* Canadian life insurers shifting business to wealth
* Fourth-quarter profits surge, Manulife misses estimates
* Shares mixed after strong gains last year
By Cameron French
TORONTO, Feb 13 The profits of Canadian life
insurers grew in the fourth quarter, as higher returns from
growing wealth management units offset uneven insurance sales,
highlighting a shift in business as the companies cut risk in
the wake of the financial crisis.
Manulife Financial Corp, the country's largest
insurer, posted a 20 percent rise in net profit for the fourth
quarter on Thursday, while No. 3 player Sun Life Financial Inc
said its profit from continuing operations more than
doubled to C$571 million ($519.78 million).
Smaller Industrial Alliance Insurance and Financial Services
Inc, the No.4 player in the market, posted a 26 percent
rise in profit and boosted its dividend by 6 percent. Great-West
Lifeco Inc, the second-largest insurer, said its profit
doubled largely because of a litigation recovery.
For Manulife, core profit was driven by wealth sales that
rose 15 percent to C$12.2 billion, while insurance sales in the
quarter fell 32 percent to C$617 million.
"Insurance sales were down, largely because they're charging
more for their policies, but wealth sales were way up," said
Peter Routledge, an analyst at National Bank Financial.
"That just highlights that Manulife is slowly shifting
itself towards wealth and away from protection businesses."
Manulife is not alone.
Sun Life's results were powered by its U.S. MFS Investment
management arm, while Industrial Alliance's profit were helped
by stronger wealth sales and an 18 percent rise in assets under
management, while individual insurance sales fell.
The business shift is part of a larger overhaul by the
insurers in the wake of the financial crisis, which cost them
billions in market-related losses, largely connected their
Wealth management has lower capital requirements,
predictable fee-based income and the promise of increased
business as baby boomers approach retirement and increasingly
need money management.
Manulife, which owns U.S.-based insurer John Hancock,
continued the shift during the quarter as it sold its Taiwan
insurance business, booking a C$350 million gain that helped
boost earnings. It also purchased small Malaysian wealth manager
MAAKL Mutual Bhd during the quarter.
Sun Life sold its U.S. annuities business last year as part
of its own move to lessen risk.
Sun Life Chief Executive Dean Connor said the company's
business is now about 55 percent wealth management, up from 50
percent two years ago.
"I expect going out a number of years, it's going to be a
larger percentage of our business," he said. "There's a lot of
demand for wealth solutions and you see us investing to meet
Manulife's core profit, which excluded one-time items and
market-related gains and losses, was C$685 million, or 35
Canadian cents a share, up from C$554 million, or 28 Canadian
cents per share.
The result fell just short of analysts' estimates of a
profit of 38 Canadian cents a share, and by mid-afternoon, the
company's shares closed down 1 Canadian cent at C$20.90.
Sun Life closed up 2.2 percent at C$38.35 after it reported
operating income was C$642 million, or C$1.05 a share, up from
C$333 million, or 56 Canadian cents a share a year earlier. That
was well ahead of analysts' expectations of a profit of 68
Canadian cents a share.
The results follow a year during which the insurers clawed
back some of the ground they lost in 2008-2012, when investors
were scared off by results that would veer from profit to steep
loss based on equity market and interest rate fluctuations.
Manulife surged 55 percent in 2013, while Sun Life gained 42
percent. Industrial Alliance was up 50 percent, while
Great-West, which historically has had less market exposure than
its rivals, rose 32 percent.
Tim Johal, an portfolio manager at Investors Group, which
owns more than C$1 billion in Manulife shares, is bullish on the
sector, although he expects share growth to moderate.
"I think that you'll see smaller increments in terms of core
earnings growth and the shares should reflect that. I don't see
any reason why you can't see double digit earnings growth
though," he said.
The sharp gains in Manulife shares, combined with steadier
profits and a stronger capital position, has prompted some to
wonder when the company might restore the dividend it cut in
half in 2009.
But Manulife Chief Financial Officer Steve Roder said on a
conference call the company would be unlikely to do so until it
further reduces its leverage ratio, sees more evidence of stable
earnings, and receives more clarity on the direction of changes
to capital and accounting regulations.
"Until we have some further clarity on some of the other
factors, we do not expect to recommend any changes to the
dividend to our board," he added.