Removing risk allows Sun Life to shine

Canada’s No. 1 and No. 3 life insurers posted net earnings gains, as Sun Life Financial shares rose amid speculation that its recent attempts to remove risk from the balance sheet is paying off.

Both Sun Life and Manulife Financial have devoted the last several quarters to reducing exposure to the stock and bond markets, after taking heavy losses following the 2008 financial crisis – a move that has pushed shares of both companies up sharply – despite a recent slump in shares at Manulife.

“Net income was not as strong as we would have liked,” Steve Roder, chief financial officer for Manulife told reporters, “but (we had) a strong quarter on core earnings.”

Shares of Manulife, which also owns U.S. insurer John Hancock, were down 0.2 percent at $18.00. Sun Life was up 2.8 percent at $33.91.

Manulife posted a second-quarter profit compared with a year-before loss. It took a $242 million markets-related charge, well down from the $996 million charge in the year-ago period. Core profit, which excludes the impact of financial market movements, rose 1.7 percent to $609 million, or 31 cents per share, just short of analysts' estimates of 34 cents a share.

However, Sun Life got a $62 million positive boost from markets, in comparison to the $320 million earnings hit it took year ago.

Despite the core profit miss for Toronto-based Manulife, analysts pointed to several positives in the results.

Manulife said its annual review of actuarial assumptions on certain insurance products, due in the third quarter, should produce a smaller charge than in recent years, and one that will likely be mostly offset by positive one-time items.

The charge amounted to $1 billion last year.

Manulife reiterated its core profit objective of $4 billion by 2016, and said its costs to hedge market exposure had come down by $30 million due to favorable economic conditions.

"We had been expecting that trajectory, but it is still encouraging that things continue to improve, which should allow book value to build as well," CIBC World Markets analyst Robert Sedran said in a note.

Sun Life trimmed its own mid-term profit objective, although that had been factored in by the market.

The company now expects to record a profit of $1.85 billion by the end of 2015, down from a previous target of $2 billion, due to the sale of its U.S. annuities business.