Soft market outlook casts shadow over insurers

Sun Nov 4, 2012 10:42am EST
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By Cameron French

TORONTO (Reuters) - Even if Canadian life insurers live up to expectations by posting strong third-quarter results this week, investors ought to think twice before piling into their shares given the uncertain outlook for financial markets.

With debt crises in Europe and the United States pressuring stocks and threatening another severe market downturn, analysts say one or more of the insurers could cut profit targets when they start reporting results on Wednesday.

The cautious tone comes even though the group has posted year-to-date stock gains that are mostly in the double digits.

The industry's No. 3 player, Sun Life Financial Inc, (SLF.TO: Quote) leads the insurers with a 34 percent gain, while the top dog, Manulife Financial Corp (MFC.TO: Quote), which owns U.S. insurer John Hancock, is up 16 percent, though shares of both are still at less than half of their pre-crisis values.


But that was then and this is now, analysts say. Even with the market-beating gains this year, many think the stocks are a risky play.

"It's a real contrarian bet to stick your neck out to be long insurance companies," said Barry Schwartz, a portfolio manager at Baskin Financial, which sold its stake in Canadian life insurers earlier this year.

Indeed, according to Thomson Reuters I/B/E/S, the most common rating for each of the four main players in Canada's life insurance industry is "hold," even though analysts agree the stocks are extremely cheap by historical standards.   Continued...

A man walks down the street from the King and Bay intersection in the financial district in Toronto, February 22, 2011. REUTERS/Mark Blinch