Monday, February 20, 2006

BMO NB's Postscript on Life Ins Q4 2005

BMO Nesbitt Burns, 20 February 2006

• Overall, Q4/05 results were in line with expectations driven by strong gains in equity markets, good credit and expense gains from acquisitions. The clear standout in the quarter was Manulife, which reported robust earnings and sales results.

• The Canadian life insurers remain prolific generators of excess capital. We estimate that the lifecos had approximately $5.5 billion in excess capital at the end of 2005. This could increase 48% to $8.2 billion by the end of 2006.

• Despite the growth in excess capital, ROEs are expected to continue to rise. Total payout ratios, which included dividends and share re-purchases, was 52% in the industry and is comparable to the banks.

• While long term earnings growth favours the insurers over the banks, the banks currently have higher yields and ROEs as a group and trade at comparable P/E valuations. Moreover, the banks are experiencing very high levels of asset growth in their retail banking franchises.