TORONTO, Nov. 4, 2015 /CNW/ - Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF)
The information contained in this document concerning the third quarter
of 2015 is based on the unaudited interim financial results of Sun Life
Financial Inc. for the period ended September 30, 2015. Sun Life
Financial Inc., and 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.
Third Quarter 2015 Financial Highlights
-
Operating net income(1) of $478 million or $0.78 per share(1)(2), compared to $467 million or $0.76 per share in the third quarter of
2014. Reported net income of $482 million or $0.79 per share, compared
to $435 million or $0.71 per share in the same period last year
-
Underlying net income(1) of $528 million or $0.86 per share(1)(2) in the third quarter of 2015, compared to $517 million or $0.84 per
share in the third quarter of 2014
-
Operating return on equity(1) ("ROE") of 10.5% and underlying ROE(1) of 11.6% in the third quarter of 2015, compared to operating ROE of
11.9% and underlying ROE of 13.1% in the same period last year
-
Quarterly dividend declared of $0.39 per share
-
Minimum Continuing Capital and Surplus Requirements ratio for Sun Life
Assurance Company of Canada of 229%
-
Global assets under management ("AUM") of $846 billion
"We reported underlying net income of $528 million in the third quarter
of 2015, up slightly from the prior year in a volatile market
environment. Notwithstanding the impact of capital markets on our
results, we benefited from our balanced and diversified business model,
coupled with strong execution on our four-pillar strategy." said Dean
Connor, President and Chief Executive Officer, Sun Life Financial. "We
announced a dividend increase of one cent per share, bringing our
quarterly common share dividend to $0.39 per share. This, together with
the increase announced in the first quarter, represents a total
increase of 8% in the quarterly dividend in the year."
"We continued to deploy capital in accordance with our four-pillar
business strategy through the agreement to acquire the U.S. Employee
Benefits business of Assurant, Inc.," Connor said. "Completion of the
acquisition will enhance our market position in U.S. Group Benefits
with a significant boost in scale and new distribution and product
capabilities."
"During the quarter, we also completed the acquisitions of Prime
Advisors and Bentall Kennedy to broaden our asset management pillar,"
Connor said. "While assets under management at MFS were impacted by
volatile markets and net outflows, MFS continues to deliver strong
performance for clients and achieved solid margins of 40%."
"SLF Canada delivered strong sales growth across all lines of business.
During the quarter, we announced the creation of the Digital Benefits
Assistant which uses big data and advanced analytical tools to help
plan members use their benefit plans wisely."
"SLF Asia reported strong underlying earnings, led by contributions from
the Philippines and Hong Kong," Connor said. "Sales were strong in SLF
Asia, with continuing momentum in the wealth businesses."
__________
|
(1)
|
Operating net income (loss) and financial information based on operating
net income (loss), such as operating earnings (loss) per share,
operating ROE, underlying net income (loss), underlying earnings (loss)
per share and underlying ROE, are not based on International Financial
Reporting Standards. See Use of Non-IFRS Financial Measures and
Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
All earnings per share ("EPS") measures refer to fully diluted EPS,
unless otherwise stated.
|
Reported net income was $482 million in the third quarter of 2015,
compared to reported net income of $435 million in the same period last
year. The following table sets out our operating net income and
underlying net income for the third quarter of 2015 and 2014.
($ millions, after-tax)
|
Q3'15
|
|
Q3'14
|
Operating net income
|
478
|
|
467
|
Market related impacts
|
(82)
|
|
(54)
|
Assumption changes and management actions
|
32
|
|
4
|
Underlying net income
|
528
|
|
517
|
The Board of Directors of Sun Life Financial Inc. today declared a
quarterly shareholder dividend of $0.39 per common share.
Operational Highlights
Our strategy is focused on four key pillars of growth. We detail our
continued progress against these pillars below.
Leader in financial protection and wealth solutions in our Canadian home
market
Individual wealth sales increased by 16% to $1.2 billion, driven
primarily by growth in mutual funds sales. Sun Life Global Investments
(Canada) Inc. ("SLGI") had strong sales growth with a 45% increase in
retail mutual fund sales over the third quarter of 2014 to $288
million. Total segregated fund sales of $152 million in the third
quarter of 2015 increased by 54% from the third quarter of 2014, and
included sales of $111 million of Sun Life Guaranteed Investment Funds,
our new segregated fund product launched in the second quarter of 2015.
Individual insurance sales in Canada increased by 31% to $98 million
from the third quarter of 2014, driven by growth in all distribution
channels, and included a number of large participating whole life
insurance sales.
Group Benefits ("GB") sales increased to $139 million from $81 million
in the third quarter of 2014, including a number of large client wins.
Group Retirement Services ("GRS") sales increased by 71% compared to
the third quarter of the prior year, achieving $2.2 billion, driven by
strong defined contribution plan sales. GRS assets under administration
were $77 billion at the end of the third quarter of 2015.
SLF Canada achieved Platinum certification from Excellence Canada, which
recognizes Canada's best run corporations across six categories:
leadership, strategy, customer experience, people engagement, process
management and partners.
Premier global asset manager, anchored by MFS
In the third quarter of 2015, we completed the acquisitions of Prime
Advisors, Inc. ("Prime Advisors") and the Bentall Kennedy group of
companies ("Bentall Kennedy"). These acquisitions, along with the
acquisition of Ryan Labs Asset Management Inc. ("Ryan Labs") in the
second quarter of 2015, build on our strategy to expand our
capabilities in customized fixed income solutions and alternative asset
classes in our asset management pillar. Sun Life Investment Management
("SLIM"), which consists of Bentall Kennedy, Prime Advisors, Ryan Labs,
and Sun Life Investment Management Inc., had combined total third-party
AUM of $56 billion as at September 30, 2015 and gross sales for the
third quarter of 2015 of $1.2 billion.
MFS's AUM of US$404 billion at the end of September 30, 2015 declined
compared to the second quarter of 2015 with market depreciation of $28
billion and net outflows of US$9 billion in the quarter. Lower sales
and higher levels of redemptions by institutional clients were the
largest drivers of the outflows in the third quarter of 2015.
MFS's long-term retail fund performance remains strong with 74%, 86%,
and 97% of MFS's mutual fund assets ranked in the top half of their
Lipper categories based on three-, five-, and ten-year performance,
respectively, as of the third quarter of 2015.
Bentall Kennedy was named the top North American firm and a top firm
globally in the 2015 Global Real Estate Sustainability Benchmark
rankings. This is the fifth year that the team at Bentall Kennedy has
received this recognition.
Leader in U.S. group benefits and International high net worth solutions
On September 9, 2015, we announced an agreement to acquire the Employee
Benefits business of Assurant, Inc. ("Assurant"). The transaction will
expand our capabilities in our U.S. group benefits business, with an
array of employee benefits products that include leading capabilities
in the Group Life and Disability, Dental and Vision, Stop-Loss and
Voluntary businesses.
This acquisition, in concert with the management of our current U.S.
group business, allows us to accelerate growth in our U.S. strategic
pillar, bringing value to our clients, partners, distributors,
employees and the communities we serve.
We also continued our expense, claims management and pricing actions in
the group life and disability business, driving improvement in Group
Benefits operating net income. In addition, we continue to expand our
offerings on private exchanges, a growing distribution platform in the
U.S. market. In September 2015, we announced a partnership with Maxwell
Health, our fourth private exchange partnership agreement signed in
2015, bringing us to a total of eight private exchange platforms.
The U.S. stop-loss business continued to achieve strong results. Sales
increased 63% to US$60 million compared to the third quarter of 2014,
along with a 14% growth in stop-loss business in-force over the same
quarter in the prior year.
Growing Asia through distribution excellence in higher growth markets
Wealth sales in SLF Asia grew compared to the third quarter of 2014,
with strong mutual fund sales in India and higher managed funds sales
in Hong Kong.
Individual insurance sales in SLF Asia of $114 million reflected sales
growth in the Philippines, Vietnam and Malaysia, which were more than
offset by decreases in Hong Kong, Indonesia, India and China.
Sun Life of Canada (Philippines), Inc. received the prestigious
'Employer of the Year' award by the People Management Association of
the Philippines. The annual award is based on leadership, business
results and contributions to the community.
How We Report Our Results
Sun Life Financial Inc. ("SLF Inc."), and 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."),
Sun Life Financial Asset Management ("SLF Asset Management"), Sun Life
Financial Asia ("SLF Asia"), and Corporate. SLF Asset Management
consists of the operations of MFS Investment Management ("MFS") and Sun
Life Investment Management ("SLIM"). SLIM consists of the Bentall
Kennedy group of companies ("Bentall Kennedy"), Prime Advisors, Inc.
("Prime Advisors"), Ryan Labs Asset Management Inc. ("Ryan Labs"), and
Sun Life Investment Management Inc. ("SLIM Inc."). 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 ("Annual Consolidated Financial Statements" and
"Interim Consolidated Financial Statements", respectively). We prepare
our unaudited Interim Consolidated Financial Statements using
International Financial Reporting Standards ("IFRS"), and in accordance
with the International Accounting Standard ("IAS") 34 Interim Financial Reporting. The information contained in this document is in Canadian dollars unless
otherwise noted.
SLF Asset Management
In the third quarter of 2015, we renamed our MFS segment to SLF Asset
Management to reflect our acquisitions closed in 2015. This segment
includes the operations of MFS, our premier global asset management
firm, previously reported as the MFS segment, and the operations of
SLIM, our third-party institutional investment management business,
have been added to this segment. SLIM consists of: (i) Bentall Kennedy,
a real estate investment manager operating in Canada and the U.S.; (ii)
Prime Advisors, Inc., a U.S.-based investment management firm
specializing in customized fixed income portfolios primarily for U.S.
insurance companies; (iii) Ryan Labs Asset Management Inc. (previously
Ryan Labs, Inc.), a New York-based asset manager specializing in fixed
income and liability-driven investing; and (iv) SLIM Inc., our
institutional asset manager which provides investment expertise in
alternative asset classes and liability-driven investing to pension
funds and other institutional investors in Canada.
Use of Non-IFRS Financial Measures
We report certain financial information using non-IFRS financial
measures, as we believe that these measures provide information that is
useful to investors in understanding our performance and facilitate a
comparison of our 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 the
closest 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), consisting of 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 the impact of the following amounts that are
not operational or ongoing in nature to assist investors in
understanding our business performance: (i) 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(1); (iv) the impact of assumption changes and management actions related
to the sale of our U.S. Annuity Business(1); (v) acquisition, integration and restructuring costs (including
impacts related to the sale of our U.S. Annuity Business(1) and impacts related to acquiring and integrating acquisitions,
previously reported as restructuring and other related costs); (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 instruments.
Underlying net income (loss) and financial measures based on underlying
net income (loss), consisting of 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 impact
of the following items that create volatility in our results under IFRS
and when removed assist in explaining our results from period to
period: (a) market related impacts; (b) assumption changes and
management actions; and (c) other items that have not been treated as
adjustments to operating net income and when removed assist in
explaining our results from period to period. Market related impacts
include: (i) the impact of changes in interest rates that differ from
our best estimate assumptions in the reporting period on investment
returns and the value of derivative instruments used in our hedging
programs, including changes in credit and swap spreads, and any changes
to the assumed fixed income reinvestment rates in determining the
actuarial liabilities; (ii) the impact of changes in equity markets,
net of hedging, above or below our best estimate assumptions of
approximately 2% growth per quarter in the reporting period and of
basis risk inherent in our hedging program for products that provide
benefit guarantees; and (iii) the 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 Q3 2015 vs. Q3 2014 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. The
impact on our liabilities for insurance contracts and investment
contracts of actions taken by management in the current reporting
period, referred to as management actions include, for example, changes
in the prices of in-force products, new or revised reinsurance on
in-force business, or material changes to investment policies for asset
segments supporting our liabilities. Underlying EPS also excludes the
dilutive impact of convertible instruments.
Other non-IFRS financial measures that we use include adjusted revenue,
administrative services only ("ASO"), premium and deposit equivalents,
mutual fund assets and sales, managed fund assets and sales, premiums
and deposits, adjusted premiums and deposits, assets under management
("AUM") and assets under administration, and effective income tax rate
on an operating net income basis.
__________
|
(1)
|
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"). For information on our
discontinued operations, refer to our 2014 Annual Consolidated
Financial Statements and 2013 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). Reported
net income (loss) refers to Common shareholders' net income (loss)
determined in accordance with IFRS. Reported net income (loss),
operating net income (loss) including adjustments, underlying net
income (loss) including adjustments, and net income and other
comprehensive income ("OCI") sensitivities are expressed on an
after-tax basis unless otherwise noted.
All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.
Additional Information
Additional information about 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. SLF Inc.'s Annual Consolidated Financial Statements, annual MD&A and
AIF are filed with the United States Securities and Exchange Commission
("SEC") in SLF Inc.'s annual report on Form 40-F and SLF Inc.'s interim
MD&As and Interim Consolidated Financial Statements are furnished to
the SEC on Form 6-Ks and are available at www.sec.gov.
Financial Summary
|
Quarterly results
|
|
Year-to-date
|
($ millions, unless otherwise noted)
|
Q3'15
|
|
Q2'15
|
Q1'15
|
Q4'14
|
Q3'14
|
|
2015
|
2014
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)(1)
|
478
|
|
731
|
446
|
511
|
467
|
|
1,655
|
1,409
|
|
Reported net income (loss)
|
482
|
|
726
|
441
|
502
|
435
|
|
1,649
|
1,260
|
|
Underlying net income (loss)(1)
|
528
|
|
615
|
516
|
360
|
517
|
|
1,659
|
1,456
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
|
Operating EPS (diluted)(1)
|
0.78
|
|
1.19
|
0.73
|
0.83
|
0.76
|
|
2.70
|
2.30
|
|
Reported EPS (diluted)
|
0.79
|
|
1.18
|
0.72
|
0.81
|
0.71
|
|
2.68
|
2.05
|
|
Underlying EPS (diluted)(1)
|
0.86
|
|
1.00
|
0.84
|
0.59
|
0.84
|
|
2.71
|
2.38
|
Reported basic EPS ($)
|
0.79
|
|
1.19
|
0.72
|
0.82
|
0.71
|
|
2.69
|
2.06
|
Avg. common shares outstanding (millions)
|
611
|
|
612
|
613
|
613
|
612
|
|
612
|
611
|
Closing common shares outstanding (millions)
|
611.2
|
|
610.6
|
611.2
|
613.1
|
612.7
|
|
611.2
|
612.7
|
Dividends per common share ($)
|
0.38
|
|
0.38
|
0.36
|
0.36
|
0.36
|
|
1.12
|
1.08
|
MCCSR ratio(2)
|
229
|
%
|
|
223
|
%
|
216
|
%
|
217
|
%
|
218
|
%
|
|
229
|
%
|
218
|
%
|
Return on equity (%)
|
|
|
|
|
|
|
|
|
|
|
Operating ROE(1)
|
10.5
|
%
|
|
16.5
|
%
|
10.4
|
%
|
12.6
|
%
|
11.9
|
%
|
|
12.5
|
%
|
12.2
|
%
|
|
Underlying ROE(1)
|
11.6
|
%
|
|
13.9
|
%
|
12.1
|
%
|
8.8
|
%
|
13.1
|
%
|
|
12.5
|
%
|
12.6
|
%
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
|
Net premium revenue
|
2,114
|
|
2,523
|
2,207
|
2,701
|
2,695
|
|
6,844
|
7,295
|
|
Segregated fund deposits
|
2,626
|
|
4,487
|
2,411
|
2,155
|
1,907
|
|
9,524
|
7,094
|
|
Mutual fund sales(1)
|
16,902
|
|
19,927
|
22,124
|
17,071
|
14,714
|
|
58,953
|
49,548
|
|
Managed fund sales(1)
|
7,507
|
|
7,002
|
8,243
|
7,988
|
8,170
|
|
22,752
|
21,880
|
|
ASO premium and deposit equivalents(1)
|
1,758
|
|
1,781
|
1,769
|
1,855
|
1,638
|
|
5,308
|
4,893
|
Total premiums and deposits(1)
|
30,907
|
|
35,720
|
36,754
|
31,770
|
29,124
|
|
103,381
|
90,710
|
Assets under management
|
|
|
|
|
|
|
|
|
|
|
General fund assets
|
151,654
|
|
145,472
|
148,725
|
139,419
|
133,623
|
|
151,654
|
133,623
|
|
Segregated funds
|
88,248
|
|
90,500
|
89,667
|
83,938
|
82,058
|
|
88,248
|
82,058
|
|
Mutual funds, managed funds and other AUM(1)
|
606,256
|
|
572,110
|
574,166
|
511,085
|
482,499
|
|
606,256
|
482,499
|
Total AUM(1)
|
846,158
|
|
808,082
|
812,558
|
734,442
|
698,180
|
|
846,158
|
698,180
|
Capital
|
|
|
|
|
|
|
|
|
|
Subordinated debt and innovative capital instruments(3)
|
3,389
|
|
2,879
|
2,881
|
2,865
|
2,857
|
|
3,389
|
2,857
|
|
Participating policyholders' equity
|
164
|
|
139
|
142
|
141
|
133
|
|
164
|
133
|
|
Total shareholders' equity
|
20,609
|
|
19,997
|
19,761
|
18,731
|
18,156
|
|
20,609
|
18,156
|
Total capital
|
24,162
|
|
23,015
|
22,784
|
21,737
|
21,146
|
|
24,162
|
21,146
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio of
Sun Life Assurance Company of Canada ("Sun Life Assurance").
|
(3)
|
Innovative capital instruments consist 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
Annual and Interim Consolidated Financial Statements. For additional
information see Capital and Liquidity Management - Capital in our 2014
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).
Q3 2015 vs. Q3 2014
Our reported net income was $482 million in the third quarter of 2015,
compared to $435 million in the third quarter of 2014. Operating net
income was $478 million for the quarter ended September 30, 2015,
compared to $467 million for the same period last year. Underlying net
income was $528 million, compared to $517 million in the third quarter
of 2014.
Operating ROE and underlying ROE in the third quarter of 2015 were 10.5%
and 11.6%, respectively. Operating and underlying ROE in the third
quarter of 2014 were 11.9% and 13.1%, respectively.
The following table reconciles our net income measures and sets out the
impact that other notable items had on our net income in the third
quarter of 2015 and 2014.
|
|
Quarterly results
|
($ millions, after-tax)
|
|
Q3'15
|
|
Q3'14
|
Reported net income
|
|
482
|
|
435
|
|
Certain hedges that do not qualify for hedge accounting in SLF Canada
|
|
(10)
|
|
2
|
|
Fair value adjustments on share-based payment awards at MFS
|
|
28
|
|
(31)
|
|
Acquisition, integration and restructuring costs(1)
|
|
(14)
|
|
(3)
|
Operating net income(2)
|
|
478
|
|
467
|
|
Equity market impact
|
|
|
|
|
|
|
Impact from equity market changes
|
|
(116)
|
|
1
|
|
|
Basis risk impact
|
|
(6)
|
|
(4)
|
|
Equity market impact(3)
|
|
(122)
|
|
(3)
|
|
Interest rate impact
|
|
|
|
|
|
|
Impact from interest rate changes
|
|
(13)
|
|
(56)
|
|
|
Impact of credit spread movements
|
|
26
|
|
6
|
|
|
Impact of swap spread movements
|
|
31
|
|
—
|
|
Interest rate impact(4)
|
|
44
|
|
(50)
|
|
Increases (decreases) from changes in the fair value of real estate
|
|
(4)
|
|
(1)
|
|
Market related impacts
|
|
(82)
|
|
(54)
|
|
Assumption changes and management actions
|
|
32
|
|
4
|
Underlying net income(2)
|
|
528
|
|
517
|
|
|
|
|
|
Impact of other notable items on our net income:
|
|
|
|
|
Experience related items(5)
|
|
|
|
|
|
Impact of investment activity on insurance contract liabilities
|
|
33
|
|
22
|
|
Mortality
|
|
(18)
|
|
(4)
|
|
Morbidity
|
|
(26)
|
|
(10)
|
|
Credit
|
|
20
|
|
9
|
|
Lapse and other policyholder behaviour
|
|
10
|
|
(8)
|
|
Expenses
|
|
(7)
|
|
(17)
|
|
Other
|
|
(16)
|
|
9
|
Other items(6)
|
|
—
|
|
29
|
(1)
|
In 2015, acquisition and integration costs primarily related to our
acquisitions and integrations of Bentall Kennedy, Prime Advisors and
Ryan Labs and our proposed acquisition of Assurant, Inc.'s U.S.
Employee Benefits business. In 2014, restructuring costs consisted of
transition costs related to the sale of our U.S. Annuity Business.
|
(2)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(3)
|
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. 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.
|
(4)
|
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. Interest rate impact also includes the income impact of
changes in assumed fixed income reinvestment rates and of credit and
swap spread movements.
|
(5)
|
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.
|
(6)
|
In 2014, Other items consists of non-recurring tax benefits pertaining
to SLF U.K. and MFS.
|
|
|
Our reported net income for the third quarter of 2015 and 2014 included
items that are not operational or ongoing in nature and are, therefore,
excluded in our calculation of operating net income. Operating net
income for the third quarter of 2015 and 2014 excluded the net 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 acquisition, integration and restructuring costs. The net impact of
these items increased reported net income by $4 million in the third
quarter of 2015 compared to a reduction of $32 million in the third
quarter of 2014. In addition, our operating net income in the third
quarter of 2015 increased by $58 million as a result of movements in
currency rates relative to the average exchange rates in the third
quarter of 2014.
Our underlying net income for the third quarter of 2015 and 2014
excludes market related impacts and assumption changes and management
actions. The net impact of market related impacts and assumption
changes and management actions reduced operating net income by $50
million in the third quarter of 2015, compared to a decrease of $50
million in the third quarter of 2014.
Net income in the third quarter of 2015 also reflected the favourable
impact of investment activity on insurance contract liabilities,
positive credit experience and policyholder behaviour, partially offset
by unfavourable morbidity and mortality experience, expense experience,
and other experience items.
Net income in the third quarter of 2014 also reflected gains from
investment activity on insurance contract liabilities, positive credit
experience, tax benefits and business growth. These items were
partially offset by unfavourable mortality and morbidity and expense
experience.
Q3 2015 vs. Q3 2014 (year-to-date)
Our reported net income was $1,649 million for the first nine months of
2015, compared to $1,260 million in the first nine months of 2014.
Operating net income was $1,655 million for the nine months ended
September 30, 2015, compared to $1,409 million for the same period last
year. Underlying net income was $1,659 million, compared to $1,456
million for the first nine months of 2014.
Operating ROE and underlying ROE for the first nine months of 2015 were
both 12.5%. Operating ROE and underlying ROE for the first nine months
of 2014 were 12.2% and 12.6%, respectively.
The following table reconciles our net income measures and sets out the
impact that other notable items had on our net income for the nine
months ended September 30, 2015 and 2014.
|
Year-to-date
|
|
($ millions, after-tax)
|
|
2015
|
|
2014
|
|
Reported net income
|
|
1,649
|
|
|
1,260
|
|
|
Certain hedges that do not qualify for hedge accounting in SLF Canada
|
|
11
|
|
|
(1)
|
|
|
Fair value adjustments on share-based payment awards at MFS
|
|
(3)
|
|
|
(126)
|
|
|
Acquisition, integration and restructuring costs(1)
|
|
(14)
|
|
|
(22)
|
|
Operating net income(2)
|
|
1,655
|
|
|
1,409
|
|
|
Net equity market impact(3)
|
|
(124)
|
|
|
53
|
|
|
Net interest rate impact(4)
|
|
100
|
|
|
(158)
|
|
|
Net increases (decreases) from changes in the fair value of real estate
|
|
17
|
|
|
3
|
|
|
Market related impacts
|
|
(7)
|
|
|
(102)
|
|
|
Assumption changes and management actions
|
|
3
|
|
|
55
|
|
Underlying net income(2)
|
|
1,659
|
|
|
1,456
|
|
Impact of other notable items on our net income:
|
|
|
|
|
|
Experience related items(5)
|
|
|
|
|
|
|
Impact of investment activity on insurance contract liabilities
|
|
91
|
|
|
90
|
|
|
Mortality
|
|
22
|
|
|
(16)
|
|
|
Morbidity
|
|
(12)
|
|
|
(38)
|
|
|
Credit
|
|
54
|
|
|
43
|
|
|
Lapse and other policyholder behaviour
|
|
(10)
|
|
|
(25)
|
|
|
Expenses
|
|
(42)
|
|
|
(42)
|
|
|
Other
|
|
(21)
|
|
|
22
|
|
Other items(6)
|
|
—
|
|
|
29
|
|
(1)
|
In 2015, acquisition and integration costs primarily related to our
acquisitions and integrations of Bentall Kennedy, Prime Advisors and
Ryan Labs and our proposed acquisition of Assurant, Inc.'s U.S.
Employee Benefits business. In 2014, restructuring costs consisted of
transition costs related to the sale of our U.S. Annuity Business.
|
(2)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(3)
|
Equity market impact consists primarily of the effect of changes in
equity markets during the period, 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. 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.
|
(4)
|
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.
Interest rate impact also includes the income impact of changes in
assumed fixed income reinvestment rates and of credit and swap spread
movements.
|
(5)
|
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.
|
(6)
|
In 2014, Other items consists of non-recurring tax benefits pertaining
to SLF U.K. and MFS.
|
|
|
Our reported net income for the first nine months of 2015 and 2014
included items that are not operational or ongoing in nature and are,
therefore, excluded in our calculation of operating net income.
Operating net income for the first nine months of 2015 and 2014
excluded the net 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 acquisition, integration and restructuring costs.
The net impact of these items reduced reported net income by $6 million
in the first nine months of 2015 compared to a reduction of $149
million in the same period of 2014. In addition, our operating net
income in the first nine months of 2015 increased by $137 million as a
result of movements in currency rates in the first nine months of 2015
relative to the average exchange rates in the first nine months of
2014.
Our underlying net income for the first nine months of 2015 and 2014
excludes market related impacts and assumption changes and management
actions. The net impact of market related impacts and assumption
changes and management actions reduced operating net income by $4
million in the first nine months of 2015, compared to a decrease of $47
million in the first nine months of 2014.
Net income for the first nine months of 2015 also reflected the
favourable impact from investment activity on insurance contract
liabilities, positive credit and mortality experience, partially offset
by unfavourable expense experience including investment in growing our
businesses, morbidity, lapse and other policyholder behaviour, and
other experience items.
Net income for the first nine months of 2014 also reflected gains from
investment activity on insurance contract liabilities, positive credit
experience, business growth and tax benefits, partially offset by
unfavourable mortality and morbidity, expense, and lapse and other
policyholder behaviour experience.
Assumption Changes and Management Actions
Due to the long-term nature of our business, we make certain judgments
involving assumptions and estimates to value our obligations to
policyholders. The valuation of these obligations are recorded in our
financial statements as insurance contract liabilities and investment
contract liabilities and requires us to make assumptions about equity
market performance, interest rates, asset default, mortality and
morbidity rates, lapse and other policyholder behaviour, expenses and
inflation and other factors over the life of our products. We review
assumptions each year, generally in the third quarter, and revise these
assumptions if appropriate.
During the third quarter of 2015 the net impact of assumption changes
and management actions resulted in an increase of $32 million to
reported and operating net income compared to an increase of $4 million
in the third quarter of 2014.
Assumption changes and management actions by type
The following table sets out the impact of assumption changes and
management actions on our net income in the third quarter of 2015.
Q3'15
|
|
|
|
|
|
|
|
Quarterly
|
($ millions, after-tax)
|
|
|
|
Impact on net
income
|
|
|
|
Comments
|
Mortality/morbidity
|
|
|
|
179
|
|
|
|
Updates to reflect mortality/morbidity experience in all jurisdictions
and
changes to future mortality improvement assumptions in the
International insurance business in SLF U.S.
|
Lapse and other policyholder behaviour
|
|
|
|
(555)
|
|
|
|
Updates to reflect experience as discussed below.
|
Expenses
|
|
|
|
(85)
|
|
|
|
Updates to reflect expense studies primarily in our International wealth
business in SLF U.S. and in the individual wealth business in SLF
Canada.
|
Investment returns
|
|
|
|
237
|
|
|
|
Updates to various investment related assumptions. The largest items
are a change to the provision for investment risk in the SLF Canada
participating account and the reflection of investment strategy changes
in the SLF Canada non-participating insurance business.
|
Model enhancements and other
|
|
|
|
256
|
|
|
|
Other changes, the largest of which are changes in reinsurance
agreements and tax assumptions in the SLF U.S. insurance business.
|
Total impact on net income(1)
|
|
|
|
32
|
|
|
|
|
(1)
|
Assumption changes and management actions is presented as an adjustment
to arrive at underlying net income described in the Q3 2015 vs. Q3 2014
heading of this section.
|
|
|
Changes in lapse and policyholder behaviour assumptions are primarily in
the individual insurance businesses in SLF Canada and SLF U.S. The
largest items, which all had negative impacts, were the increase in
lapse rates at renewal for term insurance in SLF Canada to reflect a
stronger link between lapse rates and the size of the renewal premium
increase; the reduction in lapse rates at longer policy durations for
Universal Life policies in SLF Canada to reflect emerging experience;
the reduction in assumed premium payments for flexible premium
insurance policies in SLF U.S. to reflect the increasing tendency of
policyholders to stop paying premiums when their policy becomes fully
funded; and the reduction in lapse rates on International insurance
policies, especially for no-lapse-guarantee policies.
Goodwill Impairment Testing
In the fourth quarter of 2015, we will perform our annual goodwill
impairment testing. Testing is conducted by comparing a cash generating
unit's ("CGU's") carrying value to its recoverable amount. We determine
the recoverable amount by reference to an appraisal value that is
impacted by the economic and regulatory environment, which includes
changes in interest rates, market volatility, capital requirements and
other factors, and is based on estimates of future sales, income,
expenses, and the level and cost of capital over the lifetime of the
business.
A listing of our CGUs as at December 31, 2014 and the goodwill allocated
to them is included in Note 10 of our 2014 Annual Consolidated
Financial Statements.
Goodwill is not recognized as an asset for MCCSR purposes and is
deducted from available capital. Therefore, impairment charges against
goodwill do not have any impact on the MCCSR ratio.
Acquisitions
On July 31, 2015, we completed the acquisition of Prime Advisors, a
U.S.-based investment management firm specializing in customized fixed
income portfolios primarily for U.S. insurance companies.
On September 1, 2015, we completed the acquisition of Bentall Kennedy, a
real estate investment manager operating in Canada and the U.S.
On September 9, 2015, we entered into an agreement with Assurant, Inc.
("Assurant") to acquire Assurant's U.S. Employee Benefits business. The
acquisition will be financed using a combination of cash and
subordinated debt issued by SLF Inc. The transaction is expected to
close by the end of the first quarter of 2016 and is subject to
regulatory approvals and customary closing conditions.
Additional information concerning the acquisitions is provided in Note 3
of our Interim Consolidated Financial Statements.
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, such as
Revenue, Benefits and expenses, and income, are translated to Canadian
dollars using average exchange rates for the respective period. For
items impacting our Consolidated Statements of Financial Position, such
as Assets and Liabilities, period end rates are used for currency
translation purposes. The following table provides the most relevant
foreign exchange rates over the past five quarters and two years.
Exchange Rate
|
|
|
|
|
|
|
Quarterly
|
Year-to-date
|
|
|
|
|
|
|
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
|
|
|
1.307
|
|
1.229
|
|
1.240
|
|
1.136
|
|
1.088
|
|
1.259
|
|
1.094
|
|
U.K. Pounds
|
|
|
|
|
|
|
2.025
|
|
1.882
|
|
1.878
|
|
1.797
|
|
1.817
|
|
1.929
|
|
1.825
|
Period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
|
|
|
1.331
|
|
1.249
|
|
1.269
|
|
1.162
|
|
1.120
|
|
1.331
|
|
1.120
|
|
U.K. Pounds
|
|
|
|
|
|
|
2.014
|
|
1.962
|
|
1.880
|
|
1.809
|
|
1.815
|
|
2.014
|
|
1.815
|
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
third quarter of 2015, our operating net income increased by $58
million as a result of movements in currency rates in the third quarter
of 2015 relative to the average exchange rates in the third quarter of
2014. In addition, during the first nine months of 2015, our operating
net income increased by $137 million as a result of movements in
currency rates in the first nine months of 2015 relative to the average
exchange rates in the first nine months of 2014.
Performance by Business Group
SLF Canada
SLF Canada is the Canadian market leader in a number of its businesses,
providing products and services to over six million Canadians. Our
distribution breadth, strong service culture, technology leadership,
and brand recognition provide an excellent platform for growth. SLF
Canada has three main business units - Individual Insurance & Wealth,
Group Benefits ("GB"), and Group Retirement Services ("GRS") - which
offer a full range of protection, wealth accumulation, and income
products and services to individuals in their communities and their
workplaces.
|
Quarterly results
|
|
Year-to-date
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
Underlying net income (loss)(1)
|
174
|
|
250
|
|
201
|
|
181
|
|
237
|
|
625
|
|
642
|
|
Market related impacts
|
(51)
|
|
70
|
|
(69)
|
|
(54)
|
|
(33)
|
|
(50)
|
|
(23)
|
|
Assumption changes and management actions
|
14
|
|
11
|
|
3
|
|
(4)
|
|
35
|
|
28
|
|
55
|
Operating net income (loss)(1)
|
137
|
|
331
|
|
135
|
|
123
|
|
239
|
|
603
|
|
674
|
|
Hedges that do not qualify for hedge accounting
|
(10)
|
|
6
|
|
15
|
|
(6)
|
|
2
|
|
11
|
|
(1)
|
Reported net income (loss)
|
127
|
|
337
|
|
150
|
|
117
|
|
241
|
|
614
|
|
673
|
Underlying ROE (%)(1)
|
9.0
|
|
12.8
|
|
10.6
|
|
9.7
|
|
12.8
|
|
10.8
|
|
11.6
|
Operating ROE (%)(1)
|
7.0
|
|
17.0
|
|
7.1
|
|
6.6
|
|
12.9
|
|
10.4
|
|
12.2
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Insurance & Wealth(1)
|
42
|
|
178
|
|
38
|
|
80
|
|
68
|
|
258
|
|
304
|
|
Group Benefits(1)
|
71
|
|
107
|
|
54
|
|
55
|
|
124
|
|
232
|
|
235
|
|
Group Retirement Services(1)
|
24
|
|
46
|
|
43
|
|
(12)
|
|
47
|
|
113
|
|
135
|
Total operating net income (loss)(1)
|
137
|
|
331
|
|
135
|
|
123
|
|
239
|
|
603
|
|
674
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
|
Q3 2015 vs. Q3 2014
SLF Canada's reported net income was $127 million in the third quarter
of 2015, compared to $241 million in the third quarter of 2014.
Operating net income was $137 million, compared to $239 million in the
third quarter of 2014. 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 in the third quarter of 2015 was $174 million,
compared to $237 million in the third quarter of 2014. Underlying net
income in SLF Canada excludes from operating net income market related
impacts and assumption changes and management actions, which are set
out in the table above. The unfavourable effect of market related
impacts in the third quarter of 2015 was primarily driven by equity
markets partially offset by swap spreads and credit spreads, compared
to the unfavourable effect in the third quarter of 2014 primarily
driven by interest rates and equity markets.
Net income in the third quarter of 2015 also reflected lower gains from
new business in GRS, unfavourable mortality experience in the
individual wealth business in Individual Insurance & Wealth and GRS,
and expense experience including investment in growing our individual
wealth business. In our GB line of business, the unfavourable, though
improved, impacts of high cost drug claims were offset by positive
disability experience.
Net income in the third quarter of 2014 also reflected net realized
gains on available-for-sale ("AFS") assets, the favourable impact of
gains from new business in GRS and the insurance business in Individual
Insurance & Wealth, as well as gains from investing activity on
insurance contract liabilities.
In the third quarter of 2015, individual life and health insurance
product sales increased 31% compared to the same period last year, and
included a number of large participating whole life insurance sales.
Sales of Individual wealth products increased 16% over the third
quarter of 2014 due to strong mutual fund sales and segregated fund
sales including sales of Sun Life Guaranteed Investment Funds. Sun Life
Global Investments (Canada) Inc. ("SLGI") retail mutual funds continued
their positive momentum from 2014, with sales up 45% over the same
period in 2014.
GB sales increased 72% compared to the third quarter of 2014 primarily
driven by activity in the large case market segment. GRS sales
increased 71% compared to the prior year due to strong defined
contribution sales and the successful retention of large case business.
Pension rollover sales were $543 million, an increase of 39% from the
third quarter of 2014.
Q3 2015 vs. Q3 2014 (year-to-date)
Reported net income was $614 million for the first nine months of 2015,
compared to $673 million for the nine months ended September 30, 2014.
Operating net income for the first nine months of 2015 was $603
million, compared to $674 million in the same period of 2014. 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 $625 million in the nine months ended
September 30, 2015, compared to $642 million in the same period last
year. Underlying net income in SLF Canada excludes from operating net
income market related impacts and assumption changes and management
actions, which are set out in the table above. The unfavourable effect
of market related impacts in the first nine months of 2015 was
primarily driven by equity markets partially offset by the positive
impacts of swap spreads and credit spreads, compared to the
unfavourable effect in the first nine months of 2014 primarily driven
by interest rates partially offset by equity markets.
Net income for the nine months ended September 30, 2015 also reflected
gains from investment activity on insurance contract liabilities offset
by unfavourable policyholder behaviour, lower gains on new business,
and expense experience including investment in growing our individual
wealth business.
Net income for the nine months ended September 30, 2014 also reflected
net realized gains on AFS assets, gains from new business in GRS and
the insurance business in Individual Insurance & Wealth, as well as
gains from investing activity on insurance contract liabilities. These
positive impacts were partially offset by unfavourable morbidity
experience in GB.
SLF U.S.
SLF U.S. has three business units: Group Benefits, International, and
In-force Management. Group Benefits provides protection solutions to
employers and employees including group life, disability, medical
stop-loss, and dental insurance products, as well as a suite of
voluntary benefits products. International offers individual life
insurance and investment wealth products to high net worth clients in
international markets. In-force Management includes certain closed
individual life insurance products, primarily universal life and
participating whole life insurance.
|
Quarterly results
|
|
Year-to-date
|
(US$ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
Underlying net income (loss)(1)
|
73
|
|
85
|
|
65
|
|
9
|
|
45
|
|
223
|
|
231
|
|
Market related impacts
|
(16)
|
|
23
|
|
8
|
|
16
|
|
(6)
|
|
15
|
|
(53)
|
|
Assumption changes and management actions
|
(8)
|
|
—
|
|
(54)
|
|
121
|
|
(42)
|
|
(62)
|
|
(19)
|
Operating net income (loss) (1)
|
49
|
|
108
|
|
19
|
|
146
|
|
(3)
|
|
176
|
|
159
|
Reported net income (loss)
|
49
|
|
108
|
|
19
|
|
146
|
|
(3)
|
|
176
|
|
159
|
Underlying ROE (%)(1)
|
11.2
|
|
12.7
|
|
9.7
|
|
1.3
|
|
6.8
|
|
11.2
|
|
11.3
|
Operating ROE (%)(1)
|
7.5
|
|
16.2
|
|
2.8
|
|
22.0
|
|
(0.4)
|
|
8.9
|
|
7.8
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Benefits(1)
|
16
|
|
22
|
|
38
|
|
(64)
|
|
(11)
|
|
76
|
|
9
|
|
International(1)
|
67
|
|
(1)
|
|
2
|
|
78
|
|
33
|
|
68
|
|
83
|
|
In-force Management(1)
|
(34)
|
|
87
|
|
(21)
|
|
132
|
|
(25)
|
|
32
|
|
67
|
Total operating net income (loss)(1)
|
49
|
|
108
|
|
19
|
|
146
|
|
(3)
|
|
176
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying net income (loss)(1)
|
97
|
|
105
|
|
81
|
|
13
|
|
48
|
|
283
|
|
253
|
Operating net income (loss)(1)
|
64
|
|
134
|
|
35
|
|
168
|
|
(4)
|
|
233
|
|
173
|
Reported net income (loss)
|
64
|
|
134
|
|
35
|
|
168
|
|
(4)
|
|
233
|
|
173
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
|
|
Q3 2015 vs. Q3 2014
SLF U.S.'s reported net income and operating net income was C$64 million
in the third quarter of 2015, compared to reported net loss and
operating net loss of C$4 million in the third quarter of 2014. There
were no operating net income adjustments in SLF U.S. in 2015 or 2014.
Underlying net income was C$97 million, compared to C$48 million in the
third quarter of 2014. The weakening of the Canadian dollar in the
third quarter of 2015 relative to average exchange rates in the third
quarter of 2014 increased operating net income by $11 million.
In U.S. dollars, SLF U.S.'s reported net income and operating net income
was US$49 million in the third quarter of 2015, compared to reported
net loss and operating net loss of US$3 million in the third quarter of
2014. Underlying net income was US$73 million in the third quarter of
2015, compared to US$45 million in the third quarter of 2014.
Underlying net income excludes from operating net income market related
impacts and assumption changes and management actions, which are set
out in the table above. The unfavourable effect of market related
impacts in the third quarter of 2015 was primarily driven by the impact
of interest rate and equity market changes partially offset by changes
in credit spreads and swap spreads, compared to the unfavourable effect
in the third quarter of 2014 primarily driven by the impact of interest
rate changes partially offset by changes in credit spreads. Assumption
changes and management actions in the third quarter of 2015 had an
unfavourable impact in In-force Management mostly offset by favourable
impacts in International and Group Benefits.
Net income in the third quarter of 2015 also reflected net realized
gains on the sale of AFS assets, favourable tax adjustments related to
prior years, and the impact of price increases and expense management
in Group Benefits. These items were partially offset by unfavourable
morbidity and mortality experience in Group Benefits.
Net income in the third quarter of 2014 also reflected unfavourable
underwriting experience in Group Benefits, primarily in the disability
line of business, unfavourable mortality experience in Group Benefits
and In-force Management and non-recurring expense experience.
Group Benefits sales in the third quarter of 2015 increased 10% compared
to the same period last year driven by a 63% increase in stop-loss
sales.
International sales reflect the ongoing repositioning of our product
offerings in our chosen life and wealth markets, and showed a decrease
of 66% compared to the same period last year.
Q3 2015 vs. Q3 2014 (year-to-date)
SLF U.S.'s reported net income and operating net income was C$233
million for the nine months ended September 30, 2015, compared to
reported net income and operating net income of C$173 million for the
same period last year. There were no operating net income adjustments
in SLF U.S. in 2015 or 2014. Underlying net income was C$283 million in
the first nine months of 2015, compared to C$253 million in the same
period of 2014. The weakening of the Canadian dollar in the first nine
months of 2015 relative to average exchange rates in the first nine
months of 2014 increased operating net income by $31 million.
In U.S. dollars, SLF U.S.'s reported net income and operating net income
was US$176 million for the nine months ended September 30, 2015,
compared to reported net income and operating net income of US$159
million for the nine months ended September 30, 2014. Underlying net
income was US$223 million for the nine months ended September 30, 2015,
compared to US$231 million in the same period last year. Underlying net
income excludes from operating net income market related impacts and
assumption changes and management actions, which are set out in the
table above. The favourable effect of market related impacts in the
first nine months of 2015 was primarily driven by changes in credit
spreads partially offset by equity market changes, compared to the
unfavourable effect in the first nine months of 2014 primarily driven
by interest rates.
Net income for the first nine months of 2015 also reflected positive
credit experience, net realized gains on the sale of AFS assets,
favourable tax adjustments related to prior years, the impact of price
increases and expense management in Group Benefits, and favourable
mortality experience in International. These items were partially
offset by unfavourable claims experience in Group Benefits and
unfavourable mortality and policyholder behaviour experience in
In-force Management.
Net income for the first nine months of 2014 also reflected net realized
gains on the sale of AFS assets and favourable credit experience,
partially offset by unfavourable mortality experience in group life and
In-force Management and unfavourable underwriting experience in our
group disability line of business.
SLF Asset Management
SLF Asset Management is our asset management segment composed of MFS and
SLIM.
MFS is a premier global asset management firm which offers a
comprehensive selection of products and services. Drawing on an
investment heritage that emphasizes collaboration and integrity, MFS
actively manages assets for retail and institutional investors around
the world through mutual and commingled funds, separately managed
accounts, institutional products, and retirement strategies.
SLIM delivers customized fixed income solutions including
liability-driven investing, and a suite of alternative, yield-oriented
asset classes, including private fixed income, real estate and
commercial mortgages. SLIM consists of the businesses of Bentall
Kennedy, Prime Advisors, Ryan Labs, and SLIM Inc. that offer a
comprehensive set of capabilities to institutional investors.
|
Quarterly results
|
Year-to-date
|
SLF Asset Management (C$ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
|
Operating net income and underlying net income(1)
|
176
|
|
173
|
|
168
|
|
156
|
|
168
|
|
517
|
|
460
|
|
|
Fair value adjustments on share-based payment awards
|
28
|
|
(11)
|
|
(20)
|
|
1
|
|
(31)
|
|
(3)
|
|
(126)
|
|
Reported net income
|
204
|
|
162
|
|
148
|
|
157
|
|
137
|
|
514
|
|
334
|
|
Assets under management (C$ billions)(2)
|
593.0
|
|
558.3
|
|
559.9
|
|
500.7
|
|
475.6
|
|
593.0
|
|
475.6
|
|
Gross sales (C$ billions)(2)
|
22.7
|
|
25.3
|
|
28.2
|
|
23.3
|
|
21.9
|
|
76.2
|
|
67.8
|
|
Net sales (C$ billions)(2)
|
(11.2)
|
|
(1.8)
|
|
(0.2)
|
|
(2.2)
|
|
(2.2)
|
|
(13.2)
|
|
3.4
|
|
|
|
|
|
|
|
|
|
MFS (C$ millions)
|
|
|
|
|
|
|
|
Operating net income(1)
|
173
|
|
173
|
|
168
|
|
156
|
|
168
|
|
514
|
|
460
|
|
|
Fair value adjustments on share-based payment awards
|
28
|
|
(11)
|
|
(20)
|
|
1
|
|
(31)
|
|
(3)
|
|
(126)
|
|
Reported net income
|
201
|
|
162
|
|
148
|
|
157
|
|
137
|
|
511
|
|
334
|
|
Assets under management (C$ billions)(2)
|
537.4
|
|
550.2
|
|
559.9
|
|
500.7
|
|
475.6
|
|
537.4
|
|
475.6
|
|
Gross sales (C$ billions)(2)
|
21.5
|
|
24.7
|
|
28.2
|
|
23.3
|
|
21.9
|
|
74.4
|
|
67.8
|
|
Net sales (C$ billions)(2)
|
(11.8)
|
|
(2.2)
|
|
(0.2)
|
|
(2.2)
|
|
(2.2)
|
|
(14.2)
|
|
3.4
|
|
(US$ millions)
|
|
|
|
|
|
|
|
Operating net income(1)
|
133
|
|
141
|
|
135
|
|
137
|
|
154
|
|
409
|
|
420
|
|
|
Fair value adjustments on share-based payment awards
|
21
|
|
(9)
|
|
(16)
|
|
—
|
|
(28)
|
|
(4)
|
|
(114)
|
|
Reported net income
|
154
|
|
132
|
|
119
|
|
137
|
|
126
|
|
405
|
|
306
|
|
Pre-tax operating profit margin ratio(2)
|
40%
|
|
40%
|
|
40%
|
|
39%
|
|
43%
|
|
40%
|
|
42%
|
|
Average net assets (US$ billions)(2)
|
429.5
|
|
450.3
|
|
436.4
|
|
427.3
|
|
434.7
|
|
438.7
|
|
425.0
|
|
Assets under management (US$ billions)(2)(3)
|
403.7
|
|
440.5
|
|
441.4
|
|
431.0
|
|
424.8
|
|
403.7
|
|
424.8
|
|
Gross sales (US$ billions)(2)
|
16.5
|
|
20.1
|
|
22.8
|
|
20.5
|
|
20.1
|
|
59.4
|
|
62.0
|
|
Net sales (US$ billions)(2)
|
(9.0)
|
|
(1.8)
|
|
(0.2)
|
|
(1.9)
|
|
(2.0)
|
|
(11.0)
|
|
3.1
|
|
Asset appreciation (depreciation) (US$ billions)
|
(27.8)
|
|
0.9
|
|
10.6
|
|
8.1
|
|
(11.8)
|
|
(16.3)
|
|
8.9
|
|
S&P 500 Index (daily average)
|
2,027
|
|
2,102
|
|
2,064
|
|
2,012
|
|
1,977
|
|
2,064
|
|
1,897
|
|
MSCI EAFE Index (daily average)
|
1,785
|
|
1,906
|
|
1,817
|
|
1,795
|
|
1,924
|
|
1,835
|
|
1,920
|
|
|
|
|
|
|
|
|
|
SLIM (C$ millions)
|
|
|
|
|
|
|
|
Operating net income(1)
|
3
|
|
|
|
|
|
3
|
|
|
Reported net income
|
3
|
|
|
|
|
|
3
|
|
|
Assets under management (C$ billions)(2)(4)
|
55.6
|
|
8.1
|
|
|
|
|
55.6
|
|
|
Gross sales (C$ billions)(2)(4)
|
1.2
|
|
0.6
|
|
|
|
|
1.8
|
|
|
Net sales (C$ billions)(2)(4)
|
0.6
|
|
0.4
|
|
|
|
|
1.0
|
|
|
(1)
|
Represents a non-IFRS financial measure that excludes fair value
adjustments on share-based payment awards at MFS. For SLF Asset
Management, operating net income is generally expected to be equal to
underlying net income. See Use of Non-IFRS Financial Measures and
Reconciliation 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.
|
(3)
|
Monthly Information on AUM is provided by MFS in its Corporate Fact
Sheet, which can be found in the "About MFS" section of its website at www.mfs.com/CorpFact.
|
(4)
|
Beginning in the third quarter of 2015, we are reporting SLIM's AUM,
gross sales and net sales in the SLF Asset Management segment as
described under the heading How we report our results. In the second
quarter of 2015, the AUM, gross sales and net sales were previously
included in the Corporate segment.
|
Q3 2015 vs. Q3 2014
SLF Asset Management's reported net income was C$204 million in the
third quarter of 2015, compared to C$137 million in the third quarter
of 2014. SLF Asset Management had operating net income and underlying
net income of C$176 million in the third quarter of 2015, compared to
C$168 million in the third quarter of 2014. Operating net income and
underlying net income in SLF Asset Management excludes the impact of
fair value adjustments on share-based payment awards at MFS, which is
set out in the table above. The weakening of the Canadian dollar in the
third quarter of 2015 relative to average exchange rates in the third
quarter of 2014 increased operating net income by $29 million.
SLF Asset Management's net income increased in the third quarter of 2015
compared to the same period in 2014 primarily due to the favourable
impact of currency, partially offset by the results of MFS.
In U.S. dollars, MFS's reported net income was US$154 million in the
third quarter of 2015, compared to US$126 million in the third quarter
of 2014. MFS's operating net income was US$133 million in the third
quarter of 2015, compared to US$154 million in the third quarter of
2014. Operating net income in MFS excludes the impact of fair value
adjustments on share-based payment awards, which is set out in the
table above. MFS's operating net income in U.S. dollars decreased in
the third quarter of 2015 compared to the same period in 2014,
primarily due to compensation costs and continued investment in
technological infrastructure, lower average net assets and tax benefits
in the third quarter of 2014. MFS's pre-tax operating profit margin
ratio was 40% in the third quarter of 2015, down from 43% in the third
quarter of 2014.
SLIM's reported net income and operating net income was C$3 million in
the third quarter of 2015. SLIM's net income in the third quarter of
2015 reflected the acquisition of Bentall Kennedy and Prime Advisors
during the quarter.
SLF Asset Management's AUM was C$593.0 billion as at September 30, 2015,
compared to C$500.7 billion as at December 31, 2014. The increase in
SLF Asset Management's AUM was primarily due to the acquisitions in
SLIM in the third quarter of 2015. MFS's AUM was US$403.7 billion as at
September 30, 2015, compared to US$431.0 billion as at December 31,
2014. The decrease of US$27.3 billion was primarily driven by gross
sales of US$59.4 billion, more than offset by redemptions of US$70.4
billion and asset depreciation of US$16.3 billion. Market volatility
during the third quarter of 2015 contributed to a decrease in gross
sales across our retail and institutional product lines. In addition,
some large institutional clients rebalanced their investments leading
to redemptions that were larger than usual. These factors were the
major drivers to our net outflows this quarter. 74%, 86%, and 97% of
MFS's retail fund assets ranked in the top half of their Lipper
categories based on three-, five-, and ten-year performance,
respectively at September 30, 2015. SLIM's AUM was C$55.6 billion as at
September 30, 2015.
Q3 2015 vs. Q3 2014 (year-to-date)
SLF Asset Management's reported net income was C$514 million in the
first nine months of 2015, compared to C$334 million in the first nine
months of 2014. SLF Asset Management had operating net income and
underlying net income of C$517 million in the first nine months of
2015, compared to C$460 million in the first nine months of 2014. The
weakening of the Canadian dollar in the first nine months of 2015
relative to average exchange rates in the first nine months of 2014
increased operating net income by $67 million.
MFS's reported net income for the nine months ended September 30, 2015
was US$405 million, compared to US$306 million for the same period last
year. MFS's operating net income was US$409 million for the first nine
months of 2015, compared to US$420 million for the nine months ended
September 30, 2014. MFS's operating net income in U.S. dollars for the
first nine months of 2015 decreased compared to the same period last
year, primarily due to compensation costs and continued investment in
technological infrastructure, partially offset by higher average net
assets.
SLIM's reported net income and operating net income for the nine months
ended September 30, 2015 was C$3 million.
SLF Asia
SLF Asia operates through subsidiaries in the Philippines, Hong Kong,
and Indonesia, as well as through joint ventures with local partners in
the Philippines, Indonesia, Vietnam, Malaysia, China, and India. We
offer individual life insurance products in all seven markets, and
group benefits and/or pension and retirement products in the
Philippines, China, Hong Kong, India, Malaysia, and Vietnam. We have
also established asset management companies either directly or through
joint ventures in the Philippines, China, and India. We distribute
these protection and wealth products to middle- and upper-income
individuals, groups, and affinity clients through multiple distribution
channels.
|
Quarterly results
|
Year-to-date
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
|
Underlying net income (loss)(1)
|
67
|
|
71
|
|
62
|
|
50
|
|
48
|
|
200
|
|
124
|
|
|
Market related impacts
|
(17)
|
|
19
|
|
10
|
|
(8)
|
|
3
|
|
12
|
|
(4)
|
|
|
Assumption changes and management actions
|
27
|
|
3
|
|
(4)
|
|
20
|
|
—
|
|
26
|
|
—
|
|
Operating net income (loss)(1)
|
77
|
|
93
|
|
68
|
|
62
|
|
51
|
|
238
|
|
120
|
|
Reported net income (loss)
|
77
|
|
93
|
|
68
|
|
62
|
|
51
|
|
238
|
|
120
|
|
Underlying ROE (%)(1)
|
7.8
|
|
8.4
|
|
7.7
|
|
6.8
|
|
7.1
|
|
8.0
|
|
6.4
|
|
Operating ROE (%)(1)
|
9.1
|
|
11.0
|
|
8.6
|
|
8.4
|
|
7.5
|
|
9.6
|
|
6.2
|
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
Q3 2015 vs. Q3 2014
SLF Asia's reported net income and operating net income was $77 million
in the third quarter of 2015, compared to reported net income and
operating net income of $51 million in the third quarter of 2014. There
were no operating net income adjustments in SLF Asia in 2015 or 2014.
The weakening of the Canadian dollar in the third quarter of 2015
relative to average exchange rates in the third quarter of 2014
increased operating net income by $10 million.
Underlying net income was $67 million, compared to $48 million in the
third quarter of 2014. Underlying net income excludes from operating
net income market related impacts and assumption changes and management
actions, which are set out in the table above. The unfavourable effect
of market related impacts in the third quarter of 2015 was primarily
driven by equity markets and interest rates, compared to the favourable
effect in the third quarter of 2014 primarily driven by equity markets.
Net income in the third quarter of 2015 also reflected business growth
relative to the third quarter of 2014.
Total individual insurance sales of $114 million increased 8% compared
to the third quarter of 2014. Excluding currency impact, individual
insurance sales decreased by 5%. Sales increases in the Philippines,
Vietnam and Malaysia of 17%, 142% and 23%, respectively, in local
currency, were driven by growth in the agency distribution in the
Philippines and Vietnam and bancassurance distribution in Malaysia.
These increases were more than offset by decreases in Hong Kong,
Indonesia, India and China. Wealth sales grew compared to the third
quarter of 2014, with strong mutual fund sales in India and higher
Mandatory Provident Fund sales in Hong Kong.
Q3 2015 vs. Q3 2014 (year-to-date)
Reported net income and operating net income was $238 million for the
first nine months of 2015, compared to reported net income and
operating net income of $120 million for the same period last year.
There were no operating net income adjustments in SLF Asia in 2015 or
2014. The weakening of the Canadian dollar in the first nine months of
2015 relative to average exchange rates in the first nine months of
2014 increased operating net income by $28 million.
Underlying net income for the first nine months of 2015 was $200
million, compared to $124 million in the same period last year.
Underlying net income excludes from operating net income market related
impacts and assumption changes and management actions, which are set
out in the table above. The favourable impact of market related effect
in the first nine months of 2015 was primarily driven by equity markets
and interest rates, compared to the unfavourable effect in the first
nine months of 2014 primarily driven by interest rates and partially
offset by equity markets.
Net income for the first nine months of 2015 also reflected favourable
impacts from business growth and net gains on AFS securities relative
to the first nine months of 2014. Net income for the first nine months
of 2014 reflected net losses on AFS securities driven by an impairment
in Hong Kong.
Total individual life sales of $341 million in the first nine months of
2015 increased by 18% compared to the first nine months of 2014, or an
increase of 6% excluding currency impact. Sales increased across the
region except in China, India and Hong Kong. Sales in the Philippines,
Vietnam, Malaysia and Indonesia increased 37%, 111%, 25% and 4%,
respectively, measured in local currency. Wealth sales increased
compared to the first nine months of 2014 driven by China, India and
Hong Kong.
Corporate
Corporate includes the results of SLF U.K. and Corporate Support.
Corporate Support includes our Run-off reinsurance business as well as
investment income, expenses, capital, and other items that have not
been allocated to our other business segments. SLF U.K. has a run-off
block of business which has been closed to new business and focuses on
supporting existing customers.
|
Quarterly results
|
Year-to-date
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
|
Underlying net income (loss)(1)
|
14
|
|
16
|
|
4
|
|
(40)
|
|
16
|
|
34
|
|
(23)
|
|
|
Market related impacts
|
9
|
|
(21)
|
|
28
|
|
23
|
|
(18)
|
|
16
|
|
(17)
|
|
|
Assumption changes and management actions
|
1
|
|
5
|
|
8
|
|
19
|
|
15
|
|
14
|
|
22
|
|
Operating net income (loss)(1)
|
24
|
|
—
|
|
40
|
|
2
|
|
13
|
|
64
|
|
(18)
|
|
|
Acquisition, integration and restructuring costs(2)
|
(14)
|
|
—
|
|
—
|
|
(4)
|
|
(3)
|
|
(14)
|
|
(22)
|
|
Reported net income (loss)
|
10
|
|
—
|
|
40
|
|
(2)
|
|
10
|
|
50
|
|
(40)
|
|
Operating net income (loss) by business unit(1)
|
|
|
|
|
|
|
|
|
SLF U.K.(1)
|
70
|
|
37
|
|
71
|
|
65
|
|
44
|
|
178
|
|
109
|
|
|
Corporate Support(1)
|
(46)
|
|
(37)
|
|
(31)
|
|
(63)
|
|
(31)
|
|
(114)
|
|
(127)
|
|
Total operating net income (loss)(1)
|
24
|
|
—
|
|
40
|
|
2
|
|
13
|
|
64
|
|
(18)
|
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
In 2015, acquisition and integration costs primarily related to our
acquisitions and integrations of Bentall Kennedy, Prime Advisors and
Ryan Labs and our proposed acquisition of Assurant, Inc.'s U.S.
Employee Benefits business. In 2014, restructuring costs consisted of
transition costs related to the sale of our U.S. Annuity Business.
|
Q3 2015 vs. Q3 2014
Corporate had a reported net income of $10 million in the third quarter
of 2015, compared to a reported net income of $10 million in the third
quarter of 2014. Operating net income was $24 million for the third
quarter of 2015, compared to an operating net income of $13 million in
the same period last year. Operating net income (loss) excludes
acquisition, integration and restructuring costs, which are set out in
the table above. The weakening of the Canadian dollar in the third
quarter of 2015 relative to average exchange rates in the third quarter
of 2014 increased operating net income by $8 million.
Underlying net income was $14 million, compared to underlying net income
of $16 million in the third quarter of 2014. Underlying net income
excludes from operating net income market related impacts and
assumption changes and management actions, which are set out in the
table above. The favourable effect of market related impacts in the
third quarter of 2015 was primarily driven by interest rates and equity
markets, compared to the unfavourable effect in the third quarter of
2014 primarily driven by interest rates.
SLF U.K.'s operating net income was $70 million in the third quarter of
2015, compared to $44 million in the third quarter of 2014. SLF U.K.'s
net income in the third quarter of 2015 reflected the favourable effect
of interest rates and equity markets, policyholder behaviour, and
investment activity on insurance contract liabilities, partially offset
by assumption changes and management actions. Net income in the third
quarter of 2014 reflected the unfavourable impact of interest rates,
partially offset by positive mortality experience and a non-recurring
tax-related benefit.
Corporate Support had an operating net loss of $46 million in the third
quarter of 2015, compared to an operating net loss of $31 million in
the third quarter of 2014. The increase in loss was largely as a result
of foreign exchange losses in the third quarter of 2015.
Q3 2015 vs. Q3 2014 (year-to-date)
The reported net income was $50 million in the Corporate segment for the
nine months ended September 30, 2015, compared to a reported net loss
of $40 million in the same period one year ago. Operating net income
was $64 million for the first nine months of 2015, compared to an
operating net loss of $18 million in the same period last year.
Operating net income (loss) excludes acquisition, integration and
restructuring costs, which are set out in the table above. The
weakening of the Canadian dollar in the first nine months of 2015
relative to average exchange rates in the first nine months of 2014
increased operating net income by $11 million.
Underlying net income was $34 million in the nine months ended
September 30, 2015, compared to an underlying net loss of $23 million
in the nine months ended September 30, 2014. Underlying net income
excludes from operating net income market related impacts and
assumption changes and management actions, which are set out in the
table above. The favourable effect of market related impacts in the
first nine months of 2015 was primarily driven by interest rates
partially offset by equity markets, compared to the unfavourable effect
in the first nine months of 2014 primarily driven by interest rates and
equity markets.
SLF U.K.'s operating net income for the nine months ended September 30,
2015 was $178 million, compared to $109 million for the first nine
months ended September 30, 2014. Net income in the first nine months of
2015 reflected the favourable effect of interest rates, policyholder
behaviour and mortality experience, and assumption changes and
management actions, partially offset by equity markets. Net income in
the first nine months of 2014 reflected positive impacts from
assumption changes and management actions, partially offset by the
unfavourable impact of interest rates and equity markets.
In Corporate Support, the operating net loss for the nine months ended
September 30, 2015 was $114 million, compared to an operating loss of
$127 million for the same period one year ago. The decrease in loss was
due to lower preferred share dividends and tax benefits, partially
offset by higher level of project expenses.
Additional Financial Disclosure
Revenue
|
Quarterly results
|
Year-to-date
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
2015
|
|
2014
|
|
Premiums
|
|
|
|
|
|
|
|
|
Gross
|
3,835
|
|
4,103
|
|
3,723
|
|
4,023
|
|
4,080
|
|
11,661
|
|
11,476
|
|
|
Ceded
|
(1,721)
|
|
(1,580)
|
|
(1,516)
|
|
(1,322)
|
|
(1,385)
|
|
(4,817)
|
|
(4,181)
|
|
Net premium revenue
|
2,114
|
|
2,523
|
|
2,207
|
|
2,701
|
|
2,695
|
|
6,844
|
|
7,295
|
|
Net investment income
|
|
|
|
|
|
|
|
|
Interest and other investment income
|
1,362
|
|
1,320
|
|
1,279
|
|
1,258
|
|
1,265
|
|
3,961
|
|
3,683
|
|
|
Fair value and foreign currency changes on assets and liabilities
|
(168)
|
|
(3,500)
|
|
2,495
|
|
2,196
|
|
495
|
|
(1,173)
|
|
3,976
|
|
|
Net gains (losses) on available-for-sale assets
|
47
|
|
46
|
|
96
|
|
49
|
|
48
|
|
189
|
|
153
|
|
Fee income
|
1,338
|
|
1,293
|
|
1,255
|
|
1,171
|
|
1,111
|
|
3,886
|
|
3,282
|
|
Total revenue
|
4,693
|
|
1,682
|
|
7,332
|
|
7,375
|
|
5,614
|
|
13,707
|
|
18,389
|
|
Adjusted revenue(1)
|
5,573
|
|
6,011
|
|
5,685
|
|
6,229
|
|
6,249
|
|
17,297
|
|
17,824
|
|
(1)
|
Represents a non-IFRS financial measure that excludes from revenue the
impact of Constant Currency Adjustment, FV Adjustment, and Reinsurance
in SLF Canada's GB Operations Adjustment as described in Use of
Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial
Measures.
|
Revenue in the third quarter of 2015 was $4.7 billion, compared to $5.6
billion in the third quarter of 2014. The decrease is mainly
attributable to net losses from changes in fair value of fair value
through profit or loss ("FVTPL") assets and liabilities and lower net
premium revenue in SLF Canada, SLF U.S. and Corporate Support,
partially offset by favourable currency impact from the weakening
Canadian dollar and higher fee income in SLF Canada, SLF Asset
Management and SLF Asia. The weakening of the Canadian dollar relative
to average exchange rates in the third quarter of 2014 increased
revenue by $532 million. Adjusted revenue was $5.6 billion in the third
quarter of 2015, $0.6 billion lower compared to the third quarter of
2014. The decrease was primarily driven by lower net premium revenue in
SLF Canada, SLF U.S. and Corporate Support, partially offset by higher
fee income in SLF Canada, SLF Asset Management and SLF Asia.
Revenue was $13.7 billion for the nine months ended September 30, 2015,
down $4.7 billion from the comparable period last year. The decrease
was mainly attributable to net losses in changes in fair value of FVTPL
assets and liabilities and lower net premium revenue in SLF Canada, SLF
U.S. and Corporate Support, partially offset by favourable currency
impact from the weakening Canadian dollar and higher fee income from
SLF Asset Management, SLF Canada and SLF Asia. Adjusted revenue of
$17.3 billion for the nine months ended September 30, 2015 was $0.5
billion lower compared to the same period last year, primarily due to
lower net premium revenue in SLF Canada, SLF U.S. and Corporate
Support, partially offset by higher fee income in SLF Asset Management,
SLF Canada and SLF Asia.
Premiums and Deposits
|
Quarterly results
|
Year-to-date
|
($ millions)
|
|
|
Q3'15
|
|
|
Q2'15
|
|
|
Q1'15
|
|
|
Q4'14
|
|
|
Q3'14
|
|
|
2015
|
|
|
2014
|
|
Net premium revenue
|
|
|
2,114
|
|
|
2,523
|
|
|
2,207
|
|
|
2,701
|
|
|
2,695
|
|
|
6,844
|
|
|
7,295
|
|
Segregated fund deposits
|
|
|
2,626
|
|
|
4,487
|
|
|
2,411
|
|
|
2,155
|
|
|
1,907
|
|
|
9,524
|
|
|
7,094
|
|
Mutual fund sales(1)
|
|
|
16,902
|
|
|
19,927
|
|
|
22,124
|
|
|
17,071
|
|
|
14,714
|
|
|
58,953
|
|
|
49,548
|
|
Managed fund sales(1)
|
|
|
7,507
|
|
|
7,002
|
|
|
8,243
|
|
|
7,988
|
|
|
8,170
|
|
|
22,752
|
|
|
21,880
|
|
ASO premium and deposit equivalents(1)
|
|
|
1,758
|
|
|
1,781
|
|
|
1,769
|
|
|
1,855
|
|
|
1,638
|
|
|
5,308
|
|
|
4,893
|
|
Total premiums and deposits(1)
|
|
|
30,907
|
|
|
35,720
|
|
|
36,754
|
|
|
31,770
|
|
|
29,124
|
|
|
103,381
|
|
|
90,710
|
|
Total adjusted premiums and deposits(1)(2)
|
|
|
27,938
|
|
|
33,663
|
|
|
34,099
|
|
|
31,842
|
|
|
30,254
|
|
|
95,854
|
|
|
94,121
|
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures and Reconciliation of Non-IFRS Financial Measures.
|
(2)
|
Represents a non-IFRS financial measure that excludes from premiums and
deposits the impact of Constant Currency Adjustment and Reinsurance in
SLF Canada's GB Operations Adjustment as described in Use of Non-IFRS
Financial Measures and Reconciliation of Non-IFRS Financial Measures.
|
Premiums and deposits were $30.9 billion in the third quarter of 2015, compared to $29.1
billion in the third quarter of 2014, primarily due to favourable
currency impact, higher segregated fund deposits in SLF Canada,
partially offset by lower fund sales in SLF Asset Management and
decreased net premium revenue in SLF Canada, SLF U.S. and Corporate
Support. The weakening of the Canadian dollar relative to average
exchange rates in the third quarter of 2014 increased total premiums
and deposits by approximately $4.1 billion. Adjusted premiums and
deposits of $27.9 billion in the third quarter of 2015 decreased $2.4 billion
from the third quarter of 2014. The decrease was mainly the result of
lower fund sales in SLF Asset Management and decreased net premium
revenue in SLF Canada, SLF U.S. and Corporate Support, partially offset
by higher fund sales in SLF Asia.
Premiums and deposits were $103.4 billion for the nine months ended September 30, 2015,
compared to $90.7 billion for the nine months ended September 30, 2014.
The increase was primarily attributable to favourable currency impact
from the weakening of the Canadian dollar, higher segregated fund
deposits and ASO premium and deposit equivalents in SLF Canada,
increased fund sales in SLF Asia, partially offset by lower fund sales
in SLF Asset Management, lower net premium revenue in SLF Canada, SLF
U.S. and Corporate Support. Adjusted premiums and deposits of $95.9 billion for the nine months ended September 30, 2015 increased
by $1.8 billion over the same period last year. The increase was mainly
due to higher segregated fund deposits and ASO premium and deposit
equivalents in SLF Canada, increased fund sales in SLF Asia, partially
offset by lower fund sales in SLF Asset Management, lower net premium
revenue in SLF Canada, SLF U.S. and Corporate Support.
Net premium revenue, which reflects gross premiums less amounts ceded to
reinsurers, was $2.1 billion in the third quarter of 2015, compared to
$2.7 billion in the third quarter of 2014. Net premium revenue was $6.8
billion in the first nine months in 2015, compared to $7.3 billion in
the same period last year. In both cases, the decrease was mainly
attributable to decreased defined benefit solution sales in GRS in SLF
Canada, lower sales in International in SLF U.S. and the impact of a
reinsurance agreement in Run-off Reinsurance we entered into during the
quarter, partially offset by favourable currency impact and higher net
premium revenue in SLF Asia.
Segregated fund deposits were $2.6 billion in the third quarter of 2015,
compared to $1.9 billion in the third quarter of 2014. Segregated fund
deposits were $9.5 billion in the first nine months in 2015, compared
to $7.1 billion in the same period last year. In both cases, the
increase was largely attributable to increases in GRS in SLF Canada.
Sales of mutual funds was $16.9 billion in the third quarter of 2015, up
$2.2 billion compared to the third quarter of 2014. Sales of mutual
funds was $59.0 billion in the first nine months in 2015, compared to
$49.5 billion in the same period last year. In both cases, the increase
was driven by favourable currency impact and higher sales in India and
SLF Canada. Sales of managed funds was $7.5 billion in the third
quarter of 2015, compared to $8.2 billion in the third quarter of 2014.
The decrease was largely due to lower sales in MFS in SLF Asset
Management, partially offset by favourable currency impact from the
weakening of the Canadian dollar and SLF Asset Management sales from
SLIM, including the 2015 acquisitions and SLIM Inc. Sales of managed
funds was $22.8 billion in the first nine months in 2015, compared to
$21.9 billion in the same period last year. The increase was primarily
driven by favourable currency impact from the weakening Canadian dollar
and higher sales in SLF Asset Management from SLIM partially offset by
lower sales in MFS.
ASO premium and deposit equivalents were $1.8 billion in the third
quarter of 2015, compared to $1.6 billion in the third quarter of 2014.
ASO premium and deposit equivalents for the nine months of 2015 were up
$0.4 billion compared to the same period last year. In both cases, the
increase was driven by increases in SLF Canada.
Sales
In SLF Canada, life and health sales consist of sales of individual
insurance and group benefits products; wealth sales consist of sales of
individual wealth products and sales in GRS. In SLF U.S., life and
health sales consist of sales by Group Benefits and individual life
sales by International; wealth sales consist of investment product
sales in International. In SLF Asia, life and health sales consist of
the individual and group life and health sales from wholly owned
subsidiaries and joint ventures based on our proportionate equity
interest in the Philippines, Hong Kong, Indonesia, India, China,
Malaysia, and Vietnam; wealth sales consist of Hong Kong wealth sales,
Philippines mutual fund sales, wealth sales from the India and China
insurance companies, and Birla Sun Life Asset Management Company's
equity and fixed income mutual fund sales based on our proportionate
equity interest. SLF Asset Management sales consist of gross sales (inflows) for retail and institutional clients.
($ millions)
|
|
Q3'15
|
|
Q3'14
|
Life and health sales(1)
|
|
|
|
|
|
|
SLF Canada
|
|
237
|
|
156
|
|
|
SLF U.S.
|
|
169
|
|
155
|
|
|
SLF Asia
|
|
124
|
|
111
|
Total life and health sales
|
|
530
|
|
422
|
Wealth sales(1)
|
|
|
|
|
|
|
SLF Canada(2)
|
|
3,421
|
|
2,375
|
|
|
SLF U.S.
|
|
119
|
|
294
|
|
|
SLF Asia
|
|
1,571
|
|
1,146
|
Total wealth sales excluding SLF Asset Management
|
|
5,111
|
|
3,815
|
|
SLF Asset Management sales(1)
|
|
22,748
|
|
21,873
|
Total wealth sales
|
|
27,859
|
|
25,688
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
(2)
|
In the third quarter of 2014, SLF Canada wealth sales included sales
from SLIM Inc. of $25 million.
|
Total Company life and health sales were $530 million in the third
quarter of 2015, compared to $422 million in the same period last year.
-
SLF Canada life and health sales were $237 million in the third quarter
of 2015, up $81 million compared to the third quarter of 2014 due to
higher sales in Individual insurance business and GB
-
SLF U.S. life and health sales were $169 million in the third quarter of
2015, compared to $155 million in the third quarter of 2014, primarily
driven by favourable currency impact and higher sales in Group
Benefits, partially offset by lower sales in individual insurance in
International
-
SLF Asia life and health sales were $124 million in the third quarter of
2015, compared to $111 million in the third quarter of 2014, driven by
growth in the Philippines, Vietnam, Malaysia and a favourable currency
impact of $15 million
Total Company wealth sales were $27.9 billion in the third quarter of
2015, compared to $25.7 billion in the third quarter of 2014.
-
SLF Canada wealth sales were $3.4 billion in the third quarter of 2015,
compared to $2.4 billion in the third quarter of 2014, mainly
attributable to higher sales in individual wealth business and GRS
-
SLF U.S. wealth sales were $119 million in the third quarter of 2015,
compared to $294 million in the third quarter of 2014, due to lower
investment product sales in International, partially offset by
favourable currency impact
-
SLF Asia wealth sales were $1.6 billion in the third quarter of 2015,
compared to $1.1 billion in the third quarter of 2014, primarily driven
by higher fund sales in India and favourable currency impact, partially
offset by lower fund sales in China and the Philippines
-
SLF Asset Management gross sales were $22.7 billion in the third quarter
of 2015, compared to $21.9 billion in the third quarter of 2014,
largely reflecting favourable currency impact and the addition of Ryan
Labs, Prime Advisors and Bentall Kennedy, partially offset by lower
fund sales from MFS
Assets Under Management
AUM consist 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 $846.2 billion as at September 30, 2015, compared to AUM of
$734.4 billion as at December 31, 2014. The increase in AUM of $111.8
billion between December 31, 2014 and September 30, 2015 resulted
primarily from:
(i)
|
an increase of $84.6 billion from the weakening of the Canadian dollar
against foreign currencies compared to the prior period exchange rates;
|
(ii)
|
$52.3 billion increase from the acquisition of Ryan Labs, Prime Advisors
and Bentall Kennedy; and
|
(iii)
|
other business growth of $5.9 billion; partially offset by
|
(iv)
|
unfavourable market movements on the value of mutual funds, managed
funds, and segregated funds of $22.2 billion;
|
(v)
|
net outflow of mutual, managed, and segregated funds of $7.8 billion;
and
|
(vi)
|
a decrease of $1.2 billion from the change in value of FVTPL assets and
liabilities.
|
Changes in the Statements of Financial Position and in Shareholders'
Equity
Total general fund assets were $151.7 billion as at September 30, 2015,
compared to $139.4 billion as at December 31, 2014. The increase in
general fund assets from December 31, 2014 was primarily a result of
$8.1 billion from the weakening of the Canadian dollar relative to
foreign currencies and business growth of $5.3 billion, partially
offset by a $1.2 billion decrease from the change in value of FVTPL
assets and liabilities.
Insurance contract liabilities (excluding other policy liabilities and
assets) of $101.4 billion as at September 30, 2015 increased by $6.2
billion compared to December 31, 2014, mainly due to currency
movements, and balances arising from new policies, partially offset by
changes in balances on in-force policies (which includes fair value
changes on FVTPL assets supporting insurance contract liabilities).
Shareholders' equity, including preferred share capital, was $20.6
billion as at September 30, 2015, compared to $18.7 billion as at
December 31, 2014. The increase in shareholders' equity was primarily
due to:
(i)
|
shareholders' net income of $1,725 million in 2015, before preferred
share dividends of $76 million;
|
(ii)
|
an increase of $1,203 million from the weakening of the Canadian dollar
relative to foreign currencies;
|
(iii)
|
proceeds of $65 million from the issuance of common shares through the
Canadian dividend reinvestment and share purchase plan, $34 million
issued as consideration for business acquisition, $28 million from
stock options exercised and $3 million from stock-based compensation;
|
(iv)
|
changes in liabilities for defined benefit plans of $33 million; and
partially offset by
|
(v)
|
common share dividend payments of $685 million;
|
(vi)
|
common share repurchases of $212 million; and
|
(vii)
|
net unrealized losses on AFS assets in OCI of $239 million.
|
As at October 23, 2015, Sun Life Financial Inc. had 611.2 million common
shares and 92.2 million preferred shares outstanding.
Cash Flows
|
|
Quarterly results
|
($ millions)
|
|
Q3'15
|
|
|
Q3'14
|
|
Net cash and cash equivalents, beginning of period
|
|
4,206
|
|
|
2,891
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
Operating activities
|
|
1,265
|
|
|
958
|
|
|
Investing activities
|
|
(615)
|
|
|
(39)
|
|
|
Financing activities
|
|
242
|
|
|
(279)
|
|
Changes due to fluctuations in exchange rates
|
|
185
|
|
|
74
|
|
Increase (decrease) in cash and cash equivalents
|
|
1,077
|
|
|
714
|
|
Net cash and cash equivalents, end of period
|
|
5,283
|
|
|
3,605
|
|
Short-term securities, end of period
|
|
2,629
|
|
|
2,561
|
|
Net cash, cash equivalents and short-term securities, end of period
|
|
7,912
|
|
|
6,166
|
|
Net cash, cash equivalents and short-term securities were $7.9 billion
at the end of the third quarter of 2015, compared to $6.2 billion at
the end of the third quarter of 2014.
The operating activities of the Company generate cash flows which
include net premium revenue, net investment income, fee income, and the
sale of investments. They are the principal source of funds to pay for
policyholder claims and benefits, commissions, operating expenses, and
the purchase of investments. Cash flows used in investing activities
primarily include transactions related to associates, joint ventures
and acquisitions. Cash flows used in financing activities largely
reflect capital transactions including dividends, the issuance and
repurchase of shares, as well as the issuance and retirement of debt
instruments and preferred shares.
The higher cash flow used in investing activities in the third quarter
of 2015 compared to the third quarter of 2014 was primarily due to the
acquisitions closed in the third quarter of 2015. The higher cash flow
provided by financing activities in the third quarter of 2015 compared
to the third quarter of 2014 was largely due to the issuance of
subordinated debentures.
Income Taxes
In the third quarter of 2015, our effective tax rates on reported net
income and operating net income were 13.0% and 12.8%, respectively. In
the first nine months of 2015, our effective tax rates on reported net
income and operating net income were 19.4% and 19.8%, respectively. The
provincial corporate tax rate increased in Alberta, Canada effective
the second quarter of 2015, and as a result, our statutory tax rate
increased from 26.5% to 26.75% for 2015 and future years. Normally, our
effective tax rate is reduced below the statutory rate of 26.75%,
mainly due to tax exempt investment income that is generally expected
to decrease the effective tax rate to a range of 18% to 22%.
Our effective tax rate in the third quarter of 2015 was below the
expected range of 18% to 22% mainly as a result of higher earnings in
lower-tax jurisdictions and adjustments primarily related to prior
years in Canada and the U.S.
The effective tax rate calculated on an operating basis excludes amounts
attributable to participating policyholders and non-operating items.
Quarterly Financial Results
The following table provides a summary of our results for the eight most
recently completed quarters. A more complete discussion of our
historical quarterly results can be found in our interim and annual
MD&As for the relevant periods.
|
Quarterly results
|
($ millions, unless otherwise noted)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Q2'14
|
|
Q1'14
|
|
Q4'13
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
478
|
|
731
|
|
446
|
|
511
|
|
467
|
|
488
|
|
454
|
|
642
|
|
|
Reported
|
482
|
|
726
|
|
441
|
|
502
|
|
435
|
|
425
|
|
400
|
|
571
|
|
|
Underlying(1)
|
528
|
|
615
|
|
516
|
|
360
|
|
517
|
|
499
|
|
440
|
|
375
|
|
Diluted EPS ($)
|
|
|
|
|
|
|
|
|
|
Operating(1)
|
0.78
|
|
1.19
|
|
0.73
|
|
0.83
|
|
0.76
|
|
0.80
|
|
0.74
|
|
1.05
|
|
|
Reported
|
0.79
|
|
1.18
|
|
0.72
|
|
0.81
|
|
0.71
|
|
0.69
|
|
0.65
|
|
0.93
|
|
|
Underlying(1)
|
0.86
|
|
1.00
|
|
0.84
|
|
0.59
|
|
0.84
|
|
0.81
|
|
0.72
|
|
0.61
|
|
Basic Reported EPS ($)
|
|
|
|
|
|
|
|
|
|
Reported
|
0.79
|
|
1.19
|
|
0.72
|
|
0.82
|
|
0.71
|
|
0.70
|
|
0.66
|
|
0.94
|
|
Operating net income (loss) by segment(1)
|
|
|
|
|
|
|
|
|
|
SLF Canada(1)
|
137
|
|
331
|
|
135
|
|
123
|
|
239
|
|
197
|
|
238
|
|
137
|
|
|
SLF U.S.(1)
|
64
|
|
134
|
|
35
|
|
168
|
|
(4)
|
|
100
|
|
77
|
|
341
|
|
|
SLF Asset Management(1)
|
176
|
|
173
|
|
168
|
|
156
|
|
168
|
|
145
|
|
147
|
|
156
|
|
|
SLF Asia(1)
|
77
|
|
93
|
|
68
|
|
62
|
|
51
|
|
37
|
|
32
|
|
42
|
|
|
Corporate(1)
|
24
|
|
—
|
|
40
|
|
2
|
|
13
|
|
9
|
|
(40)
|
|
(34)
|
|
Total operating net income (loss)(1)
|
478
|
|
731
|
|
446
|
|
511
|
|
467
|
|
488
|
|
454
|
|
642
|
|
(1)
|
Represents a non-IFRS financial measure. See Use of Non-IFRS Financial
Measures.
|
Second Quarter 2015
Operating net income of $731 million in the second quarter of 2015
reflected positive interest rate impact, investment activity on
insurance contract liabilities, mortality, positive credit, morbidity
experience, and business growth. These items were partially offset by
unfavourable expense experience including investment in growing our
businesses.
First Quarter 2015
Operating net income of $446 million in the first quarter of 2015
reflected gains from investment activity on insurance contract
liabilities and positive mortality experience, offset by unfavourable
impacts from assumption changes and management actions, net interest
rate changes, lapse and other policyholder behaviour, and expense
experience.
Fourth Quarter 2014
Operating net income of $511 million in the fourth quarter of 2014
reflected favourable impact from assumption changes and management
actions and gains from investing activity on insurance contract
liabilities. These items were partially offset by unfavourable impacts
from interest rate changes, mortality and morbidity, lapse and other
policyholder behaviour, and expense experience, which mainly consists
of compensation-related and other seasonal costs.
Third Quarter 2014
Operating net income of $467 million in the third quarter of 2014
reflected favourable impact from gains from investing activity on
insurance contract liabilities, positive credit experience, tax
benefits and business growth. These items were partially offset by
unfavourable impacts from interest rate changes, mortality and
morbidity and expense experience.
Second Quarter 2014
Operating net income of $488 million in the second quarter of 2014
reflected favourable impact from equity markets, gains from investment
activity on insurance contract liabilities, positive credit experience
and business growth, offset by unfavourable impacts from net interest
rates, morbidity experience, and expense experience.
First Quarter 2014
Operating net income of $454 million in the first quarter of 2014
reflected favourable impact from equity markets, gains from investment
activity on insurance contract liabilities and positive credit
experience, offset by unfavourable impacts from net interest rates,
mortality and morbidity experience, lapse and other policyholder
behaviour and expense experience.
Fourth Quarter 2013
Operating net income 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
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.
Investments
We had total general fund invested assets of $134.5 billion as at
September 30, 2015, compared to $125.2 billion as at December 31, 2014.
The increase in general fund invested assets of $9.3 billion was
primarily due to favourable foreign currency movements and turnover
partially offset by a decrease from changes in fair value. Our general
fund is primarily invested in fixed income instruments, including debt
securities and mortgages and loans, with 85.2% of the general fund
invested assets invested in cash and fixed income investments. Equity
securities and investment properties represented 3.9% and 4.8% of the
portfolio, respectively, and the remaining 6.1% of the portfolio
consisted of policy loans, derivative assets, and other invested
assets. Our general fund invested assets are well diversified across
investment types, geographies, and sectors.
The following table sets out the composition of our invested assets.(1)
|
September 30, 2015
|
|
December 31, 2014
|
($ millions)
|
Carrying
value
|
|
% of total
carrying value
|
|
|
Carrying
value
|
|
% of total
carrying value
|
|
Cash, cash equivalents and short-term securities
|
8,052
|
|
6.0 %
|
|
|
6,818
|
|
5.4 %
|
|
Debt securities - FVTPL
|
55,201
|
|
41.0 %
|
|
|
53,127
|
|
42.4 %
|
|
Debt securities - AFS
|
13,185
|
|
9.8 %
|
|
|
13,087
|
|
10.5 %
|
|
Equity securities - FVTPL
|
4,376
|
|
3.3 %
|
|
|
4,357
|
|
3.5 %
|
|
Equity securities - AFS
|
856
|
|
0.6 %
|
|
|
866
|
|
0.7 %
|
|
Mortgages and loans
|
38,274
|
|
28.4 %
|
|
|
33,679
|
|
26.9 %
|
|
Derivative assets
|
2,238
|
|
1.7 %
|
|
|
1,839
|
|
1.5 %
|
|
Other invested assets
|
2,764
|
|
2.1 %
|
|
|
2,375
|
|
1.9 %
|
|
Policy loans
|
3,087
|
|
2.3 %
|
|
|
2,895
|
|
2.3 %
|
|
Investment properties
|
6,505
|
|
4.8 %
|
|
|
6,108
|
|
4.9 %
|
|
Total invested assets
|
134,538
|
|
100 %
|
|
|
125,151
|
|
100 %
|
|
(1)
|
The invested asset values and ratios presented are based on the carrying
value of the respective asset categories. The carrying values for FVTPL
and AFS invested assets are generally equal to their fair values. For
invested assets supporting insurance contracts, 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 assets.
|
Energy Sector Exposure
As at September 30, 2015, our exposure to the energy sector for debt
securities and corporate loans was $5.8 billion, of which 92.6% was
rated investment grade. Approximately 45% of our energy sector exposure
was invested in pipeline, storage, and transportation entities,
approximately 15% was invested in integrated oil and gas entities, and
the remaining exposure was invested in companies involved in
exploration and production, refining, and drilling and servicing, which
included approximately 6% in drilling and oil field services. Our
mortgage and real estate portfolio includes office, industrial, retail,
and multi-family buildings occupied by tenants in diversified
industries. Our most significant property exposure to the oil and gas
sector was located in Alberta, which represented less than 20% of the
Canadian mortgage portfolio and less than 30% of the Canadian real
estate portfolio. There was no significant change in exposure to energy
sector tenants and there were no material indications of stress in our
Alberta portfolio during the period. However, as the period of weak
energy prices continues, market fundamentals within the province are
deteriorating, with rising vacancy levels and lower rental rates,
particularly in the office sector. We continue to closely monitor the
impact of these market changes in the energy sector on the real estate
and mortgage portfolios.
Debt Securities
Our debt securities portfolio is actively managed through a regular
program of purchases and sales aimed at optimizing yield, quality, and
liquidity, while ensuring that it remains well diversified and
duration-matched to insurance contract liabilities. As at September 30,
2015, we held $68.4 billion of debt securities, representing 50.8% of
our total invested assets compared to $66.2 billion representing 52.9%
as at December 31, 2014. Debt securities with a credit rating of "A" or
higher represented 67.0% of the total debt securities as at
September 30, 2015, compared to 67.9% as at December 31, 2014. Debt
securities with a credit rating of "BBB" or higher represented 96.8% of
total debt securities as at September 30, 2015, compared to 97.3% as at
December 31, 2014.
Corporate debt securities not issued or guaranteed by sovereign,
regional, and municipal governments represented 67.4% of our total
debt securities as at September 30, 2015, compared to 66.7% as at
December 31, 2014. Total government issued or guaranteed debt
securities as at September 30, 2015 were $22.3 billion, compared to
$22.1 billion as at December 31, 2014. With the exception of certain
countries where we have business operations, including Canada, the
United States, the United Kingdom and the Philippines, our exposure to
debt securities from any single country did not exceed 1% of total
invested assets on our Consolidated Statements of Financial Position as
at September 30, 2015.
The carrying value of debt securities of governments and financial
institutions by geographic location is presented in the following
table.
Debt Securities of Governments and Financial Institutions by Geography
|
September 30, 2015
|
|
December 31, 2014
|
($ millions)
|
Government issued
or guaranteed
|
|
Financials
|
|
|
Government issued
or guaranteed
|
|
Financials
|
|
Canada
|
14,088
|
|
1,860
|
|
|
14,650
|
|
2,391
|
|
United States
|
1,558
|
|
6,079
|
|
|
1,590
|
|
5,992
|
|
United Kingdom
|
2,616
|
|
2,047
|
|
|
2,484
|
|
1,992
|
|
Philippines
|
2,781
|
|
41
|
|
|
2,575
|
|
17
|
|
Eurozone(1)
|
238
|
|
838
|
|
|
171
|
|
762
|
|
Other
|
1,040
|
|
1,496
|
|
|
611
|
|
1,390
|
|
Total
|
22,321
|
|
12,361
|
|
|
22,081
|
|
12,544
|
|
(1)
|
We had an immaterial amount of direct exposure to Eurozone sovereign
credits as at September 30, 2015. Our investments in Eurozone countries
primarily included Germany, Netherlands, Spain, France, and Belgium. We
did not have any direct exposure to Greece. Of our exposure to Eurozone
countries, 99.4% was rated investment grade and 78.6% had a credit
rating of "A" or higher.
|
Our gross unrealized losses as at September 30, 2015 for FVTPL and AFS
debt securities were $0.79 billion and $0.17 billion, respectively,
compared with $0.22 billion and $0.04 billion, respectively, as at
December 31, 2014.
Our debt securities as at September 30, 2015 included $12.4 billion
invested in the financial sector, representing approximately 18.1% of
our total debt securities, or 9.2% of our total invested assets. This
compares to $12.5 billion, representing 18.9% of the debt security
portfolio, or 10.0% of our total invested assets as at December 31,
2014.
Our debt securities as at September 30, 2015 included $4.7 billion of
asset-backed securities reported at fair value, representing 6.9% of
our total debt securities, or 3.5% of our total invested assets. This
compares to $4.4 billion representing 6.7% of total debt securities or
3.6% of our total invested assets as at December 31, 2014.
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 September 30, 2015, we had $38.3 billion in mortgages and loans,
representing 28.4% of our total invested assets, compared to $33.7
billion representing 26.9% as at December 31, 2014. Our mortgage
portfolio consisted almost entirely of first mortgages, and our
corporate loan portfolio consisted of private placement assets.
The carrying value of mortgages and loans by geographic location is
presented in the following table.(1)
Mortgages and Loans by Geography
|
September 30, 2015
|
December 31, 2014
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Canada
|
8,037
|
|
13,155
|
|
21,192
|
|
|
7,847
|
|
12,308
|
|
20,155
|
|
|
United States
|
6,614
|
|
6,925
|
|
13,539
|
|
|
5,563
|
|
5,196
|
|
10,759
|
|
|
United Kingdom
|
—
|
|
869
|
|
869
|
|
|
1
|
|
776
|
|
777
|
|
|
Other
|
—
|
|
2,674
|
|
2,674
|
|
|
—
|
|
1,988
|
|
1,988
|
|
|
Total
|
14,651
|
|
23,623
|
|
38,274
|
|
|
13,411
|
|
20,268
|
|
33,679
|
|
|
(1)
|
The geographic location for mortgages is based on the location of the
property and for loans it is based on the country of the creditor's
parent.
|
As at September 30, 2015, we held $14.7 billion of mortgages, compared
to $13.4 billion as at December 31, 2014. Our mortgage portfolio
consisted mainly of commercial mortgages, spread across approximately
2,300 loans. Commercial mortgages include retail, office, multi-family,
industrial, and land properties. Our commercial portfolio had a
weighted average loan-to-value ratio of approximately 55% and an
estimated weighted average debt service coverage of 1.73 times. Of the
loans in the Canadian commercial mortgage portfolio, 27.8% were insured
by the Canada Mortgage and Housing Corporation.
As at September 30, 2015, we held $23.6 billion of corporate loans,
compared to $20.3 billion as at December 31, 2014. In the current low
interest rate environment, our strategy is to continue to focus our
efforts on the origination of new private placement assets. Private
placement assets provide diversification by type of loan, industry
segment, and borrower credit quality. The loan portfolio consists of
senior secured and unsecured loans to large and mid-market sized
corporate borrowers, securitized lease/loan obligations secured by a
variety of assets, and project finance loans in sectors such as power
and infrastructure.
The carrying value and allowance for mortgages and loans past due or
impaired is presented in the following table.
Mortgages and Loans Past Due or Impaired
|
September 30, 2015
|
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Mortgages
|
|
|
Loans
|
|
Total
|
|
|
Not past due
|
14,555
|
|
23,623
|
|
38,178
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
3
|
|
—
|
|
3
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Impaired
|
132
|
|
5
|
|
137
|
|
|
39
|
(1)
|
|
5
|
|
44
|
|
|
Total
|
14,690
|
|
23,628
|
|
38,318
|
|
|
39
|
|
|
5
|
|
44
|
|
|
|
December 31, 2014
|
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
|
Loans
|
|
Total
|
|
|
Mortgages
|
|
|
Loans
|
|
Total
|
|
|
Not past due
|
13,316
|
|
20,248
|
|
33,564
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Past due:
|
|
|
|
|
|
|
|
|
|
|
Past due less than 90 days
|
14
|
|
—
|
|
14
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
Past due 90 to 179 days
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
|
Past due 180 days or more
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Impaired
|
118
|
|
36
|
|
154
|
|
|
37
|
(1)
|
|
16
|
|
53
|
|
|
Total
|
13,448
|
|
20,284
|
|
33,732
|
|
|
37
|
|
|
16
|
|
53
|
|
|
(1)
|
Includes $20 million of sectoral provisions as at September 30, 2015 and
$18 million of sectoral provisions as at December 31, 2014.
|
Our impaired mortgages and loans, net of allowance for losses, amounted
to $93 million as at September 30, 2015, compared to $101 million as at
December 31, 2014.
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 yields 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 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 September 30, 2015 was $2,020 million compared to
$1,916 million as at December 31, 2014. The increase of $104 million
was primarily due to the weakening of the Canadian dollar and increases
in the provision for assets purchased net of dispositions, partially
offset by the release of provisions on fixed income assets supporting
our insurance contract liabilities.
Derivative Financial Instruments
The values associated with our derivative instruments are presented in
the following table. Notional amounts serve as the basis for payments
calculated under derivatives contracts and are not exchanged.
Derivative Instruments
($ millions)
|
September 30, 2015
|
|
December 31, 2014
|
|
Net fair value
|
(1,046)
|
|
236
|
|
Total notional amount
|
57,605
|
|
48,211
|
|
Credit equivalent amount
|
626
|
|
738
|
|
Risk-weighted credit equivalent amount
|
6
|
|
7
|
|
The total notional amount of our derivatives increased to $57.6 billion
as at September 30, 2015, from $48.2 billion as at December 31, 2014.
The increase in the total notional amount was primarily due to
increases in interest rate contracts in light of volatile financial
markets and updates to projected liability cash flows. As well, the
notional amount of derivatives increased due to the conversion of
foreign currency notional balances into Canadian dollars. The net fair
value of derivatives was a net liability of $1,046 million as at
September 30, 2015, compared to a net asset of $236 million as at
December 31, 2014. The decrease in net fair value was due primarily to
the impact of the weakening of the Canadian dollar against the U.S.
dollar on foreign exchange contracts partially offset by the effect of
the decrease in interest rates on interest rate contracts.
Capital Management
Our total capital consists of subordinated debt and other capital,
participating policyholders' equity, and total shareholders' equity
which includes common shareholders' equity and preferred shareholders'
equity. As at September 30, 2015, our total capital was $24.2 billion,
up from $21.7 billion as at December 31, 2014. The increase in total
capital was primarily the result of common shareholders' net income of
$1,649 million and other comprehensive income of $1,005 million,
partially offset by the $212 million of common share purchases under
our normal course issuer bid and $620 million of common shareholders'
dividends paid (net of the Canadian dividend reinvestment and share
purchase plan).
The legal entity, SLF Inc. (the ultimate parent company), and its wholly
owned holding companies had $1,747 million in cash and other liquid
assets as at September 30, 2015 ($1,827 million as at December 31,
2014). The decrease in liquid assets in these holding companies in the
first nine months of 2015 was primarily attributable to common share
repurchases in the first half of 2015 and approximately $560 million in
cash to acquire Bentall Kennedy paid in the third quarter of 2015,
partially offset by the debt issuance of $500 million 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 June 30, 2015, 6.0 million Class A Non-Cumulative 5-Year Rate Reset
Preferred Shares Series 8R ("Series 8R Shares") were converted into
Class A Non-Cumulative Floating Rate Preferred Shares Series 9QR
("Series 9QR Shares") through a holder option, on a one-for-one basis.
Effective June 30, 2015, 5.2 million Series 8R Shares and 6.0 million
Series 9QR Shares were outstanding. For additional information, refer
to Note 10 of our Interim Consolidated Financial Statements.
On September 25, 2015, SLF Inc. issued $500 million principal amount of
Series 2015-1 Subordinated Unsecured 2.60% Fixed/Floating Debentures
due 2025. The net proceeds will be used to partially fund the
acquisition of the U.S. Employee Benefit business of Assurant and may
also be used for general corporate purposes.
On October 8, 2015, SLF Inc. announced its intention to redeem all of
the outstanding $600 million principal amount of Series A Senior
Unsecured 4.80% Fixed/Floating debentures due 2035 ("the
Debentures") in accordance with the redemption terms attached to the
Debentures. The Debentures are redeemable at SLF Inc.'s option
on November 23, 2015. The redemption will have no impact on the
Company's capital positions as these senior debentures are not
accounted for as qualifying capital securities.
Sun Life Assurance's MCCSR ratio was 229% as at September 30, 2015,
compared to 217% as at December 31, 2014. The increase to the MCCSR
ratio over the period primarily resulted from earnings net of dividends
to SLF Inc.
Normal Course Issuer Bid
On November 10, 2014, SLF Inc. launched a normal course issuer bid under
which it is authorized to purchase up to 9 million common shares
between November 10, 2014 and November 9, 2015. During the third
quarter of 2015, SLF Inc. did not make any purchases under the normal
course issuer bid. During the first nine months of 2015, SLF Inc.
purchased and cancelled 5.3 million common shares at a total cost of
$212 million.
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, 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 fluctuates 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 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.
We realized $47 million (pre-tax) in net gains on the sale of AFS assets
during the third quarter of 2015 ($48 million pre-tax in the third
quarter of 2014). The net unrealized gains or OCI position on AFS fixed
income and equity assets were $136 million and $173 million,
respectively, after-tax as at September 30, 2015 ($340 million and $208
million, respectively, after-tax as at December 31, 2014).
The following table sets out the estimated immediate impact on or
sensitivity of our net income, our OCI, and Sun Life Assurance's MCCSR
ratio to certain instantaneous changes in interest rates and equity
market prices as at September 30, 2015 and December 31, 2014.
Interest Rate and Equity Market Sensitivities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2015(1)
($ millions, unless otherwise noted)
|
|
|
|
|
|
|
Interest rate sensitivity(2)(6)
|
100 basis point
decrease
|
|
|
50 basis point
decrease
|
|
|
50 basis point
increase
|
|
|
100 basis point
increase
|
|
|
Potential impact on net income(3)(6)
|
$
|
(300)
|
|
|
$
|
(100)
|
|
|
$
|
50
|
|
|
$
|
100
|
|
|
Potential impact on OCI
|
$
|
500
|
|
|
$
|
250
|
|
|
$
|
(250)
|
|
|
$
|
(500)
|
|
|
Potential impact on MCCSR(4)
|
10% points
decrease
|
|
|
4% points
decrease
|
|
|
5% points
increase
|
|
|
8% points
increase
|
|
Equity markets sensitivity(5)
|
25% decrease
|
|
|
10% decrease
|
|
|
10% increase
|
|
|
25% increase
|
|
|
Potential impact on net income(3)
|
$
|
(300)
|
|
|
$
|
(100)
|
|
|
$
|
100
|
|
|
$
|
250
|
|
|
Potential impact on OCI
|
$
|
(150)
|
|
|
$
|
(50)
|
|
|
$
|
50
|
|
|
$
|
150
|
|
|
Potential impact on MCCSR(4)
|
4% points
decrease
|
|
|
1% points
decrease
|
|
1% points
increase
|
|
|
4% points
increase
|
|
|
|
|
|
As at December 31, 2014(1)
($ millions, unless otherwise noted)
|
|
|
|
Interest rate sensitivity(2)(6)
|
100 basis point
decrease
|
|
|
50 basis point
decrease
|
|
|
50 basis point
increase
|
|
|
100 basis point
increase
|
|
|
Potential impact on net income(3)(6)
|
$
|
(400)
|
|
|
$
|
(100)
|
|
|
$
|
50
|
|
|
$
|
100
|
|
|
Potential impact on OCI
|
$
|
500
|
|
|
$
|
250
|
|
|
$
|
(250)
|
|
|
$
|
(500)
|
|
|
Potential impact on MCCSR(4)
|
12% points
decrease
|
|
|
5% points
decrease
|
|
|
4% points
increase
|
|
|
8% points
increase
|
|
Equity markets sensitivity(5)
|
25% decrease
|
|
|
10% decrease
|
|
|
10% increase
|
|
|
25% increase
|
|
|
Potential impact on net income(3)
|
$
|
(250)
|
|
|
$
|
(50)
|
|
|
$
|
50
|
|
|
$
|
150
|
|
|
Potential impact on OCI
|
$
|
(150)
|
|
|
$
|
(50)
|
|
|
$
|
50
|
|
|
$
|
150
|
|
|
Potential impact on MCCSR(4)
|
5% points
decrease
|
|
|
1% points
decrease
|
|
|
1% points
increase
|
|
|
1% points
increase
|
|
|
|
|
|
|
|
|
|
(1)
|
Net income and OCI sensitivities have been rounded to the nearest $50
million. The sensitivities exclude the market impacts on the income
from our joint ventures and associate investments, which we account for
on an equity basis.
|
(2)
|
Interest rate sensitivities assume a parallel shift in assumed interest
rates across the entire yield curve as at September 30, 2015 and
December 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 dynamic hedging programs 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 September 30, 2015 and December
31, 2014, and include new business added and product changes
implemented prior to such dates.
|
(4)
|
The MCCSR sensitivities illustrate the impact on Sun Life Assurance as
at September 30, 2015 and December 31, 2014. This excludes the impact
on assets and liabilities that are in SLF Inc. but not included in Sun
Life Assurance. MCCSR sensitivities as at December 31, 2014 reflect the
impact of IAS 19 Employee Benefits and its phase-in impact on available capital.
|
(5)
|
Represents the respective change across all equity markets as at
September 30, 2015 and December 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 dynamic hedging programs at 2%
intervals (for 10% changes in equity markets) and at 5% intervals (for
25% changes in equity markets).
|
(6)
|
The majority of interest rate sensitivity, after hedging, is attributed
to individual insurance products. We also have interest rate
sensitivity, after hedging, from our fixed annuity and segregated funds
products.
|
Our net income sensitivities to interest rates and equity markets have
changed since December 31, 2014. This is primarily as a result of
changes in measurement of sensitivities related to assumption changes
and management actions.
Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our reported
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 asset and liability valuations
(including non-sovereign fixed income assets, 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)(2)
|
50 basis point decrease
|
|
50 basis point increase
|
|
September 30, 2015
|
(125)
|
|
100
|
|
December 31, 2014
|
(100)
|
|
125
|
|
(1)
|
Sensitivities have been rounded to the nearest $25 million.
|
(2)
|
In most instances, credit spreads are assumed to revert to long-term
insurance contract liability assumptions generally over a five-year
period.
|
|
|
Swap Spread Sensitivities ($ millions, after-tax)
Net income sensitivity(1)
|
20 basis point decrease
|
|
20 basis point increase
|
|
September 30, 2015
|
25
|
|
(50)
|
|
December 31, 2014
|
75
|
|
(75)
|
(1)
|
Sensitivities have been rounded to the nearest $25 million.
|
The credit and swap spread sensitivities assume a parallel shift 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 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 include 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 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. Market
risk management strategies are implemented to limit the potential
financial loss and typically involve the use of fixed income asset,
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.
|
As at September 30, 2015
|
($ millions)
|
Fund value
|
|
Amount at risk(1)
|
|
Value of
guarantees(2)
|
|
Insurance contract
liabilities(3)
|
|
|
SLF Canada
|
12,319
|
|
351
|
|
11,044
|
|
602
|
|
|
SLF U.S.
|
5,226
|
|
560
|
|
5,672
|
|
253
|
|
|
Run-off reinsurance(4)
|
2,811
|
|
621
|
|
2,171
|
|
636
|
|
|
Total
|
20,356
|
|
1,532
|
|
18,887
|
|
1,491
|
|
|
As at December 31, 2014
|
|
($ millions)
|
Fund value
|
|
Amount at Risk(1)
|
|
Value of
guarantees(2)
|
|
Insurance contract
liabilities(3)
|
|
|
SLF Canada
|
13,039
|
|
217
|
|
11,202
|
|
273
|
|
|
SLF U.S.
|
5,194
|
|
259
|
|
5,236
|
|
96
|
|
|
Run-off reinsurance(4)
|
2,800
|
|
501
|
|
1,999
|
|
526
|
|
|
Total
|
21,033
|
|
977
|
|
18,437
|
|
895
|
|
|
(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, 2014 to
September 30, 2015 was primarily as a result of the following factors:
(i)
|
the total fund values decreased due to the natural run-off of the block
net of new sales, unfavourable equity market movements, partially
offset by the weakening of the Canadian dollar against the U.S. dollar;
|
(ii)
|
the total Amount at Risk increased primarily due to unfavourable equity
market movements and the weakening of the Canadian dollar;
|
(iii)
|
the total value of guarantees increased due to the weakening of the
Canadian dollar, partially offset by the natural run-off of the block
net of new sales; and
|
(iv)
|
the total insurance contract liabilities increased due to lower interest
rates, unfavourable equity market movements, and the weakening of the
Canadian dollar.
|
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 September 30, 2015, 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 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 associated margins as we are primarily focused on
hedging the expected economic costs associated with providing these
guarantees.
The following table illustrates the impact of our hedging program
related to our sensitivity to a 50 basis point and 100 basis point
decrease in interest rates and 10% and 25% decrease in equity markets
for segregated fund contracts as at September 30, 2015 and December 31,
2014.
Impact of Segregated Fund Hedging
September 30, 2015
|
($ 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
|
(200)
|
|
(450)
|
|
(200)
|
|
(550)
|
|
Hedging impact
|
200
|
|
500
|
|
150
|
|
450
|
|
Net of hedging
|
—
|
|
50
|
|
(50)
|
|
(100)
|
|
|
|
|
|
|
December 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
|
(200)
|
|
(400)
|
|
(150)
|
|
(500)
|
|
Hedging impact
|
200
|
|
400
|
|
150
|
|
400
|
|
Net of hedging
|
—
|
|
—
|
|
—
|
|
(100)
|
|
(1)
|
Net income sensitivities have been rounded to the nearest $50 million.
|
(2)
|
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 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.
|
(3)
|
Represents a parallel shift in assumed interest rates across the entire
yield curve as at September 30, 2015 and December 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 dynamic
hedging programs 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 September 30, 2015
and December 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 dynamic hedging programs 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 September 30, 2015 would decrease
net income by approximately $175 million ($150 million decrease as at
December 31, 2014). Conversely, an instantaneous 10% increase in the
value of our direct real estate investments as at September 30, 2015
would increase net income by approximately $175 million ($150 million
increase as at December 31, 2014).
Additional Cautionary Language and Key Assumptions Related to
Sensitivities
Our market risk sensitivities are measures of our estimated change in
net income and OCI for changes in interest rates 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, 2014 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. The real estate 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 September 30, 2015 and December 31, 2014. 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 programs in
place as at the September 30 and 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 (i.e., 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
September 30, 2015 and December 31, 2014, 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 (i.e., 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 (e.g., 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 AIF, for the
year ended December 31, 2014.
Changes in Accounting Policies
We have not adopted any new and amended IFRS in the current period ended
September 30, 2015. 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 which began on July 1, 2015 and ended on
September 30, 2015 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 table sets 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
|
Quarterly results
|
($ millions, unless otherwise noted)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Reported net income
|
482
|
|
726
|
|
441
|
|
502
|
|
435
|
|
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting
|
(10)
|
|
6
|
|
15
|
|
(6)
|
|
2
|
|
|
Fair value adjustments on share-based payment awards at MFS
|
28
|
|
(11)
|
|
(20)
|
|
1
|
|
(31)
|
|
|
Acquisition, integration and restructuring costs
|
(14)
|
|
—
|
|
—
|
|
(4)
|
|
(3)
|
|
Operating net income (loss)
|
478
|
|
731
|
|
446
|
|
511
|
|
467
|
|
|
Market related impacts
|
(82)
|
|
97
|
|
(22)
|
|
(21)
|
|
(54)
|
|
|
Assumption changes and management actions
|
32
|
|
19
|
|
(48)
|
|
172
|
|
4
|
|
Underlying net income (loss)
|
528
|
|
615
|
|
516
|
|
360
|
|
517
|
|
Reported EPS (diluted) ($)
|
0.79
|
|
1.18
|
|
0.72
|
|
0.81
|
|
0.71
|
|
|
Impact of certain hedges in SLF Canada that do not qualify for hedge
accounting ($)
|
(0.02)
|
|
0.01
|
|
0.02
|
|
(0.01)
|
|
—
|
|
|
Fair value adjustments on share-based payment awards at MFS ($)
|
0.05
|
|
(0.02)
|
|
(0.03)
|
|
—
|
|
(0.05)
|
|
|
Acquisition, integration and restructuring costs ($)
|
(0.02)
|
|
—
|
|
—
|
|
(0.01)
|
|
—
|
|
|
Impact of convertible securities on diluted EPS ($)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Operating EPS (diluted) ($)
|
0.78
|
|
1.19
|
|
0.73
|
|
0.83
|
|
0.76
|
|
|
Market related impacts ($)
|
(0.13)
|
|
0.16
|
|
(0.03)
|
|
(0.04)
|
|
(0.09)
|
|
|
Assumption changes and management actions ($)
|
0.05
|
|
0.03
|
|
(0.08)
|
|
0.28
|
|
0.01
|
|
Underlying EPS (diluted) ($)
|
0.86
|
|
1.00
|
|
0.84
|
|
0.59
|
|
0.84
|
|
Management also uses the following non-IFRS financial measures:
Return on equity. IFRS does not prescribe the calculation of ROE and therefore a
comparable measure under IFRS is not available. To determine operating
ROE and underlying ROE, operating net income (loss) and underlying net
income (loss) are divided by the total weighted average common
shareholders' equity for the period, respectively.
Adjusted revenue. This measure excludes from revenue the impact of: (i) exchange rate
fluctuations, from the translation of functional currencies to the
Canadian dollar, for comparisons ("Constant Currency Adjustment"); (ii)
Fair value and foreign currency changes on assets and liabilities ("FV
Adjustment"); and (iii) reinsurance for the insured business in SLF
Canada's GB operations ("Reinsurance in SLF Canada's GB Operations
Adjustment"). Adjusted revenue is an alternative measure of revenue
that provides greater comparability across reporting periods.
|
Quarterly results
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Revenues
|
4,693
|
|
1,682
|
|
7,332
|
|
7,375
|
|
5,614
|
|
|
Constant Currency Adjustment
|
467
|
|
320
|
|
337
|
|
104
|
|
—
|
|
|
FV Adjustment
|
(168)
|
|
(3,500)
|
|
2,495
|
|
2,196
|
|
495
|
|
|
Reinsurance in SLF Canada's GB Operations Adjustment
|
(1,179)
|
|
(1,149)
|
|
(1,185)
|
|
(1,154)
|
|
(1,130)
|
|
Adjusted revenue
|
5,573
|
|
6,011
|
|
5,685
|
|
6,229
|
|
6,249
|
|
Adjusted premiums and deposits. This measure adjusts premiums and deposits for the impact of (i) the
Constant Currency Adjustment and (ii) the Reinsurance in SLF Canada's
GB Operations Adjustment. Adjusted premiums and deposits is an
alternative measure of premiums and deposits that provides greater
comparability across reporting periods.
|
Quarterly results
|
($ millions)
|
Q3'15
|
|
Q2'15
|
|
Q1'15
|
|
Q4'14
|
|
Q3'14
|
|
Premiums and deposits
|
30,907
|
|
35,720
|
|
36,754
|
|
31,770
|
|
29,124
|
|
|
Constant Currency Adjustment
|
4,148
|
|
3,206
|
|
3,840
|
|
1,082
|
|
—
|
|
|
Reinsurance in SLF Canada's GB Operations Adjustment
|
(1,179)
|
|
(1,149)
|
|
(1,185)
|
|
(1,154)
|
|
(1,130)
|
|
Adjusted premiums and deposits
|
27,938
|
|
33,663
|
|
34,099
|
|
31,842
|
|
30,254
|
|
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 presented on a constant currency
adjusted basis to exclude the impact of foreign exchange rate
fluctuations. These measures are calculated using the average or period
end foreign exchange rates, as appropriate, in effect at the date of
the comparative period.
Real estate market sensitivities. Real estate market sensitivities are non-IFRS financial measures for
which there are no directly comparable measures under IFRS so it is not
possible to provide a reconciliation of these amounts to the most
directly comparable IFRS measures.
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 relating to the anticipated source of funding
for the acquisition of Assurant's U.S. Employee Benefits Business and
the timing of receipt of regulatory approvals and closing for that
transaction, (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", "initiatives", "intend", "may",
"objective", "outlook", "plan", "project", "seek", "should",
"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 Capital Management and Risk
Management and in SLF Inc.'s 2014 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.
The following are transactional risk factors related to our proposed
acquisition of Assurant's U.S. Employee Benefits business that could
have a material adverse effect on our forward-looking statements: (i)
the ability of the parties to the transaction to execute the
transaction as planned, including the separation and integration of the
transferred assets, (ii) failure of the parties to obtain necessary
consents and approvals as required under the definitive agreement or to
otherwise satisfy the conditions to the completion of the transaction
in a timely manner, or at all, (iii) our ability to realize the
financial and strategic benefits of the transaction, (iv) failure to
effectively or efficiently restructure and reorganize our U.S. employee
benefits business after the transaction has closed, and (v) the impact
of the announcement of the transaction and the dedication of our
resources to the completion of the transaction and the effect of the
transaction on our continuing operations in the U.S. These risks all
could have an impact on our business relationships (including with
future and prospective employees, customers, distributors and partners)
and could have a material adverse effect on the current and future
operations, financial conditions and prospects of Sun Life Financial.
Factors that could cause actual results to differ materially from
expectations include, but are not limited to: business risks - economic and geo-political risks; risks in implementing business
strategies; changes in legislation and regulations, including capital
requirements and tax laws; the inability to maintain strong
distribution channels and risks relating to market conduct by
intermediaries and agents; risks relating to operations in Asia,
including the Company's joint ventures; the impact of competition; the
performance of the Company's investments and investment portfolios
managed for clients such as segregated and mutual funds; market
conditions that affect the Company's capital position or its ability to
raise capital; downgrades in financial strength or credit ratings;
risks relating to estimates and judgments used in calculating taxes;
the impact of mergers, acquisitions and divestitures including our
proposed acquisition of Assurant's U.S. Employee Benefits business; the
ineffectiveness of risk management policies and procedures; risks
relating to the closed block of business; market, credit, and liquidity risks - the performance of equity markets; credit risks related to issuers of
securities held in our investment portfolio, debtors, structured
securities, reinsurers, derivative counterparties, other financial
institutions, and other entities; changes or volatility in interest
rates or credit spreads or swap spreads; fluctuations in foreign
currency exchange rates; risks relating to real estate investments;
risks relating to market liquidity; insurance risks - risks relating to the rate of mortality improvement; risks relating to
policyholder behaviour; risks relating to product design and pricing;
risks relating to mortality and morbidity, including the occurrence of
natural or man-made disasters, pandemic diseases, and acts of
terrorism; the impact of higher-than-expected future expenses; the
availability, cost, and effectiveness of reinsurance; operational risks - breaches or failure of information system security and privacy,
including cyber terrorism; risks relating to our information technology
infrastructure; failure of information systems and Internet-enabled
technology; the ability to attract and retain employees; legal and
regulatory proceedings, including inquiries and investigations; risks
relating to financial modelling errors; business continuity risks;
dependence on third-party relationships, including outsourcing
arrangements; 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 third quarter 2015 financial results will be reviewed at a
conference call on Thursday, November 5, 2015, at 10:00 a.m. ET. To
listen to the call via live audio webcast and to view the presentation
slides, as well as related information, please visit www.sunlife.com and click on the link to Quarterly reports under Investors - Financial
results & reports 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 Q3 2016 period end. The conference call can also be accessed by
phone by dialing 647-788-4901 (International) or 1-877-201-0168 (Toll
free North America).
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
(unaudited, in millions of Canadian dollars except for
per share amounts)
|
September 30, 2015
|
September 30,
2014
|
|
September 30, 2015
|
September 30,
2014
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
3,835
|
|
$
|
4,080
|
|
|
$
|
11,661
|
|
$
|
11,476
|
|
|
Less: Ceded
|
|
1,721
|
|
1,385
|
|
|
4,817
|
|
4,181
|
|
Net premiums
|
|
2,114
|
|
2,695
|
|
|
6,844
|
|
7,295
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other investment income
|
|
1,362
|
|
1,265
|
|
|
3,961
|
|
3,683
|
|
|
Fair value and foreign currency changes on assets and liabilities
|
|
(168)
|
|
495
|
|
|
(1,173)
|
|
3,976
|
|
|
Net gains (losses) on available-for-sale assets
|
|
47
|
|
48
|
|
|
189
|
|
153
|
|
Net investment income (loss)
|
|
1,241
|
|
1,808
|
|
|
2,977
|
|
7,812
|
|
Fee income
|
|
1,338
|
|
1,111
|
|
|
3,886
|
|
3,282
|
Total revenue
|
|
4,693
|
|
5,614
|
|
|
13,707
|
|
18,389
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
Gross claims and benefits paid
|
|
3,516
|
|
3,080
|
|
|
10,407
|
|
9,419
|
|
Increase (decrease) in insurance contract liabilities
|
|
419
|
|
1,663
|
|
|
592
|
|
6,260
|
|
Decrease (increase) in reinsurance assets
|
|
(66)
|
|
(68)
|
|
|
(380)
|
|
(180)
|
|
Increase (decrease) in investment contract liabilities
|
|
(32)
|
|
3
|
|
|
(39)
|
|
59
|
|
Reinsurance expenses (recoveries)
|
|
(1,662)
|
|
(1,357)
|
|
|
(4,638)
|
|
(4,033)
|
|
Commissions
|
|
534
|
|
484
|
|
|
1,534
|
|
1,389
|
|
Net transfer to (from) segregated funds
|
|
(27)
|
|
(5)
|
|
|
(40)
|
|
(11)
|
|
Operating expenses
|
|
1,245
|
|
1,099
|
|
|
3,654
|
|
3,346
|
|
Premium taxes
|
|
74
|
|
62
|
|
|
217
|
|
183
|
|
Interest expense
|
|
86
|
|
77
|
|
|
242
|
|
242
|
Total benefits and expenses
|
|
4,087
|
|
5,038
|
|
|
11,549
|
|
16,674
|
Income (loss) before income taxes
|
|
606
|
|
576
|
|
|
2,158
|
|
1,715
|
|
Less: Income tax expense (benefit)
|
|
79
|
|
116
|
|
|
419
|
|
367
|
Total net income (loss)
|
|
527
|
|
460
|
|
|
1,739
|
|
1,348
|
|
Less: Net income (loss) attributable to participating policyholders
|
|
21
|
|
(1)
|
|
|
14
|
|
3
|
Shareholders' net income (loss)
|
|
506
|
|
461
|
|
|
1,725
|
|
1,345
|
|
Less: Preferred shareholders' dividends
|
|
24
|
|
26
|
|
|
76
|
|
85
|
Common shareholders' net income (loss)
|
|
$
|
482
|
|
$
|
435
|
|
|
$
|
1,649
|
|
$
|
1,260
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.79
|
|
$
|
0.71
|
|
|
$
|
2.69
|
|
$
|
2.06
|
|
Diluted
|
|
$
|
0.79
|
|
$
|
0.71
|
|
|
$
|
2.68
|
|
$
|
2.05
|
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
(unaudited, in millions of Canadian dollars)
|
September 30, 2015
|
|
December 31, 2014
|
|
Assets
|
|
|
|
|
|
Cash, cash equivalents and short-term securities
|
|
$
|
8,052
|
|
|
$
|
6,818
|
|
|
Debt securities
|
|
68,386
|
|
|
66,214
|
|
|
Equity securities
|
|
5,232
|
|
|
5,223
|
|
|
Mortgages and loans
|
|
38,274
|
|
|
33,679
|
|
|
Derivative assets
|
|
2,238
|
|
|
1,839
|
|
|
Other invested assets
|
|
2,764
|
|
|
2,375
|
|
|
Policy loans
|
|
3,087
|
|
|
2,895
|
|
|
Investment properties
|
|
6,505
|
|
|
6,108
|
|
|
Invested assets
|
|
134,538
|
|
|
125,151
|
|
|
Other assets
|
|
4,086
|
|
|
3,429
|
|
|
Reinsurance assets
|
|
5,110
|
|
|
4,042
|
|
|
Deferred tax assets
|
|
1,280
|
|
|
1,230
|
|
|
Property and equipment
|
|
603
|
|
|
555
|
|
|
Intangible assets
|
|
1,455
|
|
|
895
|
|
|
Goodwill
|
|
4,582
|
|
|
4,117
|
|
|
Total general fund assets
|
|
151,654
|
|
|
139,419
|
|
|
Investments for account of segregated fund holders
|
|
88,248
|
|
|
83,938
|
|
Total assets
|
|
$
|
239,902
|
|
|
$
|
223,357
|
|
Liabilities and equity
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Insurance contract liabilities
|
|
$
|
107,827
|
|
|
$
|
101,228
|
|
|
Investment contract liabilities
|
|
2,880
|
|
|
2,819
|
|
|
Derivative liabilities
|
|
3,284
|
|
|
1,603
|
|
|
Deferred tax liabilities
|
|
340
|
|
|
155
|
|
|
Other liabilities
|
|
11,010
|
|
|
9,725
|
|
|
Senior debentures
|
|
2,848
|
|
|
2,849
|
|
|
Subordinated debt
|
|
2,692
|
|
|
2,168
|
|
|
Total general fund liabilities
|
|
130,881
|
|
|
120,547
|
|
|
Insurance contracts for account of segregated fund holders
|
|
80,751
|
|
|
76,736
|
|
|
Investment contracts for account of segregated fund holders
|
|
7,497
|
|
|
7,202
|
|
Total liabilities
|
|
$
|
219,129
|
|
|
$
|
204,485
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Issued share capital and contributed surplus
|
|
$
|
10,861
|
|
|
$
|
10,805
|
|
|
Retained earnings and accumulated other comprehensive income
|
|
9,912
|
|
|
8,067
|
|
Total equity
|
|
$
|
20,773
|
|
|
$
|
18,872
|
|
Total liabilities and equity
|
|
$
|
239,902
|
|
|
$
|
223,357
|
|
About Sun Life Financial
Celebrating 150 years in 2015, 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 a number of 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 September 30, 2015, the Sun Life Financial group of
companies had total assets under management of $846 billion. For more
information please visit www.sunlife.com.
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.