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A man walks by the Sun Life Financial building on March 8, 2012. (Michelle Siu for The Globe and Mail)
A man walks by the Sun Life Financial building on March 8, 2012. (Michelle Siu for The Globe and Mail)


Their stocks are up, but life insurers' growth is yet to come Add to ...

Rising interest rates and improved investor sentiment have lit a fire under life insurance stocks. But that may not translate into blockbuster earnings for the country’s two most widely held insurers.

Manulife Financial Corp. and Sun Life Financial Inc. have used the last six months to make acquisitions, sell business divisions and close major deals – all signs that the insurers are now concentrating on growth, rather than just mitigating risks, for the first time since the financial crisis. And when the two report earnings this week, investors will be looking to see how the new focus shows up on the bottom line.

But the numbers may not yet reflect the progress insurers have made, said Robert Sedran, an analyst at CIBC World Markets. It may take until 2014 for growth to begin to accelerate.

Mr. Sedran expects modest results through the rest of the year, and warned investors in a recent note that “near-term expectations may be higher than what the companies can actually deliver.”

One year ago, life insurers inspired caution, rather than confidence. They were emerging from a period in which low interest rates and depressed equity markets hurt their earnings and their investment portfolios. But the life insurers’ share prices have climbed quickly in the past year as equity markets moved to new highs, with Manulife up 79 per cent and Sun Life gaining 58 per cent. The insurers have also increased their capital levels and eliminated a lot of portfolio volatility.

Investors can expect an update on the long-term goals of Sun Life this week. Now that the $1.35-billion sale of its domestic U.S. annuity business has closed, the insurer has promised to show investors its new financial objectives.

Last year, Sun Life chief executive Dean Connor targeted $2-billion in profits by 2015 in March, but that target could be lowered by as much as $200-million, according to Tom MacKinnon of BMO Nesbitt Burns Inc., or the date could be pushed back a year.

Sun Life could also raise its projections for swift-growing U.S. asset management business MFS Investment Management, or lower its objectives in the competitive Asian markets, wrote André-Philippe Hardy, analyst at RBC Dominion Securities.

Manulife last year pushed back its own profit targets by a year: it now hopes to produce $4-billion in core earnings by 2016.

Analyst Peter Routledge of National Bank Financial sees Manulife as the company with the most upside potential in its share price. Weaker performance in the U.S. this quarter could be offset by improvement in the company’s Asian operations, he says.

Overall, analysts expect 32 cents a share in adjusted profit for Manulife, on par with the first quarter, according to Bloomberg data. For Sun Life, the expectation is 66 cents a share, down a bit from the first quarter’s 75 cents.

One of the country’s big life insurers, Great-West Lifeco Inc., has already reported results. It beat analysts’ expectations modestly, setting a positive lead for Manulife and Sun Life to follow.

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