Although a large portion of global growth in the insurance market is expected from Asia, Sun Life Financial Inc. (NYSE:SLF) has not written off the Canadian market. It desires to establish itself as the numero uno of the Canadian insurance market, which was originally a part of its four stream strategy.
According to a recent report published by global advisory firm Ernst & Young, the Canadian life insurance market was severely challenged by the macroeconomic environment and regulatory challenges. However, only those firms are expected to succeed that creatively adjust its products, business strategies and services to position itself for growth and profitability in a highly competitive environment characterized by lower margins and changing demographics.
Competitive landscape
Sun Life’s major competitors are Manulife Financial Corporation (USA) (NYSE:MFC) and American International Group Inc (NYSE:AIG).
Manulife reported a strong 2012, as the insurance and wealth businesses grew 49% and 30% respectively. This enabled the company to beat analyst estimates and record earnings of $0.56 per share. The company experienced a huge surge in demand for its products in Asia, the US and Canada. With high volatility in equity markets, the company did well with its present hedging program, reducing market sensitivities to 19%.
Moving forward with continued focus on the Asian markets and reducing sensitivity to foreign exchange, interest rates, and stock market fluctuations, the company looks set for a steady 2013.
Sun Life Financial Inc. (NYSE:SLF) also competes with AIG, although the latter is a much larger insurance company in terms of market capitalization and revenues. Nevertheless, both companies offer similar services to potential clients.
AIG generates the highest percentage of its revenues through property and casualty insurance at around 61%, which is followed by life and retirement plans at around 24%. The remaining revenues are generated through direct investments.
Property and casualty insurance premiums through Asia-Pacific account for 33% of premiums earned from this particular service. During 2012, AIG generated $11 billion in revenues through this division from the Asia-Pacific region.
According to the projections offered by Trefis, revenues from this division are expected to surpass $20 billion by the end of 2020. However, if the company fails to exceed the $20 billion mark, resulting in property and casualty investment assets remaining under the $200 billion mark, subsequently there may be a strong downside to AIG’s stock. With several insurance companies relying on Asia-Pacific to report consistent growth, it becomes imperative for potential investors to follow the Asian markets closely.
Why invest in Sun Life Financial ?
Sun Life Financial Inc. (NYSE:SLF) is presently focused on achieving its four stream strategic objectives and reducing its riskier business operations in the U.S. Furthermore, as the global economic environment improves and interest rates move up, the company is expected to achieve its target earnings and market share sooner than later.
With the global insurance market set to grow rapidly and keeping in mind the company’s four point plan of action, I keep a bullish view on this stock and consider it a worthwhile long term investment.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.
The article Sun Life Financial’s Global Expansion Plan originally appeared on Fool.com.
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