SLF’s Q4/23 underlying EPS came in at $1.68, better than our estimate of $1.52 and consensus of $1.58. There was some noise in reported results, as the reported EPS of $1.28 came in lower than our $1.60 expectation. Real estate experience had a -$148 million negative impact on reported results (last quarter, real estate experience was -$83 million) and there was also a negative credit result the company describes as idiosyncratic. We try not to get too fixated on reported results unless we see chronic issues and while commercial real estate is certainly topical, we still view these exposures as long term in nature and unlikely to be “actually impaired”.
SLF U.S. underlying earnings of $253 million (up ~37% QoQ and ~10% YoY) were better than our estimate of $200 million.
Stronger than expected results in the segment were primarily due to higher than expected other fee income of $22 million, versus our $4 million forecast. Expected investment earnings of $44 million were also higher than our $26 million estimate.
SLF Canada underlying earnings of $350 million (up ~4% QoQ and ~32% YoY) were stronger than our estimate of $311 million.
Experience gains and expected investment earnings were both stronger than we forecast. Experience gains came in at $58 million versus our $30 million estimate and expected investment earnings were $171 million, higher than our $151 million expectation. We do not typically model experience gains/losses, but our model reflects some level of experience throughout our forecast period for the Canada segment as experience gains were elevated over the last few quarters. The benefits business continues to have good experience that we think might eventually revert.
SLF Asset Management had underlying earnings of C$331 million (flat QoQ but up ~2% YoY), above our C$311 million expectation. MFS underlying earnings declined ~-6% QoQ to C$261 million, in line with our forecast, while SLC Management underlying earnings were C$70 million, above our C$50 million forecast and up ~32% QoQ. MFS had net outflows of -US$11.2 billion, versus net outflows of -US$9.3 billion last quarter. At MFS, institutional net outflows were -US$2.1 billion (versus net outflows of -US$5.6 billion last quarter) and mutual funds had net outflows of -US$9.2 billion (versus net outflows of -US$3.7 billion last quarter).
SLF disclosed that it has $1.6 billion in cash available at the holding company level (holdco) or ~7% of total equity, up from $1.4 billion or ~6% of total equity last quarter. SLF’s total holdco LICAT ratio increased 2 percentage points QoQ to 149%.
The Q4/23 underlying ROE was 18.4%, up 70 bps QoQ and 180 bps better than our estimated 16.6%. SLF’s book value per share including AOCI was $36.51, lower than our estimate of $37.32.
We have a positive view on Q4/23 results; there was more noise than we expected from real estate experience which impacted results on a reported basis, but underlying EPS was above our estimate and consensus. Canada and the U.S. business are both progressing well, in our view. Our only issue with the quarter was the “light” result in Asia.
SLF will host a conference call at 10:00AM ET on Thursday, February 8. Dial-in details are available when pre-registered.