Canadian life insurers post mixed Q1 profits

by Leo Almazora08 May 2020

Manulife and Sun Life have announced divergent Q1 results as unfavourable market conditions and COVID-19-related challenges weigh on insurers globally.

On Tuesday, Sun Life reported a 7.4% rise in underlying earnings to $770 million, or $1.31 a share. That topped an average estimate of $1.11 given by 14 analysts surveyed by Bloomberg.

Most of the company’s earnings for the period came before business shutdowns that were enacted in March. It reported an increase in underlying profit propelled by higher investing activity n Canada and the U.S. as well as an earnings increase in Asia.

Notably, the company reported a 27% jump in underlying profit in its Asia business, compared with 8% and 7% in the U.S. and Canada, respectively. In an interview with Reuters after the company’s earnings report, Sun Life CEO Dean Connor said Canada’s second-largest life insurer is “doing more in terms of insurance and wealth” in China, Hong Kong, and Vietnam, though ongoing lockdowns in Southeast Asia and India could set the stage for a difficult second quarter.

A statement from the company said that mortality and morbidity claims stemming from COVID-19 have represented less than 5% of its monthly average for mortality and disability claims paid, though Connor acknowledged that a lag factor makes it “difficult to say whether we’re at the maximum level, or whether we’ll see a bit more claims.”

The outbreak has already dealt a significant blow to Manulife, which missed analyst expectations as it reported a 34% drop in Q1 core earnings on Wednesday. Underlying profit, which does not include the impact of market movements and investment activities, declined to $1 billion from $1.5 billion the previous year, missing analysts’ expectations of $1.1 billion.

In a statement, the insurer noted that net income attributable to shareholders benefited as credit spreads have widened, but that was offset by lower-than-anticipated investment returns that were mainly attributable to oil-price declines.

Manulife also sustained declining sales in Japan, offsetting increases in Hong Kong and other Asian countries, leading to a 5% drop in the region that’s driven the company’s growth in recent years.

In Canada, core earnings decreased 16% compared to a year earlier, mainly because of unfavourable travel insurance claims related to COVID-19. The company also sustained a 13% decline in the U.S. due to higher life insurance claims, according to Reuters.

“The COVID-19 pandemic continues to disrupt economies and capital markets worldwide, and our operating conditions during the first quarter were understandably affected,” CEO Roy Gori said.

Great West Life, meanwhile, reported net earnings of $342 million in Q1, a near-50% decline from the $657 million it posted for the same period last year. The company cited the primarily coronavirus-driven decline in equity markets and interest rates during the quarter as a source of adverse impacts amounting to roughly $330 million, including increases in insurance contract liabilities, segregated fund guarantees and related hedging ineffectiveness, lower fee income, and unrealized losses on seed capital.