The information contained in this document is based on the
unaudited interim financial results of Sun Life Financial Inc. for
the period ended June 30, 2016.
Sun Life Financial 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, Aug. 10, 2016 /CNW/ - Sun Life Financial Inc.
(TSX: SLF) (NYSE: SLF) today announced its results for the second
quarter ended June 30, 2016.
Second quarter reported net income was $480
million. Second quarter operating net income(1)
and underlying net income(1) were $474 million and $554
million, respectively.
|
|
|
|
Quarterly results |
|
|
|
Year-to-date |
|
|
|
|
Q2'16 |
|
|
|
Q2'15 |
|
|
|
Q2'16 |
|
|
|
Q2'15 |
Reported net income ($ millions) |
|
|
|
480 |
|
|
|
726 |
|
|
|
1,020 |
|
|
|
1,167 |
Operating net income(1) ($
millions) |
|
|
|
474 |
|
|
|
731 |
|
|
|
1,005 |
|
|
|
1,177 |
Underlying net income(1) ($
millions) |
|
|
|
554 |
|
|
|
615 |
|
|
|
1,136 |
|
|
|
1,131 |
Reported EPS(2) ($) |
|
|
|
0.78 |
|
|
|
1.18 |
|
|
|
1.66 |
|
|
|
1.90 |
Operating EPS(1)(2) ($) |
|
|
|
0.77 |
|
|
|
1.19 |
|
|
|
1.64 |
|
|
|
1.92 |
Underlying EPS(1)(2) ($) |
|
|
|
0.90 |
|
|
|
1.00 |
|
|
|
1.85 |
|
|
|
1.85 |
Operating ROE(1) |
|
|
|
10.1% |
|
|
|
16.5% |
|
|
|
10.7% |
|
|
|
13.4% |
Underlying ROE(1) |
|
|
|
11.9% |
|
|
|
13.9% |
|
|
|
12.1% |
|
|
|
12.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Minimum Continuing Capital and Surplus Requirements ratio for
Sun Life Assurance Company of Canada of 214%. Cash and other liquid assets
amounted to $804 million for Sun Life
Financial Inc. and its wholly-owned holding
companies(3)
- Global assets under management of $865
billion compared to $891
billion as at December 31,
2015
- Quarterly common share dividend declared of $0.405 per share
"Sun Life's strategy stood up well during the second quarter,
delivering $554 million in underlying
net income and an 11.9% underlying ROE in the face of a challenging
environment," said Dean Connor,
President and Chief Executive Officer, Sun Life Financial. "We made
good progress at integrating our acquisitions announced last year;
increased ownership in our Asian joint venture operations; and
continued our investment in organic growth. Combined, these are
reflected in a 26% increase in our insurance sales and a 3%
increase in wealth sales."
"From the perspective of our clients, we continued to deliver
strong medium and longer-term investment results in our asset
management businesses; delivered claims and benefits payments of
$7.5 billion in the first six months
of the year; rolled out new digital tools in Canada and Asia to make it easier to do business with us;
and brought to our clients one of the broadest portfolios of
ancillary group benefits in the U.S. in the quarter, as we welcomed
the Assurant clients this year," Connor said.
____________________
(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. |
(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. We detail
our continued progress against these pillars below.
Leader in financial protection and wealth solutions in our
Canadian home market
We achieved higher second quarter sales year over year in both
individual insurance and Group Benefits as we continued to grow our
protection businesses. Group Benefits was ranked the largest
provider of employee benefit group insurance products in
Canada for the seventh consecutive
year(1).
We continued our growth momentum in SLGI(2) mutual
funds and Sun GIF(3) segregated funds, which both
increased in sales over the second quarter of the prior year. SLGI
also generated strong net flows relative to the industry. Overall
wealth sales were lower, mainly due to lower Group Retirement
Services ("GRS") sales, partly due to large cases in GRS in the
second quarter of 2015, and lower third-party mutual funds.
Premier global asset management operations
MFS Investment Management ("MFS") had gross sales of US$20.8 billion in the second quarter and net
outflows were US$1.0 billion. MFS's
long-term retail fund performance remained strong with 86%, 93% and
97% of MFS's mutual fund assets ranked in the top half of their
Lipper categories based on three-, five- and ten-year performance,
respectively, as of June 30,
2016.
Sun Life Investment Management had net sales of $519 million. Assets under management were
$49 billion, compared to $58 billion as at December
31, 2015, with the decrease due to a decision by a Bentall
Kennedy client to manage its real estate assets
internally(4).
Leader in U.S. group benefits and International high net
worth solutions
We continued progress on our integration of the U.S. employee
benefits business acquired in March
2016 and it is proceeding in line with expectations. During
the quarter, distribution and account management teams were
unified, with a broadened product portfolio that brings together
the strengths of both businesses.
Sales in Group Benefits increased compared to the second quarter
of 2015, reflecting the contribution of the acquisition of the U.S.
employee benefits business since closing.
International life insurance sales were in line with the prior
year quarter.
Growing Asia through
distribution excellence in higher growth markets
We continued our investment in Asia, increasing our ownership in Birla Sun
Life Insurance Company Limited in India to 49% in the quarter, and in PT CIMB
Sun Life in Indonesia to 100% on
July 1, 2016. In addition, on
August 3, 2016, we announced that we
will acquire a pension business and will enter into a distribution
arrangement to distribute our pension products in Hong Kong.
SLF Asia sales increased over the prior year reflecting strong
individual insurance and wealth sales, with growth in most of our
markets.
____________________
(1) |
The 2016 Fraser Group, Group Universe Report (based on
2015 data as measured by revenue, including administrative services
only premium equivalents). |
(2) |
Sun Life Global Investments (Canada) Inc. |
(3) |
Sun Life Guaranteed Investment Funds |
(4) |
During the second quarter of 2016, a client of our wholly-owned
subsidiary Bentall Kennedy exercised its right to acquire certain
wholly-owned subsidiaries involved in the management of its assets,
which will end this relationship with Bentall Kennedy. |
|
|
How We Report Our Results
Sun Life Financial Inc. ("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. 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 and
interim consolidated financial statements and accompanying notes
("Annual Consolidated Financial Statements" and "Interim
Consolidated Financial Statements", respectively). We prepare our
unaudited Interim Consolidated Financial Statements using
International Financial Reporting Standards ("IFRS"), and in
accordance with the International Accounting Standard ("IAS") 34
Interim Financial Reporting. The information contained in
this document is in Canadian dollars unless otherwise noted.
Use of Non-IFRS Financial Measures
We report certain financial information using non-IFRS financial
measures, as we believe that these measures provide information
that is useful to investors in understanding our performance and
facilitate a comparison of our quarterly and full year results from
period to period. These non-IFRS financial measures do not have any
standardized meaning and may not be comparable with similar
measures used by other companies. For certain non-IFRS financial
measures, there are no directly comparable amounts under IFRS.
These non-IFRS financial measures should not be viewed as
alternatives to measures of financial performance determined in
accordance with IFRS. Additional information concerning these
non-IFRS financial measures and reconciliations to the closest IFRS
measures are included in our annual and interim management's
discussion and analysis ("MD&A") and the Supplementary
Financial Information packages that are available on
www.sunlife.com under Investors - Financial results & reports.
Reconciliations to IFRS measures are also available in this
document under the heading Reconciliation of Non-IFRS Financial
Measures.
Operating net income (loss) and financial measures based on
operating net income (loss), consisting of operating earnings per
share ("EPS") or operating loss per share, and operating return on
equity ("ROE"), are non-IFRS financial measures. Operating net
income (loss) excludes from reported net income the impact of the
following amounts that are not operational or ongoing in nature to
assist investors in understanding our business performance: (i)
certain hedges in SLF Canada that do not qualify for hedge
accounting; (ii) fair value adjustments on MFS's share-based
payment awards; (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. Operating EPS also excludes the dilutive impact of
convertible instruments.
Underlying net income (loss) and financial measures based on
underlying net income (loss), consisting of underlying EPS or
underlying loss per share, and underlying ROE, are non-IFRS
financial measures. Underlying net income (loss) removes from
operating net income (loss) the impact of the following items that
create volatility in our results under IFRS and when removed assist
in explaining our results from period to period: (a) market related
impacts; (b) assumption changes and management actions; and (c)
other items that have not been treated as adjustments to operating
net income and when removed assist in explaining our results from
period to period. Market related impacts include: (i) the impact of
changes in interest rates that differ from our best estimate
assumptions in the reporting period on investment returns and the
value of derivative instruments used in our hedging programs,
including changes in credit and swap spreads, and any changes to
the assumed fixed income reinvestment rates in determining the
actuarial liabilities; (ii) the impact of changes in equity
markets, net of hedging, above or below our best estimate
assumptions of approximately 2% growth per quarter in the reporting
period and of basis risk inherent in our hedging program for
products that provide benefit guarantees; and (iii) the impact of
changes in the fair value of real estate properties in the
reporting period. Additional information regarding these
adjustments is available in the footnotes to the table included
under the heading Q2 2016 vs. Q2 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 on our
liabilities for insurance contracts and investment contracts of
actions taken by management in the current reporting period,
referred to as management actions include, for example, changes in
the prices of in-force products, new or revised reinsurance on
in-force business, or material changes to investment policies for
asset segments supporting our liabilities. Underlying EPS also
excludes the dilutive impact of convertible instruments.
Other non-IFRS financial measures that we use include adjusted
revenue, administrative services only ("ASO") premium and deposit
equivalents, mutual fund assets and sales, managed fund assets and
sales, premiums and deposits, adjusted premiums and deposits,
assets under management ("AUM"), assets under administration, and
effective income tax rate on an operating net income basis.
Unless indicated otherwise, all factors discussed in this
document that impact our results are applicable to reported net
income (loss), operating net income (loss), and underlying net
income (loss). Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with
IFRS.
All EPS measures in this document refer to fully diluted EPS,
unless otherwise stated.
Additional Information
Additional information about SLF Inc. can be found in our Annual
and Interim Consolidated Financial Statements, annual and interim
MD&A and Annual Information Form ("AIF"). These documents are
filed with securities regulators in Canada and are available at www.sedar.com. SLF
Inc.'s Annual Consolidated Financial Statements, annual MD&A
and AIF are filed with the United States Securities and Exchange
Commission ("SEC") in SLF Inc.'s annual report on Form 40-F and SLF
Inc.'s interim MD&As and Interim Consolidated Financial
Statements are furnished to the SEC on Form 6-Ks and are available
at www.sec.gov.
Financial Summary
|
Quarterly results
|
Year-to-date |
($ millions, unless otherwise
noted) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income (loss) |
480 |
|
540 |
|
536 |
|
482 |
|
726 |
|
1,020 |
|
1,167 |
|
Operating net income (loss)(1) |
474 |
|
531 |
|
598 |
|
478 |
|
731 |
|
1,005 |
|
1,177 |
|
Underlying net income (loss)(1) |
554 |
|
582 |
|
646 |
|
528 |
|
615 |
|
1,136 |
|
1,131 |
Diluted EPS ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EPS (diluted) |
0.78 |
|
0.88 |
|
0.87 |
|
0.79 |
|
1.18 |
|
1.66 |
|
1.90 |
|
Operating EPS (diluted)(1) |
0.77 |
|
0.87 |
|
0.98 |
|
0.78 |
|
1.19 |
|
1.64 |
|
1.92 |
|
Underlying EPS (diluted)(1) |
0.90 |
|
0.95 |
|
1.05 |
|
0.86 |
|
1.00 |
|
1.85 |
|
1.85 |
Reported basic EPS ($) |
0.78 |
|
0.88 |
|
0.88 |
|
0.79 |
|
1.19 |
|
1.66 |
|
1.91 |
Avg. common shares outstanding
(millions) |
613 |
|
612 |
|
612 |
|
611 |
|
612 |
|
613 |
|
612 |
Closing common shares outstanding
(millions) |
612.8 |
|
612.6 |
|
612.3 |
|
611.2 |
|
610.6 |
|
612.8 |
|
610.6 |
Dividends per common share
($) |
0.405 |
|
0.39 |
|
0.39 |
|
0.38 |
|
0.38 |
|
0.795 |
|
0.74 |
MCCSR ratio for Sun Life
Assurance(2) |
214% |
|
216% |
|
240% |
|
229% |
|
223% |
|
214% |
|
223% |
Return on equity (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ROE(1) |
10.1% |
|
11.3% |
|
12.7% |
|
10.5% |
|
16.5% |
|
10.7% |
|
13.4% |
|
Underlying ROE(1) |
11.9% |
|
12.4% |
|
13.8% |
|
11.6% |
|
13.9% |
|
12.1% |
|
12.9% |
Premiums and deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue |
3,563 |
|
3,178 |
|
3,551 |
|
2,114 |
|
2,523 |
|
6,741 |
|
4,730 |
|
Segregated fund deposits |
2,834 |
|
2,731 |
|
2,523 |
|
2,626 |
|
4,487 |
|
5,565 |
|
6,898 |
|
Mutual fund sales(1) |
20,007 |
|
19,262 |
|
17,598 |
|
16,902 |
|
19,927 |
|
39,269 |
|
42,051 |
|
Managed fund sales(1)(4) |
9,886 |
|
10,865 |
|
7,678 |
|
7,156 |
|
7,002 |
|
20,751 |
|
15,245 |
|
ASO premium and deposit
equivalents(1) |
1,745 |
|
1,790 |
|
1,770 |
|
1,758 |
|
1,781 |
|
3,535 |
|
3,550 |
Total premiums and
deposits(1)(4) |
38,035 |
|
37,826 |
|
33,120 |
|
30,556 |
|
35,720 |
|
75,861 |
|
72,474 |
Assets under management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General fund assets |
159,453 |
|
156,849 |
|
155,413 |
|
151,654 |
|
145,472 |
|
159,453 |
|
145,472 |
|
Segregated funds |
91,463 |
|
89,795 |
|
91,440 |
|
88,248 |
|
90,500 |
|
91,463 |
|
90,500 |
|
Mutual funds, managed funds and other
AUM(1) |
613,687 |
|
613,874 |
|
644,479 |
|
606,256 |
|
572,110 |
|
613,687 |
|
572,110 |
Total AUM(1) |
864,603 |
|
860,518 |
|
891,332 |
|
846,158 |
|
808,082 |
|
864,603 |
|
808,082 |
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and innovative capital
instruments(3) |
3,538 |
|
3,538 |
|
3,189 |
|
3,389 |
|
2,879 |
|
3,538 |
|
2,879 |
|
Participating policyholders' equity and
non-controlling interest |
193 |
|
186 |
|
168 |
|
164 |
|
139 |
|
193 |
|
139 |
|
Total shareholders' equity |
20,898 |
|
20,737 |
|
21,250 |
|
20,609 |
|
19,997 |
|
20,898 |
|
19,997 |
Total capital |
24,629 |
|
24,461 |
|
24,607 |
|
24,162 |
|
23,015 |
|
24,629 |
|
23,015 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(2) |
Minimum Continuing Capital and Surplus Requirements ("MCCSR")
ratio of Sun Life Assurance Company of Canada ("Sun Life
Assurance"). |
(3) |
Innovative capital instruments consist of Sun Life ExchangEable
Capital Securities, which qualify as regulatory capital. 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
2015 annual MD&A. |
(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. 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 $7,507
million in the third quarter of 2015. For additional information,
see Additional Financial Disclosure - Sales. |
|
|
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.
Q2 2016 vs. Q2 2015
Our reported net income was $480
million in the second quarter of 2016, compared to
$726 million in the second quarter of
2015. Operating net income was $474
million for the quarter ended June 30, 2016, compared to $731 million for the same period last year.
Underlying net income was $554
million, compared to $615
million in the second quarter of 2015.
Operating ROE and underlying ROE in the second quarter of 2016
were 10.1% and 11.9%, respectively, compared to 16.5% and 13.9%,
respectively, in the second quarter of 2015.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income in
the second quarters of 2016 and 2015.
|
|
Quarterly
results |
($ millions, after-tax) |
|
Q2'16 |
|
Q2'15 |
Reported net income |
|
480 |
|
726 |
|
Certain hedges in SLF Canada that do
not qualify for hedge accounting |
|
(6) |
|
6 |
|
Fair value adjustments on MFS's
share-based payment awards |
|
20 |
|
(11) |
|
Acquisition, integration and
restructuring(1) |
|
(8) |
|
— |
Operating net
income(2) |
|
474 |
|
731 |
|
Equity market impact |
|
|
|
|
|
|
Impact from equity market changes |
|
8 |
|
(5) |
|
|
Basis risk impact |
|
6 |
|
(6) |
|
Equity market
impact(3) |
|
14 |
|
(11) |
|
Interest rate impact |
|
|
|
|
|
|
Impact from interest rate changes |
|
(84) |
|
86 |
|
|
Impact of credit spread movements |
|
(11) |
|
27 |
|
|
Impact of swap spread movements |
|
— |
|
(16) |
|
Interest rate
impact(4) |
|
(95) |
|
97 |
|
Increases (decreases) from changes in
the fair value of real estate |
|
9 |
|
11 |
|
Market related impacts |
|
(72) |
|
97 |
|
Assumption changes and management
actions |
|
(8) |
|
19 |
Underlying net
income(2) |
|
554 |
|
615 |
|
|
|
|
|
Impact of other notable items on
our net income: |
|
|
|
|
Experience related
items(5) |
|
|
|
|
|
Impact of investment activity on
insurance contract liabilities |
|
41 |
|
33 |
|
Mortality |
|
10 |
|
29 |
|
Morbidity |
|
(30) |
|
12 |
|
Credit |
|
15 |
|
29 |
|
Lapse and other policyholder
behaviour |
|
— |
|
(4) |
|
Expenses |
|
(18) |
|
(21) |
|
Other |
|
9 |
|
(9) |
(1) |
In the second quarter of 2016, Acquisition, integration and
restructuring amounts primarily related to integration costs of 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
changes in equity markets during the period, net of hedging, that
differ from the best estimate assumptions used in the determination
of our insurance contract liabilities of approximately 2% growth
per quarter in equity markets. Equity market impact also includes
the income impact of the basis risk inherent in our hedging
program, which is the difference between the return on underlying
funds of products that provide benefit guarantees and the return on
the derivative assets used to hedge those benefit guarantees. |
(4) |
Interest rate impact includes the effect of interest rate
changes on investment returns that differ from best estimate
assumptions, and on the value of derivative instruments used in our
hedging programs. Our exposure to interest rates varies by product
type, line of business, and geography. Given the long-term nature
of our business, we have a higher degree of sensitivity in respect
of interest rates at long durations. Interest rate impact also
includes the income impact of 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 the second quarters of 2016 and 2015
included items that we believe are not operational or ongoing in
nature and which are, therefore, excluded in our calculation of
operating net income. Operating net income for the second quarters
of 2016 and 2015 excluded the net impact of certain hedges that do
not qualify for hedge accounting in SLF Canada, fair value
adjustments on MFS's share-based payment awards, and acquisition,
integration and restructuring amounts. The net impact of these
items increased reported net income by $6
million in the second quarter of 2016 compared to a
reduction of $5 million in the second
quarter of 2015.
Our underlying net income for the second quarters 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 reduced operating net
income by $80 million in the second
quarter of 2016, compared to an increase of $116 million in the second quarter of 2015.
Net income in the second quarter of 2016 also reflected
unfavourable morbidity experience, mainly in SLF U.S. Group
Benefits notably from the stop-loss insurance business, and expense
experience including investment in growing our businesses,
partially offset by gains from investment activity on insurance
contract liabilities and positive credit experience.
Net income in the second quarter of 2015 also reflected the
favourable effect of gains from investment activity on insurance
contract liabilities, mortality, positive credit, morbidity
experience, and business growth, partially offset by unfavourable
expense experience including investment in growing our
businesses.
Q2 2016 vs. Q2 2015 (year-to-date)
Our reported net income was $1,020
million for the first six months of 2016, compared to
$1,167 million in the first six
months of 2015. Operating net income was $1,005 million for the first six months ended
June 30, 2016, compared to
$1,177 million for the same period
last year. Underlying net income was $1,136
million, compared to $1,131
million for the first six months of 2015.
Operating ROE and underlying ROE for the first six months of
2016 were 10.7% and 12.1%, respectively, compared to 13.4% and
12.9%, respectively, for the first six months of 2015.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income for
the six months ended June 30,
2016 and 2015.
|
Year-to-date |
($ millions, after-tax) |
|
2016 |
|
2015 |
Reported net income |
|
1,020 |
|
1,167 |
|
Certain hedges that do not qualify for hedge
accounting in SLF Canada |
|
(19) |
|
21 |
|
Fair value adjustments on MFS's share-based
payment awards |
|
27 |
|
(31) |
|
Acquisition, integration and
restructuring(1) |
|
7 |
|
— |
Operating net
income(2) |
|
1,005 |
|
1,177 |
|
Equity market impact(3) |
|
(4) |
|
(2) |
|
Interest rate impact(4) |
|
(114) |
|
56 |
|
Increases (decreases) from changes in the fair
value of real estate |
|
6 |
|
21 |
|
Market related impacts |
|
(112) |
|
75 |
|
Assumption changes and management actions |
|
(19) |
|
(29) |
Underlying net
income(2) |
|
1,136 |
|
1,131 |
Impact of other notable items on
our net income: |
|
|
|
|
Experience related
items(5) |
|
|
|
|
|
Impact of investment activity on insurance
contract liabilities |
|
83 |
|
58 |
|
Mortality |
|
13 |
|
40 |
|
Morbidity |
|
(9) |
|
14 |
|
Credit |
|
20 |
|
34 |
|
Lapse and other policyholder behaviour |
|
(1) |
|
(20) |
|
Expenses |
|
(24) |
|
(35) |
|
Other |
|
(6) |
|
(5) |
(1) |
In 2016, Acquisition, integration and restructuring primarily
related to integration costs of the U.S. employee
benefits business acquired in 2016. These costs were more than
offset by a non-cash gain of $31 million as a
result of remeasuring our existing investment to fair value upon
acquiring control over the operations of PVI
Sun Life Insurance Company Limited. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of
Non-IFRS Financial Measures. |
(3) |
Equity market impact consists primarily of the effect of
changes in equity markets during the period, net of hedging, that
differ from the best estimate assumptions used in the determination
of our insurance contract liabilities of approximately 2% growth
per quarter in equity markets. Equity market impact also includes
the income impact of the basis risk inherent in our hedging
program, which is the difference between the return on underlying
funds of products that provide benefit guarantees and the return on
the derivative assets used to hedge those benefit guarantees. |
(4) |
Interest rate impact includes the effect of interest rate
changes on investment returns that differ from best estimate
assumptions, and on the value of derivative instruments used in our
hedging programs. Our exposure to interest rates varies by product
type, line of business, and geography. Given the long-term nature
of our business, we have a higher degree of sensitivity in respect
of interest rates at long durations. Interest rate impact also
includes the income impact of 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 the first six months of 2016 and
2015 included items that are not operational or ongoing in nature
and are, therefore, excluded in our calculation of operating net
income. Operating net income for the first six months of 2016 and
2015 excluded the net impact of certain hedges that do not qualify
for hedge accounting in SLF Canada, fair value adjustments on MFS's
share-based payment awards, and acquisition, integration and
restructuring amounts. The net impact of these items increased
reported net income by $15 million in
the first six months of 2016 compared to a reduction of
$10 million in the same period of
2015.
Our underlying net income for the first six months 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 reduced operating net
income by $131 million in the first
six months of 2016, compared to an increase of $46 million in same period in 2015.
Net income for the first six months of 2016 also reflected the
positive impact of strong investing activities in the period,
positive mortality, and credit experience. This was partially
offset by morbidity experience and expense experience including
investment in growing our businesses.
Net income for the first six months of 2015 also reflected the
favourable effect of gains from investment activity on insurance
contract liabilities, mortality, positive credit, morbidity
experience, and business growth, partially offset by unfavourable
lapse and other policyholder behaviour experience and expense
experience including investment in growing our businesses.
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.
SLF Asia
On January 7, 2016, we increased our
ownership interest in PVI Sun Life Insurance Company Limited ("PVI
Sun Life") in Vietnam, from 49% to
75% by acquiring from PVI Holdings an additional 26% of the charter
capital for cash consideration of $49
million. In the first quarter of 2016, we recognized a
non-cash gain of $31 million in our
reported net income as a result of remeasuring our existing
investment to fair value upon acquiring control over the operations
of PVI Sun Life. This non-cash gain was excluded from operating net
income and underlying net income.
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 ("CSL") 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 announced
that we will acquire the pension business of FWD Life Insurance
Company (Bermuda) Limited ("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 15 of our Interim Consolidated Financial
Statements.
Impact of the Low Interest Rate Environment
In the second quarter of 2016, declining interest rates resulted in
unfavourable market related impacts. Interest rates declined during
the second quarter due to macroeconomic factors, including the U.K.
referendum in which voters approved an exit from the European
Union.
Sun Life Financial's overall business and financial operations
are affected by the global economic and capital market environment.
Our results are sensitive to interest rates, which have been low in
recent years relative to historic levels. Additional information is
disclosed in our 2015 annual MD&A under the heading Risk
Management - Risk Categories.
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 June 30,
2016, our estimated sensitivity to a 10 basis point decrease
in the ultimate reinvestment rate ("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 the impact of the low interest rate
environment and expected URR changes are forward-looking.
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. The majority of our exposure to
movements in foreign exchange rates is to the U.S. dollar.
Items impacting our Consolidated Statements of Operations, such
as Revenue, Benefits and expenses, and Total net income (loss), are
translated to Canadian dollars using average exchange rates for the
respective period. For items impacting our Consolidated Statements
of Financial Position, such as Assets and Liabilities, period end
rates are used for currency translation purposes. The following
table provides the most relevant foreign exchange rates over the
past five quarters and two years.
Exchange Rate |
|
Quarterly |
Year-to-date |
|
|
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar |
|
1.289 |
|
1.373 |
|
1.335 |
|
1.307 |
|
1.229 |
|
1.331 |
|
1.234 |
|
U.K. Pounds |
|
1.849 |
|
1.968 |
|
2.025 |
|
2.025 |
|
1.882 |
|
1.908 |
|
1.880 |
Period end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar |
|
1.292 |
|
1.300 |
|
1.384 |
|
1.331 |
|
1.249 |
|
1.292 |
|
1.249 |
|
U.K. Pounds |
|
1.720 |
|
1.867 |
|
2.040 |
|
2.014 |
|
1.962 |
|
1.720 |
|
1.962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 second
quarter of 2016, our reported net income, operating net income and
underlying net income increased by $10
million, $10 million and
$12 million, respectively, as a
result of the favourable impact of the weakening Canadian dollar in
the second quarter of 2016 relative to the average exchange rates
in the second quarter of 2015. During the first six months of 2016,
our reported net income, operating net income and underlying net
income increased by $43 million,
$42 million and $48 million, respectively, as a result of the
favourable impact of the weakening Canadian dollar in the first six
months of 2016 relative to the average exchange rates in the first
six months of 2015.
Performance by Business Group
SLF Canada
SLF Canada is the Canadian market leader in the group market
segments and is a leading provider of retail holistic advice,
providing products and services to over six million people across
Canada. Our distribution breadth,
strong service culture, technology leadership and brand recognition
provide an excellent platform for growth. SLF Canada has three main
business units - Individual Insurance & Wealth, Group Benefits
("GB") and Group Retirement Services ("GRS") - which offer a full
range of protection, wealth accumulation and income products and
services to employers, group members of company sponsored plans and
individuals in their communities across Canada.
|
Quarterly
results |
|
Year-to-date |
($ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Reported net income (loss) |
185 |
|
169 |
|
210 |
|
127 |
|
337 |
|
354 |
|
487 |
|
Certain hedges that do not
qualify for hedge accounting(1) |
(6) |
|
(13) |
|
10 |
|
(10) |
|
6 |
|
(19) |
|
21 |
Operating net income
(loss)(2) |
191 |
|
182 |
|
200 |
|
137 |
|
331 |
|
373 |
|
466 |
|
Market related impacts |
(5) |
|
(24) |
|
(56) |
|
(51) |
|
70 |
|
(29) |
|
1 |
|
Assumption changes and management
actions |
(4) |
|
(12) |
|
(13) |
|
14 |
|
11 |
|
(16) |
|
14 |
Underlying net income
(loss)(2) |
200 |
|
218 |
|
269 |
|
174 |
|
250 |
|
418 |
|
451 |
Operating ROE (%)(2) |
9.8 |
|
9.5 |
|
10.5 |
|
7.0 |
|
17.0 |
|
9.7 |
|
12.1 |
Underlying ROE (%)(2) |
10.3 |
|
11.4 |
|
14.1 |
|
9.0 |
|
12.8 |
|
10.9 |
|
11.7 |
Operating net income (loss) by
business unit(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance &
Wealth(1)(2) |
79 |
|
93 |
|
78 |
|
42 |
|
178 |
|
172 |
|
216 |
|
Group
Benefits(1)(2) |
72 |
|
69 |
|
86 |
|
71 |
|
107 |
|
141 |
|
161 |
|
Group Retirement
Services(1)(2) |
40 |
|
20 |
|
36 |
|
24 |
|
46 |
|
60 |
|
89 |
Total operating net income
(loss)(1)(2) |
191 |
|
182 |
|
200 |
|
137 |
|
331 |
|
373 |
|
466 |
(1) |
In the second quarter of 2016, Certain hedges that do not
qualify for hedge accounting consisted of $(4) million
in Individual Insurance & Wealth, $(1) million in Group
Benefits, and $(1) million in Group Retirement Services. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
|
|
Q2 2016 vs. Q2 2015
SLF Canada's reported net income was $185
million in the second quarter of 2016, compared to
$337 million in the second quarter of
2015. Operating net income was $191
million, compared to $331
million in the second quarter of 2015. Operating net income
for both periods in SLF Canada excludes the impact of certain
hedges that do not qualify for hedge accounting, which is set out
in the table above.
Underlying net income in the second quarter of 2016 was
$200 million, compared to
$250 million in the second quarter of
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
unfavourable effect of market related impacts in the second quarter
of 2016 was primarily driven by interest rates partially offset by
equity markets, compared to the favourable effect in the second
quarter of 2015 primarily driven by interest rates partially offset
by equity markets.
Net income in the second quarter of 2016 also reflected gains
from investing activities on insurance contract liabilities,
partially offset by unfavourable expense experience including
investment in growing our individual wealth business. Mortality and
morbidity experience were largely in line with best estimate
assumptions.
Net income in the second quarter of 2015 also reflected gains
from investment activities on insurance contract liabilities, gains
on new business and strong results in GB driven by favourable
mortality and morbidity experience in our disability line of
business which was partially offset by high cost drug claims. This
was partially offset by policyholder behaviour, and by expense
experience including investment in growing our individual wealth
business.
In the second quarter of 2016, sales of individual insurance
products increased 16% compared to the second quarter of 2015
driven by continued strong permanent insurance sales in the
third-party channel. In our individual wealth business, we
continued our growth momentum in individual wealth manufactured
products(1), including Sun Life Global Investments
(Canada) Inc. ("SLGI") mutual
funds and Sun Life Guaranteed Investment Funds segregated funds,
with a sales increase of 37% over the same quarter of the prior
year. Lower third-party mutual fund sales led to a 10% decline in
total individual wealth product sales.
____________________
(1) |
Individual wealth manufactured products represents our own
segregated funds (Sun Life Guaranteed Investment Funds), SLGI
mutual funds, and fixed product offerings. |
|
|
GB sales were 12% higher than the second quarter of 2015
primarily due to strong activity in the small and mid-market
segment. GRS sales decreased 55% compared to the second quarter of
2015 which benefited from strong sales including significant
Defined Benefit Solutions payout annuity sales and Defined
Contribution asset transfer from the University of British Columbia pension plan.
Q2 2016 vs. Q2 2015 (year-to-date)
Reported net income was $354 million
for the first six months of 2016, compared to $487 million for the six months ended
June 30, 2015. Operating net
income for the first six months of 2016 was $373 million, compared to $466 million in the same period of 2015.
Operating net income for both periods in SLF Canada excludes the
impact of certain hedges that do not qualify for hedge accounting,
which is set out in the table above.
Underlying net income was $418
million in the first six months ended June 30, 2016, compared to $451 million in the same period last year.
Underlying net income in SLF Canada excludes from operating net
income market related impacts and assumption changes and management
actions, which are set out in the table above. The unfavourable
effect of market related impacts in the first six months of 2016
was primarily driven by interest rates offset partially by equity
markets and swap spreads, compared to the small net favourable
effect in the first six months of 2015.
Net income for the six months ended June 30, 2016 also reflected gains from
investment activities on insurance contract liabilities and net
realized gains on available-for-sale ("AFS") assets, partially
offset by expense experience, including investment in growing our
individual wealth business.
Net income for the six months ended June 30, 2015 also reflected gains from
investment activities on insurance contract liabilities, gains on
new business, favourable mortality and morbidity experience in our
disability line of business which was partially offset by high cost
drug claims in GB. This was partially offset by policyholder
behaviour, and by expense experience including investment in
growing our individual wealth business.
SLF U.S.
SLF U.S. has three business units: Group Benefits, International
and In-force Management. Group Benefits provides protection
solutions to employers and employees including group life,
disability, medical stop-loss, dental, and vision insurance
products, as well as a suite of voluntary benefits products. Group
Benefits also includes Disability Reinsurance Management Services,
Inc., 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.
|
Quarterly
results |
Year-to-date |
(US$ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Reported net income (loss) |
42 |
|
69 |
|
75 |
|
49 |
|
108 |
|
111 |
|
127 |
|
Acquisition, integration and
restructuring(1) |
(8) |
|
(11) |
|
(46) |
|
— |
|
— |
|
(19) |
|
— |
Operating net income
(loss)(2) |
50 |
|
80 |
|
121 |
|
49 |
|
108 |
|
130 |
|
127 |
|
Market related impacts |
(40) |
|
1 |
|
11 |
|
(16) |
|
23 |
|
(39) |
|
31 |
|
Assumption changes and management
actions |
— |
|
(2) |
|
(8) |
|
(8) |
|
— |
|
(2) |
|
(54) |
Underlying net income
(loss)(2) |
90 |
|
81 |
|
118 |
|
73 |
|
85 |
|
171 |
|
150 |
Operating ROE (%)(2) |
5.8 |
|
10.0 |
|
17.9 |
|
7.5 |
|
16.2 |
|
7.8 |
|
9.5 |
Underlying ROE (%)(2) |
10.4 |
|
10.2 |
|
17.4 |
|
11.2 |
|
12.7 |
|
10.3 |
|
11.2 |
Operating net income
(loss) by business unit(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
Benefits(1)(2) |
19 |
|
39 |
|
23 |
|
16 |
|
22 |
|
58 |
|
60 |
|
International(2) |
23 |
|
23 |
|
46 |
|
67 |
|
(1) |
|
46 |
|
1 |
|
In-force
Management(2) |
8 |
|
18 |
|
52 |
|
(34) |
|
87 |
|
26 |
|
66 |
Total operating net income
(loss)(1)(2) |
50 |
|
80 |
|
121 |
|
49 |
|
108 |
|
130 |
|
127 |
(C$ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income (loss) |
54 |
|
95 |
|
100 |
|
64 |
|
134 |
|
149 |
|
169 |
Operating net income
(loss)(2) |
64 |
|
110 |
|
163 |
|
64 |
|
134 |
|
174 |
|
169 |
Underlying net income
(loss)(2) |
114 |
|
111 |
|
158 |
|
97 |
|
105 |
|
225 |
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 in
International related to the closing of our wealth
business in SLF U.S. International to new sales in December 2015,
which included assumption changes and
management actions of US$30 million to reflect assumption updates
including the expense strengthening
associated with closing the business. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of
Non-IFRS Financial Measures. |
|
|
Q2 2016 vs. Q2 2015
SLF U.S.'s reported net income was C$54
million and operating net income was C$64 million in the second quarter of 2016,
compared to reported net income and operating net income of
C$134 million in the second quarter
of 2015. Operating net income excludes the impact of acquisition,
integration and restructuring amounts, which is set out in the
table above. Underlying net income was C$114
million, compared to C$105
million in the second quarter of 2015. The favourable impact
of the weakening Canadian dollar in the second quarter of 2016
relative to average exchange rates in the second quarter of 2015
increased reported net income, operating net income and underlying
net income by C$2 million,
C$3 million and C$5 million, respectively.
In U.S. dollars, SLF U.S.'s reported net income was US$42 million and operating net income was
US$50 million in the second quarter
of 2016, compared to reported net income and operating net income
of US$108 million in the second
quarter of 2015. Underlying net income was US$90 million in the second quarter of 2016,
compared to US$85 million in the
second 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
unfavourable effect of market related impacts in the second quarter
of 2016 was primarily driven by interest rates, compared to the
favourable effect in the second quarter of 2015 primarily driven by
interest rates and credit spreads, which had a favourable impact in
In-force Management and an unfavourable impact in
International.
Net income in the second quarter of 2016 also reflected the
contribution of the U.S. employee benefits business acquired in
2016, gains from investing activities on insurance contract
liabilities, gains on the sale of AFS assets, and favourable
mortality experience in International, partially offset by
unfavourable morbidity experience in Group Benefits notably from
stop-loss experience.
We continued progress on our integration of the U.S. employee
benefits business, including combining our Group Benefits
distribution, account management, underwriting, and enrollment
teams, and offering an expanded portfolio of employee benefits
products and capabilities. The integration is proceeding in line
with expectations.
Net income in the second quarter of 2015 also reflected positive
credit experience, favourable mortality in International, and the
favourable impact of price increases and expense actions in Group
Benefits. These items were partially offset by unfavourable, though
improved, claims experience in Group Benefits, and adverse
policyholder behaviour in In-force Management.
Total Group Benefits sales in the second quarter of 2016
increased 49% compared to the same period last year, reflecting the
contribution of the U.S. employee benefits business acquired in
2016.
International life insurance sales were in line with the prior
year quarter.
Q2 2016 vs. Q2 2015 (year-to-date)
SLF U.S.'s reported net income was C$149
million for the six months ended June 30, 2016, compared to C$169 million for the same period last year.
Operating net income was C$174
million in the first six months of 2016, compared to
C$169 million in the same period last
year. Operating net income excludes the impact of acquisition,
integration and restructuring amounts, which is set out in the
table above. Underlying net income was C$225
million in the first six months of 2016, compared to
C$186 million in the same period of
2015. The favourable impact of the weakening Canadian dollar
in the first six months of 2016 relative to average exchange rates
in the first six months of 2015 increased reported net income,
operating net income and underlying net income by C$11 million, C$13
million and C$16 million,
respectively.
In U.S. dollars, SLF U.S.'s reported net income was US$111 million for the six months ended
June 30, 2016, compared to
US$127 million for the six months
ended June 30, 2015. Operating
net income was US$130 million for the
six months ended June 30, 2016,
compared to US$127 million for the
six months ended June 30, 2015.
Underlying net income was US$171
million for the six months ended June 30, 2016, compared to US$150 million in the same period last year.
Underlying net income excludes from operating net income market
related impacts and assumption changes and management actions,
which are set out in the table above. The unfavourable effect of
market related impacts in the first six months of 2016 was
primarily driven by interest rates, compared to the favourable
effect in the first six months of 2015 primarily driven by interest
rates and credit spreads.
Net income for the first six months of 2016 also reflected the
contribution of the U.S. employee benefits business acquired in
2016, gains from investing activities on insurance contract
liabilities, gains on the sale of AFS assets, and favourable
mortality experience in International. These items were partially
offset by unfavourable morbidity experience in Group Benefits.
Net income for the first six months of 2015 also reflected
positive credit experience, net realized gains on the sale of AFS
assets, favourable mortality experience in Group Benefits and
International, and favourable morbidity experience in Group
Benefits, partially offset by unfavourable policyholder behaviour
in In-force Management and International.
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 ("Bentall Kennedy"), Prime
Advisors, Inc. ("Prime Advisors"), Ryan
Labs Asset Management Inc. ("Ryan Labs") 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 |
Year-to-date |
SLF Asset Management (C$
millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Reported net income |
173 |
|
177 |
|
177 |
|
204 |
|
162 |
|
350 |
|
310 |
|
Fair value adjustments on MFS's
share-based payment awards |
20 |
|
7 |
|
(6) |
|
28 |
|
(11) |
|
27 |
|
(31) |
Operating net income and underlying
net income(1) |
153 |
|
170 |
|
183 |
|
176 |
|
173 |
|
323 |
|
341 |
Assets under management (C$
billions)(2) |
597.8 |
|
601.0 |
|
629.6 |
|
593.0 |
|
558.3 |
|
597.8 |
|
558.3 |
Gross sales (C$
billions)(2)(4) |
28.2 |
|
28.6 |
|
23.6 |
|
22.4 |
|
25.3 |
|
56.8 |
|
53.5 |
Net sales (C$
billions)(2)(4) |
(0.8 ) |
|
(1.1 ) |
|
(6.4) |
|
(11.5) |
|
(1.8) |
|
(1.9) |
|
(2.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MFS (C$ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
166 |
|
171 |
|
168 |
|
201 |
|
162 |
|
337 |
|
310 |
|
Fair value adjustments on MFS's
share-based payment awards |
20 |
|
7 |
|
(6) |
|
28 |
|
(11) |
|
27 |
|
(31) |
Operating net
income(1) |
146 |
|
164 |
|
174 |
|
173 |
|
173 |
|
310 |
|
341 |
Assets under management (C$
billions)(2) |
549.2 |
|
544.0 |
|
571.9 |
|
537.4 |
|
550.2 |
|
549.2 |
|
550.2 |
Gross sales (C$
billions)(2) |
26.9 |
|
26.8 |
|
22.0 |
|
21.5 |
|
24.7 |
|
53.7 |
|
52.9 |
Net sales (C$
billions)(2) |
(1.3) |
|
(1.5) |
|
(6.2) |
|
(11.8) |
|
(2.2) |
|
(2.8) |
|
(2.4) |
(US$ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
129 |
|
124 |
|
126 |
|
154 |
|
132 |
|
253 |
|
251 |
|
Fair value adjustments on MFS's
share-based payment awards |
15 |
|
5 |
|
(5) |
|
21 |
|
(9) |
|
20 |
|
(25) |
Operating net
income(1) |
114 |
|
119 |
|
131 |
|
133 |
|
141 |
|
233 |
|
276 |
Pre-tax operating profit margin
ratio(2) |
35% |
|
37% |
|
38% |
|
40% |
|
40% |
|
36% |
|
40% |
Average net assets (US$
billions)(2) |
423.0 |
|
398.9 |
|
420.2 |
|
429.5 |
|
450.3 |
|
411.0 |
|
443.4 |
Assets under management (US$
billions)(2)(3) |
425.0 |
|
418.3 |
|
413.2 |
|
403.7 |
|
440.5 |
|
425.0 |
|
440.5 |
Gross sales (US$
billions)(2) |
20.8 |
|
19.5 |
|
16.5 |
|
16.5 |
|
20.1 |
|
40.3 |
|
42.9 |
Net sales (US$
billions)(2) |
(1.0) |
|
(1.1) |
|
(4.7) |
|
(9.0) |
|
(1.8) |
|
(2.1) |
|
(2.0) |
Asset appreciation (depreciation) (US$
billions) |
7.7 |
|
6.2 |
|
14.2 |
|
(27.8) |
|
0.9 |
|
13.9 |
|
11.5 |
S&P 500 Index (daily average) |
2,074 |
|
1,952 |
|
2,057 |
|
2,027 |
|
2,102 |
|
2,013 |
|
2,083 |
MSCI EAFE Index (daily average) |
1,648 |
|
1,594 |
|
1,732 |
|
1,785 |
|
1,906 |
|
1,621 |
|
1,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLIM (C$ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income(5) |
7 |
|
6 |
|
9 |
|
3 |
|
|
|
13 |
|
|
Operating net
income(1)(5) |
7 |
|
6 |
|
9 |
|
3 |
|
|
|
13 |
|
|
Assets under management (C$
billions)(2) |
48.6 |
|
57.0 |
|
57.8 |
|
55.6 |
|
8.1 |
|
48.6 |
|
8.1 |
Gross sales (C$
billions)(2)(4) |
1.3 |
|
1.8 |
|
1.6 |
|
0.9 |
|
0.6 |
|
3.1 |
|
0.6 |
Net sales (C$
billions)(2)(4) |
0.5 |
|
0.4 |
|
(0.2) |
|
0.3 |
|
0.4 |
|
0.9 |
|
0.4 |
(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. The Corporate Fact Sheet also
provides MFS's U.S. GAAP assets and liabilities as at December 31,
2015. |
(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, $1.2 billion, and $0.6 billion in the third
quarter of 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. |
(5) |
Prior to the third quarter of 2015, SLIM's net income was
reported in the Corporate segment. |
|
|
Q2 2016 vs. Q2 2015
SLF Asset Management's reported net income was C$173 million in the second quarter of 2016,
compared to C$162 million in the
second quarter of 2015. SLF Asset Management had operating net
income and underlying net income of C$153
million in the second quarter of 2016, compared to
C$173 million in the second quarter
of 2015. Operating net income and underlying net income in SLF
Asset Management exclude the impact of fair value adjustments on
MFS's share-based payment awards, which is set out in the table
above. The favourable impact of the weakening Canadian dollar in
the second quarter of 2016 relative to average exchange rates in
the second quarter of 2015 increased reported net income, operating
net income and underlying net income by C$8
million, C$7 million and
C$7 million, respectively.
In U.S. dollars, MFS's reported net income was US$129 million in the second quarter of 2016,
compared to US$132 million in the
second quarter of 2015. MFS's operating net income was US$114 million in the second quarter of 2016,
compared to US$141 million in the
second 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 decreased in the second quarter of 2016 compared to
the same period in 2015, primarily due to lower average net assets
and higher operating costs, which also contributed to the decrease
of MFS's pre-tax operating profit margin ratio to 35% in the second
quarter of 2016 from 40% in the second quarter of 2015.
SLIM's reported net income and operating net income were
C$7 million in the second quarter of
2016. SLIM's net income in the second quarter of 2016 reflected the
2015 acquisitions.
SLF Asset Management's AUM was C$597.8
billion as at June 30,
2016, compared to C$629.6
billion as at December 31,
2015. The decrease was primarily due to a decrease of
$41.0 billion from the strengthening
of the Canadian dollar relative to exchange rates at the end of the
fourth quarter of 2015 and a $9
billion decrease in SLIM described below, partially offset
by asset appreciation. MFS's AUM was US$425.0 billion (C$549.2
billion) as at June 30,
2016, compared to US$413.2
billion (C$571.9 billion) as
at December 31, 2015. The
increase of US$11.8 billion was
primarily driven by gross sales of US$40.3
billion and asset appreciation of US$13.9 billion, partially offset by redemptions
of US$42.4 billion. 86%, 93% and 97%
of MFS's retail fund assets ranked in the top half of their Lipper
categories based on three-, five-, and ten-year performance,
respectively as of June 30,
2016.
During the second quarter of 2016, British Columbia Investment
Management Corporation ("bcIMC"), a client of our wholly-owned
subsidiary Bentall Kennedy exercised its right to acquire certain
wholly-owned subsidiaries involved in the management of bcIMC's
assets, which will end this relationship with Bentall Kennedy. The
associated restructuring will also include the transfer of
employees in the subsidiaries.
SLIM's AUM was C$48.6 billion as
at June 30, 2016, compared to
C$57.8 billion as at December 31, 2015. This change was primarily
due to a $9 billion decrease relating
to bcIMC(1) described above and from the strengthening
of the Canadian dollar relative to the exchange rates at the end of
the fourth quarter of 2015, partially offset by asset appreciation
and net sales.
Q2 2016 vs. Q2 2015 (year-to-date)
SLF Asset Management's reported net income for the first six months
ended June 30, 2016 was
C$350 million, compared to
C$310 million for the same period
last year. Operating net income and underlying net income were
C$323 million for the first six
months of 2016, compared to C$341
million for the six months ended June 30, 2015. Operating net income and
underlying net income in SLF Asset Management exclude the impact of
fair value adjustments on MFS's share-based payment awards, which
is set out in the table above. The favourable impact of the
weakening Canadian dollar in the first six months of 2016 relative
to average exchange rates in the first six months of 2015 increased
reported net income, operating net income and underlying net income
by C$24 million, C$22 million and C$23
million, respectively.
MFS's reported net income for the six months ended June 30, 2016 was US$253 million, compared to US$251 million for the same period last year.
MFS's operating net income was US$233
million for the first six months of 2016, compared to
US$276 million for the six months
ended June 30, 2015. MFS's
operating net income in U.S. dollars for the first six months of
2016 decreased compared to the same period last year driven
primarily by lower average net assets.
SLIM's reported net income and operating net income for the six
months ended June 30, 2016 were
C$13 million. SLIM's net income in
the first six months of 2016 reflected the 2015 acquisitions.
____________________
(1) |
The transfer of the assets is expected to be completed in the
first quarter of 2017, and as at June 30, 2016, assets of $9
billion related to bcIMC are not reported in SLIM's AUM. |
|
|
SLF Asia
SLF Asia operates through subsidiaries in the Philippines, Hong Kong, Indonesia, and Vietnam(1), as well as through
joint ventures and associates with local partners in the Philippines, Malaysia, China, Indonesia(2), and India(3). We offer individual life
insurance products in all seven markets, and group benefits and/or
pension and retirement products in the
Philippines, China,
Hong Kong, India, Malaysia, and Vietnam. We have also established asset
management companies either directly or through joint ventures and
associates in the Philippines,
China, and India. We distribute these protection and
wealth products to middle- and upper-income individuals, groups and
affinity clients through multiple distribution channels.
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Reported net income (loss) |
68 |
|
91 |
|
73 |
|
77 |
|
93 |
|
159 |
|
161 |
|
Acquisition,
integration and restructuring(4) |
— |
|
31 |
|
— |
|
— |
|
— |
|
31 |
|
— |
Operating net income
(loss)(5) |
68 |
|
60 |
|
73 |
|
77 |
|
93 |
|
128 |
|
161 |
|
Market related
impacts |
(13) |
|
(11) |
|
7 |
|
(17) |
|
19 |
|
(24) |
|
29 |
|
Assumption changes and management actions |
(4) |
|
3 |
|
14 |
|
27 |
|
3 |
|
(1) |
|
(1) |
Underlying net income
(loss)(5) |
85 |
|
68 |
|
52 |
|
67 |
|
71 |
|
153 |
|
133 |
Operating ROE (%)(5) |
7.1 |
|
6.7 |
|
8.0 |
|
9.1 |
|
11.0 |
|
6.9 |
|
9.8 |
Underlying ROE (%)(5) |
9.0 |
|
7.6 |
|
5.6 |
|
7.8 |
|
8.4 |
|
8.3 |
|
8.1 |
(1) |
On January 7, 2016, we increased our ownership stake in PVI Sun
Life in Vietnam from 49% to 75%. |
(2) |
On July 1, 2016, we increased our ownership
interest in CSL in Indonesia from 49% to 100%. |
(3) |
On April 11, 2016, we increased our ownership stake in BSLI in
India from 26% to 49%. |
(4) |
Acquisition, integration and restructuring amounts in the first
quarter of 2016 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 PVI Sun Life in Vietnam. |
(5) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
|
|
Q2 2016 vs. Q2 2015
SLF Asia's reported net income and operating net income were
$68 million in the second quarter of
2016, compared to reported net income and operating net income of
$93 million in the second quarter of
2015. Operating net income excludes the impact of acquisition,
integration and restructuring amounts, which is set out in the
table above. The favourable impact of the weakening Canadian dollar
in the second quarter of 2016 relative to average exchange rates in
the second quarter of 2015 increased reported net income, operating
net income and underlying net income by $1
million.
Underlying net income was $85
million, compared to $71
million in the second 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 unfavourable effect of market related impacts in
the second quarter of 2016 was primarily driven by interest rates,
compared to the favourable effect in the second quarter of 2015
primarily driven by interest rates and equity markets.
Net income in the second quarter of 2016 also reflected business
growth relative to the second quarter of 2015. Net income in both
periods reflected the favourable effect of net realized gains on
the sale of AFS assets.
Total individual insurance sales of $139
million increased 28% compared to the second quarter of
2015. On a constant currency basis, individual insurance sales
increased 27%. Sales increased across the region except in
the Philippines and Vietnam. Sales increased in Hong Kong, Indonesia, Malaysia, and China by 88%, 9%, 24%, and 56%, respectively,
in local currency. Sales increased in India due to our increased ownership in BSLI.
These increases were partially offset by decreases in the Philippines and Vietnam.
Wealth sales were 11% higher than the second quarter of 2015,
driven primarily by growth in India and China.
Q2 2016 vs. Q2 2015 (year-to-date)
Reported net income was $159 million
for the first six months of 2016, compared to $161 million for the same period last year.
Operating net income was $128 million
for the first six months of 2016, compared to $161 million for the same period last year.
Operating net income excludes the impact of acquisition,
integration and restructuring amounts, which is set out in the
table above. The favourable impact of the weakening Canadian dollar
in the first half of 2016 relative to average exchange rates in the
same period last year increased reported net income, operating net
income and underlying net income by $6
million, $5 million and
$7 million, respectively.
Underlying net income for the first six months of 2016 was
$153 million, compared to
$133 million in the same period last
year. Underlying net income excludes from operating net income
market related impacts and assumption changes and management
actions, which are set out in the table above. The unfavourable
impact of market related impacts in the first six months of 2016
was primarily driven by interest rates, compared to the favourable
effect in the first six months of 2015 primarily driven by both
interest rates and equity markets.
Net income for the first six months of 2016 also reflected
favourable impacts from business growth relative to the first six
months of 2015. Net income in both periods reflected the favourable
effect of net realized gains on the sale of AFS assets.
Total individual life sales in the first six months of 2016
increased 17% from the first six months of 2015. On a constant
currency basis, individual insurance sales increased 13%. Sales
increases in Hong Kong,
Indonesia, Malaysia, and China were partially offset by decreases in
the Philippines and Vietnam. Sales increased in India due to our increased ownership in BSLI.
Wealth sales were lower than the first six months of 2015, with
lower mutual fund sales in India
and the Philippines and lower
Mandatory Provident Fund sales in Hong
Kong.
Corporate
Corporate includes the results of our United Kingdom business unit ("SLF U.K.") and
Corporate Support. Corporate Support includes our Run-off
reinsurance business as well as investment income, expenses,
capital, and other items that have not been allocated to our other
business segments. SLF U.K. has a run-off block of business which
has been closed to new business and focuses on supporting existing
customers.
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Reported net income (loss) |
— |
|
8 |
|
(24) |
|
10 |
|
— |
|
8 |
|
40 |
|
Acquisition, integration and
restructuring(1) |
2 |
|
(1) |
|
(3) |
|
(14) |
|
— |
|
1 |
|
— |
Operating net income
(loss)(2) |
(2) |
|
9 |
|
(21) |
|
24 |
|
— |
|
7 |
|
40 |
|
Market related impacts |
(4) |
|
(7) |
|
(2) |
|
9 |
|
(21) |
|
(11) |
|
7 |
|
Assumption changes and management
actions |
— |
|
1 |
|
(3) |
|
1 |
|
5 |
|
1 |
|
13 |
Underlying net income
(loss)(2) |
2 |
|
15 |
|
(16) |
|
14 |
|
16 |
|
17 |
|
20 |
Operating net income
(loss) by business unit(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF
U.K.(2) |
32 |
|
40 |
|
22 |
|
70 |
|
37 |
|
72 |
|
108 |
|
Corporate
Support(1)(2) |
(34) |
|
(31) |
|
(43) |
|
(46) |
|
(37) |
|
(65) |
|
(68) |
Total operating net
income (loss)(1)(2) |
(2) |
|
9 |
|
(21) |
|
24 |
|
— |
|
7 |
|
40 |
(1) |
In 2016 and 2015, Acquisition, integration and restructuring
amounts consisted primarily of acquisition
costs from Bentall Kennedy, Prime Advisors and Ryan Labs in
Corporate Support, including the impact
related to a Bentall Kennedy client's decision to exercise its
right to acquire certain wholly-owned
subsidiaries involved in the management of its assets in the second
quarter of 2016. |
(2) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation
of Non-IFRS Financial Measures. |
|
|
Q2 2016 vs. Q2 2015
Corporate had a reported net income of $nil in the second quarter
of 2016, compared to a reported net income of $nil in the second
quarter of 2015. Operating net loss was $2
million for the second quarter of 2016, compared to an
operating net income of $nil in the same period last year.
Operating net income (loss) excludes acquisition, integration and
restructuring amounts, which are set out in the table above. The
unfavourable impact of the strengthening Canadian dollar relative
to the U.K. pound in the second quarter of 2016 relative to average
exchange rates in the second quarter of 2015 decreased reported net
income, operating net income and underlying net income by
C$1 million.
Underlying net income was $2
million, compared to underlying net income of $16 million in the second 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 unfavourable effect of
market related impacts in the second quarter of 2016 was primarily
driven by equity markets, compared to the unfavourable effect in
the second quarter of 2015 primarily driven by interest rates.
SLF U.K.'s operating net income was $32
million in the second quarter of 2016, compared to
$37 million in the second quarter of
2015. SLF U.K.'s net income in the second quarter of 2016 reflected
unfavourable market impacts, partially offset by gains from
investment activities on insurance contract liabilities and
favourable policyholder behaviour. Net income in the second quarter
of 2015 reflected the unfavourable market related impacts from
interest rate and swap spread changes, partially offset by
favourable policyholder behaviour and mortality experience.
Corporate Support had an operating net loss of $34 million in the second quarter of 2016,
compared to an operating net loss of $37
million in the second quarter of 2015.
Q2 2016 vs. Q2 2015 (year-to-date)
The reported net income was $8
million in the Corporate segment for the six months ended
June 30, 2016, compared to a
reported net income of $40 million
for the same period last year. Operating net income was
$7 million for the first six months
of 2016, compared to an operating net income of $40 million in the same period last year.
Operating net income (loss) excludes acquisition, integration and
restructuring amounts, which are set out in the table above. The
favourable impact of the weakening Canadian dollar in the first
half of 2016 relative to average exchange rates in the same period
last year increased reported net income, operating net income, and
underlying net income by $2
million.
Underlying net income was $17
million in the six months ended June 30, 2016, compared to an underlying net
income of $20 million in the six
months ended June 30, 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 impact of
market related impacts in the first six months of 2016 was
primarily driven by equity market and interest rates, compared to
the favourable effect in the first six months of 2015 primarily
driven by interest rates, partially offset by equity markets.
SLF U.K.'s operating net income for the six months ended
June 30, 2016 was $72 million, compared to $108 million for the first six months ended
June 30, 2015. Net income in the
first six months of 2016 reflected gains from investment activities
on insurance contract liabilities, favourable policyholder
behaviour and credit experience, partially offset by unfavourable
impact of equity markets and interest rates. Net income in the
first six months of 2015 reflected the favourable impact of
interest rates, policyholder behaviour and mortality, partially
offset by equity markets.
In Corporate Support, the operating net loss for the six months
ended June 30, 2016 was
$65 million, compared to an operating
net loss of $68 million for the same
period last year. Corporate Support continued to experience
favourable results in the Run-off reinsurance business.
Additional Financial Disclosure
Revenue
|
Quarterly
results |
Year-to-date |
($ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
4,639 |
|
4,259 |
|
5,163 |
|
3,835 |
|
4,103 |
|
8,898 |
|
7,826 |
|
Ceded |
(1,076) |
|
(1,081) |
|
(1,612) |
|
(1,721) |
|
(1,580) |
|
(2,157) |
|
(3,096) |
Net premiums |
3,563 |
|
3,178 |
|
3,551 |
|
2,114 |
|
2,523 |
|
6,741 |
|
4,730 |
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other investment
income |
1,339 |
|
1,425 |
|
1,327 |
|
1,362 |
|
1,320 |
|
2,764 |
|
2,599 |
|
Fair value and foreign currency
changes on assets and liabilities |
3,223 |
|
2,730 |
|
(788) |
|
(168) |
|
(3,500) |
|
5,953 |
|
(1,005) |
|
Net gains (losses) on
available-for-sale assets |
54 |
|
75 |
|
39 |
|
47 |
|
46 |
|
129 |
|
142 |
Fee income |
1,354 |
|
1,374 |
|
1,438 |
|
1,338 |
|
1,293 |
|
2,728 |
|
2,548 |
Total revenue |
9,533 |
|
8,782 |
|
5,567 |
|
4,693 |
|
1,682 |
|
18,315 |
|
9,014 |
Adjusted revenue(1) |
6,839 |
|
6,396 |
|
7,267 |
|
5,871 |
|
6,331 |
|
13,253 |
|
12,353 |
(1) |
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 in the second quarter of 2016 was $9.5 billion, compared to $1.7 billion in the second quarter of 2015. The
increase is mainly attributable to increases in the fair value of
fair value through profit or loss ("FVTPL") assets, higher net
premium revenue in SLF U.S. and SLF Asia, the partial recapture of
a reinsurance agreement in GB in SLF Canada, and favourable
currency impact from the weakening Canadian dollar. The weakening
of the Canadian dollar relative to average exchange rates in the
second quarter of 2015 increased revenue by $197 million. Adjusted revenue was $6.8 billion in the second quarter of 2016,
$0.5 billion higher compared to the
second quarter of 2015. The increase was primarily driven by higher
net premium revenue in SLF U.S. and SLF Asia, and the partial
recapture of a reinsurance agreement in GB in SLF Canada.
Revenue was $18.3 billion for the
six months ended June 30, 2016,
up $9.3 billion from the comparable
period last year. The increase was mainly attributable to increases
in the fair value of FVTPL assets, the partial recapture of a
reinsurance agreement in GB in SLF Canada, higher net premium
revenue in SLF U.S. and SLF Asia, and currency impact from the
weakening Canadian dollar. Adjusted revenue of $13.3 billion for the six months ended
June 30, 2016 was $0.9 billion higher compared to the same period
last year, primarily due to the partial recapture of a reinsurance
agreement in GB in SLF Canada, higher net premium revenue in SLF
U.S. and SLF Asia, and increased investment income.
Premiums and Deposits
|
Quarterly results |
|
Year-to-date |
($ millions) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
2016 |
|
2015 |
Net premium revenue |
3,563 |
|
3,178 |
|
3,551 |
|
2,114 |
|
2,523 |
|
6,741 |
|
4,730 |
Segregated fund deposits |
2,834 |
|
2,731 |
|
2,523 |
|
2,626 |
|
4,487 |
|
5,565 |
|
6,898 |
Mutual fund
sales(1) |
20,007 |
|
19,262 |
|
17,598 |
|
16,902 |
|
19,927 |
|
39,269 |
|
42,051 |
Managed fund
sales(1)(3) |
9,886 |
|
10,865 |
|
7,678 |
|
7,156 |
|
7,002 |
|
20,751 |
|
15,245 |
ASO premium and deposit
equivalents(1) |
1,745 |
|
1,790 |
|
1,770 |
|
1,758 |
|
1,781 |
|
3,535 |
|
3,550 |
Total premiums and
deposits(1) |
38,035 |
|
37,826 |
|
33,120 |
|
30,556 |
|
35,720 |
|
75,861 |
|
72,474 |
Total adjusted premiums and
deposits(1)(2) |
37,330 |
|
35,285 |
|
32,230 |
|
30,264 |
|
36,869 |
|
72,811 |
|
74,808 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures. |
(2) |
Adjusted premiums 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. |
(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 $7,507
million in the third quarter of 2015. For additional information,
see Additional Financial Disclosure - Sales. |
|
|
Premiums and deposits were $38.0
billion in the second quarter of 2016, compared to
$35.7 billion in the second quarter
of 2015, primarily due to favourable currency impact from the
weakening Canadian dollar, increased fund sales and higher net
premium revenue, partially offset by lower segregated fund
deposits. The weakening of the Canadian dollar relative to average
exchange rates in the second quarter of 2015 increased total
premiums and deposits by approximately $1.4
billion. Adjusted premiums and deposits of $37.3 billion in the second quarter of 2016
increased $0.4 billion from the
second quarter of 2015. The increase was mainly the result of
increased fund sales and higher net premium revenue, partially
offset by lower segregated fund deposits.
Premiums and deposits were $75.9
billion for the six months ended June 30, 2016, compared to $72.5 billion for the six months ended
June 30, 2015, mainly driven by
favourable currency impact from the weakening Canadian dollar and
higher net premium revenue, partially offset by lower fund sales
and segregated fund deposits. Adjusted premiums and deposits of
$72.8 billion for the six months
ended June 30, 2016 decreased by
$2.0 billion over the same period
last year. The decrease was largely driven by lower fund sales and
decreased segregated fund deposits, partially offset by higher net
premium revenue.
Net premium revenue was $3.6
billion in the second quarter of 2016, compared to
$2.5 billion in the second quarter of
2015. Net premium revenue was $6.7
billion in the first six months of 2016, compared to
$4.7 billion in the same period of
2015. In both cases, 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., growth in premiums in SLF Asia and favourable currency
impact from the weakening Canadian dollar.
Segregated fund deposits were $2.8
billion in the second quarter of 2016, compared to
$4.5 billion in the second quarter of
2015. Segregated fund deposits were $5.6
billion for the first six months of 2016, compared to
$6.9 billion for the same period last
year. In both cases, the decrease was primarily due to decreases in
GRS in SLF Canada, the Philippines
and Hong Kong in SLF Asia,
partially offset by increases in individual wealth in SLF
Canada.
Sales of mutual funds and managed funds were $29.9 billion in the second quarter of 2016, an
increase of $3.0 billion over the
second quarter of 2015, largely reflecting favourable currency
impact from the weakening Canadian dollar, the acquisitions in SLIM
after the first quarter in 2015, and higher fund sales in MFS and
SLF Canada, partially offset by decreased fund sales in
Hong Kong. Mutual and managed fund
sales were $60.0 billion for the
first six months of 2016, compared to $57.3
billion in the same period in 2015, mainly reflecting
favourable currency impact from the weakening Canadian dollar, the
acquisitions in SLIM after the first quarter in 2015, and higher
fund sales in SLF Canada, partially offset by decreased fund sales
in MFS and India.
ASO premium and deposit equivalents in the second quarter of
2016 and for the first six months in 2016 were down slightly
compared to the same period last year.
Sales
In SLF Canada, life and health sales consist of sales of individual
insurance and group benefits products; wealth sales consist of
sales of individual wealth products and sales in GRS. In SLF U.S.,
life and health sales consist of sales by Group Benefits and
individual life sales by International. In SLF Asia, life and
health sales consist of the individual and group life and health
sales from subsidiaries, and from joint ventures and associates
based on our proportionate equity interest in the Philippines, Hong Kong, Indonesia, India, China,
Malaysia, and Vietnam; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales
from the India and China insurance companies, and Birla Sun Life
Asset Management Company's equity and fixed income mutual fund
sales based on our proportionate equity interest. SLF Asset
Management sales(1) consist of gross sales (inflows) for
retail and institutional clients.
($ millions) |
Q2'16 |
|
Q2'15 |
|
Life and health
sales(2) |
|
|
|
|
|
SLF Canada |
213 |
|
187 |
|
|
SLF U.S. |
179 |
|
120 |
|
|
SLF Asia |
146 |
|
120 |
|
Total life and health sales |
538 |
|
427 |
|
Wealth sales(2)(3) |
|
|
|
|
|
SLF Canada |
2,746 |
|
4,819 |
|
|
SLF Asia |
1,777 |
|
1,605 |
|
Total wealth sales
excluding SLF Asset Management |
4,523 |
|
6,424 |
|
|
SLF Asset Management
sales(2) |
28,182 |
|
25,292 |
|
Total wealth
sales |
32,705 |
|
31,716 |
|
(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 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) |
Restated to exclude sales of investment products of $190
million in the second 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 $538 million in the second quarter of 2016,
compared to $427 million in the same
period last year.
- SLF Canada life and health sales were $213 million in the second quarter of 2016,
compared to $187 million in the
second quarter of 2015 due to higher sales in both individual
insurance business and GB
- SLF U.S. life and health sales were $179
million in the second quarter of 2016, compared to
$120 million in the second quarter of
2015, primarily due to the U.S. employee benefits business acquired
in 2016 and higher sales in Group Benefits and favourable currency
impact from the weakening of the Canadian dollar
- SLF Asia life and health sales were $146
million in the second quarter of 2016, compared to
$120 million in the second quarter of
2015, mainly attributable to higher sales in Hong Kong, Malaysia, China, and India partially offset by decreased sales in
the Philippines and Vietnam
Total Company wealth sales were $32.7
billion in the second quarter of 2016, compared to
$31.7 billion in the second quarter
of 2015.
- SLF Canada wealth sales were $2.7
billion in the second quarter of 2016, compared to
$4.8 billion in the second quarter of
2015, reflecting lower sales in GRS and individual wealth
business
- SLF Asia wealth sales were $1.8
billion in the second quarter of 2016, compared to
$1.6 billion in the second quarter of
2015, primarily due to higher sales in China and India, partially offset by decreased fund
sales in the Philippines and
Hong Kong
- SLF Asset Management gross sales were $28.2 billion in the second quarter of 2016,
compared to $25.3 billion in the
second quarter of 2015, largely attributable to higher fund sales
from MFS and the acquisitions in SLIM, and favourable currency
impact of $1.3 billion from the
weakening of the Canadian dollar
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 $864.6 billion as at
June 30, 2016, compared to AUM
of $891.3 billion as at December 31, 2015. The decrease in AUM of
$26.7 billion between December 31, 2015 and June 30, 2016 resulted primarily from:
(i) |
a decrease of $51.0 billion from
the strengthening of the Canadian dollar relative to exchange
rates
at the end of the fourth quarter of 2015; and |
(ii) |
a decrease of $9.0 billion from a
reduction of assets related to a Bentall Kennedy
client(1); partially
offset by |
(iii) |
favourable market movements on the
value of mutual funds, managed funds, and segregated
funds of $21.6 billion; |
(iv) |
an increase of $6.0 billion from
the change in value of FVTPL assets and liabilities; |
(v) |
the impact of the U.S. employee
benefits business acquired in 2016 of $2.4 billion; and |
(vi) |
business growth and activity of
$3.3 billion. |
|
|
Changes in the Statements of Financial Position and in
Shareholders' Equity
Total general fund assets were $159.5
billion as at June 30,
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
an increase of $6.0 billion from the
change in value of FVTPL assets and liabilities, $2.4 billion from the U.S. employee benefits
business acquired in 2016, and business growth and activity of
$2.0 billion, partially offset by
$6.3 billion from the strengthening
of the Canadian dollar relative to exchange rates at the end of the
fourth quarter of 2015.
Insurance contract liabilities (excluding other policy
liabilities and assets) of $109.2
billion as at June 30,
2016 increased by $5.5 billion
compared to December 31, 2015,
mainly due to changes in balances on in-force policies (which
include fair value changes on FVTPL assets supporting insurance
contract liabilities), the U.S. employee benefits business acquired
in 2016, and balances arising from new policies, 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
$20.9 billion as at June 30, 2016, compared to $21.3 billion as at December 31, 2015. The decrease in
shareholders' equity was primarily due to:
(i) |
a decrease of $958 million from
the strengthening of the Canadian dollar relative to exchange
rates
at the end of the fourth quarter of 2015; |
(ii) |
common share dividend payments of
$487 million; |
(iii) |
the $47 million transaction with
non-controlling interest; |
(iv) |
a decrease of $49 million from
other comprehensive income ("OCI") of joint ventures and
associates; and |
(v) |
changes in liabilities for defined
benefit plans of $58 million; partially offset by |
(vi) |
shareholders' net income of $1.1
billion in 2016, before preferred share dividends of $48
million; |
(vii) |
net unrealized gains on AFS assets
in OCI of $228 million; and |
(viii) |
$12 million from stock options
exercised and $3 million from stock-based compensation. |
|
|
As at July 29, 2016, Sun Life
Financial Inc. had 612,831,484 common shares, 4,209,359 options to
acquire SLF Inc. common shares, and 92,200,000 preferred shares
outstanding.
____________________
(1) |
During the second quarter of 2016, a client of our wholly-owned
subsidiary Bentall Kennedy exercised its right to acquire certain
wholly-owned subsidiaries involved in the management of its assets,
which will end this relationship with Bentall Kennedy. The transfer
of the assets is expected to be completed in the first quarter of
2017, and as at June 30, 2016, assets of $9 billion related to
bcIMC are not reported in SLIM's AUM. |
|
|
Cash Flows
|
|
Quarterly results |
($ millions) |
|
Q2'16 |
|
Q2'15 |
Net cash and cash equivalents,
beginning of period |
|
5,209 |
|
4,081 |
Cash flows provided by (used in): |
|
|
|
|
|
Operating activities |
|
1,330 |
|
570 |
|
Investing activities |
|
(367) |
|
(13) |
|
Financing activities |
|
(1,326) |
|
(413) |
Changes due to fluctuations in
exchange rates |
|
(55) |
|
(19) |
Increase (decrease) in cash and
cash equivalents |
|
(418) |
|
125 |
Net cash and cash
equivalents, end of period |
|
4,791 |
|
4,206 |
Short-term securities, end of
period |
|
1,549 |
|
3,116 |
Net cash, cash
equivalents and short-term securities, end of period |
|
6,340 |
|
7,322 |
|
|
|
|
|
|
The operating activities of the Company generate cash flows
which include net premium revenue, net investment income, fee
income, and the sale and maturity of investments. They are the
principal source of funds to pay for policyholder claims and
benefits, commissions, operating expenses, and the purchase of
investments. Cash flows used in investing activities primarily
include transactions related to associates, joint ventures and
acquisitions. Cash flows provided in and used in financing
activities largely reflect capital transactions including payments
of dividends, the issuance and repurchase of shares, as well as the
issuance and retirement of debt instruments and preferred
shares.
The higher cash flows used in investing activities in the second
quarter of 2016 compared to the second quarter of 2015 were
primarily due to the increase of our ownership in BSLI in
India. The higher cash flows used
in financing activities in the second quarter of 2016 compared to
the second quarter of 2015 were largely attributable to the
redemption of $950 million Series B
Senior Unsecured 4.95% Fixed/Floating Debentures in the second
quarter of 2016.
Assumption Changes and Management Actions
Due to the long-term nature of our business, we make certain
judgments involving assumptions and estimates to value our
obligations to policyholders. The valuation of these obligations is
recorded in our financial statements as insurance contract
liabilities and investment contract liabilities and requires us to
make assumptions about equity market performance, interest rates,
asset default, mortality and morbidity rates, lapse and other
policyholder behaviour, expenses and inflation and other factors
over the life of our products. We will complete our annual review
of actuarial methods and assumptions in the second half of 2016,
with the majority of changes being implemented in the third
quarter. As this is a work in progress, it is not possible to
determine the impact on net income.
Income Taxes
In the second quarter of 2016, our effective tax rates on reported
net income and operating net income(1) were 19.0% and
20.9%, respectively. For the first six months of 2016, our
effective tax rates on reported net income and operating net
income(1) were 16.4% and 17.7%, respectively. Normally,
our effective tax rate is reduced below the statutory rate of
26.75%, mainly due to tax exempt investment income that is
generally expected to decrease the effective tax rate to a range of
18% to 22%.
The effective tax rate calculated on an operating basis excludes
amounts attributable to participating policyholders and
non-operating items.
____________________
(1) |
Our effective income tax rate on an operating net income basis
is calculated using operating net income and income tax expense
associated with operating net income. |
|
|
Quarterly Financial Results
The following table provides a summary of our results for the eight
most recently completed quarters. A more complete discussion of our
historical quarterly results can be found in our interim and annual
MD&As for the relevant periods.
|
Quarterly results |
($ millions, unless otherwise
noted) |
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
|
Q1'15 |
|
Q4'14 |
|
Q3'14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
9,533 |
|
8,782 |
|
5,567 |
|
4,693 |
|
1,682 |
|
7,332 |
|
7,375 |
|
5,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders' net income
(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
480 |
|
540 |
|
536 |
|
482 |
|
726 |
|
441 |
|
502 |
|
435 |
|
Operating(1) |
474 |
|
531 |
|
598 |
|
478 |
|
731 |
|
446 |
|
511 |
|
467 |
|
Underlying(1) |
554 |
|
582 |
|
646 |
|
528 |
|
615 |
|
516 |
|
360 |
|
517 |
Diluted EPS ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
0.78 |
|
0.88 |
|
0.87 |
|
0.79 |
|
1.18 |
|
0.72 |
|
0.81 |
|
0.71 |
|
Operating(1) |
0.77 |
|
0.87 |
|
0.98 |
|
0.78 |
|
1.19 |
|
0.73 |
|
0.83 |
|
0.76 |
|
Underlying(1) |
0.90 |
|
0.95 |
|
1.05 |
|
0.86 |
|
1.00 |
|
0.84 |
|
0.59 |
|
0.84 |
Basic reported EPS ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
0.78 |
|
0.88 |
|
0.88 |
|
0.79 |
|
1.19 |
|
0.72 |
|
0.82 |
|
0.71 |
Reported net income (loss) by
segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF Canada |
185 |
|
169 |
|
210 |
|
127 |
|
337 |
|
150 |
|
117 |
|
241 |
|
SLF U.S. |
54 |
|
95 |
|
100 |
|
64 |
|
134 |
|
35 |
|
168 |
|
(4) |
|
SLF Asset Management |
173 |
|
177 |
|
177 |
|
204 |
|
162 |
|
148 |
|
157 |
|
137 |
|
SLF Asia |
68 |
|
91 |
|
73 |
|
77 |
|
93 |
|
68 |
|
62 |
|
51 |
|
Corporate |
— |
|
8 |
|
(24) |
|
10 |
|
— |
|
40 |
|
(2) |
|
10 |
Total reported net income (loss) |
480 |
|
540 |
|
536 |
|
482 |
|
726 |
|
441 |
|
502 |
|
435 |
Operating net income (loss) by
segment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF Canada(1)(2) |
191 |
|
182 |
|
200 |
|
137 |
|
331 |
|
135 |
|
123 |
|
239 |
|
SLF U.S.(1)(2) |
64 |
|
110 |
|
163 |
|
64 |
|
134 |
|
35 |
|
168 |
|
(4) |
|
SLF Asset
Management(1)(2) |
153 |
|
170 |
|
183 |
|
176 |
|
173 |
|
168 |
|
156 |
|
168 |
|
SLF Asia(1)(2) |
68 |
|
60 |
|
73 |
|
77 |
|
93 |
|
68 |
|
62 |
|
51 |
|
Corporate(1)(2) |
(2) |
|
9 |
|
(21) |
|
24 |
|
— |
|
40 |
|
2 |
|
13 |
Total operating net
income (loss)(1) |
474 |
|
531 |
|
598 |
|
478 |
|
731 |
|
446 |
|
511 |
|
467 |
(1) |
Represents a non-IFRS financial measure. See Use of Non-IFRS
Financial Measures. |
(2) |
Reconciliations of operating net income to reported net income
by business group, set out above, are provided in our annual or
interim MD&A for the particular period. |
|
|
First Quarter 2016
Reported net income was $540 million
and operating net income was $531
million in the first quarter of 2016, reflecting favourable
impact of strong investing activities and positive morbidity
experience, partially offset by unfavourable impacts from interest
rates and equity markets.
Fourth Quarter 2015
Reported net income was $536 million
and operating net income was $598
million in the fourth quarter of 2015, reflecting favourable
impact from investment activity on insurance contract liabilities
largely in SLF Canada and SLF U.S., positive credit, 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 negative interest rate impact and unfavourable
expense experience including investment in growing our
businesses.
Third Quarter 2015
Reported net income was $482 million
and operating net income was $478
million in the third quarter of 2015, reflecting favourable
impact from interest rates, investment activity on insurance
contract liabilities, positive credit experience and policyholder
behaviour. These items were partially offset by unfavourable equity
market impact, morbidity and mortality experience, expense
experience, and other experience items.
Second Quarter 2015
Reported net income was $726 million
and operating net income was $731
million in the second quarter of 2015, reflecting positive
interest rate impact, investment activity on insurance contract
liabilities, mortality, positive credit, morbidity experience, and
business growth. These items were partially offset by unfavourable
expense experience including investment in growing our
businesses.
First Quarter 2015
Reported net income was $441 million
and operating net income was $446
million in the first quarter of 2015, reflecting gains from
investment activity on insurance contract liabilities and positive
mortality experience, offset by unfavourable impacts from
assumption changes and management actions, net interest rate
changes, lapse and other policyholder behaviour, and expense
experience.
Fourth Quarter 2014
Reported net income was $502 million
and operating net income was $511
million in the fourth quarter of 2014, reflecting favourable
impact from assumption changes and management actions and gains
from investing activity on insurance contract liabilities. These
items were partially offset by unfavourable impacts from interest
rate changes, mortality and morbidity, lapse and other policyholder
behaviour, and expense experience, which mainly consists of
compensation-related and other seasonal costs.
Third Quarter 2014
Reported net income was $435 million
and operating net income was $467
million in the third quarter of 2014, reflecting favourable
impact from gains from investing activity on insurance contract
liabilities, positive credit experience, tax benefits and business
growth. These items were partially offset by unfavourable impacts
from interest rate changes, mortality and morbidity and expense
experience.
Investments
We had total general fund invested assets of $141.4 billion as at June 30, 2016, compared to $138.0 billion as at December 31, 2015. The increase in general
fund invested assets of $3.4 billion
was primarily due to the acquisition of the U.S. employee benefits
business in 2016 and changes in fair value and operating activity,
offset by the currency impact of the strengthening Canadian dollar
relative to exchange rates at the end of the fourth quarter of
2015. Our general fund is primarily invested in fixed income
instruments, including debt securities and mortgages and loans,
with 84.9% of the general fund invested assets invested in cash and
fixed income investments. Equity securities and investment
properties represented 3.8% and 4.6% of the portfolio,
respectively, and the remaining 6.7% of the portfolio consisted of
policy loans, derivative assets, and other invested assets. Our
general fund invested assets are well diversified across investment
types, geographies, and sectors.
The following table sets out the composition of our general fund
invested assets.(1)
|
|
June
30, 2016 |
|
December
31, 2015 |
($ millions) |
|
Carrying
value |
|
% of total
carrying value |
|
Carrying
value |
|
% of total
carrying value |
Cash, cash equivalents and
short-term securities |
|
6,544 |
|
4.6% |
|
8,983 |
|
6.5% |
Debt securities - FVTPL |
|
61,152 |
|
43.3% |
|
56,785 |
|
41.2% |
Debt securities - AFS |
|
12,883 |
|
9.1% |
|
13,111 |
|
9.5% |
Equity securities - FVTPL |
|
4,704 |
|
3.3% |
|
4,426 |
|
3.2% |
Equity securities - AFS |
|
741 |
|
0.5% |
|
887 |
|
0.6% |
Mortgages and loans |
|
39,497 |
|
27.9% |
|
39,103 |
|
28.3% |
Derivative assets |
|
2,837 |
|
2.0% |
|
1,866 |
|
1.4% |
Other invested assets |
|
3,442 |
|
2.5% |
|
3,111 |
|
2.3% |
Policy loans |
|
3,082 |
|
2.2% |
|
3,151 |
|
2.3% |
Investment properties |
|
6,511 |
|
4.6% |
|
6,540 |
|
4.7% |
Total invested assets |
|
141,393 |
|
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 June 30,
2016, our direct exposure to energy and mining through our
debt securities and corporate loan holdings was approximately
$6.2 billion or 4% of total invested
assets, and our indirect exposure through our mortgage and real
estate holdings was approximately $3.2
billion(1) or 2% of total invested
assets.
Debt Securities and Corporate Loans
As at June 30, 2016, our
holdings in debt securities and corporate loans in the energy
sector were $5.4 billion, where we
maintained an investment-grade rating of 94% ($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.
As at June 30, 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 uninsured holdings
represented approximately 7% of our global mortgage portfolio and
21% of our global real estate portfolio as at June 30, 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 reductions in real estate valuations in the province
particularly in the office sector.
__________________________
(1) |
The indirect exposure from mortgages and real estate includes
uninsured mortgages and real estate holdings 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 2015 annual
MD&A. |
|
|
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.
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
June 30, 2016, we held
$74.0 billion of debt securities,
representing 52.4% 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 69.1%
of the total debt securities as at June 30, 2016, compared to 67.9% as at
December 31, 2015. Debt
securities with a credit rating of "BBB" or higher represented
97.3% of total debt securities as at June 30, 2016, compared to 96.9% as at
December 31, 2015.
Corporate debt securities not issued or guaranteed by sovereign,
regional, and municipal governments represented 64.0% of our total
debt securities as at June 30,
2016, compared to 66.0% as at December 31, 2015. Total government issued
or guaranteed debt securities as at June 30, 2016 were $26.6 billion, compared to $23.8 billion as at December 31, 2015. With the exception of
certain countries where we have business operations, including
Canada, the United States, the United Kingdom and the Philippines, our exposure to debt
securities from any single country did not exceed 1% of total
invested assets on our Consolidated Statements of Financial
Position as at June 30,
2016.
The carrying value of debt securities of governments and
financial institutions(1) by geographic location is
presented in the following table.
Debt Securities of Governments and Financial Institutions by
Geography
|
June 30, 2016 |
|
December 31, 2015 |
($ millions) |
Government
issued
or guaranteed |
|
Financials |
|
Government issued
or guaranteed |
|
Financials |
Canada |
17,919 |
|
1,881 |
|
15,411 |
|
1,826 |
United States |
1,945 |
|
5,879 |
|
1,702 |
|
6,046 |
United Kingdom |
2,344 |
|
1,606 |
|
2,561 |
|
1,937 |
Philippines |
2,883 |
|
40 |
|
2,745 |
|
42 |
Eurozone(2) |
247 |
|
719 |
|
237 |
|
828 |
Other |
1,301 |
|
1,601 |
|
1,111 |
|
1,577 |
Total |
26,639 |
|
11,726 |
|
23,767 |
|
12,256 |
(1) |
Our grouping of debt securities by sector is based on the
Global Industry Classification Standard
from S&P Dow Jones Indices. It was announced that certain real
estate debt securities will be moved
out from the Financials sector as of September 1, 2016. If this
were to be applied to our portfolio as
at June 30, 2016, approximately $2.3 billion would be moved out of
the Financials sector. |
(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, 99.4% was rated
investment grade and 81.2% had a credit rating of "A" or higher as
at June 30, 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 June 30, 2016 for FVTPL and AFS debt
securities were $0.25 billion and
$0.06 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 declining
interest rates, including credit spreads.
Our debt securities as at June 30,
2016 included $11.7 billion
invested in the financial sector, representing 15.8% of our total
debt securities, or 8.3% of our total invested assets. This
compares to $12.3 billion,
representing 17.5% of the debt security portfolio, or 8.9% of our
total invested assets as at December 31, 2015.
Our debt securities as at June 30,
2016 included $5.7 billion of
asset-backed securities reported at fair value, representing 7.8%
of our total debt securities, or 4.1% 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.
Mortgages and Loans
Mortgages and loans disclosures in this section are presented at
their carrying value on our Consolidated Statements of Financial
Position. As at June 30, 2016,
we had $39.5 billion in mortgages and
loans, representing 27.9% of our total invested assets, compared to
$39.1 billion representing 28.3% as
at December 31, 2015. Our
mortgage portfolio consisted almost entirely of first mortgages,
and our corporate loan portfolio consisted of private placement
assets.
The carrying value of mortgages and loans by geographic location
is presented in the following table.(1)
Mortgages and Loans by Geography
|
|
June 30,
2016 |
|
December
31, 2015 |
($ millions) |
|
Mortgages |
|
Loans |
|
Total |
|
Mortgages |
|
Loans |
|
Total |
Canada |
|
8,317 |
|
13,434 |
|
21,751 |
|
8,067 |
|
13,271 |
|
21,338 |
United States |
|
6,791 |
|
7,690 |
|
14,481 |
|
6,725 |
|
7,442 |
|
14,167 |
United Kingdom |
|
— |
|
684 |
|
684 |
|
— |
|
886 |
|
886 |
Other |
|
— |
|
2,581 |
|
2,581 |
|
— |
|
2,712 |
|
2,712 |
Total |
|
15,108 |
|
24,389 |
|
39,497 |
|
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 June 30, 2016, we held
$15.1 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, industrial, and land properties. As at
June 30, 2016, 26.5% of our
commercial mortgage portfolio consisted of multi-family residential
mortgages. Our uninsured commercial portfolio had a weighted
average loan-to-value ratio of 55% as at June 30, 2016, consistent with December 31, 2015. While we generally
require a maximum loan-to-value ratio of 75% at issuance, we may
invest in mortgages with a higher loan-to-value ratio in
Canada if the mortgage is insured.
The estimated weighted average debt service coverage for our
uninsured commercial portfolio is 1.75 times. Of the loans in the
Canadian commercial mortgage portfolio, 33.7% were insured by the
Canada Mortgage and Housing
Corporation.
As at June 30, 2016, we held
$24.4 billion of corporate loans,
compared to $24.3 billion as at
December 31, 2015. In the
current low interest rate environment, our strategy is to continue
to focus our efforts on the origination of new private placement
assets. Private placement assets provide diversification by type of
loan, industry segment, and borrower credit quality. The loan
portfolio consists of senior secured and unsecured loans to large-
and mid-market sized corporate borrowers, securitized lease/loan
obligations secured by a variety of assets, and project finance
loans in sectors such as power and infrastructure.
The carrying value and allowance for mortgages and loans past
due or impaired is presented in the following table.
Mortgages and Loans Past Due or Impaired
|
June 30,
2016 |
|
Gross
carrying value |
Allowance for losses |
($ millions) |
Mortgages |
|
Loans |
|
Total |
|
|
Mortgages |
|
|
Loans |
|
Total |
Not past due |
15,064 |
|
24,388 |
|
39,452 |
|
|
— |
|
|
— |
|
— |
Past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days |
1 |
|
— |
|
1 |
|
|
— |
|
|
— |
|
— |
|
Past due 90 days or more |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
Impaired |
79 |
|
8 |
|
87 |
|
|
36 |
(1) |
|
7 |
|
43 |
Total |
15,144 |
|
24,396 |
|
39,540 |
|
|
36 |
|
|
7 |
|
43 |
|
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 |
14,834 |
|
24,318 |
|
39,152 |
|
|
42 |
|
|
7 |
|
49 |
(1) |
Includes $20 million of sectoral provisions as at June 30,
2016 and $21 million of sectoral provisions as at December 31,
2015. |
|
|
Our impaired mortgages and loans, net of allowance for losses,
were $44 million as at June 30, 2016, compared to $95 million as at December 31, 2015. The decrease of
$51 million was primarily due to the
repayment of impaired mortgages in the year. The majority of
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 June 30,
2016 was $2,285 million
compared to $2,077 million as at
December 31, 2015. The increase
of $208 million was primarily due to
increases in the provision for assets purchased net of dispositions
including the impact of the U.S. employee benefits business
acquired in 2016, partially offset by the strengthening of the
Canadian dollar relative to exchange rates at the end of the fourth
quarter of 2015 and the release of provisions on fixed income
assets supporting our insurance contract liabilities.
Derivative Financial Instruments
The values associated with our derivative instruments are presented
in the following table. Notional amounts serve as the basis for
payments calculated under derivatives contracts and are not
exchanged.
Derivative Instruments
($ millions) |
June 30, 2016 |
|
December 31,
2015 |
Net fair value asset (liability) |
140 |
|
(1,512) |
Total notional amount |
54,991 |
|
57,845 |
Credit equivalent amount |
589 |
|
607 |
Risk-weighted credit equivalent amount |
6 |
|
7 |
|
|
|
|
|
The total notional amount of our derivatives decreased to
$55.0 billion as at June 30, 2016, from $57.8 billion as at December 31, 2015. The decrease in the total
notional amount was primarily due to a decrease in interest rate
contracts due to the conversion of foreign currency notional
balances into Canadian dollars and a decrease in currency contracts
hedging foreign currency assets.
The net fair value of derivatives was a net asset of
$140 million as at June 30, 2016, compared to a net liability
of $1,512 million as at December 31, 2015. The increase in net fair
value was due primarily to the impact of the strengthening of the
Canadian dollar against the U.S. dollar relative to the fourth
quarter of 2015 on foreign exchange contracts and the impact of
downward yield curve shifts on our interest rate contracts.
Capital Management
Our total capital consists of subordinated debt and other capital
instruments, participating policyholders' equity and
non-controlling interest, and total shareholders' equity which
includes common shareholders' equity and preferred shareholders'
equity. As at June 30, 2016, our
total capital was $24.6 billion,
compared to $24.6 billion as at
December 31, 2015. Total capital
as at June 30, 2016 included
additional common shareholders' net income of $1,020 million and the issuance of $350 million of subordinated debt discussed
below, largely offset by the foreign currency translation impact
included in other comprehensive income (loss) of a loss of
$859 million, and the payment of
$487 million of dividends on common
shares.
The legal entity, SLF Inc. (the ultimate parent company), and
its wholly-owned holding companies had $804
million in cash and other liquid assets as at June 30, 2016 ($990
million as at December 31,
2015). The decrease in liquid assets in these holding
companies in the first six months of 2016 was primarily
attributable to our investment in an additional equity interest in
BSLI which was partially offset by net cash flow to these holding
companies during the period. 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.
Sun Life Assurance's MCCSR ratio was 214% as at June 30, 2016, compared to 240% as at
December 31, 2015. The decrease
to Sun Life Assurance's MCCSR ratio over the period primarily
resulted from the acquisition of the U.S. employee benefits
business in the U.S.
As at June 30, 2016, the
MCCSR ratio for SLF Inc. was 225%. 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 as discussed
above and capital related to certain insurance subsidiaries held
directly by SLF Inc.
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 do 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 of $804 million held by SLF
Inc. and its wholly-owned holding companies noted above.
Risk Management
We have established a Risk Management Framework to assist in
identifying, measuring, managing, monitoring and reporting of
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 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 of Directors,
the Board Committees and the senior management committees at least
quarterly. Our 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 Consolidated Financial Statements, primarily as
Insurance contract liabilities. The determination of these
obligations requires management to make assumptions about the
future level of equity market performance, interest rates, credit
and swap spreads and other factors over the life of our products.
Differences between our actual experience and our best estimate
assumptions are reflected in our Consolidated Financial Statements.
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
(decreases) with declining (rising) interest rates. The market
value of equities designated as AFS and held primarily in our
surplus segment increases (decreases) with rising (declining)
equity markets. Changes in the market value of AFS assets flow
through OCI and are only recognized in net income when realized
upon sale, or when considered impaired. The amount of realized
gains (losses) recorded in net income in any period is equal to the
unrealized gains (losses) or OCI position at the start of the
period plus the change in market value during the current period up
to the point of sale for those securities that were sold during the
period. The sale or impairment of AFS assets held in surplus can
therefore have the effect of modifying our net income
sensitivity.
We realized $54 million (pre-tax)
in net gains on the sale of AFS assets during the second quarter of
2016 ($46 million pre-tax in the
second quarter of 2015). The net unrealized gains or OCI position
on AFS fixed income and equity assets were $329 million and $124
million, respectively, after-tax as at June 30, 2016 ($43
million and $182 million,
respectively, after-tax as at December 31, 2015).
The following table sets out the estimated immediate impact on
or sensitivity of our net income, our OCI, and Sun Life Assurance's
MCCSR ratio to certain instantaneous changes in interest rates and
equity market prices as at June 30,
2016 and December 31,
2015.
Interest Rate and Equity Market Sensitivities
|
|
|
|
|
As
at June 30, 2016(1)
($ 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) |
$ |
(250) |
|
$ |
(100) |
|
$ |
50 |
|
$ |
50 |
|
Potential impact on
OCI |
$ |
550 |
|
$ |
300 |
|
$ |
(300) |
|
$ |
(550) |
|
Potential impact on
MCCSR(4) |
|
9% points
decrease |
|
|
4%
points
decrease |
|
|
3% points
increase |
|
|
6% points
increase |
Equity markets
sensitivity(5) |
|
25% decrease |
|
|
10% decrease |
|
|
10% increase |
|
|
25% increase |
|
Potential impact on net
income(3) |
$ |
(250) |
|
$ |
(100) |
|
$ |
100 |
|
$ |
250 |
|
Potential impact on
OCI |
$ |
(150) |
|
$ |
(50) |
|
$ |
50 |
|
$ |
150 |
|
Potential impact on
MCCSR(4) |
|
3% points
decrease |
|
|
1% points
decrease |
|
|
1% points
increase |
|
|
2% 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 June 30, 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). |
(3) |
The market risk sensitivities include the estimated mitigation
impact of our hedging programs in effect as at June 30, 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 June 30, 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 June 30, 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 sensitivities to interest rates and equity
markets have changed since December 31,
2015. The changes in net income sensitivity to interest
rates have resulted primarily from assumption changes and
management actions which more than offset the impact from declines
in interest rates in the first half of 2016. The changes in net
income sensitivity to equity markets have resulted primarily from
assumption changes and management actions as well as the impact of
changes in equity markets during the first half of 2016.
Interest rate sensitivities do not include any impact from
changes to the ASB promulgated URR. In 2014, the 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 June 30,
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 |
June 30, 2016 |
|
$ |
(100) |
|
|
$ |
100 |
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 |
June 30, 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 asset, 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 June 30, 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.
|
|
|
|
|
|
|
|
As at June 30, 2016 |
|
|
($ millions) |
Fund value |
|
Amount at
Risk(1) |
|
Value of
guarantees(2) |
|
Insurance
contract
liabilities(3) |
SLF Canada |
11,993 |
|
456 |
|
10,994 |
|
882 |
SLF U.S. |
4,624 |
|
446 |
|
4,958 |
|
258 |
Run-off
reinsurance(4) |
2,576 |
|
514 |
|
1,872 |
|
557 |
Total |
19,193 |
|
1,416 |
|
17,824 |
|
1,697 |
|
|
|
|
|
As at 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 June 30, 2016 was primarily as a result of
the following factors:
(i) |
the total fund values decreased
due to the strengthening of the Canadian dollar against the
U.S.
dollar and the net redemptions from legacy business; |
(ii) |
the Amount at Risk decreased due
to the strengthening of the Canadian dollar and the
net redemptions from legacy business; |
(iii) |
the total value of guarantees
decreased due to the strengthening of the Canadian dollar and
net
redemptions from legacy business; and |
(iv) |
the total insurance contract
liabilities increased due to lower interest rates, partially offset
by net
redemptions and claims. |
|
|
Segregated Fund Hedging
Our hedging programs use derivative instruments to mitigate the
interest and equity related exposure of our segregated fund
contracts. As at June 30, 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 June 30, 2016 and December 31, 2015.
Impact of Segregated Fund Hedging
June 30, 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) |
|
(500) |
|
(200) |
|
(600) |
Hedging impact |
|
250 |
|
550 |
|
150 |
|
500 |
Net of hedging |
|
— |
|
50 |
|
(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 June 30, 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
June 30, 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
arising from fluctuations in the value of, or future cash flows on,
real estate classified as investment properties. We may experience
financial losses resulting from the direct ownership of real estate
investments or indirectly through fixed income investments secured
by real estate property, leasehold interests, ground rents, and
purchase and leaseback transactions. Real estate price risk may
arise from external market conditions, inadequate property
analysis, inadequate insurance coverage, inappropriate real estate
appraisals, or from environmental risk exposures. We hold direct
real estate investments that support general account liabilities
and surplus, and fluctuations in value will impact our
profitability and financial position. A material and sustained
increase in interest rates may lead to deterioration in North
American real estate values. An instantaneous 10% decrease in the
value of our direct real estate investments as at June 30, 2016 would decrease net income by
approximately $175 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 June 30,
2016 would increase net income by approximately $175 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 June 30, 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
June 30 and December 31 calculation dates. The actual impact
of these hedging activities can differ materially from that assumed
in the determination of these indicative sensitivities due to
ongoing hedge re-balancing activities, changes in the scale or
scope of hedging activities, changes in the cost or general
availability of hedging instruments, basis risk (i.e., the risk
that hedges do not exactly replicate the underlying portfolio
experience), model risk, and other operational risks in the ongoing
management of the hedge programs or the potential failure of hedge
counterparties to perform in accordance with expectations.
The sensitivities are based on methods and assumptions in effect
as at June 30, 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 2015 Annual Consolidated Financial
Statements and the Risk Factors section in our AIF.
Recent Regulatory Developments
On March 29, 2016, the Office of the
Superintendent of Financial Institutions ("OSFI") released its
draft 2018 guideline - Life Insurance Capital Adequacy Test for
public consultation. When implemented, this guideline will
establish a new regulatory capital framework for life insurance
companies, which will replace the current MCCSR Guideline. The
ultimate specifications and impact of the new framework is
uncertain at this time. We expect OSFI to release the final
guideline later in 2016.
In April 2016, the U.S. Department
of Labor issued its final Conflict of Interest rule defining when a
communication constitutes investment advice and results in
fiduciary status in the United
States. The new rule expands the definition of fiduciary
investment advice applicable to Employee Retirement Income Security
Act of 1974 ("ERISA") plans and participants and Individual
Retirement Account owners. We have investment management operations
in the United States, primarily
MFS, which conduct business with distribution firms that may be
impacted by the rule. We are reviewing the final version of the
rule and we are monitoring the impact it will have on the
distribution of retirement products in the U.S., and the effects
this may have on our businesses.
Legal and Regulatory Matters
Information concerning legal and regulatory matters is provided in
our Annual Consolidated Financial Statements, annual MD&A, and
AIF, for the year ended December 31,
2015.
Changes in Accounting Policies
We have adopted several amended IFRS standards in the current year.
In addition, amendments to IFRS were issued during the period. For
additional information, refer to Note 2 in our Interim Consolidated
Financial Statements.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable
assurance regarding the reliability of the Company's financial
reporting and the preparation of its financial statements in
accordance with IFRS.
There were no changes in the Company's internal control over
financial reporting during the period which began on April 1, 2016 and ended on June 30, 2016 that have materially affected,
or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
As permitted by securities legislation, for the period ended
June 30, 2016, the Company's
management has limited the scope of its design of the Company's
disclosure controls and procedures and the Company's internal
control over financial reporting to exclude controls, policies and
procedures of the U.S. employee benefits business, which the
Company acquired on March 1, 2016.
The U.S. employee benefits business acquired in 2016 represents
1.5% of Total assets and 3.4% of Total revenue as at and for the
six months ended June 30, 2016. The
estimated fair value of assets acquired and liabilities assumed at
the date of the acquisition are outlined in Note 3 of our Interim
Consolidated Financial Statements.
Reconciliation of Non-IFRS Financial Measures
Additional information on the use of non-IFRS measures, including
the definition of operating net income (loss) and underlying net
income (loss), is available in this document under the heading Use
of Non-IFRS Financial Measures.
The following table sets out the amounts that were excluded from
our operating net income (loss), underlying net income (loss),
operating EPS, and underlying EPS, and provides a reconciliation to
our reported net income (loss) and EPS based on IFRS.
Reconciliations of Select Net Income Measures
|
Quarterly results |
($ millions, unless otherwise
noted) |
|
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
Reported net income |
|
480 |
|
540 |
|
536 |
|
482 |
|
726 |
|
Impact of certain hedges in SLF Canada that do not
qualify for hedge accounting |
|
(6) |
|
(13) |
|
10 |
|
(10) |
|
6 |
|
Fair value adjustments on MFS's share-based
payment awards |
|
20 |
|
7 |
|
(6) |
|
28 |
|
(11) |
|
Acquisition, integration and restructuring |
|
(8) |
|
15 |
|
(66) |
|
(14) |
|
— |
Operating net income (loss) |
|
474 |
|
531 |
|
598 |
|
478 |
|
731 |
|
Market related impacts |
|
(72) |
|
(40) |
|
(36) |
|
(82) |
|
97 |
|
Assumption changes and management actions |
|
(8) |
|
(11) |
|
(12) |
|
32 |
|
19 |
Underlying net income (loss) |
|
554 |
|
582 |
|
646 |
|
528 |
|
615 |
Reported EPS (diluted) ($) |
|
0.78 |
|
0.88 |
|
0.87 |
|
0.79 |
|
1.18 |
|
Impact of certain hedges in SLF Canada that do not
qualify for hedge accounting ($) |
|
(0.01) |
|
(0.02) |
|
0.02 |
|
(0.02) |
|
0.01 |
|
Fair value adjustments on MFS's share-based
payment awards ($) |
|
0.03 |
|
0.01 |
|
(0.01) |
|
0.05 |
|
(0.02) |
|
Acquisition, integration and restructuring
($) |
|
(0.01) |
|
0.02 |
|
(0.11) |
|
(0.02) |
|
— |
|
Impact of convertible securities on diluted EPS
($) |
|
— |
|
— |
|
(0.01) |
|
— |
|
— |
Operating EPS (diluted) ($) |
|
0.77 |
|
0.87 |
|
0.98 |
|
0.78 |
|
1.19 |
|
Market related impacts ($) |
|
(0.12) |
|
(0.06) |
|
(0.05) |
|
(0.13) |
|
0.16 |
|
Assumption changes and management actions ($) |
|
(0.01) |
|
(0.02) |
|
(0.02) |
|
0.05 |
|
0.03 |
Underlying EPS (diluted) ($) |
|
0.90 |
|
0.95 |
|
1.05 |
|
0.86 |
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Management also uses the following non-IFRS financial
measures:
Return on equity. IFRS does not prescribe the calculation
of ROE and therefore a comparable measure under IFRS is not
available. To determine operating ROE and underlying ROE, operating
net income (loss) and underlying net income (loss) are divided by
the total weighted average common shareholders' equity for the
period, respectively.
Adjusted revenue. This measure excludes from revenue the
impact of: (i) exchange rate fluctuations, from the translation of
functional currencies to the Canadian dollar, for comparisons
("Constant Currency Adjustment"); (ii) Fair value and foreign
currency changes on assets and liabilities ("FV Adjustment"); and
(iii) reinsurance for the insured business in SLF Canada's GB
operations ("Reinsurance in SLF Canada's GB Operations
Adjustment"). Adjusted revenue is an alternative measure of revenue
that provides greater comparability across reporting periods.
|
Quarterly results |
($ millions) |
|
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
|
Q2'15 |
Revenue |
|
9,533 |
|
8,782 |
|
5,567 |
|
4,693 |
|
1,682 |
|
Constant Currency Adjustment |
|
150 |
|
344 |
|
259 |
|
169 |
|
— |
|
FV Adjustment |
|
3,223 |
|
2,730 |
|
(788) |
|
(168) |
|
(3,500) |
|
Reinsurance in SLF Canada's GB Operations
Adjustment |
|
(679) |
|
(688) |
|
(1,171) |
|
(1,179) |
|
(1,149) |
Adjusted revenue |
|
6,839 |
|
6,396 |
|
7,267 |
|
5,871 |
|
6,331 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted premiums and deposits. This measure adjusts
premiums and deposits for the impact of (i) the Constant Currency
Adjustment and (ii) the Reinsurance in SLF Canada's GB Operations
Adjustment. Adjusted premiums and deposits is an alternative
measure of premiums and deposits that provides greater
comparability across reporting periods. 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.
|
Quarterly results |
($ millions) |
|
Q2'16 |
|
Q1'16 |
|
Q4'15 |
|
Q3'15 |
Q2'15 |
Premiums and
deposits |
|
38,035 |
|
37,826 |
|
33,120 |
|
30,556 |
|
35,720 |
|
Constant Currency Adjustment |
|
1,384 |
|
3,229 |
|
2,061 |
|
1,471 |
|
— |
|
Reinsurance in SLF Canada's GB
Operations Adjustment |
|
(679) |
|
(688) |
|
(1,171) |
|
(1,179) |
|
(1,149) |
Adjusted premiums and
deposits |
|
37,330 |
|
35,285 |
|
32,230 |
|
30,264 |
|
36,869 |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax operating profit margin ratio for MFS. This ratio
is a measure of the underlying 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 underlying profitability of MFS.
There is no directly comparable IFRS measure.
Impact of foreign exchange. Several IFRS financial
measures are presented on a constant currency adjusted basis to
exclude the impact of foreign exchange rate fluctuations. These
measures are calculated using the average or period end foreign
exchange rates, as appropriate, in effect at the date of the
comparative period.
Real estate market sensitivities. Real estate market
sensitivities are non-IFRS financial measures for which there are
no directly comparable measures under IFRS so it is not possible to
provide a reconciliation of these amounts to the most directly
comparable IFRS measures.
Other. Management also uses the following non-IFRS
financial measures for which there are no comparable financial
measures in IFRS: (i) ASO premium and deposit equivalents, mutual
fund sales, managed fund sales, life and health sales, and total
premiums and deposits; (ii) AUM, mutual fund assets, managed fund
assets, other AUM, and assets under administration; (iii) the value
of new business, which is used to measure the estimated lifetime
profitability of new sales and is based on actuarial calculations;
and (iv) assumption changes and management actions, which is a
component of our sources of earnings disclosure. Sources of
earnings is an alternative presentation of our Consolidated
Statements of Operations that identifies and quantifies various
sources of income. The Company is required to disclose its sources
of earnings by its principal regulator, the Office of the
Superintendent of Financial Institutions.
Forward-looking Statements
From time to time, the Company makes written or oral
forward-looking statements within the meaning of certain securities
laws, including the "safe harbour" provisions of the United States
Private Securities Litigation Reform Act of 1995 and applicable
Canadian securities legislation. Forward-looking statements
contained in this document include (i) statements relating to our
strategies, (ii) growth initiatives and other business objectives,
(iii) statements that are predictive in nature or that depend upon
or refer to future events or conditions, (iv) statements set out in
this document under the heading Financial Summary - Impact of the
Low Interest Environment and Risk Management - Interest Rate and
Equity Market Sensitivities and (v) statements that include words
such as "aim", "anticipate", "assumption", "believe", "could",
"estimate", "expect", "goal", "initiatives", "intend", "may",
"objective", "outlook", "plan", "project", "seek", "should",
"strategy", "strive", "target", "will", and similar expressions.
Forward-looking statements include the information concerning our
possible or assumed future results of operations. These statements
represent our current expectations, estimates, and projections
regarding future events and are not historical facts.
Forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties that are difficult
to predict. Future results and shareholder value may differ
materially from those expressed in these forward-looking statements
due to, among other factors, the matters set out in this document
under the headings Financial Summary - Impact of the Low Interest
Environment, Capital Management and Risk Management and in SLF
Inc.'s 2015 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.
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 customer behaviour including risks relating to market
conduct by intermediaries and agents; changes in the competitive,
legal or regulatory environment, including capital requirements and
tax laws; tax matters, including estimates and judgments used in
calculating taxes; the design and implementation of business
strategies; 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 second quarter 2016 financial results will be
reviewed at a conference call on Thursday,
August 11, 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 Quarterly reports
under Investors - Financial results & reports 10 minutes prior
to the start of the call. Individuals participating in the call in
a listen-only mode are encouraged to connect via our webcast.
Following the call, the webcast and presentation will be archived
and made available on the Company's website, www.sunlife.com, until
the Q2 2018 period end. The conference call can also be accessed by
phone by dialing 647-788-4901 (International) or 1-877-201-0168
(Toll-free North America). A
replay of the conference call will be available from Thursday, August 11, 2016 at 1 p.m. ET until 11:59 p.m. ET on Thursday, August 25, 2016 by calling 404-537-3406
or 1-855-859-2056 (Toll-free North
America) using Conference ID 39520138.
Consolidated Statements of Operations
|
For the three
months
ended |
|
For the six months
ended |
(unaudited, in
millions of Canadian dollars except for per share
amounts) |
June 30,
2016 |
|
June 30,
2015 |
|
June 30,
2016 |
|
June
30,
2015 |
Revenue |
|
|
|
|
|
|
Premiums |
|
|
|
|
|
|
|
Gross |
|
$ |
4,639 |
|
$ |
4,103 |
|
$ |
8,898 |
|
$ |
7,826 |
|
|
Less: Ceded |
|
1,076 |
|
1,580 |
|
2,157 |
|
3,096 |
|
Net premiums |
|
3,563 |
|
2,523 |
|
6,741 |
|
4,730 |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss): |
|
|
|
|
|
|
|
|
|
|
Interest and other investment income |
|
1,339 |
|
1,320 |
|
2,764 |
|
2,599 |
|
|
Fair value and foreign currency changes on assets
and liabilities |
|
3,223 |
|
(3,500) |
|
5,953 |
|
(1,005) |
|
|
Net gains (losses) on available-for-sale
assets |
|
54 |
|
46 |
|
129 |
|
142 |
|
Net investment income (loss) |
|
4,616 |
|
(2,134) |
|
8,846 |
|
1,736 |
|
Fee income |
|
1,354 |
|
1,293 |
|
2,728 |
|
2,548 |
Total revenue |
|
9,533 |
|
1,682 |
|
18,315 |
|
9,014 |
|
|
|
|
|
|
|
|
|
Benefits and expenses |
|
|
|
|
|
|
|
|
|
Gross claims and benefits paid |
|
3,848 |
|
3,461 |
|
7,553 |
|
6,891 |
|
Increase (decrease) in insurance
contract liabilities |
|
4,030 |
|
(2,975) |
|
7,468 |
|
173 |
|
Decrease (increase) in reinsurance
assets |
|
(76) |
|
(121) |
|
(93) |
|
(314) |
|
Increase (decrease) in investment
contract liabilities |
|
5 |
|
(19) |
|
15 |
|
(7) |
|
Reinsurance expenses (recoveries) |
|
(1,017) |
|
(1,523) |
|
(2,044) |
|
(2,976) |
|
Commissions |
|
579 |
|
508 |
|
1,119 |
|
1,000 |
|
Net transfer to (from) segregated
funds |
|
(76) |
|
(30) |
|
(133) |
|
(13) |
|
Operating expenses |
|
1,443 |
|
1,229 |
|
2,812 |
|
2,409 |
|
Premium taxes |
|
87 |
|
73 |
|
165 |
|
143 |
|
Interest expense |
|
79 |
|
84 |
|
160 |
|
156 |
Total benefits and
expenses |
|
8,902 |
|
687 |
|
17,022 |
|
7,462 |
Income (loss) before income
taxes |
|
631 |
|
995 |
|
1,293 |
|
1,552 |
|
Less: Income tax expense
(benefit) |
|
120 |
|
245 |
|
212 |
|
340 |
Total net income (loss) |
|
511 |
|
750 |
|
1,081 |
|
1,212 |
|
Less: Net income (loss) attributable
to participating policyholders
and non-controlling interest |
|
7 |
|
(2) |
|
13 |
|
(7) |
Shareholders' net income
(loss) |
|
504 |
|
752 |
|
1,068 |
|
1,219 |
|
Less: Preferred shareholders'
dividends |
|
24 |
|
26 |
|
48 |
|
52 |
Common shareholders' net income
(loss) |
|
$ |
480 |
|
$ |
726 |
|
$ |
1,020 |
|
$ |
1,167 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.78 |
|
$ |
1.19 |
|
$ |
1.66 |
|
$ |
1.91 |
|
Diluted |
|
$ |
0.78 |
|
$ |
1.18 |
|
$ |
1.66 |
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Financial Position
|
As at |
(unaudited, in
millions of Canadian dollars) |
|
June 30,
2016 |
|
December 31,
2015 |
Assets |
|
|
|
|
Cash, cash equivalents and short-term
securities |
|
$ |
6,544 |
|
$ |
8,983 |
|
Debt securities |
|
74,035 |
|
69,896 |
|
Equity securities |
|
5,445 |
|
5,313 |
|
Mortgages and loans |
|
39,497 |
|
39,103 |
|
Derivative assets |
|
2,837 |
|
1,866 |
|
Other invested assets |
|
3,442 |
|
3,111 |
|
Policy loans |
|
3,082 |
|
3,151 |
|
Investment properties |
|
6,511 |
|
6,540 |
|
Invested assets |
|
141,393 |
|
137,963 |
|
Other assets |
|
4,507 |
|
4,567 |
|
Reinsurance assets |
|
5,122 |
|
5,386 |
|
Deferred tax assets |
|
1,616 |
|
1,372 |
|
Intangible assets |
|
1,595 |
|
1,479 |
|
Goodwill |
|
5,220 |
|
4,646 |
|
Total general fund assets |
|
159,453 |
|
155,413 |
|
Investments for account of segregated fund
holders |
|
91,463 |
|
91,440 |
Total
assets |
|
$ |
250,916 |
|
$ |
246,853 |
Liabilities and
equity |
|
|
|
|
Liabilities |
|
|
|
|
Insurance contract liabilities |
|
$ |
115,740 |
|
$ |
110,227 |
|
Investment contract liabilities |
|
2,904 |
|
2,913 |
|
Derivative liabilities |
|
2,697 |
|
3,378 |
|
Deferred tax liabilities |
|
515 |
|
405 |
|
Other liabilities |
|
12,367 |
|
12,332 |
|
Senior debentures |
|
1,298 |
|
2,248 |
|
Subordinated debt |
|
2,841 |
|
2,492 |
|
Total general fund liabilities |
|
138,362 |
|
133,995 |
|
Insurance contracts for account of segregated fund
holders |
|
84,759 |
|
83,670 |
|
Investment contracts for account of segregated
fund holders |
|
6,704 |
|
7,770 |
Total
liabilities |
|
$ |
229,825 |
|
$ |
225,435 |
|
|
|
|
Equity |
|
|
|
|
Issued share capital and contributed surplus |
|
$ |
10,915 |
|
$ |
10,900 |
|
Shareholders' retained earnings and accumulated
other comprehensive income |
|
9,983 |
|
10,350 |
|
Total shareholders' equity |
|
20,898 |
|
21,250 |
|
Participating policyholders' equity and
non-controlling interest |
|
193 |
|
168 |
Total
equity |
|
$ |
21,091 |
|
$ |
21,418 |
Total liabilities
and equity |
|
$ |
250,916 |
|
$ |
246,853 |
|
|
|
|
|
|
|
|
About Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth
products and services to individuals and corporate customers. Sun
Life Financial 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 June 30, 2016, the Sun Life Financial group
of companies had total assets under management of $865 billion. For more information please
visit www.sunlife.com.
Sun Life Financial Inc. trades on the Toronto (TSX), New
York (NYSE) and Philippine (PSE) stock exchanges under the
ticker symbol SLF.
SOURCE Sun Life Financial Inc.