Manulife Financial Corp. headquarters is seen in Toronto Monday Dec. 9, 2002.KEVIN FRAYER/The Canadian Press
There might finally be a glimmer of white light for Canada's life insurers, which will report their first-quarter results (and face shareholders at their annual meetings) in May.
Stock markets rose during the first-quarter, with the S&P500 gaining 12 per cent and the S&P/TSX four per cent, points out RBC Capital Markets analyst Andre-Philippe Hardy.
Government bond yields also headed north. U.S. long-term government bond yields were up 33 to 44 basis points, while Canadian long-term government rates rose 17 basis points.
"We expect Sun Life and Manulife to report stronger than normal results in Q1," Mr. Hardy wrote in a preview note for clients.
Mr. Hardy expects that rising stock markets will allow Manulife to release enough of its reserve funds to bolster its quarterly profit by 23 cents per share.
The markets weren't entirely favourable though. U.S corporate A spreads tightened 52 basis points while Canadian swap spreads widened 23 basis points, and Mr. Hardy expects the unfavourable corporate and swap spreads to take 15 cents per share off of Manulife's earnings.
"While higher equity markets and bond yields are expected to result in significant experience gains in Q1, we project a narrowing of corporate bond spreads, and increase in swap spreads, stubbornly high strain, increased competition, and lower fee growth, will somewhat offset," UBS analyst Peter Rozenberg said in a note to clients Thursday.
He notes that both Manulife and Sun Life have significantly outperformed the market so far this year, gaining 23 per cent and 30 per cent respectively.
Investors appear to be hoping that some observers like BMO Capital Market's Tom MacKinnon are correct in predicting that Sun Life and Manulife's earnings "troughed" in the fourth-quarter will start to show momentum this year.