Canadian Insurers Are Breaking Out: What Higher Rates Could Mean for Manulife and Great-West Lifeco

In this week’s SVA Focus, Ross Healy looks at two major Canadian insurance companies that are breaking out into new valuation territory, at least in terms of Structural Valuation Analysis.

The companies in focus are Manulife and Great-West Lifeco, both of which are moving into valuation levels not seen since before the 2007 to 2009 mortgage meltdown period.

The key question is simple:

Is this just general market strength, or is something more meaningful happening underneath the surface?

Ross believes the answer may be the latter.

Watch the full SVA Focus episode here:
https://youtu.be/wQvOwZHXXJA

A Changing Operating Environment for Financials

The broader operating environment for financial companies appears to be shifting.

For years, from the mortgage meltdown through to the COVID-era market disruption, long-term interest rates remained extremely low. In fact, global interest rates fell to levels that were historically unusual, with some markets even reaching zero or negative rates.

That environment created challenges for financial institutions, particularly insurers and banks.

These businesses often benefit from the spread between short-term and long-term interest rates. When rates are extremely low, those spreads can be squeezed, and profitability can become harder to grow. This pressure was reflected in valuation levels, with many financial companies trading at lower price-to-book levels than they had seen in decades.

Why Higher Long-Term Rates Matter

Today, long-term interest rates appear to be breaking out to levels not seen in many years.

If that trend continues, it may allow interest rate spreads to widen. For insurers and banks, that can support better profitability and, in turn, stronger valuations.

This is where the SVA charts become especially interesting.

In Manulife’s case, Ross points out that during the low-rate era, valuation levels were significantly compressed. Today, Manulife is trading around one times adjusted book value, but before rates collapsed, the company traded closer to two times adjusted book.

That does not mean the stock must return to that level, but it does suggest there may be room for further valuation expansion if the higher-rate environment holds.

Great-West Lifeco Shows a Similar Pattern

Great-West Lifeco is showing a similar breakout.

The stock has moved above its normal price level in SVA valuation terms, and when viewed over a longer period, it has historically traded up toward its growth price, or roughly two times adjusted book value.

Again, this suggests that if the operating environment remains supportive, higher stock prices may be warranted.

Banks May Be Telling the Same Story

Ross also notes that Canadian banks are showing similar strength.

For many Canadian investors, banks represent a meaningful part of their portfolio. If financials are undergoing a structural valuation shift due to higher long-term rates and improving spreads, it may be worth paying close attention to both insurers and banks.

The same applies in the United States, where banks are also acting powerfully.

Why SVA Matters Here

Structural Valuation Analysis is designed to help investors understand whether a stock is trading at a discount, fair value, premium, or potentially extreme valuation levels relative to its own long-term structure.

In this case, SVA suggests that some Canadian financial stocks may be moving out of a long period of depressed valuations and into a more favourable valuation environment.

That does not eliminate risk. Interest rates, credit conditions, markets, and earnings all matter. But the current setup may be telling investors that something important is changing.

Final Thought

Manulife and Great-West Lifeco appear to be breaking into valuation levels that have not been seen for 16 to 17 years. If higher long-term rates continue to support stronger profitability for insurers and banks, these stocks may still have room to move.

For investors with meaningful exposure to Canadian insurers, Canadian banks, or U.S. banks, this may be an important moment to review valuations through the SVA lens.

Watch the full breakdown from Strategic Analysis Corporation here:
https://youtu.be/wQvOwZHXXJA

These are interesting times for financial stocks.

And in this case, the pun is intended.

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