We are reiterating our Neutral recommendation on
Sun Life Financial Inc.
). Though we believe the company will be able to generate
superior returns for its investors given a proactive approach to
managing and mitigating fundamental issues, concerns such as
ongoing macro and regulatory uncertainties and low interest rates
keep us on the sidelines. Sun Life carries a Zacks Rank #3
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, which 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 exposure and limit its
interest rate exposure. This is being effected through
penetration in business lines that can generate higher return on
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 with 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 partially offset by the low
interest rate environment that is expected to continue to have a
significant negative impact on Sun Life's operations. The
leverage ratio has also increased due to requirement for
additional regulatory capital.
Other life insurers
StanCorp Financial Group Inc.
China Life Insurance Co.
Lincoln National Corp.
) all with Zacks Rank # 2 (Buy) are worth considering.
CHINA LIFE INS (LFC): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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