TORONTO (Reuters) - Manulife Financial Corp (MFC.TO) shares slid on Thursday, while rival Sun Life Financial Inc (SLF.TO) rose after mixed results that reflected more stable markets and showed the fruits of their recent attempts to remove risk from their balance sheets.
The two companies, Canada’s No. 1 and No. 3 life insurers, have spent the last several quarters reducing their exposure to stock and bond markets, after falling stock prices and bond yields led to heavy losses following the 2008 financial crisis.
That reduced exposure, combined with rising debt yields, has pushed the shares of both companies up sharply.
Manulife posted a second-quarter profit compared with a year-before loss. It took a C$242 million ($233.48 million) markets-related charge, well down from the C$996 million charge in the year-ago period.
“Net income was not as strong as we would have liked, but (we had) a strong quarter on core earnings,” Manulife Chief Financial Officer Steve Roder told Reuters.
Core profit, which excludes the impact of financial market movements, rose 1.7 percent to C$609 million, or 31 Canadian cents per share, just short of analysts’ estimates of 34 Canadian cents a share.
Sun Life got a C$62 million positive bump from markets, compared with the C$320 million earnings hit it took year ago.
Its core profit from continuing operations was C$431 million, or 71 Canadian cents a share, up 72 percent from the previous year and above expectations of 67 Canadian cents a share.
“As we strip away the noise and look at the core underlying metrics of the businesses, it remains positive,” said John Aiken, an analyst at Barclays Capital. “We saw increasing sales levels in almost all regions and segments.”
Shares of Manulife, which also owns U.S. insurer John Hancock, were down 0.2 percent at C$18.00. Sun Life was up 2.8 percent at C$33.91.
Sun Life has risen nearly 60 percent in the past 12 months, while Manulife has shot up 65 percent, although both are trading at less than half of their pre-crisis levels.
Despite the core profit miss for Toronto-based Manulife, analysts pointed to several positives in the results.
Manulife said its annual review of actuarial assumptions on certain insurance products, due in the third quarter, should produce a smaller charge than in recent years, and one that will likely be mostly offset by positive one-time items.
The charge amounted to C$1 billion last year.
Manulife reiterated its core profit objective of C$4 billion by 2016, and said its costs to hedge market exposure had come down by C$30 million due to favorable economic conditions.
“We had been expecting that trajectory, but it is still encouraging that things continue to improve, which should allow book value to build as well,” CIBC World Markets analyst Robert Sedran said in a note.
Sun Life trimmed its own mid-term profit objective, although that had been factored in by the market.
The company now expects to record a profit of C$1.85 billion by the end of 2015, down from a previous target of C$2 billion, due to the sale of its U.S. annuities business.
That deal, which closed last week, greatly reduced Sun Life’s exposure to markets.
Variable annuities - retirement products that guarantee a minimum monthly payment - became a source of earnings volatility for Sun Life in the wake of the 2008 financial crisis.
As part of the new target, Sun Life raised its profit expectations from its MFS asset management business, but cut the expected contribution from its Asian division, largely due to regulatory changes and currency declines in India.
Both companies have targeted Asia as a key growth engine.
($1 = 1.0365 Canadian dollars)
Editing by Matthew Lewis