Sun Life Financial’s CEO Dean Connor says Canada’s life insurers will continue to face challenging times for the remainder of the year as profit declined sharply in the company’s first quarter due to the coronavirus outbreak.
On Tuesday, Canada’s second-largest insurer reported first-quarter net income of $391-million, or 67 cents a share, down from $623-million, or $1.04 a share, in 2019’s first quarter.
The drop in net income for the quarter was mostly due to declines in equity markets, brought on by the COVID-19 pandemic, said Mr. Connor, during the company’s annual general meeting Tuesday evening.
“While it’s difficult to determine today how the business will be impacted by future claims and investment experience, we entered the second quarter in a position of strength..” he said in a press release.
Sun Life reported what it calls “underlying net income" of $770-million, or $1.31 per share. This excluded $360-million of losses from stock market performance for the quarter.
Sun Life and its peer Manulife view earnings measures that exclude some costs as a useful measure of their performance. One example is the effects of changes they make in actuarial assumptions, such as how long a customer will live, for the life insurance policies they have sold.
Another example – which came into play in the first quarter – is losses in the stock market.
Analysts expected, on average, $1.12 per share in underlying net income, according to Thomson Reuters Eikon.
Sun Life said its “mortality and morbidity claims experience from COVID-19” – in other words, its payouts from life insurance policies on the victims of the virus – “has been small, amounting to less than 5 per cent of our monthly average.” And, the insurer said, some of the additional COVID-19 claims have been offset by lower claims experience in other areas.
The company said that throughout April it has been able to continue sales activities using digital tools, but in the month of April – not included in the earnings report - regional sales were mixed and total individual insurance and wealth sales were about 80 per cent and 90 per cent, respectively, of the prior year.
“As a result of the mixed experience and uncertain return to office time frames and economic conditions,” second-quarter sales levels “remain uncertain at this time,” Sun Life said.
While Sun Life beat analyst expectations for the first quarter, analysts said in a recent note it will take “a few years" for the life insurers in Canada to return to their 2019 level of earnings power.
Like many companies listed on the Toronto Stock Exchange, Canadian life insurers have seen stock prices take a beating due to the impact of the COVID-19 outbreak. Sun Life’s share price has dropped about 20 per cent year-to-date, closing at $44.79 on Tuesday. On Feb. 14 - the date of the stock’s 52-week high- it was trading at $66.44.
Sun Life’s overall Asia sales have remained positive for the quarter. Sun Life isn’t as reliant on Asia as some of its competitors, but the region accounts for nearly 25 per cent of Sun Life’s quarterly profit.
Earlier this year, when the coronavirus had not yet affected North America, Mr. Conner said the company was expecting to see "some slower sales and modestly higher claims, ” throughout its Asian markets.
Asia’s reported net income was $100-million in the first quarter of 2020, an increase of $20-million or 25 per cent compared to the same period in 2019.
With files from David Milstead
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Clare O’Hara