Desjardins Securities Analyst: Expect Poor Results From Canadian Lifecos

Investors can expect “awful” results from Canadian life insurance companies across the board after Sun Life Inc. (SLF) led the pack and this week announced its first loss since going public, according to Michael Goldberg of Desjardins Securities.

The analyst said that on top of heavy credit losses linked to the collapse of leading Wall Street institutions, insurers were also counting the cost of a slump in equity markets.

Canadian insurers are more sensitive to stock market falls than their American peers or Bay Street banks because of the composition and structure of their investments.

U.S. insurers have borne more of the brunt of the deterioration in credit portfolios over the past year, and seen their share prices plunge. But now it is the turn of Canadian insurers, who are being hit by stock market falls because of their greater exposure to equity markets, according to Mr. Goldberg.

The analyst said:

Stock market activity not only affects their performance, it is also one of the most important drivers affecting their shorter term financial results.

Yet Mr. Goldberg still sees compelling long-term value in Canadian life insurers at today’s depressed prices and forecasts a turn-round in earnings in future years.

But he says the immediate outlook for this quarter is darkened by volatility in stock markets and an expected fall off in popular demand for the financial products that insurers sell. 
 
“We expect subdued sales to continue for the remainder of the year,” said Mr. Goldberg.