October 21, 2008 / 1:00 PM / in 10 years

UPDATE 3-Sun Life drops to loss amid market upheaval

* Q3 loss 71 Canadian cents a share

* Results include C$636 million in writedowns

* Results released two weeks early

* Shares drop sharply in morning trade (Adds details, company and analyst comments)

By Scott Anderson and Lynne Olver

TORONTO, Oct 21 (Reuters) - Sun Life Financial Inc (SLF.TO) (SLF.N) swung to a loss in the third quarter from a profit a year earlier, hurt by big credit-related writedowns and a decline in equity markets, sending the Canadian insurer’s shares reeling.

The results reflected writedowns of C$636 million related to Sun Life’s holdings in three U.S. companies rocked or destroyed by the credit crisis — Lehman Brothers LEHMQ.PK , Washington Mutual WAMUQ.PK and American International Group (AIG.N) — as well as C$326 million of charges related to plunging global equity markets.

In a surprise move, Sun Life advanced its financial report by two weeks, amid pressure from tumultuous global capital markets. The company was scheduled to report on Nov. 4.

“Given the magnitude of the disruption in global capital markets and its impact on our third-quarter results, we felt it was important to bring forward the release date of this information,” Chief Executive Donald Stewart said during a conference call.

But Stewart moved to assure investors that the country’s third-largest insurance company was well-positioned to weather the global storm.

Sun Life, whose quarterly dividend is 36 Canadian cents a share, said it would maintain its present dividend policy and payout level.

Even so, the stock was down 7 percent at C$31.36 Tuesday morning on the Toronto Stock Exchange.

“It was just another example, of several quarters in a row, of the macro environment far outweighing the micro issues,” said Craig Fehr, a financial services analyst with Edward Jones.

“All three of the big life insurers in Canada, in my mind, continue to operate quite well. I just think that there are a lot of short-term issues pushing against them, and valuations reflect a lot of those short-term concerns.”

The writedowns and charges pushed Sun Life to a net loss of C$396 million ($331.1 million), or 71 Canadian cents a share, from a profit of C$577 million, or C$1.00, a year earlier.

Excluding the capital market impact, earnings were C$566 million, or C$1.00 a share.

Analysts had expected 77 Canadian cents a share, excluding items, according to Reuters Estimates.

Revenue dropped by more than half to C$2.56 billion from C$5.7 billion a year earlier. Sun Life Canada contributed C$1.28 billion, down from C$2.5 billion, while its U.S. arm contributed C$546 million, down from C$2.05 billion.

Return on equity, a key measure of profitability, was -10.2 percent during the quarter, compared with 14.7 percent for the same time last year.

Assets under management were C$388.7 billion at the end of the quarter, down 9.2 percent from C$428.1 billion at the same time in 2007.

Analysts said that they still expect Sun Life to pursue “opportunistic” acquisitions, as it is in relatively good shape compared with insurance companies elsewhere and just raised C$2.3 billion by agreeing to sell its minority stake in Canadian wealth manager CI Financial CIX_u.TO to Bank of Nova Scotia (BNS.TO).

“I do think that there’s still the potential for Sun to make some acquisitions in this market,” Edward Jones analyst Fehr said. “But I think it is more likely that Sun would be interested in books of business, instead of acquiring an entire business.” (Reporting by Scott Anderson and Lynne Olver; additional reporting by Sweta Singh in Bangalore; editing by Frank McGurty) ($1=$1.22 Canadian)

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