After facing a challenging year in 2008 and a hefty loss in the first quarter of 2009, Sun Life Financial Inc. is focusing on maintaining a strong capital position and enhancing risk management, but is also actively exploring acquisition opportunities, CEO Donald Stewart said on Thursday.

At Sun Life’s annual meeting in Toronto, Stewart said the company is taking steps to protect itself from continued economic turmoil going forward. He believes that the economy is still far from a recovery.

“We have a long way to go on the fundamentals,” he said.

In dealing with the financial crisis, Sun Life is focused on maintaining a strong capital position. Stewart noted that the company recently raised $750 million of capital through issues of debt and preferred shares.

Lessons learned in the crisis of recent months could also result in changes to Sun Life’s investment approach. “We are actively and very carefully assessing all of our investments going forward,” Stewart said.

He said the company will begin placing more focus on hard asset investments as opposed to paper assets.

“I think we’re generally going to be more inclined to be investing in things like infrastructure – real assets backing investments than investments that consist of promises to pay,” said Stewart. “That’s going to be an area of some emphasis going forward, because in tough times, you are left with a tangible asset. The tangible asset may have less value, but it is a tangible asset.”

Sun Life will also apply some of the lessons it’s learned during the market downturn to enhancing its strategic risk management.

“Our risk management is continuously evolving and we like to stay at the forefront of risk management,” said executive vice-president and CFO Richard McKenney. “I think we’ve proven that even through this cycle,” he added, pointing out that the company generated nearly $1 billion in hedged gains from its risk management strategies in the first quarter of 2009.

But in addition to taking a cautious approach in the current environment, Sun Life is pursuing growth and acquisition opportunities, Stewart said.

“Sun Life is looking very actively in the United States and indeed in other parts of the world for business opportunities in the form of potential joint ventures, in the form of potential mergers and acquisitions transactions, and also, on occasion, books of business,” he said.

But the company will not rush into any deals without conducting the appropriate due diligence, Stewart added. “We don’t see these times as any different from the discipline that we would have to exercise on M&A on an ongoing basis.”

He said ensuring the right fit between two companies is the most important consideration.

“I think we are certainly going to see opportunities, but the nature of the fit and the nature of the price is going to dictate whether we will be able to consummate any specific transaction,” he said. “We would want to see that the opportunities provide congruence with our existing business.”

Stewart admitted that the company’s financial performance in 2008 was disappointing. Its annual profit of $800 million was down sharply from $2.2 billion in 2007.

“Declining equity markets and a severe deterioration in the credit environment significantly eroded our financial performance and shareholder returns over 2008,” said Stewart.

The company posted a net loss of $213 million in the first quarter of 2009, which reflects continued equity market volatility and ongoing credit pressures, according to Stewart.

But he added that he is encouraged by the company’s operating progress in the first quarter, including net income of $194 million in its individual and group businesses in Canada.

“Sun Life’s first quarter sales and net income in Canada remain strong,” Stewart said, noting that Canada is faring better than most other countries in the current downturn.

Stewart also noted that the company plans to continue steadily expanding its base of advisors in Canada.

“We have a career advisor force in Canada of approximately 4,000 men and women, and are one of a very small number of companies that continue to recruit and train and nurture a career group of advisors,” he said. “We regard that as a very important part of our presence here in Canada.”

Added Stewart: “We believe very strongly in the future of our career sales force and our advisors.”

IE