Canadian life insurers seen posting modest Q1 gains

By Lynne Olver

TORONTO, April 30 (Reuters) - Canadian life insurance
companies are expected to post moderately higher first-quarter
profits over the next week, even though they are battling drops
in stock markets, lower interest rates and a sharp rise in the
Canadian dollar.

Lower stock market prices and interest rates will cut into
their investment income and may hurt certain product sales,
while the Canadian currency's year-on-year appreciation will
hurt comparisons to 2007 results.

Still, analysts say that insurance stocks are better bets
than the shares of large Canadian chartered banks.

"With stronger earnings and dividend growth prospects than
the banks but similar price/earnings valuations, we continue to
expect superior performance from the lifecos," said Desjardins
Securities analyst Michael Goldberg in a research note on
Wednesday.

The country's four publicly traded life insurers start
reporting results on Thursday, with Great-West Lifeco (GWO.TO: Quote, Profile, Research)
up first. Sun Life Financial (SLF.TO: Quote, Profile, Research), Manulife Financial
(MFC.TO: Quote, Profile, Research) and Industrial Alliance Insurance and Financial
Services (IAG.TO: Quote, Profile, Research) follow next week.

Analysts polled by Reuters Estimates expect the group on
average to post 8 percent growth in earnings, excluding
one-time items.

Jim Bantis, an analyst at Credit Suisse, says that Canadian
life insurance companies' results "will show quite favorably
relative to the Canadian banks."

That's partly because, unlike the banks, the Canadian life
insurers "have only minor exposure to current market hot spots"
such as U.S. subprime mortgages, high yield leveraged buyout
debt and structured investment vehicles, Bantis wrote in a
research report this week.

In the first quarter, the Canadian dollar jumped 17 percent
against the U.S. dollar compared with the same 2007 quarter,
and this will have the greatest impact on Manulife and Sun
Life, Bantis noted. Those companies derived 43 percent and 38
percent of their profits, respectively, from their U.S.
businesses last year.

Most of Manulife's U.S. business operates under the John
Hancock name.

It would make sense for Manulife to switch to the U.S.
dollar as its reporting currency, since its Canadian business
contributes less than a quarter of overall earnings, Desjardins
analyst Goldberg said.

But under current Canadian accounting rules, "making the
switch would be extremely complex and expensive," Goldberg
said, adding that any change may wait until Canadian accounting
rules are harmonized with international standards in 2011.

He also expects Manulife to raise its dividend by 8 percent
to 26 Canadian cents a share, from 24 Canadian cents.

In general, dividend growth for the Canadian life insurers
is running at about 18 percent, while dividend hikes at the
Canadian banks have slowed to 10 percent, Goldberg noted.

Report date Company Reuters Estimate

for EPS, Q1 2008

May 1 Great-West C$0.62

May 6 Sun Life C$1.02

May 7 Industrial All C$0.79

May 8 Manulife C$0.71

($1=$1.01 Canadian)
(Reporting by Lynne Olver; Editing by Peter Galloway)