The Canadian life insurance industry is projected to sustain its robust performance into 2025, buoyed by favourable market conditions and strategic pivots by the nation’s largest insurers—Manulife, Sun Life, Great-West Lifeco, and iA Financial Group, collectively known as the Big 4. According to the Canadian Life Insurance Outlook 2025 report by Morningstar DBRS, these firms are capitalizing on resilient equity markets and a steady demand for financial services across North America and Asia.
The Big 4 have shifted their focus toward fee-based businesses, particularly wealth and asset management, which have benefited from strong equity markets. This transition has bolstered profitability, with all four achieving notable improvements in return on equity (ROE). Despite maintaining higher capital buffers and reducing leverage, the insurers have managed to enhance their financial metrics, positioning themselves well in an evolving market.
Morningstar DBRS highlighted that strong equity market performance in 2024 played a critical role in growing assets under management and administration (AUMA). Canadian lifecos have primarily leveraged management fees for revenue, avoiding the volatility associated with direct equity holdings. However, elevated market valuations could temper gains in 2025, and a potential market correction may pose risks to investment portfolios.
Aging populations and a burgeoning middle class in Asia remain pivotal growth drivers. Manulife continues to emphasize its Asian operations, while Sun Life targets US health insurance. Great-West Lifeco is concentrating on US pension administration, and iA Financial is exploring inorganic growth, particularly in the US market.
Additionally, alternative investment products are emerging as a lucrative frontier. Sun Life has notably expanded its alternative asset management capabilities through acquisitions, aiming to leverage higher fees and more stable client relationships associated with these products.
Geopolitical tensions, though not directly impacting life insurers, are flagged as a potential headwind due to their broader economic implications. The report said trade disputes involving Canada, the US, Europe, or Asia could dampen global equity markets and consumer confidence. Canadian insurers’ diversified portfolios and geographically matched liabilities offer some protection, supported by robust stress-testing practices.
Cybersecurity risks were also highlighted, particularly given the geopolitical climate. State-sponsored cyberattacks have the potential to disrupt financial systems, though such events are expected to be isolated rather than systemic.
The Big 4 are well-capitalized, with solvency ratios exceeding 130%, enabling flexibility for acquisitions. While large domestic acquisitions are unlikely, opportunities in Asia and Europe are being explored. Organic growth remains a priority, and absent major mergers or acquisitions, financial leverage is expected to decline further.
With stable credit ratings across all four companies, Canadian lifecos are well-positioned to navigate the challenges and opportunities of 2025. Continued focus on asset management, alternative investments, and geographic diversification is expected to sustain growth, even amid potential market corrections and geopolitical uncertainty.
Do you have something to say about this story? Share your thoughts in the comments below.
