How to Analyze Insurers Differently from Banks

Banks and insurers are both regulated financials, and both sit in the financials sector of the S&P/TSX Composite, so it is tempting to read them the same way. They are mirror images. A bank lends first and hopes to collect. An insurer collects premiums first and pays claims later, investing the money (the float) in the meantime. That flips the main risks: for banks, credit losses and funding; for insurers, how accurately claims were estimated, interest rates over long periods, and catastrophes.

This is an analysis checklist that builds on our insurance explainer and the bank checklist. It is educational only.

Direct answer

Split insurers into life (Manulife, Sun Life, Great-West Lifeco, iA) and property and casualty (P&C) (Intact, Definity, Fairfax and others), then use different tools. For P&C, the key metric is the combined ratio (claims plus expenses as a share of premiums) and reserve development. For life insurers, under IFRS 17 look at the insurance service result, the contractual service margin (CSM) and new business CSM. For both, check regulatory capital: LICAT for life insurers and MCT for P&C insurers, both set by OSFI for federally regulated companies. Price-to-book and ROE still apply, as for banks.

Bank vs insurer: what to track

Topic	Bank	Insurer
Main risk	Borrowers do not repay	Claims cost more than estimated
Timing	Lends first, collects later	Collects first, pays later
Key margin	Net interest margin	Combined ratio (P&C); CSM release and insurance service result (life)
Capital test	CET1 ratio (OSFI CAR)	LICAT total ratio (life); MCT (P&C)
Rate sensitivity	Net interest income	Asset-liability matching over long durations
Tail risk	Recession credit cycle	Catastrophes, pandemics, longevity, reserve strengthening
Accounting standard to know	IFRS 9	IFRS 17 (since 2023) and IFRS 9

P&C checklist items

Item	What to look for
Combined ratio, with and without catastrophe losses	Underlying trend vs one-off events
Prior-year reserve development	Favourable (earlier estimates were cautious) or adverse (too optimistic)
Premium growth: rate vs exposure	Price increases can mask shrinking policy counts
Reinsurance	How much risk is passed on and at what cost
Investment income	Yield on the portfolio vs the bond market

Life checklist items

Item	What to look for
Core or underlying earnings vs net income	Market-driven noise removed; read non-GAAP critically
CSM balance and new business CSM	Future profit stored on the balance sheet, and how much is being added
Experience gains and losses	Claims and lapses vs assumptions
Assumption changes	Large one-time changes in reserves
Asia, US and wealth mix	Where growth and risk come from; see segment reporting
LICAT ratio	Buffer above OSFI’s supervisory target

Checklist

Step	Done when
Life vs P&C identified	Right toolkit chosen
Capital ratio logged	LICAT or MCT vs target
Core profitability measured	Combined ratio trend or insurance service result trend
Reserve history checked	Development or assumption changes over three years
Valuation framed	P/B and ROE vs peers
Tail risks noted	Catastrophe, rate and longevity exposures

Go deeper

The insurance sector explainer covers how money is made; this checklist covers what to check. For capital-heavy financials more broadly, read valuing banks with P/B and ROE, which uses the same P/B logic.

Related reading

• How to analyze banks differently from operating companies
• Financials – Insurance: industry structure and how money is made
• How diversified financials make money
• What is ROE?

Sources

• IFRS 17 Insurance Contracts (effective January 1, 2023): contractual service margin, insurance service result.
• OSFI Life Insurance Capital Adequacy Test (LICAT) and Minimum Capital Test (MCT) guidelines.
• Company annual reports for the segment and metric definitions they use. Confirm current OSFI targets on the OSFI website.

Media credits

• Hero: “Sun Life Building @ Montreal (30288567912).jpg” by Guilhem Vellut, CC BY 2.0, via Wikimedia Commons. Cropped and resized to 1280x720. Real photograph, not AI-generated.

By Andrew · stocksummarizer.com