Equity markets pummel insurers’ earnings

The rapid sell-off on equity markets in Q3 and Q4 of 2008 took a heavy toll on Canada’s top insurance carriers, but Sun Life, Manulife and Great-West Lifeco still managed to eke out full-year profits, though substantially reduced.

Sun Life Financial recorded a Q4 profit of $129 million, down from $555 million a year ago. The sale of its 37% stake in CI Financial to Bank of Nova Scotia netted the insurer $825 million. Excluding the proceeds of that sale, Sun Life posted an operating loss of $696 million for the quarter.

Sun Life took $682 million in charges related to equity markets in the final quarter, plus another $365 million from asset impairments, credit-related writedowns and spread widening.

For the full year, the company earned $785 million, down from $2.2 billion for the full year 2007.

“While Sun Life’s overall financial returns are very disappointing, reflecting negative equity markets and a stressed credit environment, our balance sheet remains strong and well diversified,” said Donald Stewart, CEO. “We are well positioned to win customers and pursue opportunities in 2009.”

Matters were no better for the competition. Manulife Financial posted a loss of $1.8 billion for Q4, which trimmed its full-year profit to just $517 million, down from $4.3 billion in 2007.

“As previously disclosed, our results have been negatively impacted by the downturn in global equity markets, particularly in the fourth quarter,” said Dominic D’Alessandro, president and CEO until he retires in May. “We have reacted quickly by strengthening our capital base and ensuring that our product strategies remain appropriate for the long term.”

Declining equity markets forced the company to shift nearly $5.8 billion in balance sheet assets to its reserves for segregated fund guarantees. In 2007, balance sheet reserves for seg funds totalled just $526 million.

“Even after this quarter’s very sharp drops in equity markets and interest rates, our balance sheet remains strong and our capital levels are amongst the highest we have ever enjoyed,” said Peter Rubenovitch, senior executive vice-president and CFO.

Both insurers maintained their common share dividends as a show of strength to the market.

Great-West Lifeco reported a loss of $907 million in the final quarter of 2008, but managed to pull out a profit of $1.4 billion on the full year.

The company recorded total impairment charges of $100 million (after-tax) on its consolidated invested asset portfolio of $103.1 billion.

“Notwithstanding these market conditions, the company’s investment portfolio performed extraordinarily well in 2008, with only modest impairments, which were mainly recognized in the third quarter,” the company said in a press release.

This story was originally published by Canadian Insurance Top Broker.