TORONTO, Aug. 5, 2015 /CNW/ - Sun Life Financial Inc.
(TSX: SLF) (NYSE: SLF)
The information contained in this document concerning the second
quarter of 2015 is based on the unaudited interim financial results
of Sun Life Financial Inc. for the period ended June 30, 2015. Sun Life Financial Inc., and
its subsidiaries and joint ventures, are collectively referred to
as "the Company", "Sun Life Financial", "we", "our", and "us".
Unless otherwise noted, all amounts are in Canadian dollars.
Second Quarter 2015 Financial Highlights
- Operating net income(1) of $731 million or $1.19 per share(1)(2), compared to
$488 million or $0.80 per share in the second quarter of 2014.
Reported net income of $726 million
or $1.18 per share, compared to
$425 million or $0.69 per share in the same period last year
-
- Underlying net income(1) of $615 million or $1.00 per share(1)(2) in the second
quarter of 2015, compared to $499
million or $0.81 per share in
the second quarter of 2014
- Operating return on equity(1) ("ROE") of 16.5% and
underlying ROE(1) of 13.9% in the second quarter of
2015, compared to operating ROE of 12.6% and underlying ROE of
12.9% in the same period last year
- Quarterly dividend declared of $0.38 per share
- Minimum Continuing Capital and Surplus Requirements ratio for
Sun Life Assurance Company of Canada of 223%
"We are pleased to report a strong quarter, driven by excellent
execution across all four growth pillars," said Dean Connor, President and Chief Executive
Officer, Sun Life Financial. "We achieved strong results in our
Canadian business, delivered good results in MFS, continued
Asia's steep growth trajectory,
and made good progress in the U.S. Our insurance sales increased by
8% and wealth sales by 25% over the second quarter of 2014. In
addition to business momentum, we also benefited from market
impacts, particularly from interest rates and currency."
"During the quarter, we expanded and diversified our asset
management pillar by announcing our acquisitions of Bentall Kennedy
and Prime Advisors, and completing the acquisition of Ryan Labs," Connor said. "Once completed, these
acquisitions will be a part of Sun Life Investment Management, and
will increase its third-party assets under management to
approximately $50 billion, based on
June 30 information."
"SLF Canada delivered strong underlying net income, led by Group
Benefits," Connor said. "Insurance sales grew by 22% and wealth
sales grew by 61%."
"MFS's assets under management of US$440
billion and solid margins of 40% contributed to underlying
net income of US$141 million, up 6%
from the same quarter in the prior year."
"Our business momentum continues in Asia, achieving a ninth consecutive quarter of
growth, with underlying net income of $71
million this quarter."
"SLF U.S. delivered another quarter of improvement in Group
Benefits business profitability."
__________ |
(1) |
Operating net income (loss) and financial information based on
operating net income (loss), such as operating earnings (loss) per
share, operating ROE, underlying net income (loss), underlying
earnings (loss) per share and underlying ROE, are not based on
International Financial Reporting Standards. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(2) |
All earnings per share ("EPS") measures refer to fully diluted
EPS, unless otherwise stated. |
Reported net income was $726
million in the second quarter of 2015, compared to reported
net income of $425 million in the
same period last year. The following table sets out our operating
net income and underlying net income for the second quarter of 2015
and 2014.
($ millions, after-tax) |
Q2'15 |
Q2'14 |
Operating net income |
731 |
488 |
|
Market related impacts |
97 |
(22) |
|
Assumption changes and management actions |
19 |
11 |
Underlying net income |
615 |
499 |
The Board of Directors of Sun Life Financial Inc. today declared
a quarterly shareholder dividend of $0.38 per common share.
Operational Highlights
Our strategy is focused on four key pillars of growth. We detail
our continued progress against these pillars below.
Leader in financial protection and wealth solutions in our
Canadian home market
Individual insurance sales in Canada increased to $85
million, up by 13% from the second quarter of 2014, driven
by growth in both third-party and Career Sales Force sales.
Individual wealth sales increased by 23% to $1.3 billion, driven primarily by growth in
mutual funds, partially offset by a decrease in the sales of
guaranteed and fixed income products. During the quarter, we
enhanced our retail wealth platform, with the launch of our new
segregated products, Sun Life Guaranteed Investment Funds.
Sun Life Global Investments (Canada) Inc. ("SLGI") continued its strong
momentum with an 86% increase in retail mutual fund sales over the
second quarter of 2014. All SLGI Granite target risk funds were
above their respective benchmarks over a three-year period.
Group Benefits sales in Canada
increased to $102 million, up 31%
from the second quarter of 2014 due to higher sales in the large
case market segment. Further, the claim trends in disability
improved in the second quarter. Group Benefits was ranked the #1
provider of employee benefit group insurance products in
Canada for the sixth consecutive
year in the Fraser Group, 2015 Group Universe Report as
measured by 2014 revenue.
Group Retirement Services had sales of $3.5 billion which increased by 83% compared to
the second quarter of 2014, mainly driven by a $2 billion mandate from the University of British Columbia pension plan, the
largest Defined Contribution asset transfer ever completed in
Canada. The increase was also due
to pension rollover sales and Defined Benefit Solutions sales.
Premier global asset manager, anchored by MFS
We announced the acquisition of Bentall Kennedy during the quarter
which is subject to customary closing conditions. In addition, we
completed the acquisition of Ryan Labs Asset Management Inc. ("Ryan
Labs") on April 2, 2015 and the
acquisition of Prime Advisors, Inc. ("Prime"), subsequent to the
quarter on July 31, 2015.
Ryan Labs and Prime add expertise in
customized fixed income portfolio management for pension funds and
insurance companies. Bentall Kennedy, a premier real estate manager
in Canada and the U.S., deepens
and extends our real estate capabilities.
These acquisitions will expand Sun Life Investment Management
("SLIM"), whose goal is to offer institutional investors across
North America a spectrum of
capabilities, ranging from liability-driven investment strategies
to alternative, yield-oriented assets in private markets. SLIM
complements MFS, our established asset manager of retail and
institutional products which focuses on generating superior
investment returns in public markets. Together, MFS and SLIM
position us to benefit from the growth in traditional active asset
management as well as the trends toward liability-driven investing
and alternative asset classes.
The total third-party assets under management ("AUM") of Sun
Life Investment Management Inc. and Ryan
Labs was $8.1 billion as at
June 30, 2015 and gross sales for the
second quarter of 2015 were $619
million.
MFS Investment Management ("MFS") AUM of US$440 billion at the end of June 30, 2015 declined slightly compared to the
first quarter of 2015 with net outflows in the quarter of
US$1.8 billion. Positive retail net
inflows were more than offset by institutional net outflows.
MFS's long-term retail fund performance remains strong with 82%,
88%, and 97% of MFS's mutual fund assets ranked in the top half of
their Lipper categories based on three-, five-, and ten-year
performance, respectively, as of the second quarter of 2015.
Global AUM were $808 billion at
the end of June 30, 2015.
Leader in U.S. group benefits and International high net
worth solutions
Group Benefits in the U.S. continued to execute well, with earnings
growth from investments in claims management, pricing actions, and
expense management. Sales were down compared to the second quarter
of 2014 given a more selective approach to pricing. The new Center
for Healthy Work, in Scarborough,
Maine, opened during the quarter, which will be a centre of
excellence for disability claims management.
Our U.S. stop-loss insurance business achieved good results,
maintaining its sales compared to the second quarter of 2014 and
achieving 12% growth in business in-force over the second quarter
of 2014 to US$1.0 billion.
The International business continues to realign product,
marketing and distribution to create focus on select regions,
distributors and customer segments.
Growing Asia through
distribution excellence in higher growth markets
SLF Asia continued its steep growth trajectory. Individual
insurance sales were up largely driven by agency sales in
the Philippines and Indonesia, as well as bancassurance sales in
Malaysia, partially offset by
lower sales in India, China, and Hong
Kong. Wealth sales grew compared to the second quarter of
2014 with strong mutual fund sales in India and strong Mandatory Provident Fund
sales in Hong Kong.
We continued to invest in our brand in Asia and are pleased to be among the top six
insurance companies in the 2015 list of Asia's Top 1000 Brands from media research
firm Nielsen and marketing authority Campaign Asia-Pacific. We
improved our placement more than any of our peers in the insurance
category, and notably at an individual market level, we achieved an
improved position in the rankings in all seven of the markets where
we have operations.
How We Report Our Results
Sun Life Financial Inc. ("SLF Inc."), and its subsidiaries and
joint ventures, are collectively referred to as "the Company", "Sun
Life Financial", "we", "our", and "us". We manage our operations
and report our financial results in five business segments: Sun
Life Financial Canada ("SLF Canada"), Sun Life Financial United
States ("SLF U.S."), MFS Investment Management ("MFS"), Sun Life
Financial Asia ("SLF Asia"), and Corporate. Our Corporate segment
includes the operations of our United
Kingdom business unit ("SLF U.K.") and Corporate Support
operations. Our Corporate Support operations includes our Run-off
reinsurance business and investment income, expenses, capital and
other items not allocated to other business segments. Information
concerning these segments is included in our annual and interim
consolidated financial statements and accompanying notes ("Annual
Consolidated Financial Statements" and "Interim Consolidated
Financial Statements", respectively). We prepare our unaudited
Interim Consolidated Financial Statements using International
Financial Reporting Standards ("IFRS"), and in accordance with the
International Accounting Standard ("IAS") 34 Interim Financial
Reporting. The information contained in this document is in
Canadian dollars unless otherwise noted.
Use of Non-IFRS Financial Measures
We report certain financial information using non-IFRS financial
measures, as we believe that these measures provide information
that is useful to investors in understanding our performance and
facilitate a comparison of our quarterly and full year results from
period to period. These non-IFRS financial measures do not have any
standardized meaning and may not be comparable with similar
measures used by other companies. For certain non-IFRS financial
measures, there are no directly comparable amounts under IFRS.
These non-IFRS financial measures should not be viewed as
alternatives to measures of financial performance determined in
accordance with IFRS. Additional information concerning these
non-IFRS financial measures and reconciliations to the closest IFRS
measures are included in our annual and interim management's
discussion and analysis ("MD&A") and the Supplementary
Financial Information packages that are available on
www.sunlife.com under Investors - Financial results & reports.
Reconciliations to IFRS measures are also available in this
document under the heading Reconciliation of Non-IFRS Financial
Measures.
Operating net income (loss) and financial measures based on
operating net income (loss), consisting of operating earnings per
share ("EPS") or operating loss per share, and operating return on
equity ("ROE"), are non-IFRS financial measures. Operating net
income (loss) excludes from reported net income the impact of the
following amounts that are not operational or ongoing in nature to
assist investors in understanding our business performance: (i)
certain hedges in SLF Canada that do not qualify for hedge
accounting; (ii) fair value adjustments on share-based payment
awards at MFS; (iii) the loss on the sale of our U.S. Annuity
Business(1); (iv) the impact of assumption changes and
management actions related to the sale of our U.S. Annuity
Business(1); (v) restructuring and other related costs
(including impacts related to the sale of our U.S. Annuity
Business(1)); (vi) goodwill and intangible asset
impairment charges; and (vii) other items that are not operational
or ongoing in nature. Operating EPS also excludes the dilutive
impact of convertible instruments.
Underlying net income (loss) and financial measures based on
underlying net income (loss), consisting of underlying EPS or
underlying loss per share, and underlying ROE, are non-IFRS
financial measures. Underlying net income (loss) removes from
operating net income (loss) the impact of the following items that
create volatility in our results under IFRS and when removed assist
in explaining our results from period to period: (a) market related
impacts; (b) assumption changes and management actions; and (c)
other items that have not been treated as adjustments to operating
net income and when removed assist in explaining our results from
period to period. Market related impacts include: (i) the impact of
changes in interest rates that differ from our best estimate
assumptions in the reporting period on investment returns and the
value of derivative instruments used in our hedging programs,
including changes in credit and swap spreads, and any changes to
the assumed fixed income reinvestment rates in determining the
actuarial liabilities; (ii) the impact of changes in equity
markets, net of hedging, above or below our best estimate
assumptions of approximately 2% growth per quarter in the reporting
period and of basis risk inherent in our hedging program for
products that provide benefit guarantees; and (iii) the impact of
changes in the fair value of real estate properties in the
reporting period. Additional information regarding these
adjustments is available in the footnotes to the table included
under the heading Q2 2015 vs. Q2 2014 in the Financial Summary
section in this document. Assumption changes reflect the impact of
revisions to the assumptions used in determining our liabilities
for insurance contracts and investment contracts. The impact on our
liabilities for insurance contracts and investment contracts of
actions taken by management in the current reporting period,
referred to as management actions include, for example, changes in
the prices of in-force products, new or revised reinsurance on
in-force business, or material changes to investment policies for
asset segments supporting our liabilities. Underlying EPS also
excludes the dilutive impact of convertible instruments.
Other non-IFRS financial measures that we use include adjusted
revenue, administrative services only ("ASO"), premium and deposit
equivalents, mutual fund assets and sales, managed fund assets and
sales, premiums and deposits, adjusted premiums and deposits,
assets under management ("AUM") and assets under administration,
and effective income tax rate on an operating net income basis.
Unless indicated otherwise, all factors discussed in this
document that impact our results are applicable to reported net
income (loss), operating net income (loss), and underlying net
income (loss). Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with IFRS.
Reported net income (loss), operating net income (loss) including
adjustments, underlying net income (loss) including adjustments,
and net income and other comprehensive income ("OCI") sensitivities
are expressed on an after-tax basis unless otherwise noted.
All EPS measures in this document refer to fully diluted EPS,
unless otherwise stated.
Additional Information
Additional information about SLF Inc. can be found in our Annual
and Interim Consolidated Financial Statements, annual and interim
MD&A and Annual Information Form ("AIF"). These documents are
filed with securities regulators in Canada and are available at www.sedar.com. SLF
Inc.'s Annual Consolidated Financial Statements, annual MD&A
and AIF are filed with the United States Securities and Exchange
Commission ("SEC") in SLF Inc.'s annual report on Form 40-F and SLF
Inc.'s interim MD&As and Interim Consolidated Financial
Statements are furnished to the SEC on Form 6-Ks and are available
at www.sec.gov.
__________ |
(1) |
Effective August 1, 2013, we completed the sale of our U.S.
annuities business and certain of our U.S. life insurance
businesses (collectively, our "U.S. Annuity Business"). For
information on our discontinued operations, refer to our 2014
Annual Consolidated Financial Statements and 2013 annual
MD&A. |
Financial Summary
|
Quarterly
results |
|
Year-to-date |
($ millions, unless
otherwise noted) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
|
2015 |
2014 |
Net income
(loss) |
|
|
|
|
|
|
|
|
|
Operating net income
(loss)(1) |
731 |
446 |
511 |
467 |
488 |
|
1,177 |
942 |
|
Reported net income (loss) |
726 |
441 |
502 |
435 |
425 |
|
1,167 |
825 |
|
Underlying net income
(loss)(1) |
615 |
516 |
360 |
517 |
499 |
|
1,131 |
939 |
Diluted EPS
($) |
|
|
|
|
|
|
|
|
|
Operating EPS
(diluted)(1) |
1.19 |
0.73 |
0.83 |
0.76 |
0.80 |
|
1.92 |
1.54 |
|
Reported EPS (diluted) |
1.18 |
0.72 |
0.81 |
0.71 |
0.69 |
|
1.90 |
1.34 |
|
Underlying EPS
(diluted)(1) |
1.00 |
0.84 |
0.59 |
0.84 |
0.81 |
|
1.85 |
1.53 |
Reported basic EPS
($) |
1.19 |
0.72 |
0.82 |
0.71 |
0.70 |
|
1.91 |
1.35 |
Avg. common shares
outstanding (millions) |
612 |
613 |
613 |
612 |
611 |
|
612 |
610 |
Closing common
shares outstanding (millions) |
610.6 |
611.2 |
613.1 |
612.7 |
611.4 |
|
610.6 |
611.4 |
Dividends per
common share ($) |
0.38 |
0.36 |
0.36 |
0.36 |
0.36 |
|
0.74 |
0.72 |
MCCSR
ratio(2) |
223
% |
216 % |
217 % |
218 % |
222 % |
|
223
% |
222 % |
Return on equity
(%) |
|
|
|
|
|
|
|
|
|
Operating ROE(1) |
16.5
% |
10.4 % |
12.6 % |
11.9 % |
12.6 % |
|
13.4
% |
12.3 % |
|
Underlying ROE(1) |
13.9
% |
12.1 % |
8.8 % |
13.1 % |
12.9 % |
|
12.9
% |
12.3 % |
Premiums and
deposits |
|
|
|
|
|
|
|
|
|
Net premium revenue |
2,523 |
2,207 |
2,701 |
2,695 |
2,372 |
|
4,730 |
4,600 |
|
Segregated fund deposits |
4,487 |
2,411 |
2,155 |
1,907 |
2,611 |
|
6,898 |
5,187 |
|
Mutual fund
sales(1) |
19,927 |
22,124 |
17,071 |
14,714 |
16,267 |
|
42,051 |
34,834 |
|
Managed fund
sales(1) |
7,002 |
8,243 |
7,988 |
8,170 |
6,131 |
|
15,245 |
13,710 |
|
ASO premium and deposit
equivalents(1) |
1,781 |
1,769 |
1,855 |
1,638 |
1,495 |
|
3,550 |
3,255 |
Total premiums and
deposits(1) |
35,720 |
36,754 |
31,770 |
29,124 |
28,876 |
|
72,474 |
61,586 |
Assets under
management |
|
|
|
|
|
|
|
|
|
General fund assets |
145,472 |
148,725 |
139,419 |
133,623 |
129,253 |
|
145,472 |
129,253 |
|
Segregated funds |
90,500 |
89,667 |
83,938 |
82,058 |
82,461 |
|
90,500 |
82,461 |
|
Mutual funds, managed funds and
other AUM(1) |
572,110 |
574,166 |
511,085 |
482,499 |
472,677 |
|
572,110 |
472,677 |
Total
AUM(1) |
808,082 |
812,558 |
734,442 |
698,180 |
684,391 |
|
808,082 |
684,391 |
Capital |
|
|
|
|
|
|
|
|
|
Subordinated debt and innovative
capital instruments(3) |
2,879 |
2,881 |
2,865 |
2,857 |
2,849 |
|
2,879 |
2,849 |
|
Participating policyholders'
equity |
139 |
142 |
141 |
133 |
131 |
|
139 |
131 |
|
Total shareholders' equity |
19,997 |
19,761 |
18,731 |
18,156 |
17,641 |
|
19,997 |
17,641 |
Total capital |
23,015 |
22,784 |
21,737 |
21,146 |
20,621 |
|
23,015 |
20,621 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(2) |
Minimum Continuing Capital and Surplus Requirements ("MCCSR")
ratio of Sun Life Assurance Company of Canada ("Sun Life
Assurance"). |
(3) |
Innovative capital instruments consist of Sun Life ExchangEable
Capital Securities and qualify as capital for Canadian regulatory
purposes. However, under IFRS they are reported as Senior
debentures in our Annual and Interim Consolidated Financial
Statements. For additional information see Capital and Liquidity
Management - Capital in our 2014 annual MD&A. |
Unless indicated otherwise, all factors discussed in this
document that impact our results are applicable to reported net
income (loss), operating net income (loss), and underlying net
income (loss).
Q2 2015 vs. Q2 2014
Our reported net income was $726
million in the second quarter of 2015, compared to
$425 million in the second quarter of
2014. Operating net income was $731
million for the quarter ended June 30, 2015, compared to $488 million for the same period last year.
Underlying net income was $615
million, compared to $499
million in the second quarter of 2014.
Operating ROE and underlying ROE in the second quarter of 2015
were 16.5% and 13.9%, respectively. Operating and underlying ROE in
the second quarter of 2014 were 12.6% and 12.9%, respectively.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income in
the second quarter of 2015 and 2014.
|
|
Quarterly results |
($ millions, after-tax) |
|
Q2'15 |
Q2'14 |
Reported net income |
|
726 |
425 |
|
Certain hedges that do not qualify for
hedge accounting in SLF Canada |
|
6 |
(8) |
|
Fair value adjustments on share-based
payment awards at MFS |
|
(11) |
(44) |
|
Restructuring and other related
costs(1) |
|
— |
(11) |
Operating net
income(2) |
|
731 |
488 |
|
Equity market impact |
|
|
|
|
|
Impact from equity market
changes |
|
(5) |
22 |
|
|
Basis risk impact |
|
(6) |
1 |
|
Equity market
impact(3) |
|
(11) |
23 |
|
Interest rate impact |
|
|
|
|
|
Impact from interest rate
changes |
|
86 |
(28) |
|
|
Impact of credit spread
movements |
|
27 |
(17) |
|
|
Impact of swap spread
movements |
|
(16) |
1 |
|
Interest rate
impact(4) |
|
97 |
(44) |
|
Increases (decreases) from changes in
the fair value of real estate |
|
11 |
(1) |
|
Market related impacts |
|
97 |
(22) |
|
Assumption changes and management
actions |
|
19 |
11 |
Underlying net
income(2) |
|
615 |
499 |
|
|
|
|
Impact of other notable items on
our net income: |
|
|
|
Experience related
items(5) |
|
|
|
|
Impact of investment activity on
insurance contract liabilities |
|
33 |
32 |
|
Mortality |
|
29 |
(2) |
|
Morbidity |
|
12 |
(16) |
|
Credit |
|
29 |
18 |
|
Lapse and other policyholder
behaviour |
|
(4) |
2 |
|
Expenses |
|
(21) |
(11) |
|
Other |
|
(9) |
13 |
(1) |
In 2014, Restructuring and other related costs primarily
includes transition costs related to the sale of our U.S. Annuity
Business in 2013. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(3) |
Equity market impact consists primarily of the effect of
changes in equity markets during the quarter, net of hedging, that
differ from the best estimate assumptions used in the determination
of our insurance contract liabilities of approximately 2% growth
per quarter in equity markets. Equity market impact also includes
the income impact of the basis risk inherent in our hedging
program, which is the difference between the return on underlying
funds of products that provide benefit guarantees and the return on
the derivative assets used to hedge those benefit guarantees. |
(4) |
Interest rate impact includes the effect of interest rate
changes on investment returns that differ from best estimate
assumptions, and on the value of derivative instruments used in our
hedging programs. Our exposure to interest rates varies by product
type, line of business, and geography. Given the long-term nature
of our business, we have a higher degree of sensitivity in respect
of interest rates at long durations. Interest rate impact also
includes the income impact of declines in assumed fixed income
reinvestment rates and of credit and swap spread movements. |
(5) |
Experience related items reflect the difference between actual
experience during the reporting period and best estimate
assumptions used in the determination of our insurance contract
liabilities. |
Our reported net income for the second quarter of 2015 and 2014
included items that are not operational or ongoing in nature and
are, therefore, excluded in our calculation of operating net
income. Operating net income for the second quarter of 2015 and
2014 excluded the net impact of certain hedges that do not qualify
for hedge accounting in SLF Canada, fair value adjustments on
share-based payment awards at MFS, and restructuring and other
related costs. The net impact of these items reduced reported net
income by $5 million in the second
quarter of 2015 compared to a reduction of $63 million in the second quarter of 2014. In
addition, our operating net income in the second quarter of 2015
increased by $43 million as a result
of movements in currency rates in the second quarter of 2015
relative to the average exchange rates in the second quarter of
2014.
Our underlying net income for the second quarter of 2015 and
2014 excludes from operating net income market related impacts and
assumption changes and management actions. The net effect of market
related impacts and assumption changes and management actions
increased operating net income by $116
million in the second quarter of 2015, compared to a
decrease of $11 million in the second
quarter of 2014.
Net income in the second quarter of 2015 also reflected the
favourable effect of gains from investment activity on insurance
contract liabilities, mortality, positive credit, morbidity
experience, and business growth, partially offset by unfavourable
expense experience including investment in growing our
businesses.
Net income in the second quarter of 2014 also reflected gains
from investment activity on insurance contract liabilities,
positive credit experience, and business growth. These items were
partially offset by unfavourable morbidity and expense
experience.
Q2 2015 vs. Q2 2014 (year-to-date)
Our reported net income was $1,167
million for the first six months of 2015, compared to
$825 million in the first six months
of 2014. Operating net income was $1,177
million for the six months ended June 30, 2015, compared to $942 million for the same period last year.
Underlying net income was $1,131
million, compared to $939
million for the first six months of 2014.
Operating ROE and underlying ROE for the first six months of
2015 were 13.4% and 12.9%, respectively. Operating ROE and
underlying ROE for the first six months of 2014 were both
12.3%.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income for
the six months ended June 30,
2015 and 2014.
|
Year-to-date |
($ millions, after-tax) |
|
2015 |
|
2014 |
Reported net income |
|
1,167 |
|
825 |
|
Certain hedges that do not qualify for hedge
accounting in SLF Canada |
|
21 |
|
(3) |
|
Fair value adjustments on share-based payment
awards at MFS |
|
(31) |
|
(95) |
|
Restructuring and other related
costs(1) |
|
— |
|
(19) |
Operating net
income(2) |
|
1,177 |
|
942 |
|
Equity market impact(3) |
|
(2) |
|
56 |
|
Interest rate impact(4) |
|
56 |
|
(108) |
|
Increases (decreases) from changes in the fair
value of real estate |
|
21 |
|
4 |
|
Market related impacts |
|
75 |
|
(48) |
|
Assumption changes and management actions |
|
(29) |
|
51 |
Underlying net
income(2) |
|
1,131 |
|
939 |
Impact of other notable items on
our net income: |
|
|
|
|
Experience related
items(5) |
|
|
|
|
|
Impact of investment activity on insurance
contract liabilities |
|
58 |
|
68 |
|
Mortality |
|
40 |
|
(12) |
|
Morbidity |
|
14 |
|
(28) |
|
Credit |
|
34 |
|
34 |
|
Lapse and other policyholder behaviour |
|
(20) |
|
(17) |
|
Expenses |
|
(35) |
|
(25) |
|
Other |
|
(5) |
|
13 |
(1) |
In 2014, Restructuring and other related costs primarily
includes transition costs related to the sale of our U.S. Annuity
Business in 2013. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(3) |
Equity market impact consists primarily of the effect of
changes in equity markets during the period, net of hedging, that
differ from the best estimate assumptions used in the determination
of our insurance contract liabilities of approximately 2% growth
per quarter in equity markets. Equity market impact also includes
the income impact of the basis risk inherent in our hedging
program, which is the difference between the return on underlying
funds of products that provide benefit guarantees and the return on
the derivative assets used to hedge those benefit guarantees. |
(4) |
Interest rate impact includes the effect of interest rate
changes on investment returns that differ from best estimate
assumptions, and on the value of derivative instruments used in our
hedging programs. Our exposure to interest rates varies by product
type, line of business, and geography. Given the long-term nature
of our business, we have a higher degree of sensitivity in respect
of interest rates at long durations. Interest rate impact also
includes the income impact of declines in assumed fixed income
reinvestment rates and of credit and swap spread movements. |
(5) |
Experience related items reflect the difference between actual
experience during the reporting period and best estimate
assumptions used in the determination of our insurance contract
liabilities. |
Our reported net income for the first six months of 2015 and
2014 included items that are not operational or ongoing in nature
and are, therefore, excluded in our calculation of operating net
income. Operating net income for the first six months of 2015 and
2014 excluded the net impact of certain hedges that do not qualify
for hedge accounting in SLF Canada, fair value adjustments on
share-based payment awards at MFS, and restructuring and other
related costs. The net impact of these items reduced reported net
income by $10 million in the first
six months of 2015 compared to a reduction of $117 million in the same period of 2014. In
addition, our operating net income in the first six months of 2015
increased by $74 million as a result
of movements in currency rates in the first six months of 2015
relative to the average exchange rates in the first six months of
2014.
Our underlying net income for the first six months of 2015 and
2014 excludes from operating net income market related impacts and
assumption changes and management actions. The net effect of market
related impacts and assumption changes and management actions
increased operating net income by $46
million in the first six months of 2015, compared to an
increase of $3 million in the same
period of 2014.
Net income for the first six months of 2015 also reflected the
favourable effect of gains from investment activity on insurance
contract liabilities, mortality, positive credit, morbidity
experience, and business growth, partially offset by unfavourable
lapse and other policyholder behaviour experience and expense
experience including investment in growing our businesses.
Net income for the first six months of 2014 also reflected gains
from investment activity on insurance contract liabilities,
positive credit experience, and business growth, partially offset
by unfavourable mortality and morbidity, expense, and lapse and
other policyholder behaviour experience.
Impact of Foreign Exchange Rates
We have operations in many markets worldwide, including
Canada, the United States, the United Kingdom, Ireland, Hong
Kong, the Philippines,
Japan, Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia, and Bermuda, and generate revenues and incur
expenses in local currencies in these jurisdictions, which are
translated to Canadian dollars.
Items impacting our Consolidated Statements of Operations, such
as Revenue, Benefits and expenses, and income, are translated to
Canadian dollars using average exchange rates for the respective
period. For items impacting our Consolidated Statements of
Financial Position, such as Assets and Liabilities, period end
rates are used for currency translation purposes. The following
table provides the most relevant foreign exchange rates over the
past five quarters and two years.
Exchange
Rate |
Quarterly |
Year-to-date |
|
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
|
2015 |
|
2014 |
|
Average |
|
|
|
|
|
|
|
|
U.S. Dollar |
1.229 |
|
1.240 |
|
1.136 |
|
1.088 |
|
1.090 |
|
1.234 |
|
1.096 |
|
|
U.K. Pounds |
1.882 |
|
1.878 |
|
1.797 |
|
1.817 |
|
1.835 |
|
1.880 |
|
1.829 |
|
Period end |
|
|
|
|
|
|
|
|
U.S. Dollar |
1.249 |
|
1.269 |
|
1.162 |
|
1.120 |
|
1.067 |
|
1.249 |
|
1.067 |
|
|
U.K. Pounds |
1.962 |
|
1.880 |
|
1.809 |
|
1.815 |
|
1.824 |
|
1.962 |
|
1.824 |
|
In general, our net income benefits from a weakening Canadian
dollar and is adversely affected by a strengthening Canadian dollar
as net income from the Company's international operations is
translated back to Canadian dollars. However, in a period of
losses, the weakening of the Canadian dollar has the effect of
increasing the losses. The relative impact of foreign exchange in
any given period is driven by the movement of currency rates as
well as the proportion of earnings generated in our foreign
operations. We generally express the impact of foreign exchange on
net income on a year-over-year basis. During the second quarter of
2015, our operating net income increased by $43 million as a result of movements in currency
rates in the second quarter of 2015 relative to the average
exchange rates in the second quarter of 2014. In addition, during
the first six months of 2015, our operating net income increased by
$74 million as a result of movements
in currency rates in the first six months of 2015 relative to the
average exchange rates in the first six months of 2014.
Performance by Business Group
SLF Canada
SLF Canada is the Canadian market leader in a number of its
businesses, providing products and services to 6 million Canadians.
Our distribution breadth, strong service culture, technology
leadership, and brand recognition provide an excellent platform for
growth. SLF Canada has three main business units - Individual
Insurance & Wealth, Group Benefits ("GB"), and Group Retirement
Services ("GRS") - which offer a full range of protection, wealth
accumulation, and income products and services to individuals in
their communities and their workplaces.
|
Quarterly
results |
|
Year-to-date |
($ millions) |
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
|
2015 |
|
2014 |
|
Underlying net income
(loss)(1) |
250 |
|
201 |
|
181 |
|
237 |
|
195 |
|
451 |
|
405 |
|
|
Market related impacts |
70 |
|
(69) |
|
(54) |
|
(33) |
|
(2) |
|
1 |
|
10 |
|
|
Assumption changes and management actions |
11 |
|
3 |
|
(4) |
|
35 |
|
4 |
|
14 |
|
20 |
|
Operating net income
(loss)(1) |
331 |
|
135 |
|
123 |
|
239 |
|
197 |
|
466 |
|
435 |
|
|
Hedges that do not qualify for hedge
accounting |
6 |
|
15 |
|
(6) |
|
2 |
|
(8) |
|
21 |
|
(3) |
|
Reported net income (loss) |
337 |
|
150 |
|
117 |
|
241 |
|
189 |
|
487 |
|
432 |
|
Underlying ROE (%)(1) |
12.8 |
|
10.6 |
|
9.7 |
|
12.8 |
|
10.6 |
|
11.7 |
|
11.0 |
|
Operating ROE (%)(1) |
17.0 |
|
7.1 |
|
6.6 |
|
12.9 |
|
10.7 |
|
12.1 |
|
11.9 |
|
Operating net income (loss) by
business unit(1) |
|
|
|
|
|
|
|
|
Individual Insurance &
Wealth(1) |
178 |
|
38 |
|
80 |
|
68 |
|
96 |
|
216 |
|
236 |
|
|
Group Benefits(1) |
107 |
|
54 |
|
55 |
|
124 |
|
53 |
|
161 |
|
111 |
|
|
Group Retirement Services(1) |
46 |
|
43 |
|
(12) |
|
47 |
|
48 |
|
89 |
|
88 |
|
Total operating net income
(loss)(1) |
331 |
|
135 |
|
123 |
|
239 |
|
197 |
|
466 |
|
435 |
|
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
Q2 2015 vs. Q2 2014
SLF Canada's reported net income was $337
million in the second quarter of 2015, compared to
$189 million in the second quarter of
2014. Operating net income was $331
million, compared to $197
million in the second quarter of 2014. Operating net income
in SLF Canada excludes the impact of certain hedges that do not
qualify for hedge accounting, which is set out in the table
above.
Underlying net income in the second quarter of 2015 was
$250 million, compared to
$195 million in the second quarter of
2014. Underlying net income in SLF Canada excludes from operating
net income market related impacts and assumption changes and
management actions, which are set out in the table above. The
favourable effect of market related impacts in the second quarter
of 2015 was primarily driven by interest rates partially offset by
equity markets, compared to the unfavourable effect in the second
quarter of 2014 primarily driven by interest rates partially offset
by equity markets.
Net income in the second quarter of 2015 also reflected gains
from investment activities on insurance contract liabilities, gains
on new business and strong results in GB driven by favourable
mortality and morbidity experience in our disability line of
business which was partially offset by high cost drug claims. This
was partially offset by policyholder behaviour, and by expense
experience including investment in growing our retail wealth
business.
Net income in the second quarter of 2014 also reflected
unfavourable morbidity experience in GB in our disability line of
business, partially offset by gains on new business in Individual
Insurance & Wealth and GRS.
In the second quarter of 2015, sales of individual insurance
products increased 13% compared to the second quarter of 2014,
driven by continued strong permanent insurance sales in the
third-party channel. Sales of individual wealth products increased
23% in the second quarter of 2015 compared to the same period last
year, primarily due to higher mutual fund sales and increased
segregated fund sales including sales from our new segregated funds
offering. Retail mutual fund sales by Sun Life Global Investments
(Canada) ("SLGI") Inc. increased
86% in the second quarter of 2015 over the same period in 2014,
driven by continued sales growth and momentum in both the Sun Life
Financial Career Sales Force and third-party distribution
channels.
GB sales were 31% higher than the second quarter of 2014
primarily driven by timing of large case market sales. GRS sales
increased 83% over the second quarter of 2014, driven by the
Defined Contribution asset transfer from a large client, the
University of British Columbia, and
strong Defined Benefit Solutions payout annuity sales. GRS sales
growth also included a 52% increase in pension rollover sales
compared to the same quarter in 2014, boosted by retirement sales
from a new client, Western University,
and larger average deposits per member. Assets under administration
for GRS ended the quarter at $78
billion.
Q2 2015 vs. Q2 2014 (year-to-date)
Reported net income was $487 million
for the first six months of 2015, compared to $432 million for the six months ended
June 30, 2014. Operating net
income for the first six months of 2015 was $466 million, compared to $435 million in the same period of 2014.
Operating net income for both periods in SLF Canada excludes the
impact of certain hedges that do not qualify for hedge accounting,
which is set out in the table above.
Underlying net income was $451
million in the six months ended June 30, 2015, compared to $405 million in the same period last year.
Underlying net income in SLF Canada excludes from operating net
income market related impacts and assumption changes and management
actions, which are set out in the table above. The market related
impacts in the first six months of 2015 had a small net favourable
effect, compared to the favourable effect in the first six months
of 2014 primarily driven by equity markets partially offset by
interest rates.
Net income for the six months ended June 30, 2015 also reflected gains from
investment activities on insurance contract liabilities, gains on
new business, favourable mortality and morbidity experience in our
disability line of business which was partially offset by high cost
drug claims in GB. This was partially offset by policyholder
behaviour, and by expense experience including investment in
growing our retail wealth business.
Net income for the six months ended June 30, 2014 also reflected unfavourable
morbidity experience in GB, partially offset by gains on new
business in Individual Insurance & Wealth and GRS and gains
from investment activities on insurance contract liabilities.
SLF U.S.
SLF U.S. has three business units: Group Benefits, International,
and In-force Management. Group Benefits provides protection
solutions to employers and employees including group life,
disability, medical stop-loss, and dental insurance products, as
well as a suite of voluntary benefits products. International
offers individual life insurance and investment wealth products to
high net worth clients in international markets. In-force
Management includes certain closed individual life insurance
products, primarily universal life, and participating whole life
insurance.
|
Quarterly
results |
Year-to-date |
(US$ millions) |
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
|
2015 |
|
2014 |
|
Underlying net income
(loss)(1) |
85 |
|
65 |
|
9 |
|
45 |
|
101 |
|
150 |
|
186 |
|
|
Market related impacts |
23 |
|
8 |
|
16 |
|
(6) |
|
(13) |
|
31 |
|
(47) |
|
|
Assumption changes and management actions |
— |
|
(54) |
|
121 |
|
(42) |
|
4 |
|
(54) |
|
23 |
|
Operating net income (loss)
(1) |
108 |
|
19 |
|
146 |
|
(3) |
|
92 |
|
127 |
|
162 |
|
Reported net income (loss) |
108 |
|
19 |
|
146 |
|
(3) |
|
92 |
|
127 |
|
162 |
|
Underlying ROE (%)(1) |
12.7 |
|
9.7 |
|
1.3 |
|
6.8 |
|
15.1 |
|
11.2 |
|
13.6 |
|
Operating ROE (%)(1) |
16.2 |
|
2.8 |
|
22.0 |
|
(0.4) |
|
13.7 |
|
9.5 |
|
11.8 |
|
Operating net income (loss) by
business unit(1) |
|
|
|
|
|
|
|
|
Group Benefits(1) |
22 |
|
38 |
|
(64) |
|
(11) |
|
3 |
|
60 |
|
20 |
|
|
International(1) |
(1) |
|
2 |
|
78 |
|
33 |
|
36 |
|
1 |
|
50 |
|
|
In-force Management(1) |
87 |
|
(21) |
|
132 |
|
(25) |
|
53 |
|
66 |
|
92 |
|
Total operating net income
(loss)(1) |
108 |
|
19 |
|
146 |
|
(3) |
|
92 |
|
127 |
|
162 |
|
|
|
|
|
|
|
|
|
(C$ millions) |
|
|
|
|
|
|
|
Underlying net income
(loss)(1) |
105 |
|
81 |
|
13 |
|
48 |
|
111 |
|
186 |
|
205 |
|
Operating net income
(loss)(1) |
134 |
|
35 |
|
168 |
|
(4) |
|
100 |
|
169 |
|
177 |
|
Reported net income (loss) |
134 |
|
35 |
|
168 |
|
(4) |
|
100 |
|
169 |
|
177 |
|
(1) |
Represents a non-IFRS financial measure. See
Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS
Financial Measures. |
Q2 2015 vs. Q2 2014
SLF U.S.'s reported net income and operating net income was
C$134 million in the second quarter
of 2015, compared to reported net income and operating net income
of C$100 million in the second
quarter of 2014. There were no operating net income adjustments in
SLF U.S. in 2015 or 2014. Underlying net income was C$105 million, compared to C$111 million in the second quarter of 2014. The
weakening of the Canadian dollar in the second quarter of 2015
relative to average exchange rates in the second quarter of 2014
increased operating net income by $15
million.
In U.S. dollars, SLF U.S.'s reported net income and operating
net income was US$108 million in the
second quarter of 2015, compared to reported net income and
operating net income of US$92 million
in the second quarter of 2014. Underlying net income was
US$85 million in the second quarter
of 2015, compared to US$101 million
in the second quarter of 2014. Underlying net income excludes from
operating net income market related impacts and assumption changes
and management actions, which are set out in the table above. The
favourable effect of market related impacts in the second quarter
of 2015 was primarily driven by interest rates and credit spreads,
which had a favourable impact in In-force Management and an
unfavourable impact in International, compared to the unfavourable
effect in the second quarter of 2014 primarily driven by interest
rates and credit spreads.
Net income in the second quarter of 2015 also reflected positive
credit experience and favourable mortality in International. In
Group Benefits, price increases and expense actions implemented in
2014 have also contributed to improved net income in 2015. These
items were partially offset by unfavourable, though improved,
claims experience in Group Benefits, and adverse policyholder
behaviour in In-force Management.
Net income in the second quarter of 2014 also reflected net
realized gains on the sale of available-for-sale ("AFS") assets,
positive credit experience, favourable mortality in International
and foreign exchange gains, partially offset by unfavourable
underwriting experience in Group Benefits primarily in the
disability line of business.
Group Benefits sales and International life sales in the second
quarter of 2015 decreased by 21% and 45%, respectively, compared to
the same period last year reflecting a more selective approach to
pricing. International wealth sales decreased by 37% as we continue
to realign our product, marketing and distribution to create focus
on select regions, distributors and customer segments.
Q2 2015 vs. Q2 2014 (year-to-date)
SLF U.S.'s reported net income and operating net income was
C$169 million for the six months
ended June 30, 2015, compared to
reported net income and operating net income of C$177 million for the same period last year.
There were no operating net income adjustments in SLF U.S. in 2015
or 2014. Underlying net income was C$186
million in the first six months of 2015, compared to
C$205 million in the same period of
2014.
In U.S. dollars, SLF U.S.'s reported net income and operating
net income was US$127 million for the
six months ended June 30, 2015,
compared to reported net income and operating net income of
US$162 million for the six months
ended June 30, 2014. There were
no operating net income adjustments in SLF U.S. in 2015 or 2014.
Underlying net income was US$150
million for the six months ended June 30, 2015, compared to US$186 million in the same period last year.
Underlying net income excludes from operating net income market
related impacts and assumption changes and management actions,
which are set out in the table above. The favourable effect of
market related impacts in the first six months of 2015 was
primarily driven by interest rates and credit spreads, compared to
the unfavourable effect in the first six months of 2014 primarily
driven by interest rates. The unfavourable impact of assumption
changes and management actions in 2015 was primarily due to a
revision to insurance contract liabilities relating to certain
universal life products.
Net income for the first six months of 2015 also reflected
positive credit experience, net realized gains on the sale of AFS
assets, favourable mortality experience in Group Benefits and
International, and favourable morbidity experience in Group
Benefits, partially offset by unfavourable policyholder behaviour
in In-force Management and International.
Net income for the first six months of 2014 also reflected net
realized gains on the sale of AFS assets and favourable credit
experience, partially offset by unfavourable mortality experience
in Group Benefits and In-force Management and unfavourable
underwriting experience in Group Benefits.
MFS Investment Management
MFS is a premier global asset management firm which offers a
comprehensive selection of products and services. Drawing on an
investment heritage that emphasizes collaboration and integrity,
MFS actively manages assets for retail and institutional investors
around the world through mutual and commingled funds, separately
managed accounts, institutional products, and retirement
strategies.
|
Quarterly
results |
|
Year-to-date |
(US$ millions) |
Q2'15 |
|
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
2015 |
2014 |
Underlying net
income(1) |
141 |
|
135 |
137 |
154 |
133 |
276 |
266 |
Operating net
income(1) |
141 |
|
135 |
137 |
154 |
133 |
276 |
266 |
|
Fair value adjustments on share-based
payment awards |
(9) |
|
(16) |
— |
(28) |
(40) |
(25) |
(86) |
Reported net income |
132 |
|
119 |
137 |
126 |
93 |
251 |
180 |
|
|
|
|
|
|
|
|
|
(C$ millions) |
|
|
|
|
|
|
|
|
Underlying net
income(1) |
173 |
|
168 |
156 |
168 |
145 |
341 |
292 |
Operating net
income(1) |
173 |
|
168 |
156 |
168 |
145 |
341 |
292 |
|
Fair value adjustments on share-based
payment awards |
(11) |
|
(20) |
1 |
(31) |
(44) |
(31) |
(95) |
Reported net income |
162 |
|
148 |
157 |
137 |
101 |
310 |
197 |
Pre-tax operating profit margin
ratio(2) |
40 % |
|
40 % |
39 % |
43 % |
40 % |
40 % |
41 % |
Average net assets (US$
billions)(2) |
450.3 |
|
436.4 |
427.3 |
434.7 |
427.9 |
443.4 |
420.0 |
Assets under management (US$
billions)(2)(3) |
440.5 |
|
441.4 |
431.0 |
424.8 |
438.6 |
440.5 |
438.6 |
Gross sales (US$
billions)(2) |
20.1 |
|
22.8 |
20.5 |
20.1 |
19.5 |
42.9 |
41.9 |
Net sales (US$
billions)(2) |
(1.8) |
|
(0.2) |
(1.9) |
(2.0) |
1.4 |
(2.0) |
5.1 |
Asset appreciation (depreciation) (US$
billions) |
0.9 |
|
10.6 |
8.1 |
(11.8) |
16.6 |
11.5 |
20.7 |
S&P 500 Index (daily average) |
2,102 |
|
2,064 |
2,012 |
1,977 |
1,879 |
2,083 |
1,857 |
MSCI EAFE Index (daily average) |
1,906 |
|
1,817 |
1,795 |
1,924 |
1,942 |
1,861 |
1,918 |
(1) |
Represents a non-IFRS financial measure that excludes fair
value adjustments on share-based payment awards at MFS. See Use of
Non-IFRS Financial Measures and Reconciliation of Non-IFRS
Financial Measures. |
(2) |
Pre-tax operating profit margin ratio, AUM, average net assets,
and sales are non-IFRS financial measures. See Reconciliation of
Non-IFRS Financial Measures. |
(3) |
Monthly Information on AUM is provided by MFS in its Corporate
Fact Sheet, which can be found in the "About MFS" link for U.S.
individual investors at www.mfs.com/wps/portal. |
Q2 2015 vs. Q2 2014
MFS's reported net income was C$162
million in the second quarter of 2015, compared to
C$101 million in the second quarter
of 2014. MFS had operating net income and underlying net income of
C$173 million in the second quarter
of 2015, compared to C$145 million in
the second quarter of 2014. Operating net income and underlying net
income in MFS excludes the impact of fair value adjustments on
share-based payment awards, which is set out in the table above.
The weakening of the Canadian dollar in the second quarter of 2015
relative to average exchange rates in the second quarter of 2014
increased operating net income by $20
million.
In U.S. dollars, MFS's reported net income was US$132 million in the second quarter of 2015,
compared to US$93 million in the
second quarter of 2014. Operating net income and underlying net
income were US$141 million in the
second quarter of 2015, compared to US$133
million in the second quarter of 2014.
Net income increased in the second quarter of 2015 compared to
the same period in 2014 driven primarily by higher average net
assets. MFS's pre-tax operating profit margin ratio was 40% in the
second quarter of 2015, consistent with 40% in the second quarter
of 2014.
Total AUM grew to US$440.5 billion
as at June 30, 2015, compared to
US$431.0 billion as at December 31, 2014. The increase of
US$9.5 billion was primarily driven
by gross sales of US$42.9 billion and
asset appreciation of US$11.5
billion, partially offset by redemptions of US$44.9 billion. 82%, 88%, and 97% of retail fund
assets ranked in the top half of their Lipper categories based on
three-, five-, and ten-year performance, respectively, at
June 30, 2015.
Q2 2015 vs. Q2 2014 (year-to-date)
Reported net income for the six months ended June 30, 2015 was US$251 million, compared to US$180 million for the same period last year.
Operating net income and underlying net income were US$276 million for the first six months of 2015,
compared to US$266 million for the
six months ended June 30, 2014.
The increase in net income for the first six months of 2015
compared to the same period last year was driven primarily by
higher average net assets.
SLF Asia
SLF Asia operates through wholly owned subsidiaries in the Philippines, Hong Kong, and Indonesia, as well as through joint ventures
with local partners in the
Philippines, Indonesia,
Vietnam, Malaysia, China, and India. We offer individual life insurance
products in all seven markets, and group benefits and/or pension
and retirement products in the
Philippines, China,
Hong Kong, India, Malaysia, and Vietnam. We have also established asset
management companies either directly or through joint ventures in
the Philippines, China, and India. We distribute these protection and
wealth products to middle- and upper-income individuals, groups,
and affinity clients through multiple distribution channels.
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
2015 |
2014 |
Underlying net income
(loss)(1) |
71 |
62 |
50 |
48 |
39 |
133 |
76 |
|
Market related impacts |
19 |
10 |
(8) |
3 |
(1) |
29 |
(7) |
|
Assumption changes and management
actions |
3 |
(4) |
20 |
— |
(1) |
(1) |
— |
Operating net income
(loss)(1) |
93 |
68 |
62 |
51 |
37 |
161 |
69 |
Reported net income (loss) |
93 |
68 |
62 |
51 |
37 |
161 |
69 |
Underlying ROE (%)(1) |
8.4 |
7.7 |
6.8 |
7.1 |
6.1 |
8.1 |
6.0 |
Operating ROE (%)(1) |
11.0 |
8.6 |
8.4 |
7.5 |
5.8 |
9.8 |
5.5 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
Q2 2015 vs. Q2 2014
SLF Asia's reported net income and operating net income was
$93 million in the second quarter of
2015, compared to reported net income and operating net income of
$37 million in the second quarter of
2014. There were no operating net income adjustments in SLF Asia in
2015 or 2014. The weakening of the Canadian dollar in the second
quarter of 2015 relative to average exchange rates in the second
quarter of 2014 increased operating net income by $7 million.
Underlying net income was $71
million, compared to $39
million in the second quarter of 2014. Underlying net income
excludes from operating net income market related impacts and
assumption changes and management actions, which are set out in the
table above. The favourable effect of market related impacts in the
second quarter of 2015 was primarily driven by interest rates and
equity markets, compared to the unfavourable effect in the second
quarter of 2014 primarily driven by interest rates partially offset
by equity markets.
Net income in the second quarter of 2015 also reflected
favourable impacts from business growth and net favourable
mortality results relative to the second quarter of 2014.
Total individual life sales in the second quarter of 2015
increased 9% excluding currency impact from the second quarter of
2014. Sales increased in the
Philippines, Indonesia and
Malaysia, 60%, 16% and 41%,
respectively, measured in local currency, driven by the continued
growth in our agency distribution in the
Philippines and Indonesia,
and bancassurance and telemarketing distribution in Malaysia. These increases were partially
offset by lower sales in India,
China, and Hong Kong. Wealth sales grew compared to the
second quarter of 2014 with strong mutual fund sales in
India and strong Mandatory
Provident Fund sales in Hong
Kong.
Q2 2015 vs. Q2 2014 (year-to-date)
Reported and operating net income was $161
million for the first six months of 2015, compared to
$69 million for the same period last
year. There were no operating net income adjustments in SLF Asia in
2015 or 2014.
Underlying net income for the first six months of 2015 was
$133 million, compared to
$76 million in the same period last
year. Underlying net income excludes from operating net income
market related impacts and assumption changes and management
actions, which are set out in the table above. The favourable
effect of market related impacts in the first six months of 2015
was primarily driven by both interest rates and equity markets,
compared to the unfavourable effect in the first six months of 2014
primarily driven by interest rates and partially offset by equity
markets.
Net income for the first six months of 2015 when compared with
the first six months of 2014 also reflected favourable impacts from
business growth and net gains on AFS assets. Net income for the
first six months of 2014 reflected net losses on AFS securities
driven by an impairment in Hong
Kong.
Total individual life sales in the first six months of 2015
increased 12% excluding currency impact compared to the first six
months of 2014. Sales grew across the region except in India and China. Sales in the
Philippines, Indonesia and
Malaysia increased 52%, 15% and
26%, respectively, measured in local currency. Wealth sales
increased by 51% excluding currency impact compared to the first
six months of 2014 driven primarily by China, India
and Hong Kong.
Corporate
Corporate includes the results of SLF U.K. and Corporate Support.
Corporate Support includes our Run-off reinsurance business as well
as investment income, expenses, capital, and other items that have
not been allocated to our other business segments. SLF U.K. has a
run-off block of business which has been closed to new business and
focuses on supporting existing customers.
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
2015 |
2014 |
Underlying net income
(loss)(1) |
16 |
4 |
(40) |
16 |
9 |
20 |
(39) |
|
Market related impacts |
(21) |
28 |
23 |
(18) |
(4) |
7 |
1 |
|
Assumption changes and management
actions |
5 |
8 |
19 |
15 |
4 |
13 |
7 |
Operating net income
(loss)(1) |
— |
40 |
2 |
13 |
9 |
40 |
(31) |
|
Restructuring and other related
costs |
— |
— |
(4) |
(3) |
(11) |
— |
(19) |
Reported net income (loss) |
— |
40 |
(2) |
10 |
(2) |
40 |
(50) |
Operating net
income (loss) by business unit(1) |
|
|
|
|
|
|
|
|
SLF U.K.(1) |
37 |
71 |
65 |
44 |
37 |
108 |
65 |
|
Corporate
Support(1) |
(37) |
(31) |
(63) |
(31) |
(28) |
(68) |
(96) |
Total operating net income
(loss)(1) |
— |
40 |
2 |
13 |
9 |
40 |
(31) |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
Q2 2015 vs. Q2 2014
Corporate had a reported net income of $nil in the second quarter
of 2015, compared to a reported net loss of $2 million in the second quarter of 2014.
Operating net income was $nil for the second quarter of 2015,
compared to an operating net income of $9
million in the same period last year. Operating net income
(loss) excludes restructuring and other related costs, which are
set out in the table above.
Underlying net income was $16
million, compared to underlying net income of $9 million in the second quarter of 2014.
Underlying net income excludes from operating net income market
related impacts and assumption changes and management actions,
which are set out in the table above. The unfavourable effect of
market related impacts in the second quarter of 2015 was primarily
driven by interest rates, compared to the unfavourable effect in
the second quarter of 2014 primarily driven by equity markets
partially offset by interest rates.
SLF U.K.'s operating net income was $37
million in the second quarter of 2015, compared to
$37 million in the second quarter of
2014. SLF U.K.'s net income in the second quarter of 2015 reflected
the unfavourable market-related impacts from interest rate and swap
spread changes, partially offset by favourable policyholder
behaviour and mortality experience. Net income in the second
quarter of 2014 was favourably impacted by interest rates and
investing activities with SLF U.K.'s annuity portfolio, partially
offset by unfavourable equity markets.
Corporate Support had an operating net loss of $37 million in the second quarter of 2015,
compared to an operating net loss of $28
million in the second quarter of 2014. The increase in loss
was as a result of higher project expenses offset by tax benefits
in the second quarter of 2015 while foreign exchange gains and a
lower level of project expense due to timing of the expense spend
benefited the second quarter of 2014.
Q2 2015 vs. Q2 2014 (year-to-date)
The reported net income was $40
million in the Corporate segment for the six months ended
June 30, 2015, compared to a
reported net loss of $50 million in
the same period one year ago. Operating net income was $40 million for the first six months of 2015,
compared to an operating net loss of $31
million in the same period last year. Operating net income
(loss) excludes restructuring and other related costs, which are
set out in the table above.
Underlying net income was $20
million in the six months ended June 30, 2015, compared to an underlying net
loss of $39 million in the six months
ended June 30, 2014. Underlying
net income excludes from operating net income market related
impacts and assumption changes and management actions, which are
set out in the table above. The favourable effect of market related
impacts in the first six months of 2015 was primarily driven by
interest rates, partially offset by equity markets, compared to the
favourable effect in the first six months of 2014 primarily driven
by interest rates partially offset by equity markets.
SLF U.K.'s operating net income for the six months ended
June 30, 2015 was $108 million, compared to $65 million for the first six months ended
June 30, 2014. Net income in the
first six months of 2015 reflected the favourable impact of
interest rates, policyholder behaviour and mortality, partially
offset by equity markets. Net income in the first six months of
2014 reflected positive impacts from assumption changes and
management actions and credit experience, partially offset by other
unfavourable experience items.
In Corporate Support, the operating net loss for the six months
ended June 30, 2015 was
$68 million, compared to an operating
loss of $96 million for the same
period one year ago. The decrease in loss was due to lower interest
expense resulting from a reduction in subordinated debt, lower
preferred share dividends from a reduction in preferred shares, and
tax benefits, partially offset by higher level of project
expenses.
Additional Financial Disclosure
Revenue
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
2015 |
2014 |
Premiums |
|
|
|
|
|
|
|
|
Gross |
4,103 |
3,723 |
4,023 |
4,080 |
3,758 |
7,826 |
7,396 |
|
Ceded |
(1,580) |
(1,516) |
(1,322) |
(1,385) |
(1,386) |
(3,096) |
(2,796) |
Net premium revenue |
2,523 |
2,207 |
2,701 |
2,695 |
2,372 |
4,730 |
4,600 |
Net investment income |
|
|
|
|
|
|
|
|
Interest and other investment income |
1,320 |
1,279 |
1,258 |
1,265 |
1,230 |
2,599 |
2,418 |
|
Fair value and foreign currency changes on assets
and liabilities |
(3,500) |
2,495 |
2,196 |
495 |
1,560 |
(1,005) |
3,481 |
|
Net gains (losses) on available-for-sale
assets |
46 |
96 |
49 |
48 |
48 |
142 |
105 |
Fee income |
1,293 |
1,255 |
1,171 |
1,111 |
1,105 |
2,548 |
2,171 |
Total revenue |
1,682 |
7,332 |
7,375 |
5,614 |
6,315 |
9,014 |
12,775 |
Adjusted revenue(1) |
6,016 |
5,689 |
6,235 |
6,253 |
5,875 |
11,731 |
11,575 |
(1) |
Represents a non-IFRS financial measure that excludes from
Total revenue the impact of Constant Currency Adjustment, FV
Adjustment, and Reinsurance in SLF Canada's GB Operations
Adjustment as described in Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures. |
Revenue in the second quarter of 2015 was $1.7 billion, compared to $6.3 billion in the second quarter of 2014. The
decrease is mainly attributable to net losses from changes in fair
value of fair value through profit or loss ("FVTPL") assets and
liabilities, partially offset by currency impact from the weakening
Canadian dollar, higher fee income in MFS, and increased interest
and other investment income. The weakening of the Canadian dollar
relative to average exchange rates in the second quarter of 2014
increased revenue by $131 million.
Adjusted revenue was $6.0 billion in
the second quarter of 2015, up slightly from $5.9 billion in the second quarter of 2014.
Revenue was $9.0 billion for the
six months ended June 30, 2015,
down $3.8 billion from the comparable
period last year. The decrease was mainly attributable to net
losses from changes in fair value of FVTPL assets and liabilities,
partially offset by currency impact from the weakening Canadian
dollar, higher fee income in MFS and higher interest and other
investment income. Adjusted revenue of $11.7
billion for the six months ended June 30, 2015 was $0.1 billion higher compared to the same period
last year, primarily due to higher interest and other investment
income and increased fee income in MFS, partially offset by lower
net premium revenue in SLF U.S.
Premiums and Deposits
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
|
2015 |
|
2014 |
|
Net premium revenue |
2,523 |
|
2,207 |
|
2,701 |
|
2,695 |
|
2,372 |
|
4,730 |
|
4,600 |
|
Segregated fund deposits |
4,487 |
|
2,411 |
|
2,155 |
|
1,907 |
|
2,611 |
|
6,898 |
|
5,187 |
|
Mutual fund sales(1) |
19,927 |
|
22,124 |
|
17,071 |
|
14,714 |
|
16,267 |
|
42,051 |
|
34,834 |
|
Managed fund sales(1) |
7,002 |
|
8,243 |
|
7,988 |
|
8,170 |
|
6,131 |
|
15,245 |
|
13,710 |
|
ASO premium and deposit
equivalents(1) |
1,781 |
|
1,769 |
|
1,855 |
|
1,638 |
|
1,495 |
|
3,550 |
|
3,255 |
|
Total premiums and deposits(1) |
35,720 |
|
36,754 |
|
31,770 |
|
29,124 |
|
28,876 |
|
72,474 |
|
61,586 |
|
Total adjusted premiums and
deposits(1)(2) |
33,723 |
|
34,167 |
|
31,908 |
|
30,304 |
|
29,996 |
|
68,152 |
|
63,867 |
|
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(2) |
Represents a non-IFRS financial measure that excludes from
Total premiums and deposits the impact of Constant Currency
Adjustment and Reinsurance in SLF Canada's GB Operations Adjustment
as described in Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures. |
Premiums and deposits were $35.7
billion in the second quarter of 2015, compared to
$28.9 billion in the second quarter
of 2014, primarily due to favourable currency impact, higher
segregated fund deposits and ASO premium and deposit equivalents in
SLF Canada, and increased mutual fund sales in MFS, India, and SLF Canada. Results also include
managed fund sales by Ryan Labs Asset Management Inc. ("Ryan
Labs").The weakening of the Canadian dollar relative to average
exchange rates in the second quarter of 2014 increased total
premiums and deposits by approximately $3.1
billion. Adjusted premiums and deposits of $33.7 billion in the second quarter of 2015
increased $3.7 billion from the
second quarter of 2014. The increase was mainly the result of
higher segregated fund deposits and ASO premium and deposit
equivalents in SLF Canada, and increased mutual fund sales in MFS,
India, and SLF Canada, partially
offset by lower managed fund sales in MFS.
Premiums and deposits were $72.5
billion for the six months ended June 30, 2015, compared to $61.6 billion for the six months ended
June 30, 2014. Adjusted premiums
and deposits of $68.2 billion for the
six months ended June 30, 2015
increased by $4.3 billion over the
same period last year. In both cases, the increase was largely
driven by higher segregated fund deposits and ASO premium and
deposit equivalents in SLF Canada, and increased mutual fund sales
in MFS, India, and SLF Canada.
Net premium revenue was $2.5
billion in the second quarter of 2015, compared to
$2.4 billion in the same period of
2014. Net premium revenue was $4.7
billion in the first six months of 2015, compared to
$4.6 billion in the same period of
2014. In both cases, the increase was primarily driven by increases
in GRS in SLF Canada, Group Benefits in SLF U.S., Hong Kong and the
Philippines in SLF Asia, partially offset by a decrease in
International in SLF U.S.
Segregated fund deposits were $4.5
billion in the second quarter of 2015, compared to
$2.6 billion for the same period last
year. Segregated fund deposits were $6.9
billion for the first six months of 2015, compared to
$5.2 billion for the same period last
year. In both cases, the increase was primarily due to increases in
GRS in SLF Canada.
Mutual fund sales were $19.9
billion in the second quarter of 2015, compared to
$16.3 billion in the same period in
2014. Mutual fund sales were $42.1
billion for the first six months of 2015, compared to
$34.8 billion in the same period in
2014. In both cases, the increase was mainly due to higher sales in
MFS, India, and SLF Canada.
Managed fund sales were $7.0 billion
in the second quarter of 2015, compared to $6.1 billion in the same period in 2014. Managed
fund sales were $15.2 billion for the
first six months of 2015, compared to $13.7
billion in the same period last year. In both cases, the
increase was primarily driven by the acquisition of Ryan Labs and favourable currency impact.
ASO premium and deposit equivalents in the second quarter of
2015 were up $0.3 billion compared to
the same period last year. ASO premium and deposit equivalents for
the six months in 2015 were up $0.3
billion compared to the same period last year. In both
cases, the increase was driven by increases in SLF Canada.
Sales
In SLF Canada, life and health sales consist of sales of individual
insurance and group benefits products; wealth sales consist of
sales of individual wealth products and sales in GRS. In SLF U.S.,
life and health sales consist of sales by Group Benefits and
individual life sales by International; wealth sales consist of
investment product sales in International. In SLF Asia, life and
health sales consist of the individual and group life and health
sales from wholly owned subsidiaries and joint ventures based on
our proportionate equity interest in the
Philippines, Hong Kong,
Indonesia, India, China,
Malaysia, and Vietnam; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales
from the India and China insurance companies, and Birla Sun Life
Asset Management Company's equity and fixed income mutual fund
sales based on our proportionate equity interest. MFS sales and Sun
Life Investment Management ("SLIM") sales consist of gross sales
(inflows) for retail and institutional clients.
($ millions) |
Q2'15 |
|
Q2'14 |
|
Life and health
sales(1) |
|
|
|
|
|
SLF Canada |
187 |
|
153 |
|
|
SLF U.S. |
120 |
|
142 |
|
|
SLF Asia |
120 |
|
100 |
|
Total life and health sales |
427 |
|
395 |
|
Wealth sales(1) |
|
|
|
SLF Canada |
4,819 |
|
2,990 |
|
|
SLF U.S. |
190 |
|
269 |
|
|
SLF Asia |
1,605 |
|
930 |
|
Total wealth sales excluding MFS and
Sun Life Investment Management ("SLIM") |
6,614 |
|
4,189 |
|
|
MFS sales(1) |
24,673 |
|
21,304 |
|
|
SLIM sales(1) (2) |
619 |
|
— |
|
Total wealth sales |
31,906 |
|
25,493 |
|
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures. |
(2) |
SLIM is an institutional investment management business that
includes the investment operations of Sun Life Investment
Management Inc. ("SLIM Inc.") and Ryan Labs. SLIM sales include the
gross sales of third-party institutional investment management
products, including SLIM Inc. and Ryan Labs. |
Total Company life and health sales were $427 million in the second quarter of 2015,
compared to $395 million in the
second quarter of 2014.
- SLF Canada life and health sales were $187 million in the second quarter of 2015,
compared to $153 million in the
second quarter of 2014, due to higher sales in individual insurance
products and GB in SLF Canada
- SLF U.S. life and health sales were $120
million in the second quarter of 2015, compared to
$142 million in the second quarter of
2014, primarily driven by lower sales in Group Benefits and
International, partially offset by favourable currency impact
- SLF Asia life and health sales were $120
million in the second quarter of 2015, compared to
$100 million in the second quarter of
2014, driven by growth in the
Philippines, Indonesia,
Malaysia and a favourable currency
impact of $10 million
Total Company wealth sales were $31.9
billion in the second quarter of 2015, compared to
$25.5 billion in the second quarter
of 2014.
- SLF Canada wealth sales were $4.8
billion in the second quarter of 2015, compared to
$3.0 billion in the second quarter of
2014, attributable to higher sales in both GRS and individual
wealth
- SLF U.S. wealth sales were $190
million in the second quarter of 2015, compared to
$269 million in the second quarter of
2014, due to lower investment product sales in International,
partially offset by favourable currency impact
- SLF Asia wealth sales were $1.6
billion in the second quarter of 2015, compared to
$930 million in the second quarter of
2014, primarily driven by higher sales in India, Hong
Kong, and China and
favourable currency impact
- MFS gross sales were $24.7
billion in the second quarter of 2015, compared to
$21.3 billion in the second quarter
of 2014, largely reflecting higher mutual fund sales and favourable
currency impact
- SLIM sales were $619 million in
the second quarter of 2015, mainly driven by the acquisition of
Ryan Labs in the current
quarter
Assets Under Management
AUM consist of general funds, segregated funds, and other AUM.
Other AUM includes mutual funds and managed funds, which include
institutional and other third-party assets managed by the
Company.
AUM were $808.1 billion as at
June 30, 2015, compared to AUM
of $734.4 billion as at December 31, 2014. The increase in AUM of
$73.7 billion between December 31, 2014 and June 30, 2015 resulted primarily from:
(i) |
an increase of $44.0 billion from the weakening of the Canadian
dollar against foreign currencies compared to the prior period
exchange rates; |
(ii) |
favourable market movements on the value of mutual funds,
managed funds, and segregated funds of $17.9 billion; |
(iii) |
$6.7 billion increase from the acquisition of Ryan Labs; |
(iv) |
other business growth of $4.2 billion; and |
(v) |
net sales of mutual, managed, and segregated funds of $1.8
billion; partially offset by |
(vi) |
a decrease of $1.0 billion from the change in value of FVTPL
assets and liabilities. |
Changes in the Statements of Financial Position and in
Shareholders' Equity
Total general fund assets were $145.5
billion as at June 30,
2015, compared to $139.4
billion as at December 31,
2014. The increase in general fund assets from December 31, 2014 was primarily a result of
positive currency movements of $4.4
billion and a business growth of $2.7
billion, partially offset by a $1.0
billion decrease from the change in value of FVTPL assets
and liabilities.
Insurance contract liabilities (excluding other policy
liabilities and assets) of $98.6
billion as at June 30,
2015 increased by $3.4 billion
compared to December 31, 2014,
mainly due to currency movements, and balances arising from new
policies, partially offset by changes in balances on in-force
policies (which includes fair value changes on FVTPL assets
supporting insurance contract liabilities).
Shareholders' equity, including preferred share capital, was
$20.0 billion as at June 30, 2015, compared to $18.7 billion as at December 31, 2014. The increase in
shareholders' equity was primarily due to:
(i) |
shareholders' net income of $1,219 million in the second
quarter of 2015, before preferred share dividends of $52
million; |
(ii) |
an increase of $657 million from the weakening of the Canadian
dollar relative to foreign currencies; and |
(iii) |
proceeds of $41 million from the issuance of common shares
through the Canadian dividend reinvestment and share purchase plan,
$34 million issued as consideration for business acquisition, $27
million from stock options exercised and $2 million from
stock-based compensation; partially offset by |
(iv) |
common share dividend payments of $453 million; |
(v) |
common share repurchases of $212 million; |
(vi) |
changes in liabilities for defined benefit plans of $35
million; and |
(vii) |
net unrealized losses on AFS assets in OCI of $31 million. |
As at July 24, 2015, Sun Life
Financial Inc. had 610.6 million common shares and 92.2 million
preferred shares outstanding.
Cash Flows
|
|
Quarterly results |
($ millions) |
|
Q2'15 |
|
Q2'14 |
Net cash and cash equivalents,
beginning of period |
|
4,081 |
|
2,672 |
Cash flows provided by (used in): |
|
|
|
|
Operating activities |
|
570 |
|
743 |
|
Investing activities |
|
(13) |
|
(61) |
|
Financing activities |
|
(413) |
|
(413) |
Changes due to fluctuations in
exchange rates |
|
(19) |
|
(50) |
Increase (decrease) in cash and
cash equivalents |
|
125 |
|
219 |
Net cash and cash equivalents, end of
period |
|
4,206 |
|
2,891 |
Short-term securities, end of
period |
|
3,116 |
|
2,850 |
Net cash, cash
equivalents and short-term securities, end of period |
|
7,322 |
|
5,741 |
Net cash, cash equivalents and short-term securities were
$7.3 billion at the end of the second
quarter of 2015, compared to $5.7
billion at the end of the second quarter of 2014.
The operating activities of the Company generate cash flows
which include net premium revenue, net investment income, fee
income, and the sale of investments. They are the principal source
of funds to pay for policyholder claims and benefits, commissions,
operating expenses, and the purchase of investments. Cash flows
used in investing activities primarily include transactions related
to associates and joint ventures. Cash flows used in financing
activities largely reflect capital transactions including
dividends, the issuance and repurchase of shares, as well as the
issuance and retirement of debt instruments and preferred
shares.
Acquisitions
On April 2, 2015, we completed the
acquisition of Ryan Labs Asset Management Inc. (previously
Ryan Labs, Inc.), a New York-based asset manager specializing in
liability-driven investing. On June 15,
2015, we announced the acquisition of Bentall Kennedy, a
premier real estate investment manager operating in Canada and the U.S. On June 30, 2015, we announced the acquisition of
U.S.-based Prime Advisors, Inc. ("Prime"), which closed on
July 31, 2015, subsequent to the
quarter. Prime is an investment management firm specializing in
customized fixed income portfolios, primarily for U.S. insurance
companies. The acquisition of Bentall Kennedy is subject to
regulatory approval and customary closing conditions.
Additional information concerning the acquisitions is provided
in Note 2 of our Interim Consolidated Financial Statements.
Assumption Changes and Management Actions
Due to the long-term nature of our business, we make certain
judgments involving assumptions and estimates to value our
obligations to policyholders. The valuation of these obligations is
recorded in our financial statements as insurance contract
liabilities and investment contract liabilities and requires us to
make assumptions about equity market performance, interest rates,
asset default, mortality and morbidity rates, lapse and other
policyholder behaviour, expenses and inflation and other factors
over the life of our products. We will complete our annual review
of actuarial methods and assumptions in the second half of 2015,
with the majority of changes being implemented in the third
quarter. As this is a work in progress, it is not possible to
determine the impact on net income.
Income Taxes
In the second quarter of 2015, our effective tax rates on reported
net income and operating net income were 24.6% and 25.1%,
respectively. In the first six months of 2015, our effective tax
rates on reported net income and operating net income were 21.9%
and 22.4%, respectively. The provincial corporate tax rate
increased in Alberta, Canada
effective the second quarter of 2015, and as a result, our
statutory tax rate increased from 26.5% to 26.75% for 2015 and
future years. Normally, our effective tax rate is reduced below the
statutory rate of 26.75%, mainly due to tax exempt investment
income that is generally expected to decrease the effective tax
rate to a range of 18% to 22%.
Our effective tax rate in the second quarter exceeded the
expected range of 18% to 22% as a result of lower earnings in
low-tax jurisdictions and higher earnings in high-tax
jurisdictions, such as Canada and
the U.S. We also recorded lower than expected benefits of tax
exempt investment income arising in the quarter.
The effective tax rate calculated on an operating basis excludes
amounts attributable to participating policyholders and
non-operating items.
Quarterly Financial Results
The following table provides a summary of our results for the eight
most recently completed quarters. A more complete discussion of our
historical quarterly results can be found in our interim and annual
MD&As for the relevant periods.
|
Quarterly results |
($ millions, unless otherwise
noted) |
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
|
Q1'14 |
|
Q4'13 |
|
Q3'13 |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
Operating(1) |
731 |
|
446 |
|
511 |
|
467 |
|
488 |
|
454 |
|
642 |
|
422 |
|
Reported |
726 |
|
441 |
|
502 |
|
435 |
|
425 |
|
400 |
|
571 |
|
324 |
|
Underlying(1) |
615 |
516 |
|
360 |
|
517 |
|
499 |
|
440 |
|
375 |
|
448 |
Diluted EPS ($) |
|
|
|
|
|
|
|
|
|
Operating(1) |
1.19 |
|
0.73 |
|
0.83 |
|
0.76 |
|
0.80 |
|
0.74 |
|
1.05 |
|
0.69 |
|
Reported |
1.18 |
|
0.72 |
|
0.81 |
|
0.71 |
|
0.69 |
|
0.65 |
|
0.93 |
|
0.53 |
|
Underlying(1) |
1.00 |
|
0.84 |
|
0.59 |
|
0.84 |
|
0.81 |
|
0.72 |
|
0.61 |
|
0.74 |
Basic Reported EPS ($) |
|
|
|
|
|
|
|
|
|
Reported |
1.19 |
|
0.72 |
|
0.82 |
|
0.71 |
|
0.70 |
|
0.66 |
|
0.94 |
|
0.53 |
Operating net income
(loss) by segment(1) |
|
|
|
|
|
|
|
|
|
SLF Canada(1) |
331 |
|
135 |
|
123 |
|
239 |
|
197 |
|
238 |
|
137 |
|
215 |
|
SLF U.S.(1) |
134 |
|
35 |
|
168 |
|
(4) |
|
100 |
|
77 |
|
341 |
|
105 |
|
MFS(1) |
173 |
|
168 |
|
156 |
|
168 |
|
145 |
|
147 |
|
156 |
|
120 |
|
SLF Asia(1) |
93 |
|
68 |
|
62 |
|
51 |
|
37 |
|
32 |
|
42 |
|
18 |
|
Corporate(1) |
— |
|
40 |
|
2 |
|
13 |
|
9 |
|
(40) |
|
(34) |
|
(36) |
Total operating net
income (loss)(1) |
731 |
|
446 |
|
511 |
|
467 |
|
488 |
|
454 |
|
642 |
|
422 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures. |
First Quarter 2015
Operating net income of $446 million
in the first quarter of 2015 reflected gains from investment
activity on insurance contract liabilities and positive mortality
experience, offset by unfavourable impacts from assumption changes
and management actions, net interest rate changes, lapse and other
policyholder behaviour, and expense experience.
Fourth Quarter 2014
Operating net income of $511 million
in the fourth quarter of 2014 reflected favourable impact from
assumption changes and management actions and gains from investing
activity on insurance contract liabilities. These items were
partially offset by unfavourable impacts from interest rate
changes, mortality and morbidity, lapse and other policyholder
behaviour, and expense experience, which mainly consists of
compensation-related and other seasonal costs.
Third Quarter 2014
Operating net income of $467 million
in the third quarter of 2014 reflected favourable impact from gains
from investing activity on insurance contract liabilities, positive
credit experience, tax benefits and business growth. These items
were partially offset by unfavourable impacts from interest rate
changes, mortality and morbidity and expense experience.
Second Quarter 2014
Operating net income of $488 million
in the second quarter of 2014 reflected favourable impact from
equity markets, gains from investment activity on insurance
contract liabilities, positive credit experience and business
growth, offset by unfavourable impacts from net interest rates,
morbidity experience, and expense experience.
First Quarter 2014
Operating net income of $454 million
in the first quarter of 2014 reflected favourable impact from
equity markets, gains from investment activity on insurance
contract liabilities and positive credit experience, offset by
unfavourable impacts from net interest rates, mortality and
morbidity experience, lapse and other policyholder behaviour and
expense experience.
Fourth Quarter 2013
Operating net income of $642 million
in the fourth quarter of 2013 reflected $290
million of income from a management action related to the
restructuring of an internal reinsurance arrangement. Net income
also reflected favourable impacts from equity markets, interest
rates and swap spread movements, and positive fair value movements
of real estate. These were partially offset by unfavourable basis
risk and credit spread movements. Investment activity on insurance
contract liabilities and credit experience were more than offset by
unfavourable experience from expenses, comprised mostly of seasonal
costs, lapse and other policyholder behaviour, and mortality and
morbidity.
Third Quarter 2013
Operating net income was $422 million
in the third quarter of 2013. Net income in the third quarter of
2013 reflected favourable impacts from improved equity markets and
interest rates and gains from assumption changes driven by capital
market movements. These were partially offset by negative impacts
from basis risk and credit and swap spread movements. Non-capital
market related assumption changes and management actions in the
quarter resulted in a $111 million
charge to income.
Investments
We had total general fund invested assets of $129.9 billion as at June 30, 2015, compared to $125.2 billion as at December 31, 2014. The increase in general
fund invested assets of $4.7 billion
was primarily a result of favourable foreign currency movements
partially offset by changes in fair values. Our general fund is
primarily invested in medium- to long-term fixed income
instruments, such as debt securities and mortgages and loans, with
85.3% of the general fund invested assets invested in cash and
fixed income investments. Equity securities and investment
properties represented 4.2% and 4.9% of the portfolio,
respectively, and the remaining 5.6% of the portfolio consisted of
policy loans, derivative assets, and other invested assets.
The following table sets out the composition of our invested
assets.(1)
|
|
June
30, 2015 |
December
31, 2014 |
($ millions) |
|
Carrying
value |
% of total
carrying value |
|
Carrying
value |
|
% of total
carrying value |
Cash, cash equivalents and short-term
securities |
|
7,454 |
|
5.8 % |
|
6,818 |
|
5.4 % |
Debt securities - FVTPL |
|
54,044 |
|
41.6 % |
|
53,127 |
|
42.4 % |
Debt securities - AFS |
|
12,706 |
|
9.8 % |
|
13,087 |
|
10.5 % |
Equity securities - FVTPL |
|
4,565 |
|
3.5 % |
|
4,357 |
|
3.5 % |
Equity securities - AFS |
|
910 |
|
0.7 % |
|
866 |
|
0.7 % |
Mortgages and loans |
|
36,528 |
|
28.1 % |
|
33,679 |
|
26.9 % |
Derivative assets |
|
1,601 |
|
1.2 % |
|
1,839 |
|
1.5 % |
Other invested assets |
|
2,717 |
|
2.1 % |
|
2,375 |
|
1.9 % |
Policy loans |
|
2,998 |
|
2.3 % |
|
2,895 |
|
2.3 % |
Investment properties |
|
6,372 |
|
4.9 % |
|
6,108 |
|
4.9 % |
Total invested assets |
|
129,895 |
|
100 % |
|
125,151 |
|
100 % |
(1) |
The invested asset values and ratios presented are based on the
carrying value of the respective asset categories.
The carrying values for FVTPL and AFS invested assets are generally
equal to their fair values. For invested assets
supporting insurance contracts, in the event of default, if the
amounts recovered are insufficient to satisfy the related
insurance contract liability cash flows that the assets are
intended to support, credit exposure may be greater than the
carrying value of the assets. |
|
|
Energy Sector Exposure
Our general fund invested assets are well diversified across
investment types, geographies, and sectors.
As at June 30, 2015, our
exposure to the energy sector for debt securities and corporate
loans was $5.7 billion, of which
96.0% is rated investment grade and above. Approximately 43% of our
energy sector exposure is invested in pipeline, storage, and
transportation entities and 15% is invested in integrated oil and
gas entities. The remaining exposure is largely related to
companies involved in exploration and production, refining, and
drilling and servicing, and includes approximately 6% invested in
drilling and oil field services. The revenue of pipeline, storage,
and transportation entities generally has limited exposure to
direct commodity price volatility as the revenue is usually
fee-based. Integrated oil and gas entities are generally large,
internationally diversified organizations.
Our mortgage and real estate portfolio includes office,
industrial, retail, and multi-family buildings occupied by tenants
representing a diversified group of industries. Our most
significant property exposure to the oil and gas segment is located
in Alberta, which represents less
than 20% of our mortgage portfolio and less than 30% of our real
estate portfolio. There has been no significant change in exposure
to energy sector tenants during the period and we continue to
monitor the real estate and mortgage portfolios in Alberta for any indications of stress.
Debt Securities
Our debt securities portfolio is actively managed through a regular
program of purchases and sales aimed at optimizing yield, quality,
and liquidity, while ensuring that the asset portfolio remains
diversified and well-matched to insurance contract liabilities by
duration. As at June 30, 2015,
we held $66.8 billion of debt
securities, which represented 51.4% of our overall investment
portfolio. Debt securities with an investment grade of "A" or
higher represented 67.2% of total debt securities as at
June 30, 2015, compared to 67.9%
as at December 31, 2014. Debt
securities rated "BBB" or higher represented 96.9% of total debt
securities as at June 30, 2015,
compared to 97.3% as at December 31,
2014.
Corporate debt securities not issued or guaranteed by sovereign,
regional, and municipal governments represented 66.6% of our total
debt securities as at June 30,
2015, compared to 66.7% as at December 31, 2014. Total government issued
or guaranteed debt securities as at June 30, 2015 were $22.3 billion, compared to $22.1 billion as at December 31, 2014. Our exposure to debt
securities from any single country does not exceed 1% of total
invested assets on our Consolidated Statements of Financial
Position as at June 30, 2015
with the exception of certain countries where we have business
operations, including Canada,
the United States, the
United Kingdom, and the Philippines. As shown in the table below,
we have an immaterial amount of direct exposure to Eurozone
sovereign credits.
Debt Securities of Governments and Financial Institutions by
Geography
|
June
30, 2015 |
|
December
31, 2014 |
($ millions) |
Government issued
or guaranteed |
|
Financials |
|
|
Government issued
or guaranteed |
|
Financials |
Canada |
14,451 |
|
1,849 |
|
|
14,650 |
|
2,391 |
United States |
1,358 |
|
5,759 |
|
|
1,590 |
|
5,992 |
United Kingdom |
2,511 |
|
1,952 |
|
|
2,484 |
|
1,992 |
Philippines |
2,732 |
|
40 |
|
|
2,575 |
|
17 |
Eurozone(1) |
218 |
|
805 |
|
|
171 |
|
762 |
Other |
1,019 |
|
1,503 |
|
|
611 |
|
1,390 |
Total |
22,289 |
|
11,908 |
|
|
22,081 |
|
12,544 |
(1) |
Our investments in Eurozone countries primarily include
Germany, Netherlands, Spain, France, and
Belgium. We do not have any direct exposure to Greece. Of our
exposure to Eurozone countries,
99.4% is rated investment grade and above and 78.8% is rated with
an investment grade of "A" or higher. |
|
|
Our gross unrealized losses as at June 30, 2015 for FVTPL and AFS debt
securities were $0.59 billion and
$0.08 billion, respectively, compared
with $0.22 billion and $0.04 billion, respectively, as at December 31, 2014.
Our debt securities as at June 30,
2015 included $11.9 billion
invested in the financial sector, representing approximately 17.8%
of our total debt securities, or 9.2% of our total invested assets.
This compares to $12.5 billion, or
18.9%, of our total debt securities and 10.0% of our total invested
assets as at December 31,
2014.
Our debt securities as at June 30,
2015 included $4.5 billion of
asset-backed securities reported at fair value, representing
approximately 6.8% of our debt securities, or 3.5% of our total
invested assets. This compares to $4.4
billion representing 6.7% of our debt securities and 3.6% of
our total invested assets as at December 31, 2014.
Mortgages and Loans
Mortgages and loans disclosures in this section are presented at
their carrying value on our Consolidated Statements of Financial
Position. As at June 30, 2015,
we had $36.5 billion in mortgages and
loans compared to $33.7 billion as at
December 31, 2014. Our mortgage
portfolio, which consists almost entirely of first mortgages, was
$13.8 billion. Our loan portfolio,
which consists of private placement assets, was $22.7 billion. The carrying value of mortgages
and loans by geographic location is presented in the following
table. The geographic location for mortgages is based on the
location of the property and for loans it is based on the country
of the creditor's parent.
Mortgages and Loans by Geography
|
June
30, 2015 |
|
December
31, 2014 |
($ millions) |
Mortgages |
|
Loans |
|
Total |
|
Mortgages |
|
Loans |
|
Total |
Canada |
7,953 |
|
12,907 |
|
20,860 |
|
|
7,847 |
|
12,308 |
|
20,155 |
United States |
5,904 |
|
6,538 |
|
12,442 |
|
|
5,563 |
|
5,196 |
|
10,759 |
United Kingdom |
— |
|
839 |
|
839 |
|
|
1 |
|
776 |
|
777 |
Other |
— |
|
2,387 |
|
2,387 |
|
|
— |
|
1,988 |
|
1,988 |
Total |
13,857 |
|
22,671 |
|
36,528 |
|
|
13,411 |
|
20,268 |
|
33,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2015, we held
$13.8 billion of mortgages, compared
to $13.4 billion as at December 31, 2014. Our mortgage portfolio
consisted primarily of commercial mortgages, spread across
approximately 2,300 loans. Commercial mortgages include retail,
office, multi-family, industrial, and land properties. Our
commercial portfolio has a weighted average loan-to-value ratio of
approximately 54% and an estimated weighted average debt service
coverage ratio of 1.70 times. The Canada Mortgage and Housing
Corporation insures 26.3% of the Canadian commercial mortgage
portfolio.
As at June 30, 2015, we held
$22.7 billion of corporate loans,
compared to $20.3 billion as at
December 31, 2014. In the
current low interest rate environment, our strategy is to continue
to focus our efforts on the origination of new private placement
assets. Private placement assets provide diversification by type of
loan, industry segment, and borrower credit quality. The loan
portfolio consists of senior secured and unsecured loans to large
and mid-market sized corporate borrowers, securitized lease/loan
obligations secured by a variety of assets, and project finance
loans in sectors such as power and infrastructure.
Mortgages and Loans Past Due or Impaired
|
June 30, 2015 |
|
Gross
carrying value |
Allowance for losses |
($ millions) |
Mortgages |
|
Loans |
|
Total |
|
Mortgages |
|
Loans |
Total |
Not past due |
13,776 |
|
22,671 |
|
|
36,447 |
|
|
— |
|
|
— |
|
— |
Past due: |
|
|
|
|
|
|
|
|
|
Past due less than 90 days |
5 |
|
— |
|
5 |
|
— |
|
|
— |
|
— |
|
Past due 90 to 179 days |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
Past due 180 days or more |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
Impaired |
110 |
|
5 |
|
115 |
|
34 |
(1) |
|
5 |
39 |
Total |
13,891 |
|
22,676 |
|
36,567 |
|
|
34 |
|
|
5 |
|
39 |
|
December 31, 2014 |
|
Gross
carrying value |
Allowance
for losses |
($ millions) |
Mortgages |
|
Loans |
|
Total |
|
Mortgages |
|
Loans |
Total |
Not past due |
13,316 |
|
20,248 |
|
33,564 |
|
|
— |
|
|
— |
|
— |
Past due: |
|
|
|
|
|
|
|
|
|
Past due less than 90 days |
14 |
|
— |
|
14 |
|
|
— |
|
|
— |
|
— |
|
Past due 90 to 179 days |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
Past due 180 days or more |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
Impaired |
118 |
|
36 |
|
154 |
|
|
37 |
(1) |
|
16 |
|
53 |
Total |
13,448 |
|
20,284 |
|
33,732 |
|
|
37 |
|
|
16 |
|
53 |
(1) |
Includes $19 million of sectoral provisions as at June 30,
2015 and $18 million of sectoral provisions as at December 31,
2014. |
|
|
Our impaired mortgages and loans, net of allowance for losses,
amounted to $76 million as at
June 30, 2015, compared to
$101 million as at December 31, 2014.
Asset Default Provision
We make provisions for possible future credit events in the
determination of our insurance contract liabilities. The amount of
the provision for asset default included in insurance contract
liabilities is based on possible reductions in future investment
yields that vary by factors such as type of asset, asset credit
quality (rating), duration, and country of origin. To the extent
that an asset is written off, or disposed of, any amounts that were
set aside in our insurance contract liabilities for possible future
asset defaults in respect of that asset are released.
Our asset default provision reflects the provision relating to
future credit events for fixed income assets currently held by the
Company that support our insurance contract liabilities. Our asset
default provision as at June 30,
2015 was $1,982 million
compared to $1,916 million as at
December 31, 2014. The increase
of $66 million was primarily due to
increases in the provision for assets purchased net of
dispositions, and the depreciation of the Canadian dollar,
partially offset by the release of provisions on fixed income
assets supporting our insurance contract liabilities.
Derivative Financial Instruments
The values of our derivative instruments are presented in the
following table. The use of derivatives is measured in terms of
notional amounts, which serve as the basis for calculating payments
and are generally not actual amounts that are exchanged.
Derivative Instruments
($ millions) |
June 30,
2015 |
|
December 31, 2014 |
Net fair value |
(566) |
|
236 |
Total notional amount |
51,819 |
|
48,211 |
Credit equivalent amount |
649 |
|
738 |
Risk-weighted credit equivalent amount |
7 |
|
7 |
|
|
|
|
The total notional amount of our derivatives was $51.8 billion as at June 30, 2015, compared to $48.2 billion as at December 31, 2014. The increase in total
notional amount was due primarily to the conversion of foreign
currency notional balances as well as increased use of interest
rate contracts and currency contracts. The fair value of
derivatives was a net liability of $566
million as at June 30,
2015 compared to a net asset of $236
million as at December 31,
2014. The decrease in net fair value was due primarily to
the effect of depreciation of the Canadian dollar against the U.S.
dollar on foreign exchange contracts as well as the impact of the
increase in interest rates on interest rate contracts.
Capital Management
Our total capital consists of subordinated debt and other capital,
participating policyholders' equity, and total shareholders' equity
which includes common shareholders' equity and preferred
shareholders' equity. As at June 30,
2015, our total capital was $23.0
billion, up from $21.7 billion
as at December 31, 2014. The
increase in total capital was primarily the result of common
shareholders' net income of $1,167
million and other comprehensive income of $665 million, partially offset by the
$212 million of common share
purchases under our normal course issuer bid and $412 million of common shareholders' dividends
(net of the Canadian dividend reinvestment and share purchase
plan).
The legal entity, SLF Inc. (the ultimate parent company), and
its wholly owned holding companies had $1,694 million in cash and other liquid assets as
at June 30, 2015 ($1,827 million as at December 31, 2014). The decrease in liquid
assets held in SLF Inc. was primarily attributable to common share
repurchases during the first half of 2015. Liquid assets as noted
above include cash and cash equivalents, short-term investments,
and publicly traded securities, and exclude cash from short-term
loans.
On June 30, 2015, 6.0 million
Class A Non-Cumulative 5-Year Rate Reset Preferred Shares Series 8R
("Series 8R Shares") were converted into Class A Non-Cumulative
Floating Rate Preferred Shares Series 9QR ("Series 9QR Shares")
through a holder option, on a one-for-one basis. Effective
June 30, 2015, 5.2 million Series 8R
Shares and 6.0 million Series 9QR Shares were outstanding. For
additional information, refer to Note 9 of our Interim Consolidated
Financial Statements.
Sun Life Assurance's MCCSR ratio was 223% as at June 30, 2015, compared to 217% as at
December 31, 2014. The increase
to the MCCSR ratio over the period primarily resulted from strong
earnings net of dividends to SLF Inc. The changes in the 2015 MCCSR
Guideline, which took effect in the first quarter of 2015, did not
have a significant impact on Sun Life Assurance.
Normal Course Issuer Bid
On November 10, 2014, SLF Inc.
launched a normal course issuer bid under which it is authorized to
purchase up to 9 million common shares between November 10, 2014 and November 9, 2015. During the second quarter of
2015, SLF Inc. purchased and cancelled 2.2 million common shares at
a total cost $92 million. During the
first six months of 2015, SLF Inc. purchased and cancelled 5.3
million common shares at a total cost of $212 million.
Risk Management
We use an enterprise Risk Management Framework to assist in
categorizing, monitoring, and managing the risks to which we are
exposed. The major categories of risk are credit risk, market risk,
insurance risk, operational risk, liquidity risk, and business
risk. Operational risk is a broad category that includes legal and
regulatory risks, people risks, and systems and processing
risks.
Through our ongoing enterprise risk management procedures, we
review the various risk factors identified in the Framework and
report to senior management and to the Risk Review Committee of the
Board at least quarterly. Our enterprise risk management procedures
and risk factors are described in our annual MD&A and AIF.
When referring to segregated funds in this section, it is
inclusive of segregated fund guarantees, variable annuities, and
investment products and includes Run-off reinsurance in our
Corporate business segment.
Market Risk Sensitivities
Our earnings are affected by the determination of policyholder
obligations under our annuity and insurance contracts. These
amounts are determined using internal valuation models and are
recorded in our Consolidated Financial Statements, primarily as
Insurance contract liabilities. The determination of these
obligations requires management to make assumptions about the
future level of equity market performance, interest rates, credit
and swap spreads, and other factors over the life of our products.
Differences between our actual experience and our best estimate
assumptions are reflected in our Consolidated Financial
Statements.
The market value of our investments in fixed income and equity
securities fluctuates based on movements in interest rates and
equity markets. The market value of fixed income assets designated
as AFS that are held primarily in our surplus segment increases
(decreases) with declining (rising) interest rates. The market
value of equities designated as AFS and held primarily in our
surplus segment increases (decreases) with rising (declining)
equity markets. Changes in the market value of AFS assets flow
through OCI and are only recognized in net income when realized
upon sale, or when considered impaired. The amount of realized
gains (losses) recorded in net income in any period is equal to the
unrealized gains (losses) or OCI position at the start of the
period plus the change in market value during the current period up
to the point of sale for those securities that were sold during the
period. The sale or impairment of AFS assets held in surplus can
therefore have the effect of modifying our net income
sensitivity.
We realized $46 million (pre-tax)
in net gains on the sale of AFS assets during the second quarter of
2015 ($48 million pre-tax in the
second quarter of 2014). The net unrealized gains or OCI position
on AFS fixed income and equity assets were $250 million and $267
million, respectively, after-tax as at June 30, 2015 ($340
million and $208 million,
respectively, after-tax as at December 31,
2014).
The following table sets out the estimated immediate impact on
or sensitivity of our net income, our OCI, and Sun Life Assurance's
MCCSR ratio to certain instantaneous changes in interest rates and
equity market prices as at June 30,
2015 and December 31,
2014.
Interest Rate and Equity Market Sensitivities
|
|
|
|
|
|
|
As at June 30,
2015(1)
($ millions, unless otherwise noted) |
|
|
|
|
|
|
Interest rate
sensitivity(2)(6) |
100 basis point
decrease |
|
50 basis point
decrease |
|
50 basis point
increase |
|
100 basis point
increase |
|
Potential impact on net
income(3)(6) |
$ |
(250) |
|
$ |
(50) |
|
$ |
50 |
|
$ |
100 |
|
Potential impact on OCI |
$ |
500 |
|
$ |
250 |
|
$ |
(250) |
|
$ |
(500) |
|
Potential impact on
MCCSR(4) |
10% points
decrease |
|
4% points
decrease |
|
5% points
increase |
|
9% points
increase |
Equity markets
sensitivity(5) |
25% decrease |
|
10%
decrease |
|
10% increase |
|
25% increase |
|
Potential impact on net
income(3) |
$ |
(300) |
|
$ |
(100) |
|
$ |
100 |
|
$ |
200 |
|
Potential impact on OCI |
$ |
(150) |
|
$ |
(50) |
|
$ |
50 |
|
$ |
150 |
|
Potential impact on
MCCSR(4) |
5% points
decrease |
|
1% points
decrease |
|
1% points
increase |
|
2% points
increase |
|
|
|
|
As at December 31,
2014(1)
($ millions, unless otherwise noted) |
|
|
|
Interest rate
sensitivity(2)(6) |
100 basis point
decrease |
|
50 basis point
decrease |
|
50 basis point
increase |
|
100 basis point
increase |
|
Potential impact on net
income(3)(6) |
$ |
(400) |
|
$ |
(100) |
|
$ |
50 |
|
$ |
100 |
|
Potential impact on OCI |
$ |
500 |
|
$ |
250 |
|
$ |
(250) |
|
$ |
(500) |
|
Potential impact on
MCCSR(4) |
12% points
decrease |
|
5% points
decrease |
|
4% points
increase |
|
8% points
increase |
Equity markets
sensitivity(5) |
25% decrease |
|
10% decrease |
|
10% increase |
|
25% increase |
|
Potential impact on net
income(3) |
$ |
(250) |
|
$ |
(50) |
|
$ |
50 |
|
$ |
150 |
|
Potential impact on OCI |
$ |
(150) |
|
$ |
(50) |
|
$ |
50 |
|
$ |
150 |
|
Potential impact on
MCCSR(4) |
5% points
decrease |
|
1% points
decrease |
|
1% points
increase |
|
1% points
increase |
|
|
|
|
|
|
|
|
(1) |
Net income and OCI sensitivities have been rounded
to the nearest $50 million. The sensitivities exclude the market
impacts
on the income from our joint ventures and associate investments,
which we account for on an equity basis. |
(2) |
Interest rate sensitivities assume a parallel
shift in assumed interest rates across the entire yield curve as at
June 30, 2015 and
December 31, 2014. Variations in realized yields based on factors
such as different terms to maturity and geographies may result
in realized sensitivities being significantly different from those
illustrated above. Sensitivities include the impact of
re-balancing
interest rate hedges for segregated funds at 10 basis point
intervals (for 50 basis point changes in interest rates) and at 20
basis
point intervals (for 100 basis point changes in interest
rates). |
(3) |
The market risk sensitivities include the
estimated mitigation impact of our hedging programs in effect as at
June 30, 2015 and
December 31, 2014, and include new business added and product
changes implemented prior to such dates. |
(4) |
The MCCSR sensitivities illustrate the impact on
Sun Life Assurance as at June 30, 2015 and December 31, 2014. This
excludes the
impact on assets and liabilities that are in SLF Inc. but not
included in Sun Life Assurance. MCCSR sensitivities as at December
31, 2014
reflect the impact of IAS 19 Employee Benefits and its
phase-in impact on available capital. |
(5) |
Represents the respective change across all equity
markets as at June 30, 2015 and December 31, 2014. Assumes that
actual equity
exposures consistently and precisely track the broader equity
markets. Since in actual practice equity-related exposures
generally differ
from broad market indices (due to the impact of active management,
basis risk, and other factors), realized sensitivities may differ
significantly
from those illustrated above. Sensitivities include the impact of
re-balancing equity hedges for segregated funds at 2% intervals
(for 10% changes in equity markets) and at 5% intervals (for 25%
changes in equity markets). |
(6) |
The majority of interest rate sensitivity, after
hedging, is attributed to individual insurance products.
We also have interest rate sensitivity, after hedging, from our
fixed annuity and segregated funds products. |
|
|
Our net income sensitivity to interest rate declines has
decreased since December 31, 2014.
This is the result of improvements in the measurement of the
sensitivity and increases in the level of interest rates over the
first six months of 2015.
Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our
reported net income attributable to certain instantaneous changes
in credit and swap spreads. The credit spread sensitivities reflect
the impact of changes in credit spreads on our asset and liability
valuations (including non-sovereign fixed income assets, provincial
governments, corporate bonds, and other fixed income assets). The
swap spread sensitivities reflect the impact of changes in swap
spreads on swap-based derivative positions and liability
valuations.
Credit Spread Sensitivities ($ millions, after-tax)
Net income
sensitivity(1)(2) |
|
50 basis point
decrease |
|
50 basis point increase |
June 30, 2015 |
|
$ (125) |
|
$ 125 |
December 31, 2014 |
|
$ (100) |
|
$ 125 |
(1) |
Sensitivities have been rounded to the nearest $25
million. |
(2) |
In most instances, credit spreads are assumed to revert to
long-term insurance contract liability assumptions generally over a
five-year period. |
|
|
Swap Spread Sensitivities ($ millions, after-tax)
Net income
sensitivity(1) |
|
20 basis point decrease |
|
20 basis point increase |
June 30, 2015 |
|
$ 50 |
|
$ (50) |
December 31, 2014 |
|
$ 75 |
|
$ (75) |
(1) |
Sensitivities have been rounded to the nearest $25
million. |
|
|
The credit and swap spread sensitivities assume a parallel shift
in the indicated spreads (i.e., equal shift across the entire
spread term structure). Variations in realized spread changes based
on different terms to maturity, geographies, asset class/derivative
types, underlying interest rate movements, and ratings may result
in realized sensitivities being significantly different from those
provided above. The credit spread sensitivity estimates exclude any
credit spread impact that may arise in connection with asset
positions held in segregated funds. Spread sensitivities are
provided for the consolidated entity and may not be proportional
across all reporting segments. Refer to the section Additional
Cautionary Language and Key Assumptions Related to Sensitivities
for important additional information regarding these estimates.
General Account Insurance and Annuity Products
Most of our expected sensitivity to interest rate risk is derived
from our general account insurance and annuity products. We have
implemented market risk management strategies to mitigate a portion
of the market risk related to our general account insurance and
annuity products.
Individual insurance products include universal life and other
long-term life and health insurance products. Major sources of
market risk exposure for individual insurance products include the
reinvestment risk related to future premiums on regular premium
policies, asset reinvestment risk on both regular premium and
single premium policies, and the guaranteed cost of insurance.
Interest rate risk for individual insurance products is typically
managed on a duration basis, within tolerance ranges set out in the
applicable investment policy or guidelines. Targets and limits are
established so that the level of residual exposure is commensurate
with our risk appetite. Exposures are monitored frequently, and
assets are re-balanced as necessary to maintain compliance within
policy limits using a combination of assets and derivative
instruments. A portion of the longer-term cash flows are backed
with equities and real estate.
For participating insurance products and other insurance
products with adjustability features, the investment strategy
objective is to provide a total rate of return given a constant
risk profile over the long term.
Fixed annuity products generally provide the policyholder with a
guaranteed investment return or crediting rate. Interest rate risk
for these products is typically managed on a duration basis, within
tolerance ranges set out in the applicable investment guidelines.
Targets and limits are established such that the level of residual
exposure is commensurate with our risk appetite. Exposures are
monitored frequently, and are re-balanced as necessary to maintain
compliance within prescribed tolerances using a combination of
fixed income assets and derivative instruments.
Certain insurance and annuity products contain minimum interest
rate guarantees. Market risk management strategies are implemented
to limit potential financial loss due to reductions in asset earned
rates relative to contract guarantees. These typically involve the
use of hedging strategies utilizing interest rate derivatives such
as interest rate floors, swaps, and swaptions.
Certain insurance and annuity products contain features which
allow the policyholders to surrender their policy at book value.
Market risk management strategies are implemented to limit the
potential financial loss due to changes in interest rate levels and
policyholder behaviour. These typically involve the use of hedging
strategies such as dynamic option replication and the purchase of
interest rate swaptions.
Certain products have guaranteed minimum annuitization rates.
Market risk management strategies are implemented to limit the
potential financial loss and typically involve the use of fixed
income asset, interest rate swaps, and swaptions.
Segregated Fund Guarantees
Approximately one half of our expected sensitivity to equity market
risk and a small amount of interest rate risk sensitivity is
derived from segregated fund products. These products provide
benefit guarantees, which are linked to underlying fund performance
and may be triggered upon death, maturity, withdrawal, or
annuitization. The cost of providing for the guarantees in respect
of our segregated fund contracts is uncertain and will depend upon
a number of factors including general capital market conditions,
our hedging strategies, policyholder behaviour, and mortality
experience, each of which may result in negative impacts on net
income and capital.
The following table provides information with respect to the
guarantees provided in our segregated fund businesses.
As at June 30,
2015 |
|
($ millions) |
Fund
value |
|
Amount at
Risk(1) |
Value of
guarantees(2) |
Insurance contract
liabilities(3) |
SLF Canada |
12,947 |
|
187 |
|
11,089 |
|
258 |
SLF U.S. |
5,368 |
|
300 |
|
5,467 |
|
108 |
Run-off
reinsurance(4) |
2,862 |
|
530 |
|
2,044 |
|
532 |
Total |
21,177 |
|
1,017 |
|
18,600 |
|
898 |
|
|
|
|
|
As at December 31, 2014 |
($ millions) |
Fund value |
|
Amount at Risk(1) |
|
Value of
guarantees(2) |
|
Insurance
contract
liabilities(3) |
SLF Canada |
13,039 |
|
217 |
|
11,202 |
|
273 |
SLF U.S. |
5,194 |
|
259 |
|
5,236 |
|
96 |
Run-off
reinsurance(4) |
2,800 |
|
501 |
|
1,999 |
|
526 |
Total |
21,033 |
|
977 |
|
18,437 |
|
895 |
(1) |
The Amount at Risk represents the excess of the value of the
guarantees over fund values on all policies where the value of the
guarantees exceeds the fund value. The Amount at Risk is not
currently payable as the guarantees are only payable upon death,
maturity, withdrawal, or annuitization if fund values remain below
guaranteed values. |
(2) |
For guaranteed lifetime withdrawal benefits, the value of
guarantees is calculated as the present value of the maximum future
withdrawals assuming market conditions remain unchanged from
current levels. For all other benefits, the value of guarantees is
determined assuming 100% of the claims are made at the valuation
date. |
(3) |
The insurance contract liabilities represent management's
provision for future costs associated with these guarantees and
include a provision for adverse deviation in accordance with
Canadian actuarial standards of practice. |
(4) |
The Run-off reinsurance business includes risks assumed through
reinsurance of variable annuity products issued by various North
American insurance companies between 1997 and 2001. This line of
business is part of a closed block of reinsurance, which is
included in the Corporate segment. |
|
|
The movement of the items in the table above from December 31, 2014 to June 30, 2015 was primarily as a result of
the following factors:
(i) |
the total fund values increased due to the weakening of the
Canadian dollar against the U.S. dollar, partially offset by the
natural run-off of the block; |
(ii) |
the total Amount at Risk increased primarily due to the
weakening of the Canadian dollar; |
(iii) |
the total value of guarantees increased due to the
weakening of the Canadian dollar, partially offset by the natural
run-off of the block; and |
(iv) |
the total insurance contract liabilities remained reasonably
stable. |
|
|
Segregated Fund Hedging
We have implemented hedging programs, involving the use of
derivative instruments, to mitigate a portion of the cost of
interest rate and equity market-related volatility in providing for
segregated fund guarantees. As at June 30,
2015, over 90% of our segregated fund contracts, as measured
by associated fund values, were included in a hedging program.
While a large percentage of contracts are included in the hedging
program, not all of our equity and interest rate exposure related
to these contracts is hedged. For those segregated fund contracts
included in the hedging program, we generally hedge the value of
expected future net claims costs and associated margins as we are
primarily focused on hedging the expected economic costs associated
with providing these guarantees.
The following table illustrates the impact of our hedging
program related to our sensitivity to a 50 basis point and 100
basis point decrease in interest rates and 10% and 25% decrease in
equity markets for segregated fund contracts as at June 30, 2015 and December
31, 2014.
Impact of Segregated Fund Hedging
June 30, 2015 |
|
|
|
|
($ millions) |
Changes in
interest rates(3) |
Changes in equity
markets(4) |
Net income sensitivity(1)(2) |
50 basis point
decrease |
100 basis point
decrease |
10% decrease |
25% decrease |
Before hedging |
(200) |
(400) |
(200) |
(550) |
Hedging impact |
200 |
450 |
150 |
450 |
Net of hedging |
— |
50 |
(50) |
(100) |
|
|
|
|
|
December 31, 2014 |
($ millions) |
Changes in interest
rates(3) |
Changes in equity
markets(4) |
Net income sensitivity(1)(2) |
50 basis point
decrease |
100 basis point
decrease |
10% decrease |
25% decrease |
Before hedging |
(200) |
(400) |
(150) |
(500) |
Hedging impact |
200 |
400 |
150 |
400 |
Net of hedging |
— |
— |
— |
(100) |
(1) |
Net income sensitivities have been rounded to the nearest $50
million. |
(2) |
Since the fair value of benefits being hedged will generally
differ from the financial statement value (due to different
valuation methods and the inclusion of valuation margins in respect
of financial statement values), this will result in residual
volatility to interest rate and equity market shocks in reported
income and capital. The general availability and cost of these
hedging instruments may be adversely impacted by a number of
factors, including volatile and declining equity and interest rate
market conditions. |
(3) |
Represents a parallel shift in assumed interest rates across
the entire yield curve as at June 30, 2015 and
December 31, 2014. Variations in realized yields based on
factors such as different terms to maturity and geographies may
result in realized sensitivities being significantly different from
those illustrated above. Sensitivities include the impact of
re-balancing interest rate hedges for segregated funds at 10 basis
point intervals (for 50 basis point changes in interest rates) and
at 20 basis point intervals (for 100 basis point changes in
interest rates). |
(4) |
Represents the change across all equity markets as at
June 30, 2015 and December 31, 2014. Assumes that actual
equity exposures consistently and precisely track the broader
equity markets. Since in actual practice equity-related exposures
generally differ from broad market indices (due to the impact of
active management, basis risk, and other factors), realized
sensitivities may differ significantly from those illustrated
above. Sensitivities include the impact of re-balancing equity
hedges for segregated funds at 2% intervals (for 10% changes in
equity markets) and at 5% intervals (for 25% changes in equity
markets). |
|
|
Real Estate Risk
We are exposed to real estate risk arising from fluctuations in the
value of, or future cash flows on, real estate classified as
investment properties. We may experience financial losses resulting
from the direct ownership of real estate investments or indirectly
through fixed income investments secured by real estate property,
leasehold interests, ground rents, and purchase and leaseback
transactions. Real estate price risk may arise from external market
conditions, inadequate property analysis, inadequate insurance
coverage, inappropriate real estate appraisals, or from
environmental risk exposures. We hold direct real estate
investments that support general account liabilities and surplus,
and fluctuations in value will impact our profitability and
financial position. An instantaneous 10% decrease in the value of
our direct real estate investments as at June 30, 2015 would decrease net income by
approximately $150 million
($150 million decrease as at
December 31, 2014). Conversely, an
instantaneous 10% increase in the value of our direct real estate
investments as at June 30, 2015 would
increase net income by approximately $150
million ($150 million increase
as at December 31, 2014).
Additional Cautionary Language and Key Assumptions Related to
Sensitivities
Our market risk sensitivities are measures of our estimated change
in net income and OCI for changes in interest rates and equity
market price levels described above, based on interest rates,
equity market prices, and business mix in place as at the
respective calculation dates. These sensitivities are calculated
independently for each risk factor, generally assuming that all
other risk variables stay constant. The sensitivities do not take
into account indirect effects such as potential impacts on goodwill
impairment or valuation allowances on deferred tax assets. The
sensitivities are provided for the consolidated entity and may not
be proportional across all reporting segments. Actual results can
differ materially from these estimates for a variety of reasons,
including differences in the pattern or distribution of the market
shocks, the interaction between these risk factors, model error, or
changes in other assumptions such as business mix, effective tax
rates, policyholder behaviour, currency exchange rates, and other
market variables relative to those underlying the calculation of
these sensitivities. The potential extent to which actual results
may differ from the indicative ranges will generally increase with
larger capital market movements. Our sensitivities as at
December 31, 2014 have been included
for comparative purposes only.
We have also provided measures of our net income sensitivity to
instantaneous changes in credit spreads, swap spreads, real estate
price levels, and capital sensitivities to changes in interest
rates and equity price levels. The real estate sensitivities are
non-IFRS financial measures. For additional information, see Use of
Non-IFRS Financial Measures. The cautionary language which appears
in this section is also applicable to the credit spread, swap
spread, real estate, and MCCSR ratio sensitivities. In particular,
these sensitivities are based on interest rates, credit and swap
spreads, equity market, and real estate price levels as at the
respective calculation dates and assume that all other risk
variables remain constant. Changes in interest rates, credit and
swap spreads, equity market, and real estate prices in excess of
the ranges illustrated may result in other-than-proportionate
impacts.
As these market risk sensitivities reflect an instantaneous
impact on net income, OCI, and Sun Life Assurance's MCCSR ratio,
they do not include impacts over time such as the effect on fee
income in our asset management businesses.
The sensitivities reflect the composition of our assets and
liabilities as at June 30, 2015 and
December 31, 2014. Changes in
these positions due to new sales or maturities, asset
purchases/sales, or other management actions could result in
material changes to these reported sensitivities. In particular,
these sensitivities reflect the expected impact of hedging
activities based on the hedge programs in place as at the
June 30 and December 31 calculation dates. The actual impact
of these hedging activities can differ materially from that assumed
in the determination of these indicative sensitivities due to
ongoing hedge re-balancing activities, changes in the scale or
scope of hedging activities, changes in the cost or general
availability of hedging instruments, basis risk (i.e., the risk
that hedges do not exactly replicate the underlying portfolio
experience), model risk, and other operational risks in the ongoing
management of the hedge programs or the potential failure of hedge
counterparties to perform in accordance with expectations.
The sensitivities are based on methods and assumptions in effect
as at June 30, 2015 and December 31, 2014, as applicable. Changes in the
regulatory environment, accounting or actuarial valuation methods,
models, or assumptions after this date could result in material
changes to these reported sensitivities. Changes in interest rates
and equity market prices in excess of the ranges illustrated may
result in other than proportionate impacts.
Our hedging programs may themselves expose us to other risks,
including basis risk (i.e., the risk that hedges do not exactly
replicate the underlying portfolio experience), derivative
counterparty credit risk, and increased levels of liquidity risk,
model risk, and other operational risks. These factors may
adversely impact the net effectiveness, costs, and financial
viability of maintaining these hedging programs and therefore
adversely impact our profitability and financial position. While
our hedging programs include various elements aimed at mitigating
these effects (e.g., hedge counterparty credit risk is managed by
maintaining broad diversification, dealing primarily with highly
rated counterparties, and transacting through International Swaps
and Derivatives Association agreements that generally include
applicable credit support annexes), residual risk and potential
reported earnings and capital volatility remain.
For the reasons outlined above, these sensitivities should only
be viewed as directional estimates of the underlying sensitivities
of each factor under these specialized assumptions, and should not
be viewed as predictors of our future net income, OCI, and capital
sensitivities. Given the nature of these calculations, we cannot
provide assurance that actual impact will be consistent with the
estimates provided.
Information related to market risk sensitivities and guarantees
related to segregated fund products should be read in conjunction
with the information contained in the Outlook, Critical Accounting
Policies and Estimates, and Risk Management sections in our annual
MD&A and in the Risk Factors and Regulatory Matters sections in
our AIF.
Legal and Regulatory Matters
Information concerning legal and regulatory matters is provided in
our Annual Consolidated Financial Statements, annual MD&A, and
AIF, for the year ended December 31,
2014.
Changes in Accounting Policies
We have not adopted any new and amended IFRS in the current period
ended June 30, 2015.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable
assurance regarding the reliability of the Company's financial
reporting and the preparation of its financial statements in
accordance with IFRS.
There were no changes in the Company's internal control over
financial reporting during the period which began on April 1, 2015 and ended on June 30, 2015 that have materially affected,
or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
Reconciliation of Non-IFRS Financial Measures
Additional information on the use of non-IFRS measures, including
the definition of operating net income (loss) and underlying net
income (loss), is available in this document under the heading Use
of Non-IFRS Financial Measures.
The following table sets out the amounts that were excluded from
our operating net income (loss), underlying net income (loss),
operating EPS, and underlying EPS, and provides a reconciliation to
our reported net income (loss) and EPS based on IFRS.
Reconciliations of Select Net Income Measures
|
Quarterly results |
($ millions, unless otherwise
noted) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
Reported net income |
726 |
|
441 |
|
502 |
|
435 |
|
425 |
|
Impact of certain hedges in SLF Canada that do not
qualify for hedge accounting |
6 |
|
15 |
|
(6) |
|
2 |
|
(8) |
|
Fair value adjustments on share-based payment
awards at MFS |
(11) |
|
(20) |
|
1 |
|
(31) |
|
(44) |
|
Restructuring and other related costs |
— |
|
— |
|
(4) |
|
(3) |
|
(11) |
Operating net income (loss) |
731 |
|
446 |
|
511 |
|
467 |
|
488 |
|
Market related impacts |
97 |
|
(22) |
|
(21) |
|
(54) |
|
(22) |
|
Assumption changes and management actions |
19 |
|
(48) |
|
172 |
|
4 |
|
11 |
Underlying net income (loss) |
615 |
|
516 |
|
360 |
|
517 |
|
499 |
Reported EPS (diluted) ($) |
1.18 |
|
0.72 |
|
0.81 |
|
0.71 |
|
0.69 |
|
Impact of certain hedges in SLF Canada that do not
qualify for hedge accounting ($) |
0.01 |
|
0.02 |
|
(0.01) |
|
— |
|
(0.01) |
|
Fair value adjustments on share-based payment
awards at MFS ($) |
(0.02) |
|
(0.03) |
|
— |
|
(0.05) |
|
(0.07) |
|
Restructuring and other related costs ($) |
— |
|
— |
|
(0.01) |
|
— |
|
(0.02) |
|
Impact of convertible securities on diluted EPS
($) |
— |
|
— |
|
— |
|
— |
|
(0.01) |
Operating EPS (diluted) ($) |
1.19 |
|
0.73 |
|
0.83 |
|
0.76 |
|
0.80 |
|
Market related impacts ($) |
0.16 |
|
(0.03) |
|
(0.04) |
|
(0.09) |
|
(0.03) |
|
Assumption changes and management actions ($) |
0.03 |
|
(0.08) |
|
0.28 |
|
0.01 |
|
0.02 |
Underlying EPS (diluted) ($) |
1.00 |
|
0.84 |
|
0.59 |
|
0.84 |
|
0.81 |
|
|
|
|
|
|
|
|
|
|
Management also uses the following non-IFRS financial
measures:
Return on equity. IFRS does not prescribe the calculation
of ROE and therefore a comparable measure under IFRS is not
available. To determine operating ROE and underlying ROE, operating
net income (loss) and underlying net income (loss) are divided by
the total weighted average common shareholders' equity for the
period, respectively.
Adjusted revenue. This measure excludes from revenue the
impact of: (i) exchange rate fluctuations, from the translation of
functional currencies to the Canadian dollar, for comparisons
("Constant Currency Adjustment"); (ii) Fair value and foreign
currency changes on assets and liabilities ("FV Adjustment"); and
(iii) reinsurance for the insured business in SLF Canada's GB
operations ("Reinsurance in SLF Canada's GB Operations
Adjustment"). Adjusted revenue is an alternative measure of revenue
that provides greater comparability across reporting periods.
|
Quarterly results |
($ millions) |
Q2'15 |
Q1'15 |
Q4'14 |
Q3'14 |
Q2'14 |
Revenues |
1,682 |
|
7,332 |
|
7,375 |
|
5,614 |
|
6,315 |
|
Constant Currency Adjustment |
315 |
|
333 |
|
98 |
|
(4) |
|
— |
|
FV Adjustment |
(3,500) |
|
2,495 |
|
2,196 |
|
495 |
|
1,560 |
|
Reinsurance in SLF Canada's GB Operations
Adjustment |
(1,149) |
|
(1,185) |
|
(1,154) |
|
(1,130) |
|
(1,120) |
Adjusted revenue |
6,016 |
|
5,689 |
|
6,235 |
|
6,253 |
|
5,875 |
|
|
|
|
|
|
|
|
Adjusted premiums and deposits. This measure adjusts
premiums and deposits for the impact of (i) the Constant Currency
Adjustment and (ii) the Reinsurance in SLF Canada's GB Operations
Adjustment. Adjusted premiums and deposits is an alternative
measure of premiums and deposits that provides greater
comparability across reporting periods.
|
Quarterly results |
($ millions) |
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
Q2'14 |
Premiums and deposits |
35,720 |
|
36,754 |
|
31,770 |
|
29,124 |
|
28,876 |
|
Constant Currency Adjustment |
3,146 |
|
3,772 |
|
1,016 |
|
(50) |
|
— |
|
Reinsurance in SLF Canada's GB Operations
Adjustment |
(1,149) |
|
(1,185) |
|
(1,154) |
|
(1,130) |
|
(1,120) |
Adjusted premiums and deposits |
33,723 |
|
34,167 |
|
31,908 |
|
30,304 |
|
29,996 |
|
|
|
|
|
|
|
|
|
|
Pre-tax operating profit margin ratio for MFS. This ratio
is a measure of the underlying profitability of MFS, which excludes
certain investment income and commission expenses that are
offsetting. These amounts are excluded in order to neutralize the
impact these items have on the pre-tax operating profit margin
ratio, as they are offsetting in nature and have no impact on the
underlying profitability of MFS.
Impact of foreign exchange. Several IFRS financial
measures are presented on a constant currency adjusted basis to
exclude the impact of foreign exchange rate fluctuations. These
measures are calculated using the average or period end foreign
exchange rates, as appropriate, in effect at the date of the
comparative period.
Real estate market sensitivities. Real estate market
sensitivities are non-IFRS financial measures for which there are
no directly comparable measures under IFRS so it is not possible to
provide a reconciliation of these amounts to the most directly
comparable IFRS measures.
Other. Management also uses the following non-IFRS
financial measures for which there are no comparable financial
measures in IFRS: (i) ASO premium and deposit equivalents, mutual
fund sales, managed fund sales, life and health sales, and total
premiums and deposits; (ii) AUM, mutual fund assets, managed fund
assets, other AUM, and assets under administration; (iii) the value
of new business, which is used to measure the estimated lifetime
profitability of new sales and is based on actuarial calculations;
and (iv) assumption changes and management actions, which is a
component of our sources of earnings disclosure. Sources of
earnings is an alternative presentation of our Consolidated
Statements of Operations that identifies and quantifies various
sources of income. The Company is required to disclose its sources
of earnings by its principal regulator, the Office of the
Superintendent of Financial Institutions.
Forward-looking Statements
From time to time, the Company makes written or oral
forward-looking statements within the meaning of certain securities
laws, including the "safe harbour" provisions of the United States
Private Securities Litigation Reform Act of 1995 and applicable
Canadian securities legislation. Forward-looking statements
contained in this document include (i) statements related to our
proposed acquisition of the Bentall Kennedy group of companies and
the expected AUM of SLIM, (ii) statements relating to our
strategies, (iii) statements that are predictive in nature or that
depend upon or refer to future events or conditions, and (iv)
statements that include words such as "aim", "anticipate",
"assumption", "believe", "could", "estimate", "expect", "goal",
"initiatives", "intend", "may", "objective", "outlook", "plan",
"project", "seek", "should", "strategy", "strive", "target",
"will", and similar expressions. Forward-looking statements include
the information concerning our possible or assumed future results
of operations. These statements represent our current expectations,
estimates, and projections regarding future events and are not
historical facts. Forward-looking statements are not a guarantee of
future performance and involve risks and uncertainties that are
difficult to predict. Future results and shareholder value may
differ materially from those expressed in these forward-looking
statements due to, among other factors, the matters set out in this
document under the headings Capital Management and Risk Management
and in SLF Inc.'s 2014 AIF under the headings Risk Factors and the
factors detailed in SLF Inc.'s other filings with Canadian and U.S.
securities regulators, which are available for review at
www.sedar.com and www.sec.gov, respectively.
Factors that could cause actual results to differ materially
from expectations include, but are not limited to:
business risks - economic and geo-political risks; risks
in implementing business strategies; changes in legislation and
regulations, including capital requirements and tax laws; the
inability to maintain strong distribution channels and risks
relating to market conduct by intermediaries and agents; risks
relating to operations in Asia,
including the Company's joint ventures; the impact of competition;
the performance of the Company's investments and investment
portfolios managed for clients such as segregated and mutual funds;
market conditions that affect the Company's capital position or its
ability to raise capital; downgrades in financial strength or
credit ratings; risks relating to estimates and judgments used in
calculating taxes; the impact of mergers, acquisitions and
divestitures, including our proposed acquisition of Bentall
Kennedy(1); the ineffectiveness of risk management
policies and procedures; risks relating to the closed block of
business; market, credit, and liquidity risks - the
performance of equity markets; credit risks related to issuers of
securities held in our investment portfolio, debtors, structured
securities, reinsurers, derivative counterparties, other financial
institutions, and other entities; changes or volatility in interest
rates or credit spreads or swap spreads; fluctuations in foreign
currency exchange rates; risks relating to real estate investments;
risks relating to market liquidity; insurance risks - risks
relating to the rate of mortality improvement; risks relating to
policyholder behaviour; risks relating to product design and
pricing; risks relating to mortality and morbidity, including the
occurrence of natural or man-made disasters, pandemic diseases, and
acts of terrorism; the impact of higher-than-expected future
expenses; the availability, cost, and effectiveness of reinsurance;
operational risks - breaches or failure of information
system security and privacy, including cyber terrorism; risks
relating to our information technology infrastructure; failure of
information systems and Internet-enabled technology; the ability to
attract and retain employees; legal and regulatory proceedings,
including inquiries and investigations; risks relating to financial
modelling errors; business continuity risks; dependence on
third-party relationships, including outsourcing arrangements; and
risks relating to the environment, environmental laws and
regulations, and third-party policies.
The Company does not undertake any obligation to update or
revise its forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events, except as required by law.
Earnings Conference Call
The Company's second quarter 2015 financial results will be
reviewed at a conference call on Thursday,
August 6, 2015, at 10:00 a.m.
ET. To listen to the call via live audio webcast and to view
the presentation slides, as well as related information, please
visit www.sunlife.com and click on the link to Quarterly reports
under Investors - Financial results & reports 10 minutes prior
to the start of the call. Individuals participating in the call in
a listen-only mode are encouraged to connect via our webcast.
Following the call, the webcast and presentation will be archived
and made available on the Company's website, www.sunlife.com, until
Q2 2016 period end. The conference call can also be accessed by
phone by dialing 647-788-4901 (International) or 1-877-201-0168
(Toll free North America).
_________________
(1) |
For additional information on risks related to our proposed
acquisition of Bentall Kennedy, refer to the news release dated on
June 15, 2015 announcing that acquisition. |
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
For the three months
ended |
|
For the six months
ended |
(unaudited, in millions of Canadian dollars except for per share
amounts) |
|
June 30,
2015 |
|
|
June 30,
2014 |
|
|
June 30,
2015 |
|
|
June 30,
2014 |
Revenue |
|
|
|
|
|
|
|
|
|
Premiums |
|
|
|
|
|
|
|
|
|
|
Gross |
$ |
4,103 |
|
$ |
3,758 |
|
$ |
7,826 |
|
$ |
7,396 |
|
|
Less: Ceded |
|
1,580 |
|
|
1,386 |
|
|
3,096 |
|
|
2,796 |
|
Net premiums |
|
2,523 |
|
|
2,372 |
|
|
4,730 |
|
|
4,600 |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss): |
|
|
|
|
|
|
|
|
|
|
Interest and other investment
income |
|
1,320 |
|
|
1,230 |
|
|
2,599 |
|
|
2,418 |
|
|
Fair value and foreign currency
changes on assets and liabilities |
|
(3,500) |
|
1,560 |
|
|
(1,005) |
|
3,481 |
|
|
Net gains (losses) on
available-for-sale assets |
|
46 |
|
|
48 |
|
|
142 |
|
|
105 |
|
Net investment income (loss) |
|
(2,134) |
|
2,838 |
|
|
1,736 |
|
|
6,004 |
|
Fee income |
|
1,293 |
|
|
1,105 |
|
|
2,548 |
|
|
2,171 |
Total revenue |
|
1,682 |
|
|
6,315 |
|
|
9,014 |
|
|
12,775 |
Benefits and expenses |
|
|
|
|
|
|
|
|
|
Gross claims and benefits paid |
|
3,461 |
|
|
3,136 |
|
|
6,891 |
|
|
6,339 |
|
Increase (decrease) in insurance
contract liabilities |
|
(2,975) |
|
2,368 |
|
|
173 |
|
|
4,597 |
|
Decrease (increase) in reinsurance
assets |
|
(121) |
|
(166) |
|
(314) |
|
(112) |
|
Increase (decrease) in investment
contract liabilities |
|
(19) |
|
25 |
|
|
(7) |
|
56 |
|
Reinsurance expenses (recoveries) |
|
(1,523) |
|
(1,351) |
|
(2,976) |
|
(2,676) |
|
Commissions |
|
508 |
|
|
465 |
|
|
1,000 |
|
|
905 |
|
Net transfer to (from) segregated
funds |
|
(30) |
|
(13) |
|
(13) |
|
(6) |
|
Operating expenses |
|
1,229 |
|
|
1,124 |
|
|
2,409 |
|
|
2,247 |
|
Premium taxes |
|
73 |
|
|
60 |
|
|
143 |
|
|
121 |
|
Interest expense |
|
84 |
|
|
78 |
|
|
156 |
|
|
165 |
Total benefits and
expenses |
|
687 |
|
|
5,726 |
|
|
7,462 |
|
|
11,636 |
Income (loss) before income
taxes |
|
995 |
|
|
589 |
|
|
1,552 |
|
|
1,139 |
|
Less: Income tax expense
(benefit) |
|
245 |
|
|
134 |
|
|
340 |
|
|
251 |
Total net income (loss) |
|
750 |
|
|
455 |
|
|
1,212 |
|
|
888 |
|
Less: Net income (loss) attributable
to participating policyholders |
|
(2) |
|
— |
|
|
(7) |
|
4 |
Shareholders' net income
(loss) |
|
752 |
|
|
455 |
|
|
1,219 |
|
|
884 |
|
Less: Preferred shareholders'
dividends |
|
26 |
|
|
30 |
|
|
52 |
|
|
59 |
Common shareholders' net income
(loss) |
$ |
726 |
|
|
425 |
|
$ |
1,167 |
|
$ |
825 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
Basic |
$ |
1.19 |
|
$ |
0.70 |
|
$ |
1.91 |
|
$ |
1.35 |
|
Diluted |
$ |
1.18 |
|
$ |
0.69 |
|
$ |
1.90 |
|
$ |
1.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Financial Position
|
|
|
|
|
|
As at |
(unaudited, in
millions of Canadian dollars) |
|
|
June 30,
2015 |
|
|
December 31,
2014 |
Assets |
|
|
|
|
|
Cash, cash equivalents and short-term
securities |
|
$ |
7,454 |
|
|
$ |
6,818 |
|
Debt securities |
|
66,750 |
|
|
66,214 |
|
Equity securities |
|
5,475 |
|
|
5,223 |
|
Mortgages and loans |
|
36,528 |
|
|
33,679 |
|
Derivative assets |
|
1,601 |
|
|
1,839 |
|
Other invested assets |
|
2,717 |
|
|
2,375 |
|
Policy loans |
|
2,998 |
|
|
2,895 |
|
Investment properties |
|
6,372 |
|
|
6,108 |
|
Invested assets |
|
129,895 |
|
|
125,151 |
|
Other assets |
|
3,912 |
|
|
3,429 |
|
Reinsurance assets |
|
4,653 |
|
|
4,042 |
|
Deferred tax assets |
|
1,246 |
|
|
1,230 |
|
Property and equipment |
|
573 |
|
|
555 |
|
Intangible assets |
|
929 |
|
|
895 |
|
Goodwill |
|
4,264 |
|
|
4,117 |
|
Total general fund assets |
|
145,472 |
|
|
139,419 |
|
Investments for account of segregated fund
holders |
|
90,500 |
|
|
83,938 |
Total assets |
|
$ |
235,972 |
|
|
$ |
223,357 |
Liabilities and equity |
|
|
|
|
Liabilities |
|
|
|
|
|
Insurance contract liabilities |
|
$ |
104,707 |
|
|
$ |
101,228 |
|
Investment contract liabilities |
|
2,842 |
|
|
2,819 |
|
Derivative liabilities |
|
2,167 |
|
|
1,603 |
|
Deferred tax liabilities |
|
325 |
|
|
155 |
|
Other liabilities |
|
10,264 |
|
|
9,725 |
|
Senior debentures |
|
2,849 |
|
|
2,849 |
|
Subordinated debt |
|
2,182 |
|
|
2,168 |
|
Total general fund liabilities |
|
125,336 |
|
|
120,547 |
|
Insurance contracts for account of segregated fund
holders |
|
82,713 |
|
|
76,736 |
|
Investment contracts for account of segregated
fund holders |
|
7,787 |
|
|
7,202 |
Total liabilities |
|
$ |
215,836 |
|
|
$ |
204,485 |
|
|
|
|
|
Equity |
|
|
|
|
|
Issued share capital and contributed surplus |
|
$ |
10,835 |
|
|
$ |
10,805 |
|
Retained earnings and accumulated other
comprehensive income |
|
9,301 |
|
|
8,067 |
Total equity |
|
$ |
20,136 |
|
|
$ |
18,872 |
Total liabilities and
equity |
|
$ |
235,972 |
|
|
$ |
223,357 |
|
|
|
|
|
|
|
|
|
About Sun Life Financial
Celebrating 150 years in 2015, Sun Life Financial is a leading
international financial services organization providing a diverse
range of protection and wealth products and services to individuals
and corporate customers. Sun Life Financial and its partners have
operations in a number of markets worldwide, including Canada, the United
States, the United Kingdom,
Ireland, Hong Kong, the
Philippines, Japan,
Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia and Bermuda. As of June 30, 2015, the Sun Life Financial group
of companies had total assets under management of $808 billion. For more information please
visit www.sunlife.com.
Sun Life Financial Inc. trades on the Toronto (TSX), New
York (NYSE) and Philippine (PSE) stock exchanges under the
ticker symbol SLF.
SOURCE Sun Life Financial Inc.