By James Langton

(November 14 – 14:10 ET) – Canadian life insurance stocks are sliding this morning, partly in response to four downgrades from Merrill Lynch Canada.

The brokerage firm has cut its intermediate rating on Great-West Life from Buy to Accumulate, Manulife Financial falls from Accumulate to Hold, and Industrial Alliance falls all the way from Buy to Hold.

Sun Life remains the same in the near term, but has its long-term rating fall from Buy to Accumulate. Ratings on Canada Life and Clarica remain unchanged at Hold.

Merrill justifies the moves based on share valuations, saying prices have gone up without any supportive fundamental developments. “While we appreciate that volatility in other market sectors coupled with long-term prospect for lower interest rates make a compelling case for investment in financial service company shares in general, life insurance multiples have expanded rapidly leaving the shares vulnerable to disappointment,” the brokerage says.

“Adding to our developing cautious stance with respect to valuation is the belief that the market will become increasingly preoccupied with earnings visibility and quality now that valuations stand at a premium to other financial service sectors such as banks.”

Sun Life had its long-term rating cut because that the turnaround in the U.K. operations is taking longer than hoped for. However, Merrill notes that the firm remains, “the most advanced amongst Canadian life insurers in terms of building its wealth management operation and as a result offers attractive future potential.”