Sun Life posts $525 million Q4 loss

The loss was in line with projections the company made in the fall for red ink ranging of between $550 million and $650 million for the fourth quarter. That came after a review and streamlining of Sun Life’s businesses to focus on growth and reducing volatility.

“I am confident our strategy is the right response to the challenges faced by our industry and positions Sun Life well for improving economic conditions,” president and CEO Dean Connor said in a release after markets closed.

Revenue in the quarter rose to $5.7 billion from $4.3 billion.

The company’s operating loss, which excludes the impact of hedges, fair value adjustments and one-time items like restructuring costs, was $221 million or 38 cents per share. That compared with an operating profit of $485 million, or 85 cents per share a year earlier.

Analysts, on average, had expected a loss of 59 cents per share on revenues of $5.59 billion, according to Thomson Reuters.

Toronto-based Sun Life said it was affected by a $635 million charge on the value of its variable annuity and segregated fund insurance contracts.

The charge was partially due to the insurers decision to exit from individual insurance products in the United States, which had caused it to suffer a deep financial loss. It cut 800 jobs, mostly in the U.S. in relation to the move.

One of the attractions of variable annuity products to investors is that they offer a minimum rate of return guaranteed, which can cost the insurer when markets are underperforming.

The combination of a market downturn with a substantial increase in the amount of capital required by regulators, has made variable annuities less attractive.

In its Canadian business, the company booked goodwill impairment charges related to the impact of persistently low interest rates, increased capital requirements and market volatility.

Stock and interest rate drops affect insurers because they tend to invest much of the money they make from policyholder premiums into equity and bond markets.

Those losses were slightly offset by a tax gain from wrapping up a reorganization of its two insurance subsidiaries in the United Kingdom to make them more efficient.

For the full year, the company booked a net loss of $300 million, compared with a net profit of more than $1.4 billion in 2010.

“While results for the fourth quarter were impacted by a number of one-time items, our overall results for 2011 reflect challenging global market conditions that affected the entire industry, including low interest rates as a result of global economic uncertainty and monetary policy actions in the United States,” added Connor.

Last week, rival Manulife Financial Corp. (TSX:MFC) reported a fourth-quarter loss of $69 million in the fourth quarter as it took a charge of $665 million related to low interest rates. It said the results were equivalent to a loss of five cents per share, compared with a profit of $1.79 billion, or 96 cents per share, a year ago.

Sun Life, like all insurers, has been struggling with “substantial declines” in equity markets, lower interest rates and the impact of an annual refinement of the company’s methods and assumptions for the red ink.

Sun Life announced earlier that it plans to set up a reserve fund, starting with the fourth-quarter report, to cover estimated losses from its hedging activities.

It also said the change in hedging accounting would reduce fourth-quarter profit by $500 million, if current market conditions are still in effect at the end of this year.

Sun Life employs about 16,000 people, including 7,000 in Canada, and has insurance, wealth management and mutual fund operations around the world.

Its shares were down four cents at US$20.85 in after-hours trading on the New York Stock Exchange.