Sun Life Financial Inc T.SLF

RBC Notes

[retiredcf]

February 17, 2021

Canadian Life Insurance Chart Book Q4/20 Historical Data and Trends

This is the fourth quarter update to our RBC Capital Markets Life Insurance Chart Book, an extensive collection of data useful in analyzing Canadian life insurance companies.

Highlights:

• The Canadian lifecos ended 2020 with solid Q4 results and we continue to expect good core EPS growth in 2021 and 2022. The Canadian lifecos had better than expected results and median core EPS increased ~1% YoY in Q4 (excluding a prior year tax benefit for GWO) (Exhibit B2). Credit losses were close to nil for GWO, while MFC and SLF both had credit recoveries of ~$0.03 per share (Exhibit C3). We remain positive on the outlook of the sector and expect median core EPS growth to improve from ~4% in 2020 to ~10% in 2021 and ~8% in 2022 (Exhibit B1).

• Total insurance sales increased ~4% YoY in aggregate in Q4/20 and were down ~-1% for the full year. IAG had the highest YoY increase in sales in Q4/20 mainly driven by the inclusion of IAS results. SLF also had positive total insurance sales growth of ~2% YoY in Q4/20 mainly reflecting strong sales growth in Asia of ~10% YoY. GWO's total insurance sales modestly declined ~-1% YoY and MFC's total insurance sales declined ~-6% YoY despite higher insurance sales in Asia (up ~3% YoY).

• Wealth and Asset Management earnings increased ~4% QoQ and ~17% YoY in aggregate in Q4/20 driven by solid wealth AUM growth. Wealth AUM increased ~7% QoQ and ~10% YoY on average and most lifecos reported net inflows in Q4/20. IAG had record total net inflows of ~$792 million versus ~$424 million last quarter (Exhibit D8). MFS had net inflows of US$1.5 billion versus US$4.5 billion last quarter (Exhibit D10). MFC’s Global Wealth and Asset Management segment had net inflows of $2.8 billion, although U.S. and Other remained in net outflows (Exhibit D14). Only Putnam had net outflows of -US$1.0 billion versus net inflows of US$2.1 billion last quarter (Exhibit D6).

• Capital positions remained solid despite some QoQ and YoY declines in operating company (opco) total LICAT ratios. In Q4/20, opco total LICAT ratios were stable QoQ at SLF, down ~-2% QoQ at GWO and IAG, and down ~-6% QoQ at MFC (Exhibit C8). On a YoY basis, only MFC had an increase in its opco total LICAT ratio of 9%. Leverage ratios generally declined sequentially, with the exception of SLF where the leverage ratio increased 190 bps QoQ to 24.2% (Exhibit C11).

• Valuations for the Canadian lifeco index remain above trough levels but below historical averages. The Canadian lifecos are trading at a forward P/E multiple of 8.8x, below their long-term average since 2009 of 10.7x but above the trough level of 6.1x (Exhibit A1). On a P/B basis the lifecos are trading at 1.09x, below the historical average of 1.26x since 2009 but above the trough level of 0.82x (Exhibit A3).