UPDATE 3-Sun Life Q4 profit surges, misses expectations

Thu Feb 11, 2010 8:39am EST

* Q4 EPS C$0.52 vs C$0.23 yr-earlier

* ROE up to 7.6 pct vs 3.3 pct yr-earlier

* Misses expectations for C$0.65 EPS (Recasts with analyst comment, details)

By Andrea Hopkins

TORONTO, Feb 11 (Reuters) - Sun Life Financial (SLF.TO) said on Thursday quarterly profit more than doubled, aided by stock market gains and improved sales, but the results came in below market expectations.

Sun Life said net income surged to C$296 million ($279 million), or 52 Canadian cents a share, in the fourth quarter, below the 65 Canadian cents a share expected by analysts, according to Thomson Reuters I/B/E/S.

While the profit was more than double the year-earlier income of C$129 million, or 23 Canadian cents a share, RBC Dominion Securities analysts said the lower-than-expected profit was slightly negative for the stock.

"There was a shortfall in expected profit, impact from new business and earnings on surplus, a good part of which we expect to turnaround in the first half of 2010," the analysts wrote in a note to clients.

Two key metrics showed Sun Life has strengthened after a tough 2009, when the fallout from the financial crisis and plunging stock markets was felt.

Return on equity, a key measure of profitability, was 7.6 percent, up sharply from 3.3 percent a year earlier, while the minimum continuing capital and surplus requirement was a healthy 221 percent.

"We believe Sun Life remains better capitalized than its peers and has additional capital at the holding company level," RBC said in its note.

Strong capital gives the company flexibility to absorb market jolts, and leaves Sun Life well-positioned to make big investments once the financial uncertainty is passed, either through acquisitions or organic growth.

While the results were below expectations, the quarter was a sharp contrast to the struggles of a year earlier, when market turbulence and exposure to ailing equity and credit markets sideswiped profits.

Canadian insurers are still wrestling with repercussions from the drop in value of their long-term assets, but stock market gains, a brighter economic outlook and a rebalancing of long-term liabilities should see a brighter 2010.

The company did not make any year-end adjustments to its economic assumptions, having taken a big hit by doing so in the third quarter. Life insurers typically adjust the assumptions on which they base their long-term liabilities on a regular basis, which can dramatically affect earnings.

Based on the assumptions unveiled in the third quarter, Sun Life reiterated its expectation that adjusted earnings from operations in 2010 will be in the range of C$1.4 billion to C$1.7 billion.

That's sharply up from the full-year operating profit of C$561 million notched in 2009, but still below levels reached before the financial crisis.

From 2005 to 2007, the company generated average annual operating earnings of C$2.1 billion.

In the fourth quarter, Sun Life saw marked improvement in both its Canadian and U.S. business segments.

Canadian operations had net income of C$243 million in the final three months of 2009, reversing a C$55 million net loss in the same period a year earlier.

U.S. operations also improved, though were not yet profitable. Sun Life posted a loss of C$9 million at its U.S. segment, compared with a loss of C$679 million in the same quarter a year earlier.

Shares of the Sun Life closed at C$31.36 Wednesday on the Toronto Stock Exchange.

Sun Life is the first of Canada's big three life insurance companies to report results. Manulife Financial Corp (MFC.TO), North America's largest life insurer, and Great West Lifeco Inc (GWO.TO), Canada's No. 2, are due to report later on Thursday. ($1=$1.06 Canadian) (Additional reporting by Anurag Kotoky in Bangalore; Editing by Derek Caney, Bernard Orr)