The information contained in this document is based on the
audited annual and unaudited interim financial results of Sun Life
Financial Inc. ("SLF Inc.") for the period ended December 31,
2016. SLF Inc. and its subsidiaries, are collectively referred to
as "the Company", "Sun Life Financial", "we", "our", and "us", and
also includes, where applicable, our joint ventures and associates.
Unless otherwise noted, all amounts are in Canadian dollars.
TORONTO, Feb. 15, 2017 /CNW/ - Sun Life Financial
Inc. (TSX: SLF) (NYSE: SLF) today announced its results for
the fourth quarter ended December 31, 2016. Fourth quarter
reported net income was $728 million.
Fourth quarter operating net income(1) and underlying
net income(1) were $732
million and $560 million,
respectively.
|
|
Quarterly
results
|
|
Full Year
|
|
|
Q4'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net income
($ millions)
|
|
728
|
|
536
|
|
2,485
|
|
2,185
|
Operating net
income(1) ($ millions)
|
|
732
|
|
598
|
|
2,487
|
|
2,253
|
Underlying net
income(1) ($ millions)
|
|
560
|
|
646
|
|
2,335
|
|
2,305
|
Reported
EPS(2) ($)
|
|
1.18
|
|
0.87
|
|
4.03
|
|
3.55
|
Operating
EPS(1)(2) ($)
|
|
1.19
|
|
0.98
|
|
4.05
|
|
3.68
|
Underlying
EPS(1)(2) ($)
|
|
0.91
|
|
1.05
|
|
3.80
|
|
3.76
|
Reported
ROE(1)
|
|
14.8%
|
|
11.4%
|
|
13.0%
|
|
12.2%
|
Operating
ROE(1)
|
|
14.9%
|
|
12.7%
|
|
13.0%
|
|
12.6%
|
Underlying
ROE(1)
|
|
11.4%
|
|
13.8%
|
|
12.2%
|
|
12.8%
|
- Common share dividend declared of $0.42 per share for the quarter. Dividends
declared in the year of $1.62 per
share
- Minimum Continuing Capital and Surplus Requirements ratio for
Sun Life Assurance Company of Canada of 226%. Cash and other liquid assets
amounted to $1.6 billion for Sun Life
Financial Inc. and its wholly-owned holding
companies(3)
- Global assets under management ("AUM") of $903 billion compared to $891 billion as at December 31, 2015
"Our fourth quarter closed out a year defined by an intensified
commitment to our Clients and significant progress on several
fronts for Sun Life," said Dean
Connor, President and Chief Executive Officer, Sun Life
Financial. "I'm pleased with the execution of our digital and
wealth initiatives in Canada, our
sales momentum in Asia, the
scaling and integration of our U.S. operations, and strong
long-term investment performance in our asset management
businesses."
"In 2016, we achieved underlying net income of $2.3 billion, raised our common share dividend
twice, and generated 12.2% underlying return on equity," said
Connor. "We also generated strong topline growth, increasing
insurance sales by 27% and wealth sales by 14% for the year
compared to 2015. Total shareholder return was 24% for the
year."
"During the quarter we announced industry-leading underwriting
and product changes in Canada that
increase access and make it easier for Clients to do business with
us," said Connor. "We also continued to improve our digital
touchpoints and solutions, from new mobile apps to advanced
analytics that provide Clients with proactive and relevant advice
and prompts to meet their unique needs. In recognition of our
focus, Sun Life earned the highest overall score in Forrester's
annual Canadian Life Insurance Digital Sales Functionality
Benchmark."
______________________
|
(1)
|
Represents a non-IFRS
financial measure. 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. For operating EPS and underlying EPS, refer to Use of
Non-IFRS Financial Measures.
|
(3)
|
For additional
information, see the section under the heading Capital Management
in this document.
|
Operational Highlights
Our strategy is focused on four key pillars of growth, where we
aim to be a leader in the markets in which we operate. We detail
our continued progress in these pillars below.
Fourth Quarter Operational Highlights
A Leader in Insurance and Wealth Solutions in our Canadian
home market
Total Canadian sales were strong and increased compared to the
fourth quarter of 2015 in each of our businesses. Individual
insurance sales doubled over the same period in the prior year in
anticipation of the tax legislation changes effective January 1, 2017. The increase was driven by
Career Sales Force and third-party sales, particularly of
participating permanent and universal life products.
Individual wealth sales of $1.5
billion were up 8% in the fourth quarter. We continued to
experience solid growth in sales of our wealth
manufactured(1) products including SLGI(2)
mutual funds, Sun GIF(3) segregated funds, and payout
annuities. These increases were partially offset by a decrease in
sales of non-SLGI mutual funds.
Group Benefits and Group Retirement Services sales increased
compared to the fourth quarter of 2015, primarily due to several
large-case sales.
A Leader in global Asset Management
MFS Investment Management ("MFS") had AUM of US$426 billion as at December 31, 2016. Gross sales were US$19.8 billion in the fourth quarter of 2016 and
net outflows were US$9.5 billion.
Rebalancing by institutional Clients was the largest driver of
outflows. An increase in non-U.S. retail redemptions, which were in
line with the industry as a whole, was an additional contributor to
the higher net outflows when compared to the previous quarter.
In the fourth quarter, we experienced asset depreciation of
$5.6 billion reflecting the decline
in fixed income and non-U.S. equity markets. MFS remains focused on
long-term retail funds, where performance remained strong: 61%, 75%
and 97% of MFS's U.S. retail mutual fund assets ranked in the top
half of their Lipper categories based on three-, five- and ten-year
performance, respectively, as of December
31, 2016.
Sun Life Investment Management had AUM of $53 billion as at December
31, 2016. Strong net inflows of $2.3
billion in the fourth quarter were driven primarily from
Prime Advisors Inc. During the quarter, the Bentall Kennedy group
of companies ("Bentall Kennedy") continued to expand its product
offerings by creating products that are complementary to its core
Canadian and U.S. diversified property funds.
A Leader in U.S. Group Benefits and International high net
worth solutions
Sales in Group Benefits increased 32% compared to the fourth
quarter of 2015, following our U.S. employee benefits business
acquisition in 2016. Year over year, collectively, sales in the
life, disability, and dental product lines doubled, and Disability
Reinsurance Management Services sales remained strong.
A Leader in Asia through
Distribution Excellence in Higher Growth Markets
SLF Asia individual insurance sales increased by 36% over the
fourth quarter of the prior year, with growth in all markets. These
results were driven by organic growth across the region as well as
our increased ownership of businesses in India, Indonesia and Vietnam. Strong wealth sales were led by
growth across India, Hong Kong and the
Philippines.
We continued to invest in our Asia business during the quarter, and
completed a transaction to acquire the remaining 25% share in Sun
Life Vietnam Insurance Company Limited.
_________________________
|
(1)
|
Represents sales of
individual wealth products developed by Sun Life, which include Sun
Life Global Investment mutual funds, Sun Life Guaranteed Investment
Funds segregated funds, Guaranteed Investment Certificates, and
Accumulation and Payout Annuities.
|
(2)
|
Sun Life Global
Investments (Canada) Inc.
|
(3)
|
Sun Life Guaranteed
Investment Funds
|
Annual Operational Highlights
A Leader in Insurance and Wealth Solutions in our Canadian
home market
- We retained our industry-leading positions in Group
Benefits(1) and Group Retirement Services
("GRS")(2) and ranked second in the individual
insurance(3) business.
- The strategic investments we made in our businesses are
delivering benefits as reflected in increased sales in our
individual wealth manufactured products(4),
SLGI(5) mutual funds and Sun GIF(6), and our
Defined Benefit Solutions products. SLGI completed its sixth full
year of operations and continued to offer top-performing funds as
all five of the Granite Managed Portfolios had four-year
performance that exceeded the peer median(7).
- We made significant investments to further enhance our Client
experience and advance our digital innovation strategy, including
the launch of Digital Health Solutions, a new business designed to
help Canadians find new and better ways of accessing health care
products and services. In addition, Client Solutions' Digital
Benefits Assistant, which surfaces helpful ideas at the right time
through our Clients' channel of choice, continued to build momentum
by engaging Clients proactively and delivering personalized and
relevant interactions. Other growth initiatives included the launch
of automatic enrollment for SLGI's Private Client program, and
GRS's MAX my money@work, a new digital Client enrollment tool.
- During 2016, we made enhancements to the my Sun Life Mobile
App, enabling Clients to search for local healthcare providers and
show Client ratings. This allows Clients to take a more active role
in managing their health and well-being. In addition, the app
allows Clients to submit claims and check coverage and savings
balances.
- For the eighth year in a row, Canadians have voted Sun Life
Financial as the "Most Trusted Life Insurance Company", part of the
Reader's Digest Trusted Brandâ„¢ awards program.
A Leader in global Asset Management
- MFS continued to deliver strong long-term investment
performance and grew AUM to US$426
billion as of December 31,
2016. We continued to invest in our technological
infrastructure to ensure MFS continues to deliver world-class
Client service and to position its platform for future growth.
- MFS was named Equity Manager of the Year in the U.K. by
Financial News in October, 2016 in recognition for its
Client service focus and long-term value.
- SLIM achieved strong sales growth and launched new products and
funds, including Sun Life Institutional Investment (Canada) Inc.'s Short Term Private Fixed Income
Plus Fund, Ryan Labs Asset Management Inc.'s ("Ryan Labs")
strategies including Defensive Risk Premia, and two new funds from
Bentall Kennedy, ending the year with net sales of $4.5 billion and AUM of $53.2 billion.
- Bentall Kennedy was ranked among the top five firms globally in
the 2016 Global Real Estate Sustainability Benchmark rankings. This
is the sixth year that the team at Bentall Kennedy has received
this recognition.
A Leader in U.S. Group Benefits and International high net
worth solutions
- In the first quarter of 2016, we closed the acquisition of
Assurant Inc.'s U.S. Employee Benefits business, adding new
capabilities and scale to our group benefits business in the U.S.
The acquired business includes the second largest preferred
provider dental network in the U.S., a group life and disability
business with products and capabilities in voluntary benefits and
vision, and integrated capabilities in benefits communications,
deductions reporting and administration.
- The U.S. employee benefits business acquired in 2016 is
proceeding in line with expectations, including the realization of
transaction synergies. We are achieving our objectives in
integrating our products, distribution, account management teams,
and other organizational structures.
- In Group Benefits, we continued to improve the profitability of
the disability business through expense, claims management and
pricing actions that we have taken over the past few years. Sales
increased significantly year over year reflecting the contribution
of the U.S. employee benefits business acquired since closing in
2016.
- International launched a new life insurance product to broaden
our offering to the international life insurance market.
International sales increased 16% compared to the prior year.
A Leader in Asia through
Distribution Excellence in Higher Growth Markets
- We have continued to invest in our Asia business, including acquiring full
ownership of Sun Life Vietnam Insurance Company Limited, announcing
we have agreed to an exclusive 15-year distribution agreement with
FWD Life Insurance Company (Bermuda) Limited ("FWD") in Hong Kong and also to acquire its pension
business consisting of the Mandatory Provident Fund and
Occupational Retirement Schemes Ordinance businesses, acquiring
full ownership of PT CIMB Sun Life in Indonesia and extending our bancassurance
arrangement with PT Bank CIMB Niaga in Indonesia, and increasing our ownership in
Birla Sun Life Insurance in India
to 49%.
- Our individual insurance and wealth sales grew 29% and 25%
respectively over 2015.
Recognition
- For the eighth consecutive year, SLF Inc. has been the only
North American insurance company to be listed among the 2016 Global
100 Most Sustainable Corporations in the World (the "Global
100").
- Sun Life Financial was ranked in the top ten in The Globe
and Mail's Board Games 2016 annual rating of governance
practices of Canadian Boards of Directors compiled by the Report on
Business.
- Corporate Knights recognized Sun Life as one of 2016's Best 50
Corporate Citizens in Canada
ranking.
_________________________
|
(1)
|
The 2016 Fraser
Group, most recently published Group Universe Report, based
on 2015 data as measured by revenue, including administrative
services only premium equivalents.
|
(2)
|
As measured by
Benefits Canada magazine's 2016 CAP Suppliers Report, based
on June 30, 2016 assets under administration, and released in
December 2016.
|
(3)
|
LIMRA, for the nine
months ended September 30, 2016.
|
(4)
|
Represents sales of
individual wealth products developed by Sun Life, including Sun
Life Global Investment mutual funds, Sun Life Guaranteed Investment
Funds segregated funds, Guaranteed Investment Certificates, and
Accumulation and Payout Annuities.
|
(5)
|
Sun Life Global
Investments (Canada) Inc.
|
(6)
|
Sun Life Guaranteed
Investment Funds
|
(7)
|
Morningstar
performance statistics as at December 31, 2016 for performance of
the funds since inception.
|
How We Report Our Results
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."), Sun Life Financial
Asset Management ("SLF Asset Management"), Sun Life Financial Asia
("SLF Asia"), and Corporate. Information concerning these segments
is included in our annual consolidated financial statements and
accompanying notes ("Annual Consolidated Financial Statements"),
which are prepared using International Financial Reporting
Standards ("IFRS"). Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with IFRS.
Except where otherwise noted, financial information is presented in
accordance with IFRS and the accounting requirements the Office of
the Superintendent of Financial Institutions ("OSFI").
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 when adjusted, enable our investors to
better assess the underlying performance of our businesses: (i)
certain hedges in SLF Canada that do not qualify for hedge
accounting - this adjustment enhances the comparability of our net
income from period to period, as it reduces volatility to the
extent it will be offset over the duration of the hedges; (ii) fair
value adjustments on MFS's share-based payment awards, that are
settled with MFS's own shares and accounted for as liabilities and
measured at fair value each reporting period until they are vested,
exercised and repurchased - this adjustment enhances the
comparability of MFS's results with publicly traded asset managers
in the United States; (iii)
acquisition, integration and restructuring amounts (including
impacts related to acquiring and integrating acquisitions); (iv)
goodwill and intangible asset impairment charges; and (v) other
items that are not operational or ongoing in nature (e.g., gain or
loss on disposal of businesses). 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 and on 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 returns in equity markets, net of
hedging, above or below our best estimate assumptions of
approximately 2% 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 Q4 2016 vs. Q4
2015 and 2016 vs. 2015 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 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, and material
changes to investment policies for assets 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"), assets under administration,
reported ROE, and effective income tax rates on an operating net
income and underlying 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).
All EPS measures in this document refer to fully diluted EPS,
unless otherwise stated. As noted above, operating EPS and
underlying EPS exclude the dilutive impact of convertible
instruments.
Additional Information
Additional information about SLF Inc. can be found in our Annual
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 and accompanying
notes are furnished to the SEC on Form 6-Ks and are available at
www.sec.gov.
Financial Summary
|
Quarterly
results
|
Full year
|
($ millions, unless
otherwise noted)
|
Q4'16
|
Q3'16
|
Q2'16
|
Q1'16
|
Q4'15
|
2016
|
2015
|
Net income (loss)
|
|
|
|
|
|
|
|
|
Reported net income
(loss)
|
728
|
737
|
480
|
540
|
536
|
2,485
|
2,185
|
|
Operating net income
(loss)(1)
|
732
|
750
|
474
|
531
|
598
|
2,487
|
2,253
|
|
Underlying net income
(loss)(1)
|
560
|
639
|
554
|
582
|
646
|
2,335
|
2,305
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
Reported EPS
(diluted)
|
1.18
|
1.20
|
0.78
|
0.88
|
0.87
|
4.03
|
3.55
|
|
Operating EPS
(diluted)(1)
|
1.19
|
1.22
|
0.77
|
0.87
|
0.98
|
4.05
|
3.68
|
|
Underlying EPS
(diluted)(1)
|
0.91
|
1.04
|
0.90
|
0.95
|
1.05
|
3.80
|
3.76
|
Reported basic EPS ($)
|
1.19
|
1.20
|
0.78
|
0.88
|
0.88
|
4.05
|
3.57
|
Avg. common shares outstanding
(millions)
|
613
|
613
|
613
|
612
|
612
|
613
|
612
|
Closing common shares outstanding
(millions)
|
613.6
|
612.9
|
612.8
|
612.6
|
612.3
|
613.6
|
612.3
|
Dividends per common share ($)
|
0.42
|
0.405
|
0.405
|
0.39
|
0.39
|
1.62
|
1.51
|
MCCSR ratio for Sun Life
Assurance(2)
|
226%
|
221%
|
214%
|
216%
|
240%
|
226%
|
240%
|
Return on equity (%)
|
|
|
|
|
|
|
|
|
Reported
ROE(1)
|
14.8%
|
15.4%
|
10.3%
|
11.5%
|
11.4%
|
13.0%
|
12.2%
|
|
Operating
ROE(1)
|
14.9%
|
15.7%
|
10.1%
|
11.3%
|
12.7%
|
13.0%
|
12.6%
|
|
Underlying
ROE(1)
|
11.4%
|
13.4%
|
11.9%
|
12.4%
|
13.8%
|
12.2%
|
12.8%
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
Net premium
revenue
|
4,419
|
3,888
|
3,563
|
3,178
|
3,551
|
15,048
|
10,395
|
|
Segregated fund
deposits
|
3,691
|
2,294
|
2,834
|
2,731
|
2,523
|
11,550
|
12,047
|
|
Mutual fund
sales(1)
|
22,344
|
23,115
|
20,007
|
19,262
|
17,598
|
84,728
|
76,551
|
|
Managed fund
sales(1)(3)
|
10,263
|
9,256
|
9,886
|
10,865
|
7,678
|
40,270
|
30,079
|
|
ASO premium and
deposit equivalents(1)
|
1,705
|
1,623
|
1,745
|
1,790
|
1,770
|
6,863
|
7,078
|
Total premiums and
deposits(1)
|
42,422
|
40,176
|
38,035
|
37,826
|
33,120
|
158,459
|
136,150
|
Assets under management
|
|
|
|
|
|
|
|
|
General fund
assets
|
161,071
|
164,321
|
159,453
|
156,849
|
155,413
|
161,071
|
155,413
|
|
Segregated
funds
|
97,167
|
95,386
|
91,463
|
89,795
|
91,440
|
97,167
|
91,440
|
|
Mutual funds, managed
funds and other AUM(1)
|
645,037
|
648,393
|
613,687
|
613,874
|
644,479
|
645,037
|
644,479
|
Total
AUM(1)
|
903,275
|
908,100
|
864,603
|
860,518
|
891,332
|
903,275
|
891,332
|
Capital
|
|
|
|
|
|
|
|
|
Subordinated debt and
innovative capital instruments(4)
|
4,534
|
4,533
|
3,538
|
3,538
|
3,189
|
4,534
|
3,189
|
|
Participating
policyholders' equity and non-controlling interest
|
412
|
351
|
193
|
186
|
168
|
412
|
168
|
|
Total shareholders'
equity
|
21,956
|
21,604
|
20,898
|
20,737
|
21,250
|
21,956
|
21,250
|
Total
capital
|
26,902
|
26,488
|
24,629
|
24,461
|
24,607
|
26,902
|
24,607
|
(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)
|
In the second quarter
of 2016, we moved our sales reporting methodology for Bentall
Kennedy's real estate investment management operations from an
investment property activity basis to a Client cash flow basis to
be consistent with the method used in our existing asset management
operations. Managed fund sales were previously reported as $11,252
million in the first quarter of 2016, $8,327 million in the fourth
quarter of 2015 and $31,079 million for the year ended 2015. For
additional information, see Additional Financial Disclosure -
Sales.
|
(4)
|
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
2016 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). Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with
IFRS.
Q4 2016 vs. Q4 2015
Our reported net income was $728
million in the fourth quarter of 2016, compared to
$536 million in the fourth quarter of
2015. Operating net income was $732
million for the quarter ended December 31, 2016,
compared to $598 million for the same
period in the prior year. Underlying net income was $560 million in the fourth quarter of 2016,
compared to $646 million in the
fourth quarter of 2015.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income in
the fourth quarter of 2016 and 2015.
|
|
Quarterly
results
|
($ millions,
after-tax)
|
|
Q4'16
|
|
Q4'15
|
Reported net income
|
|
728
|
|
536
|
|
Certain hedges in SLF
Canada that do not qualify for hedge accounting
|
|
8
|
|
10
|
|
Fair value
adjustments on MFS's share-based payment awards
|
|
10
|
|
(6)
|
|
Acquisition,
integration and restructuring(1)
|
|
(22)
|
|
(66)
|
Operating net income(2)
|
|
732
|
|
598
|
|
Equity market
impact
|
|
|
|
|
|
|
Impact from equity
market changes
|
|
29
|
|
(1)
|
|
|
Basis risk
impact
|
|
(3)
|
|
(3)
|
|
Equity market
impact(3)
|
|
26
|
|
(4)
|
|
Interest rate
impact
|
|
|
|
|
|
|
Impact from interest
rate changes
|
|
160
|
|
(16)
|
|
|
Impact of credit
spread movements
|
|
(25)
|
|
(10)
|
|
|
Impact of swap spread
movements
|
|
(5)
|
|
(9)
|
|
Interest rate
impact(4)
|
|
130
|
|
(35)
|
|
Increases (decreases)
from changes in the fair value of real estate
|
|
6
|
|
3
|
|
Market related
impacts
|
|
162
|
|
(36)
|
|
Assumption changes
and management actions
|
|
10
|
|
(12)
|
Underlying net income(2)
|
|
560
|
|
646
|
|
|
|
|
|
Impact of other notable items on our net
income:
|
|
|
|
|
Experience related
items(5)
|
|
|
|
|
|
Impact of investment
activity on insurance contract liabilities
|
|
15
|
|
73
|
|
Mortality
|
|
(4)
|
|
7
|
|
Morbidity
|
|
(13)
|
|
12
|
|
Credit
|
|
22
|
|
18
|
|
Lapse and other
policyholder behaviour
|
|
(7)
|
|
(4)
|
|
Expenses(6)
|
|
(76)
|
|
(44)
|
|
Other
|
|
22
|
|
23
|
(1)
|
In the fourth quarter
of 2016, Acquisition, integration and restructuring amounts
primarily related to the integrations of the U.S. employee benefits
business we acquired in 2016, Bentall Kennedy acquired in 2015, and
the buy-up of PT CIMB Sun Life in Indonesia in 2016. In the fourth
quarter of 2015, Acquisition, integration and restructuring amounts
consisted of $63 million related to the closing of our wealth
business in SLF U.S. International to new sales, which included
assumption changes and management actions of $41 million to reflect
assumption updates including the expense strengthening associated
with closing the business, and $3 million related to the
acquisition and integration of Bentall Kennedy, Prime Advisors and
Ryan Labs and acquisition costs related to the U.S. employee
benefits business acquired in 2016.
|
(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 returns 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% per quarter. 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 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 changes 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.
|
(6)
|
Expense experience in
the fourth quarter of 2016 includes $46 million ($11 million in
2015) reflecting higher incentive plan payments related to strong
operating results and long-term relative share
performance.
|
Our reported net income for the fourth quarter of 2016 and 2015
included items that we believe are not operational in nature and
which are, therefore, excluded in our calculation of operating net
income. Operating net income for the fourth quarter of 2016 and
2015 excluded the net impact of certain hedges in SLF Canada that
do not qualify for hedge accounting, fair value adjustments on
MFS's share-based payment awards, and acquisition, integration and
restructuring amounts. The net impact of these items reduced
reported net income by $4 million in
the fourth quarter of 2016, compared to a reduction of $62 million in the fourth quarter of 2015.
Our underlying net income for the fourth quarter of 2016 and
2015 excludes market related impacts and assumption changes and
management actions. The net impact of market related impacts and
assumption changes and management actions increased operating net
income by $172 million in the fourth
quarter of 2016, compared to a decrease of $48 million in the fourth quarter of 2015.
Interest rates experience in the fourth quarter of 2016 reflects
gains from large increases in long-term rates without similar
increases in short-term rates, favourable impacts from rebalancing
of hedges, and changes in the positioning of the asset portfolio as
rates increased during the quarter.
Net income in the fourth quarter of 2016 also reflected positive
credit experience and a lower level of gains from investing
activity on insurance contract liabilities. This was partially
offset by unfavourable expense experience, reflecting incentive
compensation costs arising from overall strong business performance
and investment in growing our businesses. We also experienced
unfavourable morbidity results mainly in the U.S.
Net income in the fourth quarter of 2015 also reflected
favourable impact from investment activity on insurance contract
liabilities largely in SLF Canada and SLF U.S., positive credit and
morbidity and mortality experience, and other experience items
including a change to post-retirement benefit liabilities in SLF
U.S. This was partially offset by unfavourable expense experience
including investment in growing our businesses.
2016 vs. 2015
Our reported net income was $2,485
million for 2016, compared to $2,185
million in 2015. Operating net income was $2,487 million for 2016, compared to $2,253 million in 2015. Underlying net income was
$2,335 million, compared to
$2,305 million in 2015.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income in
2016 and 2015.
|
Full year
|
($ millions,
after-tax)
|
2016
|
2015
|
Reported net income
|
2,485
|
2,185
|
|
Certain hedges in SLF
Canada that do not qualify for hedge
accounting
|
(5)
|
21
|
|
Fair value
adjustments on MFS's share-based payment awards
|
30
|
(9)
|
|
Acquisition,
integration and restructuring(1)
|
(27)
|
(80)
|
Operating net income(2)
|
2,487
|
2,253
|
|
Equity market
impact(3)
|
51
|
(128)
|
|
Interest rate
impact(4)
|
34
|
65
|
|
Increases (decreases)
from changes in the fair value of real estate
|
22
|
20
|
|
Market related
impacts
|
107
|
(43)
|
|
Assumption changes
and management actions
|
45
|
(9)
|
Underlying net income(2)
|
2,335
|
2,305
|
|
|
|
Impact of other notable items on our net
income:
|
|
|
Experience related
items(5)
|
|
|
|
Impact of investment
activity on insurance contract liabilities
|
154
|
164
|
|
Mortality
|
(14)
|
29
|
|
Morbidity
|
(23)
|
—
|
|
Credit
|
64
|
72
|
|
Lapse and other
policyholder behaviour
|
(11)
|
(14)
|
|
Expenses
|
(124)
|
(86)
|
|
Other
|
39
|
2
|
|
|
|
(1)
|
In 2016, Acquisition,
integration and restructuring amounts primarily related to
integration costs of the U.S. employee benefits business
acquisition in 2016, and the integration of Bentall Kennedy and
Ryan Labs acquired in 2015. These costs were partially offset by a
non-cash gain of $37 million as a result of both remeasuring our
existing investment to fair value upon acquiring control over the
operations of Sun Life Vietnam Insurance Company Limited and
remeasuring our existing investment to fair value upon acquiring
control over the operations of PT CIMB Sun Life in Indonesia, which
was partially offset by acquisition and integration costs. In 2015,
Acquisition, integration and restructuring amounts consisted of $63
million related to the closing of our wealth business in SLF U.S.
International to new sales, which included assumption changes and
management actions of $41 million to reflect assumption updates
including the expense strengthening associated with closing the
business, and $17 million related to our acquisitions and
integrations of Bentall Kennedy, Prime Advisors, and Ryan Labs as
well as acquisition costs related to the U.S. employee benefits
business acquired in 2016.
|
(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 returns 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% per quarter. 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 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 changes 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 2016 and 2015 included items that we
believe are not operational in nature and which are, therefore,
excluded in our calculation of operating net income. Operating net
income for 2016 and 2015 excluded the net impact of certain hedges
in SLF Canada that do not qualify for hedge accounting, fair value
adjustments on MFS's share-based payment awards, and acquisition,
integration and restructuring amounts. The net impact of these
items reduced reported net income by $2
million in 2016, compared to a reduction of $68 million in 2015.
Our underlying net income for 2016 and 2015 excludes market
related impacts and assumption changes and management actions. The
net impact of market related impacts and assumption changes and
management actions increased operating net income by $152 million in 2016, compared to a decrease of
$52 million in the same period in
2015. Interest rates experience in the fourth quarter of 2016
reflects gains from large increases in long-term rates without
similar increases in short-term rates, favourable impacts from
rebalancing of hedges, and changes in the positioning of the asset
portfolio as rates increased during the quarter.
Net income in 2016 also reflected gains from investment
activities on insurance contract liabilities and positive credit
experience, partially offset by unfavourable expense experience,
reflecting incentive compensation costs arising from overall strong
business performance and investment in growing our businesses, and
unfavourable morbidity experience mainly in the U.S.
Net income in 2015 reflected the favourable impact from
investment activity on insurance contract liabilities, positive
credit and mortality experience, partially offset by unfavourable
expense experience including investment in growing our businesses
and lapse and other policyholder behaviour.
Annual Goodwill and Intangibles Impairment Testing
The Company completed its annual goodwill and indefinite life
intangible asset impairment testing in the fourth quarter of 2016.
No impairment charges on goodwill and indefinite life intangible
assets were recognized in 2016. There were no significant
impairment charges as a result of this testing in 2015.
Acquisitions
SLF U.S.
On March 1, 2016, we acquired
Assurant, Inc.'s U.S. employee benefits business. The acquired
business added new capabilities and scale to our leading group
benefits business in the U.S. The acquired business includes a
dental business and provider network, a group life and disability
business, products and capabilities in voluntary benefits and
vision, and integrated capabilities in benefits communications,
deductions reporting, and administration. Also acquired in the
transaction was Disability Reinsurance Management Services, Inc.,
which provides turnkey disability risk management products and
services to other insurance companies. The purchase price for the
acquisition was $1,264 million,
consisting of a ceding commission and a payment for the acquisition
of direct subsidiaries. The acquisition was financed using a
combination of cash and subordinated debt issued by SLF Inc.
The integration is progressing as expected and major milestones
in 2016 included achieving our objectives in integrating our
products, distribution, account management teams and other
organizational structures. The contribution from the acquired
business included the expected expense synergies for 2016 and
favourable morbidity experience. We maintain our expectations of
US$100 million pre-tax run-rate
synergies at the end of 2019(1) and an accretion of
$0.17 earnings per share to earnings
in 2019(1), excluding transaction and integration
costs.
SLF Asia
During 2016, we acquired full ownership of Sun Life Vietnam
Insurance Company Limited ("Sun Life Vietnam", formerly PVI Sun
Life Insurance Company Limited). On January
7, 2016, we increased our ownership interest in Sun Life
Vietnam, from 49% to 75%, by acquiring from our joint venture
partner PVI Holdings an additional 26% of the charter capital. On
November 9, 2016, we acquired the
remaining 25% of non-controlling interest from PVI Holdings.
On April 11, 2016, we increased
our ownership in Birla Sun Life Insurance Company Limited ("BSLI")
in India, from 26% to 49% by
purchasing additional shares of BSLI from Aditya Birla Nuvo
Limited.
On July 1, 2016, we increased our
ownership interest in PT CIMB Sun Life in Indonesia, from 49% to 100%. We also entered
into an extended bancassurance arrangement with PT Bank CIMB Niaga
to strengthen our distribution capabilities.
On August 3, 2016, we entered into
an agreement to acquire the Hong
Kong pension business of FWD, consisting of Mandatory
Provident Fund and Occupational Retirement Schemes Ordinance
businesses. We will also enter into an exclusive 15-year
distribution agreement with FWD that will allow us to distribute
our pension products through FWD's agency force in Hong Kong. The transactions are expected to be
completed in stages over the course of 2017 and 2018, subject to
the receipt of regulatory approvals and satisfaction of customary
closing conditions.
Additional information concerning our acquisitions is provided
in Notes 3 and 16 of our Annual Consolidated Financial
Statements.
___________________________
(1)
|
See the section in
this document under the heading Forward-looking Statements.
Expected accretion to earnings per share is a Non-IFRS financial
measure which includes our expected pre-tax run rate synergies and
reflects the exclusion of expected transaction and integration
costs from expected reported net income. There is is no directly
comparable measure under GAAP and a reconciliation is not possible
as it is forward-looking information.
|
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 into
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 year-to-date periods.
Exchange
Rate
|
Quarterly
|
Full year
|
|
Q4'16
|
|
Q3'16
|
Q2'16
|
|
Q1'16
|
Q4'15
|
2016
|
2015
|
Average
|
|
|
|
|
|
|
|
|
|
|
U.S.
Dollar
|
1.335
|
|
1.304
|
1.289
|
|
1.373
|
1.335
|
1.325
|
1.278
|
|
U.K.
Pounds
|
1.659
|
|
1.711
|
1.849
|
|
1.968
|
2.025
|
1.797
|
1.953
|
Period end
|
|
|
|
|
|
|
|
|
|
U.S.
Dollar
|
1.343
|
|
1.313
|
1.292
|
|
1.300
|
1.384
|
1.343
|
1.384
|
|
U.K.
Pounds
|
1.657
|
|
1.703
|
1.720
|
|
1.867
|
2.040
|
1.657
|
2.040
|
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 foreign exchange
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 fourth quarter of 2016, our reported net income,
operating net income and underlying net income decreased by
$8 million, $8
million and $9 million,
respectively, as a result of the impact of the strengthening
Canadian dollar in the fourth quarter of 2016 relative to the
average exchange rates in the fourth quarter of 2015. In addition,
during 2016, our reported net income, operating net income and
underlying net income increased by $29
million, $30 million and
$26 million, respectively, as a
result of the impact of the weakening Canadian dollar in 2016
relative to the average exchange rates in 2015.
Performance by Business Group
SLF Canada
SLF Canada is the Canadian market leader in the group market
segments and is a leading provider of retail holistic advice,
providing products and services to over six million people across
Canada. Our distribution breadth,
strong service culture, technology leadership and brand recognition
provide an excellent platform for growth. SLF Canada has three main
business units - Individual Insurance & Wealth, Group Benefits
("GB") and Group Retirement Services ("GRS") - which offer a full
range of insurance, wealth and income products and services to
employers, group members of company sponsored plans and individuals
in their communities across Canada.
|
Quarterly
results
|
Full
year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net income
(loss)
|
398
|
|
184
|
|
185
|
|
169
|
|
210
|
|
936
|
|
824
|
|
Certain hedges that
do not qualify for hedge accounting(1)
|
8
|
|
6
|
|
(6)
|
|
(13)
|
|
10
|
|
(5)
|
|
21
|
Operating net income
(loss)(1)
|
390
|
|
178
|
|
191
|
|
182
|
|
200
|
|
941
|
|
803
|
|
Market related
impacts
|
130
|
|
13
|
|
(5)
|
|
(24)
|
|
(56)
|
|
114
|
|
(106)
|
|
Assumption changes
and management actions
|
17
|
|
(61)
|
|
(4)
|
|
(12)
|
|
(13)
|
|
(60)
|
|
15
|
Underlying net income
(loss)(1)
|
243
|
|
226
|
|
200
|
|
218
|
|
269
|
|
887
|
|
894
|
Operating ROE
(%)(1)
|
19.7
|
|
9.0
|
|
9.8
|
|
9.5
|
|
10.5
|
|
12.1
|
|
10.5
|
Underlying ROE
(%)(1)
|
12.3
|
|
11.5
|
|
10.3
|
|
11.4
|
|
14.1
|
|
11.4
|
|
11.6
|
Operating net income
(loss) by business unit(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance
& Wealth(1)(2)
|
286
|
|
54
|
|
79
|
|
93
|
|
78
|
|
512
|
|
336
|
|
Group
Benefits(1)(2)
|
68
|
|
99
|
|
72
|
|
69
|
|
86
|
|
308
|
|
318
|
|
Group Retirement
Services(1)(2)
|
36
|
|
25
|
|
40
|
|
20
|
|
36
|
|
121
|
|
149
|
Total operating net
income (loss)(1)(2)
|
390
|
|
178
|
|
191
|
|
182
|
|
200
|
|
941
|
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
In the fourth quarter
of 2016, Certain hedges that do not qualify for hedge accounting
consisted of $5 million in Individual Insurance & Wealth, $2
million in Group Benefits, and $1 million in Group Retirement
Services.
|
Q4 2016 vs. Q4 2015
SLF Canada's reported net income was $398
million in the fourth quarter of 2016, compared to
$210 million in the fourth quarter of
2015. Operating net income was $390
million, compared to $200
million in the fourth quarter of 2015. Operating net income
in SLF Canada excludes the impact of certain hedges that do not
qualify for hedge accounting in 2016 and 2015, which is set out in
the table above.
Underlying net income in the fourth quarter of 2016 was
$243 million, compared to
$269 million in the fourth quarter of
2015. 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 fourth quarter of 2016 was
primarily driven by interest rates and equity markets largely
impacting Individual Insurance & Wealth, compared to the
unfavourable effect in the fourth quarter of 2015, primarily driven
by interest rates and equity markets.
Net income in the fourth quarter of 2016 also reflected new
business gains in Individual Insurance & Wealth and GRS from
strong sales and a release of a litigation provision in Individual
Insurance & Wealth, partially offset by growth in our expenses
including investment in our individual wealth business.
Net income in the fourth quarter of 2015 also reflected gains
from investing activities on insurance contract liabilities in
Individual Insurance & Wealth, new business gains in GRS and
favourable disability experience in GB, partially offset by expense
experience including investment in growing our individual wealth
business.
In the fourth quarter of 2016, Individual Insurance sales were
up 103% compared to the same period in the prior year from strong
Career Sales Force and third-party sales, in anticipation of the
tax legislation changes effective January 1,
2017. Individual wealth sales increased 8% over the same
period in the prior year, due to continued strong sales in our
wealth manufactured products(1), which included SLGI
mutual funds and Sun GIF, as well as payout annuity sales which
were also driven by the recent tax legislation changes effective in
2017. This sales growth was offset by declines in non-SLGI fund
sales in our Career Sales Force.
GB gross sales increased 35% compared to the fourth quarter of
2015, with net sales increasing 81% due to favourable sales and
strong Client retention. GRS new sales of $2.3 billion improved by $1 billion driven by a large $1.2 billion defined contribution plan sale,
partially offset by lower Defined Benefit Solutions sales due to a
large indexed annuity transaction in the prior year. GRS retained
business of $287 million was 14%
higher than prior year. Assets under administration for GRS ended
the quarter at $88.9 billion, an
increase of 11% over 2015.
2016 vs. 2015
Reported net income was $936 million
in 2016, compared to $824 million in
2015. Operating net income was $941
million in 2016, compared to $803
million in 2015. Operating net income in SLF Canada excludes
the impact of certain hedges that do not qualify for hedge
accounting in 2016 and 2015.
Underlying net income was $887
million in 2016, compared to $894
million in 2015. 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
2016 was primarily driven by equity markets and interest rates
largely impacting Individual Insurance & Wealth, compared to an
unfavourable effect in 2015 primarily driven by interest rates and
equity markets.
Net income in 2016 also reflected gains from investing
activities on insurance contract liabilities in Individual
Insurance & Wealth, new business gains in individual insurance
and GRS from strong sales, strong fee income in GRS, improvements
in high-cost drug claims experience in GB and a release of a
litigation provision in Individual Insurance & Wealth,
partially offset by growth in our expenses including investment in
our individual wealth business.
Net income in 2015 reflected gains from investing activity on
insurance contract liabilities in Individual Insurance & Wealth
and new business gains primarily in GRS. These gains were partially
offset by expense experience including investment in growing our
individual wealth business, and, during the first half of 2015,
unfavourable policyholder behaviour in Individual Insurance &
Wealth. In GB, the unfavourable impacts of high cost drug claims,
though improving in the second half of 2015, were more than offset
by positive disability experience.
SLF U.S.
SLF U.S. has three business units: Group Benefits, International
and In-force Management. Group Benefits provides insurance
solutions to employers and employees including group life,
disability, medical stop-loss, dental, and vision insurance
products, as well as a suite of voluntary benefits products. Group
Benefits also includes Disability Reinsurance Management Services,
Inc. ("DRMS"), which provides turnkey disability risk management
products and services to other insurance companies. International
serves high net worth Clients in international markets, offering
individual life insurance products, and manages a closed block of
wealth products. In-force Management includes certain closed
individual life insurance products, primarily universal life and
participating whole life insurance.
________________________
(1)
|
Represents sales of
individual wealth products developed by Sun Life, which include Sun
Life Global Investment mutual funds, Sun Life Guaranteed Investment
Funds segregated funds, Guaranteed Investment Certificates, and
Accumulation and Payout Annuities
|
|
Quarterly
results
|
Full
year
|
(US$
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net income
(loss)
|
80
|
|
194
|
|
42
|
|
69
|
|
75
|
|
385
|
|
251
|
|
Acquisition,
integration and restructuring(1)
|
(12)
|
|
(11)
|
|
(8)
|
|
(11)
|
|
(46)
|
|
(42)
|
|
(46)
|
Operating net income
(loss)(2)
|
92
|
|
205
|
|
50
|
|
80
|
|
121
|
|
427
|
|
297
|
|
Market related
impacts
|
25
|
|
27
|
|
(40)
|
|
1
|
|
11
|
|
13
|
|
26
|
|
Assumption changes
and management actions
|
2
|
|
75
|
|
—
|
|
(2)
|
|
(8)
|
|
75
|
|
(70)
|
Underlying net income
(loss)(2)
|
65
|
|
103
|
|
90
|
81
|
|
118
|
|
339
|
|
341
|
Operating ROE
(%)(2)
|
10.4
|
|
23.3
|
|
5.8
|
|
10.0
|
|
17.9
|
|
12.4
|
|
11.2
|
Underlying ROE
(%)(2)
|
7.3
|
|
11.7
|
|
10.4
|
|
10.2
|
|
17.4
|
|
9.9
|
|
12.8
|
Operating net income
(loss) by business unit(1)(2)
|
|
|
|
|
|
|
|
|
Group
Benefits(1)(2)
|
32
|
|
25
|
|
19
|
|
39
|
|
23
|
|
115
|
|
99
|
|
International(2)
|
19
|
|
157
|
|
23
|
|
23
|
|
46
|
|
222
|
|
114
|
|
In-force
Management(2)
|
41
|
|
23
|
|
8
|
|
18
|
|
52
|
|
90
|
|
84
|
Total operating net
income (loss)(1)(2)
|
92
|
|
205
|
|
50
|
|
80
|
|
121
|
|
427
|
|
297
|
(C$
millions)
|
|
|
|
|
|
|
Reported net income
(loss)
|
106
|
|
253
|
|
54
|
|
95
|
|
100
|
|
508
|
|
333
|
Operating net income
(loss)(2)
|
121
|
|
268
|
|
64
|
|
110
|
|
163
|
|
563
|
|
396
|
Underlying net income
(loss)(2)
|
87
|
|
135
|
|
114
|
|
111
|
|
158
|
|
447
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2016, Acquisition,
integration and restructuring amounts related to the acquisition
costs of the U.S. employee benefits business acquired in 2016 in
Group Benefits. In the fourth quarter of 2015, Acquisition,
integration and restructuring amounts consisted of the cost of
US$46 million related to the closing of our wealth business in SLF
U.S. International to new sales in December 2015.
|
(2)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q4 2016 vs. Q4 2015
SLF U.S.'s reported net income was C$106
million in the fourth quarter of 2016, compared to
C$100 million in the fourth quarter
of 2015. Operating net income was C$121
million, compared to C$163
million in the fourth quarter of 2015. Operating net income
in SLF U.S. excludes the impact of acquisition, integration and
restructuring amounts, which are set out in the table above.
Underlying net income was C$87
million, compared to C$158
million in the fourth quarter of 2015. There was minimal
impact from the movement of the Canadian dollar relative to average
exchange rates in the fourth quarter of 2015 since the average
exchange rates were consistent.
In U.S. dollars, SLF U.S.'s reported net income was US$80 million in the fourth quarter of 2016,
compared to US$75 million in the
fourth quarter of 2015. Operating net income was US$92 million in the fourth quarter of 2016,
compared to US$121 million in the
fourth quarter of 2015. Underlying net income was US$65 million in the fourth quarter of 2016,
compared to US$118 million in the
fourth quarter of 2015. 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 effects of market related impacts in the fourth quarter
of 2016 were primarily driven by interest rates, mainly in In-force
Management partially offset by changes in credit spreads, compared
to a favourable effect in the fourth quarter of 2015, primarily
driven by interest rate and equity market changes.
Net income in the fourth quarter of 2016 also reflected the
contribution of the U.S. employee benefits business acquired in
2016, favourable credit experience and gains from investing
activity on insurance contract liabilities. These items were
partially offset by unfavourable mortality experience in In-force
Management and unfavourable morbidity experience in Group
Benefits.
Net income in the fourth quarter of 2015 also reflected the
impact in Group Benefits related to pricing increases on new and
renewing business, expense actions, and continued investment in our
disability claim operations. Results also reflected the favourable
impact of investing activities on insurance contract liabilities,
favourable credit experience, net realized gains on the sale of AFS
assets, favourable mortality experience in International, and a
change to post-retirement benefit liabilities. These items were
partially offset by unfavourable group life claims experience.
Sales in Group Benefits in the fourth quarter of 2016 increased
32% compared to the prior year quarter. Collectively, sales in the
life, disability, and dental product lines doubled, and DRMS sales
remained strong, reflecting the impact of the acquisition of the
U.S. employee benefits business in 2016.
International life insurance sales of US$21 million were consistent with the fourth
quarter of 2015.
2016 vs. 2015
SLF U.S.'s reported net income was C$508
million in 2016, compared to C$333
million in 2015. Operating net income was C$563 million in 2016, compared to C$396 million in 2015. Operating net income in
SLF U.S. excludes the impact of acquisition, integration and
restructuring amounts, which are set out in the table above.
Underlying net income was C$447
million in 2016, compared to C$441
million in 2015. The impact of the weakening Canadian dollar
in 2016 relative to average exchange rates in 2015 increased
reported income, operating net income and underlying net income by
C$18 million, C$20 million and C$16
million, respectively.
In U.S. dollars, SLF U.S.'s reported net income was US$385 million in 2016, compared to US$251 million in 2015. Operating net income was
US$427 million in 2016, compared to
US$297 million in 2015. Underlying
net income was US$339 million in
2016, compared to US$341 million in
2015. 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 2016 was primarily driven by
interest rates partially offset by credit spreads, compared to a
favourable impact in 2015 primarily driven by credit spreads
partially offset by equity market changes.
Net income in 2016 also reflected the contribution of the U.S.
employee benefits business acquired in 2016 that included
favourable morbidity experience, and also reflected favourable
credit experience, gains from investing activity on insurance
contract liabilities, gains on the sale of AFS assets, and
favourable mortality experience in International. These items are
partially offset by unfavourable morbidity experience in stop-loss
and unfavourable mortality experience in Group Benefits and
In-force Management.
Net income in 2015 also reflected the impact in Group Benefits
related to pricing increases on new and renewing business, expense
actions, and continued investment in our disability claim
operations. Results also reflected positive credit experience, net
realized gains on the sale of AFS assets, favourable tax items
related to prior years, the favourable impact of investing
activities on insurance contract liabilities, favourable mortality
experience in International, and a change to post-retirement
benefit liabilities. These items were partially offset by
unfavourable underwriting experience in Group Benefits and
unfavourable mortality and policyholder behaviour experience in
In-force Management.
SLF Asset Management
SLF Asset Management is our asset management segment composed of
MFS Investment Management ("MFS") and Sun Life Investment
Management ("SLIM").
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.
SLIM is an institutional investment management business which
delivers customized fixed income solutions, including
liability-driven investing and a suite of alternative,
yield-oriented asset classes, including private fixed income, real
estate and commercial mortgages. SLIM consists of the businesses of
the Bentall Kennedy group of companies, Prime Advisors, Inc., Ryan
Labs Asset Management Inc. and Sun Life Institutional Investments
(Canada) Inc. (previously called
Sun Life Investment Management Inc.) that offer a comprehensive set
of capabilities to institutional investors.
|
Quarterly
results
|
Full year
|
SLF Asset Management (C$ millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net
income
|
198
|
|
181
|
|
173
|
|
177
|
|
177
|
|
729
|
|
691
|
|
Fair value
adjustments on MFS's share-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
awards
|
10
|
|
(7)
|
|
20
|
|
7
|
|
(6)
|
|
30
|
|
(9)
|
Operating net income
and underlying net income(1)
|
188
|
|
188
|
|
153
|
|
170
|
|
183
|
|
699
|
|
700
|
Assets under
management (C$ billions)(2)
|
624.8
|
|
629.7
|
|
597.8
|
|
601.0
|
|
629.6
|
|
624.8
|
|
629.6
|
Gross sales (C$
billions)(2)(4)
|
29.5
|
|
30.0
|
|
28.2
|
|
28.6
|
|
23.6
|
|
116.3
|
|
99.5
|
Net sales (C$
billions)(2)(4)
|
(10.4)
|
|
0.1
|
|
(0.8)
|
|
(1.1)
|
|
(6.4)
|
|
(12.2)
|
|
(19.9)
|
|
|
|
|
|
|
|
MFS (C$ millions)
|
|
|
|
|
|
|
Reported net income
(loss)
|
189
|
|
174
|
|
166
|
|
171
|
|
168
|
|
700
|
|
679
|
|
Fair value
adjustments on MFS's share-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
awards
|
10
|
|
(7)
|
|
20
|
|
7
|
|
(6)
|
|
30
|
|
(9)
|
Operating net income
(loss)(1)
|
179
|
|
181
|
|
146
|
|
164
|
|
174
|
|
670
|
|
688
|
Assets under
management (C$ billions)(2)
|
571.6
|
|
578.6
|
|
549.2
|
|
544.0
|
|
571.9
|
|
571.6
|
|
571.9
|
Gross sales (C$
billions)(2)
|
26.3
|
|
28.2
|
|
26.9
|
|
26.8
|
|
22.0
|
|
108.2
|
|
96.5
|
Net sales (C$
billions)(2)
|
(12.7)
|
|
(1.2)
|
|
(1.3)
|
|
(1.5)
|
|
(6.2)
|
|
(16.7)
|
|
(20.5)
|
(US$ millions)
|
|
|
|
|
|
Reported net income
(loss)
|
142
|
|
133
|
|
129
|
|
124
|
|
126
|
|
528
|
|
531
|
|
Fair value
adjustments on MFS's share-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
awards
|
7
|
|
(5)
|
|
15
|
|
5
|
|
(5)
|
|
22
|
|
(9)
|
Operating net income
(loss)(1)
|
135
|
|
138
|
|
114
|
|
119
|
|
131
|
|
506
|
|
540
|
Pre-tax operating
profit margin ratio(2)
|
35%
|
|
38%
|
|
35%
|
|
37%
|
|
38%
|
|
36%
|
|
40%
|
Average net assets
(US$ billions)(2)
|
426.9
|
|
437.8
|
|
423.0
|
|
398.9
|
|
420.2
|
|
421.7
|
|
434.0
|
Assets under
management (US$ billions)(2)(3)
|
425.6
|
|
440.8
|
|
425.0
|
|
418.3
|
|
413.2
|
|
425.6
|
|
413.2
|
Gross sales (US$
billions)(2)
|
19.8
|
|
21.6
|
|
20.8
|
|
19.5
|
|
16.5
|
|
81.7
|
|
75.8
|
Net sales (US$
billions)(2)
|
(9.5)
|
|
(0.9)
|
|
(1.0)
|
|
(1.1)
|
|
(4.7)
|
|
(12.6)
|
|
(15.7)
|
Asset appreciation
(depreciation) (US$ billions)
|
(5.6)
|
|
16.7
|
|
7.7
|
|
6.2
|
|
14.2
|
|
25.0
|
|
(2.1)
|
S&P 500 Index
(daily average)
|
2,185
|
|
2,161
|
|
2,074
|
|
1,952
|
|
2,057
|
|
2,094
|
|
2,061
|
MSCI EAFE Index
(daily average)
|
1,660
|
|
1,678
|
|
1,648
|
|
1,594
|
|
1,732
|
|
1,645
|
|
1,809
|
|
|
|
|
|
|
SLIM (C$ millions)
|
|
|
|
|
|
Reported net income
(loss)
|
9
|
|
7
|
|
7
|
|
6
|
|
9
|
|
29
|
|
12
|
Operating net income
(loss)(1)
|
9
|
|
7
|
|
7
|
|
6
|
|
9
|
|
29
|
|
12
|
Assets under
management (C$ billions)(2)
|
53.2
|
|
51.1
|
|
48.6
|
|
57.0
|
|
57.8
|
|
53.2
|
|
57.8
|
Gross sales (C$
billions)(2)(4)
|
3.2
|
|
1.8
|
|
1.3
|
|
1.8
|
|
1.6
|
|
8.1
|
|
3.1
|
Net sales (C$
billions)(2)(4)
|
2.3
|
|
1.3
|
|
0.5
|
|
0.4
|
|
(0.2)
|
|
4.5
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a non-IFRS
financial measure. For SLF Asset Management, operating net income
is generally expected to be equal to underlying net income. 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 section of its website
at www.mfs.com/CorpFact.
|
(4)
|
In the second quarter
of 2016, we moved our sales reporting methodology for Bentall
Kennedy's real estate investment management operations from an
investment property activity basis to a Client cash flow basis to
be consistent with the method used in our existing asset management
operations. Gross sales and net sales for SLIM were previously
reported as $2.2 billion and $1.0 billion in the first quarter of
2016, $2.2 billion and $0.5 billion in the fourth quarter of 2015,
and $4.0 billion and $1.5 billion for the year ended 2015,
respectively. The revised sales reporting in SLIM is included in
SLF Asset Management's gross and net sales. For additional
information, see Additional Financial Disclosure -
Sales.
|
Q4 2016 vs. Q4 2015
SLF Asset Management's reported net income was C$198 million in the fourth quarter of 2016,
compared to C$177 million in the
fourth quarter of 2015. SLF Asset Management had operating net
income and underlying net income of C$188
million in the fourth quarter of 2016, compared to
C$183 million in the fourth quarter
of 2015. Operating net income and underlying net income in SLF
Asset Management excludes the impact of fair value adjustments on
MFS's share-based payment awards, which is set out in the table
above. There was minimal impact from movement of the Canadian
dollar relative to average exchange rates in the fourth quarter of
2015 since the average rates were consistent.
SLF Asset Management's net income increased in the fourth
quarter of 2016 compared to the same period in 2015 due to MFS's
results, as described below.
In U.S. dollars, MFS's reported net income was US$142 million in the fourth quarter of 2016,
compared to US$126 million in the
fourth quarter of 2015. MFS's operating net income was US$135 million in the fourth quarter of 2016,
compared to US$131 million in the
fourth quarter of 2015. Operating net income in MFS excludes the
impact of fair value adjustments on share-based payment awards,
which is set out in the table above. MFS's operating net income in
U.S. dollars increased in the fourth quarter of 2016 compared to
the same period in 2015, primarily due to higher average net assets
and lower taxes in the quarter, partially offset by foreign
exchange. MFS's pre-tax operating profit margin ratio was 35% in
the fourth quarter of 2016, down from 38% in the fourth quarter of
2015.
SLIM's reported net income and operating net income was
C$9 million in the fourth quarter of
2016, unchanged from the fourth quarter of 2015.
SLF Asset Management's AUM was C$624.8
billion as at December 31, 2016, compared to
C$629.6 billion as at
December 31, 2015. The decrease in SLF Asset Management's AUM
was primarily due to asset appreciation of $33.4 billion, offset by the strengthening of the
Canadian dollar relative to exchange rates at the end of the fourth
quarter of 2015 of $17.3 billion, net
outflows of $12.3 billion and a
$9 billion decrease in SLIM described
below.
MFS's AUM was US$425.6 billion
(C$571.6 billion) as at
December 31, 2016, compared to US$413.2 billion (C$571.9 billion) as at December 31, 2015.
The increase of US$12.4 billion was
primarily driven by gross sales of US$81.7
billion and asset appreciation of US$25.0 billion, partially offset by redemptions
of US$94.3 billion.
In the fourth quarter, rebalancing by institutional Clients was
the largest driver of MFS's outflows of $9.5
billion. An increase in non-U.S. retail redemptions, which
were in line with the industry as a whole, was an additional
contributor to the higher net outflows when compared to the
previous quarter. In the fourth quarter, we experienced asset
depreciation of $5.6 billion
reflecting the decline in fixed income and non-U.S. equity markets.
In addition, the depreciation reflected the positioning of our
portfolios towards long-term value investments that did not benefit
as much from the rally in the U.S. markets that occurred late in
the fourth quarter. 61%, 75% and 97% of MFS's U.S. retail mutual
fund assets ranked in the top half of their Lipper categories based
on three-, five- and ten-year performance, respectively at
December 31, 2016.
SLIM's AUM was C$53.2 billion as
at December 31, 2016, compared to C$57.8 billion as at December 31, 2015. This
decrease was mainly due to a $9
billion decrease relating to a Client of Bentall Kennedy
which exercised its right to acquire certain wholly-owned
subsidiaries involved in the management of its assets(1)
and due to the strengthening of the Canadian dollar relative to the
exchange rates at the end of the fourth quarter of 2015, partially
offset by net sales and asset appreciation.
2016 vs. 2015
SLF Asset Management's reported net income was C$729 million in 2016, compared to C$691 million in 2015. SLF Asset Management had
operating net income and underlying net income of C$699 million in 2016, compared to C$700 million in 2015. Operating net income and
underlying net income in SLF Asset Management excludes the impact
of fair value adjustments on MFS's share-based payment awards,
which is set out in the table above. The impact of the weakening
Canadian dollar in 2016 relative to average exchange rates in 2015
increased reported net income, operating net income and underlying
net income by $25 million,
$24 million and $24 million, respectively.
(1)
|
The transfer of the
assets is expected to be completed in the first quarter of 2017,
and from June 30, 2016, assets of $9 billion related to this
transfer are not reported in SLIM's AUM.
|
MFS's reported net income for 2016 was US$528 million, compared to US$531 million for 2015. MFS's operating net
income was US$506 million in 2016,
compared to US$540 million in 2015.
MFS's operating net income in U.S. dollars for the year ended
December 31, 2016 decreased compared to the same period in the
prior year, primarily due to lower average net assets and higher
operating costs.
SLIM's reported net income and operating net income for the year
ended December 31, 2016 was C$29
million, compared to C$12
million for 2015. SLIM's net income in 2016 primarily
reflected the results of the 2015 acquisitions in SLIM.
SLF Asia
SLF Asia operates through subsidiaries in the Philippines, Hong Kong, Indonesia(1)and Vietnam(2) as well as through joint
ventures and associates with local partners in the Philippines, India(3), China and Malaysia. We offer individual life insurance
products in all seven markets, and group benefits and/or pension
and retirement products in the
Philippines, Hong Kong,
Vietnam, India, China
and Malaysia. We have also
established asset management companies either directly or through
joint ventures and associates in the
Philippines, India and
China. We distribute these
insurance and wealth products to middle- and upper-income
individuals, groups and affinity Clients through multiple
distribution channels.
|
Quarterly
results
|
Full year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net income
(loss)
|
58
|
|
92
|
|
68
|
|
91
|
|
73
|
|
309
|
|
311
|
|
Acquisition,
integration and restructuring(4)
|
(1)
|
|
3
|
|
—
|
|
31
|
|
—
|
|
33
|
|
—
|
Operating net income
(loss)(5)
|
59
|
|
89
|
|
68
|
|
60
|
|
73
|
|
276
|
|
311
|
|
Market related
impacts
|
6
|
|
5
|
|
(13)
|
|
(11)
|
|
7
|
|
(13)
|
|
19
|
|
Assumption changes
and management actions
|
(9)
|
|
4
|
|
(4)
|
|
3
|
|
14
|
|
(6)
|
|
40
|
Underlying net income
(loss)(5)
|
62
|
|
80
|
|
85
|
|
68
|
|
52
|
|
295
|
|
252
|
Operating ROE
(%)(5)
|
5.5
|
|
8.7
|
|
7.1
|
|
6.7
|
|
8.0
|
|
7.0
|
|
9.2
|
Underlying ROE
(%)(5)
|
5.8
|
|
7.8
|
|
9.0
|
|
7.6
|
|
5.6
|
|
7.5
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On July 1, 2016, we
increased our ownership interest in PT CIMB Sun Life in Indonesia
from 49% to 100%.
|
(2)
|
We increased our
ownership stake in Sun Life Vietnam from 49% to 75% on January 7,
2016, and to 100% on November 9, 2016.
|
(3)
|
On April 11, 2016, we
increased our ownership stake in BSLI in India from 26% to
49%.
|
(4)
|
In the third quarter
of 2016, Acquisition, integration and restructuring amounts relate
primarily to an adjustment for a non-cash gain to our reported net
income as a result of remeasuring our existing investment to fair
value upon acquiring control over the operations of PT CIMB Sun
Life in Indonesia, partially offset by acquisition and integration
costs. In the first quarter of 2016, amounts consisted of an
adjustment for a non-cash gain of $31 million to our reported net
income as a result of remeasuring our existing investment to fair
value upon acquiring control over the operations of Sun Life
Vietnam.
|
(5)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q4 2016 vs. Q4 2015
SLF Asia's reported net income was $58
million and operating net income was $59 million in the fourth quarter of 2016,
compared to reported net income and operating net income of
$73 million in the fourth quarter of
2015. Operating net income excludes the impact of acquisition,
integration and restructuring amounts, which is set out in the
table above. The impact of the change in the Canadian dollar in the
fourth quarter of 2016 relative to average exchange rates in the
fourth quarter of 2015 reduced reported net income, operating net
income and underlying net income by $2
million.
Underlying net income was $62
million, compared to $52
million in the fourth quarter of 2015. 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
fourth quarter of 2016 were primarily driven by interest rates,
partially offset by equity markets, compared to the favourable
effect in the fourth quarter of 2015 primarily driven by equity
markets and interest rates.
Net income in the fourth quarter of 2016 also reflected business
growth, partially offset by growth in our expenses, including
investment in our business, relative to the fourth quarter of
2015.
Total individual insurance sales of $200
million increased 36% compared to the fourth quarter of
2015. On a constant currency basis, individual insurance sales
increased 39%. Sales increased in all markets, driven by growth in
our agency channels in Hong Kong,
India, the Philippines and Vietnam, our bancassurance sales in
China, Indonesia and Malaysia, and our brokerage business in
Hong Kong. Sales also increased in
India, Indonesia and Vietnam due to our increase in ownership in
our insurance businesses in these markets.
Wealth sales were 81% higher than the fourth quarter of 2015,
driven by growth in India,
Hong Kong and the Philippines.
2016 vs. 2015
Reported net income was $309 million
in 2016, compared to $311 million for
the same period in the prior year. Operating net income was
$276 million for 2016, compared to
$311 million for the same period in
the prior year. Operating net income excludes the impact of
acquisition, integration and restructuring amounts, which is set
out in the table above. The impact of the change in the Canadian
dollar in 2016 relative to average exchange rates in 2015 increased
reported net income and operating net income by $2 million and underlying net income by
$1 million.
Underlying net income for 2016 was $295
million, compared to $252
million in the same period in the prior year. Underlying net
income excludes from operating net income market related impacts
and assumption changes and management actions, which are set out in
the table above. The unfavourable effect of market related impacts
in 2016 was primarily driven by interest rates, compared to the
favourable effect in 2015 primarily driven by equity markets and
interest rates.
Net income for 2016 also reflected favourable impacts from
business growth, partially offset by growth in our expenses
including investment in our business, relative to 2015. Net income
in both periods reflected the favourable effect of net realized
gains on the sale of AFS assets.
Total individual life sales in 2016 increased 29% from 2015. On
a constant currency basis, individual insurance sales increased
28%. Sales increased across the region, driven by organic sales
growth as well as our increased ownership in our insurance
businesses in India, Indonesia and Vietnam. Wealth sales were
25% higher than 2015 with growth in all markets.
Corporate
Corporate includes the results of our United Kingdom business unit ("SLF U.K.") and
Corporate Support. Corporate Support includes our Run-off
reinsurance business as well as investment income, expenses,
capital, and other items that have not been allocated to our other
business segments. SLF U.K. has a run-off block of business which
has been closed to new business and focuses on supporting existing
Clients.
|
Quarterly
results
|
Full
year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net income
(loss)
|
(32)
|
|
27
|
|
—
|
|
8
|
|
(24)
|
|
3
|
|
26
|
|
Acquisition,
integration and restructuring(1)
|
(6)
|
|
—
|
|
2
|
|
(1)
|
|
(3)
|
|
(5)
|
|
(17)
|
Operating net income
(loss)(2)
|
(26)
|
|
27
|
|
(2)
|
|
9
|
|
(21)
|
|
8
|
|
43
|
|
Market related
impacts
|
(6)
|
|
4
|
|
(4)
|
|
(7)
|
|
(2)
|
|
(13)
|
|
14
|
|
Assumption changes
and management actions
|
—
|
|
13
|
|
—
|
|
1
|
|
(3)
|
|
14
|
|
11
|
Underlying net income
(loss)(2)
|
(20)
|
|
10
|
|
2
|
|
15
|
|
(16)
|
|
7
|
|
18
|
Operating net income
(loss) by business unit(1)(2)
|
|
|
|
|
|
|
|
|
SLF
U.K.(2)
|
26
|
|
86
|
|
32
|
|
40
|
|
22
|
|
184
|
|
200
|
|
Corporate
Support(1)(2)
|
(52)
|
|
(59)
|
|
(34)
|
|
(31)
|
|
(43)
|
|
(176)
|
|
(157)
|
Total operating net
income (loss)(1)(2)
|
(26)
|
|
27
|
|
(2)
|
|
9
|
|
(21)
|
|
8
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2016 and 2015,
Acquisition, integration and restructuring amounts consisted
primarily of acquisition and integration costs from Bentall
Kennedy, Prime Advisors and Ryan Labs in Corporate
Support.
|
(2)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q4 2016 vs. Q4 2015
Corporate had reported net loss of $32
million in the fourth quarter of 2016, compared to reported
loss of $24 million in the fourth
quarter of 2015. Operating net loss was $26
million in the fourth quarter of 2016, compared to an
operating net loss of $21 million in
the same period in the prior year. Operating net income (loss)
excludes acquisition, integration and restructuring amounts in 2016
and 2015, which are set out in the table above. The strengthening
Canadian dollar in the fourth quarter of 2016 relative to the U.K.
pound in the fourth quarter of 2015 increased Corporate's reported
net loss, operating net loss and underlying net loss by
$6 million, $6
million and $7 million,
respectively.
Underlying net loss was $20
million, compared to underlying net loss of $16 million in the fourth quarter of 2015.
Underlying net loss excludes from operating net loss 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 fourth quarter of 2016 were primarily driven
by equity markets and interest rates, compared to the unfavourable
effect in the fourth quarter of 2015, primarily driven by equity
markets partially offset by interest rates.
SLF U.K.'s operating net income was $26
million in the fourth quarter of 2016, compared to
$22 million in the fourth quarter of
2015. SLF U.K.'s net income in the fourth quarter of 2016 reflected
unfavourable market related impacts and expense experience. Net
income in the fourth quarter of 2015 reflected unfavourable equity
markets and the impact of a tax rate change partially offset by the
impact of interest rates.
Corporate Support had an operating net loss of $52 million in the fourth quarter of 2016,
compared to an operating net loss of $43
million in the fourth quarter of 2015. Net loss in the
fourth quarter of 2016 increased relative to the same period in
2015, primarily due to incentive compensation costs related to
strong operating results and long-term relative share
performance.
2016 vs. 2015
The reported net income was $3
million in the Corporate segment in 2016, compared to a
reported net income of $26 million in
2015. Operating net income was $8
million in 2016, compared to an operating net income of
$43 million in 2015. Operating net
income (loss) excludes acquisition, integration and restructuring
amounts in 2016 and 2015, which are set out in the table above. The
strengthening Canadian dollar in 2016 relative to the U.K. pound in
2015 decreased reported net income, operating net income and
underlying net income by $16 million,
$16 million and $15 million, respectively.
Underlying net income was $7
million in 2016, compared to an underlying net income of
$18 million in 2015. 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 2016 was primarily driven by equity markets, partially offset by
swap spreads, compared to a favourable effect in 2015, primarily
driven by interest rates and partially offset by equity
markets.
SLF U.K.'s operating net income was $184
million in 2016, compared to $200
million in 2015. Net income in 2016 reflected gains on
investing activities on insurance contract liabilities primarily as
a result of actions to reduce inflation risks related to annuity
payments, assumption changes and management actions, and favourable
policyholder behaviour, partially offset by unfavourable market
impacts. Net income in 2015 reflected favourable effect of interest
rates, currency impacts, policyholder behaviour, mortality
experience, and assumption changes and management actions,
partially offset by equity markets.
In Corporate Support, the operating net loss was $176 million in 2016, compared to an operating
net loss of $157 million in 2015. The
increase in loss in 2016 relative to 2015 was primarily due to
incentive compensation costs related to strong operating results
and long-term relative share performance.
Additional Financial Disclosure
Revenue
|
Quarterly
results
|
Full year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
Gross
|
5,592
|
|
4,937
|
|
4,639
|
|
4,259
|
|
5,163
|
|
19,427
|
|
16,824
|
|
Ceded
|
(1,173)
|
|
(1,049)
|
|
(1,076)
|
|
(1,081)
|
|
(1,612)
|
|
(4,379)
|
|
(6,429)
|
Net
premium
|
4,419
|
|
3,888
|
|
3,563
|
|
3,178
|
|
3,551
|
|
15,048
|
|
10,395
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
investment income
|
1,366
|
|
1,359
|
|
1,339
|
|
1,425
|
|
1,327
|
|
5,489
|
|
5,288
|
|
Fair
value(1) and foreign currency changes on
assets and
liabilities
|
(4,902)
|
|
1,182
|
|
3,223
|
|
2,730
|
|
(788)
|
|
2,233
|
|
(1,961)
|
|
Net gains (losses) on
available-for-sale assets
|
41
|
|
53
|
|
54
|
|
75
|
|
39
|
|
223
|
|
228
|
Fee income
|
1,442
|
|
1,410
|
|
1,354
|
|
1,374
|
|
1,438
|
|
5,580
|
|
5,324
|
Total
revenue
|
2,366
|
|
7,892
|
|
9,533
|
|
8,782
|
|
5,567
|
|
28,573
|
|
19,274
|
Adjusted
revenue(2)
|
7,993
|
|
7,517
|
|
7,124
|
|
6,652
|
|
7,526
|
|
28,666
|
|
25,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the fair
value of fair value through profit or loss ("FVTPL") assets and
liabilities.
|
(2)
|
Adjusted revenue is a
non-IFRS financial measure that adjusts revenue for 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 was $2.4 billion in the
fourth quarter of 2016, compared to $5.6
billion in the fourth quarter of 2015. The decrease was
primarily driven by decreases in the fair value of FVTPL assets
mainly due to increases in interest rates, partially offset by
higher net premium revenue in SLF Canada, SLF U.S. and SLF Asia,
including the partial recapture of a reinsurance agreement in GB in
SLF Canada effective the first quarter of 2016. The currency impact
from the change in the Canadian dollar relative to average exchange
rates in the fourth quarter of 2015 increased revenue by
$58 million. Adjusted revenue was
$8.0 billion in the fourth quarter of
2016, compared to $7.5 billion in the
fourth quarter of 2015 primarily due to higher net premium revenue
in SLF U.S. and SLF Asia.
Revenue of $28.6 billion in 2016
was up $9.3 billion from revenue of
$19.3 billion in 2015. The increase
was primarily driven by increases in the fair value of FVTPL assets
primarily due to the decline in credit spreads, the partial
recapture of a reinsurance agreement in GB in SLF Canada in 2016,
higher net premium revenue in SLF U.S. and SLF Asia, and currency
impact from the change in the Canadian dollar. The change of the
Canadian dollar relative to average exchange rates in 2015
increased revenue by $0.4 billion.
Adjusted revenue in 2016 was $28.7
billion, $2.8 billion higher
compared to 2015. The increase in adjusted revenue was primarily
attributable to higher net premium revenue in SLF U.S., SLF Asia
and SLF Canada.
Premiums and Deposits
|
Quarterly
results
|
Full year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Net premium
revenue
|
4,419
|
|
3,888
|
|
3,563
|
|
3,178
|
|
3,551
|
|
15,048
|
|
10,395
|
Segregated fund
deposits
|
3,691
|
|
2,294
|
|
2,834
|
|
2,731
|
|
2,523
|
|
11,550
|
|
12,047
|
Mutual fund
sales(1)
|
22,344
|
|
23,115
|
|
20,007
|
|
19,262
|
|
17,598
|
|
84,728
|
|
76,551
|
Managed fund
sales(1)(2)
|
10,263
|
|
9,256
|
|
9,886
|
|
10,865
|
|
7,678
|
|
40,270
|
|
30,079
|
ASO premium and
deposit equivalents(1)
|
1,705
|
|
1,623
|
|
1,745
|
|
1,790
|
|
1,770
|
|
6,863
|
|
7,078
|
Total premiums and
deposits(1)
|
42,422
|
|
40,176
|
|
38,035
|
|
37,826
|
|
33,120
|
|
158,459
|
|
136,150
|
Total adjusted
premiums and deposits(1)(3)
|
43,193
|
|
41,718
|
|
39,860
|
|
37,660
|
|
34,291
|
|
156,862
|
|
140,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
In the second quarter
of 2016, we moved our sales reporting methodology for Bentall
Kennedy's real estate investment management operations from an
investment property activity basis to a Client cash flow basis to
be consistent with the method used in our existing asset management
operations. Managed fund sales were previously reported as $11,252
million in the first quarter of 2016, $8,327 million in the fourth
quarter of 2015 and $31,079 million for the year ended 2015. For
additional information, see Additional Financial Disclosure -
Sales.
|
(3)
|
Adjusted premium and
deposits is a non-IFRS financial measure that excludes from
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 $42.4
billion for the quarter ended December 31, 2016,
compared to $33.1 billion for the
quarter ended December 31, 2015. Total adjusted premiums and
deposits in the fourth quarter of 2016 were up $8.9 billion compared to the same period in the
prior year. In both cases, the increase was mainly due to increased
fund sales, higher segregated fund deposits and net premium
revenue, partially offset by lower ASO premium and deposit
equivalents. The currency impact from the change in the Canadian
dollar relative to average exchange rates in the fourth quarter of
2015 decreased total premiums and deposits by approximately
$76 million.
Premiums and deposits were $158.5
billion in 2016, compared to $136.2
billion in 2015, primarily attributable to higher fund
sales, currency impact from the change in the Canadian dollar, and
increased net premium revenue, partially offset by lower segregated
fund deposits and ASO premium and deposit equivalents. The
weakening of the Canadian dollar relative to average exchange rates
in 2015 increased total premiums and deposits by approximately
$4.4 billion. Adjusted premiums and
deposits of $156.9 billion in 2016
increased $16.1 billion compared to
2015. The increase was largely driven by higher fund sales and net
premium revenue, partially offset by decreased segregated fund
deposits and ASO premium and deposit equivalents.
Net premium revenue was $4.4
billion in the fourth quarter of 2016, compared to
$3.6 billion in the fourth quarter of
2015. The increase was primarily driven by the impact of the
partial recapture of a reinsurance agreement in GB in SLF Canada,
the U.S. employee benefits business acquired in 2016 in SLF U.S.
and growth in premiums in SLF Asia, partially offset by a decrease
in SLF Canada. Net premium revenues were $15.0 billion for 2016, up $4.6 billion from 2015. The increase was
primarily attributable to the impact of the partial recapture of a
reinsurance agreement in GB in SLF Canada, the U.S. employee
benefits business acquired in 2016 in SLF U.S., growth in premiums
in SLF Asia and SLF Canada, impact from the change in the Canadian
dollar, and the impact of a reinsurance agreement in Run-off
Reinsurance we entered into during the third quarter of 2015.
Segregated fund deposits were $3.7
billion in the fourth quarter of 2016, compared to
$2.5 billion in the fourth quarter of
2015. Segregated fund deposits were $11.6
billion in 2016, compared to $12.0
billion in 2015. In both cases, the change was mainly driven
by GRS in SLF Canada.
Sales of mutual funds and managed funds were $32.6 billion in the fourth quarter of 2016, an
increase of $7.3 billion over the
fourth quarter of 2015, reflecting higher fund sales in MFS and
SLIM, SLF Asia and SLF Canada, partially offset by the currency
impact of the change in the Canadian dollar. Mutual and managed
fund sales were $125.0 billion in
2016, compared to $106.6 billion in
2015, primarily driven by increased fund sales in MFS, the
acquisitions in SLIM in 2015, currency impact from the change in
the Canadian dollar, and higher fund sales in SLF Asia and SLF
Canada.
ASO premium and deposit equivalents of $1.7 billion in the fourth quarter of 2016 were
down $0.1 billion from the fourth
quarter of 2015, mainly reflecting a decrease in Hong Kong in SLF Asia, partially offset by
increases in GRS and GB in SLF Canada. ASO premium and deposit
equivalents for 2016 decreased $0.2
billion from 2015, primarily attributable to decreases in
Hong Kong in SLF Asia and GRS in
SLF Canada, partially offset by increase in GB in SLF Canada.
Sales
In SLF Canada, life and health sales consist of sales of individual
insurance and group benefits products; wealth sales consist of
sales of individual wealth products and sales in GRS. In SLF U.S.,
life and health sales consist of sales by Group Benefits and
individual life sales by International. In SLF Asia, life and
health sales consist of the individual and group life and health
sales from subsidiaries and from joint ventures and associates,
based on our proportionate equity interest, in the Philippines, Hong Kong, Indonesia, Vietnam, India, China
and Malaysia; wealth sales consist
of Hong Kong wealth sales,
Philippines mutual fund sales,
wealth sales from the India and
China insurance companies, and
Birla Sun Life Asset Management Company's equity and fixed income
mutual fund sales based on our proportionate equity interest. SLF
Asset Management sales(1) consist of gross sales
(inflows) for retail and institutional Clients; unfunded
commitments are not included in sales.
($
millions)
|
Q4'16
|
|
Q4'15
|
Life and health
sales(2)
|
|
|
|
|
SLF Canada
|
308
|
|
178
|
|
SLF U.S.
|
555
|
|
427
|
|
SLF Asia
|
208
|
|
162
|
Total life and health
sales
|
1,071
|
|
767
|
Wealth
sales(2)(3)
|
|
|
|
|
SLF Canada
|
4,701
|
|
3,585
|
|
SLF
Asia
|
3,092
|
|
1,706
|
Total wealth sales
excluding SLF Asset
Management
|
7,793
|
|
5,291
|
|
SLF Asset Management
sales(1)(2)
|
29,457
|
|
23,598
|
Total wealth
sales
|
37,250
|
|
28,889
|
|
|
|
|
|
|
(1)
|
In the second quarter
of 2016, we moved our sales reporting methodology for Bentall
Kennedy's real estate investment management operations from an
investment property activity basis to a Client cash flow basis to
be consistent with the method used in our existing asset management
operations. Gross sales for SLF Asset Management were previously
reported as $24,247 million in the fourth quarter of 2015. Gross
and net sales for prior periods have been conformed to this
approach. Revenue and other IFRS financial measures were not
impacted.
|
(2)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial
Measures.
|
(3)
|
Wealth sales exclude
investment products sales of $96 million in the fourth quarter of
2015 in SLF U.S.'s International wealth business which was closed
to new sales in December 2015.
|
Total Company life and health sales were $1,071 million in the fourth quarter of 2016,
compared to $767 million in the same
period in the prior year.
- SLF Canada life and health sales were $308 million in the fourth quarter of 2016,
compared to $178 million in the
fourth quarter of 2015, primarily reflecting higher sales from both
individual insurance business and GB
- SLF U.S. life and health sales were $555
million in the fourth quarter of 2016, compared to
$427 million in the fourth quarter of
2015, largely due to the acquisition of the U.S. employee benefits
business in 2016 and higher sales in Group Benefits, partially
offset by lower stop-loss sales
- SLF Asia life and health sales were $208
million in the fourth quarter of 2016, compared to
$162 million in the fourth quarter of
2015, mainly attributable to higher sales from Hong Kong, the
Philippines and Malaysia,
and our businesses in India,
Indonesia and Vietnam, partially due to increased
ownership
Total Company wealth sales were $37.3
billion in the fourth quarter of 2016, compared to
$28.9 billion in the fourth quarter
of 2015.
- SLF Canada wealth sales were $4.7
billion in the fourth quarter of 2016, compared to
$3.6 billion in the fourth quarter of
2015, mainly reflecting a large case sale in GRS
- SLF Asia wealth sales were $3.1
billion in the fourth quarter of 2016, compared to
$1.7 billion in the fourth quarter of
2015, mainly driven by increases in India, Hong
Kong and the Philippines,
partially offset by the currency impact from the strengthening of
the Canadian dollar
- SLF Asset Management gross sales were $29.5 billion in the fourth quarter of 2016,
compared to $23.6 billion in the
fourth quarter of 2015, reflecting higher fund sales from both MFS
and SLIM companies
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 $903.3 billion as at
December 31, 2016, compared to AUM of $891.3 billion as at December 31, 2015. The
increase in AUM of $12.0 billion
between December 31, 2016 and December 31, 2015 resulted
primarily from:
(i)
|
favourable market
movements on the value of mutual funds, managed funds, and
segregated funds of $40.8 billion;
|
(ii)
|
business growth and
activity of $6.4 billion;
|
(iii)
|
an increase of $2.2
billion from the change in value of FVTPL assets and liabilities;
and
|
(iv)
|
the impact of the
U.S. employee benefits business acquired in 2016 of $2.4 billion;
partially offset by
|
(v)
|
a decrease of $25.5
billion from the strengthening of the Canadian dollar relative to
exchange rates at the end of the fourth quarter of 2015;
|
(vi)
|
a decrease of $9.0
billion from a reduction of assets related to a Bentall Kennedy
Client(1); and
|
(vii)
|
net outflow of
mutual, managed, and segregated funds of $5.3 billion.
|
Changes in the Statements of Financial Position and in
Shareholders' Equity
Total general fund assets were $161.1
billion as at December 31, 2016, compared to
$155.4 billion as at
December 31, 2015. The increase in general fund assets from
December 31, 2015 was primarily a result of business growth
and activity of $5.4 billion,
$2.4 billion from the U.S. employee
benefits business acquired in 2016, and an increase of $2.2 billion from the change in value of FVTPL
assets and liabilities, partially offset by a reduction of
$4.3 billion from the strengthening
of the Canadian dollar relative to the exchange rates at the end of
the fourth quarter of 2015.
Insurance contract liabilities (excluding other policy
liabilities and assets) of $108.4
billion as at December 31, 2016 increased by
$4.7 billion compared to
December 31, 2015, mainly due to balances arising from new
policies, changes in balances on in-force policies (which include
fair value changes on FVTPL assets supporting insurance contract
liabilities), and the U.S. employee benefits business acquired in
2016, partially offset by the currency impact of the strengthening
of the Canadian dollar relative to exchange rates at the end of the
fourth quarter of 2015.
Shareholders' equity, including preferred share capital, was
$22.0 billion as at December 31,
2016, compared to $21.3 billion as at
December 31, 2015. The $0.7
billion increase in shareholders' equity was primarily due
to:
(i)
|
shareholders' net
income of $2.6 billion in 2016, before preferred share dividends of
$96 million; and
|
(ii)
|
$39 million from
stock options exercised and $4 million from stock-based
compensation; partially offset by
|
(iii)
|
common share dividend
payments of $986 million;
|
(iv)
|
a decrease of $634
million from the strengthening of the Canadian dollar relative to
exchange rates at the end of the fourth quarter of 2015;
|
(v)
|
a decrease of $76
million from other comprehensive income ("OCI") of joint ventures
and associates;
|
(vi)
|
changes in
liabilities for defined benefit plans of $73 million;
|
(vii)
|
$30 million related
to the acquisition of non-controlling interests in Sun Life
Vietnam; and
|
(viii)
|
net unrealized losses
on AFS assets in OCI of $14 million.
|
________________________
(1)
|
During the second
quarter of 2016, a Client of Bentall Kennedy exercised its right to
acquire certain wholly-owned subsidiaries involved in the
management of its assets. The transfer of the assets is expected to
be completed in the first quarter of 2017, and from June 30, 2016,
assets of $9 billion related to this are not reported in
AUM.
|
Income Taxes
In the fourth quarter of 2016, on a reported basis we had an Income
tax expense of $201 million on Income
before taxes of $1,029 million, which
resulted in an effective income tax rate of 19.5%. This compares to
an Income tax expense of $180 million
on Income before taxes of $741
million and an effective income tax rate of 24.3% in the
fourth quarter of 2015.
On an operating basis(1), in the fourth quarter of
2016, we had an income tax expense of $197
million on our operating net income of $963 million, representing an effective income
tax rate of 20.5%. This compares to an income tax expense of
$190 million on operating income
before taxes of $826 million and an
effective income tax rate of 23.0% in the fourth quarter of
2015.
On an underlying basis(1), in the fourth quarter of
2016, we had an income tax expense of $117
million on our underlying net income of $711 million, representing an effective income
tax rate of 16.5%. This compares to an income tax expense of
$197 million on underlying income
before taxes of $881 million and an
effective income tax rate of 22.4% in the fourth quarter of
2015.
Our statutory tax rate is normally reduced by various tax
benefits, such as lower taxes on income subject to tax in foreign
jurisdictions, a range of tax exempt investment income and other
sustainable tax benefits that are expected to decrease our
effective tax rate to a range of 18% to 22%.
Our effective tax rate in the fourth quarter of 2016 on a
reported basis and operating basis was within the expected range.
The effective tax rate on an underlying basis was below the
expected range, primarily due to higher earnings in lower taxed
jurisdictions and higher tax exempt investment income.
Our effective tax rate in the fourth quarter of 2015 was
slightly above the expected range on a reported, operating and
underlying basis, mainly due to the impact of a tax rate change in
the U.K., partially offset by adjustments with respect to prior
years and resolution of tax audits.
_______________________
(1)
|
Our effective income
tax rate on operating net income is calculated using operating net
income and income tax expense associated with operating net income.
Our effective income tax rate on underlying net income are
calculated using underlying net income and income tax expense
associated with underlying net income. The effective tax rates
calculated on an operating and underlying basis also exclude
amounts attributable to participating policyholders.
|
Investments
We had total general fund invested assets of $142.4 billion as at December 31, 2016,
compared to $138.0 billion as at
December 31, 2015. The increase in general fund invested
assets of $4.4 billion
was primarily due to changes in operating activity, net fair value
growth and the acquisition of the U.S. employee benefits business
in 2016, partially offset by the currency impact of the
strengthening Canadian dollar relative to exchange rates at the end
of the fourth quarter of 2015. Our general fund is primarily
invested in fixed income instruments, including debt securities and
mortgages and loans, with 85.3% of the general fund invested assets
invested in cash and fixed income investments. Equity securities
and investment properties represented 4.0% and 4.6% of the
portfolio, respectively and the remaining 6.1% of the portfolio
consisted of policy loans, derivative assets and other invested
assets. Our general fund invested assets are well diversified
across investment types, geographies and sectors.
Additional detail on our investments is provided in Notes 5 and
6 to our 2016 Annual Consolidated Financial Statements.
The following table sets out the composition of our general fund
invested assets(1).
Investments
(1)
|
December 31, 2016
|
December 31,
2015
|
($
millions)
|
Carrying value
|
% of total
carrying value
|
Carrying
value
|
% of total
carrying value
|
Cash, cash
equivalents and short-term securities
|
8,642
|
6.1%
|
8,983
|
6.5%
|
Debt securities –
FVTPL
|
59,466
|
41.9%
|
56,785
|
41.2%
|
Debt securities –
AFS
|
12,421
|
8.7%
|
13,111
|
9.5%
|
Equity securities –
FVTPL
|
5,016
|
3.5%
|
4,426
|
3.2%
|
Equity securities –
AFS
|
758
|
0.5%
|
887
|
0.6%
|
Mortgages and
loans
|
40,775
|
28.6%
|
39,103
|
28.3%
|
Derivative
assets
|
1,608
|
1.1%
|
1,866
|
1.4%
|
Other invested
assets
|
3,931
|
2.8%
|
3,111
|
2.3%
|
Policy
loans
|
3,141
|
2.2%
|
3,151
|
2.3%
|
Investment
properties
|
6,592
|
4.6%
|
6,540
|
4.7%
|
Total invested
assets
|
142,350
|
100%
|
137,963
|
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 and Mining
As a leading international financial services organization we have
a highly diversified portfolio that includes a variety of
investment types spread across a broad range of sectors and
geographies. As at December 31, 2016, our direct exposure to
energy and mining through our debt securities and corporate loan
holdings was approximately $6.1
billion or 4% of total invested assets, and our indirect
exposure through our mortgage and real estate holdings was
approximately $3.0
billion(1) or 2% of total invested assets.
Debt Securities and Corporate Loans
As at December 31, 2016, our holdings in debt securities and
corporate loans in the energy sector were $5.4 billion, where 93% was investment grade
($5.6 billion of which 93% was rated
investment grade as at December 31,
2015)(2). Approximately 47% of our energy sector
portfolio was invested in pipeline, storage and transportation
entities, 12% was invested in integrated oil and gas entities, and
the remaining portion was invested in companies involved in
exploration and production, refining, and drilling and servicing,
which included 4% in drilling and oil field services. This compared
to approximately 45%, 15%, and 7% as at December 31, 2015, respectively.
As at December 31, 2016, our metals and mining
sub-sector(3) holdings consisted of debt securities and
were $0.7 billion, of which 88% was
investment grade ($0.8 billion, of
which 97% was investment grade as at December 31, 2015) and which are diversified
across several different commodity types.
Mortgage and Real Estate
Our mortgage and real estate portfolio includes office, industrial,
retail, and multi-family buildings occupied by tenants in
diversified industries. Our most significant property holdings in
the oil and gas sector are located in Alberta, where our real estate holdings
represented approximately 20% of our global real estate portfolio
and our uninsured mortgage holdings represented approximately 6% of
our global mortgage portfolio as at December 31, 2016. Market
fundamentals within the province have deteriorated as a result of
the sustained weakness in energy prices which resulted in rising
vacancy levels and lower rental rates. These trends, should they
continue, may lead to further reductions in real estate valuations
in the province particularly in the office sector.
Within our Alberta mortgage and
real estate portfolio, there has been no significant increase in
arrears, mortgage defaults, and tenant insolvencies. We continue to
closely monitor the effects of market changes in the energy sector
on the real estate and mortgage portfolios.
____________________
(1)
|
The indirect exposure
from mortgages and real estate includes real estate holdings and
uninsured mortgages in Alberta and Texas.
|
(2)
|
The credit risk
ratings were established in accordance with the process described
in our annual MD&A under the heading Risk Categories - Credit
Risk Management Governance and Control.
|
(3)
|
The metals and mining
sub-sector is included in the Materials line of the Debt Securities
by Issuer and Industry Sector table included in the Debt Securities
section of our 2016 annual MD&A.
|
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 it remains well diversified and
duration-matched to insurance contract liabilities. As at
December 31, 2016, we held $71.9
billion of debt securities, representing 50.6% of our total
invested assets, compared to $69.9
billion representing 50.7% as at December 31, 2015. Debt securities with a credit
rating of "A" or higher represented 69.6% of the total debt
securities as at December 31, 2016, compared to 67.9% as at
December 31, 2015. Debt securities with a credit rating of
"BBB" or higher represented 97.6% of total debt securities as at
December 31, 2016, compared to 96.9% as at December 31,
2015.
Corporate debt securities not issued or guaranteed by sovereign,
regional and municipal governments represented 64.4% of our total
debt securities as at December 31, 2016, compared to 66.0% as
at December 31, 2015. Total government issued or guaranteed
debt securities as at December 31, 2016 were $25.6 billion, compared to $23.8 billion as at December 31, 2015. With
the exception of certain countries where we have business
operations, including Canada,
the United States, the
United Kingdom and the Philippines, our exposure to debt
securities from any single country did not exceed 1% of total
invested assets on our Consolidated Statements of Financial
Position as at December 31, 2016.
The carrying value of debt securities of governments and
financial institutions by geographic location is presented in the
following table.
Debt Securities of Governments and Financial Institutions by
Geography
|
December 31, 2016
|
|
December 31,
2015
|
($
millions)
|
Government issued or
guaranteed
|
Financials
|
|
Government issued
or
guaranteed
|
Financials(1)
|
Canada
|
17,371
|
1,476
|
|
15,411
|
1,416
|
United
States
|
1,890
|
4,733
|
|
1,702
|
4,828
|
United
Kingdom
|
2,201
|
1,085
|
|
2,561
|
1,481
|
Philippines
|
2,619
|
15
|
|
2,745
|
15
|
Eurozone(2)
|
219
|
697
|
|
237
|
829
|
Other
|
1,305
|
1,297
|
|
1,111
|
1,231
|
Total
|
25,605
|
9,303
|
|
23,767
|
9,800
|
|
|
|
|
|
|
(1)
|
Our grouping of debt
securities by sector is based on the Global Industry Classification
Standard from S&P Dow Jones Indices. Certain real estate debt
securities were moved out from the Financials sector as of
September 1, 2016. $2.5 billion has been reclassified out of the
Financials sector as at December 31, 2015 for
comparability.
|
(2)
|
Our investments in
Eurozone countries primarily included the Netherlands, Spain,
Germany, and France. We did not have any direct exposure to Greece.
Of our exposure to Eurozone countries, 99.8% was rated investment
grade and 83.5% had a credit rating of "A" or higher as at December
31, 2016 and 99.1% was rated investment grade and 77.4% had a
credit rating of "A" or higher as at December 31, 2015.
|
Our gross unrealized losses as at December 31, 2016 for
FVTPL and AFS debt securities were $0.72
billion and $0.14 billion,
respectively, compared with $1.1
billion and $0.22 billion,
respectively, as at December 31, 2015. The decrease in gross
unrealized losses was largely due to the impact of a decline in
credit spreads offsetting the impact from rising interest
rates.
Our debt securities as at December 31, 2016 included
$9.3 billion invested in the
financial sector, representing approximately 12.9% of our total
debt securities, or 6.5% of our total invested assets. This
compares to $9.8 billion, or 14.0% of
the total debt security portfolio, or 7.1% of our total invested
assets as at December 31, 2015.
Our debt securities as at December 31, 2016 included
$5.9 billion of asset-backed
securities reported at fair value, representing 8.3% of our total
debt securities, or 4.2% of our total invested assets. This
compares to $4.9 billion representing
7.1% of total debt securities or 3.6% of our total invested assets
as at December 31, 2015. The $1.0
billion increase is primarily due to the purchase of AAA
rated asset-backed securities. Asset-backed securities with a
credit rating of "AAA" represented 85.5% of total asset-backed
securities as at December 31, 2016,
compared to 77.9% as at December 31,
2015.
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 December 31, 2016, we had a total of
$40.8 billion in mortgages and loans,
representing 28.6% of our total invested assets, compared to
$39.1 billion representing 28.3% as
at December 31, 2015. Our mortgage portfolio consisted almost
entirely of first mortgages, and our corporate loan portfolio
consisted of private placement assets.
The carrying value of mortgages and loans by geographic location
is presented in the following table.(1)
Mortgages and Loans by Geography
|
December 31, 2016
|
December 31,
2015
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Canada
|
8,234
|
13,120
|
21,354
|
8,067
|
13,271
|
21,338
|
United
States
|
7,162
|
8,562
|
15,724
|
6,725
|
7,442
|
14,167
|
United
Kingdom
|
—
|
803
|
803
|
—
|
886
|
886
|
Other
|
—
|
2,894
|
2,894
|
—
|
2,712
|
2,712
|
Total
|
15,396
|
25,379
|
40,775
|
14,792
|
24,311
|
39,103
|
|
|
|
|
|
|
|
(1)
|
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.
|
As at December 31, 2016, we held $15.4 billion of mortgages, compared to
$14.8 billion as at December 31,
2015. Our mortgage portfolio consists entirely of commercial
mortgages, including retail, office, multi-family residential,
industrial and land properties. As at December 31, 2016, 27.2%
of our commercial mortgage portfolio consisted of multi-family
residential mortgages. Our uninsured commercial portfolio had a
weighted average loan-to-value ratio of approximately 55% as at
December 31, 2016, consistent with December 31, 2015.
While we generally limit the maximum loan-to-value ratio to 75% at
issuance, we may invest in mortgages with a higher loan-to-value
ratio in Canada if the mortgage is
insured by the Canada Mortgage and Housing Corporation ("CMHC").
The estimated weighted average debt service coverage for our
uninsured commercial portfolio is 1.75 times. Of the $3.1 billion of multi-family residential loans in
the Canadian commercial mortgage portfolio, 90.7% were insured by
the CMHC. There are no single family mortgages in our mortgage
portfolio.
As at December 31, 2016, we held $25.4 billion of corporate loans, compared to
$24.3 billion as at December 31,
2015. In the current low interest rate environment, our strategy is
to continue to focus our efforts on the origination of new private
placement assets. Private placement assets provide diversification
by type of loan, industry segment and borrower credit quality. The
loan portfolio consists of senior secured and unsecured loans to
large- and mid-market sized corporate borrowers, securitized
lease/loan obligations secured by a variety of assets, and project
finance loans in sectors such as power and infrastructure.
As at December 31, 2016, 97.0% of our total corporate loan
portfolio is investment grade, compared to 97.1% as at
December 31, 2015.
The carrying value and allowance for mortgages and loans past
due or impaired is presented in the following table.
Mortgages and Loans Past Due or Impaired
|
December 31, 2016
|
|
Gross carrying value
|
|
Allowance for losses
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
|
Mortgages
|
|
Loans
|
Total
|
Not past
due
|
15,378
|
25,379
|
40,757
|
|
—
|
|
—
|
—
|
Past due:
|
|
|
|
|
—
|
|
|
|
|
Past due less than 90
days
|
2
|
—
|
2
|
|
—
|
|
—
|
—
|
|
Past due 90 days or
more
|
—
|
—
|
—
|
|
—
|
|
—
|
—
|
Impaired
|
39
|
7
|
46
|
|
23
|
(1)
|
7
|
30
|
Total(1)
|
15,419
|
25,386
|
40,805
|
|
23
|
|
7
|
30
|
|
December 31,
2015
|
|
Gross carrying
value
|
|
Allowance for
losses
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
|
Mortgages
|
|
Loans
|
Total
|
Not past
due
|
14,690
|
24,279
|
38,969
|
|
—
|
|
—
|
—
|
Past due:
|
|
|
|
|
|
|
Past due less than 90
days
|
7
|
32
|
39
|
|
—
|
|
—
|
—
|
|
Past due 90 days or
more
|
—
|
—
|
—
|
|
—
|
|
—
|
—
|
Impaired
|
137
|
7
|
144
|
|
42
|
(1)
|
7
|
49
|
Total(1)
|
14,834
|
24,318
|
39,152
|
|
42
|
|
7
|
49
|
(1)
|
Includes $21 million
of sectoral provisions as at December 31, 2016, consistent
with December 31, 2015.
|
Our impaired mortgages and loans, net of allowance for losses,
were $16 million as at
December 31, 2016, compared to $95
million as at December 31, 2015. The decrease of
$79 million was primarily due to the
repayment and sales of impaired mortgages in the year. All of the
impaired mortgages are in the United
States.
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 December 31, 2016 was $2,247 million for losses related to possible
future credit events for fixed income assets currently held by the
Company that support our insurance contract liabilities, compared
to $2,077 million as at
December 31, 2015. The increase of $166
million was primarily due to increases in the provision for
assets purchased, net of dispositions, including the impact of the
U.S. employee benefits business acquired in 2016, partially offset
by the release of provisions on fixed income assets supporting our
insurance contract liabilities.
Derivative Financial Instruments
The values associated with our derivative instruments are presented
in the following table. Notional amounts serve as the basis for
payments calculated under derivatives contracts and are not
exchanged.
Derivative Instruments
($
millions)
|
December 31, 2016
|
|
December 31,
2015
|
Net fair
value
|
(904)
|
|
(1,512)
|
Total notional
amount
|
54,350
|
|
57,845
|
Credit equivalent
amount(1)
|
510
|
|
607
|
Risk-weighted credit
equivalent amount
|
5
|
|
7
|
|
|
|
|
|
|
|
|
(1)
|
Amounts presented are
net of collateral received
|
The total notional amount of our derivatives decreased to
$54.4 billion as at December 31,
2016 from $57.8 billion as at
December 31, 2015. The decrease in the total notional amount
was primarily attributable to a decrease of $2.2 billion in interest rate contracts for
duration matching activities and a decrease of $1.0 billion in currency contracts hedging
foreign currency assets.
The net fair value of derivatives was a net liability of
$904 million as at December 31,
2016 compared to a net liability of $1,512
million as at December 31, 2015. The change in net fair
value was due primarily to the impact of the strengthening of the
Canadian dollar against the U.S. dollar on foreign exchange
contracts.
Capital Management
Our total capital consists of subordinated debt and other
capital instruments, participating policyholders' equity and total
shareholders' equity which includes common shareholders' equity and
preferred shareholders' equity. As at December 31, 2016, our
total capital was $26.9 billion, up
from $24.6 billion as at
December 31, 2015. The increase in total capital was primarily
the result of common shareholders' net income of $2,485 million and the issuance of
$1,350 million of subordinated
debentures detailed below, partially offset by the foreign currency
translation impact included in other comprehensive income (loss) of
a loss of $806 million, and the
payment of $986 million of dividends
on common shares.
The legal entity, SLF Inc. (the ultimate parent company), and
its wholly owned holding companies had $1,616 million in cash and other liquid assets as
at December 31, 2016 ($990
million as at December 31, 2015). The increase in cash
and liquid assets in these holding companies in 2016 was primarily
attributable to the issuance of $1,350
million subordinated debt detailed below, which was
partially offset by our investment in an additional equity interest
in BSLI and other operational requirements. Liquid assets as noted
above include cash and cash equivalents, short-term investments,
and publicly traded securities.
On February 19, 2016, SLF Inc.
issued $350 million principal amount
of Series 2016-1 Subordinated Unsecured 3.10% Fixed/Floating
Debentures due 2026. The net proceeds were used to partially fund
the acquisition of the U.S. employee benefits business in
March 2016 and for general corporate
purposes.
On September 19, 2016, SLF Inc.
issued $1,000 million principal
amount of Series 2016-2 Subordinated Unsecured 3.05% Fixed/Floating
Debentures due 2028. The net proceeds from this issue of debentures
were raised for general corporate purposes, including investments
in subsidiaries and repayment of indebtedness.
On September 30, 2016, 1.1 million
Class A Non-Cumulative 5-Year Rate Reset Preferred Shares Series
10R ("Series 10R Shares") were converted into Class A
Non-Cumulative Floating Rate Preferred Shares Series 11QR ("Series
11QR Shares") through a holder option, on a one-for-one basis.
After the conversion, 6.9 million Series 10R Shares and 1.1 million
Series 11QR Shares were outstanding. For additional information,
refer to Note 15 of our Annual Consolidated Financial
Statements.
On December 19, 2016, we announced
that the number of Class A Non-Cumulative Rate Reset Preferred
Shares Series 12R (the "Series 12R Shares") that were elected
to be converted into Class A Non-Cumulative Floating Rate Preferred
Shares Series 13QR (the "Series 13QR Shares") was less than the one
million shares required to give effect to conversions into Series
13QR Shares and accordingly no Series 12R Shares were converted
into Series 13QR Shares.
On January 4, 2017, SLF Inc.
announced its intention to redeem on March
2, 2017 all of the outstanding $800
million principal amount of Series 2012-1 Subordinated
Unsecured 4.38% Fixed/Floating Debentures. The redemption will be
funded from existing cash and liquid assets.
As at December 31, 2016, Sun Life
Assurance's MCCSR ratio was 226%, compared to 240% as at
December 31, 2015. The decrease to Sun Life Assurance's MCCSR
ratio over 2016 primarily resulted from the acquisition of the U.S.
employee benefits business, partially offset by the contribution of
earnings net of dividends.
As at December 31, 2016, SLF
Inc.'s MCCSR ratio was 253%. The primary difference between the
MCCSR ratio of SLF Inc. and Sun Life Assurance relates to cash and
liquid assets held at the holding company level of $1,616 million as discussed above and capital
related to certain insurance subsidiaries held directly by SLF
Inc.
On September 12, 2016, the Office
of the Superintendent of Financial Institutions ("OSFI") released
its Life Insurance Capital Adequacy Test Guideline which, when
implemented in 2018, will replace the current MCCSR Guideline. For
additional information, see Risk Management - Recent Regulatory
Developments.
On June 1, 2016, SLF Inc. redeemed
the outstanding $950 million
principal amount of Series B Senior Unsecured 4.95% Fixed/Floating
Debentures in accordance with the redemption terms attached to
these debentures. The redemption had no impact to the MCCSR ratios
of Sun Life Assurance or SLF Inc. as these senior debentures did
not qualify as available capital. In addition, a separate pool of
assets had been set aside to support the redemption of these
debentures. As such, the redemption did not affect the liquid
assets held by SLF Inc. and its wholly-owned holding companies.
Risk Management
The Company has established a Risk Management Framework to
assist in identifying, measuring, managing, monitoring and
reporting risks. The Risk Management Framework covers all risks and
these have been grouped into six major categories: credit, market,
insurance, business and strategic, operational and liquidity
risks.
Through our enterprise risk management processes, we oversee the
various risk factors identified in the Risk Management Framework
and provide reports to senior management and to the Board
Committees at least quarterly. Our enterprise risk management
processes 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 Annual 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 Annual Consolidated Financial
Statements. Refer to the section Additional Cautionary Language and
Key Assumptions Related to Sensitivities for important additional
information regarding these estimates.
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
with declining interest rates and decreases with 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 $41 million (pre-tax)
in net gains on the sale of AFS assets during the fourth quarter of
2016 and $223 million (pre-tax) in
2016 ($39 million pre-tax in the
fourth quarter of 2015 and $228
million pre-tax in 2015). The net unrealized gains or OCI
position on AFS fixed income and equity assets were $86 million and $125
million, respectively, after-tax as at December 31, 2016 ($43
million and $182 million,
respectively, after-tax as at December 31,
2015).
The following table sets out the estimated immediate impact on,
or sensitivity of our net income, our OCI, and Sun Life Assurance's
MCCSR ratio to certain instantaneous changes in interest rates and
equity market prices as at December 31,
2016 and December 31,
2015.
Interest Rate and Equity Market Sensitivities
As at December 31,
2016(1)
($ 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)
|
$
|
(200)
|
$
|
(100)
|
$
|
50
|
$
|
50
|
|
Potential impact on
OCI
|
$
|
550
|
$
|
250
|
$
|
(250)
|
$
|
(500)
|
|
Potential impact on
MCCSR(4)
|
8% points
decrease
|
3% points
decrease
|
4% points
increase
|
7% points
increase
|
Equity markets
sensitivity(5)
|
25%
decrease
|
10%
decrease
|
10%
increase
|
25%
increase
|
|
Potential impact on
net income(3)
|
$
|
(300)
|
$
|
(100)
|
$
|
100
|
$
|
250
|
|
Potential impact on
OCI
|
$
|
(150)
|
$
|
(50)
|
$
|
50
|
$
|
150
|
|
Potential impact on
MCCSR(4)
|
3% points
decrease
|
1% points
decrease
|
2% points
increase
|
4% points
increase
|
As at December 31,
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)
|
$
|
(300)
|
$
|
(100)
|
$
|
50
|
$
|
50
|
|
Potential impact on
OCI
|
$
|
500
|
$
|
250
|
$
|
(250)
|
$
|
(500)
|
|
Potential impact on
MCCSR(4)
|
10% points
decrease
|
4% points
decrease
|
4% points
increase
|
7% points
increase
|
Equity markets
sensitivity(5)
|
25%
decrease
|
10%
decrease
|
10%
increase
|
25%
increase
|
|
Potential impact on
net income(3)
|
$
|
(350)
|
$
|
(100)
|
$
|
100
|
$
|
300
|
|
Potential impact on
OCI
|
$
|
(150)
|
$
|
(50)
|
$
|
50
|
$
|
150
|
|
Potential impact on
MCCSR(4)
|
4% points
decrease
|
1% points
decrease
|
2% points
increase
|
4% 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 associates, 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 December 31, 2016 and December
31, 2015, with no change to the ASB promulgated Ultimate
Reinvestment Rate ("URR"). 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 dynamic hedging programs 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 December 31, 2016 and December 31,
2015, 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
December 31, 2016 and December 31, 2015. This excludes the impact
on assets and liabilities that are in SLF Inc. but not included in
Sun Life Assurance.
|
(5)
|
Represents the
respective change across all equity markets as at December 31, 2016
and December 31, 2015. 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 dynamic hedging
programs 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 and MCCSR sensitivities to changes in interest
rates and equity markets have changed since December 31, 2015.
The decrease in sensitivity to interest rates has resulted
primarily from assumption changes and management actions, including
the impact from increased levels of hedging. The decrease in
sensitivity to equity markets has resulted primarily from
assumption changes and management actions net of the impact from
changes in equity markets during 2016.
Interest rate sensitivities do not include any impact from
changes to the ASB promulgated URR. In 2014, the Actuarial
Standards Board ("ASB") made changes to the Canadian actuarial
standards of practice with respect to economic reinvestment
assumptions used in the valuation of insurance contract
liabilities. The changes relate to assumed future interest rates,
credit spreads and the use of non-fixed income assets supporting
fixed obligations. When the ASB promulgated these changes, the
intention was to review these assumptions every five years, or
sooner if circumstances warrant. Given the continuing low interest
rates, we expect the ASB will revisit the reinvestment assumptions
in 2017 but the magnitude of any potential changes due to the
promulgation remains uncertain. Based on current assumptions, as at
December 31, 2016, our estimated
sensitivity to a 10 basis point decrease in the URR would have been
a decrease in reported and operating net income of approximately
$75 million. The actual impact could
differ from the Company's estimate. The statements concerning
expected URR changes are forward-looking.
Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our
shareholders' net income attributable to certain instantaneous
changes in credit and swap spreads. The credit spread sensitivities
reflect the impact of changes in credit spreads on our asset and
liability valuations (including non-sovereign fixed income assets,
provincial governments, corporate bonds and other fixed income
assets). The swap spread sensitivities reflect the impact of
changes in swap spreads on swap-based derivative positions and
liability valuations.
Credit Spread Sensitivities ($ millions, after-tax)
|
|
|
|
Net income
sensitivity(1)(2)
|
|
50 basis point
decrease
|
|
|
50 basis point
increase
|
December 31, 2016
|
$
|
(125)
|
|
$
|
125
|
December 31,
2015
|
$
|
(100)
|
|
$
|
75
|
(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
|
December 31, 2016
|
$
|
25
|
$
|
(25)
|
December 31,
2015
|
$
|
50
|
$
|
(50)
|
(1)
|
Sensitivities have
been rounded to the nearest $25 million.
|
The credit and swap spread sensitivities assume a parallel shift
in the indicated spreads across the entire term structure.
Variations in realized spread changes based on different terms to
maturity, geographies, asset classes and 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 changes in interest rates and
about two-thirds of our expected sensitivity to changes in equity
markets are 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 assets, interest rate swaps, and swaptions.
Segregated Fund Guarantees
Approximately one-third of our equity market sensitivity and a
small amount of interest rate risk sensitivity as at December 31, 2016 are 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
these guarantees is uncertain and depends 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 for our segregated fund products.
December 31, 2016
|
($
millions)
|
Fund value
|
Amount at Risk(1)
|
Value of
guarantees(2)
|
Insurance contract
liabilities(3)
|
SLF Canada
|
12,354
|
348
|
10,961
|
499
|
SLF U.S.
|
4,361
|
430
|
4,681
|
171
|
Run-off
reinsurance(4)
|
2,695
|
494
|
1,864
|
469
|
Total
|
19,410
|
1,272
|
17,506
|
1,139
|
|
|
|
|
|
December 31,
2015
|
($
millions)
|
Fund value
|
Amount at
Risk(1)
|
Value of
guarantees(2)
|
Insurance
contract
liabilities(3)
|
SLF Canada
|
12,304
|
424
|
11,109
|
575
|
SLF U.S.
|
5,400
|
509
|
5,789
|
275
|
Run-off
reinsurance(4)
|
2,950
|
569
|
2,129
|
570
|
Total
|
20,654
|
1,502
|
19,027
|
1,420
|
(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, 2015 to December 31, 2016 was primarily as a
result of the following factors:
(i)
|
the total fund values
decreased due to the net redemptions from legacy business and the
strengthening of the Canadian dollar against the U.S.
dollar;
|
(ii)
|
the amount at risk
decreased due to positive fund returns, the net redemptions from
legacy business and the strengthening of the Canadian
dollar;
|
(iii)
|
the total value of
guarantees decreased due to the net redemptions from legacy
business and the strengthening of the Canadian dollar;
and
|
(iv)
|
the total insurance
contract liabilities decreased due to higher interest rates,
favourable equity market movements, and the net redemptions from
legacy business.
|
Segregated Fund Hedging
Our hedging programs use derivative instruments to mitigate the
interest and equity related exposure of our segregated fund
contracts. As at December 31, 2016,
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 market risk 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.
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 a 10% and 25% decrease
in equity markets for segregated fund contracts as at December 31, 2016 and December 31, 2015.
Impact of Segregated Fund Hedging
December 31, 2016
|
($
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
|
(250)
|
(550)
|
(200)
|
(550)
|
Hedging
impact
|
250
|
550
|
150
|
450
|
Net of
hedging
|
—
|
—
|
(50)
|
(100)
|
|
|
|
|
|
December 31,
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)
|
(450)
|
(200)
|
(600)
|
Hedging
impact
|
200
|
500
|
150
|
500
|
Net of
hedging
|
—
|
50
|
(50)
|
(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
December 31, 2016 and December 31, 2015, with no change
to the ASB promulgated URR. 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 dynamic hedging programs 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 December 31, 2016 and
December 31, 2015. 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 dynamic hedging
programs at 2% intervals (for 10% changes in equity markets) and at
5% intervals (for 25% changes in equity markets).
|
Real Estate Risk
Real estate risk is the potential for financial loss arising from
fluctuations in the value of, or future cash flows from our
investments in real estate. We are exposed to real estate risk and
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. A material and sustained
increase in interest rates may lead to deterioration in real estate
values. An instantaneous 10% decrease in the value of our direct
real estate investments as at December 31,
2016 would decrease net income(1) by
approximately $200 million
($175 million decrease as at
December 31, 2015). Conversely, an
instantaneous 10% increase in the value of our direct real estate
investments as at December 31, 2016
would increase net income by approximately $200 million ($175
million increase as at December 31,
2015).
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 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, 2015 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 December 31, 2016
and December 31, 2015, respectively. 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 December
31 calculation dates. The actual impact of hedging activity
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.
____________________
|
(1)
|
Net income
sensitivities have been rounded to the nearest $25
million.
|
The sensitivities are based on methods and assumptions in effect
as at December 31, 2016 and
December 31, 2015, as applicable.
Changes in the regulatory environment, accounting or actuarial
valuation methods, models, or assumptions (including changes to the
ASB promulgated URR) after those dates 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 are intended to mitigate 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, potential
reported earnings and capital volatility remain.
For the reasons outlined above, our 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 sections in the annual
MD&A under the headings Outlook and Critical Accounting
Policies and Estimates. Additional information on market risk can
be found in Note 6 of our 2016 Annual Consolidated Financial
Statements and the Risk Factors section in our AIF.
Additional information on risk factors can be found the Risk
Factors section in our AIF.
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
|
Full year
|
($ millions, unless
otherwise noted)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Reported net
income
|
728
|
|
737
|
|
480
|
|
540
|
|
536
|
|
2,485
|
|
2,185
|
|
Certain hedges in SLF
Canada that do not qualify for hedge accounting
|
8
|
|
6
|
|
(6)
|
|
(13)
|
|
10
|
|
(5)
|
|
21
|
|
Fair value
adjustments on MFS's share-based payment awards
|
10
|
|
(7)
|
|
20
|
|
7
|
|
(6)
|
|
30
|
|
(9)
|
|
Acquisition,
integration and restructuring
|
(22)
|
|
(12)
|
|
(8)
|
|
15
|
|
(66)
|
|
(27)
|
|
(80)
|
Operating net income
(loss)
|
732
|
|
750
|
|
474
|
|
531
|
|
598
|
|
2,487
|
|
2,253
|
|
Market related
impacts
|
162
|
|
57
|
|
(72)
|
|
(40)
|
|
(36)
|
|
107
|
|
(43)
|
|
Assumption changes
and management actions
|
10
|
|
54
|
|
(8)
|
|
(11)
|
|
(12)
|
|
45
|
|
(9)
|
Underlying net income
(loss)
|
560
|
|
639
|
|
554
|
|
582
|
|
646
|
|
2,335
|
|
2,305
|
Reported EPS
(diluted) ($)
|
1.18
|
|
1.20
|
|
0.78
|
|
0.88
|
|
0.87
|
|
4.03
|
|
3.55
|
|
Certain hedges in SLF
Canada that do not qualify for hedge accounting ($)
|
0.01
|
|
0.01
|
|
(0.01)
|
|
(0.02)
|
|
0.02
|
|
(0.01)
|
|
0.03
|
|
Fair value
adjustments on MFS's share-based payment awards ($)
|
0.02
|
|
(0.01)
|
|
0.03
|
|
0.01
|
|
(0.01)
|
|
0.05
|
|
(0.01)
|
|
Acquisition,
integration and restructuring ($)
|
(0.03)
|
|
(0.02)
|
|
(0.01)
|
|
0.02
|
|
(0.11)
|
|
(0.04)
|
|
(0.13)
|
|
Impact of convertible
securities on diluted EPS ($)
|
(0.01)
|
|
—
|
|
—
|
|
—
|
|
(0.01)
|
|
(0.02)
|
|
(0.02)
|
Operating EPS
(diluted) ($)
|
1.19
|
|
1.22
|
|
0.77
|
|
0.87
|
|
0.98
|
|
4.05
|
|
3.68
|
|
Market related
impacts ($)
|
0.26
|
|
0.09
|
|
(0.12)
|
|
(0.06)
|
|
(0.05)
|
|
0.18
|
|
(0.07)
|
|
Assumption changes
and management actions ($)
|
0.02
|
|
0.09
|
|
(0.01)
|
|
(0.02)
|
|
(0.02)
|
|
0.07
|
|
(0.01)
|
Underlying EPS
(diluted) ($)
|
0.91
|
|
1.04
|
|
0.90
|
|
0.95
|
|
1.05
|
|
3.80
|
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management also uses the following non-IFRS financial
measures:
Return on equity. IFRS does not prescribe the calculation
of ROE and therefore a comparable measure under IFRS is not
available. To determine reported ROE, operating ROE and underlying
ROE, respectively, reported net income (loss), operating net income
(loss) and underlying net income (loss) are divided by the total
weighted average common shareholders' equity for the period.
Adjusted revenue. This measure is an alternative measure
of revenue that provides greater comparability across reporting
periods, by excluding the impact of: (i) exchange rate
fluctuations, from the translation of functional currencies to the
Canadian dollar, for comparisons ("Constant Currency Adjustment");
(ii) Fair value and foreign currency changes on assets and
liabilities ("FV Adjustment"); and (iii) reinsurance for the
insured business in SLF Canada's GB operations ("Reinsurance in SLF
Canada's GB Operations Adjustment").
|
Quarterly
results
|
|
Full year
|
($
millions)
|
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Revenues
|
|
2,366
|
|
7,892
|
|
9,533
|
|
8,782
|
|
5,567
|
|
28,573
|
|
19,274
|
|
Constant Currency
Adjustment
|
|
(30)
|
|
(111)
|
|
(135)
|
|
88
|
|
—
|
|
432
|
|
—
|
|
FV
Adjustment
|
|
(4,902)
|
|
1,182
|
|
3,223
|
|
2,730
|
|
(788)
|
|
2,233
|
|
(1,961)
|
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
|
(695)
|
|
(696)
|
|
(679)
|
|
(688)
|
|
(1,171)
|
|
(2,758)
|
|
(4,684)
|
Adjusted
revenue
|
|
7,993
|
|
7,517
|
|
7,124
|
|
6,652
|
|
7,526
|
|
28,666
|
|
25,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted premiums and deposits. This measure is an
alternative measure of premiums and deposits that provides greater
comparability across reporting periods by excluding the impact of:
(i) the Constant Currency Adjustment and (ii) the Reinsurance in
SLF Canada's GB Operations Adjustment.
|
Quarterly
results
|
Full year
|
($
millions)
|
Q4'16
|
|
Q3'16
|
|
Q2'16
|
|
Q1'16
|
|
Q4'15
|
|
2016
|
|
2015
|
Premiums and
deposits(1)
|
42,422
|
|
40,176
|
|
38,035
|
|
37,826
|
|
33,120
|
|
158,459
|
|
136,150
|
|
Constant Currency
Adjustment
|
(76)
|
|
(846)
|
|
(1,146)
|
|
854
|
|
—
|
|
4,355
|
|
—
|
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
(695)
|
|
(696)
|
|
(679)
|
|
(688)
|
|
(1,171)
|
|
(2,758)
|
|
(4,684)
|
Adjusted premiums and
deposits
|
43,193
|
|
41,718
|
|
39,860
|
|
37,660
|
|
34,291
|
|
156,862
|
|
140,834
|
(1)
|
In the second quarter
of 2016, we moved our sales reporting methodology for Bentall
Kennedy's real estate investment management operations from an
investment property activity basis to a Client cash flow basis to
be consistent with the method used in our existing asset management
operations. Prior periods have been restated to reflect this
change.
|
MFS pre-tax operating profit margin ratio. This ratio is
a measure of the profitability of MFS, which excludes the impact of
fair value adjustments on MFS's share-based payment awards,
investment income, and certain 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 and have no impact on the profitability of MFS. There is no
directly comparable IFRS measure.
Impact of foreign exchange. Several 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) effective
income tax rates on an operating net income and underlying net
income basis; (iv) the value of new business, which is used to
measure the estimated lifetime profitability of new sales and is
based on actuarial calculations; and (v) 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, OSFI.
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 MD&A include, (i) statements relating to our
growth strategies, (ii) statements concerning the expected impact
of the U.S. employee benefits business acquisition completed in
2016 on earnings per share, excluding transaction and integration
costs and our expected pre-tax run rate synergies, (iii) statements
relating to productivity and expense initiatives, growth
initiatives and other business objectives, (iv) statements that are
predictive in nature or that depend upon or refer to future events
or conditions, (v) statements set out in this document under the
heading Risk Management - Interest Rate and Equity Market
Sensitivities, and (vi) 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 are
forward-looking statements. 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 Financial Summary - Impact of the Low
Interest Environment, Capital Management and Risk Management, and
in SLF Inc.'s most recent AIF under the heading 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.
Important risk factors that could cause our assumptions and
estimates, and expectations and projections to be inaccurate and
our actual results or events to differ materially from those
expressed in or implied by the forward-looking statements contained
in this document, are set out below. The realization of our
forward-looking statements, essentially depends on our business
performance which, in turn, is subject to many risks. Factors that
could cause actual results to differ materially from expectations
include, but are not limited to: credit risks - related to
issuers of securities held in our investment portfolio, debtors,
structured securities, reinsurers, counterparties, other financial
institutions and other entities; market risks - related to
the performance of equity markets; changes or volatility in
interest rates or credit spreads or swap spreads; real estate
investments; and fluctuations in foreign currency exchange rates;
insurance risks - related to mortality, morbidity, longevity
and policyholder behaviour; product design and pricing; the impact
of higher-than-expected future expenses; and the availability, cost
and effectiveness of reinsurance; business and strategic
risks - related to global economic and political conditions;
changes in distribution channels or Client behaviour including
risks relating to market conduct by intermediaries and agents; the
impact of competition; the design and implementation of business
strategies; changes in the legal or regulatory environment,
including capital requirements and tax laws; tax matters, including
estimates and judgments used in calculating taxes; the performance
of our investments and investment portfolios managed for Clients
such as segregated and mutual funds; our international operations,
including our joint ventures; market conditions that affect our
capital position or ability to raise capital; downgrades in
financial strength or credit ratings; and the impact of mergers,
acquisitions and divestitures; operational risks - related
to breaches or failure of information system security and privacy,
including cyber-attacks; our ability to attract and retain
employees; the execution and integration of mergers, acquisitions
and divestitures; legal, regulatory compliance and market conduct,
including the impact of regulatory inquiries and investigations;
our information technology infrastructure; a failure of information
systems and Internet-enabled technology; dependence on third-party
relationships, including outsourcing arrangements; business
continuity; model errors; information management; the environment,
environmental laws and regulations and third-party policies; and
liquidity risks - the possibility that we will not be able
to fund all cash outflow commitments as they fall due.
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 fourth quarter 2016 financial results will be
reviewed at a conference call on Thursday,
February 16, 2016, 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 Q4 results from the
"Investors" section on the home page 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 the Q4 2018 period
end. The conference call can also be accessed by phone by dialing
647-427-2311 (International) or 1-866-521-4909 (Toll-free
North America). A replay of the
conference call will be available from Thursday, February 16, 2017 at 1 p.m. ET until 11:59 p.m. ET on Thursday, March 2, 2017 by calling 404-537-3406
or 1-855-859-2056 (Toll-free North
America) using Conference ID 49330145.
Consolidated Statements of Operations
|
|
For the three months
ended (1)
|
|
For the twelve
months ended(2)
|
(in millions of
Canadian dollars except for per share
amounts)
|
|
December 31,
2016
|
|
December
31,
2015
|
|
December 31,
2016
|
|
December
31,
2015
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
5,592
|
|
$
|
5,163
|
|
$
|
19,427
|
|
$
|
16,824
|
|
|
Less:
Ceded
|
|
1,173
|
|
1,612
|
|
4,379
|
|
6,429
|
|
Net
premiums
|
|
4,419
|
|
3,551
|
|
15,048
|
|
10,395
|
|
Net investment income
(loss):
|
|
|
|
|
|
|
|
|
|
|
Interest and other
investment income
|
|
1,366
|
|
1,327
|
|
5,489
|
|
5,288
|
|
|
Fair value and
foreign currency changes on assets
and
liabilities
|
|
(4,902)
|
|
(788)
|
|
2,233
|
|
(1,961)
|
|
|
Net gains (losses) on
available-for-sale assets
|
|
41
|
|
39
|
|
223
|
|
228
|
|
Net investment income
(loss)
|
|
(3,495)
|
|
578
|
|
7,945
|
|
3,555
|
|
Fee income
|
|
1,442
|
|
1,438
|
|
5,580
|
|
5,324
|
Total revenue
|
|
2,366
|
|
5,567
|
|
28,573
|
|
19,274
|
|
|
|
|
|
|
|
|
|
Benefits and expenses
|
|
|
|
|
|
|
|
|
|
Gross claims and
benefits paid
|
|
4,003
|
|
3,679
|
|
15,210
|
|
14,086
|
|
Increase (decrease)
in insurance contract liabilities
|
|
(4,371)
|
|
669
|
|
5,391
|
|
1,261
|
|
Decrease (increase)
in reinsurance assets
|
|
450
|
|
(125)
|
|
133
|
|
(505)
|
|
Increase (decrease)
in investment contract liabilities
|
|
(39)
|
|
10
|
|
(13)
|
|
(29)
|
|
Reinsurance expenses
(recoveries)
|
|
(1,073)
|
|
(1,508)
|
|
(4,313)
|
|
(6,146)
|
|
Commissions
|
|
652
|
|
566
|
|
2,372
|
|
2,100
|
|
Net transfer to
(from) segregated funds
|
|
(133)
|
|
(3)
|
|
(307)
|
|
(43)
|
|
Operating
expenses
|
|
1,678
|
|
1,383
|
|
6,000
|
|
5,037
|
|
Premium
taxes
|
|
90
|
|
75
|
|
339
|
|
292
|
|
Interest
expense
|
|
80
|
|
80
|
|
316
|
|
322
|
Total benefits and expenses
|
|
1,337
|
|
4,826
|
|
25,128
|
|
16,375
|
Income (loss) before income
taxes
|
|
1,029
|
|
741
|
|
3,445
|
|
2,899
|
|
Less: Income tax
expense (benefit)
|
|
201
|
|
180
|
|
619
|
|
599
|
Total net income (loss)
|
|
828
|
|
561
|
|
2,826
|
|
2,300
|
|
Less: Net income
(loss) attributable to participating
policyholders and
non-controlling interest
|
|
77
|
|
1
|
|
245
|
|
15
|
Shareholders' net income (loss)
|
|
751
|
|
560
|
|
2,581
|
|
2,285
|
|
Less: Preferred
shareholders' dividends
|
|
23
|
|
24
|
|
96
|
|
100
|
Common shareholders' net income
(loss)
|
|
$
|
728
|
|
$
|
536
|
|
$
|
2,485
|
|
$
|
2,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.19
|
|
$
|
0.88
|
|
$
|
4.05
|
|
$
|
3.57
|
|
Diluted
|
|
$
|
1.18
|
|
$
|
0.87
|
|
$
|
4.03
|
|
$
|
3.55
|
|
|
(1)
|
Quarterly numbers are
unaudited.
|
(2)
|
Derived from the
audited Annual Consolidated Financial Statements.
|
Consolidated Statements of Financial Position
|
|
|
|
As at
|
|
|
|
|
(in millions of
Canadian dollars)(1)
|
December 31, 2016
|
|
December 31,
2015
|
Assets
|
|
|
|
|
|
|
Cash, cash
equivalents and short-term securities
|
$
|
8,642
|
|
$
|
8,983
|
|
Debt
securities
|
|
71,887
|
|
69,896
|
|
Equity
securities
|
5,774
|
|
5,313
|
|
Mortgages and
loans
|
40,775
|
|
39,103
|
|
Derivative
assets
|
1,608
|
|
1,866
|
|
Other invested
assets
|
3,931
|
|
3,111
|
|
Policy
loans
|
3,141
|
|
3,151
|
|
Investment
properties
|
6,592
|
|
6,540
|
|
Invested
assets
|
142,350
|
|
137,963
|
|
Other
assets
|
5,109
|
|
4,567
|
|
Reinsurance
assets
|
5,144
|
|
5,386
|
|
Deferred tax
assets
|
1,448
|
|
1,372
|
|
Intangible
assets
|
1,703
|
|
1,479
|
|
Goodwill
|
5,317
|
|
4,646
|
|
Total general fund
assets
|
161,071
|
|
155,413
|
|
Investments for
account of segregated fund holders
|
|
97,167
|
|
|
91,440
|
Total assets
|
$
|
258,238
|
|
$
|
246,853
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Insurance contract
liabilities
|
$
|
115,057
|
|
$
|
110,227
|
|
Investment contract
liabilities
|
|
2,913
|
|
|
2,913
|
|
Derivative
liabilities
|
2,512
|
|
3,378
|
|
Deferred tax
liabilities
|
687
|
|
405
|
|
Other
liabilities
|
12,399
|
|
12,332
|
|
Senior
debentures
|
1,299
|
|
2,248
|
|
Subordinated
debt
|
3,836
|
|
2,492
|
|
Total general fund
liabilities
|
138,703
|
|
133,995
|
|
Insurance contracts
for account of segregated fund holders
|
90,388
|
|
83,670
|
|
Investment contracts
for account of segregated fund holders
|
|
6,779
|
|
|
7,770
|
Total liabilities
|
$
|
235,870
|
|
$
|
225,435
|
|
|
Equity
|
|
|
|
|
|
|
Issued share capital
and contributed surplus
|
$
|
10,943
|
|
$
|
10,900
|
|
Shareholders'
retained earnings and accumulated other comprehensive
income
|
|
11,013
|
|
|
10,350
|
|
Total shareholders'
equity
|
$
|
21,956
|
|
$
|
21,250
|
|
Participating
policyholders' equity and non-controlling interest
|
412
|
|
168
|
Total equity
|
|
22,368
|
|
$
|
21,418
|
Total liabilities and equity
|
$
|
258,238
|
|
$
|
246,853
|
(1)
|
Derived from the
audited Annual Consolidated Financial Statements.
|
About Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of insurance, wealth and
asset management solutions to individuals and corporate Clients.
Sun Life Financial has 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 December 31, 2016, Sun
Life Financial had total assets under management of $903 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.
Media Relations Contact:
Gannon Loftus
Manager, Media & PR, Corporate Communications
Tel: 416-979-6345
gannon.loftus@sunlife.com
Investor Relations Contact:
Gregory Dilworth
Vice-President, Investor Relations
Tel: 416-979-6230
investor.relations@sunlife.com
SOURCE Sun Life Financial Inc. - Financial News