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After a decade spent enduring interest rates so low they were almost unimaginable, life insurers should finally be able to exhale. The global economy is on the upswing and rates are finally rising.

Yet for all the recent momentum, something strange is happening: Canadian life-insurance stocks are not moving in lock step with interest rates. If the latest earnings reports from Manulife Financial Corp. and Sun Life Financial Inc. are any indication, they may not for some time.

It is not that the latest earnings reports were particularly scary, prompting investors to sit things out. In fact, in some cases, the numbers were rather encouraging. But in the wake of the global financial crisis, investors and analysts pay less attention to the core businesses that will drive growth. Instead, they still seem to fear worst-case scenarios, or at least contemplate what could go wrong.

“We are in the type of market where investors are focused on the negatives,” National Bank Financial analyst Gabriel Dechaine wrote in a research report after Great-West Life Co., the third of Canada’s three large life insurers, reported its latest profit at the end of October.

Since July, 2017, the Bank of Canada has hiked rates quite regularly, raising its benchmark five times to the current level of 1.75 per cent. The same is true of the Federal Reserve in the United States, which has hiked its equivalent rate seven times since late 2016.

Such rises will benefit life insurers, because they have massive investment portfolios that fund their future payouts, and the companies are required to stuff most of this money in fixed-income securities (83 per cent of Manulife’s $345-billion portfolio is invested in such securities).

However, life insurance stocks are not climbing. In the nearly two years since the Fed started hiking rates regularly, Sun Life’s shares have performed the best of three large life insurers, but have still dropped six per cent over all. Manulife’s stock has fallen 8 per cent over the same period, while Great-West’s shares have dropped 14 per cent. (It is worth noting that the stocks have been volatile, so their returns vary based on the time frame used to calculate the gain or loss.)

Some of this stems from a lag effect. Because life insurers gradually reinvest their portfolios in higher-yielding securities, it takes time for them to benefit from higher rates. The gains “bleed into earnings over time,” Sun Life chief executive Dean Connor said in an interview. But “make no mistake,” he added, "higher interest rates are a good thing for the insurance industry.”

The trouble, it seems, is that these benefits can be offset by the long tail of decades-old insurance policies. Manulife in particular has a large book of long-term care policies in its John Hancock subsidiary in the United States, yet people are living longer, healthier lives and it has been tough for insurers to cover those costs over the past decade of low rates. In the third quarter Manulife booked an undisclosed loss on the unit to adjust for its latest actuarial assumptions.

The insurer also has a variable-rate annuity business in the United States that poses similar problems. It has recently reinsured some problematic portfolios, which slashed its exposure and allowed the insurer to release capital that backstops these policies. But so far it has only done this for the least troubling of the bunch.

Sun Life, meanwhile, does not have the same exposures after the company sold its U.S. variable-rate annuity business in 2012. But it still cannot escape fluctuations that make investors pause. The company reported a $258-million expense in its third-quarter earnings, largely owing to a change in actuarial assumptions.

Manulife’s stock climbed 4.2 per cent higher Thursday, closing at $22.33. Sun Life’s shares lost 1.6 per cent, falling to $48.63.

It is possible that investors are worrying too much about potential risks. Manulife and Sun Life both have large wealth management arms and, crucially, they have large exposures to Asia, which they believe is under-penetrated when it comes to insurance and wealth products. “We’re really bullish on Asia over the medium-term,” Mr. Connor said.

The trouble is that persuading investors to look at growth opportunities continues to be a tough sell. As Bank of Nova Scotia analyst Sumit Malhotra said on Sun Life’s conference call after the insurer reported its unexpected expense, “actuarial assumptions always capture more attention because they get to the core of the actual insurance business.”