Canadian investors should keep their eyes on the insurance industry in 2023 and beyond. This is especially true in what had developed into a vastly different interest rate environment compared to the status quo for most of the 2010s and early 2020s. The Bank of Canada (BoC) elected to remain in a holding pattern on April 12, keeping the benchmark interest rate at 4.5%. However, this is still its highest point since before the advent of the 2007-2008 financial crisis and the Great Recession. Today, I want to look at two insurance stocks that are worth buying in this environment.
The insurance industry is positioned to benefit in a high interest rate climate. This has the potential to bolster capitalization ratios for insurers that offer long-dated interest rate guarantees to its consumer base. BoC governor Tiff Macklem recently stated that Canadians should expect monetary policy to remain restrictive until the middle of this decade. Investors should maintain interest in top insurance stocks. Let’s jump in.
Source: Getty Images
This is the first cheap insurance stock I’d buy in this interest rate climate
Manulife Financial (TSX: MFC) is a Toronto-based company that provides financial products and services in Asia, Canada, the United States, and around the world. Shares of this insurance stock have increased 7.2% month over month as of close on April 18. That has pushed the stock up 7.5% so far in 2023.
This company released its fourth-quarter (Q4) and full-year fiscal 2022 earnings on February 15, 2023. Manulife saw core earnings drop 7% year over year to $6.2 billion. The company reported Asia new business value of $1.34 billion — down from $1.66 billion in the prior year. However, Canadian and United States new business value both delivered solid growth in the year-over-year period.
Shares of this insurance stock currently possess a very favourable price-to-earnings (P/E) ratio of 7.1. Meanwhile, Manulife offers a quarterly dividend of $0.365 per share. That represents a strong 5.5% yield.
Here’s another top insurance stock to target with interest rates holding high
Sun Life Financial (TSX: SLF) is the other insurance stock I’d look to buy in this high interest rate climate. This Toronto-based financial services and insurance company provides savings, retirement, and pension products to a worldwide client base. Its shares have climbed 2.3% so far in 2023. However, the stock is down 5.1% year over year.
Investors can expect to see Sun Life’s Q1 fiscal 2023 earnings in early May. We got to see this company’s final batch of fiscal 2022 earnings on February 8, 2023. In Q4 2022, Sun Life delivered underlying net income of $990 million — up 10% compared to the previous year. Meanwhile, underlying net income increased 4% to $3.67 billion for the full year. It posted insurance sales of $4.32 billion in 2022 compared to $3.67 billion for the full year in fiscal 2021.
This insurance stock last had an attractive P/E ratio of 12. It is trading in more favourable territory compared to the industry average. Sun Life currently offers a quarterly dividend of $0.72 per share, which represents a solid 4.4% yield.
