Sun Life Has First-Quarter Loss as Stocks Decline (Update4)

By Sean B. Pasternak
Bloomberg News
May 7, 2009

May 7 (Bloomberg) -- Sun Life Financial Inc., Canada's third-largest insurer, recorded a bigger loss than analysts expected after plunging stock prices forced it to boost credit reserves.

The first-quarter loss was C$213 million ($182.4 million), or 38 cents a share, compared with profit of C$533 million, or 93 cents, a year earlier, the Toronto-based insurer said today in a statement. The company has posted losses in two of the last three quarters.

Sun Life increased reserves by C$325 million as the benchmark S&P 500 Index declined about 12 percent in the quarter. Insurers lose money when stocks decline because they have to write down assets and boost reserves to back products that guarantee client investments.

"It really depends on where the equity markets are at any given time," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$3 billion, including Sun Life shares.

Before one-time items, Sun Life had a loss of 33 cents a share. That compares with a 10 cents-a-share loss estimate in a survey of 10 analysts by Bloomberg News.

The results were "highly disappointing along several fronts," Morgan Stanley analyst Nigel Dally wrote in a note to investors. "Gross unrealized losses embedded in its portfolio escalated more than we have seen among its U.S. peers."

Manulife, Great-West

Sun Life rose 41 cents to C$29.96 in trading yesterday on the Toronto Stock Exchange. The stock has gained 5 percent this year.

Manulife Financial Corp. and Great-West Lifeco Inc., the country's two largest insurers, are also scheduled to release results today.

The "harsh credit environment" could cost Canadian insurers as much as C$1.6 billion in earnings this year, CIBC World Markets analyst Darko Mihelic said this week.

Sun Life said it's maintaining "higher than normal levels of liquidity" because of current market conditions. At the end of the quarter, the insurer had C$10.4 billion in cash and cash equivalents and C$15.6 billion in government bonds.

Profit at the Sun Life's Canadian unit fell 21 percent to C$194 million as the insurer increased reserves by C$61 million. The U.S. insurance unit had a loss of C$407 million, compared with year-earlier profit of C$113 million as the Canadian dollar depreciated, lowering earnings by C$78 million. The U.S. unit posted losses of $324 million on annuities.

Earnings from MFS Investment Management, which created the first U.S. mutual fund about 80 years ago, fell 53 percent to C$28 million. Earnings in Asia climbed 31 percent to C$17 million because of results in the Philippines and Indonesia.

Overall revenue rose 29 percent to C$5.03 billion.

(Sun Life will hold a conference call at 9 a.m. to discuss results. To listen, dial +1-416-644-3416 or +1-800-732-9307 at least 10 minutes before the call begins.)

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