* Sun Financial Q4 EPS C$0.52 vs forecast C$0.65
* Manulife Q4 EPS C$0.51 vs forecast C$0.69
* Both miss expectations, shares drop
* Great West Q4 EPS C$0.468 vs C$0.568 yr-earlier
(Adds Manulife CEO comment)
By Andrea Hopkins
TORONTO, Feb 11 Two of Canada's biggest life
insurers said on Thursday their quarterly profits jumped
because of gains on stock investments and stronger sales, but
both missed market expectations and their shares fell.
A third, Great West Life (GWO.TO), bucked the trend,
recording a lower profit that was in line with analysts'
Manulife Financial Corp (MFC.TO), North America's largest
life insurer, and Sun Life Financial (SLF.TO), Canada's No. 3
lifeco, capped a difficult year by reporting stronger results
in the final quarter of 2009. Still, analysts had expected even
better from the recovering companies.
"We continued to see a yin and yang between solid core
sales results that will ultimately impact earnings in the
longer term, and some of the near-term challenges that are
constraining profits," Edward Jones analyst Craig Fehr said.
"Conditions are reasonably strong in terms of sales growth
... but they continue to be marred by some of the credit
conditions impacting their investment portfolios," Fehr said.
While stock market gains boosted the value of their huge
equity investments, the companies also hold significant bond
portfolios that were hit by credit downgrades and default risk
in the quarter.
Shares of Manulife closed down 1.7 percent at C$19.16 on
the Toronto Stock Exchange, while Sun Life shares ended 3.1
percent lower at C$30.40.
Winnipeg-based Great West Life, Canada's No. 2 lifeco, got
less of a boost from rising stock markets than its peers
because it has less equities exposure. Its profit fell 16
percent as a weaker performance in the United States and Europe
offset gains in Canada.
Its shares ended 1.0 percent higher at C$26.77 as the
results were in line with market expectations.
For Toronto-based Manulife and Sun Financial, the
fourth-quarter results were in sharp contrast to those of a
year earlier, when market turbulence and exposure to ailing
equity and credit markets sideswiped profits.
Manulife's profit rose to C$868 million ($827 million), or
51 Canadian cents a share, in the fourth quarter, from a loss
of C$1.24 a share loss a year earlier. But the latest result
came in well below the average analyst estimate for a profit of
69 Canadian cents a share.
Both Manulife and Sun Financial reiterated forecasts for
higher earnings in 2010 and they pointed to an improvement in
return on equity, a key measure of profitability, as evidence
they have turned the corner.
Sun Life's net income surged to C$296 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 Sun Life's income was more than double last year's
C$129 million, or 23 Canadian cents, 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.
Sun Life Chief Executive Donald Stewart said he expected to
be able to maintain the company's dividend through 2010, but he
remained cautious about the economic outlook, particularly in
the United States, where the company notched another
"Our concern in the U.S. economic outlook is that the
recovery is quite fragile, and we are expecting conditions to
have considerable potential volatility for some time to come,"
Stewart said in an interview with Reuters.
Manulife also suffered from sluggish U.S. growth, recording
what Fehr called disappointing sales momentum.
"We're going to have to see some improvement in economic
conditions in the U.S. if we're going to see more typical
growth out of Manulife," Fehr said.
Still, Chief Executive Donald Guloien said the company had
achieved "fortress levels" of capital that will allow it to
weather the next storm. Guloien's effort to build cash included
a surprise cut of Manulife's dividend in August 2009, making
Manulife the only Canadian financial services company to have
to slash its payout as a result of the financial crisis.
Guloien said the company was now better positioned to make
acquisitions and grow, but he warned the dividend was unlikely
to be restored any time soon.
"The dividend level is not something that one wants to jerk
up and down," Guloien said in an interview with Reuters.
(Reporting by Andrea Hopkins; editing by Peter Galloway)