Two of Canada’s largest insurers are continuing to feel the economic impact of COVID-19 after a third wave of the virus and the resurgence of lockdown measures hit Asian markets, causing a slump in insurance sales.
Sun Life Financial Inc. and Manulife Financial Corp., which both reported third-quarter earnings on Wednesday, had been rapidly expanding their market share in Asian markets in recent years.
Sun Life, which operates in eight Asian countries, reported “underlying net income” – an adjusted profit figure – for its Asian markets of $145-million in the third quarter. That was down 12 per cent from $164-million in the third quarter of 2020. Asia accounts for about 16 per cent of Sun Life’s overall profits.
Sun Life chief executive officer Kevin Strain told The Globe and Mail the latest wave of COVID-19 in certain Asian markets has directly affected business for the company’s insurance sales and in terms of insurance claims, particularly in mortality claims related to the virus in countries with lower vaccination rates, such as Indonesia, the Philippines and India.
Mr. Strain said the company has paid out $700-million in COVID-related health and life insurance benefits year-to-date to clients and their families.
“This was a tough quarter for COVID in different parts of Asia where some of the markets were in heavy lockdown,” he said in an interview.
Mr. Strain points to Vietnam as an example of a country that had positive insurance sales, but the company had been expecting even stronger results before the region was hit by an extended lockdown because of the Delta variant and was affected by a lower vaccine rate in the region.
“This is not an issue of people not wanting to get vaccinated but an issue of the vaccine not being available,” Mr. Strain told analysts during a call on Thursday. “That availability is important for us to watch.
“While we are starting to see vaccine rates improve and economies opening back up, it is still too early to say what the recovery will look like as COVID has taken the path of the unexpected, ” Mr. Strain added.
Manulife reported “core earnings” in its Asian market of $533-million in the third quarter, down from $559-million in the third quarter of 2020. Profits from Asian operations made up more than a third of overall earnings in the quarter.
The major insurers – and the analysts who follow them – emphasize versions of earnings that strip out investment losses and make other accounting adjustments. Manulife calls its figure “core earnings,” while Sun Life describes its as “underlying net income.”
Manulife’s chief financial officer Phil Witherington said during an analyst call on Thursday that COVID-related restrictions on cross-border travel between Hong Kong and mainland China continue to dampen insurance sales, as well as “containment measures” in both Vietnam and Indonesia.
Vietnam is typically a “significant contributor” to the core earnings for Asia and until recently had not experienced any impact of COVID-19, but that changed in the last quarter, said Manulife Asia’s CEO and president Anil Wadhwani.
“[Vietnam] had an impact on volumes as well as on our core earnings,” Mr. Wadhwani told analysts on Thursday. “But we believe that we are in a very good position to be able to address the growth opportunity in that very important market.”
In addition, Manulife’s Japanese sales declined by 50 per cent, primarily because of a decrease in company-owned life insurance sales, a product that pays businesses when covered employees die.
Over all, Manulife Financial reported a drop in its third-quarter net income of $1.6-billion or 80 cents a share, compared with $2.06-billion or $1.04 in the third quarter of 2020.
Sun Life Financial reported third-quarter underlying net income of $902-million or $1.54 a share, up from $842-million or $1.44, in 2020′s third quarter.
Sun Life said Thursday to expect the company to be more profitable as it increased its medium-term goal on return on equity to 16 per cent, up from its current objective of 12 to 14 per cent.
ROE is a measure of the company’s profitability compared with its equity capital.
With a report from David Milstead
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Clare O’Hara