2017-02-16

It’s too soon to say whether corporate tax rates will fall in the United States, but if Donald Trump’s election promise of tax reform comes to fruition during his administration, it will be good news for Toronto-based insurer Sun Life Financial Inc.

“We do pay a lot of corporate tax in the U.S. … If those rates move down, there’ll be a real benefit,” Sun Life chief executive Dean Connor told the Financial Post on Thursday. “If it happens, when it happens, it’ll be positive.”

Higher interest rates and a more buoyant economy would also help the life insurer, as low rates put pressure on meeting long-term obligations and can depress profitability.

Another small positive in the offing for Sun Life under the Trump presidency is the potential scrapping of a plan to significantly expand circumstances in which broker-dealers and investment advisers are deemed fiduciaries to their clients. This designation would affect the types of financial products the clients could be offered.

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“They’d be less inclined to change their investment (product) lineup” if their designation does not change, Connor said, adding that the impact on Sun Life would be positive but very small, akin to a “rounding error.”

Sun Life’s shares declined by more than four per cent in mid-day trading Thursday, to just over $50 on the Toronto Stock Exchange, after the insurer reported fourth quarter financial results that fell short of analyst expectations.

“A miss against expectations is a bit of a surprise for Sun Life as investors have become accustomed to strong results in recent quarters,” John Aiken, an analyst at Barclays Capital, said in a note to clients.

He noted that Sun Life’s asset management operations, particularly global asset manager MFS, continued to struggle with redemptions in a trend facing the broader industry.

“Admittedly, expectations were high heading into the quarter based on Sun’s recent track record and exceptional third quarter results,” Aiken wrote, adding that the were some positives, notably sales levels and the value of new business.

Sun Life, which has insurance and wealth management operations in Canada, the U.S., and Asia, posted core earnings of $560 million (91 cent a share) in the fourth quarter, which ended Dec. 31. This was below the consensus analyst estimate of 97 cents a share, according to Aiken.

Sun Life reported core earnings of $646 million ($1.05) in the corresponding period a year ago.

In an interview, Connor said investments Sun Life has made over the past few years, organically and to fund acquisitions, should pay off in the coming months and years.

“We run the company thinking for the medium to long-term,” he said. “We feel very good about our prospects.”

On a conference call Thursday, Sun Life executives told analysts they are still analyzing the impact of a new risk-based capital measurement regime for life insurers that comes into effect at the beginning of 2018.

The Life Insurance Capital Adequacy Test (LICAT), developed by the federal Office of the Superintendent of Financial Institutions (OSFI), is intended to capture risks that weren’t adequately reflected in capital measures under the existing guidelines.

Financial Post

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