Fourth-Quarter Profits Surge for Sun Life Financial

Published: Tue 16 Feb 2010

Perry Begay

Sun Life Financial reported on Thursday that its fourth-quarter profits more than doubled, assisted by improved sales and gains in the stock market, but the results still fell short of market expectations.

Sun Life announced that net income rose to C$296 million ($279 million), or 52 Canadian cents per share, in the fourth quarter, less than the 65 Canadian cents per share predicted by analysts, according to Thomson Reuters.

Although the profit was more than twice the previous year's income of C$129 million, or 23 Canadian cents per share, RBC Dominion Securities analysts declared that the less-than-expected profit was modestly negative for the stock.

"There was a shortfall in expected profit, impact from new business and earnings on surplus, a good part of which we expect to turnaround in the first half of 2010," the analysts said to clients in a note.

Two key measures indicated that Sun Life has rallied after a difficult 2009, when the aftermath of the financial crisis and plummeting stock markets was absorbed.

Return on equity, a crucial profitability measure, was 7.6 percent, a sharp rise from 3.3 percent one year earlier, and the minimum continuing capital and surplus requirement came in at a robust 221 percent.

"We believe Sun Life remains better capitalized than its peers and has additional capital at the holding company level," said RBC in its note.

Strong capital allows the corporation flexibility to absorb market vicissitudes and leaves Sun Life in a good position to make large investments once the economic uncertainty has passed, either through natural growth or acquisitions.

Although the results failed to meet expectations, the quarter stands in sharp contrast to the woes of the previous year, when market volatility and exposure to ailing credit markets and equity eroded profits.

Canadian insurance companies are still grappling with the consequences from the decrease in their long-term assets' value, but a sunnier economic outlook, stock market improvements, and a reorganization of long-term liabilities should make for a more successful 2010.

The corporation did not adjust its economic assumptions at year end after taking a large hit in the third quarter by doing so. Life insurance companies usually adjust the economic assumptions on which they base long-term liabilities regularly, which can affect earnings radically.

Based on the assumptions revealed in the third quarter, Sun Life reaffirmed its expectation that 2010 adjusted operations earnings will fall within C$1.4 billion and C$1.7 billion.

Although that is a sharp increase from the C$561-million full-year operating profit of 2009, it is still significantly below the levels attained prior to the financial crisis.