We are reiterating our Neutral recommendation on the shares of
Sun Life Financial Inc.
), following fourth quarter earnings release. This life insurer
with a Zacks Rank #3 (Hold) reported operating earnings in the
fourth quarter 2012 reversing loss reported in the year ago
Sun Life has intensified its approach to Asia, an area which
is expected to provide higher returns and growth compared to the
North American markets. The company plans to drive 12.5% of
consolidated operating earnings from Sun Life Asia by 2015.
The company is also altering its business risk in the U.S.
Market, by exiting from the U.S. individual insurance markets. It
is looking to offload the variable annuities and Individual Life
Insurance in U.S. The unlocked capital tied in this runoff
business can be deployed somewhere else to generate a higher
return on equity.
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, and has potential
to provide earnings upside.
Along with doing away with high equity/interest rate risk
products, the company has implemented hedging to reduce earnings
and capital sensitivity to interest rates and equity markets. The
company stands better than its peers in management of hedging
However, low interest rate environment will continue to have a
significant negative impact on the company's operations. If
current rates persist, the reinvestment impact would reduce
earnings through 2015. Other players that continue to face
headwinds from low interest rates include
Following the earnings release, 4 of 7 estimates were revised
though it pulled down the Zacks Consensus Estimate for 2013 by
2.6% to $2.59 per share.
Other Stocks to consider
Reinsurance Group of America Inc.
), among others, carry a favorable Zacks Rank #2 (Buy).
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PRUDENTIAL FINL (PRU): Free Stock Analysis
REINSURANCE GRP (RGA): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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