Too early to tell about impact of coronavirus on businesses, say Sun Life and Manulife

Retailers, automakers, airliners and just about every company with some form of exposure to China has issued warnings about how the coronavirus may impact their businesses.

For Canada’s major insurers, both of which have sizable exposures to not only China, but Asia as a whole, it’s still too early to tell.

Both Manulife Financial Corp. and Sun Life Financial Inc. held their fourth-quarter earnings calls on Thursday and neither adjusted their outlook or said revenue would be materially impacted by the outbreak of the virus that has infected 60,000 people worldwide and killed more than 1,300.

What might separate the insurers from other businesses being hit by the virus, Sun Life chief financial officer Kevin Strain said, is that operations can still continue even if branches and offices are shut down.

“In both of our cases, we’re not manufacturing something and we don’t rely on people to be in a plant,” Strain told the Financial Post. “We’ve been able to have most of our staff work from home with virtually no interruption to the business.”

Sun Life, which generates 18 per cent of its profits from Asia, was forced to close its Wuhan branch in response to the outbreak. The company has more than 2,500 employees in mainland China and another 900 in Hong Kong. All of them are working from home.

Strain has viewed early sales numbers for January that show the virus predominantly impacting business in mainland China. While the company does expect slower sales and modestly higher claims, he stressed that it’s still to early to know the extent.

Sun Life provides investors with only a mid-term outlook for the next three to five years. The coronavirus, Strain said, hasn’t changed anything in that regard.

“We do continue to see Asia growing at 15 per cent plus over the medium term,” Strain said. “We’re not in a position to say that’s going to be different.”

The comments are really indicative of not knowing how things could turn out

Gabriel Dechaine, analyst, National Bank of Canada

Manulife, which derives 30 per cent of its profits from Asia, addressed the virus during the call only in response to questions from analysts. Chief financial officer Phil Witherington said the company did not have enough data points to assess the situation yet. The company has also been forced to close its office in Wuhan, but it makes up a small proportion of sales in China.

“It’s really hard to declare whether this is something that’s going to impact our momentum in our results or not,” Witherington said.

A Manulife spokesperson declined an interview request about the coronavirus’ potential impact, saying that the company couldn’t elaborate any further beyond what was said in its earnings call.

National Bank of Canada analyst Gabriel Dechaine said in an email that he doesn’t believe either one of the insurers is downplaying the virus’ potential effect.

“The comments are really indicative of not knowing how things could turn out, not only because it’s a highly unusual/unprecedented situation, but because the direct exposure to China is sort of small so they have to figure out the indirect impact on their Hong Kong and Other Asia business, which is more challenging,” said Dechaine, who explained they can still look at sales numbers, but that there’s a lag with claims.

Morningstar analyst Rajiv Bhatia said both companies are in wait-and-see mode. He wasn’t surprised that neither had cut the outlooks. Even if they report poor sales in Asia for their fourth quarters, Bhatia said most investors will give them a pass.

Manulife is one of JCIC Asset Management’s top Canadian equities holdings, vice-president Cameron Scrivens said.

The insurer missed on profit expectations in its first quarter due to slowing Asia growth, and the coronavirus will likely contribute to a further slowdown in the following three months, he said. There will be bumps in the road, but that doesn’t change how JCIC views the company.

“We take a longer-term view so we’re not looking at a multi-month holding period, we’re looking at a multi-year holding period and we think Manulife will continue to execute very well,” Scrivens said.

Manulife closed at $26.15 on Thursday, down almost two per cent, while Sun Life closed nearly flat at $65.27.

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