Sunday, February 24, 2013

(No.231) Sun Life's Asian operations: waiting for Godot


"Sun Life Financial's 2012 results and its Asian insurance operations: waiting for Godot"

by Alastair Rickard


Sun Life Financial's 2012 results have been released. Provided was the usual cornucopia of interesting numbers. The Sun Life reports for both the 4th quarter of 2012 and the full year can be accessed at www.sunlife.com.

I note below several points of interest to me as a one time member (as a result of a Sun corporate takeover of my then employer) of Sun Life management who refused to drink his serving of senior management's Asian Kool-Aid (amounts are in Canadian dollars):

-- Sun's operating net income in 2012 increased dramatically from $34 million in 2011 to $1.679 billion. As I write this column Sun's common shares are trading on the Toronto exchange between $29 and $30. It was not all that long ago that they were around $13.

-- Sun's Canadian operations, led by president Kevin Dougherty, the 'small market' that former CEO Donald Stewart referred to in prefacing his oft-repeated views on the vast potential for Sun of Asia and the U.S., continued in 2012 to be by far the biggest contributor to the company's operating net income: $795 million, almost half [47.4%] of the company's worldwide operations total.

-- In Canada Sun's rank in 2012, based on its share of the individual life insurance market, increased to number 2, ahead of Manulife but behind Great-West which gets its top ranking based on a combining of the individual sales made by agents and brokers of London Life, Canada Life and Great-West Life.

An important factor in this improvement for Sun was another annual increase in the size of the company's Canadian industry leading career agency sales force to 3,713 ( a net gain of 119 for the year). Another plus was the contribution made by having a full year's availability for sale of Sun's new (i.e., rediscovered, belatedly) product type: a participating whole life policy.

-- Sun Life Financial CEO Dean Connor has identified Asia as an area of particular future concentration and growth, as his predecessor Donald Stewart did. However Connor also recognized Canada as a major part of its future as well as current focus and has wisely acted to rid the company of its problematic U.S. individual insurance and annuity business (see column No.225 on RickardsRead.com: "Sun Life:dumping a can of worms", posted Jan.10, 2013). The Asian focus was recently underlined by Sun's purchase of a 49% interest in CIMB Avion in Malaysia as well as involvement in a joint venture in Viet Nam.

-- As for Sun's Asian operations becoming a major source of profit (including from its minority ownership interests in the Indian and Chinese life insurance companies which carry the Sun Life name), 2012 results indicate that the company is, like Samuel Beckett,  still waiting for Godot. Individual life insurance sales in Asia were flat last year and operating net income declined to $129 million (from $144 million in 2011), less than 8% of the Sun total worldwide.

-- Years after having given C.I. Investments bargain-priced, preferred access to its Canadian career agency distribution system, an arrangement which can be terminated by Sun Life with 12 months notice which could be given in less than a year from now, Sun is trying to gain more mutual fund business from its own career agents. (see the discussion of this subject in my previous column on RickardsRead.com No. 230: "Sun Life vs C.I. Financial: it could get messy", posted Feb.15, 2013.)

[I have received responses to that column on CI from a number of Sun Life agents. If others wish to share their views with me, please do so. I will be returning soon to the subject of Sun and CI in another column.]

-- Having sold its 37% interest in CI for $2.3 billion to the Bank of Nova Scotia in October of 2008 Sun Life has been trying to get more of its agents' mutual fund business to be placed with its own Sun Life Global Investment funds (SLGI). These SLGI mutual fund sales apparently did increase somewhat in Q4 2012 over Q4 2011 while total mutual fund sales were up in the same quarter by 41%. CI's net sales for the year were up only 9%, much of which can be attributed to business received from its 'loyalists' among the agents in the Sun Life sales force across Canada.

Casual followers of Sun Life Financial's operations in Asia, Canada and elsewhere have not had an easy time of it over the years getting a balanced report on the reality of Sun Life's operations, including the reality of its Asian operations, from the so-called experts in the financial media and associated financial services commentariat.

Just one example: Dow Jones reported Sun's 2012 financial success as based on "strong mutual fund sales and its Asian operations [sic]". One wonders whose numbers they looked at.

Still, even with the continuing tendency for Sun Life Financial and some of its followers in the 'expert community' to foresee an Asian financial profit cathedral  rising soon on what is still a chapel-sized foundation, several smart moves have indeed been made by CEO Dean Connor.

The Sun Life share price is beginning to return to a level it should be at based on the company's inherent strengths and its ability to actually operate an insurance business rather than a so-called insurance business based (as it was in too many North American insurance companies) on gambling with financial reinsurance and other less savoury aspects of what the public came to understand, post-2007, had become the focus of too much large insurance company activity.

My suggestion: keep one's eye on Sun's real strengths, not on projected visions of pie in the sky by and by.

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email: Alastair.Rickard@sympatico.ca

blog: www.RickardsRead.com

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