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Sun Life expects hefty loss
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The Globe and Mail-Tara perkins-
Sun Life Financial Inc. (SLF-T26.450.542.08%) announced Monday morning that it expects to report a third-quarter loss of $621-million, as insurers were once again hammered by falling interest rates and stock markets.
The company, which will release its financial results on Nov. 2, said that its losses from those two factors will fall towards the high end of the range that it had previously guided analysts towards.
Analysts who cover the life insurers have become increasingly frustrated in the last few years by how difficult it has become to accurately predict the companies' results. Sun Life threw analysts a curveball in the second quarter by reporting interest rate gains during a period when U.S. 10-year Treasuries, a key barometer of interest rates, fell 31 basis points. As a result, the insurer's second-quarter profits were $408-million, well above analysts’ expectations. Monday's statement makes it clear that that positive surprise hasn't become a regular occurrence.
Sun Life has been explaining to the market that it is impacted not only by absolute changes in interest rates, but by the degree to which long-term rates and short-term rates move in tandem. In its statement Monday, it said that key drivers for its higher losses this time around were “uneven movements across the yield curve and the impact of large, simultaneous movements in both interest rates and equity markets.”
Sun Life's third-quarter loss includes a $200-million hit as a result of changes it is making to its actuarial assumptions.
“The market factors that affected our results fell within the range of our previously stated sensitivities,” said spokesperson Frank Switzer. “Our hedging programs continue to work and we’ve taken repeated actions to de-risk products. We’re a strong, well-capitalized company with a diverse group of businesses and strong underlying customer franchises.”
Sun Life said that the key measure of its capital levels, known as the minimum continuing capital and surplus requirements, or MCCSR, ratio, was about 210 per cent at the end of September. That’s well above the regulatory minimum of 150 per cent, although analysts suggest that most insurers must remain above 200 per cent in this environment.
Most of the pain that Sun Life is feeling this quarter is as a result of the impact that lower stock markets and interest rates are having on its U.S. businesses, particularly individual life insurance and variable annuities.
North American stock markets dropped by 12 to 14 per cent during the quarter and bond yields fell, the company noted. U.S. treasury rates reached historic lows, with 30-year yields down 146 basis points to 2.91 per cent.
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