The information in this document is based on the unaudited interim financial results of Sun Life Financial Inc. for the period
ended December 31, 2017. Sun Life Financial Inc., its subsidiaries and, where applicable, its joint ventures and associates
are collectively referred to as "the Company", "Sun Life Financial", "we", "our", and "us". Unless otherwise noted, all amounts
are in Canadian dollars. Beginning in the first quarter of 2017, we stopped reporting operating net income and its related
measures, operating earnings per share ("EPS") and operating return on equity ("ROE"). The adjustments previously used to derive
operating net income will continue to be used to derive underlying net income.
TORONTO, Feb. 14, 2018 /CNW/ - Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF)
today announced its results for the fourth quarter ended December 31, 2017. Fourth quarter reported
net income was $207 million and underlying net income(1) was $641
million.
|
|
Quarterly results
|
Full Year
|
|
|
Q4'17
|
Q4'16
|
2017
|
2016
|
Reported net income ($ millions)
|
|
207
|
728
|
2,149
|
2,485
|
Underlying net income(1) ($ millions)
|
|
641
|
560
|
2,546
|
2,335
|
|
|
|
|
|
|
Reported EPS(2) ($)
|
|
0.34
|
1.18
|
3.49
|
4.03
|
Underlying EPS(1)(2) ($)
|
|
1.05
|
0.91
|
4.15
|
3.80
|
|
|
|
|
|
|
Reported ROE(1)
|
|
4.1%
|
14.8%
|
10.7%
|
13.0%
|
Underlying ROE(1)
|
|
12.7%
|
11.4%
|
12.7%
|
12.2%
|
- Minimum Continuing Capital and Surplus Requirements ("MCCSR")(4) ratio for Sun Life Assurance Company of
Canada of 221%. The MCCSR ratio for Sun Life Financial Inc. was 246%, which includes cash and
other liquid assets of $2.0 billion for Sun Life Financial Inc. and its wholly-owned holding
companies(3)
- Insurance sales(1) were $1,106 million in the fourth quarter of 2017 ($1,071 million in the fourth quarter of 2016) and $3,042 million in 2017
($2,758 million in 2016). Wealth sales(1) were $35.3
billion in the fourth quarter of 2017 ($37.3 billion in the fourth quarter of 2016) and
$145.3 billion in 2017 ($138.3 billion in 2016)
- Global assets under management of $975 billion compared to $903
billion as at December 31, 2016
- Common share dividend declared of $0.455 per share
"2017 was a year of strong financial performance for Sun Life. We grew underlying net income 9% in the year to over
$2.5 billion, raised our common share dividend 8% in the year, and generated a 12.7% underlying
return on equity," said Dean Connor, President & CEO, Sun Life Financial.
"Our fourth quarter capped off a year of continued momentum on a number of fronts," said Connor. "We launched new digital
offerings in Canada, improved the profitability of our U.S. Group Benefits business, continued
building out our wealth and asset management businesses, and invested to grow our distribution capabilities in Asia."
_________________
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
All EPS measures refer to fully diluted EPS, unless otherwise
stated.
|
(3)
|
For additional information, see section E - Financial Strength in this
document.
|
(4)
|
For further information on the Life Insurance Capital Adequacy Test
effective January 1, 2018, see section E - Financial strength
|
"The year was also defined by a relentless focus on doing more for Clients. Sun Life teams around the world implemented
hundreds of Client-focused changes – big and small. Taken together, we are making a difference in our Clients' lives, and there
is so much more to do to help them achieve lifetime financial security and live healthier lives. An exciting initiative is our
new partnership in the U.S. with Collective Health, an innovative technology company that serves as an alternative to traditional
health plans for self-funded employers. Leveraging their advanced health benefits platform, together we intend to transform the
benefits experience for self-funded employers and their employees by integrating stop-loss protection into Collective Health's
enterprise benefits platform and collaborating on enhanced data analytics to serve these Clients better."
Financial and Operational Highlights
Our strategy is focused on four key pillars of growth, where we aim to be a leader in the markets in which we operate. We
detail our continued progress in the four pillars below.
($ millions, unless otherwise noted)
|
|
Reported
net income(loss)
|
Underlying
net income(loss)(1)
|
Insurance
sales(1)
|
Wealth
sales(1)
|
|
Q4'17
|
Q4'16
|
change
|
Q4'17
|
Q4'16
|
change
|
Q4'17
|
Q4'16
|
change
|
Q4'17
|
Q4'16
|
change
|
SLF Canada
|
172
|
398
|
(57)%
|
232
|
243
|
(5)%
|
227
|
308
|
(26)%
|
3,183
|
4,701
|
(32)%
|
SLF U.S.
|
(25)
|
106
|
nm(2)
|
126
|
87
|
45%
|
676
|
555
|
22%
|
—
|
—
|
|
SLF Asset Management
|
114
|
198
|
(42)%
|
226
|
188
|
20%
|
—
|
—
|
|
28,514
|
29,457
|
(3)%
|
SLF Asia
|
83
|
58
|
43%
|
80
|
62
|
29%
|
203
|
208
|
(2)%
|
3,603
|
3,092
|
17%
|
Corporate
|
(137)
|
(32)
|
nm(2)
|
(23)
|
(20)
|
(15)%
|
—
|
—
|
|
—
|
—
|
|
Total
|
207
|
728
|
(72)%
|
641
|
560
|
14%
|
1,106
|
1,071
|
3%
|
35,300
|
37,250
|
(5)%
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
Not meaningful
|
Our reported net income in the quarter includes a net charge of $251 million ($444 million pre-tax) related to the U.S. Tax Cuts and Jobs Act ("U.S. tax reform") which reflects the net
impact on actuarial liabilities, deferred tax assets and deferred tax liabilities, and a one-time tax charge on deemed
repatriation of foreign earnings. Our reported net income also includes the previously announced restructuring charge of
$44 million ($60 million pre-tax), related to actions to enhance
business processes and organizational structures and capabilities. These impacts are excluded from underlying net income.
A Leader in Insurance and Wealth Solutions in our Canadian home market
SLF Canada's reported net income was $172 million in the quarter, down 57% compared to
the same period in 2016, largely reflecting unfavourable market impacts driven predominantly by a decline in interest rates, as
well as impacts from adverse assumption changes and management actions ("ACMA"). Underlying net income was $232 million, down 5% from the same period in 2016, due to the release of a litigation provision which
increased 2016 underlying net income.
Insurance sales were down 26% mainly due to a decrease in individual insurance sales compared to strong sales in the fourth
quarter in 2016 in anticipation of the Canadian life insurance tax legislation changes that came into effect on January 1, 2017, while Group Benefits sales were in line with fourth quarter of 2016, reaching $10 billion of business in-force driven by strong sales in 2017. Wealth sales were down 32% compared to the
same quarter last year mainly due to a large-case sale in Group Retirement Services ("GRS") in 2016, while individual wealth
sales were in line with the prior year.
In the quarter, we enhanced the my Sun Life mobile app by adding dental and vision providers to our growing network of
paramedical healthcare providers, and we now have a network of over 3 million ratings of 110,000 providers where our Clients can
locally search, view ratings by peers, and click to call for appointments. In the quarter SLGI(1) achieved
$20 billion in assets under management ("AUM"), and subsequent to the quarter closed the
acquisition of Excel Funds Management Inc. ("Excel"), adding approximately $800 million in AUM,
expanding our product suite into emerging market funds. Excel's India fund had the highest
return of any mutual fund or exchange-traded fund in Canada for the 15-year period ending
December 31, 2017, according to data from Morningstar.
____________________
|
(1)
|
Sun Life Global Investments (Canada) Inc.
|
A Leader in U.S. Group Benefits and International high net worth solutions
Reported net loss was $25 million, down from the same quarter in the prior year,
reflecting the unfavourable impact of the U.S. tax reform and unfavourable market related impacts primarily driven by interest
rates. SLF U.S.'s underlying net income was $126 million, up 45% from the same quarter in the prior
year. This reflects improved underwriting experience in Group Benefits, as our pricing actions, investments in claims management
and expense initiatives, as well as progress on the integration of the U.S. employee benefits business acquired in 2016, continue
to improve profitability. The after-tax profit margin for Group Benefits increased to 5.0%(1) in 2017.
Insurance sales increased by 22% compared to the same quarter in 2016, with increases in Group Benefits mainly driven by
strong medical stop-loss sales, partially offset by lower group life and disability sales as a result of pricing discipline and
fewer large cases. Insurance sales results also reflect strong International life sales.
In addition to partnering with CollectiveHealth Inc. during the quarter, we formed a stop-loss arrangement with Pareto Captive
Services, providing captive solutions for employers seeking an alternative way to self-fund while pooling financial risks. In our
dental and vision portfolio, we delivered more options for Clients by adding a new plan to our Vision offering and launching our
new Sun Life Dental Network® which is the largest preferred provider ("PPO") dental network in the U.S.(2)
A Leader in global Asset Management
SLF Asset Management's reported net income of $114 million was down 42% from the fourth
quarter of 2016 largely due to the unfavourable impact of the U.S. tax reform. Underlying net income was $226 million in the fourth quarter of 2017, up 20% from the fourth quarter of 2016, driven by higher average
net assets resulting in a pre-tax operating profit margin ratio for MFS(1) of 40%.
SLF Asset Management ended the fourth quarter with $678 billion in assets under management
consisting of $618 billion (US$492 billion) from MFS Investment
Management ("MFS") and $59 billion from Sun Life Investment Management ("SLIM"). SLIM continued its
momentum with net inflows of $1.6 billion while MFS net outflows of $5.0
billion (US$4.0 billion) in the quarter were primarily driven by institutional Client
portfolio re-balancing.
MFS long-term retail fund performance remained strong with 84%, 79% and 92% of MFS's U.S. retail mutual fund assets ranked in
the top half of their Lipper categories based on three-, five-, and ten-year performance, respectively, as of December 31, 2017.
A Leader in Asia through Distribution Excellence in Higher Growth Markets
SLF Asia's reported net income was up 43% from the fourth quarter of 2016, reflecting the favourable impact of ACMA,
partially offset by less favourable market related impacts primarily driven by interest rates. Underlying net income was
$80 million, up 29% from the fourth quarter of 2016, reflecting continued growth in our wealth
businesses and contributions from our joint ventures.
SLF Asia insurance sales were $203 million in the fourth quarter of 2017, largely in line with
the fourth quarter of 2016, with growth across all markets except Hong Kong. SLF Asia wealth
sales were $3.6 billion in the fourth quarter of 2017, compared to $3.1
billion in the fourth quarter of 2016. Strong wealth sales were led by continued growth in our Indian joint venture mutual
fund company, and our asset management company in the Philippines, as well as our growing
pension business in Hong Kong.
Sun Life Malaysia enhanced its new arrangement with U Mobile announced earlier in the year by launching GOLIFE in November,
2017. This first-of-its-kind telco-assurance product allows Clients to apply, subscribe and manage their life insurance policies
entirely on their mobile device. In addition, Sun Life Hong Kong completed the acquisition of the Mandatory Provident Fund
business and commenced an exclusive 15-year distribution agreement with FWD Life Insurance Company (Bermuda) Limited ("FWD"), in Hong Kong, in the quarter.
__________________
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
Based on September 2017 data from the Ignition Group's Netminder
report.
|
Table of Contents
|
A.
|
How We Report Our Results
|
B.
|
Financial Summary
|
C.
|
Profitability
|
D.
|
Growth
|
E.
|
Financial Strength
|
F.
|
Performance by Business Group
|
|
1.
|
SLF Canada
|
|
2.
|
SLF U.S
|
|
3.
|
SLF Asset Management
|
|
4.
|
SLF Asia
|
|
5.
|
Corporate
|
G.
|
Investments
|
H.
|
Risk Management
|
I.
|
Additional Financial Disclosure
|
J.
|
Non-IFRS Financial Measures
|
K.
|
Forward-looking Statements
|
About Sun Life Financial
Sun Life Financial Inc. ("SLF Inc.") is a leading international financial services organization providing insurance, wealth
and asset management solutions to individual and corporate Clients. Sun Life Financial has 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 December 31, 2017, Sun Life
Financial had total assets under management ("AUM") of $975 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.
A. How We Report Our Results
Sun Life Financial Inc. ("SLF Inc."), its subsidiaries and, where applicable, its joint ventures and associates 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.
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) and annual
management's discussion and analysis ("MD&A"). 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. Reported net income (loss) refers to Common shareholders' net income (loss) determined in
accordance with IFRS.
The information in this document is in Canadian dollars unless otherwise noted.
1. 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 available in section J - Non-IFRS Financial Measures in this document. Non-IFRS
Financial Measures and reconciliations are also included in our annual and interim MD&A and the Supplementary Financial
Information packages that are available on www.sunlife.com
under Investors – Financial results & reports.
2. Forward-looking Statements
Certain statements in this document are 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. Additional information concerning forward-looking statements and important risk factors that
could cause our assumptions, estimates, expectations and projections to be inaccurate and our actual results or events to differ
materially from those expressed in or implied by such forward-looking statements can be found in section K - Forward-looking
Statements in this document.
3. 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.
B. Financial Summary
|
|
Quarterly results
|
Full Year
|
($ millions, unless otherwise noted)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Profitability
|
Net income (loss)
|
|
|
|
|
|
|
Reported net income (loss)
|
207
|
817
|
728
|
2,149
|
2,485
|
|
Underlying net income (loss)(1)
|
641
|
643
|
560
|
2,546
|
2,335
|
Diluted Earnings per share ("EPS") ($)
|
|
|
|
|
|
|
Reported EPS (diluted)
|
0.34
|
1.32
|
1.18
|
3.49
|
4.03
|
|
Underlying EPS (diluted)(1)
|
1.05
|
1.05
|
0.91
|
4.15
|
3.80
|
Reported basic EPS ($)
|
0.34
|
1.33
|
1.19
|
3.51
|
4.05
|
Return on equity ("ROE") (%)
|
|
|
|
|
|
|
Reported ROE(1)
|
4.1%
|
16.2%
|
14.8%
|
10.7%
|
13.0%
|
|
Underlying ROE(1)
|
12.7%
|
12.7%
|
11.4%
|
12.7%
|
12.2%
|
Growth
|
Sales
|
|
|
|
|
|
|
Insurance sales(1)
|
1,106
|
599
|
1,071
|
3,042
|
2,758
|
|
Wealth sales(1)
|
35,300
|
35,826
|
37,250
|
145,314
|
138,319
|
Premiu ms and deposits
|
|
|
|
|
|
|
Net premium revenue
|
4,078
|
3,716
|
4,419
|
15,281
|
15,048
|
|
Segregated fund deposits
|
2,680
|
2,235
|
3,691
|
10,858
|
11,550
|
|
Mutual fund sales(1)
|
21,329
|
20,721
|
22,344
|
87,515
|
84,728
|
|
Managed fund sales(1)
|
11,170
|
11,674
|
10,263
|
44,093
|
40,270
|
|
ASO(2) premium and deposit equivalents(1)
|
1,709
|
1,805
|
1,705
|
6,933
|
6,863
|
Total premiums and deposits(1)
|
40,966
|
40,151
|
42,422
|
164,680
|
158,459
|
Assets under management ("AUM")
|
|
|
|
|
|
|
General fund assets
|
162,720
|
158,757
|
161,071
|
162,720
|
161,071
|
|
Segregated funds
|
106,392
|
102,237
|
97,167
|
106,392
|
97,167
|
|
Mutual funds, managed funds and other AUM(1)
|
705,673
|
672,601
|
645,037
|
705,673
|
645,037
|
Total AUM(1)
|
974,785
|
933,595
|
903,275
|
974,785
|
903,275
|
Financial Strength
|
MCCSR(3) ratios
|
|
|
|
|
|
|
Sun Life Financial
|
246%
|
252%
|
253%
|
246%
|
253%
|
|
Sun Life Assurance
|
221%
|
232%
|
226%
|
221%
|
226%
|
Financial leverage ratio(1)
|
23.6%
|
22.5%
|
25.2%
|
23.6%
|
25.2%
|
Dividend
|
|
|
|
|
|
|
Dividend payout ratio(1)
|
43%
|
41%
|
46%
|
42%
|
43%
|
|
Dividends per common share ($)
|
0.455
|
0.435
|
0.420
|
1.745
|
1.620
|
Capital
|
|
|
|
|
|
|
Subordinated debt and innovative capital
instruments(4)
|
4,136
|
3,736
|
4,534
|
4,136
|
4,534
|
|
Participating policyholders' equity and non-controlling
interests
|
650
|
633
|
412
|
650
|
412
|
|
Total shareholders' equity
|
22,321
|
22,298
|
21,956
|
22,321
|
21,956
|
Total capital
|
27,107
|
26,667
|
26,902
|
27,107
|
26,902
|
Average common shares outstanding (millions)
|
612
|
613
|
613
|
613
|
613
|
Closing common shares outstanding (millions)
|
610.5
|
611.9
|
613.6
|
610.5
|
613.6
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
Administrative Services Only ("ASO").
|
(3)
|
Minimum Continuing Capital and Surplus Requirements ("MCCSR")
ratio.
|
(4)
|
Innovative capital instruments consist of Sun Life ExchangEable Capital
Securities, and qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in our Annual
and Interim Consolidated Financial Statements. For additional information see section I - Capital and Liquidity
Management - 1 - Capital in our 2017 annual MD&A.
|
C. Profitability
The following table reconciles our reported net income and underlying net income. The table also sets out the impact that
other notable items had on our reported net income and underlying net income in 2017 and 2016. All factors discussed in this
document that impact our underlying net income are also applicable to reported net income.
|
Quarterly results
|
Full Year
|
($ millions, after-tax)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Reported net income
|
207
|
817
|
728
|
2,149
|
2,485
|
|
Market related impacts(1)
|
(57)
|
113
|
162
|
(7)
|
107
|
|
Assumption changes and management actions(1)(2)
|
(34)
|
103
|
10
|
81
|
45
|
|
Other adjustments(1)
|
(92)
|
(42)
|
(4)
|
(220)
|
(2)
|
|
U.S. tax reform(2)
|
(251)
|
—
|
—
|
(251)
|
—
|
Underlying net income(3)
|
641
|
643
|
560
|
2,546
|
2,335
|
Reported ROE(3)
|
4.1%
|
16.2%
|
14.8%
|
10.7%
|
13.0%
|
Underlying ROE(3)
|
12.7%
|
12.7%
|
11.4%
|
12.7%
|
12.2%
|
Impact of other notable items on reported and underlying net
income
|
|
|
|
Experience related items(4)
|
|
|
|
|
|
|
Impact of investment activity on insurance contract liabilities
|
15
|
12
|
15
|
86
|
154
|
|
Mortality
|
11
|
30
|
(4)
|
70
|
(14)
|
|
Morbidity
|
10
|
3
|
(13)
|
25
|
(23)
|
|
Credit
|
23
|
22
|
22
|
74
|
64
|
|
Lapse and other policyholder behaviour
|
(12)
|
(12)
|
(7)
|
(49)
|
(11)
|
|
Expenses
|
(57)
|
(20)
|
(76)
|
(95)
|
(124)
|
|
Other
|
4
|
(2)
|
22
|
(15)
|
39
|
(1)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of components within this adjustment.
|
(2)
|
U.S. tax reform of $(251) million includes $(288) million ($(444) million
pre-tax) of ACMA , which is excluded from the ACMA of $(34) million.
|
(3)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures.
|
(4)
|
Experience related items reflect the difference between actual experience
during the reporting period and best estimate assumptions used in the determination of our insurance contract
liabilities.
|
Q4 2017 vs. Q4 2016
Our reported net income was $207 million in the fourth quarter of 2017, a decrease compared to
the same quarter in 2016, mainly driven by the unfavourable impact of the U.S. tax reform, the restructuring charge, and the
impact from interest rates. The 14% increase in underlying net income compared to the same quarter in 2016, to $641 million, reflected the growth in our wealth businesses and favourable morbidity and mortality
experience.
1. Market related impacts (1)
Market related impacts in the fourth quarter of 2017 compared to the fourth quarter of 2016 was primarily driven by
unfavourable interest rate changes reflecting decreases in long term risk free rates in the fourth quarter of 2017 compared to
increases in 2016, and flattening of the yield curve, partially offset by favourable changes in fair values of real estate.
2. Assumption changes and management actions (1)
During the fourth quarter of 2017, the net impact of ACMA resulted in a decrease of $34
million (excluding the impact of the U.S. tax reform) to reported net income which included updates to lapse and other
policyholder behaviour, compared to an increase of $10 million in the fourth quarter of 2016.
3. Other adjustments (1)
Other adjustments decreased reported net income by $92 million in the fourth quarter
of 2017, which compared to the fourth quarter of 2016, were primarily driven by the restructuring charge of $44 million ($60 million pre-tax), related to actions to enhance business
processes and organizational structures and capabilities, and fair value adjustments on MFS's share-based payment awards.
___________________
|
(1)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of the components.
|
4. U.S. tax reform
The U.S. tax reform legislation signed into law on December 22, 2017, which took effect
on January 1, 2018 includes a reduction to the U.S. corporate tax rate from 35% to 21% for tax
years beginning after 2017, changes to the amount of reserves that are tax deductible, and a one-time tax on the deemed
repatriation of foreign earnings. In addition, this legislation includes a number of base broadening measures including
provisions limiting the deductibility of certain amounts including payments to related foreign taxpayers, and expanded rules
impacting foreign source income of non-US affiliates.
As a result of this legislation, the Company has booked a net charge of $251 million
($444 million pre-tax) in the fourth quarter of 2017. This reflects an after-tax charge of
$288 million ($444 million pre-tax) to ACMA, and a one-time charge on
the deemed repatriation of foreign earnings of $46 million. These are partially offset by a benefit
of $83 million (1) relating to the revaluation of deferred tax balances from 35% to
21%.
5. Experience related items
Experience related items in the fourth quarter of 2017 compared to the fourth quarter of 2016 reflected favourable
morbidity and mortality experience primarily in SLF U.S. Group Benefits and improved expense experience. Expense experience in
both periods included incentive compensation costs arising from overall strong business performance and investments in growing
our businesses.
6. Income taxes
In the fourth quarter of 2017, our effective income tax rates on reported net income and underlying net
income(2) were (36.7)% and 21.5%, respectively, compared to 19.5% and 16.5%, respectively, in the fourth quarter of
2016. Our effective tax rate on reported net income for the fourth quarter of 2017 is below our expected range, primarily due to
the impacts of the U.S. tax reform. Our effective tax rate on underlying net income is within our expected range.
Our expected tax range for future years is revised to 15% to 20% as a result of the U.S. tax reform. Our statutory tax rate is
normally reduced by various tax benefits, such as lower taxes on income subject to tax in foreign jurisdictions, a range of tax
exempt investment income, and other sustainable tax benefits that are expected to decrease our effective tax rate. This new range
is based on our current understanding of the base broadening measures referred to in section 4. above, which could impact our
corporate structure and/or arrangements between our affiliates. There is also uncertainty surrounding the U.S. states'
interpretation of the U.S. tax reform and the extent to which they will conform with the federal legislation. Note that we expect
additional interpretive guidance on these provisions to be issued by the Internal Revenue Service, U.S. Treasury and state tax
departments in the future. Such future guidance could impact this updated range.
7. Impact of foreign exchange rates
During the fourth quarter of 2017, our reported net income and underlying net income decreased by $9 million and $22 million, respectively, as a result of the impact of the
movement of the Canadian dollar in the fourth quarter of 2017 relative to the average exchange rates in the fourth quarter of
2016.
______________________
|
(1)
|
Excludes $(30) million relating to the net impact on deferred tax balances
attributable to participating policyholders.
|
(2)
|
Our effective income tax rate on underlying net income is calculated using
underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable
to participating policyholders.
|
2017 vs. 2016
Our reported net income decreased to $2,149 million for 2017 compared to 2016, reflecting the
unfavourable impact of the U.S. tax reform, the restructuring charge in the fourth quarter, integration costs, Fair value
adjustments on MFS's share-based payment awards, and interest rates impacts. Underlying net income growth of 9% to $2,546 million reflected favourable mortality and morbidity experience, partially offset by a lower level of
gains from investing activity, unfavourable lapse experience and the impact of foreign exchange rates.
1. Market related impacts (1)
Market related impacts in 2017 compared to 2016 was primarily driven by unfavourable changes in interest rates
reflecting the flattening of the yield curve in 2017 as long term interest rates dropped compared to rising long term interest
rates in 2016, and the unfavourable impact of significant increases in swap spreads. This was partially offset by favourable
changes in the fair value of real estate.
2. Assumption changes and management actions (1)
ACMA increased reported net income by $81 million in 2017 (excluding the impact of the
U.S. tax reform), compared to an increase of $45 million in 2016. See section D - Profitability -
2017 vs. 2016 - ii. Assumption changes and management actions in our 2017 annual MD&A for details on ACMA in 2017.
3. Other adjustments (1)
Other adjustments in 2017 decreased reported net income by $220 million, which
compared to 2016 were primarily due to the impact of integration costs related to the U.S. employee benefits business acquired in
2016 of $68 million ($105 million pre-tax), the restructuring charge
of $44 million ($60 million pre-tax) related to actions to enhance
business processes and organizational structures and capabilities, and Fair value adjustments on MFS's share-based payment
awards.
4. U.S. tax reform
As a result of the U.S. tax reform legislation signed into law on December 22, 2017,
which took effect on January 1, 2018, the Company has booked a net charge of $251 million in fourth quarter of 2017. See Q4 2017 vs. Q4 2016 for more information.
5. Experience related items
Experience related items in 2017 compared to 2016 reflected favourable mortality and morbidity experience in the SLF
U.S. Group Benefits business, improved mortality experience in SLF Canada and SLF U.K. and improved expense experience. Expense
experience in both periods includes incentive compensation costs arising from overall strong business performance and investments
in growing our businesses. Experience related items also reflected a lower level of gains from investing activity on insurance
contract liabilities and unfavourable lapse and other policyholder behaviour experience.
6. Income taxes
For 2017, our effective tax rates on reported and underlying net income(2) were 10.8% and 20.5%,
respectively, compared to 18.0% and 20.9%, respectively, for 2016. Our effective tax rate on reported net income for 2017 was
most notably impacted by higher reported net income in jurisdictions with lower statutory income tax rates and losses in
jurisdictions with higher statutory income tax rates, by the U.S. tax reform, ACMA in SLF U.S., as well as the finalization of
prior years' tax filings, which have resulted in an unusually low effective tax rate on a reported basis for 2017. Our effective
tax rate on underlying net income is within our expected range. See Q4 2017 vs. Q4 2016 for - 6 - Income Taxes for additional
information on our expected effective tax rate range.
7. Impact of foreign exchange rates
During 2017, our reported and underlying net income decreased by $53 million and
$56 million, respectively, as a result of the impact of the movement of the Canadian dollar in 2017
relative to the average exchange rates in 2016.
___________________
|
(1)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of the components.
|
(2)
|
Our effective income tax rate on underlying net income is calculated using
underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable
to participating policyholders.
|
D. Growth
1. Sales
|
|
Quarterly results
|
Full Year
|
($ millions)
|
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Insurance sales(1)
|
|
|
|
|
|
|
|
|
SLF Canada
|
|
227
|
217
|
308
|
1,125
|
950
|
|
|
SLF U.S.
|
|
676
|
219
|
555
|
1,230
|
1,148
|
|
|
SLF Asia
|
|
203
|
163
|
208
|
687
|
660
|
Total insurance sales(1)
|
|
1,106
|
599
|
1,071
|
3,042
|
2,758
|
Wealth sales(1)
|
|
|
|
|
|
|
|
|
SLF Canada
|
|
3,183
|
3,609
|
4,701
|
14,976
|
13,200
|
|
|
SLF
Asia
|
|
3,603
|
3,607
|
3,092
|
13,056
|
8,849
|
Total wealth sales excluding SLF Asset Management(1)
|
|
6,786
|
7,216
|
7,793
|
28,032
|
22,049
|
|
SLF Asset Management sales(1)
|
|
28,514
|
28,610
|
29,457
|
117,282
|
116,270
|
Total wealth sales(1)
|
|
35,300
|
35,826
|
37,250
|
145,314
|
138,319
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
Total Company insurance sales were $1,106 million in the fourth quarter of 2017, up 3% (7% on a
constant currency basis) compared to the same period in 2016.
- SLF Canada insurance sales decreased, mainly due to the strong individual life insurance sales in the fourth quarter in
2016 in anticipation of the Canadian life insurance tax legislation changes that came into effect on January 1, 2017
- SLF U.S. insurance sales increased mainly reflecting higher stop-loss sales, benefiting from strong market penetration,
partially offset by lower employee benefits sales as part of the pricing actions this year and the currency impact from the
change in the Canadian dollar
- SLF Asia insurance sales were up 3% on a constant currency basis, reflecting sales growth in all markets except
Hong Kong
Total Company wealth sales were $35.3 billion in the fourth quarter of 2017, down 5% (1% on a
constant currency basis) compared to the fourth quarter of 2016.
- SLF Canada wealth sales decreased, mainly due to lower sales in GRS reflecting a large case sale in the fourth quarter of
2016
- SLF Asia wealth sales were up, primarily led by higher sales in the Philippines,
Hong Kong, and India, partially offset by lower sales in
China and the currency impact from the change in the Canadian dollar
- SLF Asset Management gross sales were lower, largely attributable to the currency impact from the change in the Canadian
dollar and lower mutual fund sales in MFS, partially offset by higher managed fund sales in MFS
2. Premiums and Deposits
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Net premium revenue
|
4,078
|
3,716
|
4,419
|
15,281
|
15,048
|
Segregated fund deposits
|
2,680
|
2,235
|
3,691
|
10,858
|
11,550
|
Mutual fund sales(1)
|
21,329
|
20,721
|
22,344
|
87,515
|
84,728
|
Managed fund sales(1)
|
11,170
|
11,674
|
10,263
|
44,093
|
40,270
|
ASO premium and deposit equivalents(1)
|
1,709
|
1,805
|
1,705
|
6,933
|
6,863
|
Total premiums and deposits(1)
|
40,966
|
40,151
|
42,422
|
164,680
|
158,459
|
Total adjusted premiums and deposits(1)(2)
|
43,420
|
43,033
|
43,117
|
170,534
|
161,217
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
Adjusted premiums and deposits is a non-IFRS financial measure that
excludes from premiums and deposits the impact of Constant Currency Adjustment and Reinsurance in SLF Canada's Group
Benefits ("GB") Operations Adjustment as described in section J - Non-IFRS Financial Measures in this
document.
|
Net premium revenue was $4.1 billion, down $0.3 billion from the
fourth quarter of 2016, primarily driven by decreases in GRS in SLF Canada, Hong Kong in SLF
Asia and the currency impact from the change in the Canadian dollar, partially offset by higher premiums in International in SLF
U.S. and GB in SLF Canada. Net premium revenue was $15.3 billion in 2017, up $0.3 billion from 2016, primarily driven by higher premiums in Individual and GB in SLF Canada and all business
units in SLF U.S., partially offset by decreases in Hong Kong in SLF Asia and the currency
impact from the change in the Canadian dollar.
Segregated fund deposits were $2.7 billion in the fourth quarter of 2017, compared to
$3.7 billion in the fourth quarter of 2016. Segregated fund deposits were $10.9 billion in 2017, compared to $11.6 billion in 2016. In both cases, the
decrease was primarily driven by GRS in SLF Canada and the currency impact from the change in the Canadian dollar, partially
offset by increases in Individual Wealth in SLF Canada.
Sales of mutual funds were $21.3 billion in the fourth quarter of 2017, a decrease of
$1.0 billion over the fourth quarter of 2016, largely reflected the currency impact from the change
in the Canadian dollar and lower sales in MFS, partially offset by increased sales from the
Philippines and India in SLF Asia. Sales of mutual funds were $87.5 billion in 2017, compared to $84.7 billion in 2016, primarily driven by the
growth of sales in India and the Philippines in SLF Asia,
partially offset by the currency impact from the change in the Canadian dollar and decreased sales from MFS.
Sales of managed funds were $11.2 billion in the fourth quarter of 2017 increased by
$0.9 billion from the fourth quarter of 2016, primarily due to higher sales in MFS and Hong Kong in SLF Asia, partially offset by the currency impact from the change in the Canadian dollar and
lower sales in SLIM. Sales of managed funds of $44.1 billion in 2017 increased $3.8 billion from 2016 primarily due to increases from SLIM, MFS, as well as Hong
Kong in SLF Asia, partially offset by the currency impact from the change in the Canadian dollar.
ASO premium and deposit equivalents in the fourth quarter of 2017 and for 2017 were both up compared to the same periods in
2016. In both cases, the increase was attributable to increases in GRS and GB in SLF Canada, partially offset by decreases in
Hong Kong in SLF Asia and the currency impact from the change in the Canadian dollar.
The currency impact for total premium and deposits for the fourth quarter of 2017 and for 2017 from the change in the Canadian
dollar relative to average exchange rates in the fourth quarter of 2016 and in 2016 decreased total premiums and deposits by
approximately $1.7 billion and $2.8 billion, respectively.
3. Assets Under Management
AUM consist of general funds, segregated funds, and other AUM. Other AUM includes mutual funds and managed funds,
which include institutional and other third-party assets managed by the Company.
|
Quarterly results
|
($ millions)
|
Q4'17
|
Q3'17
|
Q2'17
|
Q1'17
|
Q4'16
|
Assets under management ("AUM") (1)
|
|
|
|
|
|
|
General fund assets
|
162,720
|
158,757
|
161,755
|
160,044
|
161,071
|
|
Segregated funds
|
106,392
|
102,237
|
102,066
|
101,055
|
97,167
|
|
Mutual funds, managed funds and other AUM(1)
|
705,673
|
672,601
|
680,000
|
666,176
|
645,037
|
Total AUM(1)
|
974,785
|
933,595
|
943,821
|
927,275
|
903,275
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
AUM were $974.8 billion as at December 31, 2017, compared to AUM of $903.3 billion as at December 31, 2016. The increase in AUM of $71.5 billion
between December 31, 2016 and December 31, 2017 resulted primarily from:
(i)
|
an increase of $129.0 billion from favourable market movements;
and
|
(ii)
|
an increase of $3.5 billion of other business activities including $0.7
billion from the first stage of our acquisition of the pension business of FWD in SLF Asia; partially offset
by
|
(iii)
|
a decrease of $46.3 billion from the strengthening of the Canadian dollar
relative to exchange rates at the end of the fourth quarter of 2016; and
|
(iv)
|
net outflow of mutual, managed, and segregated funds of $14.7
billion.
|
The net outflow of mutual, managed, and segregated funds of $14.7 billion in 2017 was
predominantly driven by net outflows from MFS of $28.5 billion, which were partially offset by net
inflows of $6.1 billion from each of SLIM and SLF Asia, and $2.6
billion from SLF Canada. For the fourth quarter of 2017, net outflows of mutual, managed and segregated funds were
$2.5 billion, predominantly driven by net outflows from MFS of $5.0
billion, partially offset by net inflows of $1.6 billion from SLIM, $0.8 billion from SLF Asia and $0.5 billion from SLF Canada.
E. Financial Strength
|
Quarterly results
|
|
Q4'17
|
Q3'17
|
Q2'17
|
Q1'17
|
Q4'16
|
MCCSR ratio
|
|
|
|
|
|
|
Sun Life Financial
|
246%
|
252%
|
248%
|
249%
|
253%
|
|
Sun Life Assurance
|
221%
|
232%
|
229%
|
229%
|
226%
|
Financial leverage ratio(1)
|
23.6%
|
22.5%
|
22.5%
|
22.6%
|
25.2%
|
Dividend
|
|
|
|
|
|
|
Dividend payout ratio(1)
|
43%
|
41%
|
39%
|
45%
|
46%
|
|
Dividends per common share ($)
|
0.455
|
0.435
|
0.435
|
0.420
|
0.420
|
Capital
|
|
|
|
|
|
|
Subordinated debt and innovative capital
instruments(2)
|
4,136
|
3,736
|
3,736
|
3,735
|
4,534
|
|
Participating policyholders' equity and non-controlling
interests
|
650
|
633
|
628
|
586
|
412
|
|
Preferred shareholders' equity
|
2,257
|
2,257
|
2,257
|
2,257
|
2,257
|
|
Common shareholders' equity
|
20,064
|
20,041
|
20,059
|
19,968
|
19,699
|
Total capital
|
27,107
|
26,667
|
26,680
|
26,546
|
26,902
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
Innovative capital instruments consist of Sun Life ExchangEable Capital
Securities, and qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in our Annual
and Interim Consolidated Financial Statements. For additional information see section I - Capital and Liquidity
Management - 1 - Capital in our 2017 annual MD&A.
|
As at December 31, 2017, SLF Inc.'s MCCSR ratio was 246%, compared to 253% as at December 31, 2016. The primary
difference between the MCCSR ratio of SLF Inc. and Sun Life Assurance relates to cash and liquid assets held at the holding
company level of $2,019 million as discussed below and capital related to certain insurance
subsidiaries held directly by SLF Inc.
Our total capital consists of subordinated debt and other capital instruments, participating policyholders' equity, and total
shareholders' equity which includes common shareholders' equity and preferred shareholders' equity. As at December 31, 2017,
our total capital was $27.1 billion, compared to $26.9 billion as at
December 31, 2016. The increase in total capital was primarily the result of common shareholders' net income of $2,205 million and the issuance of $400 million of subordinated debentures
detailed below, partially offset by the foreign currency translation impact included in other comprehensive income (loss) of a
loss of $737 million, the payment of $1,066 million of dividends on
common shares, and the redemption of $800 million of subordinated debentures detailed below.
The legal entity, SLF Inc. (the ultimate parent company), and its wholly-owned holding companies had $2,019 million in cash and other liquid assets as at December 31, 2017 ($1,616
million as at December 31, 2016). The increase in cash and liquid assets in these holding companies in 2017 was
primarily attributable to net cash generated from operations and the issuance of $400 million of
subordinated debentures, which were partially offset by the redemption of $800 million of
subordinated debt, shares purchases under the normal course issuer bid and other operational requirements. Liquid assets as noted
above include cash and cash equivalents, short-term investments, and publicly traded securities.
As at December 31, 2017, Sun Life Assurance's MCCSR ratio was 221%, compared to 226% as at December 31, 2016. The
decrease in Sun Life Assurance's MCCSR ratio over the period primarily resulted from a recapture of a reinsurance arrangement,
partially offset by the contribution of reported net income net of dividends.
On March 2, 2017, SLF Inc. redeemed all of its outstanding $800
million principal amount of Series 2012-1 Subordinated Unsecured 4.38% Fixed/Floating Debentures.
On November 21, 2017, SLF Inc. issued $400 million principal amount of Series 2017-1
Subordinated Unsecured 2.75% Fixed/Floating Debentures due 2027. The net proceeds will be used for general corporate
purposes of Sun Life Financial, which may include investments in subsidiaries and repayment of indebtedness.
On January 30, 2018, SLF Inc. redeemed all of the outstanding $400
million principal amount of Series 2008-1 Subordinated Unsecured 5.59% Fixed/Floating Debentures at a redemption price
equal to the principal amount together with accrued and unpaid interest to that date.
Life Insurance Capital Adequacy Test
The Office of the Superintendent of Financial Institutions ("OSFI") has implemented a revised regulatory capital
framework referred to as the Life Insurance Capital Adequacy Test ("LICAT") in Canada effective
January 1, 2018. OSFI's objective is to create a new capital framework that results in improved
overall quality of available capital, greater risk sensitivity, better measurement of certain risks and closer alignment of risk
measures with the economics of the life insurance business. LICAT is not expected to significantly change the level of excess
capital in the industry, however capital requirements by company may change. Results as measured under LICAT are fundamentally
different than under MCCSR and will not be directly comparable to MCCSR. OSFI released the final LICAT Guideline on November 24, 2017.
We currently have a strong capital position under MCCSR and expect that to continue under LICAT.
Normal Course Issuer Bid
On August 14, 2017, SLF Inc. launched a normal course issuer bid under which it is
authorized to purchase up to 11.5 million common shares between August 14, 2017 and August 13, 2018. During the fourth quarter of 2017, SLF Inc. purchased and cancelled approximately 1.7 million
common shares at a total cost of $87 million. During 2017, SLF Inc. purchased and cancelled
approximately 3.5 million common shares at a total cost of $175 million.
F. Performance by Business Group
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Reported net income (loss)
|
|
|
|
|
|
|
SLF Canada
|
172
|
340
|
398
|
963
|
936
|
|
SLF U.S.
|
(25)
|
195
|
106
|
308
|
508
|
|
SLF Asset Management
|
114
|
185
|
198
|
653
|
729
|
|
SLF Asia
|
83
|
93
|
58
|
326
|
309
|
|
Corporate
|
(137)
|
4
|
(32)
|
(101)
|
3
|
Total reported net income (loss)
|
207
|
817
|
728
|
2,149
|
2,485
|
|
|
|
|
|
|
Underlying net income (loss)(1)
|
|
|
|
|
|
|
SLF Canada
|
232
|
222
|
243
|
949
|
887
|
|
SLF U.S.
|
126
|
161
|
87
|
507
|
447
|
|
SLF Asset Management
|
226
|
204
|
188
|
812
|
699
|
|
SLF Asia
|
80
|
90
|
62
|
330
|
295
|
|
Corporate
|
(23)
|
(34)
|
(20)
|
(52)
|
7
|
Total underlying net income (loss)(1)
|
641
|
643
|
560
|
2,546
|
2,335
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
Information describing the business groups and their respective business units is included in our 2017 annual MD&A. All
factors discussed in this document that impact our underlying net income are also applicable to reported net income.
1. SLF Canada
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Individual Insurance & Wealth
|
42
|
211
|
291
|
415
|
509
|
Group Benefits
|
78
|
74
|
70
|
332
|
307
|
Group Retirement Services
|
52
|
55
|
37
|
216
|
120
|
Reported net income (loss)
|
172
|
340
|
398
|
963
|
936
|
|
Market related impacts
|
(38)
|
90
|
130
|
8
|
114
|
|
Assumption changes and management actions
|
(24)
|
34
|
17
|
22
|
(60)
|
|
Certain hedges that do not qualify for hedge accounting
|
2
|
(6)
|
8
|
(16)
|
(5)
|
Underlying net income (loss)(1)
|
232
|
222
|
243
|
949
|
887
|
Reported ROE (%)(1)
|
9.0
|
17.7
|
20.1
|
12.6
|
12.0
|
Underlying ROE (%)(1)
|
12.2
|
11.6
|
12.3
|
12.4
|
11.4
|
|
|
|
|
|
|
Insurance sales(1)
|
227
|
217
|
308
|
1,125
|
950
|
Wealth sales(1)
|
3,183
|
3,609
|
4,701
|
14,976
|
13,200
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
Profitability
Q4 2017 vs. Q4 2016
SLF Canada's reported net income was $172 million in the fourth quarter of 2017,
compared to $398 million in the fourth quarter of 2016. Underlying net income in the fourth quarter
of 2017 was $232 million, compared to $243 million in the fourth
quarter of 2016.
Reported net income in the fourth quarter of 2017 compared to the fourth quarter of 2016 reflected unfavourable market related
impacts primarily driven by interest rates and lower equity market gains partially offset by real estate appreciation, and the
unfavourable impact of ACMA in the fourth quarter of 2017 within Individual Insurance & Wealth. Underlying net income in the
fourth quarter of 2017 compared to the same period in 2016 decreased due to the release of a litigation provision which increased
2016 underlying net income.
2017 vs. 2016
Reported net income was $963 million in 2017, compared to $936
million in 2016. Underlying net income was $949 million in 2017, compared to $887 million in 2016.
Reported net income in 2017 compared to 2016 reflected less favourable market related impacts driven by the impact of interest
rate and swap spreads partially offset by real estate gains. The impact of ACMA in 2017 was primarily in Individual Insurance
& Wealth and favourable compared to the prior year. Underlying net income in 2017 compared to 2016 reflected higher new
business gains, favourable mortality experience with GRS and Individual Wealth, and favourable credit experience, partially
offset by lower investing activity gains.
Growth
Q4 2017 vs. Q4 2016
SLF Canada insurance sales were $227 million in the fourth quarter of 2017, compared to
$308 million in the fourth quarter of 2016. Individual insurance sales of $120 million were 41% lower than the fourth quarter of 2016 following a strong fourth quarter in 2016 in
anticipation of the Canadian life insurance tax legislation changes that came into effect on January 1,
2017. Sales in Group Benefits of $107 million increased 2% compared to fourth quarter 2016,
continuing its sales momentum experienced over the first nine months of the year.
SLF Canada wealth sales of $3.2 billion in the fourth quarter of 2017 decreased compared to
$4.7 billion in the fourth quarter of 2016, primarily due to GRS sales, largely reflecting a large
Client sale in the fourth quarter of the prior year. Individual wealth sales of $1.5 billion were
level compared to the same quarter of the prior year.
2017 vs. 2016
SLF Canada insurance sales were $1,125 million in 2017, compared to $950 million in 2016. Individual insurance sales of $451 million were down 5%
from the same period in the prior year, driven by strong sales in the fourth quarter of the prior year in anticipation of the
Canadian life insurance tax legislation changes that came into effect on January 1, 2017. Sales in
Group Benefits of $674 million increased 42% compared to 2016 driven by several large case
sales.
SLF Canada wealth sales were $15.0 billion in 2017, compared to $13.2
billion in 2016. Individual wealth sales of $5.9 billion were up 9% in 2017 compared to
2016, driven by continued growth in our wealth manufactured(1) products, including SLGI(2) mutual funds and
Sun GIF(3) segregated funds. GRS sales of $9.1 billion were 16% ahead of 2016, due to
increased renewal activity.
One of our key initiatives is to continue growing our Individual Wealth manufactured products, SLGI mutual funds and Sun Life
Guaranteed Investment Funds segregated funds. AUM for our wealth businesses, including GRS, was $120.8
billion, increased from $111.5 billion in 2016.
____________________
|
(1)
|
Represents sales of individual wealth products developed by Sun Life, which
include Sun Life Global Investment mutual funds, Sun Life Guaranteed Investment Funds segregated funds, Guaranteed
Investment Certificates, and Accumulation and Payout Annuities.
|
(2)
|
Sun Life Global Investments (Canada) Inc.
|
(3)
|
Sun Life Guaranteed Investment Funds
|
2. SLF U.S.
|
Quarterly results
|
Full Year
|
(US$ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Group Benefits
|
30
|
86
|
20
|
140
|
73
|
International
|
30
|
99
|
19
|
347
|
222
|
In-force Management
|
(79)
|
(29)
|
41
|
(247)
|
90
|
Reported net income (loss)
|
(19)
|
156
|
80
|
240
|
385
|
|
Market related impacts(5)
|
(14)
|
16
|
25
|
1
|
13
|
|
Assumption changes and management actions(1)(5)
|
(2)
|
23
|
2
|
(7)
|
75
|
|
Acquisition, integration and restructuring(2)
|
(8)
|
(12)
|
(12)
|
(52)
|
(42)
|
|
U.S. tax reform(1)
|
(94)
|
—
|
—
|
(94)
|
—
|
Underlying net income (loss)(3)
|
99
|
129
|
65
|
392
|
339
|
Reported ROE (%)
|
(2.1)
|
17.7
|
9.0
|
6.9
|
11.2
|
Underlying ROE (%)(3)
|
11.0
|
14.6
|
7.3
|
11.3
|
9.9
|
After-tax profit margin for Group Benefits (%)(4)
|
5.0
|
4.5
|
3.5
|
5.0
|
3.5
|
Insurance sales(3)
|
532
|
174
|
415
|
958
|
865
|
(C$ millions)
|
|
|
|
|
|
Reported net income (loss)
|
(25)
|
195
|
106
|
308
|
508
|
Underlying net income (loss)(3)
|
126
|
161
|
87
|
507
|
447
|
(1)
|
U.S. tax reform of US$(94) million ($(119) million) includes US$(231)
million ($(293) million) of ACMA, which is excluded from ACMA of US$(2) million ($(3) million).
|
(2)
|
Acquisition, integration and restructuring amounts related to the
acquisition and integration costs of the U.S. employee benefits business acquired in 2016 in Group Benefits.
|
(3)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(4)
|
Based on underlying net income, on a trailing four quarters basis, and
which is described in section J - Non-IFRS Financial Measures in this document.
|
(5)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of the components.
|
Profitability
Q4 2017 vs. Q4 2016
SLF U.S.'s reported net loss was US$19 million ($25
million) in the fourth quarter of 2017, compared to reported net income of US$80 million
($106 million) in the fourth quarter of 2016. Underlying net income was US$99 million ($126 million), compared to US$65
million ($87 million) in the fourth quarter of 2016. The impact from the movement of the
Canadian dollar in the fourth quarter of 2017 relative to average exchange rates in the fourth quarter of 2016 decreased
underlying net income by $6 million.
Reported net loss in the fourth quarter of 2017 compared to reported net income in the fourth quarter of 2016 reflected the
unfavourable impact of the U.S. tax reform and market related impacts driven by interest rates, largely in In-force
Management.
Underlying net income was up 52% in U.S. dollars from the fourth quarter 2016 resulting in after-tax profit margin for Group
Benefits(1) to increase to 5.0% from 3.5% for the comparable period in 2016. This reflects our improved underwriting
experience in the group life and disability businesses, as our pricing actions, investments in claims management and expense
initiatives, as well as progress on the integration of the U.S. employee benefits business acquired in 2016, continue to
progress. These results also reflected more favourable mortality experience in In-force Management, partially offset by lapse and
other policyholder experience in In-force Management.
______________________
|
(1)
|
Based on underlying net income, on a trailing four quarters basis, and
which is described in section J - Non-IFRS Financial Measures in this document.
|
2017 vs. 2016
SLF U.S.'s reported net income was US$240 million ($308
million) in 2017, compared to reported net income of US$385 million ($508 million) in 2016. Underlying net income was US$392 million ($507 million) in 2017, compared to US$339 million ($447
million) in 2016. The impact from the movement of the Canadian dollar in 2017 relative to average exchange rates in 2016
decreased reported net income and underlying net income by $6 million and $11 million, respectively.
Reported net income in 2017 compared to 2016 reflected the adverse impact of the U.S. tax reform and less favourable market
impacts primarily driven by interest rates. ACMA in 2017 (excluding the impact of the U.S. tax reform) were primarily driven by
the impact in the second quarter of 2017 related to reinsurance and taxes(1).
Underlying net income in 2017 compared to 2016 reflected improved mortality and morbidity experience in Group Benefits, an
increase in gains from investing activities on insurance contract liabilities, and a full twelve months of income from the
employee benefits business purchased in the prior year. These items were partially offset by unfavourable policyholder behaviour
in In-force Management and less favourable mortality experience in International.
Growth
Q4 2017 vs. Q4 2016
SLF U.S. insurance sales were US$532 million in the fourth quarter of 2017, compared to
US$415 million in the fourth quarter of 2016. Group Benefit sales increased by 25% to US$494 million reflected strong medical stop-loss sales which almost doubled from the prior year quarter,
partially offset by lower group life and disability sales. International life sales of US$38
million increased by 81% compared to the same quarter in 2016, including several large case sales, maintaining a
leadership position in this market.
2017 vs. 2016
SLF U.S. insurance sales increased by US$93 million in 2017 compared to 2016, Group
Benefits sales increased 9% compared to 2016 driven by increased sales of medical stop-loss insurance. International sales were
up 34% in 2017 compared to the prior year.
____________________
|
(1)
|
See section D - Profitability - 2017 vs. 2016 - ii. Assumption
changes and management actions in our 2017 annual MD&A for details on ACMA in 2017.
|
3. SLF Asset Management
|
Quarterly results
|
Full Year
|
SLF Asset Management (C$ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Reported net income
|
114
|
185
|
198
|
653
|
729
|
|
Fair value adjustments on MFS's share-based payment awards
|
(34)
|
(19)
|
10
|
(81)
|
30
|
|
U.S. tax reform(2)
|
(78)
|
—
|
—
|
(78)
|
—
|
Underlying net income(1)
|
226
|
204
|
188
|
812
|
699
|
Assets under management (C$ billions)(1)
|
677.6
|
647.7
|
624.8
|
677.6
|
624.8
|
Gross sales (C$ billions)(1)
|
28.5
|
28.6
|
29.5
|
117.3
|
116.3
|
Net sales (C$ billions)(1)
|
(3.4)
|
(1.9)
|
(10.4)
|
(22.4)
|
(12.2)
|
MFS (C$ millions)
|
|
|
|
|
|
Reported net income
|
91
|
180
|
189
|
612
|
700
|
|
Fair value adjustments on MFS's share-based payment awards
|
(34)
|
(19)
|
10
|
(81)
|
30
|
|
U.S. tax reform
|
(95)
|
—
|
—
|
(95)
|
—
|
Underlying net income(1)
|
220
|
199
|
179
|
788
|
670
|
Assets under management (C$ billions)(1)
|
618.3
|
591.2
|
571.6
|
618.3
|
571.6
|
Gross sales (C$ billions)(1)
|
25.6
|
26.3
|
26.3
|
106.5
|
108.2
|
Net sales (C$ billions)(1)
|
(5.0)
|
(3.3)
|
(12.7)
|
(28.5)
|
(16.7)
|
(US$ millions)
|
|
|
|
|
|
Reported net income
|
72
|
143
|
142
|
471
|
528
|
|
Fair value adjustments on MFS's share-based payment awards
|
(27)
|
(16)
|
7
|
(64)
|
22
|
|
U.S. tax reform
|
(75)
|
—
|
—
|
(75)
|
—
|
Underlying net income(1)
|
174
|
159
|
135
|
610
|
506
|
Pre-tax operating profit margin ratio(1)
|
40%
|
41%
|
35%
|
38%
|
36%
|
Average net assets (US$ billions)(1)
|
482.6
|
468.2
|
426.9
|
460.5
|
421.7
|
Assets under management (US$ billions)(1)(3)
|
491.6
|
474.2
|
425.6
|
491.6
|
425.6
|
Gross sales (US$ billions)(1)
|
20.1
|
21.0
|
19.8
|
82.1
|
81.7
|
Net sales (US$ billions)(1)
|
(4.0)
|
(2.7)
|
(9.5)
|
(21.8)
|
(12.6)
|
Asset appreciation (depreciation) (US$ billions)
|
21.4
|
14.7
|
(5.6)
|
87.8
|
25.0
|
S&P 500 Index (daily average)
|
2,605
|
2,465
|
2,185
|
2,448
|
2,094
|
MSCI EAFE Index (daily average)
|
2,005
|
1,934
|
1,660
|
1,886
|
1,645
|
SLIM (C$ millions)
|
|
|
|
|
|
Reported net income
|
23
|
5
|
9
|
41
|
29
|
|
U.S. tax reform
|
17
|
—
|
—
|
17
|
—
|
Underlying net income(1)
|
6
|
5
|
9
|
24
|
29
|
Assets under management (C$ billions)(1)
|
59.3
|
56.5
|
53.2
|
59.3
|
53.2
|
Gross sales (C$ billions)(1)
|
2.9
|
2.3
|
3.2
|
10.8
|
8.1
|
Net sales (C$ billions)(1)
|
1.6
|
1.5
|
2.3
|
6.1
|
4.5
|
(1)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(2)
|
This consists of a charge of $32 million relating to the revaluation of its
deferred tax balances, consisting of a charge of $49 million for MFS, partially offset by a benefit of $17 million for
SLIM, and a one-time charge on the deemed repatriation of foreign earnings of $46 million for MFS in the fourth quarter
of 2017.
|
(3)
|
Monthly information on AUM is provided by MFS in its Corporate Fact Sheet,
which can be found at www.mfs.com/CorpFact. The Corporate Fact Sheet also provides MFS's U.S. GAAP assets and liabilities as at
December 31, 2017.
|
Profitability
Q4 2017 vs. Q4 2016
SLF Asset Management's reported net income was $114 million in the fourth quarter of
2017, compared to $198 million in the fourth quarter of 2016. SLF Asset Management had underlying
net income of $226 million in the fourth quarter of 2017, compared to $188
million in the fourth quarter of 2016. The impact from the movement of the Canadian dollar in the fourth quarter of 2017
relative to average exchange rates in the fourth quarter of 2016 decreased reported net income and underlying net income by
$6 million and $11 million, respectively.
SLF Asset Management's reported net income decreased compared to the same quarter in 2016 primarily due to the impact of the
U.S. tax reform, which is excluded from underlying net income.
In U.S. dollars, MFS's reported net income was US$72 million in the fourth quarter of 2017,
compared to US$142 million in the fourth quarter of 2016. MFS's reported net income compared to the
fourth quarter of 2016 reflects the charge related to the U.S. tax reform and the Fair value adjustments on MFS's share-based
payment awards. MFS's underlying net income was US$174 million in the fourth quarter of 2017,
compared to US$135 million in the fourth quarter of 2016, driven by higher average net assets and
lower taxes. MFS's pre-tax operating profit margin ratio was 40% in the fourth quarter of 2017, up from 35% in the fourth quarter
of 2016 due primarily to higher average net assets.
SLIM's reported net income was $23 million compared to $9 million
in the fourth quarter of 2016, primarily due to a benefit related to the U.S. tax reform discussed above. SLIM's underlying net
income was $6 million compared to $9 million in the fourth quarter of
2016.
2017 vs. 2016
SLF Asset Management's reported net income in 2017 was $653 million, compared to
$729 million in 2016. Underlying net income was $812 million in 2017,
compared to $699 million in 2016. The impact from the movement of the Canadian dollar in 2017
relative to average exchange rates in 2016 decreased reported net income and underlying net income by $14
million and $17 million, respectively.
MFS's reported net income in 2017 was US$471 million, compared to US$528
million in 2016. MFS's reported net income compared to 2016 reflects the Fair value adjustments on MFS's share-based
payment awards and the impact related to the U.S. tax reform. MFS's underlying net income was US$610
million in 2017, compared to US$506 million in 2016. MFS's underlying net income in 2017
increased compared to prior year driven primarily by higher average net assets, expense management, and lower taxes.
SLIM's reported net income in 2017 was $41 million compared to $29
million in 2016, primarily due to a benefit related to the U.S. tax reform. SLIM's underlying net income was $24 million compared to $29 million in 2016.
Growth
SLF Asset Management's AUM was $677.6 billion as at December 31, 2017, compared to
$624.8 billion as at December 31, 2016. The increase in AUM was primarily due to asset
appreciation, partially offset by unfavourable currency impact and net outflows. MFS's AUM was US$491.6
billion ($618.3 billion) as at December 31, 2017, compared to US$425.6 billion ($571.6 billion) as at December 31, 2016. The increase of
US$66.0 billion was primarily driven by asset appreciation of US$87.8
billion and gross sales of US$82.1 billion, partially offset by redemptions of US$103.9 billion. Net outflows at MFS were primarily driven by institutional Client portfolio re-balancing and
the trend to passive investing. 84%, 79% and 92% of MFS's retail fund assets ranked in the top half of their Lipper categories
based on three-, five-, and ten-year performance, respectively, as of December 31, 2017.
SLIM's AUM was $59.3 billion as at December 31, 2017, compared to $53.2 billion as at December 31, 2016. This increase was primarily due to net sales of $6.1 billion.
4. SLF Asia
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Reported net income (loss)
|
83
|
93
|
58
|
326
|
309
|
|
Market related impacts(1)
|
—
|
(4)
|
6
|
(19)
|
(13)
|
|
Assumption changes and management actions(1)
|
3
|
7
|
(9)
|
15
|
(6)
|
|
Acquisition, integration and restructuring
|
—
|
—
|
(1)
|
—
|
33
|
Underlying net income (loss)(2)
|
80
|
90
|
62
|
330
|
295
|
Reported ROE (%)(2)
|
7.6
|
8.8
|
5.5
|
7.6
|
7.9
|
Underlying ROE (%)(2)
|
7.3
|
8.4
|
5.8
|
7.7
|
7.5
|
Insurance sales(2)
|
203
|
163
|
208
|
687
|
660
|
Wealth sales(2)
|
3,603
|
3,607
|
3,092
|
13,056
|
8,849
|
(1)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of the components.
|
(2)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
Profitability
Q4 2017 vs. Q4 2016
SLF Asia's reported net income was $83 million in the fourth quarter of 2017, compared
to reported net income of $58 million in the fourth quarter of 2016. Underlying net income was
$80 million, compared to $62 million in the fourth quarter of 2016.
The impact from the movement of the Canadian dollar in the fourth quarter of 2017 relative to average exchange rates in the
fourth quarter of 2016 reduced both reported net income and underlying net income by $5
million.
Reported net income in the fourth quarter of 2017 compared to the fourth quarter of 2016 reflected favourable impact of ACMA,
partially offset by less favourable market related impacts, primarily driven by interest rate changes. Underlying net income in
the fourth quarter of 2017, compared to the fourth quarter of 2016, reflected growth in fee income business and contribution from
our joint ventures.
2017 vs. 2016
Reported net income was $326 million in 2017, compared to $309
million in 2016. Underlying net income in 2017 was $330 million, compared to $295 million in the prior year. The impact from the movement in the Canadian dollar in 2017 relative to average
exchange rates in 2016 decreased reported net income and underlying net income by $18 million and
$19 million, respectively.
Reported net income in 2017 compared to 2016 reflected favourable impact from ACMA, partially offset by higher unfavourable
market related impacts, primarily driven by equity market changes. 2016 reflected the favourable impact of acquisition,
integration and restructuring amounts related to remeasuring our existing investment to fair value upon acquiring control over
the operations of Sun Life Vietnam Insurance Company Limited ("Sun Life Vietnam") and over the operations of Sun Life Financial
Indonesia. Underlying net income in 2017 compared to 2016 reflected growth in fee income business and higher level of gains from
available-for-sale ("AFS") assets.
Growth
Q4 2017 vs. Q4 2016
SLF Asia insurance sales were $203 million in the fourth quarter of 2017, compared to
$208 million in the fourth quarter of 2016. Total individual insurance sales decreased 2% compared
to the fourth quarter of 2016 due to the strengthening of the Canadian dollar and lower sales in Hong
Kong. On a constant currency basis, individual insurance sales increased 3%. With the exception of lower sales in
Hong Kong, all other markets achieved double-digit growth.
SLF Asia wealth sales were $3.6 billion in the fourth quarter of 2017, compared to $3.1 billion in the fourth quarter of 2016. Strong wealth sales were led by continued growth in equity and
fixed income funds in our Indian joint venture mutual fund company, Aditya Birla Sun Life AMC Limited, and our asset management
company in the Philippines, as well as our growing pensions business in Hong Kong.
2017 vs. 2016
SLF Asia insurance sales were $687 million in 2017, compared to $660 million in 2016. Total individual insurance sales in 2017 increased 5% from 2016. On a constant currency
basis, individual insurance sales increased 9% driven by our increase in ownership in Indonesia,
Vietnam and India, as well as organic growth in all markets
except Hong Kong.
SLF Asia wealth sales were $13.1 billion in 2017, compared to $8.8
billion in 2016. Wealth sales grew by 49% on a constant currency basis over 2016, driven by exceptional growth in our
mutual fund operations in India and the Philippines, as well as
our Hong Kong pensions business.
5. Corporate
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
SLF U.K.
|
6
|
72
|
26
|
181
|
184
|
Corporate Support
|
(143)
|
(68)
|
(58)
|
(282)
|
(181)
|
Reported net income (loss)
|
(137)
|
4
|
(32)
|
(101)
|
3
|
|
Market related impacts(1)
|
—
|
7
|
(6)
|
5
|
(13)
|
|
Assumption changes and management actions(1)(2)
|
(10)
|
33
|
—
|
55
|
14
|
|
Acquisition, integration and restructuring(3)
|
(50)
|
(2)
|
(6)
|
(55)
|
(5)
|
|
U.S. tax reform(2)
|
(54)
|
—
|
—
|
(54)
|
—
|
Underlying net income (loss)(4)
|
(23)
|
(34)
|
(20)
|
(52)
|
7
|
(1)
|
See section J - Non-IFRS Financial Measures in this document for a
breakdown of the components.
|
(2)
|
U.S. tax reform impact of $(54) million includes $5 million of ACMA, which
is excluded from ACMA of $(10) million.
|
(3)
|
Acquisition, integration and restructuring amounts for the fourth quarter
of 2017 consisted primarily of the impact of the restructuring charge related to Company's plan to enhance business
processes and organizational structures and capabilities. The adjustment also includes acquisition and integration costs
from Bentall Kennedy Group of Companies, Prime Advisors Inc. and Ryan Labs Asset Management Inc. in Corporate
Support.
|
(4)
|
Represents a non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
Profitability
Q4 2017 vs. Q4 2016
Corporate had reported net loss of $137 million in the fourth quarter of 2017, compared
to reported loss of $32 million in the fourth quarter of 2016. Reported net loss in Corporate in
the fourth quarter of 2017 reflected the unfavourable impact of acquisition, integration and restructuring amounts and the impact
of the U.S. tax reform. Underlying net loss was $23 million, compared to underlying loss of
$20 million in the fourth quarter of 2016.
SLF U.K.'s reported net income in the fourth quarter of 2017 decreased compared to the fourth quarter of 2016 which reflected
impacts from the treatment of policyholder tax losses, ACMA, and a lower level of gains from investing activity on insurance
contract liabilities, partially offset by favourable mortality.
Corporate Support had a reported net loss of $143 million in the fourth quarter of 2017,
compared to a reported net loss of $58 million in the fourth quarter of 2016. The increase in loss
was primarily due to the restructuring charge related to actions to enhance business processes and organizational structures and
capabilities and the impact of the U.S. tax reform in Run-off reinsurance.
2017 vs. 2016
The reported net loss was $101 million in the Corporate segment in 2017, compared to a
reported net income of $3 million in 2016, reflected the unfavourable impact of acquisition,
integration and restructuring amounts and the impact of the U.S. tax reform, partially offset by the favourable impact of ACMA.
Underlying net loss was $52 million in 2017, compared to an underlying net income of $7 million in the prior year. The impact from the movement of the Canadian dollar relative to average exchange
rates in 2017 increased reported net loss by $15 million and increased underlying net loss by
$9 million.
SLF U.K.'s reported net income in 2017 compared to 2016 reflected the favourable impact of ACMA, improved equity markets and
favourable mortality experience, offset by lower level of gains from investing activity on insurance contract liabilities and
impacts from the treatment of policyholder tax losses.
In Corporate Support, the reported net loss in 2017 was $282 million compared to a reported net
loss of $181 million in 2016 primarily due to the impact of the U.S. tax reform and the
restructuring charge related to actions to enhance business processes and organizational structures.
G. Investments
We had total general fund invested assets of $146.1 billion as at December 31, 2017, compared to $142.4 billion as at December 31, 2016. The increase in general fund invested assets was primarily due to changes in operating
activity and net fair value growth, partially offset by the currency impact of the strengthening Canadian dollar and the net
redemption of subordinated debt. Our general fund invested assets are well diversified across investment types, geographies and
sectors with the majority of our portfolio invested in fixed income high quality assets.
The following table sets out the composition of our general fund invested assets.(1)
|
December 31, 2017
|
December 31, 2016
|
($ millions)
|
Carrying
value
|
% of total
carrying value
|
Carrying
value
|
% of total
carrying value
|
Cash, cash equivalents and short-term securities
|
8,890
|
6%
|
8,642
|
6%
|
Debt securities
|
72,619
|
50%
|
71,887
|
50%
|
Equity securities
|
6,020
|
4%
|
5,774
|
4%
|
Mortgages and loans
|
42,805
|
29%
|
40,775
|
29%
|
Derivative assets
|
1,478
|
1%
|
1,608
|
1%
|
Other invested assets
|
4,154
|
3%
|
3,931
|
3%
|
Policy loans
|
3,106
|
2%
|
3,141
|
2%
|
Investment properties(2)
|
7,067
|
5%
|
6,592
|
5%
|
Total invested assets
|
146,139
|
100%
|
142,350
|
100%
|
(1)
|
The values and ratios presented are based on the carrying value of the
respective asset categories. Generally, the carrying values for Fair value through profit or loss ("FVTPL") and AFS
invested assets are equal to their fair values; however our mortgages and loans are generally carried at amortized cost.
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.
|
(2)
|
As a result of the relocation of our head office location, the December 31,
2017 balance includes the reclassification of our former head office location in the second quarter of 2017, previously
classified as owner-occupied, with a fair value of $259 million at the time of transfer from Other Assets to Investment
properties. The reclassification recognized revaluation surplus of $172 million which was recorded as an increase of $139
million of accumulated other comprehensive income, net of taxes of $33 million.
|
1. Debt Securities
Our debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing
yield, quality and liquidity, while ensuring that it remains well diversified and duration-matched to insurance contract
liabilities. With the exception of certain countries where we have business operations, including Canada, the United States, the United
Kingdom and the Philippines, our exposure to debt securities from any single country did
not exceed 1% of total invested assets on our Consolidated Statements of Financial Position as at December
31, 2017.
The carrying value of FVTPL and AFS debt securities by geographic location is presented in the following table.
|
December 31, 2017
|
December 31, 2016
|
($ millions)
|
FVTPL
debt
securities
|
AFS debt
securities
|
Total
|
% of Total
|
FVTPL
debt
securities
|
AFS debt
securities
|
Total
|
% of Total
|
Debt securities
|
|
|
|
|
|
|
|
|
|
Canada
|
24,132
|
4,114
|
28,246
|
39%
|
22,507
|
3,589
|
26,096
|
36%
|
|
United States
|
20,758
|
5,719
|
26,477
|
36%
|
21,469
|
5,910
|
27,379
|
38%
|
|
Europe
|
8,923
|
1,402
|
10,325
|
14%
|
9,087
|
1,507
|
10,594
|
15%
|
|
Asia
|
3,694
|
571
|
4,265
|
6%
|
3,841
|
651
|
4,492
|
6%
|
|
Other
|
2,460
|
846
|
3,306
|
5%
|
2,562
|
764
|
3,326
|
5%
|
Total debt securities
|
59,967
|
12,652
|
72,619
|
100%
|
59,466
|
12,421
|
71,887
|
100%
|
Our debt securities with a credit rating of "A" or higher represented 70.6% of the total debt securities as at December 31, 2017, compared to 69.6% as at December 31, 2016. Debt securities
with a credit rating of "BBB" or higher represented 98.3% of total debt securities as at December 31,
2017, compared to 97.6% as at December 31, 2016.
Our gross unrealized losses as at December 31, 2017 for FVTPL and AFS debt securities were
$0.3 billion and $0.1 billion, respectively, compared with
$0.7 billion and $0.1 billion, respectively, as at December 31, 2016.
2. Mortgages and Loans
Mortgages and loans disclosures in this section are presented at their carrying value on our Consolidated Statements
of Financial Position. Our mortgage portfolio consisted almost entirely of first mortgages and our loan portfolio consisted of
private placement loans.
The carrying value of mortgages and loans by geographic location is presented in the following table.(1)
Mortgages and Loans by Geography
|
December 31, 2017
|
December 31, 2016
|
($ millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Canada
|
8,390
|
13,265
|
21,655
|
8,234
|
13,120
|
21,354
|
United States
|
7,103
|
9,542
|
16,645
|
7,162
|
8,562
|
15,724
|
Europe
|
—
|
2,706
|
2,706
|
—
|
1,668
|
1,668
|
Asia
|
—
|
265
|
265
|
—
|
247
|
247
|
Other
|
—
|
1,534
|
1,534
|
—
|
1,782
|
1,782
|
Total
|
15,493
|
27,312
|
42,805
|
15,396
|
25,379
|
40,775
|
% of Total Invested Assets
|
11%
|
19%
|
29%
|
11%
|
18%
|
29%
|
(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 December 31, 2017, we held $15.5 billion of mortgages,
compared to $15.4 billion as at December 31, 2016. Our mortgage
portfolio consists entirely of commercial mortgages, including retail, office, multi-family, industrial and land properties. As
at December 31, 2017, 30% of our commercial mortgage portfolio consisted of multi-family
residential mortgages; there are no single family residential mortgages. Our uninsured commercial portfolio had a weighted
average loan-to-value ratio of approximately 55% as at December 31, 2017, consistent with
December 31, 2016. While we generally limit the maximum loan-to-value ratio to 75% at issuance, we
may invest in mortgages with a higher loan-to-value ratio in Canada if the mortgage is insured
by the Canada Mortgage and Housing Corporation ("CMHC"). The estimated weighted average debt service coverage for our uninsured
commercial portfolio is 1.77 times. Of the $3.2 billion of multi-family residential mortgages in
the Canadian commercial mortgage portfolio, 91% were insured by the CMHC.
As at December 31, 2017, we held $27.3 billion of loans, compared
to $25.4 billion as at December 31, 2016. Private placement loans
provide diversification by type of loan, industry segment and borrower credit quality. The private placement loan portfolio
consists of senior secured and unsecured loans to large- and mid-market sized corporate borrowers, securitized lease/loan
obligations secured by a variety of assets, and project finance loans in sectors such as power and infrastructure.
Mortgages and Loans Past Due or Impaired
The gross carrying value and allowance for mortgages and loans past due or impaired are presented in the following
table.
|
December 31, 2017
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Not past due
|
15,482
|
27,180
|
42,662
|
—
|
—
|
—
|
Past due:
|
|
|
|
|
|
|
|
Past due less than 90 days
|
—
|
71
|
71
|
—
|
—
|
—
|
|
Past due 90 days or more
|
—
|
—
|
—
|
—
|
—
|
—
|
Impaired
|
33
|
89
|
122
|
22 (1)
|
28
|
50
|
Total
|
15,515
|
27,340
|
42,855
|
22
|
28
|
50
|
|
December 31, 2016
|
|
Gross carrying value
|
Allowance for losses
|
($ millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Not past due
|
15,378
|
25,379
|
40,757
|
—
|
—
|
—
|
Past due:
|
|
|
|
|
|
|
|
Past due less than 90 days
|
2
|
—
|
2
|
—
|
—
|
—
|
|
Past due 90 days or more
|
—
|
—
|
—
|
—
|
—
|
—
|
Impaired
|
39
|
7
|
46
|
23(1)
|
7
|
30
|
Total
|
15,419
|
25,386
|
40,805
|
23
|
7
|
30
|
(1)
|
Includes $20 million of sectoral provisions as at December 31, 2017, and
$21 million of sectoral provisions as at December 31, 2016.
|
Our impaired mortgages and loans, net of allowance for losses, were $72 million as at
December 31, 2017, compared to $16 million as at December 31, 2016. The increase of $56 million in impaired loans was primarily
due to the addition of two creditors in the first quarter of 2017.
3. Derivative Financial Instruments
The values associated with our derivative instruments are presented in the following table. Notional amounts serve as
the basis for payments calculated under derivatives contracts and are not exchanged.
($ millions)
|
December 31, 2017
|
December 31, 2016
|
Net fair value asset (liability)
|
(278)
|
(904)
|
Total notional amount
|
54,121
|
54,350
|
Credit equivalent amount
|
561
|
510
|
Risk-weighted credit equivalent amount
|
5.6
|
5.2
|
The total notional amount of our derivatives decreased to $54.1 billion as at December 31, 2017 from $54.4 billion as at December 31,
2016 reflecting a decline in interest rate contracts, partially offset by foreign currency contracts.
The net fair value of derivatives was a net liability of $278 million as at December 31, 2017, compared to a net liability of $904 million as at December 31, 2016. The increase in net fair value was primarily due to the impact of the strengthening of the
Canadian dollar against the U.S. dollar on foreign exchange contracts, partially offset by upward shifts in the yield curve.
4. 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 December
31, 2017 was $2,288 million compared to $2,247 million as at
December 31, 2016. The increase of $41 million was primarily due to
increases in the provision for assets purchased, net of dispositions offset by strengthening of the Canadian dollar and the
release of provisions on fixed income assets supporting our insurance contract liabilities.
H. Risk Management
The Company has established a Risk Management Framework to assist in identifying, measuring, managing, monitoring and
reporting risks. The Risk Management Framework covers all risks and these have been grouped into six major categories: credit,
market, insurance, business and strategic, operational and liquidity risks.
Through our enterprise risk management processes, we oversee the various risk factors identified in the Risk Management
Framework and provide reports to senior management and to the Board Committees at least quarterly. Our enterprise risk management
processes 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.
1. Market Risk Sensitivities
Our net income(1) is 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 Annual 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
Annual Consolidated Financial Statements. Refer to Additional Cautionary Language and Key Assumptions Related to Sensitivities in
this section for important additional information regarding these estimates.
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 with declining interest rates and decreases with 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 other comprehensive income ("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 $41 million (pre-tax) in net gains on the sale of AFS assets during the fourth
quarter of 2017 ($41 million pre-tax in the fourth quarter of 2016). The net unrealized gains or
OCI position on AFS fixed income and equity assets were $171 million and $175 million, respectively, after-tax as at December 31, 2017 ($86 million and $125 million, respectively, after-tax as at December 31, 2016).
______________________
|
(1)
|
Net income refers to common shareholders' net income in section H - Risk
Management in this document.
|
The following table sets out the estimated immediate impact on, or sensitivity of our net income and OCI, and Sun Life
Assurance's MCCSR ratio to certain instantaneous changes in interest rates and equity market prices as at December 31, 2017 and December 31, 2016.
Interest Rate and Equity Market Sensitivities
|
|
|
|
As at December 31, 2017(1)
($ 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)
|
$
|
(250)
|
$
|
(100)
|
$
|
50
|
$
|
100
|
|
Potential impact on OCI
|
$
|
550
|
$
|
250
|
$
|
(250)
|
$
|
(550)
|
|
Potential impact on MCCSR(4)
|
9% points
decrease
|
4% points
decrease
|
4% points
increase
|
7% points
increase
|
Equity markets sensitivity(5)
|
25% decrease
|
10% decrease
|
10% increase
|
25% increase
|
|
Potential impact on net income(3)
|
$
|
(300)
|
$
|
(100)
|
$
|
100
|
$
|
300
|
|
Potential impact on OCI
|
$
|
(200)
|
$
|
(50)
|
$
|
50
|
$
|
200
|
|
Potential impact on MCCSR(4)
|
4% points
decrease
|
1% points
decrease
|
2% points
increase
|
3% points
increase
|
As at December 31, 2016(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)
|
$
|
(200)
|
$
|
(100)
|
$
|
50
|
$
|
50
|
|
Potential impact on OCI
|
$
|
550
|
$
|
250
|
$
|
(250)
|
$
|
(500)
|
|
Potential impact on MCCSR(4)
|
8% points
decrease
|
3% points
decrease
|
4% points
increase
|
7% 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)
|
3% points
decrease
|
1% points
decrease
|
2% points
increase
|
4% 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 associates, 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 December 31, 2017 and December 31, 2016 with no change to the Actuarial
Standards Board ("ASB") promulgated Ultimate Reinvestment Rate ("URR"). 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 December 31, 2017 and December 31, 2016, 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
December 31, 2017 and December 31, 2016. This excludes the impact on assets and liabilities that are in SLF Inc. but not
included in Sun Life Assurance.
|
(5)
|
Represents the respective change across all equity markets as at December
31, 2017 and December 31, 2016. 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 and MCCSR sensitivities to changes in interest rates and equity markets have changed since December 31, 2016. The increase in sensitivities is primarily the result of ACMA during 2017.
2. Credit Spread and Swap Spread Sensitivities
We have estimated the immediate impact or sensitivity of our 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
|
December 31, 2017
|
$
|
(100)
|
$
|
100
|
December 31, 2016
|
$
|
(125)
|
$
|
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
|
December 31, 2017
|
$
|
25
|
$
|
(25)
|
December 31, 2016
|
$
|
25
|
$
|
(25)
|
(1)
|
Sensitivities have been rounded to the nearest $25 million.
|
The credit and swap spread sensitivities assume a parallel shift in the indicated spreads across the entire term structure.
Variations in realized spread changes based on different terms to maturity, geographies, asset classes and 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 Additional Cautionary Language and Key Assumptions Related to Sensitivities in this
section for important additional information regarding these estimates.
3. General Account Insurance and Annuity Products
Most of our expected sensitivity to changes in interest rates and about two-thirds of our expected sensitivity to
changes in equity markets are 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 assets, interest rate swaps, and swaptions.
4. Segregated Fund Guarantees
Approximately one-third of our equity market sensitivity and a small amount of interest rate risk sensitivity as at
December 31, 2017 are 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 these guarantees is uncertain and depends 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 for our segregated fund products.
As at December 31, 2017
|
($ millions)
|
Fund value
|
Amount at Risk(1)
|
Value of
guarantees(2)
|
Insurance contract
liabilities(3)
|
SLF Canada
|
12,448
|
315
|
10,875
|
399
|
SLF U.S.
|
3,727
|
250
|
3,755
|
107
|
Run-off reinsurance(4)
|
2,534
|
375
|
1,546
|
385
|
Total
|
18,709
|
940
|
16,176
|
891
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
($ millions)
|
Fund value
|
Amount at Risk(1)
|
Value of
guarantees(2)
|
Insurance contract
liabilities(3)
|
SLF Canada
|
12,354
|
348
|
10,961
|
499
|
SLF U.S.
|
4,361
|
430
|
4,681
|
171
|
Run-off reinsurance(4)
|
2,695
|
494
|
1,864
|
469
|
Total
|
19,410
|
1,272
|
17,506
|
1,139
|
(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, 2016 to December 31, 2017 primarily resulted from the following factors:
(i)
|
the total fund values decreased due to the strengthening of the Canadian
dollar against the U.S. dollar and the net redemptions from legacy business, this was partially offset by favourable
equity market movements;
|
(ii)
|
the amount at risk decreased due to the strengthening of the Canadian
dollar against the U.S. dollar, favourable equity market movements and the net redemptions from legacy
business;
|
(iii)
|
the total value of guarantees decreased due to the strengthening of the
Canadian dollar against the U.S. dollar and the net redemptions from legacy business; and
|
(iv)
|
the total insurance contract liabilities decreased due to the strengthening
of the Canadian dollar against the U.S. dollar, favourable equity market movements, and the net redemptions from legacy
business.
|
5. Segregated Fund Hedging
Our hedging programs use derivative instruments to mitigate the interest and
equity related exposure of our segregated fund contracts. As at December 31, 2017, 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 market risk 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.
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 a 10% and 25% decrease in equity markets for segregated fund contracts as at December 31, 2017 and December 31, 2016.
Impact of Segregated Fund Hedging
December 31, 2017
|
|
|
|
|
($ 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)
|
(450)
|
Hedging impact
|
200
|
400
|
100
|
350
|
Net of hedging
|
—
|
—
|
(50)
|
(100)
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
($ 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
|
(250)
|
(550)
|
(200)
|
(550)
|
Hedging impact
|
250
|
550
|
150
|
450
|
Net of hedging
|
—
|
—
|
(50)
|
(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 net
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 December 31, 2017 and December 31, 2016, with no change to the ASB promulgated URR. 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 December 31, 2017 and
December 31, 2016. 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. Real Estate Risk
Real estate risk is the potential for financial loss arising from fluctuations in the value of, or future cash flows
from our investments in real estate. We are exposed to real estate risk and 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. A material and sustained increase in interest rates
may lead to deterioration in real estate values. An instantaneous 10% decrease in the value of our direct real estate investments
as at December 31, 2017 would decrease net income(1) by approximately $250 million ($200 million decrease as at December 31,
2016). Conversely, an instantaneous 10% increase in the value of our direct real estate investments as at December 31, 2017 would increase net income by approximately $250 million
($200 million increase as at December 31, 2016).
___________________
|
(1)
|
Net income sensitivities have been rounded to the nearest $25
million.
|
7. 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 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, 2016 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 section J - Non-IFRS Financial Measures in this
document. 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 December 31, 2017
and December 31, 2016, respectively. 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
December 31 calculation dates. The actual impact of hedging activity 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 December 31, 2017 and
December 31, 2016, as applicable. Changes in the regulatory environment, accounting or actuarial
valuation methods, models, or assumptions (including changes to the ASB promulgated URR) after those dates 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), volatility risk, 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 are intended to mitigate these effects (e.g., hedge counterparty credit risk is managed by
maintaining broad diversification, dealing primarily with highly rated counterparties, and transacting through over-the-counter
contracts cleared through central clearing houses, exchange-traded contracts or bilateral over-the-counter contracts negotiated
directly between counterparties that include applicable credit support annexes), residual risk, potential reported earnings and
capital volatility remain.
For the reasons outlined above, our 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. 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 section in the annual MD&A under the headings M - Accounting and Control
Matters - 1 - Critical Accounting Policies and Estimates. Additional information on market risk can be found in Note 6 of our
2017 Annual Consolidated Financial Statements and the Risk Factors section in our AIF.
I. Additional Financial Disclosure
1. Revenue
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Premiums
|
|
|
|
|
|
|
Gross
|
5,308
|
4,741
|
5,592
|
19,838
|
19,427
|
|
Ceded
|
(1,230)
|
(1,025)
|
(1,173)
|
(4,557)
|
(4,379)
|
Net premiums
|
4,078
|
3,716
|
4,419
|
15,281
|
15,048
|
Net investment income
|
|
|
|
|
|
|
Interest and other investment income
|
1,399
|
1,328
|
1,366
|
5,413
|
5,489
|
|
Fair value(1) and foreign currency changes on assets and
liabilities
|
1,610
|
(974)
|
(4,902)
|
2,603
|
2,233
|
|
Net gains (losses) on available-for-sale assets
|
41
|
41
|
41
|
195
|
223
|
Fee income
|
1,520
|
1,444
|
1,442
|
5,842
|
5,580
|
Total revenue
|
8,648
|
5,555
|
2,366
|
29,334
|
28,573
|
Adjusted revenue(2)
|
7,995
|
7,531
|
7,963
|
30,129
|
29,098
|
(1)
|
Represents the change in FVTPL assets and liabilities.
|
(2)
|
Adjusted revenue is 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 section J - Non-IFRS Financial Measures in this document.
|
Revenue in the fourth quarter of 2017 was $8.6 billion, compared to $2.4
billion in the fourth quarter of 2016. The increase was mainly attributable to increases in the fair value of FVTPL assets
largely due to the decreases in interest rates in the fourth quarter in 2017 compared to increases in interest rates in the same
period in 2016 and also impacts from interest rates derivatives. The currency impact from the change in the Canadian dollar
relative to average exchange rates in the fourth quarter of 2016 decreased revenue by $198
million.
Revenue was $29.3 billion in 2017, up $0.7 billion from the
comparable period in the prior year. The increase was mainly attributable to higher net premium revenue in SLF Canada and SLF
U.S., increased net gains in the fair value of FVTPL assets largely due to slightly lower interest rates and tightening credit
spreads in 2017, as well as higher fee income from SLF Asset Management, SLF Canada and SLF Asia, partially offset by lower net
premium revenue in SLF Asia and currency impact of $412 million from the change in the Canadian
dollar relative to average exchange rates in 2016.
Adjusted revenue was $8.0 billion in the fourth quarter of 2017, largely unchanged from the
fourth quarter of 2016. Adjusted revenue of $30.1 billion in 2017 was $1.0
billion higher compared to the same period in 2016. The increase was primarily driven by higher net premium revenue in SLF
Canada and SLF U.S., increased fee income from SLF Asset Management, SLF Canada and SLF Asia, partially offset by lower net
premium revenue in SLF Asia.
2. Changes in the Statements of Financial Position and in Shareholders' Equity
Total general fund assets were $162.7 billion as at December 31,
2017, compared to $161.1 billion as at December 31, 2016,
primarily a result of an increase of $3.2 billion from business activities and $2.6 billion from the change in value of FVTPL assets and liabilities, partially offset by a decrease of
$4.2 billion from the strengthening of the Canadian dollar relative to exchange rates at the end of
the fourth quarter of 2016.
Insurance contract liabilities (excluding other policy liabilities and assets) of $111.0 billion
as at December 31, 2017 increased by $2.6 billion compared to
December 31, 2016, mainly due to balances arising from new policies and changes in balances on
in-force policies (which include fair value changes on FVTPL assets supporting insurance contract liabilities) including the
increase as a result of the U.S. tax reform as described in section C - Profitability - 4 - U.S. tax reform, partially offset by
the currency impact from the change in the Canadian dollar relative to exchange rates at the end of the fourth quarter of
2016.
Shareholders' equity, including preferred share capital, was $22.3 billion as at December 31, 2017, compared to $22.0 billion as at December 31, 2016. The increase in shareholders' equity was primarily due to:
(i)
|
shareholders' net income of $2.2 billion in 2017, before preferred share
dividends of $93 million;
|
(ii)
|
revaluation surplus from the transfer to investment properties of our
former head office location of $139 million;
|
(iii)
|
net unrealized gains on AFS assets in OCI of $135 million; and
|
(iv)
|
$15 million from stock options exercised and $3 million from stock-based
compensation; partially offset by
|
(v)
|
common share dividend payments of $1,066 million;
|
(vi)
|
a decrease of $730 million from the change of the Canadian dollar relative
to exchange rates at the end of the fourth quarter of 2016;
|
(vii)
|
a decrease of $175 million from the repurchase and cancellation of common
shares;
|
(viii)
|
changes in the remeasurement of defined benefit plans of $69 million;
and
|
(ix)
|
a decrease of $31 million from OCI of joint ventures and
associates.
|
3. Goodwill Impairment Testing
The Company completed its annual goodwill and indefinite life intangible asset impairment testing in the fourth
quarter of 2017. No impairment charges on goodwill and indefinite life intangible assets were recognized in 2017 or 2016.
J. Non-IFRS Financial Measures
1. Updates to Non-IFRS Measures
Beginning in the first quarter of 2017, we stopped reporting operating net income and its related measures, operating
earnings per share ("EPS") and operating return on equity ("ROE"), in order to streamline our use of non-IFRS financial measures.
The adjustments previously used to derive operating net income will continue to be used to derive underlying net income.
2. Underlying Net Income and Underlying EPS
Underlying net income (loss) and financial measures based on underlying net income (loss), including underlying EPS or
underlying loss per share, and underlying ROE, are non-IFRS financial measures. Underlying net income (loss) removes from
reported 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, which include: (i) impact of returns in equity
markets, net of hedging, above or below our best estimate assumptions of approximately 2% per quarter in the reporting
period. Equity market impact also includes the 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; (ii) the impact of changes in interest rate that differ from
our best estimate assumptions in the reporting period and on 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; and (iii) the impact of changes in the fair value of investment properties in the
reporting period.
|
(b)
|
assumption changes and management actions, which include: (i) the impact of
revisions to the methods and assumptions used in determining our liabilities for insurance contracts and investment
contracts and (ii) the impact on insurance contracts and investment contracts of actions taken by management in the
current reporting period, referred to as management actions which include, for example, changes in the prices of in-force
products, new or revised reinsurance on in-force business, and material changes to investment policies for assets
supporting our liabilities;
|
(c)
|
Other adjustments:
|
|
(i)
|
certain hedges in SLF Canada that do not qualify for hedge accounting -
this adjustment enhances the comparability of our net income from period to period, as it reduces volatility to the
extent it will be offset over the duration of the hedges;
|
|
(ii)
|
fair value adjustments on MFS's share-based payment awards, that are
settled with MFS's own shares and accounted for as liabilities and measured at fair value each reporting period until
they are vested, exercised and repurchased - this adjustment enhances the comparability of MFS's results with publicly
traded asset managers in the United States;
|
|
(iii)
|
acquisition, integration and restructuring amounts (including impacts
related to acquiring and integrating acquisitions); and
|
|
(iv)
|
other items that are unusual or exceptional in nature.
|
All factors discussed in this document that impact our underlying net income are also applicable to reported net income.
All EPS measures in this document refer to fully diluted EPS, unless otherwise stated. As noted above, underlying EPS excludes
the dilutive impact of convertible instruments.
The following table sets out the amounts that were excluded from our underlying net income (loss) 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
|
Full Year
|
($ millions, unless otherwise noted)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Reported net income
|
207
|
817
|
728
|
2,149
|
2,485
|
|
|
Equity market impact
|
|
|
|
|
|
|
|
|
Impact from equity market changes
|
30
|
24
|
29
|
68
|
62
|
|
|
|
Basis risk impact
|
(11)
|
(6)
|
(3)
|
(6)
|
(11)
|
|
|
Equity market impact
|
19
|
18
|
26
|
62
|
51
|
|
|
Interest rate impact(1)
|
|
|
|
|
|
|
|
|
Impact of interest rate changes
|
(75)
|
58
|
160
|
(79)
|
45
|
|
|
|
Impact of credit spread movements
|
(26)
|
2
|
(25)
|
(54)
|
(41)
|
|
|
|
Impact of swap spread movements
|
(9)
|
9
|
(5)
|
(24)
|
30
|
|
|
Interest rate impact
|
(110)
|
69
|
130
|
(157)
|
34
|
|
|
Impact of changes in the fair value of investment properties
|
34
|
26
|
6
|
88
|
22
|
|
Market related impacts
|
(57)
|
113
|
162
|
(7)
|
107
|
|
Assumption changes and management actions(2)
|
(34)
|
103
|
10
|
81
|
45
|
|
Other adjustments:
|
|
|
|
|
|
|
|
Certain hedges in SLF Canada that do not qualify for hedge
accounting
|
2
|
(6)
|
8
|
(16)
|
(5)
|
|
|
Fair value adjustments on MFS's share-based payment awards
|
(34)
|
(19)
|
10
|
(81)
|
30
|
|
|
Acquisition, integration and restructuring
|
(60)
|
(17)
|
(22)
|
(123)
|
(27)
|
|
Total of other adjustments
|
(92)
|
(42)
|
(4)
|
(220)
|
(2)
|
|
|
U.S. tax reform(2)
|
(251)
|
—
|
—
|
(251)
|
—
|
Underlying net income (loss)
|
641
|
643
|
560
|
2,546
|
2,335
|
Reported EPS (diluted) ($)
|
0.34
|
1.32
|
1.18
|
3.49
|
4.03
|
|
Market related impacts ($)
|
(0.10)
|
0.18
|
0.26
|
(0.01)
|
0.18
|
|
Assumption changes and management actions ($)
|
(0.05)
|
0.17
|
0.02
|
0.13
|
0.07
|
|
Certain hedges in SLF Canada that do not qualify for hedge accounting
($)
|
—
|
(0.01)
|
0.01
|
(0.03)
|
(0.01)
|
|
Fair value adjustments on MFS's share-based payment awards ($)
|
(0.05)
|
(0.03)
|
0.02
|
(0.13)
|
0.05
|
|
Acquisition, integration and restructuring ($)
|
(0.10)
|
(0.03)
|
(0.03)
|
(0.20)
|
(0.04)
|
|
U.S. tax reform
|
(0.41)
|
—
|
—
|
(0.41)
|
—
|
|
Impact of convertible securities on diluted EPS ($)
|
—
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.02)
|
Underlying EPS (diluted) ($)
|
1.05
|
1.05
|
0.91
|
4.15
|
3.80
|
(1)
|
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.
|
(2)
|
U.S. tax reform of $(251) million includes $(288) million ($(444) million
pre-tax) of ACMA , which is excluded from the ACMA of $(34) million for the fourth quarter of 2017.
|
3. Additional Non-IFRS Measures
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 reported ROE and underlying ROE, respectively, reported net income (loss) and underlying net income
(loss) is divided by the total weighted average common shareholders' equity for the period. The quarterly ROE is
annualized.
Financial leverage ratio. This total debt to total capital ratio is ratio of debt plus preferred shares to total
capital, where debt consists of all capital qualifying debt securities. Capital qualifying debt securities consist of
subordinated debt and innovative capital instruments.
Dividend payout ratio. This is the ratio of dividends paid per share to diluted underlying EPS for the period.
Sales. In SLF Canada, insurance 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., insurance sales consist of sales by Group
Benefits and individual life sales by International. In SLF Asia, insurance sales consist of the individual and group insurance
sales by our subsidiaries and joint ventures and associates, 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 by our India and
China insurance joint ventures and associates, and Aditya Birla Sun Life AMC Limited's equity
and fixed income mutual fund sales based on our proportionate equity interest, including sales as reported by our bank
distribution partners. SLF Asset Management sales consist of gross sales (inflows) for retail and institutional Clients; unfunded
commitments are not included in sales.
Adjusted revenue. This measure is an alternative measure of revenue that provides greater comparability across
reporting periods, by excluding 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").
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Revenue
|
8,648
|
5,555
|
2,366
|
29,334
|
28,573
|
|
Constant Currency Adjustment
|
(192)
|
(234)
|
—
|
(372)
|
—
|
|
FV Adjustment
|
1,610
|
(974)
|
(4,902)
|
2,603
|
2,233
|
|
Reinsurance in SLF Canada's GB Operations Adjustment
|
(765)
|
(768)
|
(695)
|
(3,026)
|
(2,758)
|
Adjusted revenue
|
7,995
|
7,531
|
7,963
|
30,129
|
29,098
|
Adjusted premiums and deposits. This measure is an alternative measure of premiums and deposits that provides greater
comparability across reporting periods by excluding the impact of: (i) the Constant Currency Adjustment and (ii) the Reinsurance
in SLF Canada's GB Operations Adjustment.
|
Quarterly results
|
Full Year
|
($ millions)
|
Q4'17
|
Q3'17
|
Q4'16
|
2017
|
2016
|
Premiums and deposits
|
40,966
|
40,151
|
42,422
|
164,680
|
158,459
|
|
Constant Currency Adjustment
|
(1,689)
|
(2,114)
|
—
|
(2,828)
|
—
|
|
Reinsurance in SLF Canada's GB Operations Adjustment
|
(765)
|
(768)
|
(695)
|
(3,026)
|
(2,758)
|
Adjusted premiums and deposits
|
43,420
|
43,033
|
43,117
|
170,534
|
161,217
|
Pre-tax operating profit margin ratio for MFS. This ratio is a measure of the profitability of MFS, which excludes the
impact of fair value adjustments on MFS's share-based payment awards, investment income, and certain commission expenses that are
offsetting. These commission expenses are excluded in order to neutralize the impact these items have on the pre-tax operating
profit margin ratio and have no impact on the profitability of MFS. There is no directly comparable IFRS measure.
After-tax profit margin for SLF U.S. Group Benefits. This ratio assists in explaining our results from period to period
and is a measure of profitability that expresses SLF U.S. Group Benefits underlying net income as a percentage of net premiums.
This ratio is calculated by dividing underlying net income (loss) by net premiums for the trailing four quarters. There is no
directly comparable IFRS measure.
Impact of foreign exchange. Items impacting our Consolidated Statements of Operations, such as Revenue, Benefits and
expenses, and Total net income (loss), are translated into 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.
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.
Assumption changes and management actions. In this document the impact of ACMA on shareholders' net income (after-tax)
is included in reported net income and is excluded in calculating underlying net income, as described in section C -
Profitability in this document.
Note 10.A of our Annual Consolidated Financial Statements shows the pre-tax impact of method and assumption changes on
shareholder and participating policyholder Insurance Contract Liabilities net of reinsurance assets, excluding changes in other
policy liabilities and assets.
The view in this document of assumption changes and management actions is the impact on shareholders' net income (after tax).
The Annual Consolidated Financial Statement view is a component of the change in total company liabilities. The following table
provides a reconciliation of the differences between the two measures.
($ millions)
|
Q4'17
|
Q3'17
|
Q2'17
|
Q1'17
|
2017
|
Impact of method and assumption changes on Insurance Contract Liabilities
(pre-tax)(1)
|
(436)
|
95
|
342
|
172
|
173
|
|
Less: Participating Policyholders(2)(7)
|
35
|
(13)
|
2
|
157
|
181
|
Impact of method and assumption changes excluding participating
policyholders (pre-tax)
|
(471)
|
108
|
340
|
15
|
(8)
|
|
Less: Tax
|
(160)
|
(10)
|
115
|
4
|
(51)
|
Impact of method and assumption changes excluding participating
policyholders (after-tax)
|
(311)
|
118
|
225
|
11
|
43
|
|
Add: Management Actions (after-tax)(3)
|
—
|
(21)
|
(214)
|
(8)
|
(243)
|
|
|
Other
(after-tax)(4)
|
(11)
|
6
|
—
|
(2)
|
(7)
|
Assumption changes and management actions
(after-tax)(5)(6)(8)
|
(322)
|
103
|
11
|
1
|
(207)
|
(1)
|
Note 10.A of our Annual Consolidated Financial Statements shows the pre-tax
impact of method and assumption changes on shareholder and participating policyholder Insurance contract liabilities net
of reinsurance assets, excluding changes in other policy liabilities and assets. The amount shown in the table above is
the shareholders' income impact related to the amount shown in Note 10.A of our Annual Consolidated Financial
Statements.
|
(2)
|
Adjustment to remove the pre-tax impact of method and assumption changes on
amounts attributed to participating policyholders.
|
(3)
|
Adjustment to include the after-tax impact of management actions on
insurance contract liabilities and investment contract liabilities which include, for example, changes in the prices of
in-force products, new or revised reinsurance on in-force business, and material changes to investment policies for
assets supporting our liabilities. In the second quarter of 2017, management actions were mainly in SLF U.S., primarily
comprised of the expected impact of recapturing certain reinsurance treaties and the expected cost of reinsurance in
certain other treaties.
|
(4)
|
Adjustments to include the after-tax impact of method and assumption
changes on investment contracts and other policy liabilities.
|
(5)
|
Includes the tax impacts of assumption changes and management actions on
insurance contract liabilities and investment contract liabilities, reflecting the tax rates in the jurisdictions in
which we do business.
|
(6)
|
Assumption changes and management actions is included in reported net
income and is excluded in calculating underlying net income, as described in section C - Profitability in this
document.
|
(7)
|
First quarter of 2017 comprised of an update to the SLF Canada
participating individual life business to reflect mortality experience. The fourth quarter of 2017 includes a $46 million
decrease as a result of the U.S. tax reform.
|
(8)
|
During the fourth quarter of 2017, the impact on reported net income of a
decrease of $34 million is presented as an adjustment to arrive at underlying net income as Assumption changes and
management actions. The impact on reported net income of a decrease of $288 million ($444 million pre-tax) related to the
U.S. tax legislation changes enacted on December 22, 2017, included in the $(322) million above, is included as part of
the U.S. tax reform impact that is reported separately as an adjustment to arrive an underlying net income (see section C
- Profitability - 4 - U.S. tax reform).
|
In the fourth quarter of 2017, the impact of ACMA of $(322) million is comprised of $(288) million related to the U.S. tax reform and $(34) million for all other
assumption changes and management actions.
See section D - Profitability - 2017 vs. 2016 - ii. Assumption changes and management actions in our 2017 annual MD&A for
details on ACMA in 2017.
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, insurance sales, and total
premiums and deposits; (ii) AUM, mutual fund assets, managed fund assets, other AUM, and assets under administration; (iii) the
value of new business, which is used to measure the estimated lifetime profitability of new sales and is based on actuarial
calculations; and (iv) assumption changes and management actions, which is a component of our sources of earnings disclosure.
Sources of earnings is an alternative presentation of our Consolidated Statements of Operations that identifies and quantifies
various sources of income. The Company is required to disclose its sources of earnings by its principal regulator, OSFI.
K. 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 statements (i) relating to our
strategies, (ii) relating to our growth initiatives and other business objectives, (iii) relating to the expected impact of the
U.S. tax reform on the Company's tax expense (iv) relating to our expected capital position under the new LICAT guideline, (v)
relating to our expected tax range for future years (vi) that are predictive in nature or that depend upon or refer to future
events or conditions, and (vii) that include words such as "achieve", "aim", "ambition", "anticipate", "aspiration",
"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 C - Profitability - 4 - U.S. tax reform, C - Profitability - 6 - Income
taxes, E - Financial Strength and H - Risk Management and in SLF Inc.'s 2017 AIF under the heading 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.
Important risk factors that could cause our assumptions and estimates, and expectations and projections to be inaccurate and
our actual results or events to differ materially from those expressed in or implied by the forward-looking statements contained
in this document, are set out below. The realization of our forward-looking statements, essentially depends on our business
performance which, in turn, is subject to many risks. Factors that could cause actual results to differ materially from
expectations include, but are not limited to: credit risks - related to issuers of securities held in our investment
portfolio, debtors, structured securities, reinsurers, counterparties, other financial institutions and other entities; market
risks - related to the performance of equity markets; changes or volatility in interest rates or credit spreads or swap
spreads; real estate investments; and fluctuations in foreign currency exchange rates; insurance risks - related to
policyholder behaviour; mortality, morbidity and longevity; product design and pricing; the impact of higher-than-expected future
expenses; and the availability, cost and effectiveness of reinsurance; business and strategic risks - related to global
economic and political conditions; the design and implementation of business strategies; changes in distribution channels or
Client behaviour including risks relating to market conduct by intermediaries and agents; the impact of competition; the
performance of our investments and investment portfolios managed for Clients such as segregated and mutual funds; changes in the
legal or regulatory environment, including capital requirements and tax laws; tax matters, including estimates and judgments used
in calculating taxes; our international operations, including our joint ventures; market conditions that affect our capital
position or ability to raise capital; downgrades in financial strength or credit ratings; and the impact of mergers, acquisitions
and divestitures; operational risks - related to breaches or failure of information system security and privacy, including
cyber-attacks; our ability to attract and retain employees; legal, regulatory compliance and market conduct, including the impact
of regulatory inquiries and investigations; the execution and integration of mergers, acquisitions and divestitures; our
information technology infrastructure; a failure of information systems and Internet-enabled technology; dependence on
third-party relationships, including outsourcing arrangements; business continuity; model errors; information management; the
environment, environmental laws and regulations and third-party policies; and liquidity risks - the possibility that we
will not be able to fund all cash outflow commitments as they fall due.
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 fourth quarter 2017 financial results will be reviewed at a conference call on Thursday, February 15, 2018, 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
the Q4 2019 period end. The conference call can also be accessed by phone by dialing 647-427-2311 (International) or
1-866-521-4909 (toll-free within North America). A replay of the conference call will be
available from Thursday, February 15, 2018 at 1 p.m. ET until 11:59 p.m. ET
on Thursday, March 1, 2018 by calling 416-621-4642 or 1-800-585-8367 (toll free within North
America) using Conference ID: 6667608.
Consolidated Statements of Operations
|
For the three months ended
|
For the twelve months ended
|
(unaudited, in millions of Canadian dollars except for per share
amounts)
|
December 31, 2017
|
December 31, 2016
|
December 31, 2017
|
December 31, 2016
|
Revenue
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
Gross
|
$
|
5,308
|
$
|
5,592
|
$
|
19,838
|
$
|
19,427
|
|
|
Less: Ceded
|
1,230
|
1,173
|
4,557
|
4,379
|
|
Net premiums
|
4,078
|
4,419
|
15,281
|
15,048
|
|
Net investment income (loss):
|
|
|
|
|
|
|
Interest and other investment income
|
1,399
|
1,366
|
5,413
|
5,489
|
|
|
Fair value and foreign currency changes on assets and
liabilities
|
1,610
|
(4,902)
|
2,603
|
2,233
|
|
|
Net gains (losses) on available-for-sale assets
|
41
|
41
|
195
|
223
|
|
Net investment income (loss)
|
3,050
|
(3,495)
|
8,211
|
7,945
|
|
Fee income
|
1,520
|
1,442
|
5,842
|
5,580
|
Total revenue
|
8,648
|
2,366
|
29,334
|
28,573
|
Benefits and expenses
|
|
|
|
|
|
Gross claims and benefits paid
|
3,890
|
4,003
|
15,353
|
15,210
|
|
Increase (decrease) in insurance contract liabilities
|
3,138
|
(4,371)
|
5,327
|
5,391
|
|
Decrease (increase) in reinsurance assets
|
23
|
450
|
821
|
133
|
|
Increase (decrease) in investment contract liabilities
|
1
|
(39)
|
41
|
(13)
|
|
Reinsurance expenses (recoveries)
|
(1,082)
|
(1,073)
|
(4,373)
|
(4,313)
|
|
Commissions
|
631
|
652
|
2,403
|
2,372
|
|
Net transfer to (from) segregated funds
|
(63)
|
(133)
|
(119)
|
(307)
|
|
Operating expenses
|
1,749
|
1,678
|
6,410
|
6,000
|
|
Premium taxes
|
100
|
90
|
379
|
339
|
|
Interest expense
|
81
|
80
|
303
|
316
|
Total benefits and expenses
|
8,468
|
1,337
|
26,545
|
25,128
|
Income (loss) before income taxes
|
180
|
1,029
|
2,789
|
3,445
|
|
Less: Income tax expense (benefit)
|
(66)
|
201
|
302
|
619
|
Total net income (loss)
|
246
|
828
|
2,487
|
2,826
|
|
Less: Net income (loss) attributable to participating policyholders and
non-controlling interests
|
16
|
77
|
245
|
245
|
Shareholders' net income (loss)
|
230
|
751
|
2,242
|
2,581
|
|
Less: Preferred shareholders' dividends
|
23
|
23
|
93
|
96
|
Common shareholders' net income (loss)
|
$
|
207
|
$
|
728
|
$
|
2,149
|
$
|
2,485
|
|
|
|
|
|
Average exchange rates during the reporting periods:
|
|
|
|
|
|
|
|
|
U.S. dollars
|
1.27
|
1.33
|
1.30
|
1.33
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
Basic
|
$
|
0.34
|
$
|
1.19
|
$
|
3.51
|
$
|
4.05
|
|
Diluted
|
$
|
0.34
|
$
|
1.18
|
$
|
3.49
|
$
|
4.03
|
Dividends per common share
|
$
|
0.455
|
$
|
0.42
|
$
|
1.745
|
$
|
1.62
|
Consolidated Statements of Financial Position
|
As at
|
(unaudited, in millions of Canadian dollars)
|
December 31,
2017
|
December 31,
2016
|
Assets
|
|
|
|
Cash, cash equivalents and short-term securities
|
$
|
8,890
|
$
|
8,642
|
|
Debt securities
|
72,619
|
71,887
|
|
Equity securities
|
6,020
|
5,774
|
|
Mortgages and loans
|
42,805
|
40,775
|
|
Derivative assets
|
1,478
|
1,608
|
|
Other invested assets
|
4,154
|
3,931
|
|
Policy loans
|
3,106
|
3,141
|
|
Investment properties
|
7,067
|
6,592
|
|
Invested assets
|
146,139
|
142,350
|
|
Other assets
|
4,408
|
5,109
|
|
Reinsurance assets
|
4,028
|
5,144
|
|
Deferred tax assets
|
1,295
|
1,448
|
|
Intangible assets
|
1,667
|
1,703
|
|
Goodwill
|
5,183
|
5,317
|
|
Total general fund assets
|
162,720
|
161,071
|
|
Investments for account of segregated fund holders
|
106,392
|
97,167
|
Total assets
|
$
|
269,112
|
$
|
258,238
|
Liabilities and equity
|
|
|
Liabilities
|
|
|
|
Insurance contract liabilities
|
$
|
117,785
|
$
|
115,057
|
|
Investment contract liabilities
|
3,082
|
2,913
|
|
Derivative liabilities
|
1,756
|
2,512
|
|
Deferred tax liabilities
|
403
|
687
|
|
Other liabilities
|
11,987
|
12,399
|
|
Senior debentures
|
1,299
|
1,299
|
|
Subordinated debt
|
3,437
|
3,836
|
|
Total general fund liabilities
|
139,749
|
138,703
|
|
Insurance contracts for account of segregated fund holders
|
99,121
|
90,388
|
|
Investment contracts for account of segregated fund holders
|
7,271
|
6,779
|
Total liabilities
|
$
|
246,141
|
$
|
235,870
|
Equity
|
|
|
|
Issued share capital and contributed surplus
|
$
|
10,911
|
$
|
10,943
|
|
Shareholders' retained earnings and accumulated other comprehensive
income
|
11,410
|
11,013
|
|
Total shareholders' equity
|
22,321
|
21,956
|
|
Participating policyholders' equity
|
650
|
412
|
Total equity
|
$
|
22,971
|
$
|
22,368
|
Total liabilities and equity
|
$
|
269,112
|
$
|
258,238
|
|
|
|
Exchange rates at the end of the reporting periods:
|
|
|
U.S. dollars
|
1.26
|
1.34
|
Media Relations Contact:
Irene Poon
Corporate Communications
Tel: 647-256-2330
irene.poon@sunlife.com
Investor Relations Contact:
Gregory Dilworth
Vice-President, Investor Relations
Tel: 416-979-6230
investor.relations@sunlife.com
SOURCE Sun Life Financial Inc.
View original content: http://www.newswire.ca/en/releases/archive/February2018/14/c3353.html