Canada’s two largest life insurers saw their profits sharply decline in the first quarter as the novel coronavirus outbreak pummelled global equity markets.
But, in an interview with The Globe, Sun Life Financial Inc. chief executive Dean Connor said he hopes strong recoveries in China and Vietnam will improve performance for the rest of the year.
“Asia has come out of this faster than other regions because they have had very successful lockdown procedures in those countries," Mr. Connor said. "So now you are starting to see those economies come back in a robust way, people are coming back to work and for [Sun Life] – that means a rebound in sales.”
Sun Life released quarterly earnings on Tuesday, and it reported a 37-per-cent decline in its first-quarter net income to $391-million, or 67 cents a share, down from $623-million, or $1.04 a share, in the first quarter of 2019.
On Wednesday, Manulife Financial Corp. reported its first quarter net income fell by 41 per cent to $1.25-billion, or 64 cents a share, compared with $2.13-billion, or $1.08 a share, in the first quarter of 2019.
The drop in Sun Life’s net income was mostly due to declines in equity markets brought on by the COVID-19 pandemic, Mr. Connor told shareholders and analysts on conference calls.
Looking ahead, he said it is still difficult to determine how business will be affected by future claims and investment experience, and said Canada’s life insurance sector will continue to face challenging times for the remainder of the year.
One positive segment for Sun Life was the insurer’s Asian operations, which have started to see sales rebound – particularly in China and Vietnam, where markets are coming out of lockdowns.
Earlier this year, when the coronavirus had not yet hit North America, Mr. Connor told The Globe that Sun Life was expecting to see "some slower sales and modestly higher claims” throughout its Asian markets, which account for nearly 25 per cent of the company’s quarterly profit.
Yet Sun Life’s overall Asia sales remained positive for the quarter, and the company reported net income for the region of $100-million, an increase of $20-million, or 25 per cent, compared with the same period in 2019.
Leo Grepin, president of Sun Life Asia said countries such as the Philippines, India, Indonesia and Malayasia – where markets remain in lockdown mode – continue to see sales depressed compared with 2019. However, with regulators in some regions becoming more willing to permit online e-signatures on insurance contracts, sales could pick up quickly.
Sun Life says it has continued selling products throughout April using digital tools, but sales are mixed across different regions. Total individual insurance and wealth management sales in the first quarter were about 80 per cent and 90 per cent, respectively, of levels in the same period last year.
Mr. Grepin says Asia insurances sales in April were also about 80 per cent of the year-prior levels.
“We are well positioned in Asia," Mr. Connor told The Globe. “There are a lot of catastrophic risks that hit these countries from time to time and they have an unbelievable track record of resilience.”
Manulife’s Asian arm, which operates in 12 regions, experienced a steep 86-per-cent drop in profits, year over year. Net income for Asia was $95-million for the first quarter, down from $695-million in 2019.
Both Sun Life and Manulife also present earnings measures that exclude some costs, because they argue the measures are useful gauges of their operating performance. One exclusion is the effects of changes they make in underlying actuarial assumptions, such as how long buyers life insurance policies they have sold will likely live.
Another example – which came into play in the first quarter – is losses in the stock market.
Sun Life reported what it calls “underlying net income" of $770-million in the first quarter, or $1.31 a share. This excluded $360-million of losses from stock market performance.
Manulife reported what it refers to as “core earnings" of $1.0-billion, or 64 cents a share.
Manulife also said it had a $608-million loss on investments in the quarter, and had an additional $1.3-billion loss tied to the equity markets and guarantees on its annuity products. Those losses were mostly offset by a $1.7-billion positive interest-rate impact as the company reassessed the liabilities tied to the insurance policies its customers hold.
With files from David Milstead
Our Morning Update and Evening Update newsletters are written by Globe editors, giving you a concise summary of the day’s most important headlines. Sign up today.