On May 13, 2014, we issued an updated research report on Sun Life Financial Inc. (SLF). The company reported first-quarter operating net income from continuing operations of $500.3 million (C$454 million) compared with $451.5 million (C$448 million) in the year-ago quarter.
Results reflected strong business growth, improving core earnings power and continued execution of the company’s four-pillar strategy. Top-line growth was robust, with increases of 19% and 12% respectively in sales of life and health, and wealth products.
Sun Life is a leading Canadian life insurance company, with an active presence in the U.S. The company is seeking to grow internationally. It is specifically focusing on the emerging economies of Asia that are expected to provide higher return and growth compared to other developed markets.
Sun Life is also making business mix changes in its U.S. segment to reduce the equity market as well as interest rate exposure. This is being carried out through penetration into business lines that can generate higher return on equity.
At the same time, Sun Life is aggressively expanding its Global Asset
Management Business, the asset base of which is growing for the past many quarters. This business provides higher return on equity with lower capital and lower volatility and has the potential to provide an earnings upside.
Along with disposing of 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 partially offset 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 has also increased due to the requirement of additional regulatory capital.
Sun Life carries a Zacks Rank #2 (Buy).
Other stocks – Symetra Financial Corp. (SYA), Prudential plc (PUK) and Horace Mann Educators Corp. (HMN) – all with a Zacks Rank #1 (Strong Buy) are also worth considering.