Navigating Q2/26 Analyst Actions: Insurance Resilience Meets Banking Momentum
Canadian life insurers and major banks face shifting market dynamics as Q2/26 results approach. According to TD Cowen analyst Mario Mendonca, buoyant equity markets and Asian insurance sales are set to support life company earnings, narrowing the valuation gap with the Big Six banks.
The Bottom Line
- Life Insurance Targets Lifted: TD Cowen revised targets upward for major lifecos, including Great-West Lifeco Inc. (TSX: GWO) to $98 and Manulife Financial Corp. (TSX: MFC) to $65.
- Valuation Compression: While life insurers traded near parity with banks at the end of March 2025, major banks now command an 18 per cent premium on a forward P/E basis.
- Macroeconomic Risks: Analysts flag CUSMA uncertainty, trading revenue normalization, and consumer oil-price pressures as primary headwinds for bank earnings.
Sector Dynamics: Lifecos Versus the Big Six
Strong equity markets are actively supporting assets under management and fee growth across Canadian life insurance companies. Mario Mendonca expects solid second-quarter results driven by improving insurance experience and sustained momentum in Asian insurance sales. These factors offset net outflows to support broader earnings growth.
Here is the math: A lower share count—averaging a 3 per cent year-over-year decline across the group—underpins projected adjusted earnings per share growth of 8 per cent. This structural reduction aids progress toward targeted return on equity metrics.
Yet, the balance sheet tells a different story regarding bank performance. After outperforming peers from 2022 through 2024, insurers experienced a down year in 2025. Lifecos have since matched the year-to-date performance of the Big Six banks. Even so, robust bank earnings and lower credit cyclicality justify the recent step-up in bank valuation multiples.
Detailed Analyst Revisions Across Coverage
Market analysts adjusted valuations across major financial institutions as second-quarter reporting windows approached. The modifications reflect distinct institutional strategies and localized headwinds.
| Company | Ticker | Previous Target | New Target | Street Average |
|---|---|---|---|---|
| Great-West Lifeco Inc. | GWO-T | $80 | $98 | $84.42 |
| IA Financial Corp. Inc. | IAG-T | $190 | $214 | $194.65 |
| Manulife Financial Corp. | MFC-T | $58 | $65 | $58.33 |
| Sun Life Financial Inc. | SLF-T | $107 | $121 | $106.79 |
For Great-West Lifeco Inc. (TSX: GWO), institutional focus centers on transformation expenses within the wealth segment designed to improve rollover rates. These operational adjustments may temporarily suppress wealth inflows for one to two quarters.
Meanwhile, IA Financial Corp. Inc. (TSX: IAG) faces ongoing scrutiny regarding sequential improvements in U.S. lapse experience. Management actions aimed at addressing an underperforming IMO remain central to these adjustments.
At Manulife Financial Corp. (TSX: MFC), questions persist surrounding assumed returns for ALDA, which currently stand at 9.0 to 9.5 per cent. Q2/26 marks the sixteenth straight quarter of ALDA charges, though robust equity markets continue to generate non-core equity market gains capable of absorbing them.
Evaluating Downside Risks and Risk-Off Positioning
Despite positive earnings trajectories, institutional analysts emphasize underlying risks. Commercial credit exposure tied to trade agreement uncertainties under CUSMA presents potential downside for bank earnings. Additionally, normalizing trading revenues and consumer strains from higher oil prices require cautious monitoring.
As equity markets fluctuate, portfolio managers increasingly evaluate defensive positioning. Shifts toward a risk-off posture favor insurers (particularly the P&C companies) over banks. Jefferies analyst John Aiken notes that while macroeconomic conditions act as a tailwind, lofty market expectations leave little room for operational missteps.
Strategic Outlook for Investors
Execution on return on equity targets remains a primary catalyst for institutional upgrades. National Bank recently upgraded Bank of Nova Scotia stock rating on ROE target. Investors must balance bank earnings momentum against potential credit compression in commercial segments.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
