February 14, 2008 / 12:14 PM / in 10 years

Sun Life profit climbs, cautious on 2008

TORONTO (Reuters) - Executives at Sun Life Financial Inc (SLF.TO) said on Thursday the insurer delivered a solid fourth quarter, with a 2 percent rise in net income, but they remained cautious about ongoing pressures from the Canadian dollar and world financial markets.

“Sun Life has again delivered solid results,” Chief Executive Don Stewart said on a conference call, during which he highlighted 2008 growth opportunities for the Canadian company in Asia, and India in particular.

The firm is “well aware of the current environment and the challenges this brings in 2008,” Chief Financial Officer Rick McKenney said, citing declining interest rates, volatile equity markets and the strength of the Canadian dollar as “near term headwinds.”

But Sun Life is still committed to its target of 10 percent growth in operating earnings per share, McKenney said on the call. It plans to use capital on internal growth and selective acquisitions, and to return capital to shareholders through dividends and share repurchases, he said.

Earlier on Thursday, Canada’s third-largest life insurer reported a slight rise in fourth-quarter profit, which fell short of market expectations.

It also boosted its dividend to 36 cents a share from 34 cents.

Sun Life stock was down 3.7 percent at $47.35 on the Toronto Stock Exchange Thursday afternoon. The stock is down about 15 percent year to date.

Net income was $555 million, or 97 cents a share, in the last quarter of 2007, helped by the insurer’s U.S. operations but hurt by a stronger Canadian dollar. That compared with net income of $545 million, or 94 cents a share, in the year-earlier period.

Operating earnings, which exclude rebranding and integration costs, were 98 cents a share.

Analysts polled by Reuters Estimates had expected earnings of $1.01 a share.

The stronger loonie cut Sun Life’s earnings by $41 million, or 7 cents a share, and reduced revenue by $400 million.

“This is the largest currency impact we have experienced in any quarter since we became a public company in 2000,” McKenney said on the call.

RBC Capital Markets analyst Andre-Philippe Hardy said that currency swings hurt Sun Life’s earnings to a greater degree than he expected. The strong Canadian dollar, weak equity markets and declining interest rates all combined to create a difficult environment for life insurers in the quarter, Hardy said in a research note.

Profit at Sun Life’s U.S. insurance division jumped 62 percent to $157 million, despite the appreciation of the Canadian dollar.

Sun Life Canada’s earnings rose 2 percent to $263 million.

Earnings at MFS, its U.S. money management firm, rose 3 percent to $73 million. MFS saw net outflows in its retail and institutional funds in the quarter.

In Asia, Sun Life’s businesses generated a profit of $38 million, up 15 percent.

“Overall results include good U.S. results, offset by weakness in Canada and noise in the reinsurance operations,” BMO Capital Markets analyst John Reucassel said in a note.

Sun Life’s return on equity was 14.2 percent in the quarter, or 14.3 percent on an operating basis. That was up from 14 percent a year earlier.

Additional reporting by Jonathan Spicer; Editing by Rob Wilson

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