Sun Life Financial Inc. is the latest Canadian insurance company to reassure investors that it’s navigating COVID-19 without too much damage to its balance sheet or profits, despite declining sales and the market turmoil of 2020.
Sun Life reported net income of $519-million for the quarter ended June 30, down about 13 per cent from 2019′s second quarter. Falling interest rates and a decline in the value of its real-estate investments contributed to the profit drop.
Those phenomena were also at play at Manulife Financial Corp. and Great-West Lifeco Inc., both of which reported earnings this week. Expectations for all three were low, however, and their profit reports were apparently satisfactory: Share prices of all three companies rose this week after they revealed their numbers.
The three insurers use customized profit measures that strip out certain investment losses and make other accounting adjustments to determine what they call “underlying earnings,” and the equity analysts who follow the companies tend to use these for their forecasts. Sun Life reported underlying earnings of $739-million, unchanged from 2019′s second quarter.
Manulife and Great-West each beat the analysts’ consensus by 25 per cent, while Sun Life topped the average forecast by 12 per cent, according to Thomson Reuters.
Sun Life stock rose to just less than 2 per cent on Friday to cap a gain of more than 5 per cent for the week in trading on the Toronto Stock Exchange. Manulife gained 9 per cent on the week, while Great-West stock rose 11 per cent. Analysts observed that Sun Life already had a higher valuation from investors than the other two, and the stock had less room to rise if the company outperformed expectations.
Sun Life said it had both positives and negatives from the pandemic in its results. It said it believes most of $12-million in unexpected payouts, what is called “unfavourable experience,” in its life insurance business was caused by COVID-19 deaths, but the extra payouts on life policies were offset by savings on annuities.
“We had higher death claims, obviously, because of COVID,” chief executive officer Dean Connor said in an interview. “But we also have annuities that are payable for life, mostly to retired people, and mostly in the U.K. and Canada. And we had higher deaths, sadly, among those annuitants that offset some of the additional death claims.”
On the flip side, Sun Life said it gained $27-million because of less frequent use of health benefits when people couldn’t go out and seek care in the shutdown. “Fewer people could get in to see their dentists, and fewer people could get in to see the physiotherapists or chiropractors and so on, and so claims were lower,” Mr. Connor said. “It was offset partially by heavier experience on long-term disability, particularly around mental-health related claims.”
Insurance sales dropped 6 per cent companywide, with a 22-per-cent decline in Canada offset by 1-per-cent gains in the United States and Asia. Underlying earnings in Canada rose 16 per cent year-over-year, however, outpacing the other two markets.
Sun Life excluded $187-million in market-related investment effects from its adjusted underlying earnings number, including a $41-million after-tax writedown of its real-estate portfolio. “On a $7-billion real-estate portfolio, that’s a pretty small move,” Mr. Connor said.
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