Sun Life shares sink after profit disappoints, warns of US challenges

Updates shares in paragraph 13, adds share milestone

By Nivedita Balu

TORONTO, Feb 13 (Reuters) - Sun Life Financial's SLF.TO shares fell as much as 10% on Thursday after the Canadian insurer reported quarterly profit below analysts' estimates and warned its U.S. business could face challenges in 2025.

The company said its U.S. business faced industry-related difficulties, resulting in higher claims related to cancer treatment or other severe conditions in its medical stop-loss business.

The medical stop-loss insurance protects employers from large claims that may exceed a set limit.

"What we saw was about the same number of claims that we would normally see, but we had a few really high claims," CEO Kevin Strain said in an interview.

"It could be coming out of COVID and the public health emergency where people weren't doing as many checkups as normal, and the conditions got more severe."

Strain said Sun Life would boost medical stop-loss insurance prices by about 2% to combat the higher number and severity of incoming claims.

Executives told analysts on an earnings call that they expect some financial impact on insurance claims could persist for a longer period.

The U.S. business, which contributes one-fifth of Sun Life's earnings, recorded a 39% decline in underlying net income in the fourth quarter.

Strain said he was optimistic about the U.S. business and sees opportunities for it to grow as its dental business, which Sun Life built through the acquisition of DentaQuest for $2.5 billion in 2022, is primarily related to Medicaid programs for children, an area the Trump administration has not targeted in its planned sweep of regulatory changes.

Sun Life, Canada's second-largest life insurer, earned C$1.68 ($1.17) per share, falling short of the average estimate of C$1.78 per share, according to data compiled by LSEG.

"One quarter certainly does not make a trend, but weaker results out of the U.S. in particular will feed into concerns," Scotiabank analyst Meny Grauman said in a note.

The earnings miss is the second for Sun Life in fiscal 2024, which was marked by a challenging time for its dental business in the United States.

Its shares were last down about 8% at C$78.4 in Toronto and hit their lowest price since September 2024.