Sun Life Financial Inc. reported second-quarter profit of $51-million, down from $408-million a year earlier, as lower stock markets and interest rates continue to chip away at the life insurance sector's profitability.
The company's profits amounted to 9 cents per share, down from 68 cents a year earlier. Analysts had been expecting it to earn roughly 8 cents per share.
Exposure to the stock market cost Sun Life $131-million this quarter, while interest rates shaved a further $196-million off the bottom line.
U.S. long-term Treasury rates declined 56 to 58 basis points during this latest quarter, according to RBC analyst Andre-Philippe Hardy. The S&P/TSX fell by 6 per cent and the S&P 500 by 3 per cent.
Sun Life warned that if current interest rates persist it could take a further hit of $50-million in each of the next two quarters, due to declines in fixed income reinvestment rates. In addition, it expects that its profits for the period from 2013 to 2015 would be hurt by about $500-million.
Manulife Financial Corp. will report its second-quarter results Thursday morning and analysts are expecting it to post a quarterly loss. The insurer has already signalled that it will be taking a charge relating to its stock exposure and reinvestment rate, and CIBC analyst Rob Sedran expects that the hit will amount to about $750-million.
Sun Life's profits were helped by the fact that it reported an $84-million income tax recovery this quarter, compared to an income tax expense of $63-million a year ago.
The results also received a little lift of $7-million from gains in the value of Sun Life's real estate holdings. The company has a $13.3-billion mortgage portfolio, primarily commercial mortgages (including office, industry, retail and multi-family properties) in Canada and the U.S.
"A prolonged increase in real estate demand will be dependent upon job creation, which continues to lag," the company said.
Sun Life's Canadian operations reported profits of $181-million for the quarter, down from $227-million a year ago, due to equity markets and interest rates. The U.S. business posted a $189-million loss, reversing a year-ago profit of $110-million, while the Asian operations brought in $15-million, half the level of profits they contributed a year ago.
Sun Life's money manager, MFS Investment Management, earned $67-million, up from $44-million a year ago.