08/01/2012 08:38 EDT | Updated 10/01/2012 05:12 EDT

Great West Life second-quarter profits slide, but beat Street expectations

WINNIPEG - Canada's second-largest insurer, Great-West Lifeco Inc. (TSX:GWO) is reporting second-quarter profits that slipped from strong year ago earnings, but managed to turn in what one analyst called "impressive results" that beat Street expectations by three cents per share.

The Winnipeg-based insurance giant said Wednesday that net earnings attributable to common shareholders fell to $491 million, or 51 cents per diluted share during the quarter, largely due to a decline in profit at its U.S. and Canadian operations.

That fell from a profit of $526 million, or 55 cents per share, during the same quarter of 2011.

The average analyst estimate had been for earnings of 48 cents per share, according to Thomson Reuters.

Barclay's analyst John Aiken called the results impressive and noted that market factors — including weak stock markets and low interest rates — hit the company by $97 million.

Aiken added he believes the earnings will outshine those of its peers Sun Life (TSX:SLF) and Manulife (TSX:MFC) when they report results next week.

"Great-West reported another solid quarter with strong profitability, limited impact from market factors and measurable growth among several of its business lines," he wrote in a note to investors.

"While Great-West's absolute valuation may be constrained by overall sentiment against the sector, we believe that its near-term earnings and profitability will continue to stand out against its peers."

Revenue rose to $7.8 billion from $7.1 billion in the year earlier quarter.

However, the company also paid out more to policyholders, with $5.98 billion paid out or credited during the quarter, compared to $5.3 billion in the year earlier.

Changes in insurance and investment contract liabilities also hit the insurer more than in the year-ago quarter, up to $1.67 billion from $1.23 billion.

During the quarter, the company got a $47-million boost from the conclusion of "income tax matters," while the second quarter of 2011 included a $55 million release from a legal provision.

Canadian earnings fell to $254 million from $262 million in the second quarter of 2011. Total sales were $2.1 billion, down slightly from $2.2 billion in the quarter of 2011.

Canadian individual product sales rose eight per cent and group sales were up 58 per cent compared to the second quarter of 2011.

In the U.S., earnings slipped to $86 million from $128 million in the second quarter of 2011, which included the $55 million release of a legal provision from the settlement of a lawsuit.

Sales in U.S. financial services were up to US$2 billion from US$1.5 billion in the second quarter of 2011, reflecting strong sales in both the individual and retirement services business.

Meanwhile, in Europe, earnings rose to $160 million from $147 million in the quarter last year. Earnings this quarter included the impact of the strengthening of reinvestment risk margins of $39 million and a $25-million boost from the conclusion of income tax matters. European sales for the second quarter of 2012 were $828 million, falling from $876 million in 2011.

In the company's corporate segment, it booked a loss of $9 million, narrowing an $11-million loss from a year ago.

Great-West Lifeco is an international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses.

Its consolidated net earnings include the profits of several companies including The Great-West Life Assurance Company, Canada Life Financial Corp., London Life Insurance Co. and Putnam Investments LLC.

Great-West has operations in Canada, the United States, Europe and Asia.

Shares in the company, which reported its results after the close of markets, were down 42 cents, or almost two per cent, to close at $21.26 on the Toronto Stock Exchange on Wednesday.