Sun Life profits take a hit from low interest rates

The financial giant attributes a year-on-year decline in its net income to declining interest rates, among other factors

The receding tide that is the global low-interest-rate environment has left many fixed-income investors high and dry–and even entire financial institutions are vulnerable, as seen in the case of Sun Life Financial.

The firm released its financial results after markets closed on August 10, reporting net income of $480 million in Q2. The figure represents a 33.88% decline from the same period in 2015, when the company reported $726 million. Year-to-date net income reported also went down, sliding 12% from $1.167 billion in 2015 to $1.020 billion this year.

“In the second quarter of 2016, declining interest rates resulted in unfavourable market related impacts,” says a note in the financial statements. “Interest rates declined during the second quarter due to macroeconomic factors, including the U.K. referendum in which voters approved an exit from the European Union.”

The company’s reported net income plummeted by 45%, from $337 million in Q2 of 2015 to $185 million in Q2 2016.

Sales of individual insurance products were up by 16% compared to Q2 2015, and sales of Sun Life’s own mutual and segregated funds jumped by 37%, third-party mutual fund sales dragged total individual wealth product sales in Canada down to a 10% decline overall.

Group benefit sales in Canada presented some consolation, with Q2 figures 12% higher year-on-year due to increased sales in small- and mid-market segments. However, group retirement sales plunged by 55% compared to the same period in 2015–a plunge that the company attributes to especially high sales in Q2 2015.

The insurer’s Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio stood at 214% on June 30, compared to 240% on December 31, 2015. Most of the decrease is attributed to the acquisition of employee benefits business in the US.

Despite the overall negative developments, the firm chooses to look at the sunny side of things.

"Sun Life's strategy stood up well during the second quarter, delivering $554 million in underlying net income and an 11.9% underlying ROE in the face of a challenging environment," declares Sun Life's president and CEO Dean Connor. "We made good progress at integrating our acquisitions announced last year; increased ownership in our Asian joint venture operations; and continued our investment in organic growth. Combined, these are reflected in a 26% increase in our insurance sales and a 3% increase in wealth sales."

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