Sun Life easily exceeds analysts expectations on profit; credits equity markets
Sun Life Financial Inc. rebounded to a big profit in the third-quarter, easily surpassing the earnings expectations of analysts thanks largely to an improvement in stock markets.
“Improvements in equity markets and continued strong execution of our strategy resulted in solid earnings across major business lines and geographies compared to the same period last year,” said chief executive Donald Stewart.
Canada’s third-largest insurance company said it earned $453 million, or 79 cents per share, in the three months ended Sept. 30. That compared with a loss of $140 million, or 25 cents per share, in the same period last year.
Analysts surveyed by Thompson Reuters had expected earnings of 61 cents per share by the Toronto-based company.
Return on equity investments rose to 11.2 per cent, up from a shortfall of 3.5 per cent in the year-earlier period.
Besides the improvement in equity markets, Sun Life said it also benefited from positive assumption changes, which boosted profit by $49 million. Under Canadian accounting rules, insurers are required to provide assumptions on how changes in things like interest rates, equity returns and mortality rates affect their ability to meet policyholder obligations.
Sun Life Canada had net income of $262 million compared with $219 million in the third quarter of 2009.
“Earnings in our Canadian operations reflected an improved economic environment – including equity market gains and an improved credit environment – as well as excellent sales performance,” Stewart said.
“Compared to the same period last year, SLF Canada reported increases in sales of fixed-interest products and life and health insurance in our Individual Insurance & Investments business, while the Group Benefits business also achieved significant sales growth.”
A persistently low long-term interest rate environment continued to eat away at its bottom line. But Sun Life said credit markets improved from last year and the impact from lower interest rates was largely offset by more favourable movements in interest rate swaps that is uses for asset-liability management.
Its U.S. division returned to profitability even as the company set $57 million more aside on the mortgage front in anticipation of continued problems in the U.S. commercial mortgage market. That amounted to a $40-million hit on its earnings.
The company said strong sales growth was continuing at its Asian division, driven by China and Indonesia, but offset somewhat by India, where the industry is undergoing regulatory changes.
Sun Life Asia earned $37 million in the quarter, almost tripling the $13 million it earned in the third quarter of 2009.
As of Sept. 30, Sun Life had $455 billion in assets under management, a 10 per cent increase over last year.
The positive results should provide confidence to Sun Life, which said in August it was only cautiously optimistic about the remainder of this year, as they contended with an unpredictable economic recovery that weakened markets and ravaged the insurer’s second-quarter profit.
However, it warned in its outlook that equity markets remain volatile and weak economic conditions persist. A decision announced November 3 by the U.S. Federal Reserve to repurchase US$600 billion in treasury bonds could also affect the company because it will further lower yields and interest rates.
Sun Life employs about 16,000 people, including about 7,000 in Canada, and has insurance, wealth management and mutual fund operations around the world.
