TORONTO, May 5, 2015 /CNW/ - Sun Life Financial
Inc. (TSX: SLF) (NYSE: SLF)
The information contained in this document concerning the first
quarter of 2015 is based on the unaudited interim financial results
of Sun Life Financial Inc. for the period ended March 31,
2015. Sun Life Financial Inc., and its subsidiaries and joint
ventures, are collectively referred to as "the Company", "Sun Life
Financial", "we", "our", and "us". Unless otherwise noted, all
amounts are in Canadian dollars.
First Quarter 2015 Financial Highlights
- Operating net income(1) of $446 million or $0.73 per share(1)(2), compared to
$454 million or $0.74 per share in the first quarter of 2014.
Reported net income of $441 million
or $0.72 per share, compared to
$400 million or $0.65 per share in the same period last year
- Underlying net income(1) of $516 million or $0.84 per share(1)(2) in the first
quarter of 2015, compared to $440
million or $0.72 per share in
the first quarter of 2014
- Operating return on equity(1) ("ROE") of 10.4% and
underlying ROE(1) of 12.1% in the first quarter of 2015,
compared to operating ROE of 12.0% and underlying ROE of 11.6% in
the same period last year
- Quarterly dividend declared of $0.38 per share
- Minimum Continuing Capital and Surplus Requirements ratio for
Sun Life Assurance Company of Canada of 216%
"Our first quarter underlying earnings were strong at
$516 million, driven by solid
contributions from all four pillars," said Dean Connor, President and Chief Executive
Officer, Sun Life Financial. "We are pleased to announce an
increase of two cents per share in
our quarterly dividend to 38 cents
per share based on these results and our business momentum."
"In Canada, Sun Life entered into a groundbreaking longevity
insurance agreement, transferring the longevity risk for
$5 billion of Bell Canada's pension plan liability to Sun
Life, further strengthening our leadership position in the Canadian
pension de-risking market," Connor said. "Sun Life Global
Investments performed well, delivering strong investment
performance results to customers and expanding its product shelf,
which drove growth of total sales 41% over the prior year to
$811 million."
"Global assets under management rose 20% to $813 billion from the first quarter of 2014
reflecting the continued strengthening of the U.S. dollar and
market movement, with assets under management at MFS increasing to
US$441 billion," Connor said. "We
continue to grow our asset management pillar, completing the
purchase of Ryan Labs Inc. which further extends our asset
management footprint in the U.S."
"We were pleased with earnings in SLF U.S.'s Group Benefits
business. While it will take several quarters to achieve
sustainable results, these results indicate that the management
actions taken in 2014 are having a positive impact on the
business."
"Our business in Asia continued
its steep growth trajectory, delivering strong underlying net
income of $62 million, with
individual insurance sales up 15% from the first quarter of the
prior year excluding currency impact."
(1)
|
Operating net income
(loss) and financial information based on operating net income
(loss), such as operating earnings (loss) per share, operating ROE,
underlying net income (loss), underlying earnings (loss) per share
and underlying ROE, are not based on International Financial
Reporting Standards. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
All earnings per
share ("EPS") measures refer to fully diluted EPS, unless otherwise
stated.
|
Reported net income was $441
million in the first quarter of 2015, compared to reported
net income of $400 million in the
same period last year. The following table sets out our operating
net income and underlying net income for the first quarter of 2015
and 2014.
($ millions,
after-tax)
|
Q1'15
|
|
Q1'14
|
Operating net income
|
446
|
|
454
|
|
Market related
impacts
|
(22)
|
|
(26)
|
|
Assumption changes
and management actions
|
(48)
|
|
40
|
Underlying net income
|
516
|
|
440
|
The Board of Directors of Sun Life Financial Inc. today declared
a quarterly shareholder dividend of $0.38 per common share.
Operational Highlights
Our strategy is focused on four key pillars of growth. We detail
our continued progress against these pillars below.
Leader in financial protection and wealth solutions in our
Canadian home market
Defined Benefit Solutions, part of our Group Retirement Services
business, completed a transfer of longevity risk for $5 billion of pension plan liabilities from
Bell Canada to Sun Life. The
transaction, of which a significant portion was reinsured, further
advances our leadership position in helping employers de-risk their
defined benefit pension plans.
Our group businesses continue to grow in Canada with business in-force in Group
Benefits at $9 billion and assets
under administration of $77 billion
in Group Retirement Services. The recently released 2014
Benefits Canada results confirmed that Group Benefits has
retained the #1 ranking(1), extending its lead over the
competition. Rollover pension sales in the first quarter
experienced strong growth of 24% over the first quarter of
2014.
Wealth sales in SLF Canada's Individual business grew 4% to
$1.5 billion compared to the same
period last year, as strong sales of retail mutual funds were
partially offset by lower sales of guaranteed and fixed income
products in a low interest rate environment. Total wealth sales in
SLF Canada decreased by $1.4 billion
from the first quarter of 2014 to $2.8
billion driven mainly by the decrease in Group Retirement
Services wealth sales, which were down 52% to $1.3 billion due to significant large case sales
during the first quarter of 2014.
Sun Life Financial ranked #1 among life and health insurers in a
recent study of the most admired organizations in
Quebec according to Les Affaires publication.
Premier global asset manager, anchored by MFS
Global assets under management ("AUM") reached $813 billion at the end of the first quarter of
2015.
MFS Investment Management ("MFS") AUM increased to US$441 billion at the end of the first quarter of
2015 driven by positive market movements. MFS gross sales were
$22.8 billion, up 2% from the same
period last year, with non-U.S. retail sales up by 47% to
$5.2 billion from the first quarter
of 2014. Net outflows of $0.2 billion
were driven by institutional funds largely offset by retail net
inflows.
MFS's long-term retail fund performance remains strong with 95%
and 97% of MFS's mutual fund assets ranked in the top half of their
Lipper categories based on five- and ten-year performance,
respectively, as at March 31, 2015.
For the fourth consecutive year, MFS ranked top 10 in the
Barron's Fund Family rankings for the ten-year category. In
the U.S., the MFS Diversified Income Fund received a Lipper Award
as the top performing fund in its three- and five-year
category.
We completed the purchase of New
York-based asset manager Ryan Labs Inc. on April 2, 2015, increasing our capacity for
liability-driven investing and total return fixed income strategies
in the U.S.
___________________________
|
(1)
|
As measured by
Benefits Canada magazine based on December 31, 2014 full
year premium and premium equivalents.
|
Leader in U.S. group benefits and International high net
worth solutions
SLF U.S.'s medical stop-loss business had continued strong
performance, with sales increasing by 21% compared to the first
quarter of 2014.
During the quarter we continued to expand distribution
opportunities through private exchanges by being selected to
participate on the Mercer Marketplace, one of the largest and
fastest growing private exchange networks in the U.S.
As a result of our pricing actions, group life and disability
sales were down in the quarter, but pricing levels for new business
and persistency of existing business were both in line with our
expectations.
International life sales in the first quarter of 2015 were
US$12 million, or 50% below the first
quarter of 2014, as we maintained our disciplined approach to
pricing in a low interest rate environment. International wealth
sales in the first quarter of 2015 were US$59 million lower than the first quarter of
2014 as we continue to align our product design, marketing efforts,
and distribution model to focus on select regions, distributors,
and customer segments.
Growing Asia through
distribution excellence in higher growth markets
SLF Asia continued to grow agency capabilities in the region.
Agency sales in the Philippines,
Indonesia, and Hong Kong were up 38%, 38%, and 24%,
respectively, measured in local currency. Total wealth sales also
increased compared to the same quarter in the prior year, driven by
India and China.
Sun Life of Canada (Philippines), Inc. ranked first among life
insurers in the Philippines in
total premium income for the fourth consecutive year and first in
new business premiums for the sixth year, as reported by the
country's Insurance Commission during the first quarter of
2015.
Other Highlights
Sun Life Financial celebrated its 150th birthday during the
quarter. Sun Life was granted its charter in Montreal on March 18,
1865. The milestone was marked by the opening of the
Toronto, New York, and Philippine stock exchanges on
March 2, 2015.
How We Report Our Results
Sun Life Financial Inc. ("SLF Inc."), and its subsidiaries and
joint ventures, are collectively referred to as "the Company", "Sun
Life Financial", "we", "our", and "us". We manage our operations
and report our financial results in five business segments: Sun
Life Financial Canada ("SLF Canada"), Sun Life Financial United
States ("SLF U.S."), MFS Investment Management ("MFS"), Sun Life
Financial Asia ("SLF Asia"), and Corporate. Our Corporate segment
includes the operations of our United
Kingdom business unit ("SLF U.K.") and Corporate Support
operations. Our Corporate Support operations includes our Run-off
reinsurance business and investment income, expenses, capital and
other items not allocated to other business segments. Information
concerning these segments is included in our annual and interim
consolidated financial statements and accompanying notes ("Annual
Consolidated Financial Statements" and "Interim Consolidated
Financial Statements", respectively). We prepare our unaudited
Interim Consolidated Financial Statements using International
Financial Reporting Standards ("IFRS"), and in accordance with the
International Accounting Standard 34 Interim Financial
Reporting. The information contained in this document is in
Canadian dollars unless otherwise noted.
Use of Non-IFRS Financial Measures
We report certain financial information using non-IFRS financial
measures, as we believe that these measures provide information
that is useful to investors in understanding our performance and
facilitate a comparison of our quarterly and full year results from
period to period. These non-IFRS financial measures do not have any
standardized meaning and may not be comparable with similar
measures used by other companies. For certain non-IFRS financial
measures, there are no directly comparable amounts under IFRS.
These non-IFRS financial measures should not be viewed as
alternatives to measures of financial performance determined in
accordance with IFRS. Additional information concerning these
non-IFRS financial measures and reconciliations to the closest IFRS
measures are included in our annual and interim management's
discussion and analysis ("MD&A") and the Supplementary
Financial Information packages that are available on
www.sunlife.com under Investors – Financial results & reports.
Reconciliations to IFRS measures are also available in this
document under the heading Reconciliation of Non-IFRS Financial
Measures.
Operating net income (loss) and financial measures based on
operating net income (loss), consisting of operating earnings per
share ("EPS") or operating loss per share, and operating return on
equity ("ROE"), are non-IFRS financial measures. Operating net
income (loss) excludes from reported net income the impact of the
following amounts that are not operational or ongoing in nature to
assist investors in understanding our business performance: (i)
certain hedges in SLF Canada that do not qualify for hedge
accounting; (ii) fair value adjustments on share-based payment
awards at MFS; (iii) the loss on the sale of our U.S. Annuity
Business(1); (iv) the impact of assumption changes and
management actions related to the sale of our U.S. Annuity
Business(1); (v) restructuring and other related costs
(including impacts related to the sale of our U.S. Annuity
Business); (vi) goodwill and intangible asset impairment charges;
and (vii) other items that are not operational or ongoing in
nature. Operating EPS also excludes the dilutive impact of
convertible instruments.
Underlying net income (loss) and financial measures based on
underlying net income (loss), consisting of underlying EPS or
underlying loss per share, and underlying ROE, are non-IFRS
financial measures. Underlying net income (loss) removes from
operating net income (loss) the impact of the following items that
create volatility in our results under IFRS and when removed assist
in explaining our results from period to period: (a) market related
impacts; (b) assumption changes and management actions; and (c)
other items that have not been treated as adjustments to operating
net income and when removed assist in explaining our results from
period to period. Market related impacts include: (i) the impact of
changes in interest rates that differ from our best estimate
assumptions in the reporting period on investment returns and the
value of derivative instruments used in our hedging programs,
including changes in credit and swap spreads, and any changes to
the assumed fixed income reinvestment rates in determining the
actuarial liabilities; (ii) the impact of changes in equity
markets, net of hedging, above or below our best estimate
assumptions of approximately 2% growth per quarter in the reporting
period and of basis risk inherent in our hedging program for
products that provide benefit guarantees; and (iii) the impact of
changes in the fair value of real estate properties in the
reporting period. Additional information regarding these
adjustments is available in the footnotes to the table included
under the heading Q1 2015 vs. Q1 2014 in the Financial Summary
section in this document. Assumption changes reflect the impact of
revisions to the assumptions used in determining our liabilities
for insurance contracts and investment contracts. The impact on our
liabilities for insurance contracts and investment contracts of
actions taken by management in the current reporting period,
referred to as management actions include, for example, changes in
the prices of in-force products, new or revised reinsurance on
in-force business, or material changes to investment policies for
asset segments supporting our liabilities. Underlying EPS also
excludes the dilutive impact of convertible instruments.
Other non-IFRS financial measures that we use include adjusted
revenue, administrative services only ("ASO"), premium and deposit
equivalents, mutual fund assets and sales, managed fund assets and
sales, premiums and deposits, adjusted premiums and deposits,
assets under management ("AUM") and assets under administration,
and operating effective income tax rate on an operating net income
basis.
Unless indicated otherwise, all factors discussed in this
document that impact our results are applicable to reported net
income (loss), operating net income (loss), and underlying net
income (loss). Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with IFRS.
Reported net income (loss), operating net income (loss) including
adjustments, underlying net income (loss) including adjustments,
and net income and other comprehensive income ("OCI") sensitivities
are expressed on an after-tax basis unless otherwise noted.
All EPS measures in this document refer to fully diluted EPS,
unless otherwise stated.
Additional Information
Additional information about SLF Inc. can be found in our Annual
and Interim Consolidated Financial Statements, annual and interim
MD&A and Annual Information Form ("AIF"). These documents are
filed with securities regulators in Canada and are available at www.sedar.com. SLF
Inc.'s Annual Consolidated Financial Statements, annual MD&A
and AIF are filed with the United States Securities and Exchange
Commission ("SEC") in SLF Inc.'s annual report on Form 40-F and SLF
Inc.'s interim MD&As and Interim Consolidated Financial
Statements are furnished to the SEC on Form 6-Ks and are available
at www.sec.gov.
________________________
|
(1)
|
Effective August 1,
2013, we completed the sale of our U.S. annuities business and
certain of our U.S. life insurance businesses (collectively, our
"U.S. Annuity Business"). For information on our discontinued
operations, refer to our 2014 Annual Consolidated Financial
Statements and 2013 annual MD&A.
|
Financial Summary
|
Quarterly
results
|
($ millions, unless
otherwise noted)
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Net income (loss)
|
|
|
|
|
|
|
Operating net income
(loss)(1)
|
446
|
511
|
467
|
488
|
454
|
|
Reported net income
(loss)
|
441
|
502
|
435
|
425
|
400
|
|
Underlying net income
(loss)(1)
|
516
|
360
|
517
|
499
|
440
|
Diluted EPS ($)
|
|
|
|
|
|
|
Operating EPS
(diluted)(1)
|
0.73
|
0.83
|
0.76
|
0.80
|
0.74
|
|
Reported EPS
(diluted)
|
0.72
|
0.81
|
0.71
|
0.69
|
0.65
|
|
Underlying EPS
(diluted)(1)
|
0.84
|
0.59
|
0.84
|
0.81
|
0.72
|
Reported basic EPS ($)
|
0.72
|
0.82
|
0.71
|
0.70
|
0.66
|
Avg. common shares outstanding (millions)
|
613
|
613
|
612
|
611
|
610
|
Closing common shares outstanding
(millions)
|
611.2
|
613.1
|
612.7
|
611.4
|
610.6
|
Dividends per common share ($)
|
0.36
|
0.36
|
0.36
|
0.36
|
0.36
|
MCCSR ratio(2)
|
216%
|
217%
|
218%
|
222%
|
221%
|
Return on equity (%)
|
|
|
|
|
|
|
Operating
ROE(1)
|
10.4%
|
12.6%
|
11.9%
|
12.6%
|
12.0%
|
|
Underlying
ROE(1)
|
12.1%
|
8.8%
|
13.1%
|
12.9%
|
11.6%
|
Premiums and deposits
|
|
|
|
|
|
|
Net premium
revenue
|
2,207
|
2,701
|
2,695
|
2,372
|
2,228
|
|
Segregated fund
deposits
|
2,411
|
2,155
|
1,907
|
2,611
|
2,576
|
|
Mutual fund
sales(1)
|
22,124
|
17,071
|
14,714
|
16,267
|
18,567
|
|
Managed fund
sales(1)
|
8,243
|
7,988
|
8,170
|
6,131
|
7,579
|
|
ASO premium and
deposit equivalents(1)
|
1,769
|
1,855
|
1,638
|
1,495
|
1,760
|
Total premiums and
deposits(1)
|
36,754
|
31,770
|
29,124
|
28,876
|
32,710
|
Assets under management
|
|
|
|
|
|
|
General fund
assets
|
148,725
|
139,419
|
133,623
|
129,253
|
128,171
|
|
Segregated
funds
|
89,667
|
83,938
|
82,058
|
82,461
|
80,054
|
|
Mutual funds, managed
funds and other AUM(1)
|
574,166
|
511,085
|
482,499
|
472,677
|
467,662
|
Total
AUM(1)
|
812,558
|
734,442
|
698,180
|
684,391
|
675,887
|
Capital
|
|
|
|
|
|
|
Subordinated debt and
innovative capital instruments(3)
|
2,881
|
2,865
|
2,857
|
2,849
|
2,606
|
|
Participating
policyholders' equity
|
142
|
141
|
133
|
131
|
133
|
|
Total shareholders'
equity
|
19,761
|
18,731
|
18,156
|
17,641
|
17,818
|
Total
capital
|
22,784
|
21,737
|
21,146
|
20,621
|
20,557
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
Minimum Continuing
Capital and Surplus Requirements ("MCCSR") ratio of Sun Life
Assurance Company of Canada ("Sun Life Assurance").
|
(3)
|
Innovative capital
instruments consist of Sun Life ExchangEable Capital Securities and
qualify as capital for Canadian regulatory purposes.
However, under IFRS they are reported as
Senior debentures in our Annual and Interim Consolidated Financial
Statements. For additional
information see Capital and Liquidity
Management – Capital in our 2014 annual MD&A.
|
Unless indicated otherwise, all factors discussed in this
document that impact our results are applicable to reported net
income (loss), operating net income (loss), and underlying net
income (loss).
Q1 2015 vs. Q1 2014
Our reported net income was $441
million in the first quarter of 2015, compared to
$400 million in the first quarter of
2014. Operating net income was $446
million for the quarter ended March 31, 2015, compared
to $454 million for the same period
last year. Underlying net income was $516
million, compared to $440
million in the first quarter of 2014.
Operating ROE and underlying ROE in the first quarter of 2015
were 10.4% and 12.1%, respectively. Operating and underlying ROE in
the first quarter of 2014 were 12.0% and 11.6%, respectively. The
decrease in operating ROE compared to the first quarter of 2014 was
largely due to the growth in equity as a result of foreign currency
effects and retained earnings over the past twelve months.
The following table reconciles our net income measures and sets
out the impact that other notable items had on our net income in
the first quarter of 2015 and 2014.
|
Quarterly
results
|
($ millions,
after-tax)
|
Q1'15
|
Q1'14
|
Reported net income
|
441
|
400
|
|
Certain hedges that
do not qualify for hedge accounting in SLF Canada
|
15
|
5
|
|
Fair value
adjustments on share-based payment awards at MFS
|
(20)
|
(51)
|
|
Restructuring and
other related costs
|
—
|
(8)
|
Operating net income(1)
|
446
|
454
|
|
Equity market
impact
|
|
|
|
|
Impact from equity
market changes
|
23
|
30
|
|
|
Basis risk
impact
|
(14)
|
3
|
|
Equity market
impact(2)
|
9
|
33
|
|
Interest rate
impact
|
|
|
|
|
Impact from interest
rate changes
|
(54)
|
(58)
|
|
|
Impact of credit
spread movements
|
(10)
|
(13)
|
|
|
Impact of swap spread
movements
|
23
|
7
|
|
Interest rate
impact(3)
|
(41)
|
(64)
|
|
Increases (decreases)
from changes in the fair value of real estate
|
10
|
5
|
|
Market related
impacts
|
(22)
|
(26)
|
|
Assumption changes
and management actions
|
(48)
|
40
|
Underlying net income(1)
|
516
|
440
|
Impact of other notable items on our net
income:
|
|
|
Experience related
items(4)
|
|
|
|
Impact of investment
activity on insurance contract liabilities
|
25
|
36
|
|
Mortality
|
11
|
(10)
|
|
Morbidity
|
2
|
(12)
|
|
Credit
|
5
|
16
|
|
Lapse and other
policyholder behaviour
|
(16)
|
(19)
|
|
Expenses
|
(14)
|
(14)
|
|
Other
|
4
|
—
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures
and
Reconciliation of Non-IFRS Financial
Measures.
|
(2)
|
Equity market impact
consists primarily of the effect of changes in equity markets
during the
quarter, net of hedging, that differ from
the best estimate assumptions used in the determination
of our insurance contract liabilities of
approximately 2% growth per quarter in equity markets.
Equity market impact also includes the
income impact of the basis risk inherent in our hedging
program, which is the difference between
the return on underlying funds of products that
provide benefit guarantees and the return
on the derivative assets used to hedge those benefit
guarantees.
|
(3)
|
Interest rate impact
includes the effect of interest rate changes on investment returns
that differ
from best estimate assumptions, and on
the value of derivative instruments used in our hedging
programs. Our exposure to interest rates
varies by product type, line of business, and geography.
Given the long-term nature of our
business, we have a higher degree of sensitivity in respect
of
interest rates at long durations.
Interest rate impact also includes the income impact of declines
in
assumed fixed income reinvestment rates
and of credit and swap spread movements.
|
(4)
|
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 quarter of 2015 and 2014
included items that are not operational or ongoing in nature and
are, therefore, excluded in our calculation of operating net
income. Operating net income for the first quarter of 2015 and 2014
excluded the net impact of certain hedges that do not qualify for
hedge accounting in SLF Canada, fair value adjustments on
share-based payment awards at MFS, and restructuring and other
related costs. The net impact of these items reduced reported net
income by $5 million in the first
quarter of 2015 compared to a reduction of $54 million in the first quarter of 2014. In
addition, our operating net income in the first quarter of 2015
increased by $33 million as a result
of movements in currency rates relative to the average exchange
rates in the first quarter of 2014.
Our underlying net income for the first quarter of 2015 and 2014
excludes market related impacts and assumption changes and
management actions. Assumption changes and management actions in
the quarter were primarily due to a $61
million revision to insurance contract liabilities relating
to certain universal life products in SLF U.S. The net impact of
market related impacts and assumption changes and management
actions reduced operating net income by $70
million in the first quarter of 2015, compared to an
increase of $14 million in the first
quarter of 2014.
Net income in the first quarter of 2015 also reflected gains
from investment activity on insurance contract liabilities and
positive mortality experience, offset by lapse and other
policyholder behaviour and expense experience.
Net income in the first quarter of 2014 also reflected gains
from investment activity on insurance contract liabilities and
positive credit experience, offset by unfavourable mortality and
morbidity, lapse and other policyholder behaviour, and expense
experience.
Impact of Foreign Exchange Rates
We have operations in many markets worldwide, including Canada,
the United States, the
United Kingdom, Ireland, Hong
Kong, the Philippines,
Japan, Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia, and Bermuda, and generate revenues and incur
expenses in local currencies in these jurisdictions, which are
translated to Canadian dollars.
Items impacting our Consolidated Statements of Operations, such
as Revenue, Benefits and expenses, and income, are translated to
Canadian dollars using average exchange rates for the respective
period. For items impacting our Consolidated Statements of
Financial Position, such as Assets and Liabilities, period end
rates are used for currency translation purposes. The following
table provides the most relevant foreign exchange rates over the
past five quarters.
Exchange
Rate
|
Quarterly
|
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Average
|
|
|
|
|
|
|
U.S.
Dollar
|
1.240
|
1.136
|
1.088
|
1.090
|
1.102
|
|
U.K.
Pounds
|
1.878
|
1.797
|
1.817
|
1.835
|
1.824
|
Period end
|
|
|
|
|
|
|
U.S.
Dollar
|
1.269
|
1.162
|
1.120
|
1.067
|
1.105
|
|
U.K.
Pounds
|
1.880
|
1.809
|
1.815
|
1.824
|
1.841
|
In general, our net income benefits from a weakening Canadian
dollar and is adversely affected by a strengthening Canadian dollar
as net income from the Company's international operations is
translated back to Canadian dollars. However, in a period of
losses, the weakening of the Canadian dollar has the effect of
increasing the losses. The relative impact of foreign exchange in
any given period is driven by the movement of currency rates as
well as the proportion of earnings generated in our foreign
operations. We generally express the impact of foreign exchange on
net income on a year-over-year basis. During the first quarter of
2015, our operating net income increased by $33 million as a result of movements in currency
rates relative to the average exchange rates in the first quarter
of 2014.
Performance by Business Group
SLF Canada
SLF Canada is the Canadian market leader in a number of its
businesses, providing products and services to 6 million Canadians.
Our distribution breadth, strong service culture, technology
leadership, and brand recognition provide an excellent platform for
growth. SLF Canada has three main business units - Individual
Insurance & Wealth, Group Benefits, and Group Retirement
Services - which offer a full range of protection, wealth
accumulation, and income products and services to individuals in
their communities and their workplaces.
|
Quarterly
results
|
($
millions)
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
Underlying net income
(loss)(1)
|
201
|
|
181
|
|
237
|
|
195
|
|
210
|
|
Market related
impacts
|
(69)
|
|
(54)
|
|
(33)
|
|
(2)
|
|
12
|
|
Assumption changes
and management actions
|
3
|
|
(4)
|
|
35
|
|
4
|
|
16
|
Operating net income
(loss)(1)
|
135
|
|
123
|
|
239
|
|
197
|
|
238
|
|
Hedges that do not
qualify for hedge accounting
|
15
|
|
(6)
|
|
2
|
|
(8)
|
|
5
|
Reported net income
(loss)
|
150
|
|
117
|
|
241
|
|
189
|
|
243
|
Underlying ROE
(%)(1)
|
10.6
|
|
9.7
|
|
12.8
|
|
10.6
|
|
11.6
|
Operating ROE
(%)(1)
|
7.1
|
|
6.6
|
|
12.9
|
|
10.7
|
|
13.1
|
Operating net income (loss) by business
unit(1)
|
|
|
|
|
|
|
Individual Insurance
& Wealth(1)
|
38
|
|
80
|
|
68
|
|
96
|
|
140
|
|
Group
Benefits(1)
|
54
|
|
55
|
|
124
|
|
53
|
|
58
|
|
Group Retirement
Services(1)
|
43
|
|
(12)
|
|
47
|
|
48
|
|
40
|
Total operating net
income (loss)(1)
|
135
|
|
123
|
|
239
|
|
197
|
|
238
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q1 2015 vs. Q1 2014
SLF Canada's reported net income was $150
million in the first quarter of 2015, compared to
$243 million in the first quarter of
2014. Operating net income was $135
million, compared to $238
million in the first quarter of 2014. Operating net income
in SLF Canada excludes the impact of certain hedges that do not
qualify for hedge accounting, which is set out in the table
above.
Underlying net income in the first quarter of 2015 was
$201 million, compared to
$210 million in the first quarter of
2014. Underlying net income in SLF Canada excludes from operating
net income market related impacts and assumption changes and
management actions, which are set out in the table above. In the
first quarter of 2015, we experienced downward pressure on net
income from declining interest rates. The unfavourable effect of
market related impacts in the first quarter of 2015 was primarily
driven by interest rate changes partially offset by equity markets,
compared to the favourable effect in the first quarter of 2014
primarily driven by equity markets partially offset by interest
rates.
Net income in the first quarter of 2015 also reflected gains
from investment activities on insurance contract liabilities,
partially offset by unfavourable morbidity experience within Group
Benefits ("GB") including high cost drug claims, and unfavourable
lapse and other policyholder experience.
Net income in the first quarter of 2014 also reflected gains
from investment activities on insurance contract liabilities,
partially offset by unfavourable morbidity experience in GB in our
disability line of business.
In the first quarter of 2015, individual life and health
insurance product sales increased to $67
million, up 3% compared to the same period last year driven
by improved Career Sales Force sales. Sales of individual wealth
products increased 4% over the first quarter of 2014 due to strong
mutual fund sales, partially offset by declines in sales of
guaranteed and fixed income products driven in part by the
continued low interest rate environment. Sales of Sun Life Global
Investments (Canada) Inc. ("SLGI") demonstrated strong growth with
gross sales of $811 million, up 41%
over the same quarter in the prior year.
Group Retirement Services ("GRS") new sales increased to
$5.7 billion, mainly attributable to
a record $5.3 billion Defined Benefit
Solutions large case longevity insurance contract with BCE Inc., of
which a significant portion was reinsured to a syndicate of
reinsurers. GRS pension rollover sales increased 24% over the same
quarter in the prior year due in part to higher average member
deposits. GB sales declined 3% compared to the same quarter in the
prior year, primarily driven by timing of sales in the large case
market segment.
SLF U.S.
SLF U.S. has three business units: Group Benefits, International,
and In-force Management. Group Benefits provides protection
solutions to employers and employees including group life,
disability, medical stop-loss, and dental insurance products, as
well as a suite of voluntary benefits products. International
offers individual life insurance and investment wealth products to
high net worth clients in international markets. In-force
Management includes certain closed individual life insurance
products, primarily universal life, and participating whole life
insurance.
|
|
Quarterly
results
|
(US$
millions)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
Underlying net income
(loss)(1)
|
|
65
|
|
9
|
|
45
|
|
101
|
|
85
|
|
Market related
impacts
|
|
8
|
|
16
|
|
(6)
|
|
(13)
|
|
(34)
|
|
Assumption changes
and management actions
|
|
(54)
|
|
121
|
|
(42)
|
|
4
|
|
19
|
Operating net income
(loss) (1)
|
|
19
|
|
146
|
|
(3)
|
|
92
|
|
70
|
Reported net income
(loss)
|
|
19
|
|
146
|
|
(3)
|
|
92
|
|
70
|
Underlying ROE
(%)(1)
|
|
9.7
|
|
1.3
|
|
6.8
|
|
15.1
|
|
12.0
|
Operating ROE
(%)(1)
|
|
2.8
|
|
22.0
|
|
(0.4)
|
|
13.7
|
|
9.9
|
Operating net income (loss) by business
unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
Group
Benefits(1)
|
|
38
|
|
(64)
|
|
(11)
|
|
3
|
|
17
|
|
International(1)
|
|
2
|
|
78
|
|
33
|
|
36
|
|
14
|
|
In-force
Management(1)
|
|
(21)
|
|
132
|
|
(25)
|
|
53
|
|
39
|
Total operating net
income (loss)(1)
|
|
19
|
|
146
|
|
(3)
|
|
92
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
(C$
millions)
|
|
|
|
|
|
|
|
|
|
|
Underlying net income
(loss)(1)
|
|
81
|
|
13
|
|
48
|
|
111
|
|
94
|
Operating net income
(loss)(1)
|
|
35
|
|
168
|
|
(4)
|
|
100
|
|
77
|
Reported net income
(loss)
|
|
35
|
|
168
|
|
(4)
|
|
100
|
|
77
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q1 2015 vs. Q1 2014
SLF U.S.'s reported net income and operating net income were
C$35 million in the first quarter of
2015, compared to reported net income and operating net income of
C$77 million in the first quarter of
2014. There were no operating net income adjustments in SLF U.S. in
2015 or 2014. Underlying net income was C$81
million, compared to C$94
million in the first quarter of 2014. The weakening of the
Canadian dollar in the first quarter of 2015 relative to average
exchange rates in the first quarter of 2014 increased operating net
income by $4 million.
In U.S. dollars, SLF U.S.'s reported net income and operating
net income were US$19 million in the
first quarter of 2015, compared to reported net income and
operating net income of US$70 million
in the first quarter of 2014. Underlying net income was
US$65 million in the first quarter of
2015, compared to US$85 million in
the first quarter of 2014. Underlying net income excludes from
operating net income market related impacts and assumption changes
and management actions, which are set out in the table above. The
favourable effect of market related impacts in the first quarter of
2015 was primarily driven by interest rates, compared to the
unfavourable effect in the first quarter of 2014 primarily driven
by interest rates. The unfavourable impact of assumption changes
and management actions in 2015 were primarily due to a revision to
insurance contract liabilities relating to certain universal life
products.
Net income in the first quarter of 2015 also reflected
favourable morbidity and mortality experience in Group Benefits and
net realized gains on the sale of available for sale ("AFS")
assets, partially offset by adverse mortality and policyholder
behaviour experience in In-force Management.
Net income in the first quarter of 2014 also reflected net
realized gains on the sale of AFS assets, partially offset by
unfavourable mortality experience in Group Benefits and In-force
Management.
Sales in Group Benefits in the first quarter of 2015 decreased
11% compared to the first quarter of 2014, reflecting the impact of
price increases. Within Group Benefits, medical stop-loss sales
increased 21%.
Sales in International decreased 33% compared to the first
quarter of 2014, as we maintained pricing discipline in recognition
of the low interest rate environment, and continued to realign our
marketing and distribution to focus on select regions,
distributors, and customer segments.
MFS Investment Management
MFS is a premier global asset management firm which offers a
comprehensive selection of products and services. Drawing on an
investment heritage that emphasizes collaboration and integrity,
MFS actively manages assets for retail and institutional investors
around the world through mutual and commingled funds, separately
managed accounts, institutional products, and retirement
strategies.
|
|
Quarterly
results
|
|
(US$
millions)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
|
Underlying net
income(1)
|
|
135
|
|
137
|
|
154
|
|
133
|
|
133
|
|
Operating net
income(1)
|
|
135
|
|
137
|
|
154
|
|
133
|
|
133
|
|
|
Fair value
adjustments on share-based payment awards
|
|
(16)
|
|
—
|
|
(28)
|
|
(40)
|
|
(46)
|
|
Reported net
income
|
|
119
|
|
137
|
|
126
|
|
93
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Underlying net
income(1)
|
|
168
|
|
156
|
|
168
|
|
145
|
|
147
|
|
Operating net
income(1)
|
|
168
|
|
156
|
|
168
|
|
145
|
|
147
|
|
|
Fair value
adjustments on share-based payment awards
|
|
(20)
|
|
1
|
|
(31)
|
|
(44)
|
|
(51)
|
|
Reported net
income
|
|
148
|
|
157
|
|
137
|
|
101
|
|
96
|
|
Pre-tax operating
profit margin ratio(2)
|
|
40 %
|
|
39 %
|
|
43 %
|
|
40 %
|
|
42 %
|
|
Average net assets
(US$ billions)(2)
|
|
436.4
|
|
427.3
|
|
434.7
|
|
427.9
|
|
412.0
|
|
Assets under
management (US$ billions)(2)(3)
|
|
441.4
|
|
431.0
|
|
424.8
|
|
438.6
|
|
420.6
|
|
Gross sales (US$
billions)(2)
|
|
22.8
|
|
20.5
|
|
20.1
|
|
19.5
|
|
22.4
|
|
Net sales (US$
billions)(2)
|
|
(0.2)
|
|
(1.9)
|
|
(2.0)
|
|
1.4
|
|
3.7
|
|
Asset appreciation
(depreciation) (US$ billions)
|
|
10.6
|
|
8.1
|
|
(11.8)
|
|
16.6
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
(daily average)
|
|
2,064
|
|
2,012
|
|
1,977
|
|
1,879
|
|
1,834
|
|
MSCI EAFE Index
(daily average)
|
|
1,817
|
|
1,795
|
|
1,924
|
|
1,942
|
|
1,894
|
|
(1)
|
Represents a non-IFRS
financial measure that excludes fair value adjustments on
share-based payment awards at MFS. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial
Measures.
|
(2)
|
Pre-tax operating
profit margin ratio, AUM, average net assets, and sales are
non-IFRS financial measures. See Reconciliation of Non-IFRS
Financial Measures.
|
(3)
|
Monthly Information
on AUM is provided by MFS on its Corporate Fact Sheet, which can be
found in the "About MFS" link for U.S. individual investors at
www.mfs.com/wps/portal.
|
Q1 2015 vs. Q1 2014
MFS's reported net income was C$148
million in the first quarter of 2015, compared to
C$96 million in the first quarter of
2014. MFS had operating net income and underlying net income of
C$168 million in the first quarter of
2015, compared to C$147 million in
the first quarter of 2014. Operating net income and underlying net
income in MFS exclude the impact of fair value adjustments on
share-based payment awards, which is set out in the table above.
The weakening of the Canadian dollar in the first quarter of 2015
relative to average exchange rates in the first quarter of 2014
increased operating net income by $19
million.
In U.S. dollars, MFS's reported net income was US$119 million in the first quarter of 2015,
compared to US$87 million in the
first quarter of 2014. Operating net income and underlying net
income were US$135 million in the
first quarter of 2015, compared to US$133
million in the first quarter of 2014.
Net income increased in the first quarter of 2015 compared to
the same period in 2014 driven primarily by higher average net
assets partially offset by higher advertising expense and our
continued investment in technological infrastructure. MFS's pre-tax
operating profit margin ratio was 40% in the first quarter of 2015,
down from 42% in the first quarter of 2014.
Total AUM increased to US$441.4
billion as at March 31, 2015, compared to US$431.0 billion as at December 31, 2014.
The increase of US$10.4 billion was
primarily driven by gross sales of US$22.8
billion and asset appreciation of US$10.6 billion, partially offset by redemptions
of US$23.0 billion. 83%, 95%, and 97%
of retail fund assets ranked in the top half of their Lipper
categories based on three-, five-, and ten-year performance,
respectively, as at March 31, 2015.
SLF Asia
SLF Asia operates through subsidiaries in the Philippines, Hong Kong, and Indonesia, as well as through joint ventures
with local partners in the
Philippines, Indonesia,
Vietnam, Malaysia, China, and India. We offer individual life insurance
products in all seven markets, and group benefits and/or pension
and retirement products in the
Philippines, China,
Hong Kong, India, Malaysia, and Vietnam. We have also established asset
management companies either directly or through joint ventures in
the Philippines, China, and India. We distribute these protection and
wealth products to middle- and upper-income individuals, groups,
and affinity clients through multiple distribution channels.
|
|
Quarterly
results
|
($
millions)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
Underlying net income
(loss)(1)
|
|
62
|
|
50
|
|
48
|
|
39
|
|
37
|
|
Market related
impacts
|
|
10
|
|
(8)
|
|
3
|
|
(1)
|
|
(6)
|
|
Assumption changes
and management actions
|
|
(4)
|
|
20
|
|
—
|
|
(1)
|
|
1
|
Operating net income
(loss)(1)
|
|
68
|
|
62
|
|
51
|
|
37
|
|
32
|
Reported net income
(loss)
|
|
68
|
|
62
|
|
51
|
|
37
|
|
32
|
Underlying ROE
(%)(1)
|
|
7.7
|
|
6.8
|
|
7.1
|
|
6.1
|
|
6.0
|
Operating ROE
(%)(1)
|
|
8.6
|
|
8.4
|
|
7.5
|
|
5.8
|
|
5.1
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q1 2015 vs. Q1 2014
SLF Asia's reported net income and operating net income were
$68 million in the first quarter of
2015, compared to reported net income and operating net income of
$32 million in the first quarter of
2014. There were no operating net income adjustments in SLF Asia in
2015 or 2014. The weakening of the Canadian dollar in the first
quarter of 2015 relative to average exchange rates in the first
quarter of 2014 increased operating net income by $7 million.
Underlying net income was $62
million, compared to $37
million in the first quarter of 2014. Underlying net income
excludes from operating net income market related impacts and
assumption changes and management actions, which are set out in the
table above. The favourable effect of market related impacts in the
first quarter of 2015 was primarily driven by equity markets
partially offset by interest rates, compared to the unfavourable
effect in the first quarter of 2014 primarily driven by interest
rates partially offset by equity markets.
Net income in the first quarter of 2015 when compared with the
first quarter of 2014 also reflected business growth and net gains
on AFS securities in 2015; net income in the first quarter of 2014
reflected net losses on AFS securities.
Total individual insurance sales in the first quarter of 2015
were up 28% from the first quarter of 2014, with growth in all
markets except in China and
India and the positive impact of
currency. Sales increased in the
Philippines, Indonesia, and
Hong Kong by 43%, 15%, and 22%,
respectively, measured in local currency.
Corporate
Corporate includes the results of SLF U.K. and Corporate Support.
Corporate Support includes our Run-off reinsurance business as well
as investment income, expenses, capital, and other items that have
not been allocated to our other business segments. SLF U.K. has a
run-off block of business which has been closed to new business and
focuses on supporting existing customers.
|
|
Quarterly
results
|
($
millions)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
Underlying net income
(loss)(1)
|
|
4
|
|
(40)
|
|
16
|
|
9
|
|
(48)
|
|
Market related
impacts
|
|
28
|
|
23
|
|
(18)
|
|
(4)
|
|
5
|
|
Assumption changes
and management actions
|
|
8
|
|
19
|
|
15
|
|
4
|
|
3
|
Operating net income
(loss)(1)
|
|
40
|
|
2
|
|
13
|
|
9
|
|
(40)
|
|
Restructuring and
other related costs
|
|
—
|
|
(4)
|
|
(3)
|
|
(11)
|
|
(8)
|
Reported net income
(loss)
|
|
40
|
|
(2)
|
|
10
|
|
(2)
|
|
(48)
|
Operating net income (loss) by business
unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
SLF
U.K.(1)
|
|
71
|
|
65
|
|
44
|
|
37
|
|
28
|
|
Corporate
Support(1)
|
|
(31)
|
|
(63)
|
|
(31)
|
|
(28)
|
|
(68)
|
Total operating net
income (loss)(1)
|
|
40
|
|
2
|
|
13
|
|
9
|
|
(40)
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
Q1 2015 vs. Q1 2014
Corporate had a reported net income of $40
million in the first quarter of 2015, compared to a reported
net loss of $48 million in the first
quarter of 2014. Operating net income was $40 million for the first quarter of 2015,
compared to an operating net loss of $40
million in the same period last year. Operating net income
(loss) excludes restructuring and other related costs, which is set
out in the table above.
Underlying net income was $4
million, compared to underlying net loss of $48 million in the first quarter of 2014.
Underlying net income excludes from operating net income market
related impacts and assumption changes and management actions,
which are set out in the table above. The favourable effect of
market related impacts in the first quarter of 2015 was primarily
driven by swap spreads and interest rate changes partially offset
by equity markets, compared to the favourable effect in the first
quarter of 2014 primarily driven by interest rates and equity
markets.
SLF U.K.'s operating net income was $71
million in the first quarter of 2015, compared to
$28 million in the first quarter of
2014. SLF U.K.'s net income in the first quarter of 2015 reflected
positive market related impacts from swap spreads and interest rate
changes partially offset by equity markets. Net income in the first
quarter of 2014 reflected unfavourable investing activity in
annuities and lapse experience, partially offset by positive credit
experience.
Corporate Support had an operating net loss of $31 million in the first quarter of 2015,
compared to an operating net loss of $68
million in the first quarter of 2014. The decrease in loss
was attributable to favourable results in the Run-off reinsurance
business, lower interest expense resulting from a reduction in
subordinated debt, lower preferred share dividends from a reduction
in preferred shares, and tax benefits, and the impact of higher
expenses in the first quarter of 2014.
Additional Financial Disclosure
Revenue
|
|
Quarterly
results
|
($
millions)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
3,723
|
|
4,023
|
|
4,080
|
|
3,758
|
|
3,638
|
|
Ceded
|
|
(1,516)
|
|
(1,322)
|
|
(1,385)
|
|
(1,386)
|
|
(1,410)
|
Net premium
revenue
|
|
2,207
|
|
2,701
|
|
2,695
|
|
2,372
|
|
2,228
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
investment income
|
|
1,279
|
|
1,258
|
|
1,265
|
|
1,230
|
|
1,188
|
|
Fair value and
foreign currency changes on assets and liabilities
|
|
2,495
|
|
2,196
|
|
495
|
|
1,560
|
|
1,921
|
|
Net gains (losses) on
available-for-sale assets
|
|
96
|
|
49
|
|
48
|
|
48
|
|
57
|
Fee income
|
|
1,255
|
|
1,171
|
|
1,111
|
|
1,105
|
|
1,066
|
Total
revenue
|
|
7,332
|
|
7,375
|
|
5,614
|
|
6,315
|
|
6,460
|
Adjusted
revenue(1)
|
|
5,715
|
|
6,261
|
|
6,280
|
|
5,900
|
|
5,700
|
(1)
|
Represents a non-IFRS
financial measure that excludes from revenue the impact of Constant
Currency Adjustment, FV Adjustment, and Reinsurance in SLF Canada's
GB Operations Adjustment as described in Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial
Measures.
|
Revenue in the first quarter of 2015 was $7.3 billion, compared to $6.5 billion in the first quarter of 2014. The
increase is mainly attributable to net gains from changes in fair
value of fair value through profit or loss ("FVTPL") assets and
liabilities, currency impact from the weakening Canadian dollar,
higher fee income in MFS, and increased net investment income. Net
gains on available-for-sale assets increased by $39 million, which was offset within Net
investment income by the impact of associated hedges. The weakening
of the Canadian dollar relative to average exchange rates in the
first quarter of 2014 increased revenue by $377 million. Adjusted revenue was $5.7 billion in the first quarter of 2015,
largely flat compared to the first quarter of 2014.
Premiums and Deposits
|
|
Quarterly
results
|
($
millions)
|
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Net premium
revenue
|
|
2,207
|
|
2,701
|
|
2,695
|
|
2,372
|
|
2,228
|
Segregated fund
deposits
|
|
2,411
|
|
2,155
|
|
1,907
|
|
2,611
|
|
2,576
|
Mutual fund
sales(1)
|
|
22,124
|
|
17,071
|
|
14,714
|
|
16,267
|
|
18,567
|
Managed fund
sales(1)
|
|
8,243
|
|
7,988
|
|
8,170
|
|
6,131
|
|
7,579
|
ASO premium and
deposit equivalents(1)
|
|
1,769
|
|
1,855
|
|
1,638
|
|
1,495
|
|
1,760
|
Total premiums and
deposits(1)
|
|
36,754
|
|
31,770
|
|
29,124
|
|
28,876
|
|
32,710
|
Total adjusted
premiums and deposits(1)(2)
|
|
34,426
|
|
32,141
|
|
30,554
|
|
30,232
|
|
33,871
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
Represents a non-IFRS
financial measure that excludes from premiums and deposits the
impact of Constant Currency Adjustment and Reinsurance in SLF
Canada's GB Operations Adjustment as described in Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial
Measures.
|
Premiums and deposits were $36.8
billion in the first quarter of 2015, compared to
$32.7 billion in the first quarter of
2014, primarily due to favourable currency impact. The weakening of
the Canadian dollar relative to average exchange rates in the first
quarter of 2014 increased total premiums and deposits by
approximately $3.5 billion. Adjusted
premiums and deposits of $34.4
billion in the first quarter of 2015 increased $0.6 billion from the first quarter of 2014. The
increase was mainly the result of higher mutual fund sales in MFS,
India, and SLF Canada, partially
offset by lower managed fund sales in MFS, decreased net premium
revenue in International in SLF U.S., and segregated fund deposits
in SLF Canada.
Net premium revenue, which reflects gross premiums less amounts
ceded to reinsurers, was $2.2 billion
in the first quarter of 2015, down slightly from the first quarter
of 2014. The decrease was mainly attributable to decreases in
International in SLF U.S., partially offset by favourable currency
impact and higher net premium revenue from SLF Asia.
Segregated fund deposits were $2.4
billion in the first quarter of 2015, compared to
$2.6 billion in the first quarter of
2014. The decrease was largely attributable to decreases in GRS in
SLF Canada, partially offset by increases in the Philippines in SLF Asia.
Sales of mutual funds increased $3.6
billion compared to the first quarter of 2014 driven by
favourable currency impact and higher sales in MFS and India. Sales of managed funds increased by
$0.7 billion in the first quarter of
2015 compared to the first quarter of 2014, primarily driven by
favourable currency impact.
ASO premium and deposit equivalents of $1.8 billion in the first quarter of 2015 were
largely unchanged from the first quarter of 2014.
Sales
In SLF Canada, life and health sales consist of sales of individual
insurance and group benefits products; wealth sales consist of
sales of individual wealth products and sales in GRS. In SLF U.S.,
life and health sales consist of sales by Group Benefits and
individual life sales by International; wealth sales consist of
investment product sales in International. In SLF Asia, life and
health sales consist of the individual and group life and health
sales from wholly-owned subsidiaries and joint ventures based on
our proportionate equity interest in the
Philippines, Hong Kong,
Indonesia, India, China,
Malaysia, and Vietnam; and wealth sales consist of
Hong Kong wealth sales,
Philippines mutual fund sales,
wealth sales from the India and
China insurance companies, and
Birla Sun Life Asset Management Company's equity and fixed income
mutual fund sales based on our proportionate equity interest.
($
millions)
|
|
|
Q1'15
|
|
|
Q1'14
|
Life and health
sales(1)
|
|
|
|
|
|
|
|
SLF Canada
|
|
|
234
|
|
|
237
|
|
SLF U.S.
|
|
|
85
|
|
|
96
|
|
SLF Asia
|
|
|
129
|
|
|
102
|
Total life and health
sales
|
|
|
448
|
|
|
435
|
Wealth
sales(1)
|
|
|
|
|
|
|
|
SLF Canada
|
|
|
2,796
|
|
|
4,213
|
|
SLF U.S.
|
|
|
164
|
|
|
211
|
|
SLF Asia
|
|
|
2,188
|
|
|
1,350
|
Total wealth sales
excluding MFS
|
|
|
5,148
|
|
|
5,774
|
|
MFS
sales
|
|
|
28,236
|
|
|
24,641
|
Total wealth
sales
|
|
|
33,384
|
|
|
30,415
|
|
|
|
|
|
|
|
Large case longevity
insurance sale(1)(2) - SLF Canada
|
|
|
5,260
|
|
|
—
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial
Measures.
|
(2)
|
Represents the
transfer of longevity risk of BCE Inc.'s Bell Canada pension
plan.
|
Total Company life and health sales were $448 million in the first quarter of 2015,
compared to $435 million in the same
period last year.
- SLF Canada life and health sales were $234 million in the first quarter of 2015,
slightly lower compared to the first quarter of 2014
- SLF U.S. life and health sales were $85
million in the first quarter of 2015, compared to
$96 million in the first quarter of
2014, primarily driven by lower sales in individual insurance in
International, partially offset by favourable currency impact
- SLF Asia life and health sales were $129
million in the first quarter of 2015, compared to
$102 million in the first quarter of
2014, driven by growth in every region except India and a favourable currency impact of
$13 million
Total Company wealth sales were $33.4
billion in the first quarter of 2015, compared to
$30.4 billion in the first quarter of
2014.
- SLF Canada wealth sales were $2.8
billion in the first quarter of 2015, compared to
$4.2 billion in the first quarter of
2014, mainly attributable to lower sales in GRS
- SLF U.S. wealth sales were $164
million in the first quarter of 2015, compared to
$211 million in the first quarter of
2014, due to lower investment product sales in International,
partially offset by favourable currency impact
- SLF Asia wealth sales were $2.2
billion in the first quarter of 2015, compared to
$1.4 billion in the first quarter of
2014, primarily driven by higher fund sales in India and China and favourable currency impact
- MFS gross sales were $28.2
billion in the first quarter of 2015, compared to
$24.6 billion in the first quarter of
2014, largely reflecting higher mutual fund sales and favourable
currency impact
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 $812.6 billion as at
March 31, 2015, compared to AUM of $734.4 billion as at December 31, 2014. The
increase in AUM of $78.2 billion
between December 31, 2014 and March 31, 2015 resulted
primarily from:
(i)
|
an increase of $53.4
billion from the weakening of the Canadian dollar against foreign
currencies compared to the prior period exchange rates;
|
(ii)
|
favourable market
movements on the value of mutual funds, managed funds, and
segregated funds of $18.5 billion;
|
(iii)
|
an increase of $2.5
billion from the change in value of FVTPL assets and
liabilities;
|
(iv)
|
other business growth
of $2.8 billion; and
|
(v)
|
net sales of mutual,
managed, and segregated funds of $1.0 billion.
|
Changes in the Statements of Financial Position and in
Shareholders' Equity
Total general fund assets were $148.7
billion as at March 31, 2015, compared to $139.4 billion as at December 31, 2014. The
increase in general fund assets from December 31, 2014 was
primarily a result of positive currency movements of $5.0 billion, a $2.5
billion increase from the change in value of FVTPL assets
and liabilities, and business growth of $1.8
billion.
Insurance contract liabilities (excluding other policy
liabilities and assets) of $101.8
billion as at March 31, 2015 increased by $6.6 billion compared to December 31, 2014,
mainly due to changes in balances on in-force policies (which
includes fair value changes on FVTPL assets supporting insurance
contract liabilities), currency movements, and balances arising
from new policies.
Shareholders' equity, including preferred share capital, was
$19.8 billion as at March 31,
2015, compared to $18.7 billion as at
December 31, 2014. The increase in shareholders' equity was
primarily due to:
(i)
|
shareholders' net
income of $467 million in the first quarter of 2015, before
preferred share dividends of $26 million;
|
(ii)
|
an increase of $767
million from the weakening of the Canadian dollar relative to
foreign currencies;
|
(iii)
|
net unrealized gains
on AFS assets in OCI of $170 million; and
|
(iv)
|
proceeds of $21
million from the issuance of common shares through the Canadian
dividend reinvestment and share purchase plan, and $20 million from
stock options exercised; partially offset by
|
(v)
|
common share dividend
payments of $221 million;
|
(vi)
|
common share
repurchases of $120 million; and
|
(vii)
|
changes in
liabilities for defined benefit plans of $46 million.
|
|
|
As at April 24, 2015, Sun
Life Financial Inc. had 612.1 million common shares and 92.2
million preferred shares outstanding.
Cash Flows
|
|
|
Quarterly
results
|
($
millions)
|
|
|
Q1'15
|
|
|
Q1'14
|
Net cash and cash equivalents, beginning of
period
|
|
|
3,364
|
|
|
3,324
|
Cash flows provided
by (used in):
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
890
|
|
|
167
|
|
Investing
activities
|
|
|
(36)
|
|
|
(4)
|
|
Financing
activities
|
|
|
(346)
|
|
|
(906)
|
Changes due to
fluctuations in exchange rates
|
|
|
209
|
|
|
91
|
Increase (decrease) in cash and cash
equivalents
|
|
|
717
|
|
|
(652)
|
Net cash and cash
equivalents, end of period
|
|
|
4,081
|
|
|
2,672
|
Short-term
securities, end of period
|
|
|
2,486
|
|
|
3,261
|
Net cash, cash equivalents and short-term securities,
end of period
|
|
|
6,567
|
|
|
5,933
|
Net cash, cash equivalents and short-term securities were
$6.6 billion at the end of the first
quarter of 2015, compared to $5.9
billion at the end of the first quarter of 2014.
The operating activities of the Company generate cash flows
which include net premium revenue, net investment income, fee
income, and the sale of investments. They are the principal source
of funds to pay for policyholder claims and benefits, commissions,
operating expenses, and the purchase of investments. Cash flows
used in investing activities primarily include transactions related
to associates and joint ventures. Cash flows used in financing
activities largely reflect capital transactions including
dividends, the issuance and repurchase of shares, as well as the
issuance and retirement of debt instruments and preferred
shares.
The higher cash flow used in financing activities in the first
quarter of 2014 compared to the first quarter of 2015 was largely
due to the redemption of subordinated debt.
Income Taxes
In the first quarter of 2015, our effective tax rates on reported
net income and operating net income were 17.1% and 17.6%,
respectively. Normally, our effective tax rate is reduced below the
statutory rate of 26.5% by a sustainable stream of tax benefits,
mainly tax exempt investment income, that is generally expected to
decrease the effective tax rate to a range of 18% to 22%.
The effective tax rate calculated on an operating basis excludes
amounts attributable to participating policyholders and
non-operating items.
Quarterly Financial Results
The following table provides a summary of our results for the
eight most recently completed quarters. A more complete discussion
of our historical quarterly results can be found in our interim and
annual MD&As for the relevant periods.
|
|
Quarterly
results
|
($ millions, unless
otherwise noted)
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
|
Q4'13
|
|
Q3'13
|
|
Q2'13
|
Net income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
|
446
|
|
511
|
|
467
|
|
488
|
|
454
|
|
642
|
|
422
|
|
431
|
|
Reported
|
|
441
|
|
502
|
|
435
|
|
425
|
|
400
|
|
571
|
|
324
|
|
391
|
|
Underlying(1)
|
|
516
|
|
360
|
|
517
|
|
499
|
|
440
|
|
375
|
|
448
|
|
373
|
Diluted EPS
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
|
0.73
|
|
0.83
|
|
0.76
|
|
0.80
|
|
0.74
|
|
1.05
|
|
0.69
|
|
0.71
|
|
Reported
|
|
0.72
|
|
0.81
|
|
0.71
|
|
0.69
|
|
0.65
|
|
0.93
|
|
0.53
|
|
0.64
|
|
Underlying(1)
|
|
0.84
|
|
0.59
|
|
0.84
|
|
0.81
|
|
0.72
|
|
0.61
|
|
0.74
|
|
0.62
|
Basic Reported EPS
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
0.72
|
|
0.82
|
|
0.71
|
|
0.70
|
|
0.66
|
|
0.94
|
|
0.53
|
|
0.65
|
Operating net income
(loss) by segment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF
Canada(1)
|
|
135
|
|
123
|
|
239
|
|
197
|
|
238
|
|
137
|
|
215
|
|
210
|
|
SLF
U.S.(1)
|
|
35
|
|
168
|
|
(4)
|
|
100
|
|
77
|
|
341
|
|
105
|
|
126
|
|
MFS(1)
|
|
168
|
|
156
|
|
168
|
|
145
|
|
147
|
|
156
|
|
120
|
|
104
|
|
SLF
Asia(1)
|
|
68
|
|
62
|
|
51
|
|
37
|
|
32
|
|
42
|
|
18
|
|
46
|
|
Corporate(1)
|
|
40
|
|
2
|
|
13
|
|
9
|
|
(40)
|
|
(34)
|
|
(36)
|
|
(55)
|
Total operating net
income (loss)(1)
|
|
446
|
|
511
|
|
467
|
|
488
|
|
454
|
|
642
|
|
422
|
|
431
|
(1)
|
Represents a non-IFRS
financial measure. See Use of Non-IFRS Financial
Measures.
|
Fourth Quarter 2014
Operating net income of $511 million
in the fourth quarter of 2014 reflected favourable impact from
assumption changes and management actions and gains from investing
activity on insurance contract liabilities. These items were
partially offset by unfavourable impacts from interest rate
changes, mortality and morbidity, lapse and other policyholder
behaviour, and expense experience, which mainly consists of
compensation-related and other seasonal costs.
Third Quarter 2014
Operating net income of $467 million
in the third quarter of 2014 reflected favourable impact from gains
from investing activity on insurance contract liabilities, positive
credit experience, tax benefits and business growth. These items
were partially offset by unfavourable impacts from interest rate
changes, mortality and morbidity and expense experience.
Second Quarter 2014
Operating net income of $488 million
in the second quarter of 2014 reflected favourable impact from
equity markets, gains from investment activity on insurance
contract liabilities, positive credit experience and business
growth, offset by unfavourable impacts from net interest rates,
morbidity experience, and expense experience.
First Quarter 2014
Operating net income of $454 million
in the first quarter of 2014 reflected favourable impact from
equity markets, gains from investment activity on insurance
contract liabilities and positive credit experience, offset by
unfavourable impacts from net interest rates, mortality and
morbidity experience, lapse and other policyholder behaviour and
expense experience.
Fourth Quarter 2013
Operating net income of $642 million
in the fourth quarter of 2013 reflected $290
million of income from a management action related to the
restructuring of an internal reinsurance arrangement. Net income
also reflected favourable impacts from equity markets, interest
rates and swap spread movements, and positive fair value movements
of real estate. These were partially offset by unfavourable basis
risk and credit spread movements. Investment activity on insurance
contract liabilities and credit experience were more than offset by
unfavourable experience from expenses, comprised mostly of seasonal
costs, lapse and other policyholder behaviour, and mortality and
morbidity.
Third Quarter 2013
Operating net income was $422 million
in the third quarter of 2013. Net income in the third quarter of
2013 reflected favourable impacts from improved equity markets and
interest rates and gains from assumption changes driven by capital
market movements. These were partially offset by negative impacts
from basis risk and credit and swap spread movements. Non-capital
market related assumption changes and management actions in the
quarter resulted in a $111 million
charge to income.
Second Quarter 2013
Operating net income was $431 million
in the second quarter of 2013. Net income in the second quarter of
2013 reflected favourable impacts from interest rates and credit
spread movements. These gains were partially offset by unfavourable
impact of declines in assumed fixed income reinvestment rates in
our insurance contract liabilities, and negative impacts of equity
markets and swap spread movements. Positive impacts from credit,
mortality, and morbidity experience were partially offset by lapse
and other policyholder behaviour and other experience factors.
Investments
We had total general fund invested assets of $133.1 billion as at March 31, 2015,
compared to $125.2 billion as at
December 31, 2014. The increase in general fund invested
assets of $7.9 billion was primarily
a result of favourable changes in fair value and foreign currency
movement. The majority of our general fund is invested in medium-
to long-term fixed income instruments, such as debt securities and
mortgages and loans, with 85.1% of the general fund invested assets
invested in cash and fixed income investments. Equity securities
and investment properties represented 4.2% and 4.7% of the
portfolio, respectively. The remaining 6.0% of the portfolio
consisted of policy loans, derivative assets, and other invested
assets.
The following table sets out the coposition of our invested
assets.(1)
|
|
|
March 31, 2015
|
|
December 31,
2014
|
($
millions)
|
|
|
Carrying
value
|
|
% of total
carrying value
|
|
Carrying
value
|
|
% of total
carrying value
|
Cash, cash
equivalents and short-term securities
|
|
|
6,744
|
|
5.1 %
|
|
6,818
|
|
5.4 %
|
Debt securities –
FVTPL
|
|
|
57,176
|
|
43.0 %
|
|
53,127
|
|
42.4 %
|
Debt securities –
AFS
|
|
|
13,537
|
|
10.2 %
|
|
13,087
|
|
10.5 %
|
Equity securities –
FVTPL
|
|
|
4,621
|
|
3.5 %
|
|
4,357
|
|
3.5 %
|
Equity securities –
AFS
|
|
|
930
|
|
0.7 %
|
|
866
|
|
0.7 %
|
Mortgages and
loans
|
|
|
35,727
|
|
26.8 %
|
|
33,679
|
|
26.9 %
|
Derivative
assets
|
|
|
2,378
|
|
1.8 %
|
|
1,839
|
|
1.5 %
|
Other invested
assets
|
|
|
2,686
|
|
2.0 %
|
|
2,375
|
|
1.9 %
|
Policy
loans
|
|
|
3,000
|
|
2.2 %
|
|
2,895
|
|
2.3 %
|
Investment
properties
|
|
|
6,260
|
|
4.7 %
|
|
6,108
|
|
4.9 %
|
Total invested
assets
|
|
|
133,059
|
|
100 %
|
|
125,151
|
|
100 %
|
(1)
|
The invested asset
values and ratios presented are based on the carrying value of the
respective asset categories. Carrying values for FVTPL and AFS
invested assets are generally equal to fair value. 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 asset.
|
Energy Sector Exposure
Our general fund invested assets are well diversified across
investment types, geographies, and sectors.
As at March 31, 2015, our exposure to the energy sector for
debt securities and corporate loans was $6.2
billion, of which 96.4% is rated investment grade and above.
Approximately 43% of our energy sector exposure is invested in
pipeline, storage, and transportation entities and 15% is invested
in integrated oil and gas entities. The remaining exposure is
largely related to companies involved in exploration and
production, refining, and drilling and servicing, and includes
approximately 7% invested in drilling and oil field services. The
revenue of pipeline, storage, and transportation entities generally
has limited exposure to direct commodity price volatility as the
revenue is usually fee-based. Integrated oil and gas entities are
generally large, internationally diversified
organizations.
Our mortgage and real estate portfolio includes office,
industrial, retail, and multi-family buildings occupied by tenants
representing a diversified group of industries. Our most
significant property exposure to the oil and gas segment is located
in Alberta, which is less than 20%
of our mortgage portfolio and less than 30% of our real estate
portfolio. In light of recent developments, we are actively
monitoring our energy sector tenants to assess indications of
stress.
Debt Securities
Our debt securities portfolio is actively managed through a regular
program of purchases and sales aimed at optimizing yield, quality,
and liquidity, while ensuring that the asset portfolio remains
diversified and well-matched to insurance contract liabilities by
duration. As at March 31, 2015, we held $70.7 billion of debt securities, which
represented 53.2% of our overall investment portfolio. Debt
securities with an investment grade of "A" or higher represented
67.3% of the total debt securities as at March 31, 2015,
compared to 67.9% as at December 31, 2014. Debt securities
rated "BBB" or higher represented 97.1% of total debt securities as
at March 31, 2015, compared to 97.3% as at December 31,
2014.
Corporate debt securities that are not issued or guaranteed by
sovereign, regional, and municipal governments represented 67.7% of
our total debt securities as at March 31, 2015, compared to
66.7% as at December 31, 2014. Total government issued or
guaranteed debt securities as at March 31, 2015 were
$22.8 billion, compared to
$22.1 billion as at December 31,
2014. Our exposure to debt securities to any single country does
not exceed 1% of total invested assets on our Consolidated
Statements of Financial Position as at March 31, 2015 with the
exception of certain countries where we have business operations,
including Canada, the United
States, the United Kingdom,
and the Philippines. As outlined
in the table below, we have an immaterial amount of direct exposure
to Eurozone sovereign credits.
Debt Securities of Governments and Financial Institutions by
Geography
|
|
March 31, 2015
|
|
December 31,
2014
|
($
millions)
|
|
Government issued or
guaranteed
|
|
Financials
|
|
Government issued
or
guaranteed
|
|
Financials
|
Canada
|
|
15,015
|
|
2,094
|
|
14,650
|
|
2,391
|
United
States
|
|
1,553
|
|
6,560
|
|
1,590
|
|
5,992
|
United
Kingdom
|
|
2,609
|
|
2,029
|
|
2,484
|
|
1,992
|
Philippines
|
|
2,804
|
|
40
|
|
2,575
|
|
17
|
Eurozone(1)
|
|
168
|
|
828
|
|
171
|
|
762
|
Other
|
|
668
|
|
1,528
|
|
611
|
|
1,390
|
Total
|
|
22,817
|
|
13,079
|
|
22,081
|
|
12,544
|
(1)
|
Our investments in
Eurozone countries primarily include Germany, Netherlands, Spain,
France, and Belgium.
|
Our gross unrealized losses as at March 31, 2015 for FVTPL
and AFS debt securities were $0.18
billion and $0.03 billion,
respectively, compared with $0.22
billion and $0.04 billion,
respectively, as at December 31, 2014.
Our debt securities as at March 31, 2015 included
$13.1 billion invested in the
financial sector, representing approximately 18.5% of our total
debt securities, or 9.8% of our total invested assets. This
compares to $12.5 billion, or 18.9%,
of the debt security portfolio as at December 31, 2014.
Our debt securities as at March 31, 2015 included
$5.0 billion of asset-backed
securities reported at fair value, representing approximately 7.1%
of our debt securities, or 3.8% of our total invested assets. This
compares to $4.4 billion of
asset-backed securities as at December 31, 2014.
Mortgages and Loans
Mortgages and loans disclosures in this section are presented at
their carrying value on our Consolidated Statements of Financial
Position. As at March 31, 2015, we had a total of $35.7 billion in mortgages and loans compared to
$33.7 billion as at December 31,
2014. Our mortgage portfolio, which consists almost entirely of
first mortgages, was $14.0 billion.
Our loan portfolio, which consists of private placement assets, was
$21.7 billion. The carrying value of
mortgages and loans by geographic location is set out in the
following table. The geographic location for mortgages is based on
location of the property, while for loans it is based on the
country of the creditor's parent.
Mortgages and Loans by Geography
|
|
|
March 31, 2015
|
|
December 31,
2014
|
($
millions)
|
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
Canada
|
|
|
7,996
|
|
12,544
|
|
20,540
|
|
7,847
|
|
12,308
|
|
20,155
|
United
States
|
|
|
5,998
|
|
5,946
|
|
11,944
|
|
5,563
|
|
5,196
|
|
10,759
|
United
Kingdom
|
|
|
—
|
|
804
|
|
804
|
|
1
|
|
776
|
|
777
|
Other
|
|
|
—
|
|
2,439
|
|
2,439
|
|
—
|
|
1,988
|
|
1,988
|
Total
|
|
|
13,994
|
|
21,733
|
|
35,727
|
|
13,411
|
|
20,268
|
|
33,679
|
As at March 31, 2015, our mortgage portfolio of
$14.0 billion consisted mainly of
commercial mortgages, spread across approximately 2,300 loans.
Commercial mortgages include retail, office, multi-family,
industrial, and land properties. Our commercial portfolio has a
weighted average loan-to-value ratio of approximately 54%. The
estimated weighted average debt service coverage is 1.69 times,
consistent with December 31, 2014. The Canada Mortgage and
Housing Corporation insures 25.1% of the Canadian commercial
mortgage portfolio.
As at March 31, 2015, we held $21.7
billion of corporate loans, compared to $20.3 billion as at December 31, 2014. In
the current low interest rate environment, our strategy is to
continue to focus our efforts on the origination of new private
placement assets. Private placement assets provide diversification
by type of loan, industry segment, and borrower credit quality. The
loan portfolio consists of senior secured and unsecured loans to
large and mid-market sized corporate borrowers, securitized
lease/loan obligations secured by a variety of assets, and project
finance loans in sectors such as power and infrastructure.
Mortgages and Loans Past Due or Impaired
|
|
March 31, 2015
|
|
|
Gross carrying value
|
|
|
Allowance for losses
|
($
millions)
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Mortgages
|
|
|
Loans
|
|
Total
|
Not past due
|
|
13,879
|
|
21,710
|
|
35,589
|
|
|
—
|
|
|
—
|
|
—
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
|
35
|
|
—
|
|
35
|
|
|
—
|
|
|
—
|
|
—
|
|
Past due 90 to 179 days
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Past due 180 days or more
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
Impaired
|
|
116
|
|
40
|
|
156
|
|
|
36 (1)
|
|
|
17
|
|
53
|
Total
|
|
14,030
|
|
21,750
|
|
35,780
|
|
|
36
|
|
|
17
|
|
53
|
|
|
December 31,
2014
|
|
|
Gross carrying
value
|
|
|
Allowance for
losses
|
($
millions)
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Mortgages
|
|
|
Loans
|
|
Total
|
Not past
due
|
|
13,316
|
|
20,248
|
|
33,564
|
|
|
—
|
|
|
—
|
|
—
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90
days
|
|
14
|
|
—
|
|
14
|
|
|
|
|
|
|
|
|
|
Past due 90 to 179
days
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
Past due 180 days or
more
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
Impaired
|
|
118
|
|
36
|
|
154
|
|
|
37 (1)
|
|
|
16
|
|
53
|
Total
|
|
13,448
|
|
20,284
|
|
33,732
|
|
|
37
|
|
|
16
|
|
53
|
(1)
|
Includes $19 million
of sectoral provisions as at March 31, 2015 and $18 million of
sectoral provisions as at December 31, 2014.
|
Impaired mortgages and loans, net of allowance for losses,
amounted to $103 million as at
March 31, 2015, compared to $101
million as at December 31, 2014. The net carrying value
of impaired mortgages amounted to $80
million as at March 31, 2015, compared to $81 million as at December 31, 2014.
Asset Default Provision
We make provisions for possible future credit events in the
determination of our insurance contract liabilities. The amount of
the provision for asset default included in insurance contract
liabilities is based on possible reductions in future investment
yields that vary by factors such as type of asset, asset credit
quality (rating), duration, and country of origin. To the extent
that an asset is written off, or disposed of, any amounts that were
set aside in our insurance contract liabilities for possible future
asset defaults in respect of that asset are released.
Our asset default provision reflects the provision relating to
future credit events for fixed income assets currently held by the
Company that support our insurance contract liabilities. Our asset
default provision as at March 31, 2015 was $2,131 million compared to $1,916 million as at December 31, 2014. The
increase of $215 million was
primarily due to increases in the provision for assets purchased
net of dispositions, the depreciation of the Canadian dollar, and
the increase in the fair value of assets supporting our insurance
contract liabilities, partially offset by the release of provisions
on fixed income assets supporting our insurance contract
liabilities.
Derivative Financial Instruments
The values of our derivative instruments are set out in the
following table. The use of derivatives is measured in terms of
notional amounts, which serve as the basis for calculating payments
and are generally not actual amounts that are exchanged.
Derivative Instruments
($
millions)
|
|
|
March 31, 2015
|
|
|
December 31,
2014
|
Net fair
value
|
|
|
(293)
|
|
|
236
|
Total notional
amount
|
|
|
50,516
|
|
|
48,211
|
Credit equivalent
amount
|
|
|
726
|
|
|
738
|
Risk-weighted credit
equivalent amount
|
|
|
7
|
|
|
7
|
|
|
|
|
|
|
|
The total notional amount of derivatives in our portfolio
increased to $50.5 billion as at
March 31, 2015, from $48.2
billion as at December 31, 2014. This increase was
primarily attributable to increases in interest rate contracts and
currency contracts. The net fair value of derivatives decreased to
a net liability of $293 million as at
March 31, 2015, from a net asset value of $236 million as at December 31, 2014. This
decrease was primarily due to a decrease in the fair value of our
foreign exchange portfolio as a result of the depreciation of the
Canadian dollar against the U.S. dollar. The decrease was partially
offset by an increase in fair value on our interest rate portfolio
due to a decline in yield curves.
Capital Management
Our total capital consists of subordinated debt and other capital,
participating policyholders' equity, and total shareholders' equity
which includes common shareholders' equity and preferred
shareholders' equity. As at March 31, 2015, our total capital
was $22.8 billion, up from
$21.7 billion as at December 31,
2014. The increase in total capital was primarily the result of
common shareholders' net income of $441
million and other comprehensive income of $894 million, partially offset by the
$120 million of common share
purchases under our normal course issuer bid and $200 million of common shareholders' dividends
(net of the Canadian dividend reinvestment and share purchase
plan).
The legal entity, SLF Inc. (the ultimate parent company), and
its wholly owned holding companies had $1,718 million in cash and other liquid assets as
at March 31, 2015 ($1,827
million as at December 31, 2014). The decrease in
liquid assets held in SLF Inc. in the first quarter of 2015 was
primarily attributable to common share repurchases during the
quarter. Liquid assets as noted above include cash and cash
equivalents, short-term investments, and publicly traded
securities, and exclude cash from short-term loans.
Sun Life Assurance's MCCSR ratio was 216% as at March 31,
2015, compared to 217% as at December 31, 2014. The slight
decrease to the MCCSR ratio over the period primarily resulted from
market movements. The changes in the 2015 MCCSR Guideline,
effective in the first quarter of 2015, did not have a significant
impact on Sun Life Assurance.
Normal Course Issuer Bid
On November 10, 2014, SLF Inc.
launched a normal course issuer bid under which it is authorized to
purchase up to 9 million common shares between November 10, 2014 and November 9, 2015. During the first quarter of
2015, SLF Inc. purchased and cancelled approximately 3 million
common shares at a total cost of $120
million.
Risk Management
We use an enterprise Risk Management Framework to assist in
categorizing, monitoring, and managing the risks to which we are
exposed. The major categories of risk are credit risk, market risk,
insurance risk, operational risk, liquidity risk, and business
risk. Operational risk is a broad category that includes legal and
regulatory risks, people risks, and systems and processing
risks.
Through our ongoing enterprise risk management procedures, we
review the various risk factors identified in the Framework and
report to senior management and to the Risk Review Committee of the
Board at least quarterly. Our enterprise risk management procedures
and risk factors are described in our annual MD&A and AIF.
When referring to segregated funds in this section, it is
inclusive of segregated fund guarantees, variable annuities, and
investment products and includes Run-off reinsurance in our
Corporate business segment.
Market Risk Sensitivities
Our earnings are affected by the determination of policyholder
obligations under our annuity and insurance contracts. These
amounts are determined using internal valuation models and are
recorded in our Consolidated Financial Statements, primarily as
Insurance contract liabilities. The determination of these
obligations requires management to make assumptions about the
future level of equity market performance, interest rates, credit
and swap spreads, and other factors over the life of our products.
Differences between our actual experience and our best estimate
assumptions are reflected in our Consolidated Financial
Statements.
The market value of our investments in fixed income and equity
securities fluctuates based on movements in interest rates and
equity markets. The market value of fixed income assets designated
as AFS that are held primarily in our surplus segment increases
(decreases) with declining (rising) interest rates. The market
value of equities designated as AFS and held primarily in our
surplus segment increases (decreases) with rising (declining)
equity markets. Changes in the market value of AFS assets flow
through OCI and are only recognized in net income when realized
upon sale, or when considered impaired. The amount of realized
gains (losses) recorded in net income in any period is equal to the
initial 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 $96 million (pre-tax)
in net gains on the sale of AFS assets during the first quarter of
2015 ($57 million pre-tax in the
first quarter of 2014). The net unrealized gains or OCI position on
AFS fixed income and equity assets were $464
million and $254 million,
respectively, after-tax as at March 31,
2015 ($340 million and
$208 million, respectively, after-tax
as at December 31, 2014).
The following table sets out the estimated immediate impact on
or sensitivity of our net income, our OCI, and Sun Life Assurance's
MCCSR ratio to certain instantaneous changes in interest rates and
equity market prices as at March 31, 2015 and
December 31, 2014.
Interest Rate and Equity Market Sensitivities
As at March 31, 2015(1)
($ 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)
|
|
|
12% points
decrease
|
|
|
5% points
decrease
|
|
|
5% points
increase
|
|
|
9% points
increase
|
Equity markets sensitivity(5)
|
|
|
25%
decrease
|
|
|
10%
decrease
|
|
|
10%
increase
|
|
|
25%
increase
|
|
Potential impact on net
income(3)
|
|
$
|
(300)
|
|
$
|
(100)
|
|
$
|
100
|
|
$
|
200
|
|
Potential impact on OCI
|
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on MCCSR(4)
|
|
|
5% points
decrease
|
|
|
1% points
decrease
|
|
|
1% points
increase
|
|
|
2% points
increase
|
As at December 31,
2014(1)
($ millions, unless
otherwise noted)
|
|
|
|
|
|
|
|
|
Interest rate
sensitivity(2)(6)
|
|
|
100 basis
point
decrease
|
|
|
50 basis
point
decrease
|
|
|
50 basis
point
increase
|
|
|
100 basis
point
increase
|
|
Potential impact on
net income(3)(6)
|
|
$
|
(400)
|
|
$
|
(100)
|
|
$
|
50
|
|
$
|
100
|
|
Potential impact on
OCI
|
|
$
|
500
|
|
$
|
250
|
|
$
|
(250)
|
|
$
|
(500)
|
|
Potential impact on
MCCSR(4)
|
|
|
12% points
decrease
|
|
|
5% points
decrease
|
|
|
4% points
increase
|
|
|
8% points
increase
|
Equity markets
sensitivity(5)
|
|
|
25%
decrease
|
|
|
10%
decrease
|
|
|
10%
increase
|
|
|
25%
increase
|
|
Potential impact on
net income(3)
|
|
$
|
(250)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on
OCI
|
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on
MCCSR(4)
|
|
|
5% points
decrease
|
|
|
1% points
decrease
|
|
|
1% points
increase
|
|
|
1% points
increase
|
|
|
|
|
|
|
|
|
|
(1)
|
Net income and OCI
sensitivities have been rounded to the nearest $50
million.
|
(2)
|
Interest
rate sensitivities assume a parallel shift in assumed interest
rates across the entire yield curve as at March 31, 2015 and
December 31, 2014. Variations in realized yields based on factors
such as different terms to maturity and geographies may result in
realized sensitivities being significantly different from those
illustrated above. Sensitivities include the impact of re-balancing
interest rate hedges for segregated funds at 10 basis point
intervals (for 50 basis point changes in interest rates) and at 20
basis point intervals (for 100 basis point changes in interest
rates).
|
(3)
|
The market risk
sensitivities include the estimated mitigation impact of our
hedging programs in effect as at March 31, 2015 and December 31,
2014, and include new business added and product changes
implemented prior to such dates.
|
(4)
|
The MCCSR
sensitivities illustrate the impact on Sun Life Assurance as at
March 31, 2015 and December 31, 2014. This excludes the impact on
assets and liabilities that are in SLF Inc. but not included in Sun
Life Assurance. MCCSR sensitivities as at December 31, 2014 reflect
the impact of IAS 19 Employee Benefits and its phase-in
impact on available capital.
|
(5)
|
Represents the
respective change across all equity markets as at March 31, 2015
and December 31, 2014. Assumes that actual equity exposures
consistently and precisely track the broader equity markets. Since
in actual practice equity-related exposures generally differ from
broad market indices (due to the impact of active management, basis
risk, and other factors), realized sensitivities may differ
significantly from those illustrated above. Sensitivities include
the impact of re-balancing equity hedges for segregated funds at 2%
intervals (for 10% changes in equity markets) and at 5% intervals
(for 25% changes in equity markets).
|
(6)
|
The majority of
interest rate sensitivity, after hedging, is attributed to
individual insurance products. We also have interest rate
sensitivity, after hedging, from our fixed annuity and segregated
funds products.
|
Our net income sensitivity to interest rate declines has
decreased since December 31, 2014.
This is the result of an improvement in the measurement of the
sensitivity, partially offset by an increase in sensitivity due to
the decline in the level of interest rates over the first
quarter.
Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our
reported net income attributable to certain instantaneous changes
in credit and swap spreads. The credit spread sensitivities reflect
the impact of changes in credit spreads on our asset and liability
valuations (including non-sovereign fixed income assets, provincial
governments, corporate bonds, and other fixed income assets). The
swap spread sensitivities reflect the impact of changes in swap
spreads on swap-based derivative positions and liability
valuations.
Credit Spread Sensitivities ($ millions, after-tax)
Net income
sensitivity(1)(2)
|
50 basis point
decrease
|
50 basis point
increase
|
March 31, 2015
|
(125)
|
125
|
December 31,
2014
|
(100)
|
125
|
(1) Sensitivities have been rounded to the nearest $25
million.
|
(2) In most
instances, credit spreads are assumed to revert to long-term
insurance contract liability assumptions generally over a five-year
period.
|
Swap Spread Sensitivities ($ millions, after-tax)
Net income
sensitivity(1)
|
20 basis point
decrease
|
20 basis point
increase
|
March 31, 2015
|
75
|
(75)
|
December 31,
2014
|
75
|
(75)
|
(1) Sensitivities have been rounded to the nearest $25
million.
|
The credit and swap spread sensitivities assume a parallel shift
in the indicated spreads (i.e., equal shift across the entire
spread term structure). Variations in realized spread changes based
on different terms to maturity, geographies, asset class/derivative
types, underlying interest rate movements, and ratings may result
in realized sensitivities being significantly different from those
provided above. The credit spread sensitivity estimates exclude any
credit spread impact that may arise in connection with asset
positions held in segregated funds. Spread sensitivities are
provided for the consolidated entity and may not be proportional
across all reporting segments. Refer to the section Additional
Cautionary Language and Key Assumptions Related to Sensitivities
for important additional information regarding these estimates.
General Account Insurance and Annuity Products
Most of our expected sensitivity to interest rate risk is derived
from our general account insurance and annuity products. We have
implemented market risk management strategies to mitigate a portion
of the market risk related to our general account insurance and
annuity products.
Individual insurance products include universal life and other
long-term life and health insurance products. Major sources of
market risk exposure for individual insurance products include the
reinvestment risk related to future premiums on regular premium
policies, asset reinvestment risk on both regular premium and
single premium policies, and the guaranteed cost of insurance.
Interest rate risk for individual insurance products is typically
managed on a duration basis, within tolerance ranges set out in the
applicable investment policy or guidelines. Targets and limits are
established so that the level of residual exposure is commensurate
with our risk appetite. Exposures are monitored frequently, and
assets are re-balanced as necessary to maintain compliance within
policy limits using a combination of assets and derivative
instruments. A portion of the longer-term cash flows are backed
with equities and real estate.
For participating insurance products and other insurance
products with adjustability features, the investment strategy
objective is to provide a total rate of return given a constant
risk profile over the long term.
Fixed annuity products generally provide the policyholder with a
guaranteed investment return or crediting rate. Interest rate risk
for these products is typically managed on a duration basis, within
tolerance ranges set out in the applicable investment guidelines.
Targets and limits are established such that the level of residual
exposure is commensurate with our risk appetite. Exposures are
monitored frequently, and are re-balanced as necessary to maintain
compliance within prescribed tolerances using a combination of
fixed income assets and derivative instruments.
Certain insurance and annuity products contain minimum interest
rate guarantees. Market risk management strategies are implemented
to limit potential financial loss due to reductions in asset earned
rates relative to contract guarantees. These typically involve the
use of hedging strategies utilizing interest rate derivatives such
as interest rate floors, swaps, and swaptions.
Certain insurance and annuity products contain features which
allow the policyholders to surrender their policy at book value.
Market risk management strategies are implemented to limit the
potential financial loss due to changes in interest rate levels and
policyholder behaviour. These typically involve the use of hedging
strategies such as dynamic option replication and the purchase of
interest rate swaptions.
Certain products have guaranteed minimum annuitization rates.
Market risk management strategies are implemented to limit the
potential financial loss and typically involve the use of fixed
income asset, interest rate swaps, and swaptions.
Segregated Fund Guarantees
Approximately one half of our expected sensitivity to equity market
risk and a small amount of interest rate risk sensitivity is
derived from segregated fund products. These products provide
benefit guarantees, which are linked to underlying fund performance
and may be triggered upon death, maturity, withdrawal, or
annuitization. The cost of providing for the guarantees in respect
of our segregated fund contracts is uncertain and will depend upon
a number of factors including general capital market conditions,
our hedging strategies, policyholder behaviour, and mortality
experience, each of which may result in negative impacts on net
income and capital.
The following table provides information with respect to the
guarantees provided in our segregated fund businesses.
As at March 31, 2015
|
($
millions)
|
Fund value
|
Amount at Risk(1)
|
Value of
guarantees(2)
|
Insurance contract
liabilities(3)
|
SLF Canada
|
13,382
|
142
|
11,140
|
364
|
SLF U.S.
|
5,622
|
270
|
5,646
|
114
|
Run-off
reinsurance(4)
|
3,058
|
540
|
2,153
|
578
|
Total
|
22,062
|
952
|
18,939
|
1,056
|
|
|
|
|
|
As at December 31,
2014
|
($
millions)
|
Fund value
|
Amount at
Risk(1)
|
Value of
guarantees(2)
|
Insurance
contract
liabilities(3)
|
SLF Canada
|
13,039
|
217
|
11,202
|
273
|
SLF U.S.
|
5,194
|
259
|
5,236
|
96
|
Run-off
reinsurance(4)
|
2,800
|
501
|
1,999
|
526
|
Total
|
21,033
|
977
|
18,437
|
895
|
(1)
|
The Amount at Risk
represents the excess of the value of the guarantees over fund
values on all policies where the value of the guarantees exceeds
the fund value. The Amount at Risk is not currently payable as the
guarantees are only payable upon death, maturity, withdrawal, or
annuitization if fund values remain below guaranteed
values.
|
(2)
|
For guaranteed
lifetime withdrawal benefits, the value of guarantees is calculated
as the present value of the maximum future withdrawals assuming
market conditions remain unchanged from current levels. For all
other benefits, the value of guarantees is determined assuming 100%
of the claims are made at the valuation date.
|
(3)
|
The insurance
contract liabilities represent management's provision for future
costs associated with these guarantees and include a provision for
adverse deviation in accordance with Canadian actuarial standards
of practice.
|
(4)
|
The Run-off
reinsurance business includes risks assumed through reinsurance of
variable annuity products issued by various North American
insurance companies between 1997 and 2001. This line of business is
part of a closed block of reinsurance, which is included in the
Corporate segment.
|
The movement of the items in the table above from
December 31, 2014 to March 31, 2015 was primarily as a
result of the following factors:
(i)
|
fund values increased
due to favourable equity market movements and the weakening of the
Canadian dollar against the U.S. dollar, partially offset by the
natural run-off of the block;
|
(ii)
|
the Amount at Risk
decreased due to favourable equity market movements, partially
offset by the weakening of the Canadian dollar;
|
(iii)
|
the total value of
guarantees increased mainly due to the weakening of the Canadian
dollar, partially offset by the natural run-off of the block;
and
|
(iv)
|
insurance contract
liabilities increased due to unfavourable interest rate movement
and the weakening of the Canadian dollar, partially offset by
favourable equity market movements.
|
Segregated Fund
Hedging
We have implemented hedging programs, involving the use of
derivative instruments, to mitigate a portion of the cost of
interest rate and equity market-related volatility in providing for
segregated fund guarantees. As at March 31,
2015, over 90% of our segregated fund contracts, as measured
by associated fund values, were included in a hedging program.
While a large percentage of contracts are included in the hedging
program, not all of our equity and interest rate exposure related
to these contracts is hedged. For those segregated fund contracts
included in the hedging program, we generally hedge the value of
expected future net claims costs and a portion of the policy fees
as we are primarily focused on hedging the expected economic costs
associated with providing these guarantees and we do not hedge the
value of other fee streams that do not relate to costs of hedging
of guarantees.
The following table illustrates the impact of our hedging
program related to our sensitivity to a 50 basis point and 100
basis point decrease in interest rates and 10% and 25% decrease in
equity markets for segregated fund contracts as at March 31, 2015 and December 31, 2014.
Impact of Segregated Fund Hedging
March 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)
|
(550)
|
Hedging
impact
|
200
|
450
|
150
|
450
|
Net of
hedging
|
—
|
—
|
(50)
|
(100)
|
|
|
|
|
|
December 31,
2014
|
($
millions)
|
Changes in interest
rates(3)
|
Changes in equity
markets(4)
|
Net income
sensitivity(1)(2)
|
50 basis
point
decrease
|
100 basis
point
decrease
|
10%
decrease
|
25%
decrease
|
Before
hedging
|
(200)
|
(400)
|
(150)
|
(500)
|
Hedging
impact
|
200
|
400
|
150
|
400
|
Net of
hedging
|
—
|
—
|
—
|
(100)
|
(1)
|
Net income
sensitivities have been rounded to the nearest $50
million.
|
(2)
|
Since the fair value
of benefits being hedged will generally differ from the financial
statement value (due to different valuation methods and the
inclusion of valuation margins in respect of financial statement
values), this will result in residual volatility to interest rate
and equity market shocks in reported income and capital. The
general availability and cost of these hedging instruments may be
adversely impacted by a number of factors, including volatile and
declining equity and interest rate market conditions.
|
(3)
|
Represents a parallel
shift in assumed interest rates across the entire yield curve as at
March 31, 2015 and December 31, 2014. Variations in
realized yields based on factors such as different terms to
maturity and geographies may result in realized sensitivities being
significantly different from those illustrated above. Sensitivities
include the impact of re-balancing interest rate hedges for
segregated funds at 10 basis point intervals (for 50 basis point
changes in interest rates) and at 20 basis point intervals (for
100 basis point changes in interest rates).
|
(4)
|
Represents the change
across all equity markets as at March 31, 2015 and
December 31, 2014. Assumes that actual equity exposures
consistently and precisely track the broader equity markets. Since
in actual practice equity-related exposures generally differ from
broad market indices (due to the impact of active management, basis
risk, and other factors), realized sensitivities may differ
significantly from those illustrated above. Sensitivities include
the impact of re-balancing equity hedges for segregated funds at 2%
intervals (for 10% changes in equity markets) and at 5% intervals
(for 25% changes in equity markets).
|
Real Estate Risk
We are exposed to real estate risk arising from fluctuations in the
value of, or future cash flows on, real estate classified as
investment properties. We may experience financial losses resulting
from the direct ownership of real estate investments or indirectly
through fixed income investments secured by real estate property,
leasehold interests, ground rents, and purchase and leaseback
transactions. Real estate price risk may arise from external market
conditions, inadequate property analysis, inadequate insurance
coverage, inappropriate real estate appraisals, or from
environmental risk exposures. We hold direct real estate
investments that support general account liabilities and surplus,
and fluctuations in value will impact our profitability and
financial position. An instantaneous 10% decrease in the value of
our direct real estate investments as at March 31, 2015 would decrease net income by
approximately $150 million
($150 million decrease as at
December 31, 2014). Conversely, an
instantaneous 10% increase in the value of our direct real estate
investments as at March 31, 2015
would increase net income by approximately $150 million ($150
million increase as at December 31,
2014).
Additional Cautionary Language and Key Assumptions Related to
Sensitivities
Our market risk sensitivities are measures of our estimated change
in net income and OCI for changes in interest rates and equity
market price levels described above, based on interest rates,
equity market prices, and business mix in place as at the
respective calculation dates. These sensitivities are calculated
independently for each risk factor, generally assuming that all
other risk variables stay constant. The sensitivities do not take
into account indirect effects such as potential impacts on goodwill
impairment or valuation allowances on deferred tax assets. The
sensitivities are provided for the consolidated entity and may not
be proportional across all reporting segments. Actual results can
differ materially from these estimates for a variety of reasons,
including differences in the pattern or distribution of the market
shocks, the interaction between these risk factors, model error, or
changes in other assumptions such as business mix, effective tax
rates, policyholder behaviour, currency exchange rates, and other
market variables relative to those underlying the calculation of
these sensitivities. The potential extent to which actual results
may differ from the indicative ranges will generally increase with
larger capital market movements. Our sensitivities as at
December 31, 2014 have been included
for comparative purposes only.
We have also provided measures of our net income sensitivity to
instantaneous changes in credit spreads, swap spreads, real estate
price levels, and capital sensitivities to changes in interest
rates and equity price levels. The real estate sensitivities are
non-IFRS financial measures. For additional information, see Use of
Non-IFRS Financial Measures. The cautionary language which appears
in this section is also applicable to the credit spread, swap
spread, real estate, and MCCSR ratio sensitivities. In particular,
these sensitivities are based on interest rates, credit and swap
spreads, equity market, and real estate price levels as at the
respective calculation dates and assume that all other risk
variables remain constant. Changes in interest rates, credit and
swap spreads, equity market, and real estate prices in excess of
the ranges illustrated may result in other-than-proportionate
impacts.
As these market risk sensitivities reflect an instantaneous
impact on net income, OCI, and Sun Life Assurance's MCCSR ratio,
they do not include impacts over time such as the effect on fee
income in our asset management businesses.
The sensitivities reflect the composition of our assets and
liabilities as at March 31, 2015 and
December 31, 2014. Changes in these positions due to new sales
or maturities, asset purchases/sales, or other management actions
could result in material changes to these reported sensitivities.
In particular, these sensitivities reflect the expected impact of
hedging activities based on the hedge programs in place as at the
March 31 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 March 31, 2015 and December 31, 2014, as applicable. Changes in the
regulatory environment, accounting or actuarial valuation methods,
models, or assumptions after this date could result in material
changes to these reported sensitivities. Changes in interest rates
and equity market prices in excess of the ranges illustrated may
result in other than proportionate impacts.
Our hedging programs may themselves expose us to other risks,
including basis risk (i.e., the risk that hedges do not exactly
replicate the underlying portfolio experience), derivative
counterparty credit risk, and increased levels of liquidity risk,
model risk, and other operational risks. These factors may
adversely impact the net effectiveness, costs, and financial
viability of maintaining these hedging programs and therefore
adversely impact our profitability and financial position. While
our hedging programs include various elements aimed at mitigating
these effects (e.g., hedge counterparty credit risk is managed by
maintaining broad diversification, dealing primarily with highly
rated counterparties, and transacting through International Swaps
and Derivatives Association agreements that generally include
applicable credit support annexes), residual risk and potential
reported earnings and capital volatility remain.
For the reasons outlined above, these sensitivities should only
be viewed as directional estimates of the underlying sensitivities
of each factor under these specialized assumptions, and should not
be viewed as predictors of our future net income, OCI, and capital
sensitivities. Given the nature of these calculations, we cannot
provide assurance that actual impact will be consistent with the
estimates provided.
Information related to market risk sensitivities and guarantees
related to segregated fund products should be read in conjunction
with the information contained in the Outlook, Critical Accounting
Policies and Estimates, and Risk Management sections in our annual
MD&A and in the Risk Factors and Regulatory Matters sections in
our AIF.
Legal and Regulatory Matters
Information concerning legal and regulatory matters is provided in
our Annual Consolidated Financial Statements, annual MD&A, and
AIF, for the year ended December 31,
2014.
Changes in Accounting Policies
We have not adopted any new and amended IFRS in the current period
ended March 31, 2015.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable
assurance regarding the reliability of the Company's financial
reporting and the preparation of its financial statements in
accordance with IFRS.
There were no changes in the Company's internal control over
financial reporting during the period which began on January 1, 2015 and ended on March 31, 2015
that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
Reconciliation of Non-IFRS Financial Measures
Additional information on the use of non-IFRS measures, including
the definition of operating net income (loss) and underlying net
income (loss), is available in this document under the heading Use
of Non-IFRS Financial Measures.
The following table sets out the amounts that were excluded from
our operating net income (loss), underlying net income (loss),
operating EPS, and underlying EPS, and provides a reconciliation to
our reported net income (loss) and EPS based on IFRS.
Reconciliations of Select Net Income Measures
|
Quarterly
results
|
($ millions, unless
otherwise noted)
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Reported Net
income
|
441
|
502
|
435
|
425
|
400
|
|
Impact of certain
hedges in SLF Canada that do not qualify for hedge
accounting
|
15
|
(6)
|
2
|
(8)
|
5
|
|
Fair value
adjustments on share-based payment awards at MFS
|
(20)
|
1
|
(31)
|
(44)
|
(51)
|
|
Restructuring and
other related costs
|
—
|
(4)
|
(3)
|
(11)
|
(8)
|
Operating net income
(loss)
|
446
|
511
|
467
|
488
|
454
|
|
Market related
impacts
|
(22)
|
(21)
|
(54)
|
(22)
|
(26)
|
|
Assumption changes
and management actions
|
(48)
|
172
|
4
|
11
|
40
|
Underlying net income
(loss)
|
516
|
360
|
517
|
499
|
440
|
Reported EPS
(diluted) ($)
|
0.72
|
0.81
|
0.71
|
0.69
|
0.65
|
|
Impact of certain
hedges in SLF Canada that do not qualify for hedge accounting
($)
|
0.02
|
(0.01)
|
—
|
(0.01)
|
0.01
|
|
Fair value
adjustments on share-based payment awards at MFS
($)
|
(0.03)
|
—
|
(0.05)
|
(0.07)
|
(0.08)
|
|
Restructuring and
other related costs ($)
|
—
|
(0.01)
|
—
|
(0.02)
|
(0.01)
|
|
Impact of convertible
securities on diluted EPS ($)
|
—
|
—
|
—
|
(0.01)
|
(0.01)
|
Operating EPS
(diluted) ($)
|
0.73
|
0.83
|
0.76
|
0.80
|
0.74
|
|
Market related
impacts ($)
|
(0.03)
|
(0.04)
|
(0.09)
|
(0.03)
|
(0.04)
|
|
Assumption changes
and management actions ($)
|
(0.08)
|
0.28
|
0.01
|
0.02
|
0.06
|
Underlying EPS
(diluted) ($)
|
0.84
|
0.59
|
0.84
|
0.81
|
0.72
|
Management also uses the following non-IFRS financial
measures:
Return on equity. IFRS does not prescribe the calculation
of ROE and therefore a comparable measure under IFRS is not
available. To determine operating ROE and underlying ROE, operating
net income (loss) and underlying net income (loss) are divided by
the total weighted average common shareholders' equity for the
period, respectively.
Adjusted revenue. This measure excludes from revenue the
impact of: (i) exchange rate fluctuations, from the translation of
functional currencies to the Canadian dollar, for comparisons
("Constant Currency Adjustment"); (ii) Fair value and foreign
currency changes on assets and liabilities ("FV Adjustment"); and
(iii) reinsurance for the insured business in SLF Canada's GB
operations ("Reinsurance in SLF Canada's GB Operations
Adjustment"). Adjusted revenue is an alternative measure of revenue
that provides greater comparability across reporting periods.
|
Quarterly
results
|
($
millions)
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Revenues
|
7,332
|
7,375
|
5,614
|
6,315
|
6,460
|
|
Constant Currency
Adjustment
|
307
|
72
|
(31)
|
(25)
|
—
|
|
FV
Adjustment
|
2,495
|
2,196
|
495
|
1,560
|
1,921
|
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
(1,185)
|
(1,154)
|
(1,130)
|
(1,120)
|
(1,161)
|
Adjusted
revenue
|
5,715
|
6,261
|
6,280
|
5,900
|
5,700
|
Adjusted premiums and deposits. This measure adjusts
premiums and deposits for the impact of: (i) the Constant Currency
Adjustment and (ii) the Reinsurance in SLF Canada's GB Operations
Adjustment. Adjusted premiums and deposits is an alternative
measure of premiums and deposits that provides greater
comparability across reporting periods.
|
Quarterly
results
|
($
millions)
|
Q1'15
|
Q4'14
|
Q3'14
|
Q2'14
|
Q1'14
|
Premiums and
deposits
|
36,754
|
31,770
|
29,124
|
28,876
|
32,710
|
|
Constant Currency
Adjustment
|
3,513
|
783
|
(300)
|
(236)
|
—
|
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
(1,185)
|
(1,154)
|
(1,130)
|
(1,120)
|
(1,161)
|
Adjusted premiums and
deposits
|
34,426
|
32,141
|
30,554
|
30,232
|
33,871
|
Pre-tax operating profit margin ratio for MFS. This ratio
is a measure of the underlying profitability of MFS, which excludes
certain investment income and commission expenses that are
offsetting. These amounts are excluded in order to neutralize the
impact these items have on the pre-tax operating profit margin
ratio, as they are offsetting in nature and have no impact on the
underlying profitability of MFS.
Impact of foreign exchange. Several IFRS financial
measures are presented on a constant currency adjusted basis to
exclude the impact of foreign exchange rate fluctuations. These
measures are calculated using the average or period end foreign
exchange rates, as appropriate, in effect at the date of the
comparative period.
Real estate market sensitivities. Real estate market
sensitivities are non-IFRS financial measures for which there are
no directly comparable measures under IFRS so it is not possible to
provide a reconciliation of these amounts to the most directly
comparable IFRS measures.
Other. Management also uses the following non-IFRS
financial measures for which there are no comparable financial
measures in IFRS: (i) ASO premium and deposit equivalents, mutual
fund sales, managed fund sales, life and health sales, and total
premiums and deposits; (ii) AUM, mutual fund assets, managed fund
assets, other AUM, and assets under administration; (iii) the value
of new business, which is used to measure the estimated lifetime
profitability of new sales and is based on actuarial calculations;
and (iv) assumption changes and management actions, which is a
component of our sources of earnings disclosure. Sources of
earnings is an alternative presentation of our Consolidated
Statements of Operations that identifies and quantifies various
sources of income. The Company is required to disclose its sources
of earnings by its principal regulator, the Office of the
Superintendent of Financial Institutions.
Forward-looking Statements
From time to time, the Company makes written or oral
forward-looking statements within the meaning of certain securities
laws, including the "safe harbour" provisions of the United States
Private Securities Litigation Reform Act of 1995 and applicable
Canadian securities legislation. Forward-looking statements
contained in this document include (i) statements relating to our
strategies, (ii) statements that are predictive in nature or that
depend upon or refer to future events or conditions, and (iii)
statements that include words such as "aim", "anticipate",
"assumption", "believe", "could", "estimate", "expect", "goal",
"initiatives", "intend", "may", "objective", "outlook", "plan",
"project", "seek", "should", "strategy", "strive", "target",
"will", and similar expressions. Forward-looking statements include
the information concerning our possible or assumed future results
of operations. These statements represent our current expectations,
estimates, and projections regarding future events and are not
historical facts. Forward-looking statements are not a guarantee of
future performance and involve risks and uncertainties that are
difficult to predict. Future results and shareholder value may
differ materially from those expressed in these forward-looking
statements due to, among other factors, the matters set out in this
document under the headings Capital Management and Risk Management
and in SLF Inc.'s 2014 AIF under the headings Risk Factors and the
factors detailed in SLF Inc.'s other filings with Canadian and U.S.
securities regulators, which are available for review at
www.sedar.com and www.sec.gov, respectively.
Factors that could cause actual results to differ materially
from expectations include, but are not limited to: business
risks - economic and geo-political risks; risks in implementing
business strategies; changes in legislation and regulations,
including capital requirements and tax laws; the inability to
maintain strong distribution channels and risks relating to market
conduct by intermediaries and agents; risks relating to operations
in Asia, including the Company's
joint ventures; the impact of competition; the performance of the
Company's investments and investment portfolios managed for clients
such as segregated and mutual funds; market conditions that affect
the Company's capital position or its ability to raise capital;
downgrades in financial strength or credit ratings; risks relating
to estimates and judgments used in calculating taxes; the impact of
mergers, acquisitions and divestitures; the ineffectiveness of risk
management policies and procedures; risks relating to the closed
block of business; market, credit, and liquidity risks - the
performance of equity markets; credit risks related to issuers of
securities held in our investment portfolio, debtors, structured
securities, reinsurers, derivative counterparties, other financial
institutions, and other entities; changes or volatility in interest
rates or credit spreads or swap spreads; fluctuations in foreign
currency exchange rates; risks relating to real estate investments;
risks relating to market liquidity; insurance risks -
risks relating to the rate of mortality improvement; risks relating
to policyholder behaviour; risks relating to product design and
pricing; risks relating to mortality and morbidity, including the
occurrence of natural or man-made disasters, pandemic diseases, and
acts of terrorism; the impact of higher-than-expected future
expenses; the availability, cost, and effectiveness of reinsurance;
operational risks - breaches or failure of information
system security and privacy, including cyber terrorism; risks
relating to our information technology infrastructure; failure of
information systems and Internet-enabled technology; the ability to
attract and retain employees; legal and regulatory proceedings,
including inquiries and investigations; risks relating to financial
modelling errors; business continuity risks; dependence on
third-party relationships, including outsourcing arrangements; and
risks relating to the environment, environmental laws and
regulations, and third-party policies.
The Company does not undertake any obligation to update or
revise its forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events, except as required by law.
Earnings Conference Call
The Company's first quarter 2015 financial results will be reviewed
at a conference call on Wednesday, May 6,
2015, at 1:00 p.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
Q1 2016 period end. The conference call can also be accessed by
phone by dialing 647-788-4901 (International) or 1-877-201-0168
(Toll free North America).
Consolidated Statements of Operations
|
|
|
For the three months
ended
|
(unaudited, in
millions of Canadian dollars except for per share
amounts)
|
March 31,
2015
|
March 31,
2014
|
Revenue
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
Gross
|
|
$
|
3,723
|
|
$
|
3,638
|
|
|
Less:
Ceded
|
|
1,516
|
|
1,410
|
|
Net
premiums
|
|
2,207
|
|
2,228
|
|
Net investment income
(loss):
|
|
|
|
|
|
|
Interest and other
investment income
|
|
1,279
|
|
1,188
|
|
|
Fair value and
foreign currency changes on assets and liabilities
|
|
2,495
|
|
1,921
|
|
|
Net gains (losses) on
available-for-sale assets
|
|
96
|
|
57
|
|
Net investment income
(loss)
|
|
3,870
|
|
3,166
|
|
Fee income
|
|
1,255
|
|
1,066
|
Total revenue
|
|
7,332
|
|
6,460
|
|
|
|
|
|
Benefits and expenses
|
|
|
|
|
|
Gross claims and
benefits paid
|
|
3,430
|
|
3,203
|
|
Increase (decrease)
in insurance contract liabilities
|
|
3,148
|
|
2,229
|
|
Decrease (increase)
in reinsurance assets
|
|
(193)
|
|
54
|
|
Increase (decrease)
in investment contract liabilities
|
|
12
|
|
31
|
|
Reinsurance expenses
(recoveries)
|
|
(1,453)
|
|
(1,325)
|
|
Commissions
|
|
492
|
|
440
|
|
Net transfer to
(from) segregated funds
|
|
17
|
|
7
|
|
Operating
expenses
|
|
1,180
|
|
1,123
|
|
Premium
taxes
|
|
70
|
|
61
|
|
Interest
expense
|
|
72
|
|
87
|
Total benefits and expenses
|
|
6,775
|
|
5,910
|
Income (loss) before income taxes
|
|
557
|
|
550
|
|
Less: Income tax
expense (benefit)
|
|
95
|
|
117
|
Total net income (loss)
|
|
462
|
|
433
|
|
Less: Net income
(loss) attributable to participating policyholders
|
|
(5)
|
|
4
|
Shareholders' net income (loss)
|
|
467
|
|
429
|
|
Less: Preferred
shareholders' dividends
|
|
26
|
|
29
|
Common shareholders' net income (loss)
|
|
$
|
441
|
|
$
|
400
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
Basic
|
|
$
|
0.72
|
|
$
|
0.66
|
|
Diluted
|
|
$
|
0.72
|
|
$
|
0.65
|
Consolidated Statements of Financial Position
|
|
|
|
|
As at
|
(unaudited, in
millions of Canadian dollars)
|
|
March 31,
2015
|
|
December
31,
2014
|
Assets
|
|
|
|
|
|
Cash, cash
equivalents and short-term securities
|
|
$
|
6,744
|
|
|
$
|
6,818
|
|
Debt
securities
|
|
70,713
|
|
|
66,214
|
|
Equity
securities
|
|
5,551
|
|
|
5,223
|
|
Mortgages and
loans
|
|
35,727
|
|
|
33,679
|
|
Derivative
assets
|
|
2,378
|
|
|
1,839
|
|
Other invested
assets
|
|
2,686
|
|
|
2,375
|
|
Policy
loans
|
|
3,000
|
|
|
2,895
|
|
Investment
properties
|
|
6,260
|
|
|
6,108
|
|
Invested
assets
|
|
133,059
|
|
|
125,151
|
|
Other
assets
|
|
4,052
|
|
|
3,429
|
|
Reinsurance
assets
|
|
4,583
|
|
|
4,042
|
|
Deferred tax
assets
|
|
1,280
|
|
|
1,230
|
|
Property and
equipment
|
|
577
|
|
|
555
|
|
Intangible
assets
|
|
932
|
|
|
895
|
|
Goodwill
|
|
4,242
|
|
|
4,117
|
|
Total general fund
assets
|
|
148,725
|
|
|
139,419
|
|
Investments for
account of segregated fund holders
|
|
89,667
|
|
|
83,938
|
Total assets
|
|
$
|
238,392
|
|
|
$
|
223,357
|
Liabilities and equity
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Insurance contract
liabilities
|
|
$
|
107,966
|
|
|
$
|
101,228
|
|
Investment contract
liabilities
|
|
2,864
|
|
|
2,819
|
|
Derivative
liabilities
|
|
2,671
|
|
|
1,603
|
|
Deferred tax
liabilities
|
|
217
|
|
|
155
|
|
Other
liabilities
|
|
10,071
|
|
|
9,725
|
|
Senior
debentures
|
|
2,849
|
|
|
2,849
|
|
Subordinated
debt
|
|
2,184
|
|
|
2,168
|
|
Total general fund
liabilities
|
|
128,822
|
|
|
120,547
|
|
Insurance contracts
for account of segregated fund holders
|
|
81,821
|
|
|
76,736
|
|
Investment contracts
for account of segregated fund holders
|
|
7,846
|
|
|
7,202
|
Total liabilities
|
|
$
|
218,489
|
|
|
$
|
204,485
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Issued share capital
and contributed surplus
|
|
$
|
10,804
|
|
|
$
|
10,805
|
|
Retained earnings and
accumulated other comprehensive income
|
|
9,099
|
|
|
8,067
|
Total equity
|
|
$
|
19,903
|
|
|
$
|
18,872
|
Total liabilities and equity
|
|
$
|
238,392
|
|
|
$
|
223,357
|
About Sun Life Financial
Celebrating 150 years in 2015, Sun Life Financial is a leading
international financial services organization providing a diverse
range of protection and wealth products and services to individuals
and corporate customers. Sun Life Financial and its partners have
operations in a number of markets worldwide, including Canada,
the United States, the
United Kingdom, Ireland, Hong
Kong, the Philippines,
Japan, Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia and Bermuda. As of March 31, 2015, the Sun
Life Financial group of companies had total assets under management
of $813 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.