Empire Life’s $200M Share Issue: A Signal of Strength and Strategy

KINGSTON, ON – December 04, 2025 – In a move that speaks volumes about its financial footing and strategic foresight, The Empire Life Insurance Company has announced its plan to raise $200 million through a private placement of preferred shares. While a capital raise from a century-old insurer might seem routine, the design and timing of this offering reveal a sophisticated strategy to navigate a complex economic environment, optimize its balance sheet, and offer a compelling proposition to income-seeking investors.

The offering consists of Non-Cumulative 5-Year Fixed Rate Reset Preferred Shares, Series 6, priced at $1,000 per share. This financial instrument is not merely a tool for funding; it's a carefully crafted response to current market dynamics, reflecting deep confidence from both the company and its underwriting syndicate, led by industry giants RBC Capital Markets and Scotiabank.

A Strategic Capital Reshuffle

Beyond the headline number, the true strategic ingenuity lies in the intended use of the proceeds. Empire Life has indicated that the funds will be used for general corporate purposes, which may include the repurchase of its outstanding Series 3 preferred shares. This potential buyback is a classic refinancing maneuver, suggesting a proactive approach to capital management rather than a reactive need for cash.

By issuing new Series 6 shares to potentially redeem older Series 3 shares, Empire Life is likely aiming to optimize its cost of capital. Companies undertake such refinancings when they can secure more favorable terms on new debt or equity, thereby reducing long-term financial obligations. This is not a move born from distress but from a position of strength. The company's robust financial health is underscored by its Life Insurance Capital Adequacy Test (LICAT) ratio, a key measure of an insurer's ability to meet its obligations. As of the third quarter of 2025, Empire Life’s LICAT ratio stood at a formidable 145%, comfortably above the 136% industry average and well clear of the regulatory minimum. This strong capital cushion allows the company the flexibility to fine-tune its balance sheet strategically.

With total assets under management reaching $20.5 billion, the $200 million offering represents a calculated adjustment, not a massive overhaul. It is an act of financial housekeeping by a mature, stable institution looking to enhance efficiency. This move signals to the market that management is keenly focused on prudent capital stewardship and maximizing shareholder value by actively managing its financial structure in anticipation of future market conditions.

The Hunt for Yield in a Shifting Rate Environment

The design of the Series 6 shares makes them a noteworthy product in today's investment climate. The shares will launch with an initial annual fixed dividend rate of 6.00%, a figure that immediately catches the eye in a market where the Bank of Canada’s policy rate sits at 2.25% and the 5-year Government of Canada bond yield hovers around 2.8%. This substantial premium offers a powerful lure for investors starved for meaningful returns.

However, the innovation extends beyond the initial rate. The shares feature a rate-reset mechanism that will adjust the dividend every five years to a rate equal to the prevailing 5-year Government of Canada Yield plus a spread of 3.103 percentage points (310.3 basis points). This hybrid design offers investors the best of both worlds: a high, stable income stream for the initial five-year period and a built-in hedge against future inflation and rising interest rates. Should rates climb, investors won't be locked into a subpar yield, as their dividend will adjust upward with the market.

Adding a layer of security is the provisional rating of "Pfd-2(high)" with a stable trend from DBRS Morningstar. In the world of credit ratings, this signifies good credit quality and places the issuance at the high end of its category, on par with similar offerings from Canada's largest insurance players. For financial advisors and retail investors, this rating provides crucial third-party validation of the offering's stability.

This structure is perfectly timed. With the Bank of Canada having already initiated a cycle of rate cuts and forecasts suggesting further reductions in 2026, the window for locking in high-yield, high-quality fixed-income opportunities may be closing. Empire Life is tapping into this demand, providing a solution that balances attractive returns with prudent risk management.

A Barometer for Confidence in Canadian Insurance

Zooming out, Empire Life's ability to bring this $200 million offering to market successfully is a strong positive signal for the entire Canadian insurance sector. The participation of a syndicate of Canada's top investment dealers underscores a deep-seated market confidence in the industry's resilience and financial discipline. These institutions do not back offerings without rigorous due diligence, and their involvement speaks to the perceived strength of Empire Life's balance sheet and business model.

The Canadian insurance industry is known for its conservative regulatory environment, overseen by the Office of the Superintendent of Financial Institutions (OSFI). Insurers are required to hold significant capital reserves to weather economic storms, a mandate that has fostered a culture of stability. Empire Life’s LICAT ratio of 145% is a testament to this robust framework, demonstrating a capital surplus that provides a substantial buffer against unexpected shocks.

The recent performance of the Canadian preferred share market, which saw a strong rebound earlier in the year and has shown continued investor appetite, provides a fertile ground for such an issuance. Investors, having reinvested funds from previous redemptions, are actively seeking new opportunities. Empire Life's offering arrives at an opportune moment to capture this available capital.

Ultimately, this financial transaction is more than just numbers on a term sheet. It is a reflection of a healthy, functioning capital market where well-managed companies can access funds on favorable terms and investors can find well-structured opportunities to meet their financial goals. It demonstrates that even in an era of rapid technological disruption, the principles of sound financial strategy and prudent capital management remain cornerstones of enduring corporate success.