Morningstar | Sun Life’s Returns Dip a Bit in 3Q
Sun Life’s results flagged a bit in the third quarter, with the company generating an 11% annualized ROE for the quarter. Still, we think this level is acceptable, and the company’s performance year to date is roughly in line with our long-term expectations. We will maintain our CAD 50 and $38 fair value estimates and no-moat rating.While reported net income was down slightly year over year, Canada remains Sun Life’s most profitable and steady region and generated a 19% annualized ROE. The one negative was that, while sales activity varied a bit by product, it was generally down year over year, although this was partly because of a tough comparison.
The U.S. posted poor results and recorded a CAD 267 million loss largely due to some adverse changes in assumptions. Occasional quarterly losses have been an issue in this region and highlight, in our view, the opaque nature of life insurance profitability. Still, ignoring these issues, profitability has been trending up over the past couple years, suggesting Sun Life is gradually finding a better footing in the U.S.
Asia produced a 13% annualized ROE, but growth was an issue, with management attributing the problem to market volatility in the region. While we appreciate the potential lure of long-term growth in the region, this quarter shows it will not be without hiccups, and we remain somewhat skeptical that any growth will be value-creative in the long run, given the dynamics of the life insurance industry and the lack of a discernible competitive edge in the region.
The asset-management business saw net income increase 30% year over year, due to the rise in the markets and a lower tax rate. However, the company continues to see net outflows ($9 billion in the quarter). We would like to see asset-management operations become a bigger part of the company’s mix, as this is the one area that we think potentially has a moat, but if the company cannot staunch outflows, further growth will be subject to the direction of the market.
Sun Life Financial is a holding company. Through its subsidiaries, Co. is an international financial services organization providing a range of protection and wealth accumulation products and services to individuals and corporate customers in Canada, the U.S., the U.K., Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam and Bermuda. Co. manages its operations in four business segments: Sun Life Financial Canada, Sun Life Financial United States, MFS Investment Management and Sun Life Financial Asia.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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