TORONTO 鈥� Sun Life Financial Inc.'s share price was under pressure Thursday after the insurance giant reported a big earnings miss driven by various factors including claims headwinds in its U.S. division.
Shares were down more than 10 per cent early on in the trading day before closing lower by $6.18, or 7.3 per cent, at $78.45 on the Toronto Stock Exchange.
The insurance giant took a hit after reporting earnings of 41 cents per share, well off the $1.69 per share expected by analysts according to LSEG Data & Analytics.
Adjusted earnings to remove a writedown, currency effects and other pressures left earnings at $1.68 per share, still below analysts' adjusted expectations of $1.78 per share.
"You did see a tough quarter, and we're not trying to walk that back," said chief executive Kevin Strain to analysts on an earnings call Thursday.
"But the underlying fundamentals remain strong."
Sun Life said underlying earnings in its U.S. division were down 39 per cent from last year to US$115 million, mostly because of a spike in the severity of claims.
While the volume of claims wasn't so much an issue, how costly they were was. The main challenge was with stop-loss claims, which kick in once costs become severe enough to pass a threshold that's US$150,000 or even US$300,000, said Dan Fishbein, president of Sun Life's U.S. division.
"These are very severe medical claims," he said.
"Some of this increase in severity was not fully expected."
Sun Life has been anticipating an increase in claims following a pandemic-induced decline, but three main factors are causing the jump, said Fishbein.
Higher cancer claims is one, both from people who didn't get routine screenings during the pandemic so their cases are more advanced, and from higher use of very expensive new cancer drugs.
Also contributing is a significant increase in premature births and neonatal care, said Fishbein, both from a higher number of births and as the age of parents continues to rise.
Finally, hospitals are raising prices after losing pandemic-related financial supports.
"Those are three factors we think are primarily driving the severity, and you know, those factors are likely persistent."
Sun Life did anticipate rising claims so it pushed through a roughly 14 per cent price increase as plans renewed at the start of 2025, but it said it expects to have to raise prices more.
Elsewhere in Sun Life's operations, the insurer said it had taken a $186 million impairment in Vietnam after years of weakness in the insurance industry that it thinks has bottomed out.
Market-related factors also resulted in a $179 million drop in net income, mostly from interest rate impacts and real estate returns.
Scotiabank analyst Meny Grauman said the results of the quarter have likely revived worries about Sun Life's U.S. division.
"One quarter certainly does not make a trend, but weaker results out of the U.S. in particular will feed into concerns about this business that weighed on the shares earlier in the year even as the source of that weakness is now different."
This report by The Canadian Press was first published Feb. 13, 2025.
Companies in this story: (TSX:SLF)
Ian Bickis, The Canadian Press
