial flexibility. This is a high class problem, especially after also taking into account the group’s strong organic capital generation. In light of this, and testament to management’s increasing confidence in continued strong organic capital generation, it’s of no surprise that share buybacks have picked up. And with valuations still attractive, with the Canadian lifecos trading at 9.7x NTM [next 12 months] EPS versus their 10.2x average since the GFC (with much better ROEs/capital and still higher/more favourable longer-term interest rates) and an attractive 8% FCF [free cash flow] yield on 2025E organic capital generation, we see this trend continuing. Excess capital positions are exceptionally strong for the Canadian lifecos, except GWO … FCF [yields on 2025E are 8% for each of GWO, MFC and SLF and 10% for IAG”
AIG, Sun Life and Manulife are all buying back shares thanks to strong capital positions. Analysts, like Darko Mihelic at RBC, continue to favour insurance stocks over banks.