Canada's largest life insurance companies will deliver a financial snapshot this week, but it won't show the landscape they're facing today.
When January whirled through like a tornado, the insurers were suddenly faced with sinking oil prices, low interest rates and shaky stock markets. But Manulife Financial Corp., Sun Life Financial Inc. and Great-West Lifeco Inc. will reflect on a somewhat calmer time when they report their fourth-quarter and annual results for 2015, starting on Wednesday.
Perhaps more telling will be the insurers' outlooks for both the challenged domestic market and their businesses abroad, where all three have been investing in growth.
All three major life insurers' stock prices have fallen since the beginning of the year. Robert Sedran, analyst at CIBC World Markets, said the sector was unlikely to get "the benefit of the doubt" from investors, who might take a "sell first and ask questions later" view of recent market trends, with the possible exception of Great-West.
"That said, with reduced market sensitivities and stronger balance sheets, we are also not prepared to render a guilty verdict just yet," Mr. Sedran added in a note to clients.
In many ways, these ups and downs are exactly what insurers have been gearing up to contend with since the financial crisis. All three major insurers have retooled to insulate themselves against long-term low interest rates and government bond yields, as well as uneven stock markets, amid scrutiny from regulators. They have focused on growing their wealth-management businesses and other non-insurance offerings, and they now do business in more parts of the world, increasing the portion of earnings that come from abroad.
"Canadian life insurers possess an enviable degree of geographic earnings diversity which should serve them well," Peter Routledge, analyst at National Bank Financial, said in a note. "Moreover, these companies have acclimated to this environment already, adapting their operations and balance sheets to this reality."
Manulife gets about three-quarters of its earnings from beyond Canada, and a lot of that comes from its Boston-based insurance and investments business, John Hancock. But Manulife's growing Asian division is generating the most buzz this quarter, as insurance product launches and a built-up distribution force should boost insurance sales in the region, Tom MacKinnon, analyst at BMO Nesbitt Burns, said in a report.
"On the other hand, we believe the impact of unfavourable market conditions will continue to weigh on retail mutual fund sales," he said.
Manulife bought Standard Chartered PLC's Hong Kong pension business last September.
Potential challenges include significant oil and gas investments that have put pressure on Manulife's securities business profits in recent quarters – a trend that will likely surface again, analysts say.
For Sun Life, it's the U.S. business that is front and centre, particularly after some recent efforts to grow through acquisitions, such as a September deal for the employee benefits business of Assurant Inc., which increased its disability, dental and vision-care insurance business.
The trick for Sun Life will be to show progress is being made at its Boston-based asset manager MFS, which struggled last year with market volatility and net outflows from its funds.
Mr. MacKinnon is watching for potential deals by Great-West this year, estimating that the insurer has more spare capital than its counterparts at $2.5-billion. He sees the company growing through acquisitions in Britain and Europe, or the U.S. retirement record-keeping business.
Analysts suggest Great-West could increase its quarterly dividend this earnings season.
Editor's Note: An earlier version of this story said Manulife's deal for Standard Chartered PLC's Hong Kong pension business had closed this month. In fact, it is still being reviewed. This version has been corrected.