A Manulife Financial office tower in Toronto, on Feb. 11, 2020.Cole Burston/The Canadian Press
Canada’s two largest life insurers beat analysts’ profit expectations despite continuing COVID-19 lockdowns in several regions globally and mortality rates spiking in Asian countries and the United States, but saw dramatically different reactions from investors on Thursday.
Manulife Financial Corp. MFC-T reported a jump in its fourth-quarter “core earnings” of $1.7-billion or 84 cents a share, compared with $1.47-billion or 74 cents a share in the fourth quarter of 2020. Manulife’s net income for the quarter was $2.08-billion, up from $1.78-billion the previous year.
Sun Life Financial Inc. SLF-T reported fourth-quarter “underlying” net income of $898-million or $1.53 a share, up from $862-million or $1.47, in 2020′s fourth quarter. Sun Life’s net income for the quarter was $1.08-billion, up from $744-million, the year earlier.
Both insurers emphasize versions of earnings that strip out investment losses and make other accounting adjustments. Manulife calls its figure “core earnings,” while Sun Life describes its as “underlying net income.”
But COVID-19-related losses in Sun Life’s U.S. business contributed to U.S profits dropping to $72-million in the fourth quarter, down from $148-million in 2020, which included $65-million in mortality claims and $18-million primarily from disability claims. In addition, the insurer also posted a $12-million mortality charge in its Asian operations – mainly from the Philippines.
As a result, Sun Life shares dropped 5.54 per cent to close at $69.72 Thursday on the Toronto Stock Exchange, while Manulife jumped by 3.68 per cent to $27.89 – a record high since 2008.
Sun Life CEO Kevin Strain said in an interview that the company’s higher mortality claims were linked to regions with “less vaccinations.” Since the onset of the pandemic in March, 2020, Mr. Strain said the company has paid out about $900-million in COVID-related claims.
“The number of COVID-19 deaths related to the Delta variant was quite high for us in the United States last quarter, especially in the working-age population, but it was also high for the industry as well,” Mr. Strain said. “And as we look forward into the first quarter of this year, we are already starting to see the impacts of the Omicron variant come through.”
Although several countries in Asia continued to be affected by COVID-19 restrictions, the region provided a boost to earnings for both insurers owing to the diversification of operations across various markets.
“Our presence in 13 markets in Asia demonstrated the benefits of geographic diversification as strong top-line growth in Hong Kong, Singapore and Vietnam balances the impacts of COVID-19 and regulatory changes in China, Japan and other emerging markets,” Manulife CEO Roy Gori told The Globe and Mail.
During an analyst call on Thursday, Mr. Gori said the company gained market share in five Asian regions last year, helping the company “stay on track” to achieve a goal of having Asia make up half of the company’s total core earnings by 2025. Currently, Asia contributes 39 per cent of total company core earnings.
One country in particular that Mr. Gori is optimistic about is China, where he says he would “definitely” look at potential deals, as wells as increasing Manulife’s shares of joint ventures.
“We feel very optimistic about the opportunity that China represents and we would look to grow our business organically there,” Mr. Gori said. “And if the opportunity is present to grow inorganically, we would definitely look at that too.”
Similarly, Sun Life saw a boost from its Asian operations with $130-million in underlying net income for the fourth quarter, up 12 per cent from $116-million in the fourth quarter of 2020. Asia accounts for about 16 per cent of Sun Life’s overall profits.
“We have already been pivoting to digital throughout this entire pandemic but with the Omicron wave, we have seen a major shift to digital capabilities and that allowed us to stay close to the clients,” Mr. Strain said in an interview.
Mr. Strain said 71 per cent of new business applications for insurance submitted in Asia in 2021 were done digitally, up 48 per cent compared with the previous year.
“We’re making it easier for clients to do business with us, especially during times where face-to-face connections are more difficult,” he added.
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