Insurers battle low rates, volatile markets in fourth quarter

Great-West announced the increase in its quarterly dividend to 32.6 cents per share even as net profits in the latest period ended Dec. 31 declined to $657 million or 65.8 cents per share from $717 million or 71.7 per share a year ago.

However, the year-ago results included a one-time gain of $226 million after-tax. Excluding the litigation recovery in 2013, earnings were up 34 per cent.

Meanwhile, assets under administration totalled $1.1 trillion at the end of 2014, up 40 per cent from the end of 2013

For the full year, net earnings attributable to common shareholders were $2.55 billion or $2.55 per common share, up 24 per cent from $2.28 billion or $2.34 per share in 2013.

On Wednesday, Sun Life Financial Inc. (TSX:SLF) reported after the markets closed that fourth-quarter net income dropped to $502 million or 81 cents per diluted share from $550 million or 90 cents in the same 2013 period due to higher gross claims and benefit payments and an increase in insurance contract liabilities.

The Toronto-based insurance and wealth management company said despite the decline, revenues were strong and it remained on track to meet 2015 earnings objectives.

“This was a relatively noisy quarter that capped off what has otherwise been a good year,” Sun Life’s chief financial officer, Colm Freyne, said in an analyst call Thursday.

“We continue to operate in a challenging environment categorized by volatility and persistently low interest rates.”

Freyne told analysts that Sun Life has long been preparing for the drop in interest rates.

“While there has been a recent focus on declining interest rates, we have been managing through this paradigm for a number of years,” he said.

“We’ve been active in reducing our exposure to higher risk businesses. We’ve modified a number of products in terms of pricing and design. And finally, we’ve increased the amount of hedging in our risk-sensitive business.”

For the full year, Sun Life reported net income of $1.76 billion or $2.86 per diluted share, up from $942 million or $1.55 per share on total for all of 2013, when the company booked a loss of $754 million or $1.23 per share on discontinued operations. Assets under management rose 15 per cent to a record $734.4 billion from $639.8 billion at the end of 2013.

Barclays analyst John Aiken doesn’t expect the disappointing quarter to generate “significant sustainable weakness” in the company’s valuation.

“Though the quarter was unimpressive in almost every operating segment, focus will likely reside on the robust sales levels and the issues in the quarter will likely be considered transitory,” he wrote in a note.

Meanwhile, Manulife Financial Corp. (TSX:MFC) said despite a “strong year” it also earned a lower profit in the fourth quarter, and cautioned that it will continue to face headwinds in 2015.

The insurance company said the $640 million profit amounted to 33 cents per diluted share for the quarter compared with a profit of $1.3 billion or 68 cents per diluted share a year earlier.

Manulife said core earnings amounted to 36 cents per diluted share, a penny better than the 35 cents it posted a year ago.

“In the fourth quarter, we continued the very strong momentum in life insurance sales and delivered record assets under management,” chief executive Donald Guloien said in a statement.

“But core earnings, due to a variety of experience factors, were below our plan. Also, the macro environment, including low interest rates, produces headwinds for 2015.”

For the full year, Manulife said it earned $3.5 billion or $1.80 per diluted share compared with $3.13 billion or $1.62 per share in 2013. Core earnings for 2014 amounted to $1.48 per diluted share, up from $1.34 a year earlier.