Sun Life stadium in FloridaRonald Martinez
Sun Life Financial Inc. 's second-quarter profits came in at less than half those of a year ago, as weak stock markets and interest rates ate into its results.
After the market closed Wednesday, the insurer said it earned $213-million in the latest quarter, which ended in June, down from $591-million during the same period last year.
"Sun Life continues to take action to mitigate the impact of volatile economic and market factors, including changing product design and mix to reduce risk and increase profit while continuing to meet the needs of clients as well as a continued focus on expense management," chief executive officer Don Stewart said in a release. "Our underlying businesses are strong and we are poised to capitalize on economic and market improvements."
Winnipeg-based Great-West Lifeco Inc., which also reported late Wednesday, said its profits rose to $433-million during the quarter, up from $413-million a year ago. Fluctuating stock-markets have far less impact on Great-West's results.
Sun Life's rival Manulife Financial Corp. reports its results Thursday, and analysts are expecting it to post a loss. It has the highest equity exposure of the group.
The S&P 500 dropped 11.9 per cent this quarter while the S&P/TSX Composite Index dropped 6.2 per cent.
The stock market declines chopped $187-million off Sun Life's bottom line during the quarter. Interest rates shaved a further $99-million off of the profits, as long-term government rates in Canada and the United States fell between 42 and 89 basis points.
Though to a lesser degree, the Canadian dollar also caused some pain - $14-million worth - as it strengthened relative to other currencies that Sun Life operates in. The loonie caused more pain for Great-West.
The picture that Sun Life and Manulife's results are expected to paint this quarter is quite a contrast to that of a year ago, when rising stock markets and higher interest rates bolstered both their results and investor optimism. The most recent quarter was marred by the turmoil that emanated from Greece, which weighed on financial markets.
Sun Life's Canadian operations earned $146-million this quarter, down from $238-million, and group retirement services and group benefits were soft. Its U.S. insurance business saw profits fall from $287-million (U.S.) to $91-million (U.S.), while its U.S. asset-management unit, MFS Investment Management, earned $46-million (U.S.), up from $27-million a year ago.
Sun Life cautioned that regulators may require it to hold more capital in the not-so-distant future, particularly as it relates to its variable annuity and segregated fund businesses. The key measure of an insurer's capital levels is called the Minimum Continuing Capital and Surplus Requirements ratio, and regulators in Canada require that it remain above an absolute base level of 150 per cent. Sun Life's ratio was 210 per cent at the end of the quarter, unchanged from the prior quarter and down slightly from a year ago.