The Sun Life Financial building in Toronto on Thursday, March 8, 2012.
Insurer Sun Life Financial Inc. reported first-quarter profits of $686-million Thursday, up from $438-million a year ago.
Rising stock markets and interest rates, especially in the United States, contributed roughly half the earnings, which amounted to $1.15 per share, compared to 73 cents per share in the same period last year.
The S&P500 rose 12 per cent during the quarter, while the S&P/TSX Composite Index rose 4 per cent. All told, stock markets resulted in gains of $253-million for Sun Life during the first three months of the year.
Interest rates led to a gain of $95-million, while new appraisals of Sun Life's real estate holdings led to a gain of $22-million.
The company's Canadian operations saw earnings fall slightly from last year, to $227-million, as it appears that more of its group benefits customers are getting sick and making claims.
This quarter's profit comes on the heels of two straight quarterly losses, and continue to illustrate how susceptible the company is to fluctuations in stock markets and interest rates.
RBC Capital Markets analyst Andre-Philippe Hardy said in a note to clients that, while the basic earnings came in above expectations, after factoring in the company's gains, changes in assumption, and tax rate the earnings came in below his estimate.
In a press conference following the insurer's annual meeting, CEO Dean Connor told reporters that the group benefits claims in Canada relate to long-term disability insurance.
Insurers in Canada are seeing a rise in long-term disability claims across most industries.
It's a phenomenon that seems counter intuitive at a time when the economy is growing, Mr. Connor said. But he suspects that it's a result of pent-up demand. Many Canadians who might have been candidates for long-term disability might have delayed applying when the economy turned sour a few years ago because they wanted to cling to their jobs, he suggested.
Mr. Connor also said that he's comfortable with the insurer's real estate exposure, and that the company looks at real estate as a long-term investment rather than worrying about what the market will do in the short-term.
Its mortgage portfolio amounted to $28-billion at the end of March. Mr. Connor said that the company's real estate assets are largely commercial buildings based in Canada.
If anything, he said the problem right now is that capitalization rates have come down so much in Canada that it's very expensive to buy and invest in new properties, making it hard to grow the portfolio.
Mr. Connor said the company is still working to reduce its exposure to interest rates.
"This will take us awhile to reduce the volatility of our business, it's not going to happen overnight," he said.
In the meantime, while he's focused on organic growth, he said Sun Life does have the ability to raise new capital to finance a major acquisition if the right opportunity were to come along.
It's been a long time since the company tapped markets for new equity capital, he noted.