Thursday, February 12, 2009

Canadian insurers outperform American peers

Andrew Willis in the Globe & Mail Streetwise:

As ugly as the numbers are for the Canadian life insurers, the home side looks good Thursday compared with the carnage that continues to play out among U.S. insurance companies.

Sun Life Financial and Manulife Financial posted large quarterly losses on Thursday, but also revealed relatively strong balance sheets, with more than enough capital to satisfy regulators and fund acquistions.

Storied Hartford Financial Services, on the other hand, faces a new and potentially serious financial issue. The 199-year-old U.S. insurer's woes are significant because Hartford is widely seen as a takeover target for well-capitalized Canadian companies.

Hartford shares are down 8 per cent early Thursday after the company was, in Bloomberg's words, “ousted from the federal program that buys short-term debt.”

Hartford lost government support in the wake of a ratings downgrade, and the company revealed Thursday in its annual report that it must repay $375-million (U.S.) in commercial paper “from existing sources of liquidity.” Bloomberg quotes the insurer as saying: “Future deterioration of our capital position at a time when we are unable to access the commercial paper markets due to prevailing market conditions could have a material adverse effect on our liquidity.”

Hartford has a $4-billion market capitalization, which means the company is small enough for any of the largest Canadian insurers to swallow. The risk, obviously, is that Hartford has problems in its portfolios that have yet to surface. In the past year, Hartford stock price fell 81 per cent.

Manulife, which sports a $30-billion (Canadian) market capitalization, has seen its stock drop 48 per cent over the past 12 months, while Sun Life, with a $12-billion capitalization, is down 53 per cent. On a relative basis, the Canadian life insurers are outperforming American peers.

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