Great-West Life: Stock of the Week

Would you take the best returns on equity among Canadian insurers but no moat?

Andrew Willis 27 May, 2024 | 4:09AM
Facebook Twitter LinkedIn



Key Takeaways for Great-West Life Stock:

• Canada Life, owned by Great-West Life GWO, is facing some fines for delays in starting a public service health plan. The contract is worth $514 million.
• Great-West Life’s diverse international businesses can help absorb the impact of any sanctions.
• The company earns no moat but offers a 5% dividend and the best returns on equity in the Canadian insurance sector to date.


Andrew Willis: Investors in Great-West Life stock may wonder about the wider impact of financial sanctions applied by the government recently on subsidiary Canada Life, but in a way, its lack of a moat may save it.

Canada Life, owned by Great-West Life, will face “financial consequences” according to a federal government spokesperson, after delays in starting up a public servant health insurance plan. The size of the sanctions has yet to be announced, and hopefully, their system can be fixed soon for the sake of the public servants and their 514 million dollar contract. Meanwhile, Great-West Life investors should put the problem in the context of a company with 25 billion in revenue last year.

The delay issue at Canada Life may suggest that more investment is required. But normally, as equity analyst Suryansh Sharma explains, the group benefits business in Canada is relatively capital-light. The company can also respond to these challenges by repricing its products quickly based on past experiences with contracts.

Great West Life is Big in Canada but Bigger Internationally

And for any domestic business issues, Great-West Life investors should also keep in mind that only about 30% of the company’s overall earnings come from the Canadian market. The company may serve 1 in 3 Canadians for life insurance, and hold a dominant position in the benefits business here, but it also offers a variety of financial services in Europe and the U.S.
With 25% of profit from U.S. operations through the Empower brand, the spot as the second-largest recordkeeper only behind Fidelity, and European operations reaching the UK, Ireland, and Germany, Great-West Life offers a diverse set of revenue streams globally. But it also makes for no moat.

Sharma says some of the businesses such as asset management and retirement can make for a moat, but when all combined, it’s just not enough given how competitive the insurance industry is by nature. But with 5% dividends and the best returns on equity in the sector, for many investors, the moat may matter less.

For Morningstar, I’m Andrew Willis.


bulls Great-West Life Bulls Say

  • Of its Canadian peers, Great-West Lifeco has the highest returns on equity, which speaks to the strength of its management and a favorable business mix.
  • Great-West's conservative approach lends itself to more consistent earnings and resulted in the firm faring better than its peers during the financial crisis.
  • Great-West's defined-contribution recordkeeping business (Empower) is a growing and attractive business. The acquisitions of Personal Capital and MassMutual's recordkeeping business will strengthen Empower's competitive position and lead to meaningful synergies

bears Great-West Life Bears Say

  • Fee pressure may damp the profitability of the firm's wealth and asset management business.
  • Great-West offers a wide range of complex insurance products, which exposes it to underwriting, investment, capital market, and interest-rate risks. This makes it difficult to predict the company's overall risk exposure, especially during periods of economic turbulence.
  • Unlike its peers, Great-West lacks a presence in fast-growing Asia. Growth may be constrained, given its focus on mature markets such as Canada, US, and Europe.


The author or authors do not own shares in any securities mentioned in this article.

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Great-West Lifeco Inc39.24 CAD0.08Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility