We are reiterating our Neutral recommendation on Sun Life Financial Inc. (SLF) following the second quarter earnings release. Sun Life’s Financial Inc. announced second-quarter 2013 net operating earnings of $441 million (C$431 million), improving 74.7% year over year.
Sun Life is a leading Canadian life insurance company, with an active presence in the U.S. Over the long term we believe the company will be able to generate superior returns for its investors given a proactive approach to managing and mitigating fundamental issues.
Sun Life is seeking to grow internationally. It is specifically focusing on the emerging economies of Asia, which are expected to provide higher return and growth compared to the North American markets.
The company is also making business mix changes in its U.S. segment to reduce the equity market exposure and limit its interest rate exposure.
At the same time, Sun Life is aggressively seeking to grow its Global Asset Management Business, which has been witnessing growing asset base for the past many quarters. This business provides higher return on equity, lower capital, and lower volatility. It has the potential to provide earnings upside.
Along with doing away with high equity/interest rate risk products, Sun Life has implemented hedging to reduce earnings and capital sensitivity to interest rates and equity markets. The company stands better than its peers in terms of hedging management of these risks.
Nevertheless, these positives are dwarfed by the low interest rate environment that is expected to continue to have a significant negative impact on the company’s operations. The leverage ratio of this Zacks Rank #4 (Sell) stock has also increased due to requirement for additional regulatory capital.
Other life insurers China Life Insurance Co. (LFC) with Zacks Rank # 1 (Strong Buy), StanCorp Financial group Inc. (SFG), and Lincoln National Corp. (LNC) both carrying Zacks Rank #2 (Buy) are worth considering.Read the Full Research Report on SLF
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