Unusual items distorted fourth-quarter results for Canada's largest life insurers, but wealth management continues to be a bright spot for the industry.
At Manulife Financial Corp., Canada's largest insurer by market cap, profits have grown sharply in the past four years – from a net loss of $1.7-billion in 2010 to $3.1-billion in earnings in 2013. But last year's gains were boosted by many unusual items including selling a business in Taiwan, and Manulife's chief executive Donald Guloien said Thursday the company is unlikely to post a similar growth rate in 2014.
"While this trajectory is impressive, I want to dissuade anyone from applying a straight rule to that graph," Mr. Guloien said on a quarterly conference call. Manulife's quarterly profit climbed by 20 per cent to $1.3-billion, from $1.1-billion in the same period last year.
Mr. Guloien wants investors to track the company's core earnings measure for a better sense of the company's long-term earnings capacity, because this metric omits the effects of interest rates and other material and one-time items. Manulife's core earnings grew to $685-million in the quarter, or 35 cents per share, missing analysts' expectations of 37 cents per share.
Other major life insurers are also making adjustments for businesses they bought or sold, as well as for litigation, restructurings of reinsurance and other business changes.
Great-West Lifeco Inc. reported a fourth-quarter profit of $717-million, or 72 cents per common share, on Thursday, up significantly from the $351-million or 37 cents per common share one year ago. But the Winnipeg-based insurance and investments company said it got a boost in the quarter from a litigation recovery, which amounted to $226-million after-tax.
On Wednesday, Sun Life Financial Inc. reported $571-million in net profit on continuing operations, excluding any effects from the volatile U.S. annuities business it sold last year. The company said results were also helped by a $290-million gain as the insurer restructured a reinsurance arrangement.
One steady business for life insurers has been wealth management, which has become a bigger focus as aging populations, higher fees and reduced capital requirements make the business increasingly attractive. For the full year, Manulife's wealth management businesses generated higher fee income, and sales of investment products rose by 37 per cent from 2012, to hit a company record of $49.7-billion in 2013.
At Great-West, insurance and wealth management trends appeared "favourable" to analyst Robert Sedran, of CIBC World Markets.
Industrial Alliance Insurance and Financial Services Inc. posted a 7 per cent increase in individual wealth management sales on Thursday, and the company said sales of mutual funds climbed by more than 15 per cent. Net profits rose by 26 per cent in its fourth quarter to $91.1-million.
Mutual fund sales also helped drive growth at Sun Life's U.S. asset manager MFS Investment Management, where assets under management hit $413-billion (U.S.) at the end of the quarter – a new company record.
"They're not resting on their laurels; they just launched a new active ETF and they see very strong growth opportunities coming through in all parts of their franchise right now," said Dean Connor, chief executive of Sun Life, in an interview. The company has also recently launched new institutional asset management initiatives in Canada.
Life insurers' share prices have got off to a rocky start in 2014. Shares of the four largest players have produced limited, if any, gains since the start of the year, after an average increase of 45 per cent in 2013.
But the strong stock markets of last year did help to strengthen life insurers' capital levels, which allowed Industrial Alliance to increase its dividend by 6 per cent. Other insurers are expected to return capital to shareholders through dividend hikes or share buybacks in the coming two years.