TORONTO (Reuters) - Two of Canada's biggest life insurers said on Thursday their quarterly profits jumped because of gains on stock investments and stronger sales, but both missed market expectations and their shares fell.
A third, Great West Life (GWO.TO), bucked the trend, recording a lower profit that was in line with analysts' expectations.
Manulife Financial Corp (MFC.TO), North America's largest life insurer, and Sun Life Financial (SLF.TO), Canada's No. 3 lifeco, capped a difficult year by reporting stronger results in the final quarter of 2009. Still, analysts had expected even better from the recovering companies.
"We continued to see a yin and yang between solid core sales results that will ultimately impact earnings in the longer term, and some of the near-term challenges that are constraining profits," Edward Jones analyst Craig Fehr said.
"Conditions are reasonably strong in terms of sales growth ... but they continue to be marred by some of the credit conditions impacting their investment portfolios," Fehr said.
While stock market gains boosted the value of their huge equity investments, the companies also hold significant bond portfolios that were hit by credit downgrades and default risk in the quarter.
Shares of Manulife closed down 1.7 percent at C$19.16 on the Toronto Stock Exchange, while Sun Life shares ended 3.1 percent lower at C$30.40.
Winnipeg-based Great West Life, Canada's No. 2 lifeco, got less of a boost from rising stock markets than its peers because it has less equities exposure. Its profit fell 16 percent as a weaker performance in the United States and Europe offset gains in Canada.
Its shares ended 1.0 percent higher at C$26.77 as the results were in line with market expectations.
For Toronto-based Manulife and Sun Financial, the fourth-quarter results were in sharp contrast to those of a year earlier, when market turbulence and exposure to ailing equity and credit markets sideswiped profits.
Manulife's profit rose to C$868 million ($827 million), or 51 Canadian cents a share, in the fourth quarter, from a loss of C$1.24 a share loss a year earlier. But the latest result came in well below the average analyst estimate for a profit of 69 Canadian cents a share.
Both Manulife and Sun Financial reiterated forecasts for higher earnings in 2010 and they pointed to an improvement in return on equity, a key measure of profitability, as evidence they have turned the corner.
Sun Life's net income surged to C$296 million, or 52 Canadian cents a share, in the fourth quarter, below the 65 Canadian cents a share expected by analysts, according to Thomson Reuters I/B/E/S.
While Sun Life's income was more than double last year's C$129 million, or 23 Canadian cents, RBC Dominion Securities analysts said the lower than expected profit was slightly negative for the stock.
"There was a shortfall in expected profit, impact from new business and earnings on surplus, a good part of which we expect to turnaround in the first half of 2010," the analysts wrote in a note to clients.
Sun Life Chief Executive Donald Stewart said he expected to be able to maintain the company's dividend through 2010, but he remained cautious about the economic outlook, particularly in the United States, where the company notched another unprofitable quarter.
"Our concern in the U.S. economic outlook is that the recovery is quite fragile, and we are expecting conditions to have considerable potential volatility for some time to come," Stewart said in an interview with Reuters.
Manulife also suffered from sluggish U.S. growth, recording what Fehr called disappointing sales momentum.
"We're going to have to see some improvement in economic conditions in the U.S. if we're going to see more typical growth out of Manulife," Fehr said.
Still, Chief Executive Donald Guloien said the company had achieved "fortress levels" of capital that will allow it to weather the next storm. Guloien's effort to build cash included a surprise cut of Manulife's dividend in August 2009, making Manulife the only Canadian financial services company to have to slash its payout as a result of the financial crisis.
Guloien said the company was now better positioned to make acquisitions and grow, but he warned the dividend was unlikely to be restored any time soon.
"The dividend level is not something that one wants to jerk up and down," Guloien said in an interview with Reuters.
Reporting by Andrea Hopkins; editing by Peter Galloway