TORONTO (Reuters) - Sun Life Financial (SLF.TO) plans to boost its operating income to C$2 billion ($2.01 billion) in the next three years by focusing on high growth businesses and riding an expected improvement in stock and bond markets, the company’s chief executive said.
Dean Connor, who took over from longtime CEO Donald Stewart in December, announced the goal as part of his new strategic plan for the Canadian life insurer, which has seen its earnings tumble from comfortably above the C$2 billion mark - and had its share price hammered - over the past four years largely because of market-related losses.
“We have a very good business here, and the challenge we set for ourselves is to make it the best performing life insurer in Canada,” Connor told a crowd of analysts at the company’s head office in Toronto.
Connor began putting his imprint on the company in December when Sun Life announced it would stop selling variable annuities and individual life insurance in the United States to focus on group insurance and voluntary benefits there.
He said on Thursday the company will continue to build its position in those businesses, while trying to improve its performance in Canada and build up its comparatively small presence in Asia.
“Asia will form a much larger part of Sun Life in the future,” he said, pointing to favorable demographics in the region. The company’s operations there are focused in Hong Kong, the Philippines, Indonesia, India and mainland China.
“The demand (in Asia) for what we do should double every three to five years for many years to come as millions of people are pulled out of poverty into the middle class,” he said.
Sun Life’s MFS asset management business will be expanded beyond its traditional base in the United States to be a more global business.
The C$2 billion profit goal - Sun Life stressed it is an objective, not guidance - compares with an operating net income of C$104 million in 2011, but that result was hit hard by weak markets and several charges, including a C$635 accounting charge in the fourth quarter.
However, the goal will still not bring the insurer to where it was before volatile stock markets and falling bond yields began taking big bites out of insurers’ results in 2008.
In 2007, before markets began to significantly deteriorate, Sun Life earned C$2.3 billion on an operating basis, illustrating how much damage has been done to the sector since then.
Sun Life and its rivals - particularly larger Manulife Financial (MFC.TO) - have taken losses both from investment products that featured guaranteed returns, and from actuarial assumptions tied to the massive investment portfolios they hold to balance off obligations.
When stocks and bond yields fall, they take reserves from profits to make up the difference.
Indeed, the profit goal and a separately announced goal of an operating return on equity of 12-13 percent by 2015 are dependent on an annual rise of about 8 percent in key stock market indexes and a gradual increase in North American interest rates across the yield curve, the company said.
Achieving the profit goal will also depend on particularly strong growth out of Asia, and some analysts questioned whether the objectives are achievable.
“The implied growth appears to be quite a stretch goal,” Barclays Capital analyst John Aiken said in a note.
The objectives do not depend on Sun Life making any acquisitions, but Connor said the insurer was on the lookout for workable deals, citing the recent acquisition of a 49 percent stake of Grepalife Financial in the Philippines as an example of the kind of addition they could make.
“We would prefer to own 100 percent of that. You can’t always get there in one step,” he told reporters after the presentation.
In addition to Asia, he said Sun Life could make an acquisition in the U.S. or Canada, and would be prepared to sell equity if a big deal came along, though he suggested that wasn’t likely.
“Where we’re spending most of our time looking, frankly, is smaller and mid-sized opportunities,” he said.
Sun Life’s shares, which despite recent strength are still 63 percent below their all-time high in late 2007, rose 19 Canadian cents to C$20.86 on the Toronto Stock Exchange.
Reporting By Cameron French; editing by Rob Wilson