August 4, 2010 / 9:32 PM / 7 years ago

UPDATE 2-Sun Life Q2 profit falls by more than half

* Q2 EPS C$0.37 vs yr-earlier C$1.05

* Q2 revenue C$6.8 bln vs C$8.7 bln yr-ago (Adds details, background)

By Pav Jordan

TORONTO, Aug 4 (Reuters) - Sun Life Financial Inc SLF.TO, Canada’s third-largest insurer, said on Wednesday its net profit was slashed by more than half as it was hit by turbulent market conditions in the second quarter.

Toronto-based Sun Life said its profit fell to C$213 million ($209 million), or 37 Canadian cents a share, on a diluted basis, from C$591 million, or C$1.05 a share, in the year-before period.

Revenue for the quarter was C$6.8 billion, compared with C$8.7 billion last year.

“Volatile market conditions continued to impact the company’s financial results and reflected a much different capital market environment than the same period one year ago,” Sun Life said in a statement.

“Net income in the second quarter of 2010 was adversely impacted by declining equity markets and unfavorable interest rate movements. This contrasts with a strong equity market recovery and increasing interest rates in the second quarter of 2009, which favorably impacted results in that quarter.”

The company said net income was hit by unfavorable equity market conditions to the tune of C$187 million, C$99 million from a decrease in interest rates, and C$14 million from the strengthening of the Canadian dollar relative to average exchange rates in the second quarter of 2009.

The drop in earnings will come as no surprise to analysts who had predicted weak stock markets and lower bond yields would take a bite out of insurers’ quarterly earnings.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was down 6.2 percent during the quarter.

That hurts Canadian insurers, who hold billions in assets to cover future obligations like settlements and annuities, and as such are highly levered to the performance of financial markets.

When assets decline in value, insurers are forced to build up reserves using cash taken directly from earnings.

Sun Life said its return on equity, a key measure of profitability, was 5.4 percent, down from 14.9 percent in the same period one year ago.

“Sun Life continues to take action to mitigate the impact of volatile economic and market factors, including changing product design and mix to reduce risk and increase profit while continuing to meet the needs of clients as well as a continued focus on expense management,” said Chief Executive Officer Donald Stewart.

Sun Life said it maintained its current quarterly dividend with a planned pay-out of C$0.36 per common share.

Shares of Sun Life closed 0.73 percent lower at C$28.60 on the Toronto Stock Exchange, before the results were released.

The stock has fluctuated over the past year, touching a high of C$38.13 exactly one year ago, and falling to C$25.88 in July.

The latest results follow a profit of C$409 million in the first quarter, when Sun Life bounced back from a year-earlier loss.

$1=$1.02 Canadian Reporting by Pav Jordan; editing by Rob Wilson

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