Canaccord Talks Canadian Insurance Companies

Gabriel Dechaine of Canaccord Genuity offers insight on his top-rated Canadian-based insurance companies ahead of earnings. For the overall sector, Dechaine notes that “long bond yields in the U.S. and Canada fell 20 to 35 bps. Equity markets were generally positive, with a rise in Canadian equity and Global equity markets being tempered by flat S&P performance.”

Gabriel Dechaine has an 83 percent overall success rate recommending stocks with a +7.5 percent average return per rating.

Here are two of Dechaine’s industry highlights:

Sun Life Financial Inc SLF

Sun Life Financial will be posting first quarter results on May 5. Dechaine is forecasting a 10 percent year-over-year increase in earnings per share, but warns that “the earnings picture likely will be less rosy due to the mixed macro environment.” In the last quarter, SLF reported a $64 million loss, which was a driving factor in missing EPS guidance. In full-year 2014, SLF’s gross sales decreased by 14 percent and net sales decreased by 95 percent.

SLF told investors it will turn its funds around by launching “Fixed Income funds in its Institutional product portfolio.” Dechaine added that SLF is “undertaking a re-pricing of this business, and expects roughly half of the book to deliver improved margins by 2016.” On the bright side, earnings from SLF’s market in Asia increased 16% in 2014 and now account for about 10 percent of total operating profits. Dechaine notes that SLF’s Asia business is “worthy of investor attention.”

Dechaine has a Buy rating on Sun Life Financial with a $44 price target. He has only rated SLF once, earning a +4.3 percent return on the recommendation.

Manulife Financial Corporation (USA) MFC

In the next earnings report, Dechaine is focusing on “the impact of low rates on expected profits” and “mark-to-market investment losses on MFC’s $2.2 billion oil & gas portfolio.” In addition, Dechaine notes that low oil prices caused MFC to record “investment losses of ~$350 million on its $2.2 billion oil & gas portfolio” in the last quarter.

For the current quarter, Dechaine is forecasting a $100 million investment loss in this portfolio.

Furthermore, Dechaine provided an update for MFC’s Efficiency and Effectiveness program, noting that it has “achieved $200 million of annual run rate savings, net of reinvestment in the business.” However, Dechaine will be looking to see “how much of this amount is currently reflected in the company’s earnings, which will provide an indication of how much is ‘back end loaded’ to 2016.”

Dechaine has a Buy rating on Manulife Financial Corp with a $44 price target. He has rated the company four times since May 2013, earning 100 percent success rate recommending the stock with a +11.9 percent average return per MFC rating.