The Sun Life Financial Inc. logo is displayed during the company's annual general meeting in Toronto on May 6, 2015. (Photo: THE CANADIAN PRESS/Chris Young)
Sun Life Financial Inc. faced a sharp decline in its share price on Thursday after missing earnings expectations, largely due to challenges in its U.S. division. The insurance giant’s stock initially dropped over 10% during trading before closing at $78.45, down $6.18 or 7.3% on the Toronto Stock Exchange.
Earnings Miss and Market Reaction
Sun Life reported earnings of 41 cents per share, significantly lower than analysts' expectations of $1.69 per share, as per LSEG Data & Analytics. Even after adjustments for writedowns, currency fluctuations, and other pressures, the earnings stood at $1.68 per share—still below the projected $1.78 per share.
CEO Kevin Strain acknowledged the tough quarter but reassured investors that the company’s core business remains strong.
Rising Costs in U.S. Division Weigh on Profits
A major reason for the earnings shortfall was a 39% drop in underlying earnings from Sun Life’s U.S. segment, which fell to $115 million. The decline wasn’t due to an increase in the number of claims but rather their severity.
Dan Fishbein, president of Sun Life’s U.S. operations, highlighted that stop-loss claims—where insurance kicks in after medical costs exceed a high threshold—were unexpectedly high. Some claims reached between $150,000 to $300,000, straining the company’s resources.
"We anticipated an increase in claims post-pandemic, but the severity was beyond what we expected," Fishbein said.
Why Are Claims More Expensive?
Several factors contributed to rising claim costs:
- Higher Cancer Cases: Many patients delayed routine screenings during the pandemic, leading to more advanced and expensive treatments. Additionally, new cancer drugs have significantly increased costs.
- More Premature Births: Rising birth rates and the increasing age of parents have led to more complicated and costly neonatal care.
- Hospital Price Hikes: Healthcare facilities are charging more as they lose pandemic-era financial assistance.
Fishbein noted that these trends are likely to persist, keeping claims costs elevated.
Sun Life Plans Price Increases to Offset Losses
To counteract rising claim expenses, Sun Life raised prices by about 14% on its U.S. insurance plans at the start of 2025. However, the company anticipates further hikes may be necessary to maintain profitability.
Other Financial Challenges
Beyond the U.S. segment, Sun Life faced additional setbacks. The company took a $186 million impairment in Vietnam due to prolonged weakness in the local insurance market. Market conditions also led to a $179 million decline in net income, largely from fluctuations in interest rates and real estate returns.
Analysts Weigh In
Scotiabank analyst Meny Grauman noted that this weak quarter has reignited concerns about Sun Life’s U.S. division. While a single quarter doesn't define a long-term trend, continued underperformance in this segment could weigh on investor confidence.
