Canada’s largest life insurers posted better-than-expected profits on stronger capital markets and growing wealth management sales, sending their shares soaring.
Both of Canada’s most widely traded insurers, Manulife Financial Corp. and Sun Life Financial Inc., as well as Industrial Alliance Insurance and Financial Services Inc. beat analyst expectations for the quarter as they reported in the last two days, while Great-West Lifeco Inc. met consensus.
Manulife and Sun Life’s stocks shot to highs not seen in more than three and four years, respectively, on Thursday, adding to double-digit gains they’ve posted in the past year. The three largest companies have posted gains in excess of 30 per cent so far in 2013. Shares of Industrial Alliance Insurance and Financial Services are now trading at all-time highs.
Sales of wealth management products were a major factor in this quarter’s results as several years of market volatility and a greater proportion of savers approaching retirement age have made the business more attractive. At Manulife, Canada’s largest insurer by market cap, total wealth sales across the company hit $11.3-billion in the quarter – a 34-per-cent increase over the same period in 2012. Growth was strongest in the United States as mutual fund sales climbed, followed by increases in Canada and Asia.
“We’ve had a big focus on our wealth business now since our new strategic objectives were put in place, and its really starting to pay dividends,” said Manulife Chief Financial Officer Steve Roder. He pointed to improved mutual fund performance and higher fund sales in North America and Asia as primary profit drivers. Manulife’s funds under management hit $575-billion in the quarter, a 12 per cent increase on the year.
Other Canadian insurers have also bolstered their wealth management focus.
Sun Life’s third quarter results got a boost from its Boston-based retail and institutional asset manager MFS Investment Management, which saw 27-per-cent growth in assets year-over-year, contributed $8.6-billion (U.S.) to the Toronto-based company’s net sales. That helped blunt losses resulting from the sale of Sun Life’s U.S. annuities business, which was completed in the quarter. The company’s results landed after the markets closed Wednesday.
“Given the improving operational leverage at MFS, not to mention the exceptional growth in net sales, we believe the bulk of the beat in the quarter is sustainable,” said Tom MacKinnon, analyst at BMO Nesbitt Burns.
Sun Life’s profit on continuing operations, stripping out its recently sold U.S. annuities business, was $324-million (Canadian) or 53 cents a share, compared with $441-million or 74 cents in the same period last year.
Dean Connor, the company’s chief executive, called the deal “transformational” in that it dramatically reduced equity and interest rate risk, freed up management’s time and energy, and helped Sun Life build its cash position to more than $2-billion.
Great-West Lifeco’s earnings were also complicated by a large deal as its $1.75-billion purchase of Irish Life Group Ltd. closed during the quarter.
Stripping out the acquisition and restructuring costs related to that deal, the insurer met analyst expectations as earnings rose to $583-million or 59 cents per share, up more than 12 per cent from the same period last year.
The insurer’s “strong gross wealth management sales were helped by rising equity markets,” said Robert Sedran, analyst at CIBC World Market.
At Industrial Alliance, which released its results Wednesday, is also seeking to build its wealth management business and was helped by “a continued shift in business mix away from capital-intensive insurance products,” Mr. MacKinnon said.