(Deletes reference to Great West Lifeco in Sept. 17 story to make clear it did not comment on its dividend)
* Sun-Life, Industrial Alliance happy with dividend level
* Manulife defends dividend cut, to increase eventually
* Insurers eye acquisition opportunities in downturn
By Andrea Hopkins
TORONTO, Sept 17 (Reuters) - Canada’s biggest life insurance companies defended their dividend levels on Thursday, a month after Manulife Financial Corp (MFC.TO) slashed its payout, saying they had enough capital to take advantage of acquisition opportunities in the months ahead.
Executives at Sun Life Financial Inc (SLF.TO) and Industrial Alliance Insurance and Financial Services Inc (IAG.TO) — Canada’s third and fourth-largest lifecos, respectively — assured analysts they did not intend to cut their dividends.
The reassurance, voiced at a financial conference in Toronto hosted by Scotia Capital, comes on the heels of a surprise move by Manulife to halve its dividend when it released its second-quarter earnings in late July.
The move shook investor confidence in what had previously been considered near-sacrosanct dividend payouts by Canada’s big financial companies. Manulife, Canada’s biggest insurer, remains the only Canadian financial services company to have cut its payout during the crisis.
“We do not foresee recommending a dividend cut to the board because our capital levels are strong, our capital sensitivity to market levels are low, and we maintain significant cash on hand,” said Dean Connor, president of Sun Life Canada.
Noting Sun Life’s “higher than normal” cash position of more than C$11 billion ($10.4 billion), strong capital ratios and reserves, Connor said the company expects its cash position to decrease as the credit environment stabilizes, but not by way of share buybacks.
Rival Industrial Alliance echoed the confidence in a not-so-subtle swipe at the nation’s biggest insurer, which has said it intends to build “fortress levels” of capital after being bruised by the financial meltdown.
“Clearly, with the earnings power that we have, the fact that our earnings came back on track faster than the competition, the fact that we might have a payout a bit lower than the other guys, certainly we feel good about the dividend,” Industrial Alliance Chief Executive Yvon Charest told analysts at the conference.
But Manulife Chief Executive Donald Guloien, who has himself been critical of mistakes made by his predecessor that left the global insurer exposed to stock markets hits, defended the decision to halve the dividend and warned others that high payout ratios were not prudent.
“I think the high payout ratios that companies exhibit — unless they truly have a low-risk, no-risk business — I think are not wise going forward in the financial services industry,” he said.
Guloien, who took the Manulife helm this year from the the hard-driving Dominic D’Alessandro, said the dividend cut was not prompted by some deep underlying problem but rather by prudence, and he assured the conference audience that it would be increased again when earnings normalize.
“Obviously, (the cut) has a short-term impact on our reputation because people say maybe there is a bigger problem out there lurking below the surface, and I assure you that is not the case,” he said.
“We hope to be able to raise dividends once normalized earnings expectations begin to increase and equity sensitivity to capital markets has been reduced.”
All four of the lifecos, including No. 2 Great West Lifeco (GWO.TO), said they were well-positioned to take advantage of industry consolidation, with enough capital and cash on hand to snap up global rivals who are teetering and selling off assets.
Guloien said Manulife would be open to attractively priced acquisitions in Canada and the United States, and would look to organic growth opportunities in Asian markets.
$1=$1.06 Canadian Additional reporting by Pav Jordan; editing by Rob Wilson