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An insurance claim form.Monika Wisniewska/Getty Images/iStockphoto

Canadian life insurance companies are closing the books on 2013, marked by strong gains in earnings, assets and their share prices. Analysts say these companies could be on the cusp of even better performance this year.

Several market forces worked in the insurers' favour in 2013. Equity markets were up, translating into higher wealth management product sales and growing pools of assets. Corporate bond rates moved modestly higher, and currency value changes worked in the insurers' favour.

The four largest life insurers – Manulife Financial Corp., Sun Life Financial Inc., Great-West Lifeco Inc. and Industrial Alliance Insurance and Financial Services Inc. – saw their shares creep up toward pre-recession levels, gaining close to 45 per cent on average in 2013.

So when the country's largest lifecos begin to report their fourth quarter and full-year results on Feb. 12, analysts are expecting to see those conditions to translate into solid earnings performance.

"The lifecos appear 'on track' to reaching long-term earnings objectives, with potential upside from rates and equity markets," Darko Mihelic, an analyst at RBC Dominion Securities Inc., wrote in a note to clients.

The insurers' capital levels are also looking robust, which improves the chances of deployment, according to Tom Mackinnon, analyst with BMO Nesbit Burns.

Mr. MacKinnon predicts that Industrial Alliance could bump up its dividend, and Sun Life might consider buying back shares within the next year. Manulife and Great-West may follow suit with their own capital return initiatives in 2015.

At Manulife, profit will likely be helped by reduced hedging costs, increased fee income in the wealth management businesses and lower costs associated with selling new insurance policies.

At Sun Life, sales of insurance and wealth management products in Asia and the U.S. are expected to contribute positively to earnings.

Great-West could benefit from higher assets under management related to its purchase of European insurance business, Irish Life Group Ltd.

And Industrial Alliance earnings will reflect its acquisition of wealth and asset manager, Jovian Capital Corp., which closed in the quarter.

The results will set the tone for 2014, but positive earnings trends may not amount to another year of soaring stock prices.

Valuation gains until the end of summer "were reasonable as investors accounted for heightened earnings expectations and stronger balance sheets," Peter Routledge, analyst at National Bank Financial, wrote in a note to clients. But after that, "valuations continued to run up more on broader market momentum, than on sustainable fundamentals," he said. He added that investors should expect more volatility this year.