TORONTO, May 6, 2014 /CNW/ - Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF)
The information contained in this document concerning the first quarter
of 2014 is based on the unaudited interim financial results of Sun Life
Financial Inc. for the period ended March 31, 2014. Sun Life Financial
Inc., together with its subsidiaries and joint ventures, are
collectively referred to as "the Company", "Sun Life Financial", "we",
"our" and "us". Unless otherwise noted, all amounts are in Canadian
dollars. Beginning in the first quarter of 2014, we are reporting
underlying net income (loss)(1) to assist in explaining our underlying business performance. This
measure replaces operating net income (loss) excluding the net impact
of market factors that was reported in prior quarters.
First Quarter 2014 Financial Highlights
-
Operating net income from Continuing Operations(2) of $454 million or $0.74 per share(1), compared to $448 million or $0.75 per share in the first quarter of
2013. Reported net income from Continuing Operations of $400 million or
$0.65 per share, compared to $410 million or $0.68 per share in the
same period last year
-
Underlying net income from Continuing Operations of $440 million or
$0.72 per share (1) in the first quarter of 2014, compared to $385 million or $0.64 per
share in the first quarter of 2013
-
Results this quarter continue to build on the momentum from 2013 with
business and sales growth across the Company
-
Operating return on equity(1) ("ROE") of 12.0% and underlying ROE(1) of 11.6% in the first quarter of 2014, compared to operating ROE of
15.8% in the first quarter of 2013 based on the Combined Operations(2)
-
Quarterly dividend of $0.36 per share
-
Minimum Continuing Capital and Surplus Requirements for Sun Life
Assurance Company of Canada of 221%
"Sun Life reported strong underlying results in the first quarter with a
14% increase in underlying net income to $440 million compared to the
same period last year, reflecting growth across our four strategic
pillars," Dean Connor, President and CEO, Sun Life Financial said. "Our
investments in organic growth across all four pillars are delivering
results, with double-digit growth in insurance and wealth sales and
record levels of assets under management."
Reported net income from Continuing Operations was $400 million in the
first quarter of 2014, compared to $410 million in the first quarter of
2013. The following table sets out our operating net income from
Continuing Operations and underlying net income from Continuing
Operations for the first quarters of 2014 and 2013.
($ millions, after-tax)
|
|
Q1'14
|
|
Q1'13
|
Operating net income
|
|
454
|
|
448
|
|
Market related impacts
|
|
(26)
|
|
51
|
|
Assumption changes and management actions
|
|
40
|
|
12
|
Underlying net income
|
|
440
|
|
385
|
|
|
|
|
|
|
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.
"In Canada, individual insurance sales grew 38% and individual wealth
sales increased 30%, compared to the same period last year, reflecting
growing distribution power in our Individual Insurance & Wealth
division," Connor said. "Our Canadian operations increased the size of
the Career Sales Force in the past year and is rapidly growing both
insurance and wealth sales through wholesale channels."
____________
(1)
|
Operating net income (loss) and financial information based on operating
net income (loss), such as operating earnings (loss) per share,
operating ROE (Combined Operations), underlying net income (loss),
underlying earnings (loss) per share and underlying ROE, are not based
on International Financial Reporting Standards. All earnings per share
("EPS") measures refer to fully diluted EPS, unless otherwise stated.
Beginning this quarter we are disclosing underlying net income (loss),
which replaces operating net income (loss) excluding the net impact of
market factors that was reported in prior quarters. See Use of Non-IFRS
Measures.
|
(2)
|
Effective August 1, 2013 we completed the sale of our U.S. annuities
business and certain of our U.S. life insurance businesses. As a result
of this transaction, we have defined this business as "Discontinued
Operations", the remaining operations as "Continuing Operations", and
the total Discontinued Operations and Continuing Operations as
"Combined Operations".
|
|
|
"Our Canadian Group Benefits and Group Retirement Services businesses
solidified their #1 positions in their respective markets this quarter
with both strong sales and strong client retention results."
"MFS delivered another outstanding quarter with operating net income of
US$133 million, a 33% increase compared to the same period last year.
Strong sales and excellent performance combined to increase assets
under management to a record US$421 billion," Connor said. "We also
expanded our asset management pillar during the quarter with the launch
of Sun Life Investment Management Inc., which provides private asset
class funds and liability driven investment strategies for defined
benefit pension plans and other institutional investors in Canada."
"The transformation of our U.S. Group Benefits business continues, with
overall group sales up 25% compared to the same period last year,
including a 73% increase in the sale of voluntary benefits," Connor
said. "I'm also pleased to welcome Dr. Dan Fishbein as our new
President, Sun Life Financial U.S., to replace Wes Thompson, who
retired at the end of the quarter."
"In Asia, underlying net income rose 9%, reflecting business growth.
Overall insurance sales were down slightly, with growth reported in
Hong Kong and Indonesia where we continue to increase our agency sales
force, offset by lower sales in the Philippines, China and India."
Operational Highlights
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 sales of $65 million in the quarter were up 38%
from the same period last year, driven by increases in the wholesale
channel. Individual wealth sales in the first quarter of 2014 were also
up 30% compared to the same period last year, led by strong mutual fund
and fixed product sales.
Group Benefits retained its #1 position for the fifth consecutive year
and reported a 2013 growth rate of 5.8%, both based on premiums and
premium equivalents, according to the Benefits Canada, Group Benefits Providers Report released during the first quarter.
Group Benefits was the only major carrier to record significant growth
last year, higher than the industry average growth rate of 2.9%.
Group Retirement Services ended the first quarter with record assets
under administration of $68 billion and more than tripled sales from
the first quarter of 2013.
Sun Life Global Investments (Canada) Inc. retail mutual fund sales this
quarter continued its positive momentum from 2013, with sales up 130%
compared to the same quarter last year. A new Private Client offering
was launched, which provides a wide range of investment products with
competitive fees and enhanced services tailored to the needs of
affluent investors searching for more value in their approach to
investing.
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. Group Benefits (previously reported as
Employee Group Benefits) sales increased 25% in the first quarter of
2014, with increases particularly in the voluntary benefits and
stop-loss products, increasing 73% and 40%, respectively, compared to
the first quarter of 2013.
Growing our asset management businesses globally
Global assets under management reached $671 billion at the end of the
quarter, up 18% from the same quarter last year.
MFS Investment Management ("MFS") continues to receive recognition for
strong performance around the world. For the third consecutive year,
and fourth time in six years, MFS was ranked among the top 10 in the
annual Barron's Fund Family rankings for one-, five- and ten-year categories.
Morningstar awarded MFS Best Fund House, Specialist Equity for 2014 in
Luxembourg.
In the quarter, MFS announced that it will sub-advise three
actively-managed exchange traded funds for State Street Global
Advisors. It also rolled out a global advertising campaign in key
markets worldwide to highlight MFS' focus on teamwork and collaboration
to achieve investment performance for clients.
Sun Life Investment Management Inc. began operations in the first
quarter, launching three pooled funds that are available to Canadian
institutional investors and focused on private fixed income, commercial
mortgages and real estate assets.
Strengthening our competitive position in Asia
We continue to grow and expand our competitive position in Asia.
In the Philippines we expanded our agency headcount to more than 5,400
and Sun Life Asset Management Company Inc. entered into new
distribution partnerships with COL Financial, the country's largest
online stock broker, and Philippine Bank of Communications.
Individual insurance sales in Hong Kong grew 13% this quarter compared
to the first quarter in 2013, measured in local currency. In Hong Kong,
we ranked first in third-party administration (managing Mandatory
Provident Fund assets held by financial institutions and other
companies) based on the Gadbury Group MPF Report, as of December 2013. Sun Life Hong Kong Limited received
five awards at the 2014 MPF Awards, which recognizes excellence among
investment managers and Mandatory Provident Fund service providers, and
won four Lipper Fund Awards for fund performance in the Hong Kong
Equity and Mixed Asset HKD Aggressive asset classes.
In Indonesia we saw strong agency channel growth in the first quarter of
2014, with individual insurance sales up 36% compared to the same
period last year, measured in local currency. During the quarter, we
launched an initiative to expand our distribution power to capitalize
on opportunities in Indonesia. We also received two awards for
Excellent Service Performance at Indonesia's Contact Center Service
Excellence Awards 2014.
How We Report Our Results
Sun Life Financial Inc., together with its subsidiaries and joint
ventures, are collectively referred to as "the Company", "Sun Life
Financial", "we", "our" and "us". 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. Our 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 prepare our unaudited interim consolidated financial
statements using International Financial Reporting Standards ("IFRS"),
and in accordance with IAS 34 Interim Financial Reporting.
Sale of U.S. Annuity Business
Effective August 1, 2013, we completed the sale of our U.S. annuities
business and certain of our U.S. life insurance businesses
(collectively, our "U.S. Annuity Business"), including all of the
issued and outstanding shares of Sun Life Assurance Company of Canada
(U.S.).
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". In accordance with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, income and expenses associated with the U.S. Annuity Business were
classified as discontinued operations in our Consolidated Statements of
Operations beginning in the fourth quarter of 2012.
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. These non-IFRS financial measures should
not be viewed as alternatives 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 management's discussion and
analysis ("MD&A") and the Supplementary Financial Information packages
that are available on www.sunlife.com under Investors - Financial results & reports. Reconciliations to IFRS
measures are also available in this document under the heading
Reconciliation of Non-IFRS Financial Measures.
Operating net income (loss) and financial measures based on operating
net income (loss), including operating earnings per share ("EPS") or
operating loss per share, and operating return on equity ("ROE"), are
non-IFRS financial measures. Operating net income (loss) excludes from
reported net income those impacts that are not operational or ongoing
in nature to assist investors in understanding our business
performance. Such operating adjustments include: (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)
the loss on the sale of our U.S. Annuity Business; (iv) the impact of
assumption changes and management actions related to the sale of our
U.S. Annuity Business; (v) restructuring and other related costs
(including impacts related to the sale of our U.S. Annuity Business);
(vi) goodwill and intangible asset impairment charges; and (vii) other
items that are not operational or ongoing in nature. Operating EPS also
excludes the dilutive impact of convertible securities.
Beginning in the first quarter of 2014, we are reporting underlying net
income (loss) to assist in explaining our underlying business
performance. This measure replaces operating net income (loss)
excluding the net impact of market factors that was reported in prior
quarters. Underlying net income (loss) and financial measures based on
underlying net income (loss), including underlying EPS or underlying
loss per share, and underlying ROE, are non-IFRS financial measures.
Underlying net income (loss) removes from operating net income (loss)
the following items that create volatility in our results under IFRS:
(a) market related impacts; (b) assumption changes and management
actions; and (c) other items that have not been treated as operating
adjustments and when removed assist in explaining our results from
period to period. Market related impacts include: (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 assumed fixed income
reinvestment rates 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; and (iii) the net impact of changes in the fair
value of real estate properties in the reporting period. Additional
information regarding these adjustments is available in the footnotes
to the table included under the heading Q1 2014 vs. Q1 2013 in the
Financial Summary section in this document. Assumption changes reflect
the impact of revisions to the assumptions used in determining our
liabilities for insurance contracts and investment contracts.
Assumptions require significant judgment and regular review and, where
appropriate, revision. The impact of assumption changes related to
actions taken by management in the current reporting period, referred
to as management actions, include for example, changes in the price of
an in-force product, new or revised reinsurance deals on in-force
business or material changes to investment policy for an asset segment
supporting our liabilities. Underlying EPS also excludes the dilutive
impact of convertible securities.
Unless indicated otherwise, all factors discussed in this document that
impact our results are applicable to reported net income (loss),
operating net income (loss) and underlying net income (loss). Reported
net income (loss) refers to net income (loss) determined in accordance
with IFRS. As there were no Discontinued Operations in the first
quarter of 2014, the discussion of our results in this document is of
the Continuing Operations. Underlying ROE and operating ROE beginning
in the first quarter of 2014 are prepared based on the Continuing
Operations. Operating ROE for comparative periods is based on the
Combined Operations. For additional information on the Discontinued
Operations refer to Note 3 in our interim consolidated financial
statements for the first quarter of 2014 and our annual MD&A and
consolidated financial statements for the year ended December 31, 2013.
Other non-IFRS financial measures that we use include operating ROE,
underlying ROE, 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, assets under management ("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 under the heading Reconciliation of Non-IFRS Financial
Measures and in our 2013 annual MD&A under the heading Use of Non-IFRS
Financial Measures.
The information contained in this document is in Canadian dollars unless
otherwise noted. All EPS measures in this document refer to fully
diluted EPS, unless otherwise stated.
Additional Information
Additional information about Sun Life Financial Inc. ("SLF Inc.") can be
found in our 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.
Financial Summary
|
|
Quarterly results
|
($ millions, unless otherwise noted)
|
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss) from Continuing Operations(1)
|
|
|
|
|
454
|
|
|
642
|
|
|
422
|
|
|
431
|
|
|
448
|
|
|
Reported net income (loss) from Continuing Operations
|
|
|
|
|
400
|
|
|
571
|
|
|
324
|
|
|
391
|
|
|
410
|
|
|
Underlying net income (loss) from Continuing Operations(1)
|
|
|
|
|
440
|
|
|
375
|
|
|
448
|
|
|
373
|
|
|
385
|
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EPS from Continuing Operations (diluted)(1)
|
|
|
|
|
0.74
|
|
|
1.05
|
|
|
0.69
|
|
|
0.71
|
|
|
0.75
|
|
|
Reported EPS from Continuing Operations (diluted)
|
|
|
|
|
0.65
|
|
|
0.93
|
|
|
0.53
|
|
|
0.64
|
|
|
0.68
|
|
|
Underlying EPS from Continuing Operations (diluted)(1)
|
|
|
|
|
0.72
|
|
|
0.61
|
|
|
0.74
|
|
|
0.62
|
|
|
0.64
|
|
Reported basic EPS from Continuing Operations ($)
|
|
|
|
|
0.66
|
|
|
0.94
|
|
|
0.53
|
|
|
0.65
|
|
|
0.68
|
|
Total Company (Combined Operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income (loss) from Continuing Operations
|
|
|
|
|
400
|
|
|
571
|
|
|
324
|
|
|
391
|
|
|
410
|
|
|
Reported net income (loss) from Discontinued Operations
|
|
|
|
|
—
|
|
|
(21)
|
|
|
(844)
|
|
|
8
|
|
|
103
|
|
|
Reported net income (loss) from Combined Operations
|
|
|
|
|
400
|
|
|
550
|
|
|
(520)
|
|
|
399
|
|
|
513
|
|
Reported EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EPS from Combined Operations (diluted)
|
|
|
|
|
0.65
|
|
|
0.90
|
|
|
(0.84)
|
|
|
0.65
|
|
|
0.85
|
|
|
Reported EPS from Combined Operations (basic)
|
|
|
|
|
0.66
|
|
|
0.91
|
|
|
(0.86)
|
|
|
0.66
|
|
|
0.85
|
|
Avg. common shares outstanding (millions)
|
|
|
|
|
610
|
|
|
608
|
|
|
606
|
|
|
603
|
|
|
600
|
|
Closing common shares outstanding (millions)
|
|
|
|
|
610.6
|
|
|
609.4
|
|
|
607.1
|
|
|
605.8
|
|
|
603.0
|
|
Dividends per common share ($)
|
|
|
|
|
0.36
|
|
|
0.36
|
|
|
0.36
|
|
|
0.36
|
|
|
0.36
|
|
MCCSR ratio(2)
|
|
|
|
|
221%
|
|
|
219%
|
|
|
216%
|
|
|
217%
|
|
|
214%
|
|
Return on equity (%)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ROE(1)
|
|
|
|
|
12.0%
|
|
|
17.7%
|
|
|
12.6%
|
|
|
12.8%
|
|
|
15.8%
|
|
|
Underlying ROE(1)
|
|
|
|
|
11.6%
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue
|
|
|
|
|
2,228
|
|
|
2,824
|
|
|
2,408
|
|
|
2,374
|
|
|
2,033
|
|
|
Segregated fund deposits
|
|
|
|
|
2,576
|
|
|
1,917
|
|
|
2,227
|
|
|
2,169
|
|
|
2,157
|
|
|
Mutual fund sales(1)
|
|
|
|
|
18,567
|
|
|
14,679
|
|
|
16,242
|
|
|
17,570
|
|
|
16,539
|
|
|
Managed fund sales(1)
|
|
|
|
|
7,579
|
|
|
9,778
|
|
|
11,410
|
|
|
10,508
|
|
|
8,269
|
|
|
ASO premium and deposit equivalents(1)
|
|
|
|
|
1,760
|
|
|
1,551
|
|
|
1,460
|
|
|
1,487
|
|
|
1,475
|
|
Total premiums and deposits(1)(4)
|
|
|
|
|
32,710
|
|
|
30,749
|
|
|
33,747
|
|
|
34,108
|
|
|
30,473
|
|
Assets under management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General fund assets
|
|
|
|
|
128,171
|
|
|
123,390
|
|
|
121,248
|
|
|
133,052
|
|
|
133,869
|
|
|
Segregated funds
|
|
|
|
|
80,054
|
|
|
76,141
|
|
|
71,658
|
|
|
97,364
|
|
|
96,687
|
|
|
Mutual funds, managed funds and other AUM(1)
|
|
|
|
|
462,843
|
|
|
440,306
|
|
|
397,584
|
|
|
360,312
|
|
|
340,121
|
|
Total AUM(1)(5)
|
|
|
|
|
671,068
|
|
|
639,837
|
|
|
590,490
|
|
|
590,728
|
|
|
570,677
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and other capital(6)
|
|
|
|
|
2,606
|
|
|
3,099
|
|
|
3,094
|
|
|
3,096
|
|
|
3,440
|
|
|
Participating policyholders' equity
|
|
|
|
|
133
|
|
|
127
|
|
|
126
|
|
|
124
|
|
|
124
|
|
|
Total shareholders' equity
|
|
|
|
|
17,818
|
|
|
17,227
|
|
|
16,600
|
|
|
17,495
|
|
|
17,075
|
|
|
Total capital
|
|
|
|
|
20,557
|
|
|
20,453
|
|
|
19,820
|
|
|
20,715
|
|
|
20,639
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2) MCCSR represents Minimum Continuing Capital and Surplus Requirements
("MCCSR") ratio of Sun Life Assurance Company of Canada ("Sun Life
Assurance").
|
(3) Underlying ROE and operating ROE beginning in the first quarter of 2014
are prepared based on the Continuing Operations. Operating ROE for
comparative periods is based on the Combined Operations.
|
(4) Prior periods have been restated to include the sales of Birla Sun Life
Asset Management Company equity and fixed income mutual funds based on
our proportionate equity interest.
|
(5) Beginning in the first quarter of 2014, the results of our joint
ventures have been included based on our proportionate equity
investment. All amounts for periods prior to the third quarter of 2013
include Discontinued Operations.
|
(6) Other capital refers to innovative capital instruments consisting of
Sun Life ExchangEable Capital Securities and qualify as capital for
Canadian regulatory purposes. However, under IFRS they are reported as
senior debentures in our Consolidated Financial Statements. See Capital
and Liquidity Management - Capital in our annual MD&A.
|
|
Unless indicated otherwise, all factors discussed in this document that
impact our results are applicable to reported net income (loss),
operating net income (loss) and underlying net income (loss). The
discussion of our results is of the Continuing Operations.
Q1 2014 vs. Q1 2013
Our reported net income from Continuing Operations was $400 million in the first quarter of
2014, compared to $410 million in the first quarter of 2013. Operating
net income from Continuing Operations was $454 million for the quarter
ended March 31, 2014, compared to $448 million for the same period last
year. Underlying net income from Continuing Operations was $440 million
for the first quarter of 2014, compared to $385 million in the first
quarter of 2013.
Operating ROE and underlying ROE in the first quarter of 2014 were 12.0%
and 11.6%, respectively. Operating ROE in the first quarter of 2013 was
15.8% on a Combined Operations basis.
The following table reconciles our net income measures and sets out the
impact that other notable items had on our net income from Continuing
Operations in the first quarter of 2014 and 2013.
($ millions, after-tax)
|
|
|
|
Q1'14
|
|
|
Q1'13
|
Reported net income
|
|
|
|
400
|
|
|
410
|
|
Certain hedges that do not qualify for hedge accounting in SLF Canada
|
|
|
|
5
|
|
|
14
|
|
Fair value adjustments on share-based payment awards at MFS
|
|
|
|
(51)
|
|
|
(52)
|
|
Restructuring and other related costs(1)
|
|
|
|
(8)
|
|
|
—
|
Operating net income
|
|
|
|
454
|
|
|
448
|
|
|
Equity market impact
|
|
|
|
|
|
|
|
|
|
|
Net impact from equity market changes
|
|
|
|
30
|
|
|
27
|
|
|
|
Net basis risk impact
|
|
|
|
3
|
|
|
20
|
|
|
Net equity market impact(2)
|
|
|
|
33
|
|
|
47
|
|
|
Interest rate impact
|
|
|
|
|
|
|
|
|
|
|
Net impact from interest rate changes
|
|
|
|
(58)
|
|
|
4
|
|
|
|
Net impact of decline in fixed income reinvestment rates
|
|
|
|
—
|
|
|
—
|
|
|
|
Net impact of credit spread movements
|
|
|
|
(13)
|
|
|
5
|
|
|
|
Net impact of swap spread movements
|
|
|
|
7
|
|
|
(10)
|
|
|
Net interest rate impact(3)
|
|
|
|
(64)
|
|
|
(1)
|
|
|
Net gains from increases in the fair value of real estate
|
|
|
|
5
|
|
|
5
|
|
Market related impacts
|
|
|
|
(26)
|
|
|
51
|
|
Assumption changes and management actions
|
|
|
|
40
|
|
|
12
|
Underlying net income
|
|
|
|
440
|
|
|
385
|
Impact of other notable items on our net income:
|
|
|
|
|
|
|
|
Experience related items(4)
|
|
|
|
|
|
|
|
|
Impact of investment activity on insurance contract liabilities
|
|
|
|
36
|
|
|
44
|
|
Mortality/morbidity
|
|
|
|
(22)
|
|
|
19
|
|
Credit
|
|
|
|
16
|
|
|
12
|
|
Lapse and other policyholder behaviour
|
|
|
|
(19)
|
|
|
(14)
|
|
Expenses
|
|
|
|
(14)
|
|
|
(6)
|
|
Other
|
|
|
|
—
|
|
|
(13)
|
(1) Restructuring and other related costs primarily includes impacts
related to the sale of our U.S. Annuity Business.
|
(2) 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.
|
(3) 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.
|
(4) Experience related items reflect the difference between actual
experience during the reporting period and best estimate assumptions
used in the determination of our insurance contract liabilities.
|
Our reported net income from Continuing Operations for the first quarter
of 2014 and 2013, included items that are not operational or ongoing in
nature and are, therefore, excluded in our calculation of operating net
income. Operating net income from Continuing Operations for the first
quarter of 2014 and 2013 excluded the impact of certain hedges that do
not qualify for hedge accounting in SLF Canada, fair value adjustments
on share-based payment awards at MFS and restructuring and other
related costs. The net impact of these items reduced reported net
income from Continuing Operations by $54 million in the first quarter
of 2014, compared to a reduction of $38 million in the first quarter of
2013.
Our underlying net income from Continuing Operations for the first
quarter of 2014 and 2013, adjusts for market related impacts and
assumption changes and management actions and excludes from operating
net income:
-
the unfavourable impact of market related items as outlined in the
preceding table of $26 million in the first quarter of 2014 compared to
a favourable impact of $51 million in the first quarter of 2013; and
-
the favourable impact of assumption changes and management actions of
$40 million in the first quarter of 2014 and $12 million in the first
quarter of 2013. The impact in 2014 reflects reinvestment assumption
changes and modeling improvements.
The net impact of these items increased operating net income by $14
million in the first quarter of 2014, compared to an increase of $63
million in the first quarter of 2013.
Net income from Continuing Operations in the first quarter of 2014 also
reflected gains from investment activity on insurance contract
liabilities and positive credit experience, offset by unfavourable
mortality and morbidity experience, lapse and other policyholder
behaviour and expense experience.
Net income from Continuing Operations in the first quarter of 2013 also
reflected gains from investment activity on insurance contract
liabilities and positive impacts from mortality, morbidity and credit
experience, which were partially offset by unfavourable lapse and other
policyholder behaviour and expense experience.
Sale of U.S. Annuity Business
Effective August 1, 2013, we completed the sale of our U.S. Annuities
business and certain of our U.S. life insurance businesses to Delaware
Life Holdings, LLC. The transaction consisted primarily of the sale of
100% of the shares of Sun Life Assurance Company of Canada (U.S.),
which included U.S. domestic variable annuity, fixed annuity and fixed
indexed annuity products, corporate and bank-owned life insurance
products and variable life insurance products. The sale included the
transfer of certain related operating assets, systems and employees
that supported these businesses. In the first quarter of 2014, the
purchase price adjustment was finalized and resulted in no change to
the loss on sale recorded in 2013.
Actuarial Standards Update
In December 2013, the Actuarial Standards Board ("ASB") released an
exposure draft on revisions to the Canadian actuarial standards of
practice with respect to economic reinvestment assumptions used in the
valuation of liabilities. The comment period is now closed and the
final standard is expected in the second quarter of 2014 with
implementation expected in the fourth quarter of 2014. Though the final
standard is not yet available, we do not expect this change to have an
adverse impact on income or capital. The ASB changes are expected to
increase our reported measure of net income sensitivity to interest
rates.
After implementation of the new standard, we do not expect further net
income impacts due to declines in fixed income reinvestment rates in
our insurance contract liabilities. Our fourth quarter 2013 disclosure
indicated an expected reduction in 2014 net income of approximately $40
million for declines in fixed income reinvestment rates, and we now
expect this to be reported together with the implementation of the ASB
changes in the fourth quarter of 2014. These statements regarding the
actuarial standards update and impact of the low interest rate
environment are forward-looking.
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, Malaysia
and Bermuda, and generate revenues and incur expenses in local
currencies in these jurisdictions, which are translated to Canadian
dollars.
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
|
|
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
|
1.102
|
|
|
1.049
|
|
|
1.039
|
|
|
1.023
|
|
|
1.008
|
|
U.K. Pounds
|
|
|
|
|
1.824
|
|
|
1.698
|
|
|
1.610
|
|
|
1.571
|
|
|
1.563
|
Period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
|
1.105
|
|
|
1.062
|
|
|
1.031
|
|
|
1.052
|
|
|
1.017
|
|
U.K. Pounds
|
|
|
|
|
1.841
|
|
|
1.758
|
|
|
1.668
|
|
|
1.600
|
|
|
1.546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
first quarter of 2014, our operating net income from Continuing
Operations increased by $23 million as a result of movements in
currency rates relative to the first quarter of 2013.
Performance by Business Group
As there were no Discontinued Operations in the first quarter of 2014,
the discussion of our performance by business group, including
comparative information, refers to Continuing Operations. For
information on the Discontinued Operations, refer to Note 3 in our
interim consolidated financial statements and to our 2013 annual MD&A
and consolidated financial statements.
SLF Canada
|
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Underlying net income (loss)(1)
|
|
|
|
|
210
|
|
|
148
|
|
|
222
|
|
|
221
|
|
|
208
|
|
Underlying adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts
|
|
|
|
|
12
|
|
|
22
|
|
|
35
|
|
|
(15)
|
|
|
47
|
|
|
Assumption changes and management actions
|
|
|
|
|
16
|
|
|
(33)
|
|
|
(42)
|
|
|
4
|
|
|
8
|
|
Operating net income (loss)(1)
|
|
|
|
|
238
|
|
|
137
|
|
|
215
|
|
|
210
|
|
|
263
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedges that do not qualify for hedge accounting
|
|
|
|
|
5
|
|
|
17
|
|
|
(2)
|
|
|
9
|
|
|
14
|
|
|
Assumption changes and management actions related to the
sale of our U.S. Annuity Business
|
|
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
Reported net income (loss)
|
|
|
|
|
243
|
|
|
154
|
|
|
229
|
|
|
219
|
|
|
277
|
|
Underlying ROE (%)(1)
|
|
|
|
|
11.6
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Operating ROE (%)(1)
|
|
|
|
|
13.1
|
|
|
7.6
|
|
|
11.8
|
|
|
11.4
|
|
|
14.5
|
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance & Wealth(1)(2)
|
|
|
|
|
140
|
|
|
59
|
|
|
64
|
|
|
80
|
|
|
154
|
|
|
Group Benefits(1)
|
|
|
|
|
58
|
|
|
40
|
|
|
128
|
|
|
86
|
|
|
80
|
|
|
Group Retirement Services(1)
|
|
|
|
|
40
|
|
|
38
|
|
|
23
|
|
|
44
|
|
|
29
|
|
Total operating net income (loss)(1)
|
|
|
|
|
238
|
|
|
137
|
|
|
215
|
|
|
210
|
|
|
263
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2) Individual Insurance & Wealth was reported as Individual Insurance &
Investments in prior quarters.
|
Q1 2014 vs. Q1 2013
SLF Canada's reported net income was $243 million in the first quarter
of 2014, compared to $277 million in the first quarter of 2013.
Operating net income was $238 million, compared to $263 million in the
first quarter of 2013. Operating net income for both periods in SLF
Canada excludes the impact of certain hedges that do not qualify for
hedge accounting, which are set out in the table above.
Underlying net income was $210 million, compared to $208 million in the
first quarter of 2013. Underlying net income in SLF Canada excludes
from operating net income:
-
market related impacts, which had a favourable impact of $12 million in
the first quarter of 2014 primarily driven by equity markets partially
offset by interest rates, compared to $47 million in the first quarter
of 2013 primarily driven by equity markets; and
-
assumption changes and management actions, which had a favourable impact
of $16 million in the first quarter of 2014, compared to $8 million in
the first quarter of 2013.
The net impact of these items increased operating net income by $28
million in the first quarter of 2014, compared to an increase of $55
million in the first quarter of 2013. Adjustments to underlying net
income are set out in the table above.
Net income in the first quarter of 2014 also reflected gains from
investment activities on insurance contract liabilities, partially
offset by unfavourable morbidity experience in Group Benefits ("GB").
Net income in the first quarter of 2013 also reflected net realized
gains on the sale of available-for-sale ("AFS") assets, positive
morbidity experience in GB and gains from investment activities on
insurance contract liabilities in Individual Wealth and GB.
In the first quarter of 2014, sales of individual life and health
insurance increased 38% compared to the first quarter of 2013, driven
by continued strong permanent insurance sales primarily in the
wholesale channel. Sales of individual wealth products were up 30% from
the first quarter of 2013 due to strong sales across all segments. Sun
Life Global Investments (Canada) Inc. demonstrated continued strong
growth with combined institutional and retail sales of $577 million, up
20% over the prior year with retail sales having increased 130%.
GB sales were 19% higher than the first quarter of 2013, most
significantly in the large case market segment. Group Retirement
Services ("GRS") sales were 203% higher than in the first quarter of
2013, driven by very strong new defined contribution sales in the large
case market. Assets under administration for GRS ended the quarter at
$68 billion, an increase of 20% from the first quarter of 2013, largely
due to strong sales and favourable equity markets.
SLF U.S.
The SLF U.S. operations is focused on three business units, Group
Benefits (previously reported as Employee Benefits Group),
International, and In-force Management (International and In-force
Management were previously reported together as Life and Investment
Products). Group Benefits provides protection solutions to employers
and employees including group life, disability, medical stop-loss and
dental insurance products, as well as a suite of voluntary benefits
products. International offers individual life insurance and investment
wealth products to high net worth clients in international markets.
In-force Management includes certain closed individual life insurance
products, primarily universal life and participating whole life
insurance.
|
|
|
|
Quarterly results
|
(US$ millions)
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
Underlying net income (loss) from Continuing Operations(1)
|
|
|
|
85
|
|
|
73
|
|
|
58
|
|
|
88
|
|
|
63
|
Underlying adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts
|
|
|
|
(34)
|
|
|
6
|
|
|
16
|
|
|
32
|
|
|
5
|
|
Assumption changes and management actions
|
|
|
|
19
|
|
|
247
|
|
|
27
|
|
|
2
|
|
|
(3)
|
Operating net income (loss) from Continuing Operations(1)
|
|
|
|
70
|
|
|
326
|
|
|
101
|
|
|
122
|
|
|
65
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption changes and management actions related to the sale of our
U.S. Annuity Business
|
|
|
|
—
|
|
|
(5)
|
|
|
(25)
|
|
|
—
|
|
|
—
|
|
Restructuring and other related costs
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
Reported net income (loss) from Continuing Operations
|
|
|
|
70
|
|
|
321
|
|
|
76
|
|
|
115
|
|
|
65
|
Underlying ROE (%)(1)
|
|
|
|
12.0
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
Operating ROE (%)(1)(2)
|
|
|
|
9.9
|
|
|
48.9
|
|
|
14.9
|
|
|
12.4
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Benefits(1)
|
|
|
|
17
|
|
|
2
|
|
|
23
|
|
|
17
|
|
|
11
|
International(1)
|
|
|
|
14
|
|
|
24
|
|
|
63
|
|
|
36
|
|
|
36
|
In-force Management(1)
|
|
|
|
39
|
|
|
300
|
|
|
15
|
|
|
69
|
|
|
18
|
Total operating net income (loss) from Continuing Operations
|
|
|
|
70
|
|
|
326
|
|
|
101
|
|
|
122
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying net income (loss) from Continuing Operations(1)
|
|
|
|
94
|
|
|
76
|
|
|
61
|
|
|
91
|
|
|
63
|
Operating net income (loss) from Continuing Operations(1)
|
|
|
|
77
|
|
|
341
|
|
|
105
|
|
|
126
|
|
|
65
|
Reported net income (loss) from Continuing Operations
|
|
|
|
77
|
|
|
336
|
|
|
79
|
|
|
119
|
|
|
65
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2) Operating ROE and underlying ROE beginning the first quarter of 2014 are
based on the Continuing Operations. Operating ROE in quarters prior to
the first quarter 2014 is based on operating net income from Combined
Operations. For operating net income from Combined Operations refer to
our 2013 annual MD&A.
|
Q1 2014 vs. Q1 2013
SLF U.S.'s reported net income and operating net income from Continuing
Operations were C$77 million in the first quarter of 2014, compared to
C$65 million in the first quarter of 2013. The weakening of the
Canadian dollar relative to average exchange rates in the first quarter
of 2013 increased operating net income from Continuing Operations by
C$7 million. Underlying net income was C$94 million, compared to C$63
million in the first quarter of 2013.
In U.S. dollars, SLF U.S.'s reported net income from Continuing
Operations was US$70 million in the first quarter of 2014, compared to
US$65 million in the first quarter of 2013. Operating net income from
Continuing Operations was US$70 million in the first quarter of 2014,
compared to US$65 million in the first quarter of 2013. Underlying net
income from Continuing Operations was US$85 million, compared to US$63
million in the first quarter of 2013. Underlying net income excludes
from operating net income:
-
market related impacts, which had an unfavourable impact of US$34
million in the first quarter of 2014 primarily driven by interest
rates, compared to favourable impact of US$5 million in the first
quarter of 2013 primarily driven by equity markets; and
-
assumption changes and management actions of US$19 million in the first
quarter of 2014 compared to an unfavourable impact of US$3 million in
the first quarter of 2013.
The adjustments to operating net income and underlying net income are
set out in the table above.
Net income from Continuing Operations in the first quarter of 2014 also
reflected net realized gains on the sale of AFS assets, partially
offset by unfavourable mortality experience in Group Benefits and
In-force Management.
Net income from Continuing Operations in the first quarter of 2013 also
reflected unfavourable claims experience in Group Benefits and costs
related to our strategic investment in Group Benefits.
Sales in Group Benefits in the first quarter of 2014 increased 25%
compared to the first quarter of 2013 driven by an increase in life,
disability, and stop-loss sales. Within Group Benefits, voluntary
benefits sales increased 73% compared to the prior year period.
Sales in International in the first quarter of 2014 decreased 35%
compared to the first quarter of 2013 driven by a decrease in
investment products sales. International life insurance sales increased
compared to the first quarter of 2013 driven by strong market growth
and competitive product offerings.
MFS Investment Management
|
|
|
|
|
Quarterly results
|
(US$ millions)
|
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
Underlying net income(1)
|
|
|
|
|
133
|
|
|
148
|
|
|
116
|
|
|
101
|
|
|
100
|
Operating net income(1)
|
|
|
|
|
133
|
|
|
148
|
|
|
116
|
|
|
101
|
|
|
100
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments on share-based payment awards
|
|
|
|
|
(46)
|
|
|
(72)
|
|
|
(57)
|
|
|
(41)
|
|
|
(51)
|
Reported net income
|
|
|
|
|
87
|
|
|
76
|
|
|
59
|
|
|
60
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying net income(1)
|
|
|
|
|
147
|
|
|
156
|
|
|
120
|
|
|
104
|
|
|
101
|
Operating net income(1)
|
|
|
|
|
147
|
|
|
156
|
|
|
120
|
|
|
104
|
|
|
101
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments on share-based payment awards
|
|
|
|
|
(51)
|
|
|
(76)
|
|
|
(59)
|
|
|
(42)
|
|
|
(52)
|
Reported net income
|
|
|
|
|
96
|
|
|
80
|
|
|
61
|
|
|
62
|
|
|
49
|
Pre-tax operating profit margin ratio(2)
|
|
|
|
|
42%
|
|
|
45%
|
|
|
40%
|
|
|
37%
|
|
|
38%
|
Average net assets (US$ billions)(2)
|
|
|
|
|
412.0
|
|
|
398.1
|
|
|
373.2
|
|
|
358.4
|
|
|
339.8
|
Assets under management (US$ billions)(2)
|
|
|
|
|
420.6
|
|
|
412.8
|
|
|
385.6
|
|
|
353.7
|
|
|
348.5
|
Gross sales (US$ billions)(2)
|
|
|
|
|
22.4
|
|
|
22.5
|
|
|
25.4
|
|
|
25.5
|
|
|
22.6
|
Net sales (US$ billions)(2)
|
|
|
|
|
3.7
|
|
|
3.3
|
|
|
8.6
|
|
|
5.9
|
|
|
6.2
|
Asset appreciation (depreciation) (US$ billions)
|
|
|
|
|
4.1
|
|
|
24.1
|
|
|
23.4
|
|
|
(0.5)
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index (daily average)
|
|
|
|
|
1,834
|
|
|
1,772
|
|
|
1,674
|
|
|
1,610
|
|
|
1,515
|
MSCI EAFE Index (daily average)
|
|
|
|
|
1,894
|
|
|
1,860
|
|
|
1,748
|
|
|
1,707
|
|
|
1,668
|
(1) Represents a non-IFRS financial measure that excludes fair value
adjustments on share-based payment awards at MFS. See Use of Non-IFRS
Financial Measures.
|
(2) Pre-tax operating profit margin ratio, AUM, average net assets and
sales are non-IFRS financial measures. See Reconciliation of Non-IFRS
Financial Measures.
|
Q1 2014 vs. Q1 2013
MFS's reported net income was C$96 million in the first quarter of 2014,
compared to C$49 million in the first quarter of 2013. MFS had
operating net income and underlying net income of C$147 million in the
first quarter of 2014, compared to C$101 million in the first quarter
of 2013. Operating net income and underlying net income in MFS excludes
the impact of fair value adjustments on share-based payment awards,
which is set out in the table above. The weakening of the Canadian
dollar relative to average exchange rates in the first quarter of 2013
increased operating net income from Continuing Operations by C$13
million.
In U.S. dollars, MFS's reported net income was US$87 million in the
first quarter of 2014, compared to US$49 million in the first quarter
of 2013. Operating net income and underlying net income were US$133
million in the first quarter of 2014, compared to US$100 million in the
first quarter of 2013.
The increase in net income from the first quarter of 2013 reflects the
impact of higher average net assets. MFS's pre-tax operating profit
margin ratio was 42% in the first quarter of 2014, up from 38% in the
first quarter of 2013, driven by higher average net assets, partially
offset by higher operating costs.
Total AUM was US$420.6 billion, reaching another all-time high, as at
March 31, 2014, compared to US$412.8 billion at December 31, 2013. The
increase of US$7.8 billion was primarily driven by gross sales of
US$22.4 billion and asset appreciation of US$4.1 billion, partially
offset by redemptions of US$18.7 billion. Retail fund performance
remained strong with 86% and 79% of fund assets ranked in the top half
of their Lipper categories based on three- and five-year performance,
respectively.
SLF Asia
|
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Underlying net income (loss)(1)
|
|
|
|
|
37
|
|
|
34
|
|
|
28
|
|
|
27
|
|
|
34
|
|
Underlying adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts
|
|
|
|
|
(6)
|
|
|
2
|
|
|
(6)
|
|
|
14
|
|
|
17
|
|
|
Assumption changes and management actions
|
|
|
|
|
1
|
|
|
6
|
|
|
(4)
|
|
|
5
|
|
|
—
|
|
Operating net income (loss)(1)
|
|
|
|
|
32
|
|
|
42
|
|
|
18
|
|
|
46
|
|
|
51
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption changes and management actions related to the
sale of our U.S. Annuity Business
|
|
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
Reported net income (loss)
|
|
|
|
|
32
|
|
|
42
|
|
|
11
|
|
|
46
|
|
|
51
|
|
Underlying ROE (%)(1)
|
|
|
|
|
6.0
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Operating ROE (%)(1)
|
|
|
|
|
5.1
|
|
|
7.1
|
|
|
3.1
|
|
|
8.0
|
|
|
10.1
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
Q1 2014 vs. Q1 2013
SLF Asia's reported and operating net income was $32 million in the
first quarter of 2014, compared to reported and operating net income of
$51 million in the first quarter of 2013. Underlying net income was $37
million, compared to $34 million in the first quarter of 2013.
Underlying net income excludes from operating net income:
-
market related impacts, which had an unfavourable impact of $6 million
in the first quarter of 2014 primarily driven by interest rates
partially offset by equity markets, compared to favourable impact of
$17 million in the first quarter of 2013 primarily driven by interest
rates and equity markets; and
-
assumption changes and management actions of $1 million in the first
quarter of 2014 compared to nil in the first quarter of 2013.
The adjustments to operating net income and underlying net income are
set out in the table above.
Net income in the first quarter of 2014 also reflected business growth,
partially offset by net losses on AFS securities driven by an
impairment in Hong Kong. Net income in the first quarter of 2013 also
reflected business growth across the geographies.
Total individual life sales in the first quarter of 2014 decreased
slightly from the first quarter of 2013. Sales increases in Hong Kong
and Indonesia were offset by lower sales in the Philippines, India and
China. Sales in Hong Kong and Indonesia increased 13% and 36%,
respectively, measured in local currency, driven by growth in the
agency channel. Sales in the first quarter of 2014 also include our new
joint ventures in Malaysia and Vietnam.
Corporate
Corporate includes the results of SLF U.K. and Corporate Support.
Corporate Support includes our Run-off reinsurance business as well as
investment income, expenses, capital and other items that have not been
allocated to our other business segments.
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Underlying net income (loss)(1)
|
|
|
|
(48)
|
|
|
(39)
|
|
|
17
|
|
|
(70)
|
|
|
(21)
|
|
Underlying adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts
|
|
|
|
5
|
|
|
7
|
|
|
12
|
|
|
15
|
|
|
(18)
|
|
Assumption changes and management actions
|
|
|
|
3
|
|
|
(2)
|
|
|
(65)
|
|
|
—
|
|
|
7
|
|
Operating net income (loss)(1)
|
|
|
|
(40)
|
|
|
(34)
|
|
|
(36)
|
|
|
(55)
|
|
|
(32)
|
|
Operating adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption changes and management actions related to the sale of our
U.S. Annuity Business
|
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
Restructuring and other related costs
|
|
|
|
(8)
|
|
|
(7)
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
Reported net income (loss)
|
|
|
|
(48)
|
|
|
(41)
|
|
|
(56)
|
|
|
(55)
|
|
|
(32)
|
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF U.K.
|
|
|
|
28
|
|
|
29
|
|
|
63
|
|
|
7
|
|
|
37
|
|
Corporate Support
|
|
|
|
(68)
|
|
|
(63)
|
|
|
(99)
|
|
|
(62)
|
|
|
(69)
|
|
Total operating net income (loss)
|
|
|
|
(40)
|
|
|
(34)
|
|
|
(36)
|
|
|
(55)
|
|
|
(32)
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
Q1 2014 vs. Q1 2013
Corporate had a reported loss from Continuing Operations of $48 million
in the first quarter of 2014, compared to a reported loss from
Continuing Operations of $32 million in the first quarter of 2013.
Operating net loss was $40 million, compared to $32 million in 2013,
which excludes restructuring and other related costs. Underlying net
loss was $48 million, compared to $21 million in the first quarter of
2013 and excludes from operating net loss:
-
market related impacts, which had a favourable impact of $5 million in
the first quarter of 2014 primarily driven by equity markets and
interest rates, compared to an unfavourable impact of $18 million in
the first quarter of 2013 primarily driven by equity markets and
interest rates; and
-
assumption changes and management actions, which had a favourable impact
of $3 million in the first quarter of 2014, and $7 million in the first
quarter of 2013.
Operating adjustments and underlying adjustments are set out in the
table above.
SLF U.K.'s operating net income was $28 million in the first quarter of
2014, compared to $37 million in the first quarter of 2013. SLF U.K.'s
net income in the first quarter of 2014 reflected unfavourable
investing activity in annuities, and lapse experience, partially offset
by positive credit experience. SLF U.K.'s net income in the first
quarter of 2013 reflected gains from investment activity within the
annuity portfolio, partially offset by the net unfavourable impact of
investment experience on the guaranteed annuity option product in the
U.K.
In the U.K. the government announced budget changes on March 19, 2014,
which included a number of significant changes to the way people are
able to access their retirement funds, specifically the removal of the
requirement to use individual pension plans to buy an annuity to
provide retirement income. The more significant changes are proposed to
be effective in 2015. It is too early to understand how customer
behaviour may respond and we will assess potential impacts once the
changes are finalized.
Corporate Support had an operating loss of $68 million in the first
quarter of 2014, compared to $69 million in the first quarter of 2013.
Net income from Continuing Operations in the first quarter of 2014
relative to the same period in 2013 reflected lower interest expenses,
offset by foreign exchange losses and higher operating expenses.
Additional Financial Disclosure
Revenue from Continuing Operations
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
3,638
|
|
|
4,217
|
|
|
3,738
|
|
|
3,709
|
|
|
3,408
|
|
|
Ceded
|
|
|
|
(1,410)
|
|
|
(1,393)
|
|
|
(1,330)
|
|
|
(1,335)
|
|
|
(1,375)
|
|
Net premium revenue
|
|
|
|
2,228
|
|
|
2,824
|
|
|
2,408
|
|
|
2,374
|
|
|
2,033
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other investment income
|
|
|
|
1,489
|
|
|
1,328
|
|
|
1,092
|
|
|
1,272
|
|
|
1,237
|
|
|
Changes in fair value of Fair Value Through Profit and Loss ("FVTPL")
assets and liabilities
|
|
|
|
1,620
|
|
|
(528)
|
|
|
(323)
|
|
|
(3,356)
|
|
|
(348)
|
|
|
Net gains (losses) on AFS assets
|
|
|
|
57
|
|
|
46
|
|
|
39
|
|
|
36
|
|
|
24
|
|
Fee income
|
|
|
|
1,066
|
|
|
1,040
|
|
|
940
|
|
|
892
|
|
|
844
|
|
Total revenue
|
|
|
|
6,460
|
|
|
4,710
|
|
|
4,156
|
|
|
1,218
|
|
|
3,790
|
|
Adjusted revenue(1)
|
|
|
|
5,775
|
|
|
6,242
|
|
|
5,507
|
|
|
5,631
|
|
|
5,278
|
|
(1) Represents a non-IFRS financial measure that excludes the impact of
fair value changes in FVTPL assets and liabilities, currency and
reinsurance for the insured business in SLF Canada's GB operations.
Adjusted revenue in prior disclosures removed from total revenue net
premiums from the life insurance business in SLF U.S. that was closed
to new sales effective December 30, 2011. This adjustment has been
removed this quarter and prior periods have been restated to reflect
this change. For additional information, see Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
Revenue was $6.5 billion in the first quarter of 2014, compared to $3.8
billion in the first quarter of 2013. Revenues increased primarily as a
result of net gains in the fair value of FVTPL assets and liabilities
compared to net losses in the same period last year, higher investment
income in SLF Canada and SLF U.S., increased fee income in MFS and
improved net premium revenue in Individual Insurance & Wealth in SLF
Canada and Group Benefits in SLF U.S. Adjusted revenue was $5.8 billion
in the first quarter of 2014, compared to $5.3 billion in the first
quarter of 2013. The increase was primarily due to higher investment
income in SLF Canada and SLF U.S., increased fee income in MFS and
higher net premium revenue in Individual Insurance & Wealth in SLF
Canada and Group Benefits in SLF U.S.
Premiums and Deposits from Continuing Operations
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
Premiums and Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue
|
|
|
|
2,228
|
|
|
2,824
|
|
|
2,408
|
|
|
2,374
|
|
|
2,033
|
|
|
Segregated fund deposits
|
|
|
|
2,576
|
|
|
1,917
|
|
|
2,227
|
|
|
2,169
|
|
|
2,157
|
|
|
Mutual fund sales(1)(2)
|
|
|
|
18,567
|
|
|
14,679
|
|
|
16,242
|
|
|
17,570
|
|
|
16,539
|
|
|
Managed fund sales(1)
|
|
|
|
7,579
|
|
|
9,778
|
|
|
11,410
|
|
|
10,508
|
|
|
8,269
|
|
|
ASO premium and deposit equivalents(1)
|
|
|
|
1,760
|
|
|
1,551
|
|
|
1,460
|
|
|
1,487
|
|
|
1,475
|
|
Total premiums and deposits(1)
|
|
|
|
32,710
|
|
|
30,749
|
|
|
33,747
|
|
|
34,108
|
|
|
30,473
|
|
Total adjusted premiums and deposits(1)(3)
|
|
|
|
31,646
|
|
|
30,903
|
|
|
34,107
|
|
|
34,801
|
|
|
31,613
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(2) Includes Birla Sun Life Asset Management Company's equity and fixed
income mutual funds based on our proportionate equity interest. Prior
periods have been restated to reflect this change.
|
(3) Excludes the impact of foreign exchange and reinsurance for the insured
business in SLF Canada's GB operations. Adjusted premiums and deposits
in prior disclosures removed from total premiums and deposits net
premiums from the life insurance business in SLF U.S. that was closed
to new sales effective December 30, 2011. This adjustment has been
removed this quarter and prior periods have been restated to reflect
this change.
|
Premiums and deposits were $32.7 billion in the first quarter of 2014, compared to $30.5
billion in the first quarter of 2013, primarily as a result of higher
mutual fund sales in MFS and segregated fund deposits in SLF Canada,
partially offset by lower managed fund sales in MFS. Adjusted premiums
and deposits of $31.6 billion in the first quarter of 2014, largely unchanged from
the first quarter of 2013.
Net premium revenue from life, health and annuity products, which
represents gross premiums less amounts ceded to reinsurers, were $2.2
billion in the first quarter of 2014, compared to $2.0 billion in the
first quarter of 2013, mainly attributable to increases in Individual
Insurance & Wealth in SLF Canada and Group Benefits in SLF U.S.
Segregated fund deposits were $2.6 billion in the first quarter of 2014,
compared to $2.2 billion in the first quarter of 2013, driven by higher
deposits in GRS in SLF Canada.
Sales of mutual funds increased $2.0 billion and sales of managed funds
decreased by $0.7 billion in the first quarter of 2014 compared to the
first quarter of 2013, both driven by sales in MFS.
ASO premium and deposit equivalents of $1.8 billion in the first quarter
of 2014 were up $285 million from the first quarter of 2013, largely
due to increases in GRS in SLF Canada.
Sales from Continuing Operations
($ millions)
|
|
|
|
|
|
|
|
|
|
|
Q1'14
|
|
|
Q1'13
|
|
Life and health sales(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF Canada(2)
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
192
|
|
|
SLF U.S.(3)
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
70
|
|
|
SLF Asia(4)
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
105
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth sales(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF Canada(2)
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
|
2,008
|
|
|
SLF U.S.(3)
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
313
|
|
|
SLF Asia(5)
|
|
|
|
|
|
|
|
|
|
|
1,350
|
|
|
2,021
|
|
|
Total (excluding MFS)
|
|
|
|
|
|
|
|
|
|
|
5,774
|
|
|
4,342
|
|
|
MFS
|
|
|
|
|
|
|
|
|
|
|
24,641
|
|
|
22,727
|
|
|
Total wealth sales
|
|
|
|
|
|
|
|
|
|
|
30,415
|
|
|
27,069
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2) SLF Canada life and health sales includes sales from individual
insurance and GB. SLF Canada wealth sales includes sales from
individual wealth and GRS.
|
(3) SLF U.S. life and health sales includes Group Benefits and life sales in
International. SLF U.S. wealth sales includes investment product sales
in International. Prior period life and health sales has been restated.
|
(4) Includes the individual life and health sales from joint ventures in
the Philippines, Indonesia, India, China, Malaysia and Vietnam based on
our proportionate equity interest. Prior period has been restated to
reflect this change.
|
(5) Includes Hong Kong wealth sales, Philippines mutual fund sales, group
wealth sales from the India and China insurance companies and Birla Sun
Life Asset Management Company's equity and fixed income mutual fund
sales based on our proportionate equity interest. Prior period has been
restated to reflect this change.
|
Total Company life and health sales were $435 million in the first
quarter of 2014, compared to $367 million in the same period last year.
-
SLF Canada life and health sales were $237 million in the first quarter
of 2014, compared to $192 million in the first quarter of 2013,
primarily due to increased sales volume in the GB large case market and
higher individual insurance sales driven by wholesale channels
-
SLF U.S. life and health sales were $96 million in the first quarter of
2014, compared to $70 million in the first quarter of 2013, driven by
increased employee group benefits and voluntary benefits sales in Group
Benefits and individual insurance products in International
-
SLF Asia life and health sales were $102 million in the first quarter of
2014, compared to $105 million in the first quarter of 2013, as lower
sales in the Philippines, India and China were partially offset by the
addition of Malaysia and higher sales in Hong Kong and Indonesia.
Total Company wealth sales were $30.4 billion in the first quarter of
2014, compared to $27.1 billion in the same period last year.
-
SLF Canada wealth sales were $4.2 billion in the first quarter of 2014,
compared to $2.0 billion in the first quarter of 2013, mainly
reflecting higher new sales in the large case market in GRS and
improved sales of mutual funds and guaranteed products in individual
wealth
-
SLF U.S. wealth sales were $211 million in the first quarter of 2014,
compared to $313 million in the first quarter of 2013, due to lower
international investment product sales
-
SLF Asia wealth sales were $1.4 billion in the first quarter of 2014,
compared to $2.0 billion in the first quarter of 2013, primarily due to
lower mutual and managed fund sales in India, the Philippines and Hong
Kong
-
MFS gross sales were $24.6 billion in the first quarter of 2014,
compared to $22.7 billion in the first quarter of 2013, largely driven
by higher retail mutual fund sales and foreign currency movements,
partially offset by lower managed fund sales.
Assets Under Management
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 $671.1 billion as at March 31, 2014, compared to $639.8 billion as
at December 31, 2013. The increase in AUM of $31.3 billion between
December 31, 2013 and March 31, 2014 resulted primarily from:
(i)
|
an increase of $21.3 billion from the weakening of the Canadian dollar
against foreign currencies compared to the prior period exchange rates;
|
(ii)
|
favourable market movements in the value of mutual funds, managed funds
and segregated funds of $7.3 billion;
|
(iii)
|
net sales of mutual, managed and segregated funds of $5.0 billion;
|
(iv)
|
an increase of $1.6 billion from the change in value of FVTPL assets and
liabilities; and
|
(v)
|
business growth of $0.3 billion; partially offset by
|
(vi)
|
a net decrease of $4.2 billion resulting from the inclusion of the AUM
of our joint venture investments in SLF Asia based on our proportionate
equity interest.
|
Changes in the Statements of Financial Position and in Shareholders'
Equity
Total general fund assets were $128.2 billion as at March 31, 2014,
compared to $123.4 billion as at December 31, 2013. The increase in
general fund assets from December 31, 2013 was primarily a result of
currency movements of $2.9 billion, $1.6 billion from the change in
value of FVTPL assets and business growth of $0.3 billion.
Insurance contract liabilities (excluding other policy liabilities and
assets) of $87.1 billion as at March 31, 2014 increased by $3.7 billion
compared to December 31, 2013, mainly due to increases in balances on
in-force policies (which includes fair value changes on FVTPL assets
supporting insurance contract liabilities), the impact from currency
movements and balances arising from new policies, partially offset by
method and assumption changes.
Shareholders' equity including preferred share capital, was $17.8
billion as at March 31, 2014, compared to $17.2 billion as at
December 31, 2013. The $0.6 billion increase in shareholders' equity
was primarily due to:
(i)
|
shareholders' net income of $429 million in 2014, before preferred share
dividends of $29 million;
|
(ii)
|
an increase of $331 million from the weakening of the Canadian dollar
relative to foreign currencies;
|
(iii)
|
net unrealized gains on AFS assets in other comprehensive income ("OCI")
of $91 million; and
|
(iv)
|
proceeds of $22 million from the issuance of common shares through the
dividend reinvestment and share purchase plan, $15 million from stock
options exercised and $2 million from stock-based compensation;
partially offset by
|
(v)
|
changes in liabilities for defined benefit plans of $47 million; and
|
(vi)
|
common share dividend payments of $220 million.
|
As at May 2, 2014, Sun Life Financial Inc. had 610.6 million common
shares and 102.2 million preferred shares outstanding.
Cash Flows
|
|
|
|
|
|
Quarterly results
|
($ millions)
|
|
|
|
|
|
Q1'14
|
|
|
Q1'13
|
|
Net cash and cash equivalents, beginning of period
|
|
|
|
|
|
3,324
|
|
|
3,831
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
167
|
|
|
972
|
|
Investing activities
|
|
|
|
|
|
(4)
|
|
|
(36)
|
|
Financing activities
|
|
|
|
|
|
(906)
|
|
|
(200)
|
|
Changes due to fluctuations in exchange rates
|
|
|
|
|
|
91
|
|
|
(23)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
(652)
|
|
|
713
|
|
Net cash and cash equivalents, end of period
|
|
|
|
|
|
2,672
|
|
|
4,544
|
|
Short-term securities, end of period
|
|
|
|
|
|
3,261
|
|
|
2,722
|
|
Net cash, cash equivalents and short-term securities
|
|
|
|
|
|
5,933
|
|
|
7,266
|
|
Less: Net cash and cash equivalents and short-term securities,
classified as held for sale
|
|
|
|
|
|
|
|
|
566
|
|
Net cash, cash equivalents and short-term securities from Continuing
Operations
|
|
|
|
|
|
|
|
|
6,700
|
|
Net cash, cash equivalents and short-term securities were $5.9 billion
at the end of the first quarter of 2014, compared to $7.3 billion at
the end of the first quarter of 2013.
Cash provided by operating activities was $805 million lower in the
first quarter of 2014 than the same period last year, primarily due to
the net purchase of investments in the first quarter of 2014 compared
to net sales of investments in the first quarter of 2013.
Cash used in investing activities was $4 million in the first quarter of
2014, down $32 million from the first quarter of 2013 reflecting cash
received on the sale of our U.S. Annuity Business in the first quarter
of 2014, partially offset by investment in joint ventures.
Cash used in financing activities increased to $906 million in the first
quarter of 2014, compared to $200 million in the first quarter of 2013
largely attributable to the redemption of $500 million of subordinated
debentures in the first quarter of 2014.
Quarterly Financial Results
The following table provides a summary of our results for the eight most
recently completed quarters. Results from the fourth quarter of 2012
are presented on a Continuing Operations basis, and earlier quarters on
a Combined Operations basis. A more complete discussion of our
historical quarterly results can be found in our interim and annual
MD&As for the relevant periods.
|
|
|
-----------------------------Continuing
Operations-----------------------------
|
Combined Operations
|
($ millions, unless otherwise noted)
|
|
|
Q1'14
|
|
|
Q4'13
|
|
|
Q3'13
|
|
|
Q2'13
|
|
|
Q1'13
|
|
|
Q4'12
|
|
|
Q3'12
|
|
Q2'12
|
|
Common shareholders' net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
|
|
454
|
|
|
642
|
|
|
422
|
|
|
431
|
|
|
448
|
|
|
333
|
|
|
401
|
|
98
|
|
|
Reported
|
|
|
400
|
|
|
571
|
|
|
324
|
|
|
391
|
|
|
410
|
|
|
284
|
|
|
383
|
|
90
|
|
|
Underlying(1)
|
|
|
440
|
|
|
375
|
|
|
448
|
|
|
373
|
|
|
385
|
|
|
310
|
|
|
n/a
|
|
n/a
|
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
|
|
0.74
|
|
|
1.05
|
|
|
0.69
|
|
|
0.71
|
|
|
0.75
|
|
|
0.56
|
|
|
0.68
|
|
0.17
|
|
|
Reported
|
|
|
0.65
|
|
|
0.93
|
|
|
0.53
|
|
|
0.64
|
|
|
0.68
|
|
|
0.47
|
|
|
0.64
|
|
0.15
|
|
|
Underlying(1)
|
|
|
0.72
|
|
|
0.61
|
|
|
0.74
|
|
|
0.62
|
|
|
0.64
|
|
|
0.52
|
|
|
n/a
|
|
n/a
|
|
Basic Reported EPS ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
0.66
|
|
|
0.94
|
|
|
0.53
|
|
|
0.65
|
|
|
0.68
|
|
|
0.48
|
|
|
0.64
|
|
0.15
|
|
Operating net income (loss) by segment(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SLF Canada(1)
|
|
|
238
|
|
|
137
|
|
|
215
|
|
|
210
|
|
|
263
|
|
|
149
|
|
|
221
|
|
186
|
|
|
SLF U.S.(1)
|
|
|
77
|
|
|
341
|
|
|
105
|
|
|
126
|
|
|
65
|
|
|
93
|
|
|
18
|
|
(148)
|
|
|
MFS(1)
|
|
|
147
|
|
|
156
|
|
|
120
|
|
|
104
|
|
|
101
|
|
|
85
|
|
|
80
|
|
68
|
|
|
SLF Asia(1)
|
|
|
32
|
|
|
42
|
|
|
18
|
|
|
46
|
|
|
51
|
|
|
50
|
|
|
35
|
|
15
|
|
|
Corporate(1)
|
|
|
(40)
|
|
|
(34)
|
|
|
(36)
|
|
|
(55)
|
|
|
(32)
|
|
|
(44)
|
|
|
47
|
|
(23)
|
|
Total operating net income (loss)(1)
|
|
|
454
|
|
|
642
|
|
|
422
|
|
|
431
|
|
|
448
|
|
|
333
|
|
|
401
|
|
98
|
|
(1) Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
Continuing Operations
Fourth Quarter 2013
Operating net income from Continuing Operations of $642 million in the
fourth quarter of 2013 reflected $290 million of income from a
management action related to the restructuring of an internal
reinsurance arrangement. Net income from Continuing Operations also
reflected favourable impacts from equity markets, interest rates and
swap spread movements, and positive fair value movements of real
estate. These were partially offset by unfavourable basis risk and
credit spread movements. Investment activity on insurance contract
liabilities and credit experience were more than offset by unfavourable
experience from expenses, comprised mostly of seasonal costs, lapse and
other policyholder behaviour, and mortality and morbidity.
Third Quarter 2013
Operating net income from Continuing Operations was $422 million in the
third quarter of 2013. Net income from Continuing Operations in the
third quarter of 2013 reflected favourable impacts from improved equity
markets and interest rates and gains from assumption changes driven by
capital market movements. These were partially offset by negative
impacts from basis risk and credit and swap spread movements.
Non-capital market related assumption changes and management actions in
the quarter resulted in a $111 million charge to income.
Second Quarter 2013
Operating net income from Continuing Operations was $431 million in the
second quarter of 2013. Net income from Continuing Operations in the
second quarter of 2013 reflected favourable impacts from interest rates
and credit spread movements. These gains were partially offset by
unfavourable impact of declines in assumed fixed income reinvestment
rates in our insurance contract liabilities, and negative impacts of
equity markets and swap spread movements. Positive impacts from credit,
mortality and morbidity experience were partially offset by lapse and
other policyholder behaviour and other experience factors.
First Quarter 2013
Operating net income from Continuing Operations of $448 million in the
first quarter of 2013 reflected favourable impacts from equity markets,
basis risk, interest rates and credit spread movements and increases in
the fair value of real estate classified as investment properties,
partially offset by negative impact from swap spread movements. Gains
from investment activity on insurance contract liabilities and positive
impacts from mortality, morbidity and credit experience were partially
offset by unfavourable lapse and other policyholder behaviour and
expense experience.
Fourth Quarter 2012
Operating net income from Continuing Operations of $333 million in the
fourth quarter of 2012 reflected favourable impacts from equity markets
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.
Combined Operations
Third Quarter 2012
Operating net income of $401 million in the third quarter of 2012
reflected the positive impact of improved equity markets, partially
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 negative impact from credit spread
movements.
Second Quarter 2012
The operating net income of $98 million in the second quarter of 2012
reflected the impact of weak macro economic conditions, in particular
declining interest rates and equity markets. These losses were
partially offset by the favourable impact of investment activity on
insurance contract liabilities due to investment in higher yielding and
longer dated debt securities, the positive impact from credit spread
and swap spread movements and net realized gains on sales of AFS
securities.
Investments
We had total general fund invested assets of $114.0 billion as at
March 31, 2014, compared to $109.6 billion as at December 31, 2013. The
increase in general fund invested assets of $4.4 billion was primarily
a result of changes in fair value and foreign currency movement. The
majority of our general fund is invested in medium- to long-term fixed
income instruments, such as debt securities, mortgages and loans, with
85.1% of the general fund assets invested in cash and fixed income
investments. Equity securities and investment properties represented
4.4% and 5.4% of the portfolio, respectively. The remaining 5.1% of the
portfolio is comprised of policy loans, derivative assets and other
invested assets.
The following table sets out the composition of our invested assets.(1)
|
|
|
|
|
March 31, 2014
|
December 31, 2013
|
($ millions)
|
|
|
|
|
Carrying
value
|
|
|
% of total
carrying
value
|
|
|
Carrying
value
|
|
|
% of total
carrying
value
|
Cash, cash equivalents and short-term securities
|
|
|
|
|
6,075
|
|
|
5.3 %
|
|
|
7,636
|
|
|
7.0 %
|
Debt securities - FVTPL
|
|
|
|
|
47,468
|
|
|
41.6 %
|
|
|
43,662
|
|
|
39.7 %
|
Debt securities - AFS
|
|
|
|
|
12,299
|
|
|
10.8 %
|
|
|
11,151
|
|
|
10.2 %
|
Equity securities - FVTPL
|
|
|
|
|
4,197
|
|
|
3.7 %
|
|
|
4,342
|
|
|
4.0 %
|
Equity securities - AFS
|
|
|
|
|
831
|
|
|
0.7 %
|
|
|
852
|
|
|
0.8 %
|
Mortgages and loans
|
|
|
|
|
31,211
|
|
|
27.4 %
|
|
|
30,313
|
|
|
27.6 %
|
Derivative assets
|
|
|
|
|
978
|
|
|
0.9 %
|
|
|
948
|
|
|
0.9 %
|
Other invested assets
|
|
|
|
|
2,068
|
|
|
1.8 %
|
|
|
1,855
|
|
|
1.7 %
|
Policy loans
|
|
|
|
|
2,797
|
|
|
2.4 %
|
|
|
2,792
|
|
|
2.5 %
|
Investment properties
|
|
|
|
|
6,104
|
|
|
5.4 %
|
|
|
6,092
|
|
|
5.6 %
|
Total invested assets
|
|
|
|
|
114,028
|
|
|
100 %
|
|
|
109,643
|
|
|
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.
|
Debt Securities
As at March 31, 2014, we held $59.8 billion of debt securities, which
represented 52.4% of our overall investment portfolio. Debt securities
with an investment grade of "A" or higher represented 67.0% of the
total debt securities as at March 31, 2014, compared to 67.5% as at
December 31, 2013. Debt securities rated "BBB" or higher represented
97.1% of total debt securities as at March 31, 2014, compared to 97.0%
as at December 31, 2013.
Corporate debt securities that are not issued or guaranteed by
sovereign, regional and municipal governments represented 66.5% of our
total debt securities as at March 31, 2014, which is consistent with
December 31, 2013. Total government issued or guaranteed debt
securities as at March 31, 2014 were $20.0 billion, compared to $18.4
billion as at December 31, 2013. Our exposure to debt securities to any
single country does not exceed 1% of total assets on our Consolidated
Statements of Financial Position as at March 31, 2014 with the
exception of certain countries where we have business operations,
including Canada, the United States, the United Kingdom and the
Philippines. As outlined in the table below, we have an immaterial
amount of direct exposure to Eurozone sovereign credits.
Debt Securities of Governments and Financial Institutions by Geography
|
March 31, 2014
|
December 31, 2013
|
($ millions)
|
Government issued or
guaranteed
|
|
|
Financials
|
|
|
Government issued or
guaranteed
|
|
|
Financials
|
Canada
|
13,239
|
|
|
1,921
|
|
|
11,893
|
|
|
1,740
|
United States
|
1,537
|
|
|
5,322
|
|
|
1,462
|
|
|
4,761
|
United Kingdom
|
2,146
|
|
|
1,855
|
|
|
2,000
|
|
|
1,652
|
Philippines
|
2,297
|
|
|
19
|
|
|
2,290
|
|
|
4
|
Eurozone
|
|
|
|
|
|
|
|
|
|
|
|
France
|
18
|
|
|
105
|
|
|
17
|
|
|
85
|
|
Germany
|
156
|
|
|
48
|
|
|
151
|
|
|
46
|
|
Italy
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Netherlands
|
3
|
|
|
501
|
|
|
3
|
|
|
478
|
|
Spain
|
—
|
|
|
177
|
|
|
—
|
|
|
74
|
|
Residual Eurozone(1)
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
Other(1)
|
606
|
|
|
1,417
|
|
|
556
|
|
|
1,234
|
Total
|
20,003
|
|
|
11,379
|
|
|
18,373
|
|
|
10,087
|
(1) $296 million of debt securities issued by financial institutions as at
December 31, 2013 that were previously classified as Residual Eurozone
have been reclassified to Other, and balances as at March 31, 2014 have
been presented on a consistent basis.
|
Our gross unrealized losses as at March 31, 2014 for FVTPL and AFS debt
securities were $0.64 billion and $0.06 billion, respectively, compared
with $1.17 billion and $0.13 billion, respectively, as at December 31,
2013. Gross unrealized losses as at March 31, 2014 included $0.01
billion related to Eurozone sovereign and financial debt securities.
Our debt securities as at March 31, 2014 included $11.4 billion invested
in the financial sector, representing approximately 19.0% of our total
debt securities, or 10.0% of our total invested assets. This compares
to $10.1 billion, or 18.4%, of the debt security portfolio as at
December 31, 2013.
Our debt securities as at March 31, 2014 included $3.9 billion of
asset-backed securities reported at fair value, representing
approximately 6.5% of our debt securities, or 3.4% of our total
invested assets. This was $0.3 billion higher than the level reported
as at December 31, 2013.
Mortgages and Loans
Mortgages and loans disclosures in this section are presented at their
carrying value on our Consolidated Statements of Financial Position. As
at March 31, 2014, we had a total of $31.2 billion in mortgages and
loans compared to $30.3 billion as at December 31, 2013. Our mortgage
portfolio, which consists almost entirely of first mortgages, was $12.7
billion. Our loan portfolio, which consists of private placement
assets, was $18.5 billion. The carrying value of mortgages and loans by
geographic location is set out in the following table. The geographic
location for mortgages is based on location of the property, while for
loans it is based on the country of the creditor's parent.
Mortgages and Loans by Geography
|
|
|
|
March 31, 2014
|
December 31, 2013
|
($ millions)
|
|
|
|
Mortgages
|
|
|
Loans
|
|
|
Total
|
|
|
Mortgages
|
|
|
Loans
|
|
|
Total
|
|
Canada
|
|
|
|
7,508
|
|
|
11,655
|
|
|
19,163
|
|
|
7,539
|
|
|
11,296
|
|
|
18,835
|
|
United States
|
|
|
|
5,221
|
|
|
4,502
|
|
|
9,723
|
|
|
4,981
|
|
|
4,252
|
|
|
9,233
|
|
United Kingdom
|
|
|
|
1
|
|
|
519
|
|
|
520
|
|
|
7
|
|
|
504
|
|
|
511
|
|
Other
|
|
|
|
—
|
|
|
1,805
|
|
|
1,805
|
|
|
—
|
|
|
1,734
|
|
|
1,734
|
|
Total
|
|
|
|
12,730
|
|
|
18,481
|
|
|
31,211
|
|
|
12,527
|
|
|
17,786
|
|
|
30,313
|
|
As at March 31, 2014, our mortgage portfolio consisted mainly of
commercial mortgages, spread across approximately 2,600 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 55%. The estimated weighted
average debt service coverage is 1.65 times, which is consistent with
December 31, 2013. The Canada Mortgage and Housing Corporation insures
21.6% of the Canadian commercial mortgage portfolio.
In the United States, there continues to be strong demand from both
tenants and capital sources for institutional quality properties
located within core real estate markets. Lower quality properties in
secondary and tertiary markets are beginning to show initial signs of
improvement.
As at March 31, 2014, we held $18.5 billion of corporate loans, $0.7
billion higher than the balance reported as at December 31, 2013. In
the current low interest rate environment, our strategy is to continue
to focus our efforts on the origination of new private placement
assets. Private placement assets provide diversification by type of
loan, industry segment and borrower credit quality. The loan portfolio
is comprised of senior secured and unsecured loans to large and
mid-market sized corporate borrowers, securitized lease/loan
obligations secured by a variety of assets and project finance loans in
sectors such as power and infrastructure.
Mortgages and Loans Past Due or Impaired
|
March 31, 2014
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
Not past due
|
12,613
|
|
18,461
|
|
31,074
|
|
—
|
|
—
|
|
—
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
21
|
|
—
|
|
21
|
|
—
|
|
—
|
|
—
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Impaired
|
145
|
|
36
|
|
181
|
|
49(1)
|
|
16
|
|
65
|
Total
|
12,779
|
|
18,497
|
|
31,276
|
|
49
|
|
16
|
|
65
|
|
|
|
December 31, 2013
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
Mortgages
|
|
Loans
|
|
Total
|
Not past due
|
12,428
|
|
17,767
|
|
30,195
|
|
—
|
|
—
|
|
—
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
5
|
|
—
|
|
5
|
|
—
|
|
—
|
|
—
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Impaired
|
141
|
|
35
|
|
176
|
|
47(1)
|
|
16
|
|
63
|
Total
|
12,574
|
|
17,802
|
|
30,376
|
|
47
|
|
16
|
|
63
|
(1) Includes $25 million of sectoral provisions as at March 31, 2014 and
$24 million of sectoral provisions as at December 31, 2013.
|
Impaired mortgages and loans, net of allowance for losses, amounted to
$116 million as at March 31, 2014, $3 million higher than the
December 31, 2013 level for these assets. The net carrying value of
impaired mortgages amounted to $96 million as at March 31, 2014, $2
million higher than December 31, 2013. The majority of this net
increase is related to foreign exchange fluctuations. The allowance for
losses related to impaired mortgages amounted to $49 million as at
March 31, 2014, $2 million higher than December 31, 2013. The sectoral
provision related to mortgages included in the allowance for losses
increased by $1 million to $25 million also due to foreign currency
fluctuations. The majority of 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.
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. Our asset
default provision as at March 31, 2014 was $1,676 million compared to
$1,564 million as at December 31, 2013. The increase of $112 million
was primarily due to increases in the provision for assets purchased
net of dispositions, increases in the fair value of assets supporting
our insurance contract liabilities and foreign currency impacts due to
the weakening of the Canadian dollar, partially offset by the release
of provisions on fixed income assets supporting our insurance contract
liabilities.
Derivative Financial Instruments
The values of our derivative instruments are set out in the following
table. The use of derivatives is measured in terms of notional amounts,
which serve as the basis for calculating payments and are generally not
actual amounts that are exchanged.
Derivative Instruments
($ millions)
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
Net fair value
|
|
|
|
|
|
|
(176)
|
|
|
9
|
|
Total notional amount
|
|
|
|
|
|
|
44,846
|
|
|
43,343
|
|
Credit equivalent amount
|
|
|
|
|
|
|
616
|
|
|
659
|
|
Risk-weighted credit equivalent amount
|
|
|
|
|
|
|
6
|
|
|
6
|
|
The total notional amount of derivatives in our portfolio increased to
$44.8 billion as at March 31, 2014, from $43.3 billion at the end of
2013. This increase is attributable to an increase of $817 million in
interest rate contracts, an increase of $499 million of currency
contracts, an increase of $80 million in equity contracts and an
increase of $107 million in other contracts. The net fair value of
derivatives decreased to a liability position of $176 million as at
March 31, 2014, from an asset of $9 million at the end of 2013. This
decrease was primarily due to the depreciation of the Canadian dollar
on our currency contract portfolio, partially offset by increases in
fair value on our interest rate portfolio due to a decline in interest
rates.
Capital Management
Our capital base consists mainly of common shareholders' equity,
preferred shareholders' equity and subordinated debt. As at March 31,
2014, our total capital was $20.6 billion, up from $20.5 billion as at
December 31, 2013. The increase in total capital was primarily the
result of common shareholders' net income of $400 million, other
comprehensive income of $372 million partially offset by common
shareholders' dividends (net of the dividend reinvestment and share
repurchase plan) of $198 million and the redemption of subordinated
debt noted below.
The legal entity, SLF Inc. (the ultimate parent company) and its wholly
owned holding companies had $1,492 million in cash and other liquid
assets as at March 31, 2014 ($2,143 million as at December 31, 2013).
The decrease in liquid assets held in SLF Inc. in the quarter was
largely attributable to the redemption of $500 million of Series 2009-1
subordinated debentures noted below. Liquid assets as noted above,
include cash and cash equivalents, short-term investments, and publicly
traded securities, and exclude cash from short-term loans.
On March 31, 2014, we completed the redemption of all of our outstanding
$500 million principal amount of Series 2009-1 subordinated unsecured
7.90% Fixed/Floating Debentures due 2019.
Today, SLF Inc. announced its intention to redeem all of its $250
million Class A Non-Cumulative 5-Year Rate Reset Preferred Shares
Series 6R on June 30, 2014.
Sun Life Assurance's MCCSR ratio was 221% as at March 31, 2014, compared
to 219% as at December 31, 2013. MCCSR increased in the first quarter
of 2014 as a result of strong earnings net of dividends to SLF Inc.
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, liquidity risk and business 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.
When referring to segregated funds in this section, 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 Consolidated 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. 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 value during the
current period up to the point of sale for those securities that were
sold during the period. The sale or impairment of AFS assets held in
surplus can therefore have the effect of modifying our net income
sensitivity.
During the first quarter of 2014, we realized $57 million (pre-tax) in
net gains on the sale and impairment of AFS assets. At March 31, 2014,
the net unrealized gains or OCI position on AFS fixed income and equity
assets was $249 million and $171 million, respectively, after-tax.
The following table sets out the estimated immediate impact or
sensitivity of our net income from Continuing Operations, OCI and Sun
Life Assurance's MCCSR ratio to certain instantaneous changes in
interest rates and equity market prices as at March 31, 2014 and
December 31, 2013.
Interest Rate and Equity Market Sensitivities
As at March 31, 2014(1)
($ millions, unless otherwise noted)
|
|
|
|
|
|
Interest rate sensitivity(2)(7)
|
100 basis point
decrease
|
|
50 basis point
decrease
|
|
50 basis point
increase
|
|
100 basis point
increase
|
|
Potential impact on net income(3)(7)
|
$
|
(250)
|
|
$
|
(100)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on OCI(4)
|
$
|
400
|
|
$
|
200
|
|
$
|
(200)
|
|
$
|
(350)
|
|
Potential impact on MCCSR(5)
|
5% points
decrease
|
|
2% points
decrease
|
|
2% points
increase
|
|
3% points
increase
|
|
|
|
|
|
|
|
|
|
|
|
Equity markets sensitivity(6)
|
25% decrease
|
|
10% decrease
|
|
10% increase
|
|
25% increase
|
|
Potential impact on net income(3)
|
$
|
(250)
|
|
$
|
(100)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on OCI(4)
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on MCCSR(5)
|
11% points
decrease
|
|
4% points
decrease
|
|
2% points
increase
|
|
4% points
increase
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2013(1)
($ millions, unless otherwise noted)
|
|
|
|
|
|
|
|
|
Interest rate sensitivity(2)(7)
|
100 basis point
decrease
|
|
50 basis point
decrease
|
|
50 basis point
increase
|
|
100 basis point
increase
|
|
Potential impact on net income(3)(7)
|
$
|
(300)
|
|
$
|
(100)
|
|
$
|
100
|
|
$
|
150
|
|
Potential impact on OCI(4)
|
$
|
350
|
|
$
|
200
|
|
$
|
(150)
|
|
$
|
(350)
|
|
Potential impact on MCCSR(5)
|
5% points
decrease
|
|
2% points
decrease
|
|
2% points
increase
|
|
3% points
increase
|
|
|
|
|
|
|
|
|
|
|
|
Equity markets sensitivity(6)
|
25% decrease
|
|
10% decrease
|
|
10% increase
|
|
25% increase
|
|
Potential impact on net income(3)
|
$
|
(250)
|
|
$
|
(100)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on OCI(4)
|
$
|
(150)
|
|
$
|
(50)
|
|
$
|
50
|
|
$
|
150
|
|
Potential impact on MCCSR(5)
|
10% points
decrease
|
|
4% points
decrease
|
|
2% points
increase
|
|
3% points
increase
|
|
|
|
|
|
|
|
|
|
|
(1) 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 March 31, 2014 and December 31, 2013. 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 March 31, 2014 and December 31,
2013, and include new business added and product changes implemented
prior to such dates.
|
(4) 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.
|
(5) The MCCSR sensitivities illustrate the impact on Sun Life Assurance as
at March 31, 2014 and December 31, 2013. This excludes the impact on
assets and liabilities that are in SLF Inc. but not included in Sun
Life Assurance. MCCSR sensitivities reflect the impact of IAS 19 Employee Benefits and its phase-in impact on available capital.
|
(6) Represents the respective change across all equity markets as at March
31, 2014 and December 31, 2013. 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).
|
(7) The majority of interest rate sensitivity, after hedging, is attributed
to individual insurance. We also have interest rate sensitivity, after
hedging, from our fixed annuity and segregated funds products.
|
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 our liability and asset valuations
(including 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 and liability valuations.
Credit Spread Sensitivities ($ millions, after-tax)
Net income sensitivity(1)
|
|
|
|
|
50 basis point decrease
|
|
|
50 basis point increase
|
March 31, 2014
|
|
|
|
|
(100)
|
|
|
100
|
December 31, 2013
|
|
|
|
|
(100)
|
|
|
100
|
(1) In most instances, credit spreads are assumed to revert to long-term
actuarial liability assumptions generally over a five-year period.
|
Swap Spread Sensitivities ($ millions, after-tax)
Net income sensitivity
|
|
|
|
|
20 basis point decrease
|
|
|
20 basis point increase
|
March 31, 2014
|
|
|
|
|
50
|
|
|
(50)
|
December 31, 2013
|
|
|
|
|
50
|
|
|
(50)
|
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 asset positions held in segregated funds.
Spread sensitivities are provided for the consolidated entity and may
not be proportional across all reporting segments. 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 expected 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. Major sources of market risk
exposure for individual insurance products are the reinvestment risk
related to future premiums on regular premium policies, asset
reinvestment risk on both regular premium and single premium policies,
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 policy or
guidelines. Targets and limits are established so that the level of
residual exposure is commensurate with our risk appetite. Exposures are
monitored frequently, and assets are re-balanced 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 appetite. Exposures are
monitored frequently, and are re-balanced 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
policyholders 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 half of our expected sensitivity to equity market risk
and a small amount of interest rate risk sensitivity 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.
March 31, 2014
|
($ millions)
|
|
Fund value
|
|
Amount at risk(1)
|
|
Value of
guarantees(2)
|
|
Insurance contract
liabilities(3)
|
SLF Canada
|
|
13,236
|
|
185
|
|
11,188
|
|
7
|
SLF U.S.
|
|
5,005
|
|
214
|
|
4,944
|
|
60
|
Run-off reinsurance(4)
|
|
2,821
|
|
509
|
|
2,062
|
|
488
|
Total
|
|
21,062
|
|
908
|
|
18,194
|
|
555
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
($ millions)
|
|
Fund value
|
|
Amount at risk(1)
|
|
Value of
guarantees(2)
|
|
Insurance contract
liabilities(3)
|
SLF Canada
|
|
12,987
|
|
255
|
|
11,271
|
|
(20)
|
SLF U.S.
|
|
4,793
|
|
206
|
|
4,716
|
|
52
|
Run-off reinsurance(4)
|
|
2,792
|
|
482
|
|
2,018
|
|
442
|
Total
|
|
20,572
|
|
943
|
|
18,005
|
|
474
|
(1) 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.
|
(2) 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.
|
(3) 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.
|
(4) 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.
|
The movement of the items in the table above from December 31, 2013 to
March 31, 2014 was primarily as a result of the following factors:
(i)
|
fund values increased due to favourable equity market movements and the
weakening of the Canadian dollar against the U.S. dollar;
|
(ii)
|
the amount at risk decreased due to favourable equity market movements;
|
(iii)
|
the total value of guarantees increased mainly due to the weakening of
the Canadian dollar and resets of policy benefits, partially offset by
natural run-off of the block;
|
(iv)
|
insurance contract liabilities increased due to unfavourable interest
rate movement and the weakening of the Canadian dollar, partially
offset by 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 March 31, 2014, 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 and we do not hedge the
value of other fee streams that do not relate to costs of hedging.
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 March 31, 2014 and December 31,
2013.
Impact of Segregated Fund Hedging
March 31, 2014
|
($ millions)
|
Changes in interest rates(3)
|
Changes in equity markets(4)
|
Net income sensitivity(1)(2)
|
50 basis point
decrease
|
100 basis point
decrease
|
10% decrease
|
25% decrease
|
Before hedging
|
(150)
|
(300)
|
(200)
|
(500)
|
Hedging impact
|
|
150
|
|
300
|
|
150
|
400
|
Net of hedging
|
|
—
|
|
—
|
|
(50)
|
(100)
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
($ millions)
|
Changes in interest rates(3)
|
Changes in equity markets(4)
|
Net income sensitivity(1)(2)
|
50 basis point
decrease
|
100 basis point
decrease
|
10% decrease
|
25% decrease
|
Before hedging
|
|
(150)
|
|
(250)
|
|
(200)
|
(500)
|
Hedging impact
|
|
150
|
|
250
|
|
150
|
|
400
|
Net of hedging
|
|
—
|
|
—
|
|
(50)
|
|
(100)
|
(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) 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 March 31, 2014. 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 March 31, 2014.
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 March 31, 2014 would decrease net
income by approximately $150 million ($150 million decrease as at
December 31, 2013). Conversely, an instantaneous 10% increase in the
value of our direct real estate investments as at March 31, 2014 would
increase net income by approximately $150 million ($150 million
increase as at December 31, 2013).
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 and OCI for 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 valuation allowances 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, 2013 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.
As these market risk sensitivities reflect an instantaneous impact on
net income, OCI and Sun Life Assurance's MCCSR ratio, they do not
include impacts over time such as the effect on fee income in our asset
management businesses.
The sensitivities reflect the composition of our assets and liabilities
as at March 31, 2014 and December 31, 2013. 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
March 31, 2014 and December 31, 2013, 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
International Swaps and Derivatives Association 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.
Legal and Regulatory Matters
Information concerning legal and regulatory matters is provided in our
annual consolidated financial statements, annual MD&A and annual AIF
for the year ended December 31, 2013.
Changes in Accounting Policies
We have adopted several new and amended IFRS standards in the current
year. For additional information, refer to Note 2 in our interim
consolidated financial statements.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable
assurance regarding the reliability of the Company's financial
reporting and the preparation of its financial statements in accordance
with IFRS.
There were no changes in the Company's internal control over financial
reporting during the period beginning on January 1, 2014 and ended on
March 31, 2014 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
Reconciliation of Non-IFRS Financial Measures
Additional information on the use of non-IFRS measures, including the
definition of operating net income (loss) and underlying net income
(loss), is available in this document under the heading Use of Non-IFRS
Financial Measures.
The following tables set out the amounts that were excluded from our
operating net income (loss), underlying net income (loss), operating
EPS and underlying EPS, and provides a reconciliation to our reported
net income (loss) and EPS based on IFRS.
Reconciliations of Select Net Income Measures
($ millions, unless otherwise noted)
|
|
|
|
|
Q1'14
|
|
Q4'13
|
|
Q3'13
|
|
Q2'13
|
|
Q1'13
|
|
Net income from Continuing Operations
|
|
|
|
|
400
|
|
571
|
|
324
|
|
391
|
|
410
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
|
|
|
|
5
|
|
17
|
|
(2)
|
|
9
|
|
14
|
|
Fair value adjustments on share-based payment awards at MFS
|
|
|
|
|
(51)
|
|
(76)
|
|
(59)
|
|
(42)
|
|
(52)
|
|
Assumption changes and management actions related to the sale of
our U.S. Annuity Business
|
|
|
|
|
—
|
|
(5)
|
|
(22)
|
|
—
|
|
—
|
|
Restructuring and other related costs
|
|
|
|
|
(8)
|
|
(7)
|
|
(15)
|
|
(7)
|
|
—
|
|
Operating net income (loss) from Continuing Operations
|
|
|
|
|
454
|
|
642
|
|
422
|
|
431
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts
|
|
|
|
|
(26)
|
|
37
|
|
57
|
|
47
|
|
51
|
|
Assumption changes and management actions
|
|
|
|
|
40
|
|
230
|
|
(83)
|
|
11
|
|
12
|
|
Underlying net income (loss) from Continuing Operations
|
|
|
|
|
440
|
|
375
|
|
448
|
|
373
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported EPS from Continuing Operations (diluted) ($)
|
|
|
|
|
0.65
|
|
0.93
|
|
0.53
|
|
0.64
|
|
0.68
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting ($)
|
|
|
|
|
0.01
|
|
0.03
|
|
—
|
|
0.01
|
|
0.02
|
|
Fair value adjustments on share-based payment awards at MFS ($)
|
|
|
|
|
(0.08)
|
|
(0.12)
|
|
(0.10)
|
|
(0.07)
|
|
(0.09)
|
|
Assumption changes and management actions related to the sale of
our U.S. Annuity Business
|
|
|
|
|
—
|
|
(0.01)
|
|
(0.04)
|
|
—
|
|
—
|
|
Restructuring and other related costs ($)
|
|
|
|
|
(0.01)
|
|
(0.01)
|
|
(0.02)
|
|
(0.01)
|
|
—
|
|
Impact of convertible securities on diluted EPS ($)
|
|
|
|
|
(0.01)
|
|
(0.01)
|
|
—
|
|
—
|
|
—
|
|
Operating EPS from Continuing Operations (diluted) ($)
|
|
|
|
|
0.74
|
|
1.05
|
|
0.69
|
|
0.71
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market related impacts ($)
|
|
|
|
|
(0.04)
|
|
0.06
|
|
0.09
|
|
0.07
|
|
0.09
|
|
Assumption changes and management actions ($)
|
|
|
|
|
0.06
|
|
0.38
|
|
(0.14)
|
|
0.02
|
|
0.02
|
|
Underlying EPS from Continuing Operations (diluted) ($)
|
|
|
|
|
0.72
|
|
0.61
|
|
0.74
|
|
0.62
|
|
0.64
|
|
Management also uses the following non-IFRS financial measures:
Return on equity. IFRS does not prescribe the calculation of ROE and therefore a
comparable measure under IFRS is not available. To determine operating
ROE and underlying ROE, operating net income (loss) from Combined
Operations and underlying net income (loss) from Combined Operations
are divided by the total weighted average common shareholders' equity
for the period, respectively.
Adjusted revenue. This measure excludes from revenue the impact of: (i) foreign exchange;
(ii) fair value changes in FVTPL assets and liabilities; and (iii)
reinsurance for the insured business in SLF Canada's GB operations.
Adjusted revenue in prior disclosures removed from revenue net premiums
from the life insurance business in SLF U.S. that was closed to new
sales effective December 30, 2011. This adjustment has been removed
this quarter and prior periods have been restated to reflect this
change. This measure is an alternative measure of revenue that provides
greater comparability across reporting periods.
|
($ millions)
|
Q1'14
|
|
Q4'13
|
|
Q3'13
|
|
Q2'13
|
|
Q1'13
|
|
Revenues
|
6,460
|
|
4,710
|
|
4,156
|
|
1,218
|
|
3,790
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
226
|
|
98
|
|
71
|
|
33
|
|
—
|
|
|
|
Fair value changes in FVTPL assets and liabilities
|
1,620
|
|
(528)
|
|
(323)
|
|
(3,356)
|
|
(348)
|
|
|
|
Reinsurance in SLF Canada's GB operations
|
(1,161)
|
|
(1,102)
|
|
(1,099)
|
|
(1,090)
|
|
(1,140)
|
|
Adjusted revenue
|
5,775
|
|
6,242
|
|
5,507
|
|
5,631
|
|
5,278
|
|
Adjusted premiums and deposits. This measure excludes from premiums and deposits the impact of: (i)
foreign exchange; and (ii) reinsurance for the insured business in SLF
Canada's GB operations. Adjusted premiums and deposits in prior
disclosures removed from total premiums and deposits net premiums from
the life insurance business in SLF U.S. that was closed to new sales
effective December 30, 2011. This adjustment has been removed this
quarter and prior periods have been restated to reflect this change.
This measure is an alternative measure of premiums and deposits that
provides greater comparability across reporting periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
Q1'14
|
|
Q4'13
|
|
Q3'13
|
|
Q2'13
|
|
Q1'13
|
|
Premiums and deposits
|
32,710
|
|
30,749
|
|
33,747
|
|
34,108
|
|
30,473
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
|
2,225
|
|
948
|
|
739
|
|
397
|
|
—
|
|
|
|
Reinsurance in SLF Canada's GB operations
|
(1,161)
|
|
(1,102)
|
|
(1,099)
|
|
(1,090)
|
|
(1,140)
|
|
Adjusted premiums and deposits
|
31,646
|
|
30,903
|
|
34,107
|
|
34,801
|
|
31,613
|
|
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,
life and health 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, the Office of the Superintendent of
Financial Institutions.
Forward-Looking Statements
From time to time, the Company makes written or oral forward-looking
statements within the meaning of certain securities laws, including the
"safe harbour" provisions of the United States Private Securities
Litigation Reform Act of 1995 and applicable Canadian securities
legislation. Forward-looking statements contained in this document
include (i) statements concerning the exposure draft issued by the
Canadian Actuarial Standards Board and the impact of the low interest
rate environment, (ii) statements relating to our strategies, (iii)
statements that are predictive in nature or that depend upon or refer
to future events or conditions, and (iv) statements 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. Forward-looking
statements include the information concerning our possible or assumed
future results of operations. 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 Actuarial Standards Update, Capital Management and Risk
Management and in SLF Inc.'s 2013 AIF under the headings Risk Factors
and the factors detailed in SLF Inc.'s other filings with Canadian and
U.S. securities regulators, which are available for review at www.sedar.com and www.sec.gov, respectively.
Factors that could cause actual results to differ materially from
expectations include, but are not limited to: economic uncertainty;
credit risks related to issuers of securities held in our investment
portfolio, debtors, structured securities, reinsurers, derivative
counterparties, other financial institutions and other entities; the
performance of equity markets; changes or volatility in interest rates
or credit/swap spreads; changes in legislation and regulations
including capital requirements and tax laws; risks in implementing
business strategies; legal and regulatory proceedings, including
inquiries and investigations; risks relating to the rate of mortality
improvement; risks relating to policyholder behaviour; risks relating
to mortality and morbidity, including the occurrence of natural or
man-made disasters, pandemic diseases and acts of terrorism; breaches
or failure of information system security and privacy, including cyber
terrorism; risks relating to our information technology infrastructure
and Internet-enabled technology; risks relating to product design and
pricing; the performance of the Company's investments and investment
portfolios managed for clients such as segregated and mutual funds;
risks relating to financial modelling errors; our dependence on
third-party relationships including outsourcing arrangements; business
continuity risks; the impact of higher-than-expected future expenses;
the ability to attract and retain employees; market conditions that
affect the Company's capital position or its ability to raise capital;
risks related to liquidity; downgrades in financial strength or credit
ratings; fluctuations in foreign currency exchange rate; the
availability, cost and effectiveness of reinsurance; 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; risk management; risks relating to estimates
and judgments used in calculating taxes; the impact of mergers,
acquisitions and divestitures; the impact of competition; 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 statements 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 first quarter 2014 financial results will be reviewed at a
conference call on Wednesday, May 7, 2014, at 1:00 p.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 Q1 results from the "Investors" section on the
home page 10 minutes prior to the start of the call. Individuals
participating in the call in a listen-only mode are encouraged to
connect via our webcast. Following the call, the webcast and
presentation will be archived and made available on the Company's
website, www.sunlife.com, until Q1 2015 period end. The conference call can also be accessed by
phone by dialing 647-788-4901 (Toronto) or 1-877-201-0168
(Canada/U.S.).
Consolidated Statements of Operations
|
For the three months ended
|
(unaudited, in millions of Canadian dollars except for per share
amounts)
|
March 31, 2014
|
March 31, 2013
|
Revenue
|
|
Premiums
|
|
|
|
Gross
|
$
|
3,638
|
$
|
3,408
|
|
|
Less: Ceded
|
|
1,410
|
|
1,375
|
|
Net
|
|
2,228
|
|
2,033
|
|
|
Net investment income (loss):
|
|
|
|
|
|
Interest and other investment income
|
|
1,489
|
|
1,237
|
|
|
Changes in fair value through profit or loss assets and liabilities
|
|
1,620
|
|
(348)
|
|
|
Net gains (losses) on available-for-sale assets
|
|
57
|
|
24
|
|
Net investment income (loss)
|
|
3,166
|
|
913
|
|
Fee income
|
|
1,066
|
|
844
|
|
Total revenue
|
|
6,460
|
|
3,790
|
|
Benefits and expenses
|
|
Gross claims and benefits paid
|
|
3,203
|
|
2,911
|
|
Increase (decrease) in insurance contract liabilities
|
|
2,229
|
|
222
|
|
Decrease (increase) in reinsurance assets
|
|
54
|
|
(107)
|
|
Increase (decrease) in investment contract liabilities
|
|
31
|
|
16
|
|
Reinsurance expenses (recoveries)
|
|
(1,325)
|
|
(1,258)
|
|
Commissions
|
|
440
|
|
389
|
|
Net transfers to (from) segregated funds
|
|
7
|
|
(2)
|
|
Operating expenses
|
|
1,123
|
|
957
|
|
Premium taxes
|
|
61
|
|
57
|
|
Interest expense
|
|
87
|
|
87
|
|
Total benefits and expenses
|
|
5,910
|
|
3,272
|
|
|
|
|
|
Income (loss) before income taxes
|
|
550
|
|
518
|
|
Less: Income tax expense (benefit)
|
|
117
|
|
85
|
Total net income (loss) from continuing operations
|
|
433
|
|
433
|
|
Less: Net income (loss) attributable to participating policyholders
|
|
4
|
|
(6)
|
Shareholders' net income (loss) from continuing operations
|
|
429
|
|
439
|
|
Less: Preferred shareholders' dividends
|
|
29
|
|
29
|
Common shareholders' net income (loss) from continuing operations
|
$
|
400
|
$
|
410
|
Common shareholders' net income (loss) from discontinued operations
|
$
|
—
|
$
|
103
|
Common shareholders' net income (loss)
|
$
|
400
|
$
|
513
|
|
Earnings (loss) per share
|
|
Basic earnings (loss) per share from continuing operations
|
$
|
0.66
|
$
|
0.68
|
|
Basic earnings (loss) per share from discontinued operations
|
$
|
—
|
$
|
0.17
|
|
Basic earnings (loss) per share
|
$
|
0.66
|
$
|
0.85
|
|
|
Diluted earnings (loss) per share from continuing operations
|
$
|
0.65
|
$
|
0.68
|
|
Diluted earnings (loss) per share from discontinued operations
|
$
|
—
|
$
|
0.17
|
|
Diluted earnings (loss) per share
|
$
|
0.65
|
$
|
0.85
|
Consolidated Statements of Financial Position
|
|
As at
|
(unaudited, in millions of Canadian dollars)
|
March 31,
2014
|
December 31,
2013
|
Assets
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term securities
|
|
$
|
6,075
|
|
|
$
|
7,636
|
|
|
Debt securities
|
|
59,767
|
|
|
54,813
|
|
|
Equity securities
|
|
5,028
|
|
|
5,194
|
|
|
Mortgages and loans
|
|
31,211
|
|
|
30,313
|
|
|
Derivative assets
|
|
978
|
|
|
948
|
|
|
Other invested assets
|
|
2,068
|
|
|
1,855
|
|
|
Policy loans
|
|
2,797
|
|
|
2,792
|
|
|
Investment properties
|
|
6,104
|
|
|
6,092
|
|
|
Invested assets
|
|
114,028
|
|
|
109,643
|
|
|
Other assets
|
|
3,582
|
|
|
3,270
|
|
|
Reinsurance assets
|
|
3,756
|
|
|
3,648
|
|
|
Deferred tax assets
|
|
1,210
|
|
|
1,303
|
|
|
Property and equipment
|
|
662
|
|
|
658
|
|
|
Intangible assets
|
|
876
|
|
|
866
|
|
|
Goodwill
|
|
4,057
|
|
|
4,002
|
|
|
Total general fund assets
|
|
128,171
|
|
|
123,390
|
|
|
Investments for account of segregated fund holders
|
|
80,054
|
|
|
76,141
|
|
Total assets
|
|
$
|
208,225
|
|
|
$
|
199,531
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Insurance contract liabilities
|
|
$
|
92,724
|
|
|
$
|
88,903
|
|
|
Investment contract liabilities
|
|
2,735
|
|
|
2,602
|
|
|
Derivative liabilities
|
|
1,154
|
|
|
939
|
|
|
Deferred tax liabilities
|
|
25
|
|
|
122
|
|
|
Other liabilities
|
|
8,823
|
|
|
8,218
|
|
|
Senior debentures
|
|
2,849
|
|
|
2,849
|
|
|
Subordinated debt
|
|
1,910
|
|
|
2,403
|
|
|
Total general fund liabilities
|
|
110,220
|
|
|
106,036
|
|
|
Insurance contracts for account of segregated fund holders
|
|
72,847
|
|
|
69,088
|
|
|
Investment contracts for account of segregated fund holders
|
|
7,207
|
|
|
7,053
|
|
Total liabilities
|
|
$
|
190,274
|
|
|
$
|
182,177
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Issued share capital and contributed surplus
|
|
$
|
10,941
|
|
|
$
|
10,902
|
|
|
Retained earnings and accumulated other comprehensive income
|
|
7,010
|
|
|
6,452
|
|
Total equity
|
|
$
|
17,951
|
|
|
$
|
17,354
|
|
Total liabilities and equity
|
|
$
|
208,225
|
|
|
$
|
199,531
|
|
About Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth
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, Malaysia and Bermuda. As of March 31, 2014, the Sun
Life Financial group of companies had total assets under management of
$671 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under the ticker symbol SLF.
SOURCE Sun Life Financial Inc.