Sun Life profits buoyed by rising markets

FINANCIAL SERVICES REPORTER

Insurer Sun Life Financial Inc. reported first-quarter profits of $686-million Thursday, up from $438-million a year ago.

Rising stock markets and interest rates, especially in the United States, contributed roughly half the earnings, which amounted to $1.15 per share, compared with 73 cents per share in the same period last year.

The S&P500 rose 12 per cent during the quarter, while the S&P/TSX Composite Index rose 4 per cent. All told, stock markets resulted in gains of $253-million for Sun Life during the first three months of the year.

Interest rates led to a gain of $95-million, while new appraisals of Sun Life's real-estate holdings led to a gain of $22-million.

The company's Canadian operations saw earnings fall slightly from last year, to $227-million, as it appears that more of its group-benefits customers are falling ill and making claims.

The first-quarter quarter's profit comes on the heels of two straight quarterly losses, and continue to illustrate how susceptible the company is to fluctuations in stock markets and interest rates.

RBC Dominion Securities analyst Andre-Philippe Hardy said in a note to clients that while the basic earnings came in above expectations, after factoring in the company's gains, changes in assumption, and tax rate, the earnings came in below his estimate.

In a news conference after the insurer's annual meeting, chief executive officer Dean Connor told reporters that the group-benefits claims in Canada relate to long-term disability insurance.

Insurers in Canada are seeing a rise in long-term disability claims across most industries.

It's a phenomenon that seems counter intuitive at a time when the economy is growing, Mr. Connor said. But he suspects that it's a result of pent-up demand. Canadians who might have been candidates for long-term disability might have delayed applying when the economy turned sour a few years ago because they wanted to cling to their jobs, he suggested.

Mr. Connor also said that he is comfortable with the insurer's real-estate exposure, and that the company looks at real estate as a long-term investment rather than worrying about what the market will do in the short term.

Sun Life's mortgage portfolio amounted to $28-billion at the end of March. Mr. Connor said its real-estate assets are largely commercial buildings in Canada.

If anything, he said the problem now is that capitalization rates have come down so much in Canada that it's expensive to buy and invest in new properties, making it difficult to build the portfolio.

Mr. Connor said the company is still working to reduce its exposure to interest rates. "This will take us a while to reduce the volatility of our business; it's not going to happen overnight," he said.

In the meantime, while he is focused on organic growth, he said. Sun Life does have the ability to raise new capital to finance a major acquisition if the right opportunity were to come along. He noted that it has been a long time since it tapped markets for new equity capital.

Sun Life (SLF)

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