February 10, 2021
Sun Life Financial Inc.
Good ending to a challenging year
Impact: Positive
SLF’s Q4/20 underlying EPS came in at $1.47, above our estimate and consensus of $1.39. Better than expected results were largely driven by better than expected earnings in SLF Asset Management, SLF U.S., and Corporate. This was partly offset by lower than expected earnings in SLF Asia that was impacted by an AFS impairment of -$20 million and SLF Canada that had investing activity losses. Credit experience also positively impacted SLF this quarter by $18 million (after-tax) compared to modest credit losses of -$2 million (after-tax) last quarter.
Core earnings drivers were generally stronger than expected with the exception of earnings on surplus. Expected profit increased ~16% YoY to $985 million, well above our $883 million forecast. Impact of new business came in at $36 million, above our $9 million estimate. Earnings on surplus were $114 million, below our $138 million estimate.
MFS continued to have positive net inflows of US$1.5 billion (versus US $4.5 billion last quarter) driven by strong mutual funds net inflows. This was somewhat below our estimated net inflows of US$2.5 billion. Mutual funds net inflows were US$4.3 billion versus US$6.0 billion last quarter, while institutional funds remained in net outflows of -US$2.9 billion versus -US$1.5 billion last quarter.
U.S. Group Benefits results were good as profit margin and sales improved. Reported net income was US$76 million versus US$64 million last year. After-tax profit margin modestly improved to 8.0%, up 20 bps QoQ and 70 bps YoY. Total sales were US$643 million, up ~4% YoY, driven by both growth in employee benefits and stop-loss sales.
SLF’s total LICAT ratios remained solid at 147% (up 3% QoQ) for the holding company and 127% (flat QoQ) for the operating company.Subsequent to Q4/20, SLF completed the acquisition of a majority stake of Crescent Capital Group and launched a 15-year bancassurance partnership in Vietnam with Asia Commercial Joint Stock Bank. Including its intentions to redeem an outstanding debenture in February, SLF expects these events to reduce the holding and operating company LICAT ratios by -6% and -2%, respectively.
Overall, we view Q4/20 results positively. Underlying EPS was above our estimate and consensus driven by good results in SLF Asset Management and the U.S., despite some noise in the Asia and Canada segments. Credit experience was positive and MFS net flows remained solid.
SLF will host a conference call at 10:00AM ET on Thursday, February 11. The dial-in numbers are 602-563-8756 or 1-877-658-9101, conference ID 6494363.