Sun Life Financial’s second quarter results were down due to unfavourable morbidity experience in group benefits, exemplified by an increase in long-term disability cases in its North American business.

In a transcript of a telephone conference for analysts, Sun Life Financial blamed its morbidity experience for the reduction in its net income, down 16% from $706 million in Q2 2018 to $595 million in Q2 2019: https://insurance-portal.ca/article/sun-life-reports-lower-net-income-in-q2/

According to Kevin Strain, the company’s chief financial officer & executive vice president, the quarter had begun well, with high expectations. As result of positive expense, credit, and lapse experience, the underlying return had looked good.

But these positive results were offset by unfavourable experiences, including that of morbidity in Canada’s group insurance business. A higher morbidity rate means more accidents and sickness, resulting in more disability and a negative impact on group insurance. U.S. group insurance activities also suffered from unfavourable morbidity experience. “We’re working hard on improving the disability experience in Canada,” explained Dean Connor, Sun Life’s president and CEO.

Improving the disability experience

And there’s a lot of work to be done. Kevin Morrissey, Sun Life’s senior vice president & chief actuary, revealed that, in Canada’s group benefits market, the incidence of long-term disability had worsened.

Jacques Goulet, president of Sun Life Financial Canada, confirmed Morrissey’s words about the increased incidence of disability in Q2 2019 in Canada’s group insurance business over the same period a year earlier. “The data we’re looking at right now is showing that what is happening is an increase in the volume of disability cases in the group business. And we’re seeing that both in our own data as well as data that is provided by reinsurers on the industry-wide basis,” noted Goulet.

Goulet added that group insurance is short term, so the company can re-price it over relatively short periods of time. “We’ve already taken action in some parts of the portfolio where we thought that this would be appropriate,” he explained.

Volatile morbidity in the U.S.

Connor said that, after being unfavourable in the second quarter, U.S. stop-loss morbidity experience should revert closer to the mean. “And we hope the improvement in U.S. disability experience will continue,” he added. Stop-loss insurance limits the risk to employers that self-insure. After a specific amount, claims are handled by the insurer.

Analysts questioned Sun Life regarding the impact of morbidity on the profitability of certain U.S. activities. Daniel Richard Fishbein, president of Sun Life Financial U.S., acknowledged that morbidity experience had been somewhat volatile – favourable in the first quarter and unfavourable in the second. “You’re dealing with a relatively small number of large events. So, by nature, quarter-to-quarter, there will likely be some volatility there,” he explained, adding that, on a year-to-date basis, the company still had significantly favorable morbidity in the stop-loss business.

Fishbein also explained that the company paid close attention to the pricing of group insurance products, noting the exceptional sales posted in the first quarter, up 22% over the same quarter in 2018. Closely tracking other metrics points to the company’s pricing being strong and sufficient, he said, concluding that increased sales are linked more to the quality of the company’s offer than to low prices.