Unless otherwise noted, all amounts are in Canadian dollars.
Fourth Quarter 2012 Financial Highlights
-
Operating net income(1) of $453 million, compared to an operating loss of $221 million in the
fourth quarter of 2011. Reported net income of $395 million, compared
to a reported loss of $525 million in the fourth quarter of 2011.
Results reflect continued execution against our growth strategy and
positive impact from investment activity. Market factors had no
material impact in the quarter
-
Operating earnings per share(1) ("EPS") of $0.76, compared to an operating loss per share of $0.38 in
the fourth quarter of 2011. Reported EPS of $0.65, compared to a
reported loss per share of $0.90 in the fourth quarter of 2011
-
Operating return on equity(1) ("ROE") of 12.9%, compared to a negative 6.5% in the fourth quarter of
2011. Reported ROE of 11.3%, compared to negative 15.4% in the fourth
quarter of 2011
-
Quarterly dividend of $0.36 per share
-
MCCSR ratio for Sun Life Assurance(2) of 209%
2012 Annual Financial Highlights
-
Operating net income of $1,679 million, compared to operating net income
of $34 million in 2011. Reported net income of $1,554 million, compared
to a reported loss of $370 million in 2011
-
Operating EPS of $2.83, compared to operating EPS of $0.06 in 2011.
Reported EPS of $2.59, compared to a reported loss per share of $0.64
in 2011
-
Operating ROE of 12.3%, compared to 0.3% in 2011. Reported ROE of 11.4%,
compared to negative 2.7% in 2011
-
Annual dividend of $1.44 per share
TORONTO, Feb. 13, 2013 /CNW/ - Sun Life Financial Inc.(3) (TSX: SLF) (NYSE: SLF) had operating net income of $453 million in the
fourth quarter of 2012, compared to an operating loss of $221 million
in the fourth quarter of 2011. Our operating EPS was $0.76 in the
fourth quarter of 2012, compared to an operating loss per share of
$0.38 in the fourth quarter of 2011. Reported net income was $395
million or $0.65 per share in the fourth quarter of 2012, compared to a
reported loss of $525 million or a reported loss per share of $0.90 in
the fourth quarter of 2011.
Our financial results in the fourth quarter reflect continued execution
against our growth strategy, as well as positive impact from investment
activity. Market factors had no material impact in the quarter, as the
positive impact of improved equity markets was largely offset by
declines in the fixed income reinvestment rates in our insurance
contract liabilities, which were driven by the continued low interest
rate environment, and unfavourable impact from credit spread and swap
spread movements. Operating net income excluding the net impact of
market factors(1) was $420 million. The following table sets out our operating net income
measures for the fourth quarter of 2012.
(1)
|
Operating net income (loss) and financial information based on operating
net income (loss), such as operating earnings (loss) per share,
operating ROE and operating net income (loss) excluding the net impact
of market factors, are not based on International Financial Reporting
Standards ("IFRS"). See Use of Non-IFRS Financial Measures. All EPS
measures refer to fully diluted EPS, unless otherwise stated.
|
(2)
|
MCCSR represents the Minimum Continuing Capital and Surplus Requirements
("MCCSR") ratio of Sun Life Assurance Company of Canada ("Sun Life
Assurance").
|
(3)
|
Together with its subsidiaries and joint ventures, collectively referred
to as "the Company", "Sun Life Financial", "we", "our" and "us".
|
|
|
($ millions, after-tax)
|
Q4'12
|
Operating net income (loss)
|
453
|
|
Net equity market impact
|
49
|
|
Net interest rate impact
|
(51)
|
|
Net gains from increases in the fair value of real estate
|
20
|
|
Actuarial assumption changes driven by changes in capital market
movements
|
15
|
Operating net income (loss) excluding the net impact of market factors
|
420
|
|
|
The Board of Directors of Sun Life Financial Inc. today declared a
quarterly shareholder dividend of $0.36 per common share, maintaining
the current quarterly dividend.
"Sun Life's fourth quarter results reflect overall solid earnings
performance," Dean Connor, President and CEO, said. "It was a
transformational year for Sun Life as we significantly reduced our risk
profile and made important strides in implementing our four pillar
growth strategy."
"Operating earnings in 2012 at SLF Canada were up more than 25% from
2011, with strong growth across all business units, reflecting asset
growth, greater distribution strength and a more profitable business
mix," Connor said. "We remain number one in our group benefits and
pension businesses and improved our position in individual insurance
sales."
"Our asset management businesses had an outstanding year, capped by a
strong fourth quarter," Connor said. "MFS recorded the strongest net
inflows in the firm's history, ending the year with assets under
management of nearly US$325 billion, an all-time high. In Canada, sales
of mutual funds increased more than 40% compared to the fourth quarter
of 2011, including strong sales of Sun Life Global Investments mutual
funds."
"The sale of our domestic U.S. annuity business, announced in the fourth
quarter, was a major milestone in our strategy of reducing our risk
profile," Connor said. "Our U.S. insurance operations are now focused
primarily on growing our employee benefits and voluntary benefits
businesses, which recorded significant sales growth on both a quarterly
and annual basis, and hit all milestones for expanding distribution and
introducing new products."
"Our Asia operations concluded the year with a strong fourth quarter. We
made good progress in 2012 by expanding distribution and our overall
Asian footprint. Subsequent to the quarter, we announced our entry into
the fast-growing Malaysian market and received regulatory approval to
commence operations in Vietnam."
Operational Highlights
2012 Achievements and Milestones
Canada
-
Group Benefits ("GB") retained the #1 group life and health insurance
provider position in the 2011 Fraser Group Universe Report (issued in July, 2012), based on business in-force;
-
Group Retirement Services ("GRS") ranked #1 in total assets across all
pension products in the December 2012 Benefits Canada magazine (based on June 2012 data); and
-
Individual Insurance & Investments moved up to second position in the
Canadian retail life market as measured by LIMRA (based on the nine
months ended September 30, 2012).
United States
-
Employee Benefits Group ("EBG") launched a new voluntary benefits suite
of products, which includes long-term disability, short-term
disability, critical illness, cancer and customized disability, and
made enhancements to its existing voluntary life and dental products;
-
EBG enhanced its enrolment solutions, by simplifying employer benefits
administration and expanding its portfolio of broker tools, through
partnerships with BeneTrac, bswift and benefitsCONNECT; and
-
Sun Life Financial U.S. expanded its EBG distribution organization to
almost 200 sales professionals, up approximately 35% from year end
2011, by adding experienced sales representatives, creating a Small
Business Center and building a dedicated voluntary benefits
distribution team.
Asset Management
-
Sun Life Financial's assets under management ("AUM") surpassed $500
billion in 2012;
-
MFS Investment Management ("MFS") had record gross sales in 2012 of
approximately US$86 billion. MFS had US$29 billion of net in-flows, and
ended 2012 with AUM of US$323 billion, surpassing US$300 billion for
the first time;
-
90% and 88% of MFS's retail fund assets ranked in the top half of their
respective five- and ten-year Lipper categories at December 31, 2012;
-
MFS was named "Equity Manager of the Year" for Europe by Financial News for the second time in three years;
-
MFS grew its Asia-sourced AUM to $33 billion from $22 billion in 2011,
and was ranked in Asian Investor's December 2012 Top 100 Managers issue;
-
Sun Life Global Investments (Canada) Inc. ("SLGI") completed its second
full year of operations with sales reaching more than $2 billion,
client managed AUM growing to over $6 billion, and all twelve of the
original long-term mutual funds ranking above the median and seven of
twelve mutual funds ranking in the top quartile for their respective
two-year categories as measured by Morningstar Research; and
-
SLGI was named "Fastest Growing Institutional Money Manager", debuted in
the Top 40 Money Manager rankings issue as #33 and ranked as sixth
largest Capital Accumulation Plan Asset Manager in 2012 in Benefits Canada magazine.
Asia
-
Our Philippines business continued its strong performance and achieved
record insurance sales in 2012, with sales growth of 58% from 2011;
-
Sun Life Hong Kong Limited was named "Mandatory Provident Fund Provider
of the Year" for 2011 by Benchmark magazine, and its Mandatory Provident Fund ("MPF") scheme won seven
Lipper Fund Awards during the year;
-
In Indonesia, PT CIMB Sun Life, our joint venture business, was named
the "Most Prospective Life Insurance Company" by Business Review magazine in 2012, based on growth of its customer base;
-
In India, Birla Sun Life Asset Management Company Limited was recognized
as the 2012 "Debt Mutual Fund House of the Year" by Credit Rating and
Information Services of India Limited;
-
In China, Sun Life Everbright Asset Management Co., Ltd. commenced
operations during the first quarter of 2012;
-
In May 2012, Sun Life Assurance entered into an agreement with PVI
Holdings to form PVI Sun Life Insurance Company Limited in Vietnam, a
joint venture life insurance company, and received its license to
operate from the Ministry of Finance of Vietnam in January 2013; and
-
In January 2013, we entered into a strategic partnership with Khazanah
Nasional Berhad to acquire 98% of each of CIMB Aviva Assurance Berhad
and CIMB Aviva Takaful Berhad (together, "CIMB Aviva") in Malaysia, as
a result of which Sun Life Assurance will acquire a 49% interest in
CIMB Aviva. The transaction is subject to regulatory approvals and is
expected to close in the first half of 2013.
Fourth Quarter Highlights
On December 17, 2012, we entered into a definitive stock purchase
agreement to sell our U.S. annuities business and certain of our U.S.
life insurance businesses (the "U.S. Annuity Business"), including all
of the issued and outstanding shares of Sun Life Assurance Company of
Canada (U.S.) ("Sun Life (U.S.)"). Our U.S. Annuity Business includes
our domestic U.S. variable annuity, fixed annuity and fixed indexed
annuity products, corporate and bank-owned life insurance products and
variable life insurance products. The transaction is subject to
regulatory approvals and other closing conditions and is expected to
close before the end of the second quarter of 2013.
Our strategy is focused on four key pillars of growth. We detail our
continued progress against these pillars below.
Becoming the best performing life insurer in Canada
Sun Life Financial Canada continues to grow and optimize its businesses,
and build on its leadership position.
Individual Insurance & Investments expanded its distribution capability
and product portfolio. The Sun Life Financial Career Sales Force
("CSF") grew by 42 advisors in the quarter (119 in the year) to a total
count of 3,713 advisors and managers. Individual Wealth successfully
launched its SunFlex Retirement Income product in December, which
includes investment in nine SLGI mutual funds.
Sun Life Financial Canada continued to advance its industry leading
group businesses. GB sales were up 36% from the fourth quarter of 2011.
The business introduced a new e-payment standard to improve the speed,
ease-of-use and sustainability of claims payments, and achieved a
significant improvement in claims experience through its new Claims
Quality Assurance Program. Pension rollover sales increased 26% from
the fourth quarter of 2011.
Becoming a leader in group insurance and voluntary benefits in the
United States
Sun Life Financial U.S. continues to grow its group insurance and
voluntary benefits businesses, by expanding its product offerings,
sales force and technology capabilities. EBG sales increased 25% in the
fourth quarter, with growth across all business lines and voluntary
benefits sales up 78%. Sun Life Financial U.S. launched new, more
comprehensive enrolment capabilities and stop-loss services.
Growing our asset management businesses globally
MFS had another record quarter. AUM ended the year at US$323 billion, an
all-time high. Gross sales achieved a new record at US$26 billion,
almost 70% higher than sales in the fourth quarter of 2011. This
included a one-time inflow from Sun Capital Advisers, LLC of US$7
billion. Net inflows represented the firm's best quarter ever with
strong contribution across retail, insurance and institutional business
lines.
Strengthening our competitive position in Asia
Sun Life of Canada (Philippines), Inc. capped a strong year with fourth
quarter sales that were more than 60% higher than the same period in
2011. The integration of Sun Life Grepa Financial, Inc., the
bancassurance joint venture in the Philippines, is on track for
completion in mid-2013.
In Indonesia, PT Sun Life Financial Indonesia added more than 750
advisors to its agency force in the fourth quarter, surpassing 5,000
advisors. Shariah sales continued to grow, accounting for 37% of agency
sales and 30% of total Sun Life sales in Indonesia.
Sun Life Hong Kong Limited achieved strong fourth quarter sales in its
pension business, reflecting continued contribution from its MPF
business. MPF sales in the quarter benefited from the Employee Choice
Arrangement legislation enacted in November, which provides employees
more flexibility in their choice of MPF provider.
Birla Sun Life Insurance Company Limited retained its ranking as the
fifth largest private insurance company in India. Birla Sun Life Asset
Management Company Limited is ranked fourth amongst all asset managers
in India.
Other highlights
In 2013, Corporate Knights ranked Sun Life Financial among the Global
100 Most Sustainable Corporations in the World, for the seventh time in
nine years, in recognition of Sun Life's sustainability performance.
How We Report Our Results
We manage our operations and report our financial results in five
business segments: Sun Life Financial Canada ("SLF Canada"), Sun Life
Financial United States ("SLF U.S."), MFS Investment Management
("MFS"), Sun Life Financial Asia ("SLF Asia") and Corporate. The
Corporate segment includes the operations of our United Kingdom
business unit ("SLF U.K.") and Corporate Support operations. Our
Corporate Support operations includes our run-off reinsurance business
and investment income, expenses, capital and other items not allocated
to other business segments. Information concerning these segments is
included in our annual and interim consolidated financial statements
and accompanying notes ("Consolidated Financial Statements").
We use certain financial measures that are not based on IFRS ("non-IFRS
financial measures"), including operating net income (loss), as key
metrics in our financial reporting to enable our stakeholders to better
assess the underlying performance of our businesses. Operating net
income (loss) and other financial information based on operating net
income (loss), including operating EPS or operating loss per share,
operating ROE and operating net income (loss) excluding the net impact
of market factors, are non-IFRS financial measures. We believe that
these non-IFRS financial measures provide information that is useful to
investors in understanding our performance and facilitates the
comparison of the quarterly and full year results from period to
period. Operating net income (loss) excludes: (i) the impact of certain
hedges in SLF Canada that do not qualify for hedge accounting; (ii)
fair value adjustments on share-based payment awards at MFS; (iii)
restructuring and other related costs; (iv) goodwill and intangible
asset impairment charges; and (v) other items that are not operational
or ongoing in nature. Operating EPS also excludes the dilutive impact
of convertible securities.
Operating net income (loss) excluding the net impact of market factors
removes from operating net income (loss) certain market-related factors
that create volatility in our results under IFRS. Specifically, it
adjusts operating net income (loss) to exclude the following amounts:
(i) the net impact of changes in interest rates in the reporting
period, including changes in credit and swap spreads, and any changes
to the fixed income reinvestment rates assumed in determining the
actuarial liabilities; (ii) the net impact of changes in equity markets
above or below the expected level of change in the reporting period and
of basis risk inherent in our hedging program; (iii) the net impact of
changes in the fair value of real estate properties in the reporting
period; and (iv) the net impact of changes in actuarial assumptions
driven by capital market movements. Unless indicated otherwise, all
other factors discussed in this document that impact our results are
applicable to both reported net income (loss) and operating net income
(loss). Reported net income (loss) refers to net income (loss)
determined in accordance with IFRS.
Other non-IFRS financial measures that we use include adjusted revenue,
administrative services only ("ASO") premium and deposit equivalents,
mutual fund assets and sales, managed fund assets and sales, premiums
and deposits, adjusted premiums and deposits, AUM and assets under
administration. Additional information about non-IFRS financial
measures and reconciliations to the closest IFRS measure can be found
in this document and in our annual and interim management's discussion
and analysis ("MD&A") under the heading Use of Non-IFRS Financial
Measures.
The information contained in this document is in Canadian dollars unless
otherwise noted and is based on our interim unaudited consolidated
financial statements for the period ended December 31, 2012. All EPS
measures in this document refer to fully diluted EPS, unless otherwise
stated.
On December 17, 2012, we entered into a definitive stock purchase
agreement to sell our U.S. Annuity Business, including all of the
issued and outstanding shares of Sun Life (U.S.). Our U.S. Annuity
Business includes our domestic U.S. variable annuity, fixed annuity and
fixed indexed annuity products, corporate and bank-owned life insurance
products and variable life insurance products. The transaction is
subject to regulatory approvals and other closing conditions and is
expected to close before the end of the second quarter of 2013.
As a result of this agreement, we have defined our U.S. Annuity Business
as "Discontinued Operations", the remaining operations as "Continuing
Operations", and the total Discontinued Operations and Continuing
Operations as "Combined Operations". Note that in accordance with the
requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, income and expenses associated with the business to be sold have been
classified as discontinued operations in our Consolidated Statements of
Operations for all periods presented. Associated assets and liabilities
have been classified as held for sale in our Consolidated Statements of
Financial Position prospectively from December 31, 2012 and comparative
information has not been adjusted. Unless otherwise indicated, net income (loss), and other financial
information based on net income (loss), reflect the results of our
Combined Operations for all periods presented.
Additional information about Sun Life Financial Inc. can be found in its annual and interim Consolidated Financial
Statements, annual and interim MD&A and Annual Information Form
("AIF"). These documents are filed with securities regulators in Canada
and are available at www.sedar.com. Our annual MD&A, annual Consolidated Financial Statements and AIF are
filed with the United States Securities and Exchange Commission ("SEC")
in our annual report on Form 40-F and our interim MD&As and interim
financial statements are furnished to the SEC on Form 6-Ks and are
available at www.sec.gov.
Accounting Adjustments
During 2012, we identified required adjustments for two prior year
errors. For SLF Canada, there was an aggregate understatement in the
future cost of reinsurance for our non-participating contracts of $47
million after tax. For SLF U.S., there was an aggregate understatement
of projections of the future cost of mortality for individual life
insurance contracts of $39 million after tax. For SLF U.S., the
adjustment to correct the error was initially recorded in the second
quarter of 2012, however the subsequent detection of the error in SLF
Canada has caused us to adjust for both items in prior years.
Adjustments have been made to income, insurance contract liabilities,
reinsurance assets and deferred tax assets to reflect the above items
in the periods to which they relate. These adjustments are not material
to our Consolidated Financial Statements, but correcting for the
cumulative impact of these errors in 2012 would have distorted the
results of that year. Accordingly, we restated our Consolidated
Statements of Operations and Consolidated Statements of Changes in
Equity for the years and interim periods to which they apply and our
opening Consolidated Statement of Financial Position for the earliest
comparative period presented, January 1, 2011. Additional information
can be found in Note 2B in our 2012 Consolidated Financial Statements.
Financial Summary
|
Quarterly results(1)
|
Full year(1)
|
($ millions, unless otherwise noted)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
|
Total Company (Combined Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)(2)
|
453
|
|
401
|
|
98
|
|
727
|
|
(221)
|
|
1,679
|
|
34
|
|
|
Reported net income (loss)
|
395
|
|
383
|
|
90
|
|
686
|
|
(525)
|
|
1,554
|
|
(370)
|
|
|
Operating net income (loss) excluding the net impact of market factors(2)
|
420
|
|
405
|
|
418
|
|
357
|
|
n/a
|
|
1,600
|
|
n/a
|
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(2)
|
0.76
|
|
0.68
|
|
0.17
|
|
1.24
|
|
(0.38)
|
|
2.83
|
|
0.06
|
|
|
Reported
|
0.65
|
|
0.64
|
|
0.15
|
|
1.15
|
|
(0.90)
|
|
2.59
|
|
(0.64)
|
|
Basic EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(2)
|
0.76
|
|
0.68
|
|
0.17
|
|
1.24
|
|
(0.38)
|
|
2.83
|
|
0.06
|
|
|
Reported
|
0.66
|
|
0.64
|
|
0.15
|
|
1.17
|
|
(0.90)
|
|
2.62
|
|
(0.64)
|
|
Return on equity (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(2)
|
12.9
|
%
|
11.7
|
%
|
2.9
|
%
|
21.8
|
%
|
(6.5)
|
%
|
12.3
|
%
|
0.3
|
%
|
|
Reported
|
11.3
|
%
|
11.1
|
%
|
2.6
|
%
|
20.5
|
%
|
(15.4)
|
%
|
11.4
|
%
|
(2.7)
|
%
|
Avg. common shares outstanding (millions)
|
597
|
|
594
|
|
591
|
|
588
|
|
584
|
|
593
|
|
579
|
|
Closing common shares outstanding
(millions)
|
599.6
|
|
596.8
|
|
594.0
|
|
590.9
|
|
587.8
|
|
599.6
|
|
587.8
|
|
Dividends per common share ($)
|
0.36
|
|
0.36
|
|
0.36
|
|
0.36
|
|
0.36
|
|
1.44
|
|
1.44
|
|
MCCSR ratio
|
209
|
%
|
213
|
%
|
210
|
%
|
213
|
%
|
211
|
%
|
209
|
%
|
211
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss) from Continuing Operations(2)
|
333
|
|
459
|
|
250
|
|
437
|
|
210
|
|
1,479
|
|
533
|
|
|
Reported net income (loss) from Continuing Operations
|
284
|
|
441
|
|
244
|
|
405
|
|
2
|
|
1,374
|
|
225
|
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EPS from Continuing Operations (diluted)(2)
|
0.56
|
|
0.77
|
|
0.42
|
|
0.74
|
|
0.36
|
|
2.49
|
|
0.92
|
|
|
Reported EPS from Continuing Operations (diluted)
|
0.47
|
|
0.74
|
|
0.41
|
|
0.68
|
|
0.00
|
|
2.29
|
|
0.39
|
|
Basic EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EPS from Continuing Operations (basic)(2)
|
0.56
|
|
0.77
|
|
0.42
|
|
0.74
|
|
0.36
|
|
2.49
|
|
0.92
|
|
|
Reported EPS from Continuing Operations (basic)
|
0.48
|
|
0.74
|
|
0.41
|
|
0.69
|
|
0.00
|
|
2.32
|
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and deposits from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue
|
2,457
|
|
1,927
|
|
1,865
|
|
1,998
|
|
2,032
|
|
8,247
|
|
8,238
|
|
|
Segregated fund deposits
|
1,681
|
|
1,534
|
|
1,753
|
|
1,967
|
|
2,272
|
|
6,935
|
|
7,508
|
|
|
Mutual fund sales(2)
|
11,294
|
|
10,129
|
|
12,060
|
|
9,820
|
|
7,334
|
|
43,303
|
|
28,941
|
|
|
Managed fund sales(2)
|
14,938
|
|
11,065
|
|
7,999
|
|
9,849
|
|
8,682
|
|
43,851
|
|
28,019
|
|
|
ASO premium and deposit equivalents(2)
|
1,512
|
|
1,405
|
|
1,380
|
|
1,440
|
|
1,391
|
|
5,737
|
|
5,661
|
|
|
Total premiums & deposits(2)
|
31,882
|
|
26,060
|
|
25,057
|
|
25,074
|
|
21,711
|
|
108,073
|
|
78,367
|
|
Assets under management (Combined Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General fund assets
|
133,127
|
|
132,109
|
|
132,151
|
|
129,186
|
|
130,071
|
|
133,127
|
|
130,071
|
|
|
Segregated funds
|
92,655
|
|
91,429
|
|
90,160
|
|
91,934
|
|
88,183
|
|
92,655
|
|
88,183
|
|
|
Mutual funds, managed funds & other AUM(2)
|
307,040
|
|
291,322
|
|
273,944
|
|
273,295
|
|
247,503
|
|
307,040
|
|
247,503
|
|
|
Total AUM(2)
|
532,822
|
|
514,860
|
|
496,255
|
|
494,415
|
|
465,757
|
|
532,822
|
|
465,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital (Combined Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and other capital(3)
|
3,436
|
|
3,433
|
|
3,438
|
|
4,235
|
|
3,441
|
|
3,436
|
|
3,441
|
|
|
Participating policyholders' equity
|
128
|
|
132
|
|
124
|
|
124
|
|
123
|
|
128
|
|
123
|
|
|
Total shareholders' equity
|
16,623
|
|
16,276
|
|
16,112
|
|
16,065
|
|
15,521
|
|
16,623
|
|
15,521
|
|
|
Total capital
|
20,187
|
|
19,841
|
|
19,674
|
|
20,424
|
|
19,085
|
|
20,187
|
|
19,085
|
|
(1) Some periods have been restated. See Accounting Adjustments.
|
(2) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(3) Other capital refers to Sun Life Exchangeable Capital Securities
("SLEECS"), which qualify as capital for Canadian regulatory purposes.
See Capital and Liquidity Management - Capital in our annual MD&A.
|
Q4 2012 vs. Q4 2011
Our reported net income was $395 million in the fourth quarter of 2012, compared to a reported
loss of $525 million in the fourth quarter of 2011. Reported ROE was
11.3%, compared to negative 15.4% in the fourth quarter of 2011.
Operating net income was $453 million for the quarter ended December 31,
2012, compared to an operating loss of $221 million for the quarter
ended December 31, 2011. Operating ROE was 12.9%, compared to negative
6.5% in the fourth quarter of 2011.
Operating net income excluding the net impact of market factors was $420
million in the fourth quarter of 2012.
The following table reconciles our net income measures and sets out the
impact that other notable items had on our net income in the fourth
quarter of 2012. Unless indicated otherwise, all other factors
discussed in this document that impact our results are applicable to
both reported net income (loss) and operating net income (loss).
|
|
($ millions, after-tax)
|
Q4'12
|
Reported net income
|
395
|
|
Certain hedges that do not qualify for hedge accounting in SLF Canada
|
(6)
|
|
Fair value adjustments on share-based payment awards at MFS
|
(39)
|
|
Restructuring and other related costs
|
(7)
|
|
Goodwill and intangible asset impairment charges
|
(6)
|
Operating net income
|
453
|
|
Equity market impact
|
|
|
|
Net impact from equity market changes
|
35
|
|
|
Net basis risk impact
|
14
|
|
Net equity market impact(1)
|
49
|
|
Interest rate impact
|
|
|
|
Net impact from interest rate changes
|
33
|
|
|
Net impact of decline in fixed income reinvestment rates
|
(44)
|
|
|
Net impact of credit spread movements
|
(21)
|
|
|
Net impact of swap spread movements
|
(19)
|
|
Net interest rate impact(2)
|
(51)
|
|
Net gains from increases in the fair value of real estate
|
20
|
|
Actuarial assumption changes driven by changes in capital market
movements
|
15
|
Operating net income excluding the net impact of market factors
|
420
|
|
|
Impact of other notable items on our net income:
|
|
Experience related items(3)
|
|
|
Impact of investment activity on insurance contract liabilities
|
46
|
|
Mortality/morbidity
|
(5)
|
|
Credit
|
11
|
|
Lapse and other policyholder behaviour
|
(16)
|
|
Expenses
|
(67)
|
|
Other
|
(8)
|
|
|
Other Assumption Changes and Management Actions (excludes actuarial
assumption changes
driven by changes in capital market movements)
|
61
|
|
|
Other items(4)
|
6
|
(1) Net equity market impact consists primarily of the effect of changes in
equity markets during the quarter, net of hedging, that
differ from the best estimate assumptions used in the determination of
our insurance contract liabilities of approximately 2%
growth per quarter in equity markets. Net equity market impact also
includes the income 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.
|
(2) Net interest rate impact includes the effect of interest rate changes on
investment returns that differ from best estimate
assumptions, and on the value of derivative instruments used in our
hedging programs. 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. Net interest
rate impact also includes the income impact of declines in
fixed income reinvestment rates and of credit and swap spread movements.
|
(3) Experience related items reflects the difference between actual
experience during the reporting period and best estimate
assumptions used in the determination of our insurance contract
liabilities.
|
(4) Primarily due to tax-related benefits in SLF U.K.
|
Our reported net income for the fourth quarter of 2012 included items
that are not operational or ongoing in nature and are, therefore,
excluded in our calculation of operating net income. The net impact of
certain hedges that do not qualify for hedge accounting in SLF Canada,
fair value adjustments on share-based awards at MFS, restructuring and
other related costs and goodwill and intangible asset impairment
charges reduced reported net income by $58 million in the fourth
quarter of 2012, compared to a reduction of $304 million in the fourth
quarter of 2011. The fourth quarter 2011 charge was primarily related
to goodwill and intangible asset impairments.
Net income in the fourth quarter of 2012 reflected favourable impacts
from equity markets, basis risk and increases in the fair value of real
estate classified as investment properties, offset by declines in the
fixed income reinvestment rates in our insurance contract liabilities
that were driven by the continued low interest rate environment, and
unfavourable impact from credit spread and swap spread movements.
Investment activity on insurance contract liabilities and credit
experience contributed positively, but were offset by unfavourable
expense-related items, largely comprised of project-related, seasonal
and non-recurring costs, as well as lapse and other policyholder
behaviour experience. Non-capital, market-related assumption changes
and management actions added $61 million to net income in the fourth
quarter of 2012.
The loss in the fourth quarter of 2011 was impacted significantly by a
change related to the valuation of our variable annuity and segregated
fund insurance contract liabilities ("Hedging in the Liabilities"),
which resulted in a one-time charge to net income of $635 million.
Partially offsetting the loss was the positive impact of a net tax
benefit related to the reorganization of our U.K. operations and net
realized gains on available-for-sale ("AFS") securities.
2012 vs. 2011
|
|
($ millions, after-tax)
|
2012
|
2011
|
|
Reported net income (loss)
|
1,554
|
(370)
|
|
Certain hedges that do not qualify for hedge accounting in SLF Canada
|
(7)
|
(3)
|
|
Fair value adjustments on share-based payment awards at MFS
|
(94)
|
(80)
|
|
Restructuring and other related costs
|
(18)
|
(55)
|
|
Goodwill and intangible asset impairment charges
|
(6)
|
(266)
|
|
Operating net income (loss)
|
1,679
|
34
|
Reported net income was $1,554 million in 2012, compared to a reported
loss of $370 million in 2011. Reported ROE was 11.4%, compared to
negative 2.7% in 2011. Operating net income was $1,679 million in 2012,
compared to $34 million in 2011. Operating ROE was 12.3% in 2012,
compared to 0.3% in 2011. The net impact of certain hedges that do not
qualify for hedge accounting in SLF Canada, fair value adjustments on
share-based awards at MFS, restructuring and other related costs and
goodwill and intangible asset impairment charges reduced reported net
income by $125 million in 2012, compared to a reduction of $404 million
in 2011. The 2011 reported loss included $266 million for goodwill and
intangible asset impairments.
Net income in 2012 reflected favourable impacts from equity markets,
basis risk and increases in the fair value of real estate classified as
investment properties, offset by declines in the fixed income
reinvestment rates in our insurance contract liabilities that were
driven by the continued low interest rate environment, and unfavourable
impact from credit spread and swap spread movements. Investment
activity on insurance contract liabilities and credit experience
contributed positively, but were offset by unfavourable expense-related
items, largely comprised of project-related and non-recurring costs,
model experience and other refinements in our variable annuity products
being sold, as well as lapse and other policyholder behaviour
experience. Net realized gains on sales of AFS securities and
assumption changes and management actions contributed to net income in
2012.
Net income in 2011 was unfavourably impacted by the net impact of
assumption changes and management actions of $910 million, including a
$635 million charge to net income in the fourth quarter related to
Hedging in the Liabilities. Results in 2011 were also unfavourably
impacted by declines in equity markets and interest rate levels, which
reduced net income by $356 million and $224 million, respectively. This
was partially offset by the favourable impact of investment activity on
insurance contract liabilities, net realized gains on AFS securities, a
net tax benefit from the reorganization of our U.K. operations and
increases in the fair value of real estate classified as investment
properties.
Impact of Sale of U.S. Annuity Business
On December 17, 2012, SLF Inc. and certain of its subsidiaries entered
into a definitive stock purchase agreement with Delaware Life Holdings,
LLC, pursuant to which we agreed to sell our U.S. Annuity Business to
Delaware Life Holdings, LLC for a base purchase price of US$1,350
million, which will be adjusted to reflect the performance of the
business through closing. The transaction will consist primarily of the
sale of 100% of the shares of Sun Life (U.S.), which includes the U.S.
domestic variable annuity, fixed annuity and fixed indexed annuity
products, corporate and bank-owned life insurance products and variable
life insurance products. This transaction will include the transfer of
certain related operating assets, systems and employees that support
these businesses. The transaction is expected to close by the end of
the second quarter of 2013, subject to regulatory approvals and other
closing conditions.
As disclosed in Note 3 in our 2012 Consolidated Financial Statements, we
will recognize a loss on disposition at the time the sale of our U.S.
Annuity Business is closed. The amount of the loss will include closing
price adjustments, pre-closing transactions, closing costs and certain
tax adjustments. The net carrying value of the assets and liabilities
classified as held for sale as at December 31, 2012 does not include
pre-close adjustments and certain balances of the Discontinued
Operations that have been eliminated for consolidation purposes. The
financial impact of these adjustments is not known and could not be
estimated with precision as at December 31, 2012. Some of the
adjustments will be realized in income prior to the close of the
transaction and we will identify these as operating adjustments as they
occur. The loss related to the sale is estimated to be $1,050 million.
The transaction is not expected to have a direct impact on Sun Life
Assurance's MCCSR, although pre-closing transactions between Sun Life
Financial and Sun Life Assurance will have a minor impact on the ratio.
Impact of the Low Interest Rate Environment on Continuing Operations
Sun Life Financial's overall business and financial operations are
affected by the global economic and capital market environment. Our
results are sensitive to interest rates, which have declined in
response to more challenging conditions in the European Union and
monetary policy actions in the United States.
During the fourth quarter of 2012, we incurred a charge of $44 million
due to declines in fixed income reinvestment rates in our insurance
contract liabilities. Assuming continuation of December 31, 2012
interest rate levels through the end of 2015, our net income from
Continuing Operations for the 2013 to 2015 period would be reduced by
up to $350 million due to declines in fixed income reinvestment rates.
This reflects a $150 million improvement from the estimate we disclosed
in the third quarter of 2012 related to increased interest rates, the
impact of methodology changes for determining liabilities in SLF Asia
and the removal of the impact from Discontinued Operations. This is
forward-looking information and assumes the continuation of
December 31, 2012 interest rate levels through the end of 2015, as
applied to the block of business in force and using other assumptions
in effect at December 31, 2012.
In addition to the impact on fixed income reinvestment rates in
insurance contract liabilities, a prolonged period of low interest
rates can pressure our earnings, regulatory capital requirements and
our ability to implement our business strategy and plans in several
ways, including:
|
|
|
|
(i)
|
lower sales of certain protection and wealth products, which can in turn
pressure our operating expense levels;
|
|
|
(ii)
|
shifts in the expected pattern of redemptions (surrenders) on existing
policies;
|
|
|
(iii)
|
higher equity hedging costs;
|
|
|
(iv)
|
higher new business strain reflecting lower new business profitability;
|
|
|
(v)
|
reduced return on new fixed income asset purchases;
|
|
|
(vi)
|
the impact of changes in actuarial assumptions driven by capital market
movements;
|
|
|
(vii)
|
impairment of goodwill; and
|
|
|
(viii)
|
additional valuation allowances against our deferred tax assets.
|
Actuarial Standards
On December 21, 2012, the Actuarial Standards Board proposed to revise
the Canadian actuarial standards of practice with respect to economic
reinvestment assumptions. Any impact of such revision to our
liabilities has not yet been determined.
Annual Goodwill and Intangibles Impairment Testing
The Company completed its annual goodwill and intangibles impairment
testing in the fourth quarter. No impairment charges were taken as a
result of this testing. However, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, we have written down $6 million of intangibles and have recorded this
charge in Discontinued Operations.
At the end of 2011, we took an impairment charge in our Canadian
Individual Wealth cash generating unit ("CGU"). Although no further
impairment charge is required in 2012, the excess of fair value over
carrying value for this CGU remains small as a result of low interest
rates, market volatility affecting the cost of hedging and uncertainty
regarding future capital requirements for segregated funds. The
goodwill associated with this CGU was $160 million at December 31,
2012.
The Impact of Foreign Exchange Rates
We have operations in many markets worldwide, including Canada, the
United States, the United Kingdom, Ireland, Hong Kong, the Philippines,
Japan, Indonesia, India, China, Australia, Singapore, Vietnam and
Bermuda, and generate revenues and incur expenses in local currencies
in these jurisdictions, which are translated to Canadian dollars. The
bulk of our exposure to movements in foreign exchange rates is to the
U.S. dollar.
Items impacting our Consolidated Statements of Operations are translated
to Canadian dollars using average exchange rates for the respective
period. For items impacting our Consolidated Statements of Financial
Position, period end rates are used for currency translation purposes.
The following table provides the most relevant foreign exchange rates
over the past several quarters.
Exchange rate
|
Quarterly
|
Full year
|
|
Q4'12
|
Q3'12
|
Q2'12
|
Q1'12
|
Q4'11
|
2012
|
2011
|
Average
|
|
|
|
|
|
|
|
U.S. Dollar
|
0.991
|
0.995
|
1.010
|
1.002
|
1.023
|
1.000
|
0.989
|
|
U.K. Pounds
|
1.592
|
1.573
|
1.598
|
1.574
|
1.609
|
1.584
|
1.585
|
Period end
|
|
|
|
|
|
|
|
U.S. Dollar
|
0.992
|
0.984
|
1.017
|
0.998
|
1.019
|
0.992
|
1.019
|
|
U.K. Pounds
|
1.612
|
1.590
|
1.596
|
1.597
|
1.583
|
1.612
|
1.583
|
In general, our net income benefits from a weakening Canadian dollar and
is adversely affected by a strengthening Canadian dollar as net income
from the Company's international operations is translated back to
Canadian dollars. However, in a period of losses, the weakening of the
Canadian dollar has the effect of increasing the losses. The relative
impact of foreign exchange in any given period is driven by the
movement of currency rates as well as the proportion of earnings
generated in our foreign operations. We generally express the impact of
foreign exchange on net income on a year-over-year basis. During the
fourth quarter of 2012, our operating net income decreased by $11
million as a result of movements in currency rates relative to the
fourth quarter of 2011. For the year ended December 31, 2012, our
operating net income increased by $12 million as a result of movements
in currency rates relative to the prior year.
Performance by Business Group
In recognition of the pending sale of our U.S. Annuity Business, results
from SLF U.S. and Corporate have been presented on both Continuing
Operations and Combined Operations bases. Other business segments have
no Discontinued Operations.
SLF Canada
|
Quarterly results
|
Full year(1)
|
($ millions)
|
Q4'12
|
Q3'12
|
Q2'12
|
Q1'12
|
Q4'11
|
2012
|
2011
|
Operating net income (loss)(2)
|
|
|
|
|
|
|
|
|
Individual Insurance & Investments(2)
|
42
|
26
|
59
|
154
|
73
|
281
|
212
|
|
Group Benefits(2)
|
72
|
137
|
94
|
44
|
65
|
347
|
268
|
|
Group Retirement Services(2)
|
35
|
58
|
33
|
41
|
44
|
167
|
139
|
Total operating net income (loss)(2)
|
149
|
221
|
186
|
239
|
182
|
795
|
619
|
Operating adjustments:
|
|
|
|
|
|
Hedges that do not qualify for hedge accounting
|
(6)
|
16
|
(5)
|
(12)
|
50
|
(7)
|
(3)
|
|
Goodwill and intangible asset impairment charges
|
—
|
—
|
—
|
—
|
(194)
|
—
|
(194)
|
Reported net income (loss)
|
143
|
237
|
181
|
227
|
38
|
788
|
422
|
Operating ROE (%)(2)
|
8.3
|
12.7
|
11.0
|
14.5
|
11.3
|
11.5
|
9.6
|
(1) Some periods have been restated. See Accounting Adjustments.
|
(2) Represents a non-IFRS financial measure that excludes the impact of
certain hedges in SLF Canada that do not qualify for hedge accounting
and goodwill and intangible asset impairment charges. See Use of
Non-IFRS Financial Measures.
|
Q4 2012 vs. Q4 2011
SLF Canada's reported net income was $143 million in the fourth quarter
of 2012, compared to $38 million in the fourth quarter of 2011.
Operating net income was $149 million, compared to $182 million in the
fourth quarter of 2011. Operating net income in SLF Canada excludes the
impact of certain hedges that do not qualify for hedge accounting, and
goodwill and intangible asset impairment charges recorded in the fourth
quarter of 2011, which are set out in the table above.
Net income in the fourth quarter of 2012 reflected the favourable impact
of investment activity on insurance contract liabilities in Individual
Insurance & Investments and GRS, and positive morbidity and mortality
experience in GB. Offsetting these items were declines in fixed income
reinvestment rates in our insurance contract liabilities, driven by the
continued low interest rate environment, and adverse policyholder
behaviour experience in Individual Insurance & Investments.
Net income in the fourth quarter of 2011 reflected the unfavourable
impact of the implementation of a change related to Hedging in the
Liabilities. This resulted in a charge of $103 million, which is
reflected in Individual Insurance & Investments. This was partially
offset by net realized gains on AFS securities, the favourable impact
of investment activity on insurance contract liabilities and favourable
lapse experience as a result of policyholder behaviour.
In the fourth quarter of 2012, sales of individual life and health
insurance were down 6% from the fourth quarter of 2011, due to planned
lower universal life sales and the impact of higher critical illness
sales in advance of announced price increases in the third quarter of
2012. Sales of par permanent insurance were up 18% from the fourth
quarter of 2011 due to the continued success of the Sun Par product.
Sales of individual wealth products decreased 10% from the fourth
quarter of 2011, reflecting the planned decrease in segregated fund
sales. Sales of mutual funds increased 41% from the fourth quarter of
2011, which included the continued growth of SLGI mutual funds. Sales
of SLGI mutual funds through the CSF nearly doubled from the fourth
quarter of 2011.
GB sales were up 36% from the fourth quarter of 2011, primarily due to
greater activity in the large case market. GRS sales increased 4% from
the fourth quarter of 2011. Assets under administration for GRS ended
the quarter at $54.7 billion. Pension rollover sales were $360 million,
an increase of 26% from the fourth quarter of 2011.
2012 vs. 2011
Reported net income was $788 million in 2012, compared to $422 million
in 2011. Operating net income was $795 million in 2012, compared to
$619 million in 2011. Operating net income in SLF Canada excludes the
impact of certain hedges that do not qualify for hedge accounting, and
goodwill and intangible asset impairment charges recorded in 2011,
which are set out in the table above.
Net income in 2012 reflected gains from increases in the value of real
estate properties, the favourable impact of assumption changes and
management actions in GB and GRS, and net realized gains on AFS
securities. These items were partially offset by declines in fixed
income reinvestment rates in our insurance contract liabilities in
Individual Insurance & Investments that were driven by the continued
low interest rate environment.
Net income in 2011 reflected the net unfavourable impact of assumption
changes and management actions, as well as lower equity market levels.
The impact of these unfavourable items was partially offset by net
realized gains on AFS securities, the favourable impact of fixed income
investment activity on insurance contract liabilities and gains from
increases in the value of real estate properties.
SLF U.S.
As a result of the pending sale of our U.S. Annuity Business, we present
the results on a Continuing Operations basis, with a focus on EBG and
Life and Investment Products. EBG provides protection solutions to
employers and employees including group life, disability, medical
stop-loss and dental insurance products, as well as a suite of
voluntary benefits products. The Life and Investment Products results
include our international business, which offers life insurance and
investment products to clients in international markets, and those
closed individual life insurance products that are still part of our
Continuing Operations, primarily whole life, universal life and term
insurance.
|
Quarterly results(1)
|
Full year(1)
|
(US$ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
Operating net income (loss) from Continuing Operations(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBG(2)
|
—
|
|
12
|
|
(8)
|
|
22
|
|
9
|
|
26
|
|
86
|
|
Life and Investment Products(2)
|
93
|
|
67
|
|
16
|
|
122
|
|
(84)
|
|
298
|
|
(381)
|
Total operating net income (loss) from Continuing Operations(2)
|
93
|
|
79
|
|
8
|
|
144
|
|
(75)
|
|
324
|
|
(295)
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs
|
—
|
|
—
|
|
—
|
|
—
|
|
(6)
|
|
—
|
|
(6)
|
|
Goodwill and intangible asset impairment charges
|
—
|
|
—
|
|
—
|
|
—
|
|
(2)
|
|
—
|
|
(2)
|
Reported net income (loss) from Continuing Operations
|
93
|
|
79
|
|
8
|
|
144
|
|
(83)
|
|
324
|
|
(303)
|
Reported net income (loss) from Discontinued Operations
|
109
|
|
(62)
|
|
(155)
|
|
280
|
|
(518)
|
|
172
|
|
(606)
|
Reported net income (loss)
|
202
|
|
17
|
|
(147)
|
|
424
|
|
(601)
|
|
496
|
|
(909)
|
Operating ROE (%)(2)
|
16.1
|
|
1.3
|
|
(10.8)
|
|
30.8
|
|
(36.3)
|
|
9.5
|
|
(15.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss) from Continuing Operations(2)
|
93
|
|
79
|
|
6
|
|
144
|
|
(77)
|
|
322
|
|
(301)
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs
|
—
|
|
—
|
|
—
|
|
—
|
|
(6)
|
|
—
|
|
(6)
|
|
Goodwill and intangible asset impairment charges
|
—
|
|
—
|
|
—
|
|
—
|
|
(2)
|
|
—
|
|
(2)
|
Reported net income (loss) from Continuing Operations
|
93
|
|
79
|
|
6
|
|
144
|
|
(85)
|
|
322
|
|
(309)
|
Reported net income (loss) from Discontinued Operations
|
109
|
|
(61)
|
|
(156)
|
|
281
|
|
(530)
|
|
173
|
|
(624)
|
Reported net income (loss)
|
202
|
|
18
|
|
(150)
|
|
425
|
|
(615)
|
|
495
|
|
(933)
|
(1) Some periods have been restated. See Accounting Adjustments.
|
(2) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
Q4 2012 vs. Q4 2011
SLF U.S.'s reported net income from Continuing Operations was C$93
million in the fourth quarter of 2012, compared to a reported loss from
Continuing Operations of C$85 million in the fourth quarter of 2011.
Operating net income from Continuing Operations was C$93 million,
compared to an operating loss from Continuing Operations of C$77
million in the fourth quarter of 2011. Operating net income in SLF U.S.
excludes restructuring and other related costs and goodwill and
intangible asset impairment charges recorded in the fourth quarter of
2011 due to our decision to discontinue certain products to new sales,
which are set out in the table above.
In U.S. dollars, SLF U.S.'s reported net income from Continuing
Operations was US$93 million in the fourth quarter of 2012, compared to
a reported loss from Continuing Operations of US$83 million in the
fourth quarter of 2011. Operating net income from Continuing Operations
was US$93 million in the fourth quarter of 2012, compared to an
operating loss from Continuing Operations of US$75 million in the
fourth quarter of 2011. Net income from Continuing Operations in the
fourth quarter of 2012 was favourably impacted by the refinement of
certain actuarial assumption updates from the prior quarter, partially
offset by unfavourable morbidity experience in EBG, as well as an
investment in our voluntary benefits capabilities.
The loss from Continuing Operations in the fourth quarter of 2011
included the unfavourable impact of the implementation of a change
related to Hedging in the Liabilities in Life and Investment Products.
The loss in Life and Investment Products also included updates to the
prior quarter's estimate of policy liabilities related to the
significant market volatility experienced in the third quarter of 2011
and unfavourable mortality. EBG results in the fourth quarter of 2011
reflected unfavourable morbidity experience as well.
Reported net income from Discontinued Operations was US$109 million in
the fourth quarter of 2012, compared to a reported loss from
Discontinued Operations of US$518 million in the fourth quarter of
2011. Net income from Discontinued Operations in the fourth quarter of
2012 reflected favourable market impacts, gains from investment
activity on insurance contract liabilities and an update to the prior
quarter's estimate of actuarial assumptions related to annuitant
mortality. These positive items were partially offset by unfavourable
policyholder behaviour associated with our domestic life products. The
loss from Discontinued Operations in the fourth quarter of 2011
included the unfavourable impact of the implementation of a change
related to Hedging in the Liabilities.
Reported net income (Combined Operations) was US$202 million in the
fourth quarter of 2012, compared to a reported loss (Combined
Operations) of US$601 million in the fourth quarter of 2011.
EBG sales in the fourth quarter of 2012 increased 25% compared to the
fourth quarter of 2011, reflecting significant improvement across all
product lines. Within EBG, voluntary benefits sales increased 78%
compared to the prior year period, reflecting an increase across all
voluntary benefits products.
Sales in Life and Investment Products increased 173% compared to the
fourth quarter of 2011 driven by increases in both international life
and investment product sales.
2012 vs. 2011
Reported net income from Continuing Operations was US$324 million in
2012, compared to a reported loss from Continuing Operations of US$303
million in 2011. Operating net income from Continuing Operations was
US$324 million in 2012, compared to an operating loss from Continuing
Operations of US$295 million in 2011. Operating net income in SLF U.S.
excludes restructuring and other related costs and goodwill and
intangible asset impairment charges recorded in 2011, which are set out
in the table above.
Net income from Continuing Operations in 2012 included favourable
impacts from improved equity markets, investment activity on insurance
contract liabilities and updates to actuarial assumptions. These items
were partially offset by unfavourable impacts from reduced interest
rates and credit spread movements. Net income in EBG included
unfavourable morbidity experience, an investment in our voluntary
benefits capabilities and a charge related to a premiums receivable
account reconciliation issue.
The loss from Continuing Operations in 2011 reflected the net
unfavourable impact of assumption changes and management actions
including the implementation of a change related to Hedging in the
Liabilities. The loss also reflected the unfavourable impacts of
interest rates, equity markets and mortality and morbidity experience,
partially offset by gains from investment activity on insurance
contract liabilities.
Reported net income from Discontinued Operations was US$172 million in
2012, compared to a reported loss from Discontinued Operations of
US$606 million in 2011. Net income from Discontinued Operations in 2012
reflected the favourable impact of improved equity markets and gains
from investment activity on insurance contract liabilities, partially
offset by unfavourable impacts from reduced interest rates and updates
to actuarial assumptions.
The loss from Discontinued Operations in 2011 reflected the net
unfavourable impact of assumption changes and management actions
including the implementation of a change related to Hedging in the
Liabilities. The loss also reflected the unfavourable impact of
interest rates and equity markets, partially offset by the favourable
impact of investment activity on insurance contract liabilities.
Reported net income (Combined Operations) was US$496 million in 2012,
compared to a reported net loss (Combined Operations) of US$909 million
in 2011.
MFS Investment Management
|
Quarterly results
|
Full year
|
(US$ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
|
Operating net income(1)
|
85
|
|
80
|
|
67
|
|
70
|
|
66
|
|
302
|
|
271
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments on share-based payment awards
|
(38)
|
|
(34)
|
|
(1)
|
|
(21)
|
|
(32)
|
|
(94)
|
|
(79)
|
|
|
Restructuring and other related costs
|
—
|
|
—
|
|
—
|
|
—
|
|
(4)
|
|
—
|
|
(4)
|
|
Reported net income
|
47
|
|
46
|
|
66
|
|
49
|
|
30
|
|
208
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income(1)
|
85
|
|
80
|
|
68
|
|
69
|
|
68
|
|
302
|
|
270
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments on share-based payment awards
|
(39)
|
|
(34)
|
|
(1)
|
|
(20)
|
|
(33)
|
|
(94)
|
|
(80)
|
|
|
Restructuring and other related costs
|
—
|
|
—
|
|
—
|
|
—
|
|
(4)
|
|
—
|
|
(4)
|
|
Reported net income
|
46
|
|
46
|
|
67
|
|
49
|
|
31
|
|
208
|
|
186
|
|
Pre-tax operating profit margin ratio(2)
|
35
|
%
|
36
|
%
|
32
|
%
|
33
|
%
|
32
|
%
|
34
|
%
|
33
|
%
|
Average net assets (US$ billions)
|
309.7
|
|
290.5
|
|
273.2
|
|
270.1
|
|
249.5
|
|
286.0
|
|
261.0
|
|
Assets under management (US$ billions)(2)
|
322.8
|
|
303.6
|
|
278.2
|
|
284.8
|
|
253.2
|
|
322.8
|
|
253.2
|
|
Net sales (US$ billions)
|
11.5
|
|
7.9
|
|
4.2
|
|
5.9
|
|
1.7
|
|
29.4
|
|
5.4
|
|
Asset appreciation (depreciation) (US$ billions)
|
8.3
|
|
17.5
|
|
(10.8)
|
|
25.7
|
|
15.1
|
|
40.7
|
|
(8.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index (daily average)
|
1,420
|
|
1,402
|
|
1,350
|
|
1,346
|
|
1,225
|
|
1,379
|
|
1,268
|
|
MSCI EAFE Index (daily average)
|
1,544
|
|
1,468
|
|
1,427
|
|
1,516
|
|
1,420
|
|
1,489
|
|
1,590
|
|
(1) Represents a non-IFRS financial measure that excludes fair value
adjustments on share-based payment awards at MFS and restructuring
and other related costs. See Use of Non-IFRS Financial Measures.
|
(2) Pre-tax operating profit margin ratio and AUM are non-IFRS financial
measures. See Use of Non-IFRS Financial Measures. Monthly
information on AUM is provided by MFS at www.mfs.com.
|
Q4 2012 vs. Q4 2011
MFS's reported net income was C$46 million in the fourth quarter of
2012, compared to C$31 million in the fourth quarter of 2011. MFS had
operating net income of C$85 million in the fourth quarter of 2012,
compared to C$68 million in the fourth quarter of 2011. Operating net
income in MFS excludes the impact of fair value adjustments on
share-based payment awards, and restructuring and other related costs
related to the transition of McLean Budden to MFS in the fourth quarter
of 2011, which are set out in the table above.
In U.S. dollars, MFS's reported net income was US$47 million in the
fourth quarter of 2012, compared to US$30 million in the fourth quarter
of 2011. Operating net income was US$85 million in the fourth quarter
of 2012, compared to US$66 million in the fourth quarter of 2011.
The increase in net income from the fourth quarter of 2011 reflects the
impact of higher average net assets. MFS's pre-tax operating profit
margin ratio was 35% in the fourth quarter of 2012, up from 32% in the
fourth quarter of 2011.
Total AUM as at December 31, 2012 was US$322.8 billion, compared to
US$253.2 billion at December 31, 2011. The increase of US$69.6 billion
was driven by gross sales of US$86.3 billion and asset appreciation of
US$40.7 billion, partially offset by redemptions of US$56.8 billion and
a $0.6 billion disposition. Gross sales of US$26.2 billion during the
fourth quarter of 2012 included a one-time inflow from Sun Capital
Advisers, LLC of US$6.7 billion representing variable annuity assets
previously managed by third-party managers. Retail fund performance
remained strong with 90% and 88% of fund assets ranked in the top half
of their Lipper categories based on five- and ten-year performance,
respectively.
2012 vs. 2011
Reported net income was US$208 million in 2012, compared to US$188
million in 2011. Operating net income was US$302 million in 2012,
compared to US$271 million in 2011. Operating net income in MFS
excludes the impact of fair value adjustments on share-based payment
awards, and restructuring and other related costs related to the
transition of McLean Budden to MFS in 2011, which are set out in the
table above. The increase reflected higher average net assets, which
increased from US$261.0 billion at December 31, 2011 to US$286.0
billion at December 31, 2012.
SLF Asia
|
Quarterly results
|
Full year
|
($ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
|
Operating net income (loss)(1)
|
50
|
|
35
|
|
15
|
|
29
|
|
44
|
|
129
|
|
144
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs
|
—
|
|
—
|
|
—
|
|
—
|
|
(6)
|
|
—
|
|
(6)
|
|
Reported net income (loss)
|
50
|
|
35
|
|
15
|
|
29
|
|
38
|
|
129
|
|
138
|
|
Operating ROE (%)(1)
|
10.4
|
|
7.6
|
|
3.2
|
|
6.6
|
|
9.9
|
|
7.0
|
|
8.5
|
|
(1) Represents a non-IFRS financial measure that excludes restructuring and
other related costs recorded as a result of the acquisition
of Grepalife Financial Inc. See Use of Non-IFRS Financial Measures.
|
Q4 2012 vs. Q4 2011
SLF Asia's reported net income was $50 million in the fourth quarter of
2012, compared to reported net income of $38 million in the fourth
quarter of 2011. Operating net income was $50 million in the fourth
quarter of 2012, compared to $44 million in the fourth quarter of 2011.
Operating net income in SLF Asia excludes restructuring and other
related costs recorded in the fourth quarter of 2011, primarily related
to the acquisition of 49% of Grepalife Financial Inc., which are set
out in the table above.
Net income in the fourth quarter of 2012 reflected the favourable impact
of assumption changes and management actions and higher earnings in the
Philippines due to business growth. Net income in the fourth quarter of
2011 reflected the net favourable impact of assumption changes and
management actions during the quarter, realized gains on AFS securities
and business growth, partially offset by high levels of new business
strain as a result of sales in China.
Total individual life sales in the fourth quarter of 2012 were down 20%
from the fourth quarter of 2011. Sales increases in the Philippines,
Indonesia and Hong Kong were offset by lower sales in India and China.
Sales in the Philippines grew by 61%, and sales in Indonesia and Hong
Kong were up by 14% and 6%, respectively, measured in local currency.
2012 vs. 2011
Reported net income was $129 million in 2012, compared to reported net
income of $138 million in 2011. Operating net income was $129 million
in 2012, compared to $144 million in 2011. Operating net income in SLF
Asia excludes restructuring and other related costs recorded in 2011,
which are set out in the table above.
Net income in 2012 included the unfavourable impact of declining
interest rates in Hong Kong and higher levels of new business strain
from increased sales in China and the Philippines. These items were
partially offset by the favourable impact of assumption changes and
management actions, and higher earnings in the Philippines due to
business growth. Net income in 2011 reflected business growth, realized
gains on AFS securities, the net favourable impact of assumption
changes and management actions and low levels of new business strain as
a result of sales levels in India and Hong Kong.
Individual life sales in 2012 were flat from 2011. On a local currency
basis, sales growth in the Philippines and China was offset by lower
sales in India. Excluding India, individual life sales were up 19%.
Sales in the Philippines were up 58% due to agency expansion, and the
launch of Sun Life Grepa Financial, Inc. in October 2011. Sales in
China were up 17% as a result of distribution growth.
Corporate
Corporate includes the results of SLF U.K. and Corporate Support.
Corporate Support includes our run-off reinsurance business as well as
investment income, expenses, capital and other items that have not been
allocated to our other business segments. Discontinued Operations in
Corporate relate to Corporate Support only.
|
Quarterly results
|
Full year
|
($ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
SLF U.K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)(1)
|
28
|
|
107
|
|
52
|
|
26
|
|
71
|
|
213
|
|
156
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs:
|
—
|
|
—
|
|
—
|
|
—
|
|
(3)
|
|
—
|
|
(3)
|
|
Reported net income (loss)
|
28
|
|
107
|
|
52
|
|
26
|
|
68
|
|
213
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss) from Continuing Operations(1)
|
(72)
|
|
(63)
|
|
(77)
|
|
(70)
|
|
(78)
|
|
(282)
|
|
(355)
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs:
|
(4)
|
|
—
|
|
—
|
|
—
|
|
(10)
|
|
(4)
|
|
(10)
|
Reported net income (loss) from Continuing Operations
|
(76)
|
|
(63)
|
|
(77)
|
|
(70)
|
|
(88)
|
|
(286)
|
|
(365)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate (total)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating net income (loss) from Continuing Operations(1)
|
(44)
|
|
44
|
|
(25)
|
|
(44)
|
|
(7)
|
|
(69)
|
|
(199)
|
Total Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other related costs:
|
(4)
|
|
—
|
|
—
|
|
—
|
|
(13)
|
|
(4)
|
|
(13)
|
Total reported net income (loss) from Continuing Operations(1)
|
(48)
|
|
44
|
|
(25)
|
|
(44)
|
|
(20)
|
|
(73)
|
|
(212)
|
Total reported net income (loss) from Discontinued Operations
|
2
|
|
3
|
|
2
|
|
—
|
|
3
|
|
7
|
|
29
|
Reported net income (loss)
|
(46)
|
|
47
|
|
(23)
|
|
(44)
|
|
(17)
|
|
(66)
|
|
(183)
|
(1) Represents a non-IFRS financial measure that excludes restructuring and
other related costs. See Use of Non-IFRS Financial Measures.
|
Q4 2012 vs. Q4 2011
Corporate had a reported loss from Continuing Operations of $48 million
in the fourth quarter of 2012, compared to a reported loss from
Continuing Operations of $20 million in the fourth quarter of 2011. The
operating net loss from Continuing Operations was $44 million in the
fourth quarter of 2012, compared to an operating loss from Continuing
Operations of $7 million in the fourth quarter of 2011. Operating net
income (loss) in Corporate excludes restructuring and other related
costs, which are set out in the table above.
SLF U.K.'s reported net income was $28 million in the fourth quarter of
2012, compared to $68 million in the fourth quarter of 2011.
Restructuring and other related costs were nil, compared to $3 million
in the fourth quarter of 2011. Operating net income was $28 million in
the fourth quarter of 2012, compared to $71 million in the fourth
quarter of 2011. SLF U.K.'s net income in the fourth quarter of 2012
reflected favourable impacts from tax related items. Net income in the
fourth quarter of 2011 included a net tax benefit related to the
reorganization of our U.K. operations, partially offset by the
unfavourable impact of investment activity on insurance contract
liabilities.
Corporate Support had a reported loss from Continuing Operations of $76
million in the fourth quarter of 2012, compared to a reported loss from
Continuing Operations of $88 million in the fourth quarter of 2011.
Restructuring and other related costs were $4 million, compared to $10
million in the fourth quarter of 2011. The operating loss from
Continuing Operations was $72 million in the fourth quarter of 2012,
compared to an operating loss from Continuing Operations of $78 million
in the fourth quarter of 2011. Net income from Continuing Operations in
the fourth quarter of 2012 reflected favourable impact from lower debt
financing costs and lower losses in our run-off reinsurance business,
partially offset by higher expenses. Net income from Continuing
Operations in the fourth quarter of 2011 included net impairments on
AFS securities.
Corporate's reported net income from Discontinued Operations was $2
million in the fourth quarter of 2012, compared to $3 million in the
fourth quarter of 2011. Corporate's reported loss (Combined Operations)
was $46 million in the fourth quarter of 2012, compared to a reported
loss of $17 million in the fourth quarter of 2011.
2012 vs. 2011
Corporate had a reported loss from Continuing Operations of $73 million
in 2012, compared to a reported loss from Continuing Operations of $212
million in 2011. The operating loss from Continuing Operations was $69
million in 2012, compared to an operating loss from Continuing
Operations of $199 million in 2011. Operating net income (loss) in
Corporate excludes restructuring and other related costs, which are set
out in the table above.
SLF U.K.'s reported net income was $213 million in 2012, compared to
$153 million in 2011. Restructuring and other related costs were nil in
2012, compared to $3 million in 2011. Operating net income was $213
million in 2012, compared to $156 million in 2011. Net income in 2012
reflected favourable impacts from investment activity on insurance
contract liabilities, refinements to actuarial models and tax related
items. Net income in 2011 included a net tax benefit related to the
reorganization of our U.K. operations, partially offset by the
unfavourable impact of investment activity on insurance contract
liabilities. Net income in both 2012 and 2011 reflected investment in
regulatory initiatives such as Solvency II.
In Corporate Support, the reported loss from Continuing Operations was
$286 million in 2012, compared to a reported loss of $365 million in
2011. Restructuring and other related costs were $4 million, compared
to $10 million in 2011. The operating loss from Continuing Operations
was $282 million in 2012, compared to an operating loss from Continuing
Operations of $355 million in 2011. The loss from Continuing Operations
in 2012 reflected lower expenses and lower losses in our run-off
reinsurance business than the prior year. The loss from Continuing
Operations in 2011 included an impairment of AFS securities. Both 2012
and 2011 reflected the net cost of reinsurance for the insured business
in SLF Canada's GB operations.
Corporate's reported net income from Discontinued Operations was $7
million in 2012, compared to $29 million in 2011. The reported loss
(Combined Operations) for Corporate was $66 million in 2012, compared
to $183 million in 2011.
Additional Financial Disclosure
Revenue from Continuing Operations
Revenue from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly results
|
Full year
|
($ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
3,779
|
|
3,200
|
|
3,130
|
|
3,306
|
|
3,308
|
|
13,415
|
|
13,221
|
|
Ceded
|
(1,322)
|
|
(1,273)
|
|
(1,265)
|
|
(1,308)
|
|
(1,276)
|
|
(5,168)
|
|
(4,983)
|
Net premium revenue
|
2,457
|
|
1,927
|
|
1,865
|
|
1,998
|
|
2,032
|
|
8,247
|
|
8,238
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other investment income
|
1,202
|
|
1,023
|
|
1,192
|
|
1,013
|
|
1,006
|
|
4,430
|
|
4,388
|
|
Changes in fair value of FVTPL assets and liabilities
|
(274)
|
|
1,233
|
|
1,339
|
|
(570)
|
|
1,538
|
|
1,728
|
|
4,257
|
|
Net gains (losses) on AFS assets
|
23
|
|
16
|
|
68
|
|
19
|
|
63
|
|
126
|
|
151
|
Fee income
|
842
|
|
753
|
|
718
|
|
715
|
|
735
|
|
3,028
|
|
2,796
|
Total revenue
|
4,250
|
|
4,952
|
|
5,182
|
|
3,175
|
|
5,374
|
|
17,559
|
|
19,830
|
Adjusted revenue(1)
|
5,554
|
|
4,735
|
|
4,787
|
|
4,725
|
|
4,712
|
|
19,541
|
|
19,117
|
(1) Represents a non-IFRS financial measure that excludes the impact of
fair value changes in Fair Value Through Profit and Loss ("FVTPL")
assets and liabilities, currency,
reinsurance for the insured business in SLF Canada's GB operations and
net premiums from Life and Investment Products in SLF U.S. that
were closed to new sales effective December 30, 2011. For additional
information, see Use of Non-IFRS Financial Measures.
|
Revenues were $4.3 billion in the fourth quarter of 2012, compared to
$5.4 billion in the fourth quarter of 2011. Revenues decreased
primarily as a result of lower net gains in the fair value of FVTPL
assets and liabilities, partially offset by higher premium revenue from
SLF Canada's GRS and SLF U.S.'s Life and Investment Products
businesses, higher investment income and increased fee income from MFS.
Adjusted revenue was $5.6 billion in the fourth quarter of 2012,
compared to $4.7 billion in the fourth quarter of 2011 primarily due to
higher premium revenue from SLF Canada's GRS and SLF U.S.'s Life and
Investment Products businesses, higher investment income and increased
fee income from MFS.
Revenues of $17.6 billion in 2012 were down $2.2 billion from revenue of
$19.8 billion in 2011 due to lower net gains in the fair value of FVTPL
assets and liabilities, partially offset by higher fee income from MFS.
Adjusted revenue of $19.5 billion was up $0.4 billion from 2011 largely
driven by higher fee income from MFS and favourable impact from
currency movements.
Premiums and Deposits from Continuing Operations
Premiums and Deposits from Continuing Operations
|
|
Quarterly results
|
Full year
|
($ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
2012
|
|
2011
|
Premiums and Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue
|
2,457
|
|
1,927
|
|
1,865
|
|
1,998
|
|
2,032
|
|
8,247
|
|
8,238
|
|
Segregated fund deposits
|
1,681
|
|
1,534
|
|
1,753
|
|
1,967
|
|
2,272
|
|
6,935
|
|
7,508
|
|
Mutual fund sales(1)
|
11,294
|
|
10,129
|
|
12,060
|
|
9,820
|
|
7,334
|
|
43,303
|
|
28,941
|
|
Managed fund sales(1)
|
14,938
|
|
11,065
|
|
7,999
|
|
9,849
|
|
8,682
|
|
43,851
|
|
28,019
|
|
ASO premium and deposit equivalents(1)
|
1,512
|
|
1,405
|
|
1,380
|
|
1,440
|
|
1,391
|
|
5,737
|
|
5,661
|
Total premiums and deposits(1)
|
31,882
|
|
26,060
|
|
25,057
|
|
25,074
|
|
21,711
|
|
108,073
|
|
78,367
|
Total adjusted premiums and deposits(1),(2)
|
33,724
|
|
27,642
|
|
26,249
|
|
26,446
|
|
22,587
|
|
110,847
|
|
81,904
|
(1)Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2) Excludes the impact of foreign exchange, reinsurance for the insured
business in SLF Canada's GB operations and net premiums and
deposits from Life and Investment Products in SLF U.S. that were closed
to new sales effective December 30, 2011.
|
Premiums and deposits were $31.9 billion for the quarter ended December 31, 2012, compared to
$21.7 billion for the quarter ended December 31, 2011. Adjusted
premiums and deposits of $33.7 billion in the fourth quarter of 2012 increased $11.1 billion
from 2011. In both cases, the increase was primarily the result of
higher fund sales at MFS.
Premiums and deposits were $108.1 billion in 2012, compared to $78.4
billion in 2011. Adjusted premiums and deposits of $110.8 billion in
2012 increased $28.9 billion from 2011. Both increases were primarily
due to higher MFS fund sales.
Net life, health and annuity premium revenues, which reflect gross
premiums less amounts ceded to reinsurers, were $2.5 billion in the
fourth quarter of 2012, compared to $2.0 billion in the fourth quarter
of 2011. The increase was primarily due to higher premium revenue from
SLF Canada's GRS and SLF U.S.'s Life and Investment Products
businesses. Net life, health and annuity premium revenues were $8.2
billion for 2012, largely unchanged from 2011.
Segregated fund deposits were $1.7 billion in the fourth quarter of
2012, compared to $2.3 billion in the fourth quarter of 2011.
Segregated fund deposits were $6.9 billion in 2012, compared to $7.5
billion in 2011. The decrease in both periods was largely attributable
to planned reductions in sales in SLF Canada.
Sales of mutual funds and managed funds were $26.2 billion in the fourth
quarter of 2012, an increase of $10.2 billion over the fourth quarter
of 2011, reflecting strong sales from MFS. Mutual and managed fund
sales were $87.2 billion in 2012, compared to $57.0 billion in 2011,
also driven by higher MFS sales.
ASO premium and deposit equivalents of $1.5 billion in the fourth
quarter of 2012 were largely unchanged from the fourth quarter of 2011.
ASO premium and deposit equivalents for 2012 were also in line with
2011.
Assets Under Management (Combined Operations)
AUM consists of general funds, segregated funds and other AUM. Other AUM
includes mutual funds and managed funds, which include institutional
and other third-party assets managed by the Company.
AUM were $532.8 billion as at December 31, 2012, compared to $465.8 billion
as at December 31, 2011 and $514.9 billion as at September 30, 2012.
The increase in AUM of $67.0 billion between December 31, 2012 and
December 31, 2011 resulted primarily from:
|
|
|
|
(i)
|
favourable market movements on the value of mutual funds, managed funds
and segregated funds of $48.5 billion;
|
|
|
(ii)
|
net sales of mutual, managed and segregated funds of $24.0 billion, net
of the inflow from Sun Capital Advisers;
|
|
|
(iii)
|
business growth of $3.4 billion; and
|
|
|
(iv)
|
an increase of $1.5 billion from the change in value of FVTPL assets and
liabilities; partially offset by
|
|
|
(v)
|
a decrease of $9.8 billion from the strengthening of the Canadian dollar
against foreign currencies compared to the prior period exchange rates;
and
|
|
|
(vi)
|
a decrease of $0.6 billion related to the sale of MFS McLean Budden's
private wealth business.
|
AUM increased $17.9 billion between September 30, 2012 and December 31,
2012. The increase in AUM related primarily to:
|
|
|
|
(i)
|
favourable market movements on the value of mutual funds, managed funds
and segregated funds of $11.1 billion;
|
|
|
(ii)
|
net sales of mutual, managed and segregated funds of $3.9 billion net of
the inflow from Sun Capital Advisers;
|
|
|
(iii)
|
an increase of $3.5 billion from the weakening of the Canadian dollar
against foreign currencies compared to the prior period exchange rates;
and
|
|
|
(iv)
|
business growth of $0.4 billion; partially offset by
|
|
|
(v)
|
a decrease of $0.6 billion related to the sale of MFS McLean Budden's
private wealth business; and
|
|
|
(vi)
|
a decrease of $0.4 billion from the change in value of FVTPL assets and
liabilities.
|
Changes in the Statements of Financial Position and in Shareholders'
Equity
Total general fund assets were $133.1 billion as at December 31, 2012,
compared to $130.1 billion a year earlier and $132.1 billion as at
September 30, 2012. The increase in general fund assets from
December 31, 2011 was primarily the result of an increase of $3.4
billion from business growth and $1.4 billion from the change in value
of FVTPL assets and liabilities, partially offset by currency loss of
$1.8 billion.
Insurance contract liabilities from Continuing Operations (excluding
other policy liabilities and assets) of $82.2 billion as at
December 31, 2012 decreased by $9.0 billion compared to December 31,
2011, mainly due to the impact from the pending sale of our U.S.
Annuity Business and unfavourable impact from currency movements,
partially offset by balances arising from new policies and changes in
balances on in-force policies (which includes fair value changes on
FVTPL assets supporting insurance contract liabilities).
Shareholders' equity, including preferred share capital, was $16.6
billion as at December 31, 2012, compared to $15.5 billion as at
December 31, 2011. The $1.1 billion increase in shareholders' equity
was primarily due to:
|
|
|
|
(i)
|
shareholders' net income of $1,674 million in 2012, before preferred
share dividends of $120 million;
|
|
|
(ii)
|
net unrealized gains on AFS assets in other comprehensive income ("OCI")
of $288 million;
|
|
|
(iii)
|
proceeds of $266 million from the issuance of common shares through the
Canadian Dividend Reinvestment Plan and $15 million from stock-based
compensation; partially offset by
|
|
|
(iv)
|
common share dividend payments of $844 million;
|
|
|
(v)
|
a decrease of $177 million from the strengthening of the Canadian dollar
relative to foreign currencies.
|
Income Taxes
In the fourth quarter of 2012, for our Continuing Operations, we
reported an income tax expense of $18 million on reported income before
taxes of $328 million, representing an effective income tax rate of
5.5%. This compares to an income tax recovery of $116 million on our
reported loss before taxes of $85 million and an effective tax rate of
136.5% for Continuing Operations in the fourth quarter of 2011. Our
Combined Operations had an income tax expense of $73 million on
reported income before taxes of $494 million, which resulted in an
effective income tax rate of 14.8%. This compares to an income tax
recovery of $399 million on our reported loss before taxes of
$895 million and an effective tax rate of 44.6% for Combined Operations
in the fourth quarter of 2011.
In the fourth quarter of 2012, our effective tax rate of 5.5% was
considerably lower than the statutory income tax rate of 26.5% (28% in
2011) due to a sustainable stream of tax benefits, such as lower taxes
on income subject to tax in foreign jurisdictions, a range of tax
exempt investment income and other items. Our tax expense in the
quarter was reduced by adjustments related to prior years, including
successful resolution of tax audits and the impact of the new
legislation for life companies in the U.K. In Canada, we also recorded
a higher tax benefit related to the appreciation of real estate
properties during the quarter.
In the fourth quarter of 2011, in addition to our sustainable tax
benefits, we recorded a tax benefit of $68 million related to
previously unrecognized losses in SLF U.K. following the reorganization
of our principal U.K. subsidiaries. Our fourth quarter 2011 tax
recovery also included the impact of the impairment of goodwill in SLF
Canada, which was not deductible for tax purposes.
Discontinued Operations
On December 17, 2012, we entered into a definitive stock purchase
agreement to sell our U.S. Annuity Business, including all of the
issued and outstanding shares of Sun Life (U.S.). Our U.S. Annuity
Business includes our domestic U.S. variable annuity, fixed annuity and
fixed indexed annuity products, corporate and bank-owned life insurance
products and variable life insurance products. The transaction is
subject to regulatory approvals and other closing conditions and is
expected to close before the end of the second quarter of 2013.
The following table sets out the financial information associated with
the discontinued operations.
|
|
|
|
|
|
|
|
|
(C$ millions, unless otherwise noted)
|
Q4'12
|
|
Q4'11
|
|
2012
|
|
2011
|
Net Income - Reported
|
|
|
|
|
|
|
|
|
Net income from Discontinued Operations
|
111
|
|
(527)
|
|
180
|
|
(595)
|
|
Diluted EPS from Discontinued Operations ($)
|
0.18
|
|
(0.90)
|
|
0.30
|
|
(1.03)
|
|
Basic EPS from Discontinued Operations ($)
|
0.18
|
|
(0.90)
|
|
0.30
|
|
(1.03)
|
Revenue
|
|
|
|
|
|
|
|
|
Net premiums
|
79
|
|
273
|
|
282
|
|
1,076
|
|
Net investment income
|
1
|
|
(80)
|
|
457
|
|
1,118
|
|
Fee income
|
131
|
|
148
|
|
589
|
|
557
|
|
Total revenue
|
211
|
|
341
|
|
1,328
|
|
2,751
|
Premiums and Deposits
|
|
|
|
|
|
|
|
|
Net premium revenue
|
79
|
|
273
|
|
282
|
|
1,076
|
|
Segregated fund deposits
|
105
|
|
640
|
|
392
|
|
2,674
|
|
Mutual fund sales
|
—
|
|
—
|
|
—
|
|
—
|
|
Managed fund sales
|
—
|
|
—
|
|
—
|
|
—
|
|
ASO premium and deposit equivalents
|
—
|
|
—
|
|
—
|
|
—
|
|
Total premiums and deposits
|
184
|
|
913
|
|
674
|
|
3,750
|
Assets
|
|
|
|
|
|
|
|
|
General funds
|
15,067
|
|
|
|
15,067
|
|
|
|
Segregated funds
|
27,668
|
|
|
|
27,668
|
|
|
|
Total assets
|
42,735
|
|
|
|
42,735
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
General funds
|
12,689
|
|
|
|
12,689
|
|
|
|
Segregated funds
|
27,668
|
|
|
|
27,668
|
|
|
|
Total liabilities
|
40,357
|
|
|
|
40,357
|
|
|
Investments
The assets and liabilities of our Discontinued Operations have been
classified as Assets of disposal group classified as held for sale and
Liabilities of disposal group classified as held for sale on our 2012
Consolidated Statement of Financial Position. Comparative information
for 2011 has not been restated. The information in this section has
been completed on the same basis. Total general fund invested assets
does not include $14,347 million of invested assets separately
disclosed in Assets of disposal group classified as held for sale. See
Note 3 in our 2012 Consolidated Financial Statements for additional
information.
We had total general fund invested assets of $105.7 billion as at
December 31, 2012. The majority of our general fund is invested in
medium- to long-term fixed income instruments, such as debt securities,
mortgages and loans. 83.9% of the general fund assets are invested in
cash and fixed income investments. Equity securities and investment
properties comprised 4.8% and 5.6% of the portfolio, respectively. The
remaining 5.7% of the portfolio is comprised of policy loans,
derivative assets and other invested assets.
The following table sets out the composition of our invested assets.
|
|
|
|
|
|
|
|
|
|
Investments(1)
|
December 31,
2012(2)
|
|
December 31,
2011(2)
|
($ millions)
|
Carrying
value
|
|
% of total
carrying
value
|
|
|
Carrying
value
|
|
% of total
carrying
value
|
Cash, cash equivalents and short-term securities
|
7,034
|
|
6.7%
|
|
|
8,837
|
|
7.6%
|
Debt securities - FVTPL(3)
|
43,773
|
|
41.4%
|
|
|
51,627
|
|
44.2%
|
Debt securities - AFS
|
10,589
|
|
10.0%
|
|
|
11,303
|
|
9.7%
|
Equity securities - FVTPL
|
4,169
|
|
4.0%
|
|
|
3,731
|
|
3.2%
|
Equity securities - AFS
|
857
|
|
0.8%
|
|
|
839
|
|
0.7%
|
Mortgages and loans
|
27,248
|
|
25.8%
|
|
|
27,755
|
|
23.8%
|
Derivative assets
|
2,113
|
|
2.0%
|
|
|
2,632
|
|
2.3%
|
Other invested assets
|
1,269
|
|
1.2%
|
|
|
1,348
|
|
1.2%
|
Policy loans
|
2,681
|
|
2.5%
|
|
|
3,276
|
|
2.8%
|
Investment properties
|
5,942
|
|
5.6%
|
|
|
5,313
|
|
4.5%
|
Total invested assets
|
105,675
|
|
100%
|
|
|
116,661
|
|
100%
|
(1) The invested asset values and ratios presented are based on the
carrying value of the respective asset categories. Carrying values for
FVTPL and AFS invested assets are generally equal to fair value. In the
event of default, if the amounts recovered are insufficient to satisfy
the related insurance contract liability cash flows that the assets are
intended to support, credit exposure may be greater than the carrying
value of the asset.
|
(2) Values as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately disclosed in Assets of
disposal group classified as held for sale. Comparative 2011 values have
not been restated to reflect this presentation.
|
(3) Not included in Debt securities are certain asset-backed securities
currently classified as Assets of disposal group classified as held for
sale. We expect that a portion of these assets will be retained and
redeployed as assets backing liabilities in the Continuing Operations
upon
sale of our U.S. Annuity Business. See Note 3 in our 2012 Consolidated
Financial Statements.
|
Debt Securities
As at December 31, 2012, we held $54.4 billion of debt securities, which
constituted 51.4% of our overall investment portfolio. Debt securities
with an investment grade of "A" or higher represented 69.9% of the
total debt securities as at December 31, 2012, compared to 68.4% as at
December 31, 2011. Debt securities rated "BBB" or higher represented
98.2% of total debt securities as at December 31, 2012, 1.1% higher
than at December 31, 2011.
Corporate debt securities that are not issued or guaranteed by
sovereign, regional and municipal governments represented 64.3% of our
total debt securities as at December 31, 2012, compared to 65.8% as at
December 31, 2011. Total government issued or guaranteed debt
securities as at December 31, 2012 were $19.4 billion, compared to
$21.5 billion as at December 31, 2011. Of this amount, $1.6 billion
relates to debt securities issued by the U.S. government and other U.S.
agencies. Our exposure to debt securities to any single country does
not exceed 1% of total assets on our Consolidated Statements of
Financial Position as at December 31, 2012 with the exception of the
following countries where we have business operations: Canada, the
United States, and the United Kingdom. As outlined in the table below,
we have an immaterial amount of direct exposure to Eurozone sovereign
credits.
Debt Securities of Governments and Financial Institutions by Geography
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012(1)
|
|
December 31, 2011(1)
|
|
($ millions)
|
Government issued
or guaranteed
|
|
Financials
|
|
Government issued or
guaranteed
|
|
Financials
|
|
Canada
|
12,902
|
|
1,718
|
|
13,051
|
|
1,607
|
|
United States
|
1,569
|
|
4,485
|
|
3,092
|
|
6,298
|
|
United Kingdom
|
1,912
|
|
1,391
|
|
2,533
|
|
1,245
|
|
Eurozone
|
|
|
|
|
|
|
|
|
|
France
|
16
|
|
76
|
|
25
|
|
101
|
|
|
Germany
|
179
|
|
20
|
|
180
|
|
28
|
|
|
Greece
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Ireland
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Italy
|
—
|
|
5
|
|
—
|
|
21
|
|
|
Netherlands
|
2
|
|
342
|
|
4
|
|
311
|
|
|
Portugal
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Spain
|
—
|
|
37
|
|
3
|
|
55
|
|
|
Residual Eurozone
|
—
|
|
197
|
|
2
|
|
170
|
|
Other
|
2,825
|
|
993
|
|
2,605
|
|
1,547
|
|
Total
|
19,405
|
|
9,264
|
|
21,495
|
|
11,383
|
|
(1) Amounts as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately disclosed in
Assets of disposal group classified as held for sale. Comparative 2011
amounts have not been restated to reflect this presentation.
|
Our gross unrealized losses as at December 31, 2012 for FVTPL and AFS
debt securities were $0.17 billion and $0.03 billion, respectively,
compared with $1.0 billion and $0.1 billion, respectively, as at
December 31, 2011. Gross unrealized losses as at December 31, 2012
included $0.01 billion related to Eurozone sovereign and financial debt
securities.
Our debt securities as at December 31, 2012 included $9.3 billion in the
financial sector, representing approximately 17.0% of our total debt
securities, or 8.8% of our total invested assets. This compares to
$11.4 billion, or 18.1%, of the debt security portfolio as at
December 31, 2011. The $2.1 billion decrease in the value of financial
sector debt securities holdings is due to debt securities separately
disclosed in Assets of disposal group classified as held for sale.
Asset-backed Securities
Our debt securities as at December 31, 2012 included $1.9 billion of
asset-backed securities reported at fair value, representing
approximately 3.6% of our debt securities, or 1.8% of our total
invested assets. This was $1.8 billion lower than the level reported as
at December 31, 2011. The decrease in the value of asset-backed
securities is primarily due to the securities separately disclosed in
Assets of disposal group classified as held for sale. The credit
quality of asset-backed securities remained relatively stable for 2012.
There were no changes to the lifetime expected losses for these assets,
and any realized losses in the portfolio were substantially offset by
previously established actuarial reserves.
Asset-backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012(1)
|
|
December 31, 2011(1)
|
($ millions)
|
Amortized
cost
|
|
Fair
value
|
|
BBB and
higher
|
|
|
Amortized
cost
|
|
Fair
value
|
|
BBB and
higher
|
Commercial mortgage-backed securities
|
824
|
|
896
|
|
95.2%
|
|
|
1,703
|
|
1,662
|
|
85%
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
321
|
|
337
|
|
100.0%
|
|
|
510
|
|
538
|
|
100%
|
|
Non-agency
|
43
|
|
47
|
|
95.7%
|
|
|
771
|
|
602
|
|
47.4%
|
Collateralized debt obligations
|
75
|
|
70
|
|
26.0%
|
|
|
127
|
|
99
|
|
20.3%
|
Other(2)
|
592
|
|
598
|
|
99.1%
|
|
|
935
|
|
833
|
|
84.8%
|
Total asset-backed securities
|
1,855
|
|
1,948
|
|
94.7%
|
|
|
4,046
|
|
3,734
|
|
79.4%
|
(1) Amounts as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately
disclosed in Assets of disposal group classified as held for sale.
Comparative 2011 amounts have not been restated
to reflect this presentation. Not included in the $1,948 million fair
value above is $1,694 million of asset-backed securities
currently classified as Assets of disposal group classified as held for
sale. We expect that a portion of these asset-
backed securities will be retained and redeployed as assets backing
liabilities in the Continuing Operations upon sale
of our U.S. Annuity Business. See Note 3 in our 2012 Consolidated
Financial Statements.
|
(2) Other includes sub-prime, a portion of the Company's exposure to
Alternative-A and other asset-backed securities.
|
Deterioration in economic factors, such as property values and
unemployment rates, or changes in the assumed default rate of the
collateral pool or loss-given-default expectations may result in
write-downs of our asset-backed securities. We have seen an improvement
in the U.S. housing market with prices rising for several consecutive
months and mortgage rates remaining at record lows. With improved house
prices and reduced inventories, sales of foreclosed properties have
picked up and several servicers have ended their foreclosure
moratoriums. However, downside risk still exists as the economy remains
weak and unemployment rates have yet to substantially decrease. This
environment could have an adverse impact on our residential
mortgage-backed portfolio. Additional information on our asset-backed
securities can be found in our 2012 MD&A.
Mortgages and Loans
As at December 31, 2012, we had a total of $27.2 billion in mortgages
and loans compared to $27.8 billion in 2011. Our mortgage portfolio,
which consists almost entirely of first mortgages, was $12.0 billion.
Our loan portfolio, which consists of private placement assets, was
$15.3 billion. The carrying value of mortgages and loans by geographic
location is set out in the following table. The geographic location for
mortgages is based on location of the property, while for loans it is
based on the country of the creditor's parent.
Mortgages and Loans by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012(1)
|
|
December 31, 2011(1)
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
Canada
|
7,457
|
|
9,946
|
|
17,403
|
|
7,500
|
|
9,154
|
|
16,654
|
|
United States
|
4,515
|
|
3,399
|
|
7,914
|
|
5,831
|
|
3,135
|
|
8,966
|
|
United Kingdom
|
22
|
|
420
|
|
442
|
|
24
|
|
253
|
|
277
|
|
Other
|
—
|
|
1,489
|
|
1,489
|
|
—
|
|
1,858
|
|
1,858
|
|
Total
|
11,994
|
|
15,254
|
|
27,248
|
|
13,355
|
|
14,400
|
|
27,755
|
|
(1) Amounts as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately disclosed in
Assets of disposal group classified as held for sale. Comparative 2011
amounts have not been restated to reflect this presentation.
|
As at December 31, 2012, our mortgage portfolio consisted mainly of
commercial mortgages with a carrying value of $12.0 billion, spread
across approximately 3,200 loans. Commercial mortgages include retail,
office, multi-family, industrial and land properties. Our commercial
portfolio has a weighted average loan-to-value ratio of approximately
60%. The estimated weighted average debt service coverage is 1.6 times,
consistent with December 31, 2011. The Canada Mortgage and Housing
Corporation insures 20.8% of the Canadian commercial mortgage
portfolio.
In the United States, core markets have stabilized for institutional
quality assets. However, lower quality properties in secondary and
tertiary markets continue to struggle. We have witnessed increased
secondary market demand for stressed loans, and we have capitalized on
this by selling a number of our distressed commercial mortgages. Many
of our properties continue to face weak demand, as office tenants are
generally utilizing less space and vacant large box retail space is
challenging to lease. A prolonged improvement in real estate
fundamentals will be largely dependent on job creation, which continues
to lag.
Mortgages and Loans Past Due or Impaired
|
December 31, 2012(1)
|
|
|
Gross carrying value
|
|
Allowance for losses
|
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
Not past due
|
11,865
|
|
15,230
|
|
27,095
|
|
—
|
|
—
|
|
—
|
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
7
|
|
—
|
|
7
|
|
—
|
|
—
|
|
—
|
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Impaired
|
201
|
|
40
|
|
241
|
|
79(2)
|
|
16
|
|
95
|
|
Total
|
12,073
|
|
15,270
|
|
27,343
|
|
79
|
|
16
|
|
95
|
|
|
December 31, 2011(1)
|
|
|
Gross carrying value
|
|
Allowance for losses
|
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
Not past due
|
13,001
|
|
14,358
|
|
27,359
|
|
—
|
|
—
|
|
—
|
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
10
|
|
—
|
|
10
|
|
—
|
|
—
|
|
—
|
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Impaired
|
540
|
|
69
|
|
609
|
|
196(2)
|
|
27
|
|
223
|
|
Total
|
13,551
|
|
14,427
|
|
27,978
|
|
196
|
|
27
|
|
223
|
|
(1) Amounts as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately
disclosed in Assets of disposal group classified as held for sale.
Comparative 2011 amounts have not been restated to
reflect this presentation.
|
(2) Includes $42 million of sectoral provisions as at December 31, 2012 and
$68 million of sectoral provisions as at
December 31, 2011.
|
Impaired mortgages and loans, net of allowance for losses, amounted to
$146 million as at December 31, 2012, $240 million lower than the
December 31, 2011 level for these assets. The net carrying value of
impaired mortgages amounted to $122 million as at December 31, 2012,
$222 million lower than December 31, 2011. The allowance for losses
related to impaired mortgages amounted to $79 million as at
December 31, 2012, $117 million lower than December 31, 2011. A
significant portion of the decline in all these balances is due to
mortgages that are separately disclosed in Assets of disposal group
held for sale. Included in the Assets of disposal group held for sale
as at December 31, 2012, are impaired mortgages with a net carrying
value of $92 million, a gross carrying value of $115 million and
allowance for losses amounting to $23 million. The remaining decline in
these balances is primarily due to the sale of impaired mortgages
during the year. The sectoral provision related to mortgages included
in the allowance for losses decreased by $26 million to $42 million,
which reflects the sale or workout of a number of distressed loans as
well as $12 million included in mortgages separately disclosed in
Assets of disposal group held for sale. Approximately 87.8% of the
impaired mortgage loans are in the United States.
Asset Default Provision
We make provisions for possible future credit events in the
determination of our insurance contract liabilities. The amount of the
provision for asset default included in insurance contract liabilities
is based on possible reductions in future investment yield that vary by
factors such as type of asset, asset credit quality (rating), duration
and country of origin. To the extent that an asset is written off, or
disposed of, any amounts that were set aside in our insurance contract
liabilities for possible future asset defaults in respect of that asset
are released.
Beginning in the fourth quarter of 2012, our asset default provision
disclosure reflects the provision relating to future credit events for
fixed income assets currently held by the Company that support our
insurance contract liabilities. Amounts previously reported as the
asset default provision included amounts held for future credit events
on future asset purchases, some equity and real estate growth
provisions for adverse deviations, and other items. As at December 31,
2011, approximately $1,764 million of the $3,376 million previously
reported asset default provision related to these items. Under the
revised disclosure the asset default provision as at December 31, 2011
was $1,612 million.
Our asset default provision as at December 31, 2012 was $1,468 million
for losses related to possible future credit events for fixed income
assets currently held by the Company that support our insurance
contract liabilities compared to $1,612 million in 2011.
Derivative Financial Instruments
The values of our derivative instruments are set out in the following
table. The use of derivatives is measured in terms of notional amounts,
which serve as the basis for calculating payments and are generally not
actual amounts that are exchanged.
Derivative Instruments
|
|
|
|
|
($ millions)
|
December 31, 2012 (1 )
|
|
December 31, 2011 (1 )
|
|
Net fair value
|
1,519
|
|
1,573
|
|
Total notional amount
|
42,478
|
|
50,859
|
|
Credit equivalent amount
|
953
|
|
1,026
|
|
Risk-weighted credit equivalent amount
|
8
|
|
8
|
|
(1)Amounts as at December 31, 2012 do not include assets of the
Discontinued Operations which are separately
disclosed in Assets of disposal group classified as held for sale.
Comparative 2011 amounts have not been restated to
reflect this presentation.
|
The total notional amount of derivatives in our portfolio decreased to
$42.5 billion as at December 31, 2012, from $50.9 billion at the end of
2011. This decrease is attributable to notional balances of $15.0
billion included in the Discontinued Operations and the fair value of
these derivatives is separately disclosed in Assets and Liabilities of
disposal group classified as held for sale. This is offset by an
increase of $6.6 billion, primarily related to interest rate swaps and
swaptions entered into for the purposes of economically hedging against
interest rate risk including disintermediation risk and to improve the
matching of our assets and liabilities.
Capital Management
Our capital base consists mainly of common shareholders' equity,
preferred shareholders' equity and subordinated debt. As at
December 31, 2012, our total capital was $20.2 billion, up from $19.1
billion as at December 31, 2011. The increase in total capital was
primarily the result of common shareholders' net income of $1,554
million, partially offset by common shareholders' dividends (net of the
dividend reinvestment and share repurchase plan) of $703 million.
Sun Life Assurance's MCCSR ratio was 209% as at December 31, 2012,
compared to 211% as at December 31, 2011. Low interest rates and
volatile equity markets reduced the MCCSR ratio in 2012. The impact of
the Sun Life Assurance's subordinated debt redemption was offset by net
financing activities.
In December 2012, Office of the Superintendent of Financial Institutions
("OSFI") released the 2013 MCCSR Guideline effective for January 1,
2013. The guideline includes two significant changes that impact Sun
Life Assurance's MCCSR ratio: (i) the impact of the change in
accounting for defined benefit pension plans (IAS 19); and (ii) reduced
lapse risk requirement. In relation to the changes for defined benefit
pension plans, the actual impact is based on the balances as at
December 31, 2012. Sun Life Assurance will phase in a reduction of
approximately $152 million to its gross tier 1 available capital over
eight quarters, ending in the fourth quarter of 2014, resulting in a
reduction of Sun Life Assurance's MCCSR ratio of approximately three
percentage points over this two year period. The reduced lapse risk
capital requirement is effective first quarter of 2013. The reduced
requirement will be immediately implemented with no transition. The
impact to Sun Life Assurance's MCCSR ratio is expected to be an
increase of three percentage points. Other changes do not have a
material impact on Sun Life Assurance's MCCSR ratio.
In September 2012, OSFI issued a report titled the Life Insurance
Regulatory Framework to provide life insurance companies and industry
stakeholders with an overview of regulatory initiatives that OSFI will
focus on over the period to 2016. The initiatives cover three broad
areas: risk management and governance, evolving regulatory capital
requirements and transparency of financial disclosure, and have
potential impact on life insurance company capital levels and
resourcing for governance and risk management.
In addition to the priorities outlined in the Framework, OSFI is
considering a number of changes to the insurance company capital rules,
including new guidelines that would establish stand-alone capital
adequacy requirements for operating life insurance companies, such as
Sun Life Assurance, and would update OSFI's regulatory guidance for
non-operating insurance companies acting as holding companies, such as
Sun Life Financial Inc. In relation to the guidance for holding
companies, OSFI has indicated that it expects to further develop and
apply MCCSR and Internal Target Capital Ratio guidelines to holding
companies by 2016. Furthermore, OSFI is reviewing the alignment of some
insurance regulations with analogous changes made to the regulatory
framework for banks under the recent Basel III Capital Accord. The
outcomes of these initiatives are uncertain and may impact our position
relative to that of other Canadian and international financial
institutions with which we compete for business and capital.
Risk Management
We use an enterprise risk management framework to assist in
categorizing, monitoring and managing the risks to which we are
exposed. The major categories of risk are credit risk, market risk,
insurance risk, operational risk and strategic risk. Operational risk
is a broad category that includes legal and regulatory risks, people
risks and systems and processing risks.
Through our ongoing enterprise risk management procedures, we review the
various risk factors identified in the framework and report to senior
management and to the Risk Review Committee of the Board at least
quarterly. Our enterprise risk management procedures and risk factors
are described in our annual MD&A and AIF.
The assets and liabilities of our Discontinued Operations have been
classified as Assets of disposal group classified as held for sale and
Liabilities of disposal group classified as held for sale on our 2012
Consolidated Statement of Financial Position. Comparative information
for 2011 has not been restated. As a result, current year information
does not include the products of the Discontinued Operations, primarily
domestic U.S. variable and fixed annuities. Unless otherwise indicated,
amounts presented in the sections that follow reflect the results of
our Continuing Operations. When referring to segregated funds it is
inclusive of segregated fund guarantees, variable annuities and
investment products, and includes Run-off reinsurance in our Corporate
business segment.
Market Risk Sensitivities
Our earnings are affected by the determination of policyholder
obligations under our annuity and insurance contracts. These amounts
are determined using internal valuation models and are recorded in our
Consolidated Financial Statements, primarily as insurance contract
liabilities. The determination of these obligations requires management
to make assumptions about the future level of equity market
performance, interest rates (including credit and swap spreads) and
other factors over the life of our products. Differences between our
actual experience and our best estimate assumptions are reflected in
our financial statements.
The market value of our investments in fixed income and equity
securities fluctuate based on movements in interest rates and equity
markets. The market value of fixed income assets designated as AFS that
are held primarily in our surplus segment increases (decreases) with
declining (rising) interest rates. Similarly, the market value of
equities designated as AFS and held primarily in our surplus segment
increases (decreases) with rising (declining) equity markets. Changes
in the market value of AFS assets flow through OCI and are only
recognized in net income when realized upon sale, or when considered
impaired. The amount of realized gains (losses) recorded in net income
in any period is equal to the initial unrealized gains (losses) or OCI
position at the start of the period plus the change in market values
during the current period up to the point of sale for those assets
which were sold. The sale of AFS assets held in surplus can therefore
have the effect of modifying our net income sensitivity.
In 2012, we realized $126 million (pre-tax) in net gains on the sale of
AFS assets for Continuing Operations. At December 31, 2012, the net
unrealized gains or OCI position on AFS fixed income and equity assets
for Continuing Operations was $446 million and $86 million,
respectively, after-tax.
The following table sets out the estimated immediate impact or
sensitivity of our net income, OCI and Sun Life Assurance's MCCSR ratio
to certain instantaneous changes in interest rates and equity market
prices as at December 31, 2012 and December 31, 2011.
Interest Rate and Equity Market Sensitivities
As at December 31, 2012(1)
|
Interest rate sensitivity(2)
|
|
100 basis point
decrease
|
|
|
50 basis point
decrease
|
|
|
50 basis point
increase
|
|
|
100 basis point
increase
|
|
Potential impact on net income(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance
|
$
|
(300)
|
|
$
|
(150)
|
|
$
|
100
|
|
$
|
200
|
|
|
Segregated Fund Guarantees(4)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Fixed Annuity and Other
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
(50)
|
|
|
Total
|
$
|
(300)
|
|
$
|
(150)
|
|
$
|
100
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential impact on OCI(5)
|
$
|
300
|
|
$
|
150
|
|
$
|
(150)
|
|
$
|
(300)
|
|
Potential impact on MCCSR(6)
|
|
6% points
decrease
|
|
|
3% points
decrease
|
|
|
1% point
increase
|
|
|
3% points
increase
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity markets sensitivity(7)
|
|
25% decrease
|
|
|
10% decrease
|
|
|
10% increase
|
|
|
25% increase
|
|
Potential impact on net income(3)
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
100
|
|
Potential impact on OCI(5)
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on MCCSR(6)
|
|
8% points
decrease
|
|
|
3% points
decrease
|
|
|
4% points
increase
|
|
|
5% points
increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2011(1)
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity(2)
|
|
100 basis point
decrease
|
|
|
50 basis point
decrease
|
|
|
50 basis point
increase
|
|
|
100 basis point
increase
|
|
Potential impact on net income(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance
|
$
|
(400)
|
|
$
|
(200)
|
|
$
|
150
|
|
$
|
250
|
|
|
Segregated Fund Guarantees(1)(4)
|
$
|
(250)
|
|
$
|
(100)
|
|
$
|
100
|
|
$
|
200
|
|
|
Fixed Annuity and Other
|
$
|
(50)
|
|
|
-
|
|
|
-
|
|
$
|
50
|
|
|
Total
|
$
|
(700)
|
|
$
|
(300)
|
|
$
|
250
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential impact on OCI(5)
|
$
|
350
|
|
$
|
200
|
|
$
|
(150)
|
|
$
|
(350)
|
|
Potential impact on MCCSR(6)
|
|
9% points decrease
|
|
|
3% points decrease
|
|
|
3% points increase
|
|
|
7% points increase
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity markets sensitivity(7)
|
|
25% decrease
|
|
|
10% decrease
|
|
|
10% increase
|
|
|
25% increase
|
|
Potential impact on net income(3)
|
$
|
(350)
|
|
$
|
(150)
|
|
$
|
100
|
|
$
|
200
|
|
Potential impact on OCI(5)
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on MCCSR(6)
|
|
6% points decrease
|
|
|
2% points decrease
|
|
|
3% points increase
|
|
|
4% points increase
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts as at December 31, 2012 do not include the impact of assets and
liabilities of the Discontinued Operations. Comparative
amounts have not been restated. Net income and OCI sensitivities have
been rounded to the nearest $50 million.
|
(2) Represents a parallel shift in assumed interest rates across the entire
yield curve as at December 31, 2012 and December 31, 2011,
respectively. Variations in realized yields based on factors such as
different terms to maturity and geographies may result in realized
sensitivities being significantly different from those illustrated
above. Sensitivities include the impact of re-balancing interest rate
hedges
for segregated funds at 10 basis point intervals (for 50 basis point
changes in interest rates) and at 20 basis point intervals (for 100
basis point changes in interest rates).
|
(3) The market risk sensitivities include the estimated mitigation impact
of our hedging programs in effect as at December 31, 2012 and
December 31, 2011, respectively, and include new business added and
product changes implemented prior to such dates.
|
(4) Segregated Fund Guarantees is inclusive of segregated funds, variable
annuities and investment products, and includes Run-off
reinsurance in our Corporate business segment.
|
(5) A portion of assets designated as AFS are required to support certain
policyholder liabilities and any realized gains (losses) on these
securities would result in a commensurate increase (decrease) in
actuarial liabilities, with no net income impact in the reporting
period.
|
(6) The MCCSR sensitivities illustrate the impact on Sun Life Assurance as
at December 31, 2012 and December 31, 2011, respectively.
This excludes the impact on assets and liabilities that are in Sun Life
Financial Inc. but not included in Sun Life Assurance.
|
(7) Represents the respective change across all equity markets as at
December 31, 2012 and December 31, 2011, respectively. Assumes
that actual equity exposures consistently and precisely track the
broader equity markets. Since in actual practice equity-related
exposures
generally differ from broad market indices (due to the impact of active
management, basis risk and other factors), realized sensitivities may
differ significantly from those illustrated above. Sensitivities include
the impact of re-balancing equity hedges for segregated funds at 2%
intervals (for 10% changes in equity markets) and at 5% intervals (for
25% changes in equity markets).
|
Our net income sensitivity to interest rates and equity markets has
decreased since December 31, 2011. Approximately one third of the
decrease in interest rate sensitivity and nearly all of the decrease in
equity market sensitivity results from assets and liabilities of the
Discontinued Operations which are separately classified as Assets of
disposal group classified as held for sale and Liabilities of disposal
group classified as held for sale and are not included in our current
year sensitivities. Our interest rate sensitivities have also decreased
since December 31, 2011 as a result of increased hedging done
throughout 2012 in our segregated fund guarantees and individual
insurance lines of business. The balance results primarily from changes
in actuarial methods, assumptions and modelling, which reduce the
sensitivity of our liabilities and net income to interest rates. In
addition, included in our Discontinued Operations are asset-backed
securities that we expect to retain and redeploy as assets-backing
liabilities in the Continuing Operations upon sale of our U.S. Annuity
Business. As at December 31, 2012 we estimate that these assets would
not have a material impact on our net income sensitivity to interest
rates.
Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our shareholder
net income attributable to certain instantaneous changes in credit and
swap spreads. The credit spread sensitivities reflect the impact of
changes in credit spreads on non-sovereign fixed income assets,
including provincial governments, corporate bonds and other fixed
income assets. The swap spread sensitivities reflect the impact of
changes in swap spreads on swap-based derivative positions.
As of December 31, 2012, we estimate that an increase of 50 basis points
in credit spread levels would increase net income by approximately $125
million and a decrease of 50 basis points in credit spread levels would
decrease net income by approximately $125 million. In most instances,
credit spreads are assumed to revert to long-term actuarial liability
assumptions generally over a five-year period.
As of December 31, 2012, we estimate that a 20 basis point increase in
swap spread levels would decrease net income by approximately $25
million and a decrease of 20 basis points in swap spread levels would
increase net income by approximately $50 million.
The spread sensitivities assume parallel shifts in the indicated spreads
(i.e. equal shift across the entire spread term structure). Variations
in realized spread changes based on different terms to maturity,
geographies, asset class/derivative types, underlying interest rate
movements and ratings may result in realized sensitivities being
significantly different from those provided above. The credit spread
sensitivity estimates also exclude any credit spread impact that may
arise in connection with any asset positions held in segregated funds.
Spread sensitivities are provided for the consolidated entity and may
not be proportional across all reporting segments. Please refer to the
section Additional Cautionary Language and Key Assumptions Related to
Sensitivities for important additional information regarding these
estimates.
General Account Insurance and Annuity Products
Most of our sensitivity to interest rate risk is derived from our
general account insurance and annuity products. We have implemented
market risk management strategies to mitigate a portion of the market
risk related to our general account insurance and annuity products.
Individual insurance products include universal life and other long-term
life and health insurance products. A major source of market risk
exposure for individual insurance products is the reinvestment risk
related to future premiums and the guaranteed cost of insurance.
Interest rate risk for individual insurance products is typically
managed on a duration basis, within tolerance ranges set out in the
applicable investment guidelines. Targets and limits are established so
that the level of residual exposure is commensurate with our risk
tolerance. Exposures are monitored frequently, and assets are
rebalanced as necessary to maintain compliance within policy limits
using a combination of assets and derivative instruments. A portion of
the longer term cash flows are backed with equities and real estate.
For participating insurance products and other insurance products with
adjustability features the investment strategy objective is to provide
a total rate of return given a constant risk profile over the long
term.
Fixed annuity products generally provide the policyholder with a
guaranteed investment return or crediting rate. Interest rate risk for
these products is typically managed on a duration basis, within
tolerance ranges set out in the applicable investment guidelines.
Targets and limits are established such that the level of residual
exposure is commensurate with our risk tolerance. Exposures are
monitored frequently, and are rebalanced as necessary to maintain
compliance within prescribed tolerances using a combination of fixed
income assets and derivative instruments.
Certain insurance and annuity products contain minimum interest rate
guarantees. Market risk management strategies are implemented to limit
potential financial loss due to significant reductions in asset earned
rates relative to contract guarantees. These typically involve the use
of hedging strategies utilizing interest rate derivatives such as
interest rate floors, swaps and swaptions.
Certain insurance and annuity products contain features which allow the
policyholder to surrender their policy at book value. Market risk
management strategies are implemented to limit the potential financial
loss due to changes in interest rate levels and policyholder behaviour.
These typically involve the use of hedging strategies such as dynamic
option replication and the purchase of interest rate swaptions.
Certain products have guaranteed minimum annuitization rates. This
exposure is hedged using both assets and derivative instruments.
Interest rate derivatives used in the hedging strategy may include
interest rate swaps and swaptions.
Segregated Fund Guarantees
Approximately one third of our expected sensitivity to equity market
risk and a small amount of interest rate risk sensitivity for
Continuing Operations is derived from segregated fund products. These
products provide benefit guarantees, which are linked to underlying
fund performance and may be triggered upon death, maturity, withdrawal
or annuitization. The cost of providing for the guarantees in respect
of our segregated fund contracts is uncertain and will depend upon a
number of factors including general capital market conditions, our
hedging strategies, policyholder behaviour and mortality experience,
each of which may result in negative impacts on net income and capital.
The following table provides information with respect to the guarantees
provided in our segregated fund businesses.
|
December 31, 2012(1)
|
|
($ millions)
|
|
Fund value
|
|
Amount at risk(2)
|
|
Value of
guarantees(3)
|
|
Insurance contract
liabilities(4)
|
|
SLF Canada
|
|
12,283
|
|
554
|
|
11,731
|
|
488
|
|
SLF U.S.
|
|
4,062
|
|
238
|
|
4,164
|
|
101
|
|
Run-off reinsurance(5)
|
|
2,335
|
|
597
|
|
2,106
|
|
500
|
|
Total
|
|
18,680
|
|
1,389
|
|
18,001
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011(1)(6)
|
|
($ millions)
|
|
Fund value
|
|
Amount at risk(2)
|
|
Value of
guarantees(3)
|
|
Insurance contract
liabilities(4)
|
|
SLF Canada
|
|
11,823
|
|
769
|
|
11,704
|
|
655
|
|
SLF U.S.
|
|
24,692
|
|
3,123
|
|
26,914
|
|
1,997
|
|
Run-off reinsurance(5)
|
|
2,542
|
|
642
|
|
2,267
|
|
536
|
|
Total
|
|
39,057
|
|
4,534
|
|
40,885
|
|
3,188
|
|
(1) Amounts as at December 31, 2012 do not include the impact of assets and
liabilities of the Discontinued Operations. Comparative
amounts have not been restated.
|
(2) The "amount at risk" represents the excess of the value of the
guarantees over fund values on all policies where the value of the
guarantees exceeds the fund value. The amount at risk is not currently
payable as the guarantees are only payable upon death,
maturity, withdrawal or annuitization if fund values remain below
guaranteed values.
|
(3) For guaranteed lifetime withdrawal benefits, the "value of guarantees"
is calculated as the present value of the maximum future
withdrawals assuming market conditions remain unchanged from current
levels. For all other benefits, the value of guarantees is
determined assuming 100% of the claims are made at the valuation date.
|
(4) The "insurance contract liabilities" represent management's provision
for future costs associated with these guarantees and include
a provision for adverse deviation in accordance with Canadian actuarial
standards of practice.
|
(5) The Run-off reinsurance business includes risks assumed through
reinsurance of variable annuity products issued by various North
American insurance companies between 1997 and 2001. This line of
business is part of a closed block of reinsurance, which is included
in the Corporate segment.
|
(6) Fund value and value of guarantees for SLF U.S. as at December 31, 2011
have been restated to reflect a change in methodology
adopted in 2012.
|
The movement of the items in the table above from December 31, 2011 to
December 31, 2012 was primarily as a result of the following factors:
|
|
(i)
|
Fund values decreased due to the exclusion of the Discontinued
Operations and the strengthening of the Canadian dollar against the
U.S. dollar, partially offset by favourable equity market movements.
|
|
|
(ii)
|
The amount at risk decreased due to exclusion of the Discontinued
Operations and favourable equity market movements.
|
|
|
(iii)
|
The value of guarantees decreased due to exclusion of the Discontinued
Operations and the strengthening of the Canadian dollar against the
U.S. dollar.
|
|
|
(iv)
|
Insurance contract liabilities decreased due to the exclusion of the
Discontinued Operations and favourable equity market movements.
|
Segregated Fund Hedging
We have implemented hedging programs, involving the use of derivative
instruments, to mitigate a portion of the cost of interest rate and
equity market-related volatility in providing for segregated fund
guarantees. As at December 31, 2012, over 90% of our segregated fund
contracts, as measured by associated fund values, were included in a
hedging program. While a large percentage of contracts are included in
the hedging program, not all of our equity and interest rate exposure
related to these contracts is hedged. For those segregated fund
contracts included in the hedging program, we generally hedge the value
of expected future net claims costs and a portion of the policy fees as
we are primarily focused on hedging the expected economic costs
associated with providing these guarantees.
The following table illustrates the impact of our hedging program
related to our sensitivity to a 50 basis point and 100 basis point
decrease in interest rates and 10% and 25% decrease in equity markets
for segregated fund contracts as at December 31, 2012.
Impact of Segregated Fund Hedging for Continuing Operations
($ millions)
|
Changes in interest rates(3)
|
|
Changes in equity markets(4)
|
Net income sensitivity(1)(2)
|
50 basis points
decrease
|
100 basis points
decrease
|
|
10% decrease
|
25% decrease
|
Before hedging
|
(200)
|
(400)
|
|
(200)
|
(650)
|
Hedging impact
|
200
|
400
|
|
200
|
600
|
Net of hedging
|
—
|
—
|
|
—
|
(50)
|
(1) Since the fair value of benefits being hedged will generally differ
from the financial statement value (due to different valuation
methods and the inclusion of valuation margins in respect of financial
statement values), this approach will result in residual volatility to
interest rate and equity market shocks in reported income and capital.
The general availability and cost of these hedging instruments
may be adversely impacted by a number of factors, including volatile and
declining equity and interest rate market conditions.
|
(2) Amounts as at December 31, 2012 do not include the impact of assets and
liabilities of the Discontinued Operations. Net income sensitivities
have been rounded to the nearest $50 million.
|
(3) Represents a parallel shift in assumed interest rates across the entire
yield curve as at December 31, 2012. Variations in realized
yields based on factors such as different terms to maturity and
geographies may result in realized sensitivities being significantly
different from those illustrated above. Sensitivities include the impact
of re-balancing interest rate hedges for segregated funds at 10
basis point intervals (for 50 basis point changes in interest rates) and
at 20 basis point intervals (for 100 basis point changes in interest
rates).
|
(4) Represents the change across all equity markets as at December 31,
2012. Assumes that actual equity exposures consistently and
precisely track the broader equity markets. Since in actual practice
equity-related exposures generally differ from broad market indices
(due to the impact of active management, basis risk and other factors),
realized sensitivities may differ significantly from those illustrated
above. Sensitivities include the impact of re-balancing equity hedges
for segregated funds at 2% intervals (for 10% changes in equity
markets) and at 5% intervals (for 25% changes in equity markets).
|
Real Estate Risk
We are exposed to real estate risk arising from fluctuations in the
value of, or future cash flows on, real estate classified as investment
properties. We may experience financial losses resulting from the
direct ownership of real estate investments or indirectly through fixed
income investments secured by real estate property, leasehold
interests, ground rents and purchase and leaseback transactions. Real
estate price risk may arise from external market conditions, inadequate
property analysis, inadequate insurance coverage, inappropriate real
estate appraisals or from environmental risk exposures. We hold direct
real estate investments that support general account liabilities and
surplus, and fluctuations in value will impact our profitability and
financial position. An instantaneous 10% decrease in the value of our
direct real estate investments as at December 31, 2012 would decrease
net income by approximately $150 million. Conversely, an instantaneous
10% increase in the value of our direct real estate investments as at
December 31, 2012 would increase net income by approximately $150
million.
Additional Cautionary Language and Key Assumptions Related to
Sensitivities
Our market risk sensitivities are forward-looking information. They are
measures of our estimated net income, OCI and MCCSR ratio sensitivity
to changes in interest rate and equity market price levels described
above, based on interest rates, equity market prices and business mix
in place as at the respective calculation dates. These sensitivities
are calculated independently for each risk factor, generally assuming
that all other risk variables stay constant. The sensitivities do not
take into account indirect effects such as potential impacts on
goodwill impairment or the valuation allowance on deferred tax assets.
The sensitivities are provided for the consolidated entity and may not
be proportional across all reporting segments. Actual results can
differ materially from these estimates for a variety of reasons,
including differences in the pattern or distribution of the market
shocks, the interaction between these risk factors, model error, or
changes in other assumptions such as business mix, effective tax rates,
policyholder behaviour, currency exchange rates and other market
variables relative to those underlying the calculation of these
sensitivities. The potential extent to which actual results may differ
from the indicative ranges will generally increase with larger capital
market movements. Our sensitivities as at December 31, 2011 have been
included for comparative purposes only.
We have also provided measures of our net income sensitivity to
instantaneous changes in credit spreads, swap spreads, real estate
price levels and capital sensitivities to changes in interest rates and
equity price levels. These sensitivities are also forward-looking
statements and MCCSR ratio sensitivities are non-IFRS financial
measures. For additional information, see Use of Non-IFRS Financial
Measures. The cautionary language which appears in this section is also
applicable to the credit spread, swap spread, real estate and MCCSR
ratio sensitivities. In particular, these sensitivities are based on
interest rates, credit and swap spreads, equity market and real estate
price levels as at the respective calculation dates and assume that all
other risk variables remain constant. Changes in interest rates, credit
and swap spreads, equity market and real estate prices in excess of the
ranges illustrated may result in other-than-proportionate impacts.
The sensitivities reflect the composition of our assets and liabilities
as at December 31, 2012 and December 31, 2011. Changes in these
positions due to new sales or maturities, asset purchases/sales or
other management actions could result in material changes to these
reported sensitivities. In particular, these sensitivities reflect the
expected impact of hedging activities based on the hedge assets and
programs in place as at the December 31 calculation dates. The actual
impact of these hedging activities can differ materially from that
assumed in the determination of these indicative sensitivities due to
ongoing hedge re-balancing activities, changes in the scale or scope of
hedging activities, changes in the cost or general availability of
hedging instruments, basis risk (the risk that hedges do not exactly
replicate the underlying portfolio experience), model risk and other
operational risks in the ongoing management of the hedge programs or
the potential failure of hedge counterparties to perform in accordance
with expectations.
The sensitivities are based on methods and assumptions in effect as at
December 31, 2012 and December 31, 2011, as applicable. Changes in the
regulatory environment, accounting or actuarial valuation methods,
models or assumptions after this date could result in material changes
to these reported sensitivities. Changes in interest rates and equity
market prices in excess of the ranges illustrated may result in
other-than-proportionate impacts.
Our hedging programs may themselves expose us to other risks, including
basis risk (the risk that hedges do not exactly replicate the
underlying portfolio experience), derivative counterparty credit risk,
and increased levels of liquidity risk, model risk, and other
operational risks. These factors may adversely impact the net
effectiveness, costs and financial viability of maintaining these
hedging programs and therefore adversely impact our profitability and
financial position. While our hedging programs include various elements
aimed at mitigating these effects (for example, hedge counterparty
credit risk is managed by maintaining broad diversification, dealing
primarily with highly rated counterparties and transacting through ISDA
agreements that generally include applicable credit support annexes),
residual risk and potential reported earnings and capital volatility
remain.
For the reasons outlined above, these sensitivities should only be
viewed as directional estimates of the underlying sensitivities of each
factor under these specialized assumptions, and should not be viewed as
predictors of our future net income, OCI and capital sensitivities.
Given the nature of these calculations, we cannot provide assurance
that actual impact will be consistent with the estimates provided.
Information related to market risk sensitivities and guarantees related
to segregated fund products should be read in conjunction with the
information contained in the Outlook, Critical Accounting Policies and
Estimates and Risk Management sections in our annual MD&A and in the
Risk Factors and Regulatory Matters sections in our AIF.
Use of Non-IFRS Financial Measures
We report certain financial information using non-IFRS financial
measures, as we believe that they provide information that is useful to
investors in understanding our performance and facilitate a comparison
of the quarterly and full year results from period to period. These
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. They should not be viewed as an
alternative to measures of financial performance determined in
accordance with IFRS. Additional information concerning these non-IFRS
financial measures and reconciliations to IFRS measures are included in
our annual and interim MD&A and the Supplementary Financial Information
packages that are available on www.sunlife.com under Investors - Financial Results & Reports.
Operating net income (loss) and other financial information based on
operating net income (loss), including operating EPS or operating loss
per share, operating ROE and operating net income (loss) excluding the
net impact of market factors, are non-IFRS financial measures.
Operating net income (loss) excludes: (i) the impact of certain hedges
in SLF Canada that do not qualify for hedge accounting; (ii) fair value
adjustments on share-based payment awards at MFS; (iii) restructuring
and other related costs; (iv) goodwill and intangible asset impairment
charges; and (v) other items that are not operational or ongoing in
nature. Operating EPS also excludes the dilutive impact of convertible
securities.
Operating net income (loss) excluding the net impact of market factors
removes from operating net income (loss) certain market-related factors
that create volatility in our results under IFRS. Specifically, it
adjusts operating net income (loss) to exclude the following amounts:
(i) the net impact of changes in interest rates in the reporting
period, including changes in credit and swap spreads, and any changes
to the fixed income reinvestment rates assumed in determining the
actuarial liabilities; (ii) the net impact of changes in equity markets
above or below the expected level of change in the reporting period and
of basis risk inherent in our hedging program; (iii) the net impact of
changes in the fair value of real estate properties in the reporting
period; and (iv) the net impact of changes in actuarial assumptions
driven by capital market movements. Unless indicated otherwise, all
other factors discussed in this document that impact our results are
applicable to both reported net income (loss) and operating net income
(loss). Reported net income (loss) refers to net income (loss)
determined in accordance with IFRS. Unless indicated otherwise, all
other factors discussed in this document that impact our results are
applicable to both reported net income (loss) and operating net income
(loss). Reported net income (loss) refers to net income (loss)
determined in accordance with IFRS.
The following tables set out the amounts that were excluded from our
operating net income (loss), operating net income (loss) excluding the
net impact of market factors, operating EPS and operating ROE, and
provides a reconciliation to our reported net income (loss), EPS and
ROE based on IFRS.
Reconciliations of Select Net Income Measures from Combined Operations
|
IFRS(1)
|
|
Q4'12
|
|
|
Q3'12
|
|
|
Q2'12
|
|
|
Q1'12
|
|
|
Q4'11
|
|
Net income ($ millions)
|
395
|
|
|
383
|
|
|
90
|
|
|
686
|
|
|
(525)
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(6)
|
|
|
16
|
|
|
(5)
|
|
|
(12)
|
|
|
50
|
|
Fair value adjustments on share-based payment awards at MFS
|
(39)
|
|
|
(34)
|
|
|
(1)
|
|
|
(20)
|
|
|
(33)
|
|
Restructuring and other related costs
|
(7)
|
|
|
—
|
|
|
(2)
|
|
|
(9)
|
|
|
(55)
|
|
Goodwill and intangible asset impairment charges
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(266)
|
|
Operating net income (loss)
|
453
|
|
|
401
|
|
|
98
|
|
|
727
|
|
|
(221)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equity market impact
|
49
|
|
|
89
|
|
|
(131)
|
|
|
253
|
|
|
n/a
|
|
Net interest rate impact
|
(51)
|
|
|
(64)
|
|
|
(196)
|
|
|
95
|
|
|
n/a
|
|
Net gains from changes in the fair value of real estate
|
20
|
|
|
13
|
|
|
7
|
|
|
22
|
|
|
n/a
|
|
Actuarial assumption changes driven by changes in capital market
movements
|
15
|
|
|
(42)
|
|
|
—
|
|
|
—
|
|
|
n/a
|
|
Operating net income (loss) excluding the net impact of market factors
|
420
|
|
|
405
|
|
|
418
|
|
|
357
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EPS (diluted) ($)
|
0.65
|
|
|
0.64
|
|
|
0.15
|
|
|
1.15
|
|
|
(0.90)
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(0.01)
|
|
|
0.03
|
|
|
(0.01)
|
|
|
(0.02)
|
|
|
0.09
|
|
Fair value adjustments on share-based payment awards at MFS
|
(0.07)
|
|
|
(0.06)
|
|
|
—
|
|
|
(0.03)
|
|
|
(0.06)
|
|
Restructuring and other related costs
|
(0.01)
|
|
|
—
|
|
|
(0.01)
|
|
|
(0.02)
|
|
|
(0.09)
|
|
Goodwill and intangible asset impairment charges
|
(0.01)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.46)
|
|
Impact of convertible securities on diluted EPS
|
(0.01)
|
|
|
(0.01)
|
|
|
—
|
|
|
(0.02)
|
|
|
—
|
|
Operating EPS (diluted)
|
0.76
|
|
|
0.68
|
|
|
0.17
|
|
|
1.24
|
|
|
(0.38)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported ROE (annualized)
|
11.3
|
%
|
|
11.1
|
%
|
|
2.6
|
%
|
|
20.5
|
%
|
|
(15.4)
|
%
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(0.2)
|
%
|
|
0.4
|
%
|
|
(0.2)
|
%
|
|
(0.4)
|
%
|
|
1.5
|
%
|
Fair value adjustments on share-based payment awards at MFS
|
(1.0)
|
%
|
|
(1.0)
|
%
|
|
—
|
|
|
(0.6)
|
%
|
|
(1.0)
|
%
|
Restructuring and other related costs
|
(0.2)
|
%
|
|
—
|
|
|
(0.1)
|
%
|
|
(0.3)
|
%
|
|
(1.6)
|
%
|
Goodwill and intangible asset impairment charges
|
(0.2)
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.8)
|
%
|
Operating ROE (annualized)
|
12.9
|
%
|
|
11.7
|
%
|
|
2.9
|
%
|
|
21.8
|
%
|
|
(6.5)
|
%
|
(1) 2011 quarterly Operating net income (loss) excluding the net impact of
market factors are "n/a" as they have not been restated
for the Discontinued Operations.
|
Reconciliations of Select Net Income Measures from Continuing Operations
|
IFRS(1)
|
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
Net income from Continuing Operations ($ millions)
|
284
|
|
441
|
|
244
|
|
405
|
|
2
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(6)
|
|
16
|
|
(5)
|
|
(12)
|
|
50
|
|
Fair value adjustments on share-based payment awards at MFS
|
(39)
|
|
(34)
|
|
(1)
|
|
(20)
|
|
(33)
|
|
Restructuring and other related costs
|
(4)
|
|
—
|
|
—
|
|
—
|
|
(29)
|
|
Goodwill and intangible asset impairment charges
|
—
|
|
—
|
|
—
|
|
—
|
|
(196)
|
|
Operating net income (loss) from Continuing Operations
|
333
|
|
459
|
|
250
|
|
437
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EPS from Continuing Operations (diluted) ($)
|
0.47
|
|
0.74
|
|
0.41
|
|
0.68
|
|
—
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(0.01)
|
|
0.03
|
|
(0.01)
|
|
(0.02)
|
|
0.09
|
|
Fair value adjustments on share-based payment awards at MFS
|
(0.07)
|
|
(0.06)
|
|
—
|
|
(0.03)
|
|
(0.06)
|
|
Restructuring and other related costs
|
(0.01)
|
|
—
|
|
—
|
|
—
|
|
(0.05)
|
|
Goodwill and intangible asset impairment charges
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.34)
|
|
Impact of convertible securities on diluted EPS
|
—
|
|
—
|
|
—
|
|
(0.01)
|
|
—
|
|
Operating EPS from Continuing Operations (diluted)
|
0.56
|
|
0.77
|
|
0.42
|
|
0.74
|
|
0.36
|
|
(1) 2011 quarterly Operating net income (loss) excluding the net impact of
market factors are "n/a" as they have not been restated for the
Discontinued Operations.
|
Management also uses the following non-IFRS financial measures:
Adjusted revenue. This measure excludes from revenue the impact of: (i) currency; (ii)
fair value changes in FVTPL assets and liabilities; (iii) reinsurance
for the insured business in SLF Canada's GB operations; and (iv) net
premiums from Life and Investment Products in SLF U.S. that closed to
new sales effective December 30, 2011. This measure is an alternative
measure of revenue that provides greater comparability across reporting
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
Q4'12
|
|
Q3'12
|
|
Q2'12
|
|
Q1'12
|
|
Q4'11
|
|
Revenues
|
4,250
|
|
4,952
|
|
5,182
|
|
3,175
|
|
5,374
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
(59)
|
|
(68)
|
|
(36)
|
|
(33)
|
|
—
|
|
|
|
Fair value changes in FVTPL assets and liabilities
|
(277)
|
|
1,246
|
|
1,349
|
|
(579)
|
|
1,538
|
|
|
|
Reinsurance in SLF Canada's Group Benefits operations
|
(1,074)
|
|
(1,073)
|
|
(1,064)
|
|
(1,087)
|
|
(1,039)
|
|
|
|
Net premiums from domestic individual insurance operations in SLF U.S.
|
106
|
|
112
|
|
146
|
|
149
|
|
163
|
|
Adjusted revenue
|
5,554
|
|
4,735
|
|
4,787
|
|
4,725
|
|
4,712
|
|
Adjusted premiums and deposits. This measure excludes from premiums and deposits the impact of: (i)
currency; (ii) reinsurance for the insured business in SLF Canada's GB
operations; and (iii) net premiums and deposits from Life and
Investment Products in SLF U.S. that closed to new sales effective
December 30, 2011. This measure is an alternative measure of premiums
and deposits that provides greater comparability across reporting
periods.
|
|
($ millions)
|
Q4'12
|
Q3'12
|
Q2'12
|
Q1'12
|
Q4'11
|
Premiums and deposits
|
31,882
|
26,060
|
25,057
|
25,074
|
21,711
|
|
Adjustments
|
|
|
|
|
|
|
|
Foreign exchange
|
(874)
|
(622)
|
(274)
|
(449)
|
—
|
|
|
Reinsurance in SLF Canada's Group Benefits operations
|
(1,074)
|
(1,073)
|
(1,064)
|
(1,087)
|
(1,039)
|
|
|
Net premiums and deposits from domestic
individual insurance operations in SLF U.S.
|
106
|
113
|
146
|
164
|
163
|
Adjusted premiums and deposits
|
33,724
|
27,642
|
26,249
|
26,446
|
22,587
|
Pre-tax operating profit margin ratio for MFS. This ratio is a measure of the underlying profitability of MFS, which
excludes certain investment income and commission expenses that are
offsetting. These amounts are excluded in order to neutralize the
impact these items have on the pre-tax operating profit margin ratio,
as they are offsetting in nature and have no impact on the underlying
profitability of MFS.
Impact of foreign exchange. Several IFRS financial measures are adjusted to exclude the impact of
currency fluctuations. These measures are calculated using the average
currency and period end rates, as appropriate, in effect at the date of
the comparative period.
Equity market, interest rate, credit spread, swap spread and real estate
market sensitivities. Our equity market, interest rate, credit spread, swap spread and real
estate market sensitivities are non-IFRS financial measures, for which
there are no directly comparable measures under IFRS. It is not
possible to provide a reconciliation of these amounts to the most
directly comparable IFRS measures on a forward-looking basis because we
believe it is only possible to provide ranges of the assumptions used
in determining those non-IFRS financial measures, as actual results can
fluctuate significantly inside or outside those ranges and from period
to period.
Other. Management also uses the following non-IFRS financial measures for
which there are no comparable financial measures in IFRS: (i) ASO
premium and deposit equivalents, mutual fund sales, managed fund sales
and total premiums and deposits; (ii) AUM, mutual fund assets, managed
fund assets, other AUM and assets under administration; (iii) the value
of new business, which is used to measure the estimated lifetime
profitability of new sales and is based on actuarial calculations; and
(iv) assumption changes and management actions, which is a component of
our sources of earnings disclosure. Sources of earnings is an
alternative presentation of our Consolidated Statements of Operations
that identifies and quantifies various sources of income. The Company
is required to disclose its sources of earnings by its principal
regulator, OSFI.
Forward-Looking Statements
Certain statements in this document, including (i) statements concerning
the anticipated timing and impact of our proposed sale of our U.S.
Annuity Business and our proposed investment in CIMB Aviva, (ii)
statements relating to our strategies, (iii) statements that are
predictive in nature, (iv) statements that depend upon or refer to
future events or conditions, and (v) that include words such as "aim",
"anticipate", "assumption", "believe", "could", "estimate", "expect",
"goal", "intend", "may", "objective", "outlook", "plan", "project",
"seek", "should", "initiatives", "strategy", "strive", "target", "will"
and similar expressions are forward-looking statements. Forward-looking
statements include the information concerning our possible or assumed
future results of operations of Sun Life Financial. These statements
represent our current expectations, estimates and projections regarding
future events and are not historical facts. 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 matters set
out in this document under the headings Impact of the Low Interest Rate
Environment, Annual Goodwill and Intangibles Impairment Testing and
Capital Management, in Sun Life Financial Inc.'s annual MD&A under the
headings Critical Accounting Policies and Estimates and Risk Management
and in Sun Life Financial Inc.'s 2012 AIF under the headings Risk
Factors and the factors detailed in Sun Life Financial Inc.'s other
filings with Canadian and U.S. securities regulators, which are
available for review at www.sedar.com and www.sec.gov.
Factors that could cause actual results to differ materially from
expectations include, but are not limited to: economic uncertainty;
changes or volatility in interest rates and spreads; credit risks
related to issuers of securities held in our investment portfolio,
debtors, structured securities, reinsurers, derivative counterparties,
other financial institutions and other entities; changes in legislation
and regulations including capital requirements and tax laws; legal and
regulatory proceedings, including inquiries and investigations; risks
relating to product design and pricing; the performance of equity
markets; risks in implementing business strategies; risk management;
market conditions that affect the Company's capital position or its
ability to raise capital; risks related to the sale of our U.S. Annuity
Business; downgrades in financial strength or credit ratings; risks
relating to financial modelling errors; the impact of
higher-than-expected future expenses; risks relating to mortality and
morbidity, including the occurrence of natural or man-made disasters,
pandemic diseases and acts of terrorism; risks relating to the rate of
mortality improvement; risks relating to policyholder behaviour; risks
related to liquidity; the ability to attract and retain employees; the
performance of the Company's investments and investment portfolios
managed for clients such as segregated and mutual funds; risks relating
to our information technology infrastructure; breaches or failure of
information system security and privacy, including cyber terrorism;
dependence on third-party relationships including outsourcing
arrangements; risks relating to real estate investments; risks relating
to operations in Asia including the Company's joint ventures; the
inability to maintain strong distribution channels and risks relating
to market conduct by intermediaries and agents; business continuity
risks; failure of information systems and Internet-enabled technology;
risks relating to estimates and judgments used in calculating taxes;
the impact of mergers and acquisitions; the impact of competition;
fluctuations in foreign currency exchange rate; the availability, cost
and effectiveness of reinsurance; risks relating to the closed block of
business and risks relating to the environment, environmental laws and
regulations and third-party policies.
The Company does not undertake any obligation to update or revise its
forward-looking information to reflect events or circumstances after
the date of this document or to reflect the occurrence of unanticipated
events, except as required by law.
Earnings Conference Call
The Company's fourth quarter 2012 financial results will be reviewed at
a conference call on Thursday, February 14, 2013, 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 Q4 results from the "Investors" section on the
home page 10 minutes prior to the start of the presentation.
Individuals participating in the call in a listen-only mode are
encouraged to connect via our webcast. The webcast and presentation
will be archived and made available on the Company's website, www.sunlife.com, following the call. The conference call can also be accessed by phone
by dialing 416 644-3415 (Toronto) or 1 877 974-0445 (Canada/U.S.).
About Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth
accumulation products and services to individuals and corporate
customers. Sun Life Financial and its partners have operations in key
markets worldwide, including Canada, the United States, the United
Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India,
China, Australia, Singapore, Vietnam and Bermuda. As of December 31,
2012, the Sun Life Financial group of companies had total assets under
management of $533 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under the ticker symbol SLF.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the twelve months ended
|
(Unaudited, in millions of Canadian dollars except for per share
amounts)
|
|
December 31,
2012
|
|
|
December 31,
2011(1)
|
|
|
December 31,
2012
|
|
|
December 31,
2011(1)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
3,779
|
|
$
|
3,308
|
|
$
|
13,415
|
|
$
|
13,221
|
|
|
Less: Ceded
|
|
1,322
|
|
|
1,276
|
|
|
5,168
|
|
|
4,983
|
|
Net
|
|
2,457
|
|
|
2,032
|
|
|
8,247
|
|
|
8,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other investment income
|
|
1,202
|
|
|
1,006
|
|
|
4,430
|
|
|
4,388
|
|
|
Changes in fair value through profit or loss assets and liabilities
|
|
(274)
|
|
|
1,538
|
|
|
1,728
|
|
|
4,257
|
|
|
Net gains (losses) on available-for-sale assets
|
|
23
|
|
|
63
|
|
|
126
|
|
|
151
|
|
Net investment income (loss)
|
|
951
|
|
|
2,607
|
|
|
6,284
|
|
|
8,796
|
|
Fee income
|
|
842
|
|
|
735
|
|
|
3,028
|
|
|
2,796
|
|
Total revenue
|
|
4,250
|
|
|
5,374
|
|
|
17,559
|
|
|
19,830
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross claims and benefits paid
|
|
2,983
|
|
|
2,863
|
|
|
11,347
|
|
|
11,152
|
|
Increase (decrease) in insurance contract liabilities
|
|
619
|
|
|
2,220
|
|
|
3,718
|
|
|
7,391
|
|
Decrease (increase) in reinsurance assets
|
|
(71)
|
|
|
6
|
|
|
134
|
|
|
384
|
|
Increase (decrease) in investment contract liabilities
|
|
22
|
|
|
(13)
|
|
|
51
|
|
|
(34)
|
|
Reinsurance expenses (recoveries)
|
|
(1,181)
|
|
|
(1,150)
|
|
|
(4,832)
|
|
|
(4,540)
|
|
Commissions
|
|
389
|
|
|
328
|
|
|
1,399
|
|
|
1,307
|
|
Net transfers to (from) segregated funds
|
|
(15)
|
|
|
(62)
|
|
|
(79)
|
|
|
(149)
|
|
Operating expenses
|
|
1,030
|
|
|
892
|
|
|
3,507
|
|
|
3,262
|
|
Impairment of goodwill and intangible assets
|
|
—
|
|
|
204
|
|
|
—
|
|
|
204
|
|
Premium taxes
|
|
59
|
|
|
62
|
|
|
236
|
|
|
233
|
|
Interest expense
|
|
87
|
|
|
109
|
|
|
367
|
|
|
430
|
|
Total benefits and expenses
|
|
3,922
|
|
|
5,459
|
|
|
15,848
|
|
|
19,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
328
|
|
|
(85)
|
|
|
1,711
|
|
|
190
|
|
Less: Income tax expense (benefit)
|
|
18
|
|
|
(116)
|
|
|
210
|
|
|
(151)
|
Total net income (loss) from continuing operations
|
|
310
|
|
|
31
|
|
|
1,501
|
|
|
341
|
|
Less: Net income (loss) attributable to participating policyholders
|
|
(4)
|
|
|
1
|
|
|
7
|
|
|
7
|
|
Less: Net income (loss) attributable to non-controlling interests
|
|
—
|
|
|
1
|
|
|
—
|
|
|
9
|
Shareholders' net income (loss) from continuing operations
|
|
314
|
|
|
29
|
|
|
1,494
|
|
|
325
|
|
Less: Preferred shareholders' dividends
|
|
30
|
|
|
27
|
|
|
120
|
|
|
100
|
Common shareholders' net income (loss) from continuing operations
|
$
|
284
|
|
$
|
2
|
|
$
|
1,374
|
|
$
|
225
|
Common shareholders' net income (loss) from discontinued operations
|
$
|
111
|
|
$
|
(527)
|
|
$
|
180
|
|
$
|
(595)
|
Common shareholders' net income (loss)
|
$
|
395
|
|
$
|
(525)
|
|
$
|
1,554
|
|
$
|
(370)
|
(1) Balances have been restated. Refer to Notes 2 and 3 in our 2012
Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations
|
$
|
0.48
|
|
$
|
—
|
|
$
|
2.32
|
|
$
|
0.39
|
|
Basic earnings (loss) per share from discontinued operations
|
$
|
0.18
|
|
$
|
(0.90)
|
|
$
|
0.30
|
|
$
|
(1.03)
|
|
Basic earnings (loss) per share
|
$
|
0.66
|
|
$
|
(0.90)
|
|
$
|
2.62
|
|
$
|
(0.64)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continuing operations
|
$
|
0.47
|
|
$
|
—
|
|
$
|
2.29
|
|
$
|
0.39
|
|
Diluted earnings (loss) per share from discontinued operations
|
$
|
0.18
|
|
$
|
(0.90)
|
|
$
|
0.30
|
|
$
|
(1.03)
|
|
Diluted earnings (loss) per share
|
$
|
0.65
|
|
$
|
(0.90)
|
|
$
|
2.59
|
|
$
|
(0.64)
|
Consolidated Statements of Financial Position
|
|
As at
|
(unaudited, in millions of Canadian dollars)
|
|
December 31,
2012
|
|
|
December 31,
2011(1)
|
Assets
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term securities
|
$
|
7,034
|
|
$
|
8,837
|
|
|
Debt securities
|
|
54,362
|
|
|
62,930
|
|
|
Equity securities
|
|
5,026
|
|
|
4,570
|
|
|
Mortgages and loans
|
|
27,248
|
|
|
27,755
|
|
|
Derivative assets
|
|
2,113
|
|
|
2,632
|
|
|
Other invested assets
|
|
1,269
|
|
|
1,348
|
|
|
Policy loans
|
|
2,681
|
|
|
3,276
|
|
|
Investment properties
|
|
5,942
|
|
|
5,313
|
|
|
Invested assets
|
|
105,675
|
|
|
116,661
|
|
|
Other assets
|
|
2,702
|
|
|
2,885
|
|
|
Reinsurance assets
|
|
3,240
|
|
|
3,458
|
|
|
Deferred tax assets
|
|
1,005
|
|
|
1,694
|
|
|
Property and equipment
|
|
665
|
|
|
546
|
|
|
Intangible assets
|
|
862
|
|
|
885
|
|
|
Goodwill
|
|
3,911
|
|
|
3,942
|
|
|
Assets of disposal group classified as held for sale
|
|
15,067
|
|
|
|
|
|
Total general fund assets
|
|
133,127
|
|
|
130,071
|
|
|
Investments for account of segregated fund holders from continuing
operations
|
|
64,987
|
|
|
88,183
|
|
|
Investments for account of segregated fund holders classified as held
for sale
|
|
27,668
|
|
|
|
|
|
Total assets
|
$
|
225,782
|
|
$
|
218,254
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Insurance contract liabilities
|
$
|
87,275
|
|
$
|
96,687
|
|
|
Investment contract liabilities
|
|
2,303
|
|
|
3,073
|
|
|
Derivative liabilities
|
|
594
|
|
|
1,059
|
|
|
Deferred tax liabilities
|
|
5
|
|
|
7
|
|
|
Other liabilities
|
|
7,925
|
|
|
8,011
|
|
|
Senior debentures
|
|
2,149
|
|
|
2,149
|
|
|
Innovative capital instruments
|
|
696
|
|
|
695
|
|
|
Subordinated debt
|
|
2,740
|
|
|
2,746
|
|
|
Liabilities of disposal group classified as held for sale
|
|
12,689
|
|
|
|
|
|
Total general fund liabilities
|
|
116,376
|
|
|
114,427
|
|
|
Insurance contracts for account of segregated fund holders from
continuing operations
|
|
59,025
|
|
|
82,650
|
|
|
Investment contracts for account of segregated fund holders from
continuing operations
|
|
5,962
|
|
|
5,533
|
|
|
Insurance contracts for account of segregated fund holders classified as
held for sale
|
|
27,668
|
|
|
|
|
|
Total liabilities
|
$
|
209,031
|
|
$
|
202,610
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Issued share capital and contributed surplus
|
$
|
10,621
|
|
$
|
10,340
|
|
|
Retained earnings and accumulated other comprehensive income
|
|
6,130
|
|
|
5,304
|
|
|
Total equity
|
$
|
16,751
|
|
$
|
15,644
|
|
|
Total equity and liabilities
|
$
|
225,782
|
|
$
|
218,254
|
|
(1) Balances have been restated. Refer to Note 2 in our 2012 Consolidated
Financial Statements.
SOURCE: Sun Life Financial Inc.