Sun Life Financial
Inc. ("SLF Inc."), its subsidiaries and, where applicable, its
joint ventures and associates are collectively referred to as "the
Company", "Sun Life", "we", "our", and "us". We manage our
operations and report our financial results in five business
segments: Canada, United States ("U.S."), Asset Management, Asia,
and Corporate. The information in this document is based on the
unaudited interim financial results of SLF Inc. for the period
ended March 31, 2020 and should be read in conjunction with
the interim management's discussion and analysis ("MD&A") and
our unaudited interim consolidated financial statements and
accompanying notes ("Interim Consolidated Financial Statements")
for the period ended March 31, 2020, prepared in accordance
with International Financial Reporting Standards ("IFRS"), which
are available on www.sunlife.com under Investors – Financial
results and reports. Additional information relating to SLF Inc. is
available on the SEDAR website at www.sedar.com and on the U.S.
Securities and Exchange Commission's website at www.sec.gov. Unless
otherwise noted, all amounts are in Canadian dollars.
|
TORONTO, May 5, 2020 /CNW/
- Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF) today
announced its results for the first quarter ended March 31,
2020. First quarter reported net income was $391 million and underlying net
income(1) was $770
million.
|
|
Quarterly
results
|
Profitability
|
Q1'20
|
|
Q1'19
|
|
Reported net income
($ millions)
|
391
|
|
623
|
|
Underlying net
income(1) ($ millions)
|
770
|
|
717
|
|
Reported EPS
($)(2)
|
0.67
|
|
1.04
|
|
Underlying EPS
($)(1)(2)
|
1.31
|
|
1.20
|
|
Reported return on
equity ("ROE")(1)
|
7.2%
|
|
11.5%
|
|
Underlying
ROE(1)
|
14.2%
|
|
13.3%
|
|
|
|
|
|
Growth
|
Q1'20
|
|
Q1'19
|
|
Insurance sales ($
millions)(1)
|
776
|
|
780
|
|
Wealth sales ($
millions)(1)
|
59,904
|
|
35,993
|
|
Value of new business
("VNB") ($ millions)(1)
|
380
|
|
382
|
|
Assets under
management ("AUM") ($ billions)(1)
|
1,023
|
|
1,011
|
|
|
|
|
|
Financial
Strength
|
Q1'20
|
|
Q4'19
|
|
LICAT ratios (at
period end)(3)
|
|
|
|
|
Sun Life Financial
Inc.
|
143%
|
|
143%
|
|
Sun Life
Assurance(4)
|
130%
|
|
130%
|
|
Financial leverage
ratio (at period end)(1)
|
20.7%
|
|
21.2%
|
"The COVID-19 pandemic has rapidly created severe global stress,
and the collective response has been extraordinary," said
Dean Connor, President and CEO of
Sun Life. "We owe our sincere thanks to our front-line medical
workers, first responders and essential service workers, as well as
governments and central banks around the world who have responded
so quickly. Our hearts go out to those who have been personally
affected by COVID-19."
"At Sun Life, our first reflex has been to help our Clients and
communities, especially in their time of need. We've done that
by accelerating claim payments, extending coverage, including
virtual health care, accepting longer grace periods for premium
payments, waiving waiting periods, special philanthropic gifts and
a number of other actions. We quickly mobilized our employees and
advisors around the world to work from home, and they have been
doing a stellar job serving Clients and providing the support they
need."
"Our reported net income for the quarter of $391 million was impacted by market declines,
brought on by the COVID-19 pandemic," said Connor. "Our underlying
net income for the first quarter was $770
million, up 7% from the prior year. While it's difficult to
determine today how the business will be impacted by future claims
and investment experience, we entered the second quarter in a
position of strength, with a strong balance sheet, and
well-capitalized with a LICAT ratio of 143%."
_____________
|
(1)
|
Represents a non-IFRS
financial measure. See the Non-IFRS Financial Measures section in
this document and in our interim MD&A for the period ended
March 31, 2020 ("Q1 2020 MD&A").
|
(2)
|
All earnings per
share ("EPS") measures refer to fully diluted EPS, unless otherwise
stated.
|
(3)
|
For further
information on the Life Insurance Capital Adequacy Test ("LICAT"),
see section E - Financial Strength in our Q1 2020
MD&A.
|
(4)
|
Sun Life Assurance
Company of Canada ("Sun Life Assurance") is SLF Inc.'s principal
operating life insurance subsidiary.
|
Financial and Operational Highlights - Quarterly Comparison
(Q1 2020 vs. Q1 2019)
Our strategy is focused on four key pillars of growth, where we
aim to be a leader in the markets in which we operate, with our
continued progress detailed below.
($ millions, unless
otherwise noted)
|
|
Reported net income (loss)
|
Underlying net income (loss)(1)
|
Insurance sales(1)
|
Wealth sales(1)
|
|
Q1'20
|
Q1'19
|
change
|
Q1'20
|
Q1'19
|
change
|
Q1'20
|
Q1'19
|
change
|
Q1'20
|
Q1'19
|
change
|
Canada
|
(42)
|
237
|
nm(2)
|
256
|
237
|
8%
|
295
|
362
|
(19)%
|
5,629
|
2,825
|
99%
|
U.S.
|
164
|
124
|
32%
|
161
|
150
|
7%
|
163
|
160
|
2%
|
—
|
—
|
—
|
Asset
Management
|
239
|
219
|
9%
|
242
|
227
|
7%
|
—
|
—
|
—
|
51,954
|
31,287
|
66%
|
Asia
|
100
|
80
|
25%
|
155
|
122
|
27%
|
318
|
258
|
23%
|
2,321
|
1,881
|
23%
|
Corporate
|
(70)
|
(37)
|
nm(2)
|
(44)
|
(19)
|
nm(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
Total
|
391
|
623
|
(37)%
|
770
|
717
|
7%
|
776
|
780
|
(1)%
|
59,904
|
35,993
|
66%
|
(1)
|
Represents a non-IFRS
financial measure. See the Non-IFRS Financial Measures section in
this document and in our Q1 2020 MD&A.
|
(2)
|
Not
meaningful.
|
Reported net income was $391
million in the first quarter of 2020, a decrease of
$232 million or 37% compared to the
same period in 2019, reflecting unfavourable market-related and
assumption changes and management actions ("ACMA") impacts and
higher acquisition, integration and restructuring costs, partially
offset by favourable fair value adjustments on MFS's(1)
share-based payment awards. Market-related impacts predominantly
reflected the decline in equity markets, partially offset by the
impact of credit spreads. Underlying net income was $770 million, an increase of $53 million or 7%, driven by higher investing
activity in Canada and the U.S.,
business growth, higher available-for-sale ("AFS") gains, higher
new business gains and improved credit experience compared to the
first quarter of 2019. These were partially offset by lower net
investment returns on surplus in Canada and Corporate, unfavourable expense and
mortality experience, less favourable morbidity experience and
unfavourable other experience. Refer to the Non-IFRS Financial
Measures section in this document for a reconciliation between
reported net income and underlying net income.
Reported ROE was 7.2% in the first quarter of 2020. Underlying
ROE was 14.2%, compared to 13.3% in the first quarter of 2019,
reflecting higher underlying net income. Total shareholders' equity
remained flat as increases from earnings were offset by dividend
distributions, the impact of the BGO acquisition(2) and
share repurchases. SLF Inc. and its wholly-owned holding companies
ended the quarter with $2.4 billion
in cash and other liquid assets.
A leader in insurance and wealth solutions in our Canadian
Home Market
Canada's reported net loss was
$42 million in the first quarter of
2020, compared to reported net income of $237 million in the same period in 2019,
reflecting unfavourable market-related and ACMA impacts.
Market-related impacts predominantly reflected the decline in
equity markets, partially offset by the impacts of credit and swap
spreads, and pertain to long duration insurance contracts and
retail segregated funds. Underlying net income was $256 million, an increase of $19 million or 8%, driven by business growth and
investment-related contributions, partially offset by unfavourable
expense and morbidity experience in Group Benefits ("GB").
Investment-related contributions included higher investing activity
of $38 million and higher AFS gains of $21 million, partially offset by lower net
investment returns on surplus of $39
million, which reflected foreign exchange losses on economic
hedges, the impacts of seed investment returns due to the widening
of credit spreads, and other smaller items.
Canada insurance sales were
$295 million in the first quarter of
2020, a decrease of $67 million or
19% compared to the same period in 2019, reflecting lower large
case sales in GB and lower life insurance sales in Individual
Insurance. Wealth sales were $5.6
billion, an increase of $2.8 billion, driven by higher retained
sales in the large case market in Group Retirement Services ("GRS")
and strong sales in Individual Wealth.
We continue to put the Client at the centre, including assisting
those experiencing financial hardship during the COVID-19 pandemic
by extending the option to defer their premiums for a period of
time. Additionally, we continue to shape the Canadian market by
bringing innovative digital and health solutions to our Clients. We
have rolled out virtual health care services through Lumino Health
to our GB Clients, which will support Clients through the global
health crisis, helping to relieve some of their stress, support
social distancing efforts across the country and alleviate the load
on Canada's emergency health care
system.
_________________
|
(1)
|
MFS Investment
Management ("MFS").
|
(2)
|
Our acquisition of a
majority stake in BentallGreenOak ("BGO acquisition") that closed
in 2019. Upon acquisition, total equity was reduced by $860
million, primarily driven by the establishment of financial
liabilities associated with the anticipated increase of our future
ownership in BentallGreenOak.
|
A leader in U.S. group benefits
U.S.'s reported net income was $164
million, an increase of $40
million or 32% in the first quarter of 2020 compared to the
same period in 2019, driven by favourable market-related impacts,
predominantly from credit spreads, partially offset by unfavourable
ACMA impacts, both of which pertain to In-force Management.
Underlying net income was $161
million, an increase of $11
million or 7%, driven by higher investing activity, higher
AFS gains and new business gains, partially offset by unfavourable
mortality experience and less favourable, but still positive,
morbidity experience compared to elevated favourable morbidity
experience in the first quarter of 2019. The after-tax profit
margin for Group Benefits(1) was 6.8% as of the first
quarter of 2020, compared to 7.9% as of the first quarter of
2019.
U.S. Group Benefits sales were US$122
million in the first quarter of 2020, an increase of
US$2 million or 2%, compared to the
same period in 2019, driven by increased employee benefits sales,
largely offset by lower medical stop-loss sales.
To assist our Clients during the pandemic, we have expanded
options to help members who have been temporarily laid off keep
their benefits coverage, added coverage for COVID-19 to our
critical illness policies, provided extra time for Clients to make
premium payments, offered flexibility to self-funded employers to
change their underlying health plans without affecting their
stop-loss protection or rates, and provided a series of webinars
with insights and analysis on new and rapidly changing federal and
state laws. Throughout this, we also made it easier for Clients to
interact with us virtually through our enhanced digital
capabilities, including online disability claims submission with
e-signatures.
A leader in Global Asset Management
Asset Management's reported net income was $239 million, an increase of $20 million or 9% in the first quarter of 2020
compared to the same period in 2019, driven by favourable fair
value adjustments on MFS's share-based payment awards, partially
offset by higher acquisition and integration costs related to the
BGO acquisition and the pending InfraRed transaction(2).
Underlying net income was $242
million, an increase of $15 million or 7%, driven by
higher average net assets ("ANA") in MFS and higher income in SLC
Management driven by the BGO acquisition that closed in 2019,
partially offset by a change in net investment returns of
$31 million in MFS, due to declines
in equity markets and widening of credit spreads. The pre-tax net
operating profit margin ratio for MFS(1) for the first
quarter of 2020 was 36%, compared to 38% in the same period in
2019.
Asset Management ended the first quarter with $702.9 billion in AUM, consisting of $613.5 billion (US$436.4
billion) in MFS and $89.4 billion in SLC Management. MFS
reported net inflows of $2.4 billion
(US$1.8 billion), including U.S.
retail net inflows for the fifth consecutive quarter. SLC
Management reported net outflows of $2.0
billion in the first quarter of 2020. Net outflows are
comprised of $1.0 billion of Client
distributions due to the profitable sale of underlying assets in a
closed-end fund, and flows relating to Client rebalancing.
MFS continued to rank in the top ten in the Barron's Fund Family
Rankings. This year marks the 11th time in 12 years that MFS has
ranked high in the top 10 for both ten-year and five-year firm-wide
performance categories. In the first quarter of 2020, 88%, 90% and
87% of MFS's U.S. retail mutual fund assets ranked in the top half
of their Lipper categories based on ten-, five- and three-year
performance, respectively.
In the COVID-19 pandemic environment, Asset Management has
seamlessly transitioned with a portfolio of digital and virtual
tools, including additional communications to share our
perspectives on markets and how we are positioning our portfolios,
which have been embraced by our Clients. We donated personal
protective equipment to Boston
area hospitals, as well as significant funds to COVID-19 related
causes globally, through both direct giving and employee matching
programs.
A leader in Asia through
distribution excellence in higher growth markets
Asia's reported net income was
$100 million in the first quarter of
2020, an increase of $20 million or
25% compared to the same period in 2019, reflecting growth in
underlying net income, as noted below, partially offset by
unfavourable ACMA impacts. Market-related impacts were in line with
the same period last year in aggregate, as the decline in equity
markets was substantially offset by the impacts of credit spreads
and interest rate changes. Underlying net income was $155 million, an increase of $33 million or 27%, driven by favourable credit
experience, new business gains primarily in International and
Hong Kong, and improved mortality
experience, partially offset by other experience from our joint
ventures.
Asia insurance sales were
$318 million in the first quarter of
2020, an increase of $60 million or
23% compared to the same period in 2019 driven by Hong Kong, International and the Philippines, partially offset by lower
sales in India. Asia wealth sales were $2.3 billion, an increase of $440 million or 23%, driven by money market sales
in the Philippines and the pension
business in Hong Kong, partially
offset by lower mutual fund sales in India due to weak market sentiments.
We also continued to expand our distribution capabilities across
Asia's fastest growing markets. In
Vietnam, our exclusive
bancassurance partnership with TPBank(3) was launched,
with strong sales throughout the start of the year.
During the quarter, reflecting the impact of the COVID-19
pandemic, we stepped up our support to help our Clients in a
variety of ways, including extending coverage to include more
hospitals and clinics, extending benefit limits and offering
additional cash benefits to cover hospital expenses, expediting
claims, waiving waiting periods, and offering continuation of
coverage for lapsed policies due to quarantine or
hospitalization. To ensure that we can continue to meet the
needs of new and existing Clients, we are also working with
regulators to roll out the digitalization of the end-to-end sales
process across markets, including the use of e-signatures.
_____________
|
(1)
|
Represents a non-IFRS
financial measure. See the Non-IFRS Financial Measures section in
this document and in our Q1 2020 MD&A.
|
(2)
|
Our intention to
acquire a majority stake in InfraRed Capital Partners ("pending
InfraRed transaction").
|
(3)
|
Tien Phong Commercial
Bank ("TP Bank").
|
Corporate
Corporate's reported net loss was $70
million in the first quarter of 2020, an increased loss of
$33 million compared to the same
period in 2019, reflecting restructuring costs related to severance
costs as a result of various ongoing projects initiated in the
fourth quarter of 2019 to simplify our organizational structure and
drive efficiencies. Underlying net loss was $44 million, an increased loss of $25 million, reflecting lower net investment
returns on surplus, predominantly from seed investment losses of
$21 million due to widening of credit
spreads. Unfavourable expense and other experience were largely
offset by higher earnings from the run-off businesses.
COVID-19 Pandemic Update(1)
On March 11, 2020, the World
Health Organization declared the outbreak of COVID-19 as a global
pandemic. This has resulted in the loss of lives, impacts on
disability, pressure on health care systems, restrictions in
travel, quarantines and restrictions on gatherings of people,
closure of businesses, higher unemployment, supply chain
disruptions, increased volatility and declines in financial
markets, and widespread uncertainty.
We have adjusted our operations across each of our businesses to
provide extra support for COVID-19 related business matters. We are
proactively communicating with our Clients on the special measures
we are taking to aid them through this difficult time. Our actions
are personal and include extension of premium payment grace
periods, extended coverage, and simplified and speedy claim
commitments. In certain jurisdictions, we are also offering premium
reductions to group benefit sponsors and providing more flexibility
for those struggling to meet loan or mortgage payments. For our
advisors, we have enhanced our digital distribution and
communication tools to support them through this period, as well as
helped with added costs. For our borrowers and real estate tenants,
on a case by case basis, we have granted interest, principal and
rent payment deferrals.
Our business continuity processes are designed to ensure that
key business functions and normal operations can resume effectively
and efficiently in the event of a disruption. 95% of our employees
are working from home, while colleagues in Hong Kong, Vietnam and from our joint venture in
China have begun returning to
offices on a gradual basis. We have processes in place to monitor
and maintain ongoing systems availability, stability, and
security.
In response to the disruptions brought on by the COVID-19
pandemic and current market conditions, the Office of the
Superintendent of Financial Institutions ("OSFI") and the Bank of
Canada ("BoC") have taken measures
to provide relief to financial institutions. For insurers, key
measures from OSFI included capital relief relating to certain
payment deferrals granted and the introduction of a smoothing
technique on interest rate risk requirements. They also have set
the expectation for all federally regulated financial institutions
that dividend increases and share buybacks should be halted for the
time being. In addition, the Bank of Canada recently expanded various programs,
including its term repurchase facilities, to increase access to
liquidity for financial institutions including insurance
companies.
Our communities are vital and we have been taking actions to
support them. For example, we have donated 600,000 surgical masks
to hospitals and donated more than $2
million to support communities impacted by the COVID-19
pandemic. Across Asia, we have
donated to food banks and provided hand sanitizer to various
communities, while digital life insurance coverage was donated in
the Philippines and China to doctors, nurses, and other medical
support staff as a way of saying thank you for their efforts to
stop the spread of COVID-19.
Notwithstanding market effects on our reported net income in the
first quarter of 2020, COVID-19 impacts on our underlying net
income and other financial metrics, including sales, claims and
benefits, premiums and fee income, were not significant.
Throughout April, we have been able to continue sales activities
using digital tools and processes. In the month of April, regional
sales were mixed with total individual insurance and wealth sales
at approximately 80% and 90%, respectively, of the prior year. We
saw some markets growing as the result of digital tools,
pre-existing sales pipelines, re-pricing and return to office
efforts in some markets and some seeing significant declines from
strict quarantine protocols impacting face-to-face and
bancassurance sales. As a result of the mixed experience and
uncertain return to office time frames and economic conditions, Q2
sales levels remain uncertain at this time.
Our Group Benefit and Group Pension businesses cover employees
in the worksite, and to the extent their employment is terminated
and not replaced it means the premium and assets in force would
decline over time, all things being equal. In April, the premium
volumes and assets in force were relatively unchanged from the end
of the first quarter.
To date, our mortality and morbidity claims experience from
COVID-19 has been small amounting to less than 5% of our monthly
average for mortality and disability claims paid. Some of the
additional COVID-19 claims have been offset by lower claims
experience in other areas. Q2 experience remains uncertain and will
be impacted by these jurisdictions and industries where we do
business and the success jurisdictions have in reducing the spread
of the virus.
To support our Clients who may be facing financial hardships, we
have extended grace periods for premium payment for individual
insurance and group benefits Clients of up to 90 days. Given the
recently announced extensions, the impact to premium receivables is
not yet significant. Should we experience a prolonged period of
non-payment, we may see a change in lapses and other policyholder
behaviour.
Similarly, for our borrowers and real estate tenants, we have
granted interest, principal and rent payment deferrals, on a case
by case basis, with the majority of the deferral being up to 3
months. During the month of April, we have granted payments
deferrals of just less than $15
million with additional requests currently under
assessment.
The month of April saw MFS AUM grow 8.0% to US$471 billion reflecting market growth, fund
performance and flows.
The overall impact of the COVID-19 pandemic is still uncertain
and dependent on the progression of the virus and on actions taken
by governments, businesses and individuals, which could vary by
country and result in differing outcomes. Given the extent of the
circumstances, it is difficult to reliably measure or predict the
potential impact of this uncertainty on our future financial
results. For additional information, please refer to section H -
Risk Management in our Q1 2020 MD&A.
_____________
|
(1)
|
Information relating
to April 2020 financial metrics, including but not limited to,
sales, claims and benefits, premiums and fee income is not
indicative of future results. Future results, including for the
remainder of the second quarter 2020, may differ materially from
the information presented in this section. The Company does
not undertake any obligation to provide information on a monthly
basis in the future or to update this information to reflect events
or circumstances after the date of this document, except as
required by applicable law.
|
Earnings Conference Call
The Company's first quarter 2020 financial results will be
reviewed at a conference call on Wednesday, May 6, 2020, at
10:00 a.m. ET. To listen to the call
via live audio webcast and to view the presentation slides, as well
as related information, please visit www.sunlife.com and click on
the link to Quarterly reports under Investors – Financial results
& reports 10 minutes prior to the start of the call.
Individuals participating in the call in a listen-only mode are
encouraged to connect via our webcast. Following the call, the
webcast and presentation will be archived and made available on the
Company's website, www.sunlife.com, until the Q1 2022 period end.
The conference call can also be accessed by phone by dialing
602-563-8756 (International) or 1-877-658-9101 (toll-free within
North America) using Conference
ID: 3267925. A replay of the conference call will be available from
Wednesday, May 6, 2020 at 1:00 p.m. ET
until 1:00 p.m. ET on Wednesday, May 20, 2020 by calling
404-537-3406 or 1-855-859-2056 (toll-free within North America) using Conference ID:
3267925.
Media Relations
Contact:
|
Investor Relations
Contact:
|
Krista
Wilson
|
Leigh
Chalmers
|
Director, Corporate
Communications
|
Senior
Vice-President, Head of Investor Relations & Capital
Management
|
Tel:
226-751-2391
|
Tel:
647-256-8201
|
krista.wilson@sunlife.com
|
investor.relations@sunlife.com
|
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. 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. Non-IFRS financial
measures should not be viewed in isolation from or as alternatives
to measures of financial performance determined in accordance with
IFRS. Additional information concerning non-IFRS financial measures
and reconciliations to the closest IFRS measures are available in
the Q1 2020 MD&A under the heading M - Non-IFRS Financial
Measures, our annual MD&A and the Supplementary Financial
Information packages that are available on www.sunlife.com under
Investors – Financial results and reports.
|
|
1. Underlying Net
Income and Underlying EPS
|
Underlying net income
(loss) and financial measures based on underlying net income
(loss), including underlying EPS or underlying loss per share, and
underlying ROE, are non-IFRS financial measures. Underlying net
income (loss) removes from reported net income (loss) the impacts
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 that differ from our best estimate assumptions, which
include: (i) impacts of returns in equity markets, net of hedging,
for which our best estimate assumptions are approximately 2% per
quarter. This also includes the 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; (ii) the impacts of changes in interest rates in the
reporting period and on the value of derivative instruments used in
our hedging programs including changes in credit and swap spreads,
and any changes to the assumed fixed income reinvestment rates in
determining the actuarial liabilities; and (iii) the impacts of
changes in the fair value of investment properties in the reporting
period;
|
(b)
|
assumption changes
and management actions, which include: (i) the impacts of revisions
to the methods and assumptions used in determining our liabilities
for insurance contracts and investment contracts; and (ii) the
impacts on insurance contracts and investment contracts of actions
taken by management in the current reporting period, referred to as
management actions which include, for example, changes in the
prices of in-force products, new or revised reinsurance on in-force
business, and material changes to investment policies for assets
supporting our liabilities; and
|
(c)
|
other
adjustments:
|
|
(i)
|
certain hedges in
Canada that do not qualify for hedge accounting - this adjustment
enhances the comparability of our net income from period to period,
as it reduces volatility to the extent it will be offset over the
duration of the hedges;
|
|
(ii)
|
fair value
adjustments on MFS's share-based payment awards that are settled
with MFS's own shares and accounted for as liabilities and measured
at fair value each reporting period until they are vested,
exercised and repurchased - this adjustment enhances the
comparability of MFS's results with publicly traded asset managers
in the United States;
|
|
(iii)
|
acquisition,
integration and restructuring costs (including impacts related to
acquiring and integrating acquisitions); and
|
|
(iv)
|
other items that are
unusual or exceptional in nature.
|
|
All factors discussed
in this document that impact our underlying net income are also
applicable to reported net income.
|
|
All EPS measures in
this document refer to fully diluted EPS, unless otherwise stated.
As noted below, underlying EPS excludes the dilutive impacts of
convertible instruments.
|
|
The following table
sets out the amounts that were excluded from our underlying net
income (loss) 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)
|
Q1'20
|
|
Q4'19
|
|
Q1'19
|
Reported net
income
|
391
|
|
719
|
|
623
|
|
Market-related
impacts
|
|
|
|
|
|
|
|
|
Equity market
impacts
|
|
|
|
|
|
|
|
|
|
Impacts from equity
market changes
|
(303)
|
|
36
|
|
68
|
|
|
|
|
Basis risk
impacts
|
(57)
|
|
4
|
|
(10)
|
|
|
|
Equity market
impacts
|
(360)
|
|
40
|
|
58
|
|
|
|
Interest rate
impacts(1)
|
|
|
|
|
|
|
|
|
|
Impacts of interest
rate changes
|
(87)
|
|
18
|
|
(122)
|
|
|
|
|
Impacts of credit
spread movements
|
127
|
|
—
|
|
(27)
|
|
|
|
|
Impacts of swap
spread movements
|
39
|
|
(29)
|
|
16
|
|
|
|
Interest rate
impacts
|
79
|
|
(11)
|
|
(133)
|
|
|
|
Impacts of changes in
the fair value of investment properties
|
(12)
|
|
(11)
|
|
6
|
|
Less:
|
Market-related
impacts
|
(293)
|
|
18
|
|
(69)
|
|
Less:
|
Assumption changes
and management actions
|
(53)
|
|
(15)
|
|
(11)
|
|
|
|
Other
adjustments
|
|
|
|
|
|
|
|
|
|
Certain hedges in
Canada that do not qualify for hedge accounting
|
(1)
|
|
4
|
|
1
|
|
|
|
|
Fair value
adjustments on MFS's share-based payment awards
|
10
|
|
(37)
|
|
(8)
|
|
|
|
|
Acquisition,
integration and restructuring(2)
|
(42)
|
|
(43)
|
|
(7)
|
|
Less:
|
Total of other
adjustments
|
(33)
|
|
(76)
|
|
(14)
|
Underlying net
income
|
770
|
|
792
|
|
717
|
Reported EPS
(diluted) ($)
|
0.67
|
|
1.22
|
|
1.04
|
|
Less:
|
Market-related
impacts ($)
|
(0.50)
|
|
0.03
|
|
(0.12)
|
|
|
|
Assumption changes
and management actions ($)
|
(0.09)
|
|
(0.03)
|
|
(0.02)
|
|
|
|
Certain hedges in
Canada that do not qualify for hedge accounting ($)
|
—
|
|
0.01
|
|
—
|
|
|
|
Fair value
adjustments on MFS's share-based payment awards ($)
|
0.02
|
|
(0.06)
|
|
(0.01)
|
|
|
|
Acquisition,
integration and restructuring ($)
|
(0.07)
|
|
(0.07)
|
|
(0.01)
|
|
|
|
Impact of convertible
securities on diluted EPS ($)
|
—
|
|
—
|
|
—
|
Underlying EPS
(diluted) ($)
|
1.31
|
|
1.34
|
|
1.20
|
(1)
|
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.
|
(2)
|
Amounts include
acquisition costs for the BGO acquisition and the pending InfraRed
transaction, which includes the unwinding of the discount for the
Put option and Deferred payments liability of $10 million and $8
million in the first quarter of 2020 and the fourth quarter of
2019, respectively. As a result of various ongoing projects
initiated in the fourth quarter of 2019 to simplify our
organizational structure and drive efficiencies, we also recorded a
restructuring charge of $28 million in the first quarter of 2020
and $25 million in the fourth quarter of 2019.
|
2. Additional
Non-IFRS Measures
|
Management also uses
the following non-IFRS financial measures, which are referenced in
this news release:
|
|
Return on
equity. IFRS does not prescribe the calculation of ROE and
therefore a comparable measure under IFRS is not available. To
determine reported ROE and underlying ROE, respectively, reported
net income (loss) and underlying net income (loss) is divided by
the total weighted average common shareholders' equity for the
period. The quarterly ROE is annualized.
|
|
Financial leverage
ratio. This total debt to total capital ratio is ratio of debt
plus preferred shares to total capital, where debt consists of all
capital qualifying debt securities. Capital qualifying debt
securities consist of subordinated debt and innovative capital
instruments.
|
|
Sales. In
Canada, insurance 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 the U.S., insurance
sales consist of sales by Group Benefits. In Asia, insurance sales
consist of the individual and group insurance sales by our
subsidiaries and joint ventures and associates, based on our
proportionate equity interest, in the Philippines, Indonesia,
India, China, Malaysia and Vietnam and sales from International and
Hong Kong; wealth sales consist of Hong Kong wealth sales,
Philippines mutual fund sales, wealth sales by our India and China
insurance joint ventures and associates, and Aditya Birla Sun Life
AMC Limited's equity and fixed income mutual fund sales based on
our proportionate equity interest, including sales as reported by
our bank distribution partners. Asset Management sales consist
of gross sales (inflows) for retail and institutional Clients;
unfunded commitments are not included in sales. Sales are also
expressed on a constant currency basis, which is a measure of sales
that provides greater comparability across reporting periods by
excluding the impact of exchange rate fluctuations from the
translation of functional currencies to the Canadian dollar. There
is no directly comparable IFRS measure.
|
|
Value of New
Business. VNB represents the present value of our best estimate
of future distributable earnings, net of the cost of capital, from
new business contracts written in a particular time period, except
new business in our Asset Management pillar. The assumptions used
in the calculations are generally consistent with those used in the
valuation of our insurance contract liabilities except that
discount rates used approximate theoretical return expectations of
an equity investor. Capital required is based on the higher of Sun
Life Assurance's LICAT operating target and local (country
specific) operating target capital. VNB is a useful metric to
evaluate the present value created from new business contracts.
There is no directly comparable IFRS measure.
|
|
Pre-tax net
operating profit margin ratio for MFS. This ratio is a measure
of the profitability of MFS, which excludes the impact of fair
value adjustments on MFS's share-based payment awards, investment
income, and certain commission expenses that are offsetting. These
commission expenses are excluded in order to neutralize the impact
these items have on the pre-tax net operating profit margin ratio
and have no impact on the profitability of MFS. There is no
directly comparable IFRS measure.
|
|
After-tax profit
margin for U.S. Group Benefits. This ratio assists in
explaining our results from period to period and is a measure of
profitability that expresses U.S. employee benefits and medical
stop-loss underlying net income as a percentage of net premiums.
This ratio is calculated by dividing underlying net income (loss)
by net premiums for the trailing four quarters. There is no
directly comparable IFRS measure.
|
|
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 statements (i) relating to our strategies, (ii) relating to
our growth initiatives and other business objectives, (iii)
relating to the plans we have implemented in response to the
COVID-19 pandemic and related economic conditions and their impact
on the Company, (iv) relating to the pending InfraRed transaction,
(v) that are predictive in nature or that depend upon or refer to
future events or conditions, and (vi) that include words such as
"achieve", "aim", "ambition", "anticipate", "aspiration",
"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, and remain subject to change, particularly in
light of the ongoing and developing COVID-19 pandemic and its
impact on the global economy and its uncertain impact on our
business. 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 impact of the COVID-19 pandemic
and related economic conditions on our operations, liquidity,
financial conditions or results and the matters set out in the Q1
2020 MD&A under the headings C - Profitability - 5 - Income
taxes, E - Financial Strength and H - Risk Management and in SLF
Inc.'s 2019 Annual Information Form under the heading Risk Factors
and the factors detailed in SLF Inc.'s other filings with Canadian
and U.S. securities regulators, which are available for review at
www.sedar.com and www.sec.gov, respectively.
|
|
Important risk
factors that could cause our assumptions and estimates, and
expectations and projections to be inaccurate and our actual
results or events to differ materially from those expressed in or
implied by the forward-looking statements contained in this
document, are set out below. The realization of our forward-looking
statements, essentially depends on our business performance which,
in turn, is subject to many risks, which have been further
heightened with the current COVID-19 pandemic given the uncertainty
of its duration and impact. Factors that could cause actual results
to differ materially from expectations include, but are not limited
to: market risks - related to the performance of equity
markets; changes or volatility in interest rates or credit spreads
or swap spreads; real estate investments; and fluctuations in
foreign currency exchange rates; insurance risks - related
to policyholder behaviour; mortality experience, morbidity
experience and longevity; product design and pricing; the impact of
higher-than-expected future expenses; and the availability, cost
and effectiveness of reinsurance; credit risks - related to
issuers of securities held in our investment portfolio, debtors,
structured securities, reinsurers, counterparties, other financial
institutions and other entities; business and strategic
risks - related to global economic and political conditions;
the design and implementation of business strategies; changes in
distribution channels or Client behaviour including risks relating
to market conduct by intermediaries and agents; the impact of
competition; the performance of our investments and investment
portfolios managed for Clients such as segregated and mutual funds;
changes in the legal or regulatory environment, including capital
requirements and tax laws; the environment, environmental laws and
regulations; operational risks - related to breaches or
failure of information system security and privacy, including
cyber-attacks; our ability to attract and retain employees; legal,
regulatory compliance and market conduct, including the impact of
regulatory inquiries and investigations; the execution and
integration of mergers, acquisitions, strategic investments and
divestitures; our information technology infrastructure; a failure
of information systems and Internet-enabled technology; dependence
on third-party relationships, including outsourcing arrangements;
business continuity; model errors; information management;
liquidity risks - the possibility that we will not be able
to fund all cash outflow commitments as they fall due; and other
risks - tax matters, including estimates and judgments used in
calculating taxes; our international operations, including our
joint ventures; market conditions that affect our capital position
or ability to raise capital; downgrades in financial strength or
credit ratings; and the impact of mergers, acquisitions and
divestitures.
|
|
The following risk
factors are related to our acquisition of a majority stake in
InfraRed Capital Partners that could have a material adverse effect
on our forward-looking statements: (1) the ability of the parties
to complete the transaction; (2) failure of the parties to obtain
necessary consents and approvals or to otherwise satisfy the
conditions to the completion of the transaction in a timely manner,
or at all; (3) our ability to realize the financial and strategic
benefits of the transaction; and (4) the impact of the announcement
of the transaction on Sun Life and InfraRed Capital Partners. These
risks all could have an impact on our business relationships
(including with future and prospective employees, Clients,
distributors and partners) and could have a material adverse effect
on our current and future operations, financial conditions and
prospects.
|
|
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.
|
|
About Sun
Life
|
Sun Life is a leading
international financial services organization providing insurance,
wealth and asset management solutions to individual and corporate
Clients. Sun Life has operations in a number of markets worldwide,
including Canada, the United States, the United Kingdom, Ireland,
Hong Kong, the Philippines, Japan, Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia and Bermuda. As of
March 31, 2020, Sun Life had total assets under management of
$1,023 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.
|
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SOURCE Sun Life Financial Inc.