Sun Life Financial CEO Dean Connor, speaks to the media during a press conference at the company's Toronto office on Thursday, March 8, 2012.Michelle Siu for The Globe and Mail
The final figures from Sun Life Financial Inc.'s sale of its U.S. annuities buisness have analysts reconsidering the divestiture's merits, but chief executive Dean Connor stressed Thursday that unloading the business was necessary to lowers earnings volatility.
Thanks to some accounting guidelines, Sun Life had to report the U.S. annuities business as "discontinued" because the $1.35-billion sale to Guggenheim Partners is pending, creating some discrepancies between the ongoing business and what is being sold.
As some analysts such as Michael Goldberg of Desjardins Securities pointed out, the company's continuing operations appeared softer than expected through the quarter.
"The lower continuing core earnings are likely to leave investors uncertain about what level is sustainable," he wrote in a message to clients before the conference call on Thursday. On the other hand, Sun Life's troublesome discontinued operations were much more profitable than expected.
Robert Sedran, analyst at CIBC World Markets, went so far as to suggest that the company should have rethought the sale. "First impression? They should have kept it. The continuing operations number was $0.20 per share below the reported result," he said.
But Mr. Connor is firm that one good quarter shouldn't overshadow the risk the unit carried. "I think our investors have been very supportive of the sale of the U.S. annuity business because they have seen very strong quarters like the fourth quarter and very weak quarters. You don't have to go back that long ago to see some really negative quarters," he said.
Annuities were a sore spot for insurers through the financial crisis as volatile markets caused the portfolio of stocks that backed the products to decrease in value. Sun Life, along with other life insurers in both Canada and the U.S., has also faced persistent low interest rates, which haven't helped generate returns. The deal to sell the business unit was known to come with some earnings reductions in 2013.
Mr. Connor points out that the strategy goes beyond reducing the volatility that's inherent in that business. "Really, what that does is reduces our cost of capital, and so the spread between the cost on capital and the return on equity that we earned -- that's value creation for shareholders," he said.
Those shareholders have seen a big boost in the company's stock price over the past year—it rose 35 per cent over the course of 2012. However, some analysts had noted that the share price seemed high, and could soon retreat a little. The stock dropped 4 per cent through Thursday morning but began to rebound in the afternoon.
On Wednesday evening, the company swung through the final quarter of 2012 with $395-million in profits, a which far exceeded the loss of $525-million for the same period a year earlier.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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