Low interest rates, a rocky global economy and other obstacles are delivering new pain to Sun Life Financial Inc. , which lost $525-million in its latest quarter, significantly more than analysts had expected.
The disappointing results illustrate the challenges that lie ahead for the company's new chief executive officer, Dean Connor, who took over in December when Don Stewart retired.
Mr. Connor has made it clear he is willing to take dramatic actions to better position the insurer in an era of low interest rates, and he has already decided to stop selling variable annuities and individual life insurance in the U.S.
He plans to host a gathering for analysts and shareholders on March 8 to unveil details of his new strategy for Sun Life. But he now faces many questions in the meantime, as the market digests the fourth-quarter results, which were released late Wednesday.
The results also add some justification to the decision of many analysts to shift some of their concern from Manulife Financial Corp. to Sun Life. Manulife, whose losses far outweighed Sun Life's in the period following the financial crisis, lost only $69-million during the last quarter.
Manulife earned $129-million for the full year, while Sun Life lost $300-million. That's a reversal from 2010, when Manulife lost $1.66-billion while Sun Life earned $1.4-billion.
Sun Life's latest loss, for the final three months of 2011, amounts to 90 cents per share. The Street had been forecasting a loss of about 60 cents per share.
The quarter includes a $635-million charge, which Sun Life had previously disclosed it would be taking, stemming from the revaluation of its variable annuity and segregated fund liabilities. Its Canadian and Asian operations, and its money manager MFS Investment Management, each reported operating profits. But those were more than offset by its hefty losses south of the border.
National Bank Financial analyst Peter Routledge said Sun Life's Canadian results were weak, as its basic individual life insurance business is being hammered by low interest rates. MFS's earnings were also weaker than he expected. "The negative here is that both of these businesses are Sun Life's two strongest franchises," he said in an e-mail.
Mr. Routledge added that the company's decision to maintain its dividend at 36 cents per share is "a green shoot of optimism."
Mr. Connor said in a press release that the company's full-year results reflect challenging global market conditions that are impacting the entire industry, including low interest rates and U.S. monetary policy actions. The fourth-quarter loss was affected by a number of one-time charges that won't be repeated, he noted.
He suggested that Sun Life is on a solid path. While the details of Mr. Connor's future strategy will not be released until March, he has made it clear that he intends to focus on four key avenues for growth: the Canadian operations, the group insurance and voluntary benefits businesses in the U.S., the asset management business, and the Asian operations. His goals are to reduce the volatility in Sun Life's profits, and bolster returns.
"I am confident our strategy is the right response to the challenges faced by our industry and positions Sun Life well for improving economic conditions," he said Wednesday. He said the company is making progress on a number of fronts, including building its assets under management at MFS more than $250-billion (U.S.).