Canadian investors should consider gaining exposure to quality companies in recession-resistant sectors such as insurance. One top TSX insurance stock that is down just 8% from all-time highs is Definity Financial (TSX: DFY). Valued at a market cap of $7.5 billion, Definity Financial provides property and casualty insurance in Canada. It offers personal and commercial insurance coverage through multiple brands, including Economical and Sonnet, distributed via brokers and direct-to-consumer channels.
The TSX stock went public in late 2021 and has since returned close to 150% to shareholders. Here’s why you should add Definity Financial stock to your watchlist right now.
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Is this TSX insurance stock a good buy?
Earlier this month, Definity Financial reported encouraging first-quarter (Q1) results, with operating net income of $75.9 million or $0.65 per share as the Canada-based property and casualty insurer continues to navigate a challenging weather environment.
It delivered premium growth of 9.6% in the quarter, adjusted for exited lines, driven by steady market conditions in personal insurance and favourable commercial insurance trends. Definity achieved a 94.5% combined ratio as proactive rate actions and continued expense efficiencies offset impacts from an active winter season.
Definity ended Q1 with book value per share of $29.52, up 16.2% from a year ago, reflecting strong capital generation. The company’s operating return on equity reached 10.3% over the trailing 12 months despite a significant catastrophe experienced in 2024.
The insurer continued to expand its broker platform, adding four broker acquisitions totalling approximately $130 million. Three have already closed, with the fourth expected to close by the end of Q3. Management expects the platform to reach at least $1.5 billion in managed premiums by the end of 2026, earlier than initially anticipated.
Definity took defensive investment portfolio actions during the quarter, moving nearly $250 million from common equities into government bonds ahead of April’s U.S. tariff announcements. This repositioning helped protect the portfolio in the current environment and strengthened the company’s financial capacity, which ended Q1 at $1.8 billion.
Management expects market conditions to remain firm in auto lines as insurers work to keep pace with ongoing cost pressures, regulatory constraints in Alberta, and uncertainty related to U.S. tariffs. While auto theft remains elevated compared to pre-pandemic levels, the insurer has seen four consecutive quarters of year-over-year improving trends.
Definity’s digital direct-to-consumer auto business through Sonnet achieved profitability despite the challenging quarter, a positive sign after breaking even in Q4 last year. Moreover, it recently received approval for an additional 5% rate increase for both Sonnet and its broker-distributed Economical brand in Ontario, effective in May.
Is this TSX stock undervalued?
Definity maintained its 2025 targets, including a sub-95% consolidated combined ratio and 15% growth in distribution platform income. Management remains confident in the company’s positioning to deliver its financial objectives despite uncertain economic conditions.
Analysts covering the TSX stock expect adjusted earnings per share to increase from $2.66 in 2024 to $3.93 in 2027. In the last 12 months, Definity Financial traded at a forward price to earnings multiple of 18 times, lower than the current multiple of 20 times.
If Definity stock maintains a forward price-to-earnings multiple of 18 times, it will trade around $70 in early 2027, indicating an upside potential of over 35% from current levels.
