SLF Sun Life Financial Inc

Two of Canada's top-four life insurers posted better-than-expected third-quarter results Wednesday from rising equity markets and managing their exposure to rock-bottom interest rates.

Sun Life Financial Inc. (SLF, SLF.T), which owns Boston-based MFS Investment Management, swung to a profit of C$453 million, or 79 Canadian cents a share, from a year-earlier loss of C$140 million, or 25 Canadian cents. Per-share results handily surpassed analysts' expectations of 61 Canadian cents, according to Thomson Reuters.

Industrial Alliance Insurance and Financial Services Inc.'s (IAG.T) net income rose 9% to C$64.7 million, or 78 Canadian cents a share, its strongest quarterly result since the 2008 global financial crisis. The life insurer topped the mean estimate of 75 Canadian cents from a Thomson Reuters survey.

Both companies benefited from higher equity markets, as the S&P/TSX and the S&P 500 rallied 9.5% and 10.7%, respectively, in the quarter ended Sept. 30, and from their wealth-management divisions. Both life insurers also said they took steps to mitigate the earnings impact of low interest rates, which had little impact on their results. Life insurers are forced to build up their reserves to cover long-term obligations on products, such as annuities, when equities or interest rates fall.

Manulife Financial Corp. (MFC, MFC.T), the most sensitive to equity-market volatility and low interest rates because it sold more long-term guaranteed products, releases its results Thursday, while Great-West Lifeco Inc. (GWLIF, GWO.T), the least earnings sensitive, reports next week.

For the past year, investors have been on a rollercoaster with Manulife, as its earnings fall and rise with the markets as it marks to market investments against its long-term obligations.

"The focus will be on Manulife. If they can straighten out, the whole industry will have a big sigh of relief," said John Kinsey, a portfolio manager at Toronto-based Caldwell Investment Management Ltd., which manages assets of C$1 billion, including life-insurance stocks.

"People are looking from them to get the feeling that the write offs are over, and that they've done all they're going to do with their hedging and are comfortable with where they are now rather than the confusion that we've seen for the last year," he said.

Toronto-based Sun Life also attributed its improved performance to changes in its actuarial assumptions. Like Manulife, Sun Life generally reassesses its assumptions in the third quarter each year. Concern about the U.S. commercial-mortgage market prompted Sun Life to raise its mortgage sectoral allowance by C$57 million, which reduced net income by C$40 million, it said in a statement.

Sun Life said the net impact from interest rates in the third quarter "was not material" on its third-quarter results because of its use of interest-rate swaps.

Assets under management rose 10% to C$455 billion, primarily from rising equity markets and the sale of more mutual and managed funds. Total assets under management at MFS were US$204 billion.

The company's U.S. division also returned to profitability compared to the prior quarter and the year-earlier quarter, it said.

Quebec City-based Industrial Alliance recorded its fourth-straight quarter of solid top-line growth, with premiums and deposits increasing 15% to C$1.4 billion and the value of new business jumping 44% to C$41.4 million.

The life insurer appears on track to surpass its 2007 record. For the nine months, premiums and deposits were up 31% over 2009 and 7% over 2007, fuelled primarily by its individual wealth-management division, which is benefiting from stock-market gains and high net sales, it said in a statement. Assets under management and administration grew by 7% to C$64.1 million at quarter end.

The company, which plans to finalize changes to its actuarial assumptions by the end of the fourth quarter, said it is "confident at this time" that it won't have any significant impact on its fourth-quarter results.

With investors' focused on the sector's sensitivity to capital-market fluctuations, Industrial Alliance said it is taking steps to reduce its sensitivity to interest rates, including a 5% increase in the proportion of stocks backing long-term liabilities. If these initiatives had been in place at Sept. 30, it would be able to absorb a 15% decline in equity markets and that provisions for future policy benefits wouldn't have to be strengthened as long as the S&P/TSX remains above 10,500 points, it said in a statement.

Industrial Alliance also said it implemented a hedging program to manage the equity risk related to its guaranteed annuity product, effective Oct. 20. The guaranteed annuity book represents about C$1.5 billion of assets under management, including C$900 million in equities.

-By Caroline Van Hasselt, Dow Jones Newswires; 416-306-2023; caroline.vanhasselt@dowjones.com

Sun Life Financial (NYSE:SLF)
Historical Stock Chart
From Mar 2024 to Apr 2024

Sun Life Financial (NYSE:SLF)
Historical Stock Chart
From Apr 2023 to Apr 2024