Solid Q2 underpinned by continued strength in the U.S. business
Our view: We have a positive view on SLF's Q2/21 results.
SLF’s Q2/21 underlying EPS came in at $1.50, above our estimate of $1.43 and consensus of $1.47. Reported earnings came in at $1.53, also above our estimate of $1.48 and consensus of $1.49.
Core earnings drivers were better than our forecasts. Expected profit increased ~9% YoY to $950 million, above our $935 million forecast. Earnings on surplus were $118 million, above our $113 million estimate. Impact of new business came in at $15 million, above our $8 million estimate.
U.S. and Canada underlying earnings came in better than expected, partly offset by lower-than-expected results in Asia and Asset Management. SLF U.S. underlying earnings increased ~34% YoY to $165 million, above our $101 million estimate, mainly on favourable mortality, morbidity and credit experience. SLF Canada had underlying earnings of $290 million (up ~3% YoY), above our $261 million forecast. SLF Asia underlying earnings were $152 million (up ~6% YoY), below our estimate of $175 million, but excluding FX translation impacts of -$17 million, underlying earnings growth was strong at ~17% YoY. SLF Asset Management had underlying earnings of $311 million (up ~20% YoY), below our estimate of $321 million.
U.S. Group Benefits results were very strong. Reported net income was US$100 million versus US$88 million last quarter. After-tax profit margin increased to 8.5%, up 40 bps QoQ and 100 bps YoY. Total sales were US$156 million, modestly below US$165 million last year.
MFS had net outflows of -US$5.6 billion compared to our estimate of - US$7.1 billion and -US$0.3 billion last quarter. Net outflows this quarter were driven by relatively large institutional net outflows of -US$7.4 billion (versus -US$3.1 billion last quarter), partly offset by mutual fund net inflows of US$1.8 billion (versus US$2.8 billion last quarter).
SLF’s total LICAT ratio increased to 147% (up ~6% QoQ) for the holding company and 125% (up ~1% QoQ) for the operating company. Leverage ratio increased to 24.7% from 22.7% last quarter.
Overall, we view Q2/21 results positively. Underlying EPS was above our estimate and consensus driven by strong results in the U.S. and Canada, despite more FX noise in Asia and Asset Management earnings. MFS had relatively large net outflows, which we had expected.
SLF will host a conference call at 3:00PM ET on Thursday, August 5. The dial-in numbers are 602-563-8756 or 1-877-658-9101, conference ID 8495408.