Quarterly results | Year-to-date | |||||||
Profitability | Q2'20 | Q2'19 | 2020 | 2019 | ||||
Reported net income ($ millions) | 519 | 595 | 910 | 1,218 | ||||
Underlying net income(1) ($ millions) | 739 | 739 | 1,509 | 1,456 | ||||
Reported EPS ($)(2) | 0.88 | 1.00 | 1.55 | 2.04 | ||||
Underlying EPS ($)(1)(2) | 1.26 | 1.24 | 2.57 | 2.44 | ||||
Reported return on equity ("ROE")(1) | 9.4% | 11.0% | 8.3% | 11.3% | ||||
Underlying ROE(1) | 13.4% | 13.7% | 13.7% | 13.5% | ||||
Growth | Q2'20 | Q2'19 | 2020 | 2019 | ||||
Insurance sales ($ millions)(1) | 619 | 657 | 1,395 | 1,437 | ||||
Wealth sales ($ millions)(1) | 56,638 | 36,976 | 116,542 | 72,969 | ||||
Value of new business ("VNB")($ millions)(1) | 206 | 235 | 586 | 617 | ||||
Assets under management ("AUM")($ billions)(1) | 1,122 | 1,025 | 1,122 | 1,025 | ||||
Financial Strength | Q2'20 | Q4'19 | 2020 | 2019 | ||||
LICAT ratios (at period end)(3) | ||||||||
146% | 143% | 146% | 144% | |||||
Sun Life Assurance(4) | 126% | 130% | 126% | 133% | ||||
Financial leverage ratio (at period end)(1) | 23.2% | 21.2% | 23.2% | 20.4% |
"These are unprecedented and challenging times, and our thoughts go out to the many people whose lives have been impacted by the pandemic. Sun Life employees and advisors around the world have the honour of serving Clients at a time when they need us the most," said
"While the pandemic increased death claims in the second quarter, and resulted in elevated credit charges, our underlying growth and well-balanced business mix delivered underlying net income level with prior year. The declines in our reported net income reflect lower interest rates and credit spreads. We saw declines in our insurance sales compared to the second quarter of 2019 reflecting pandemic lockdowns. Wealth and asset management sales grew significantly over the prior year. Sun Life's capital position remained strong and cash flows, liquidity and leverage are healthy."
"Our prior digital investments have served us well in the early stages of the pandemic, making it easy for Clients and advisors to virtually access advice and solutions. We will continue to accelerate our digital investments to drive greater ease of doing business for Clients and to build on our business momentum," added Connor.
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(1) | Represents a non-IFRS financial measure. See the Non-IFRS Financial Measures section in this document and in our interim MD&A for the period ended |
(2) | All earnings per share ("EPS") measures refer to fully diluted EPS, unless otherwise stated. |
(3) | For further information on the Life Insurance Capital Adequacy Test ("LICAT"), see section E - Financial Strength in our Q2 2020 MD&A. |
(4) |
Financial and Operational Highlights - Quarterly Comparison (Q2 2020 vs. Q2 2019)
Our strategy is focused on four key pillars of growth, where we aim to be a leader in the markets in which we operate, with our continued progress detailed below.
($ millions, unless otherwise noted) | ||||||||||||||||||||
Reported | Underlying | Insurance | Wealth | |||||||||||||||||
Q2'20 | Q2'19 | change | Q2'20 | Q2'19 | change | Q2'20 | Q2'19 | change | Q2'20 | Q2'19 | change | |||||||||
117 | 148 | (21%) | 281 | 243 | 16% | 151 | 194 | (22%) | 2,608 | 3,248 | (20%) | |||||||||
118 | 94 | 26% | 123 | 110 | 12% | 228 | 225 | 1% | — | — | — | |||||||||
Asset Management | 223 | 229 | (3%) | 259 | 245 | 6% | — | — | — | 51,575 | 31,929 | 62% | ||||||||
126 | 134 | (6%) | 144 | 147 | (2%) | 240 | 238 | 1% | 2,455 | 1,799 | 36% | |||||||||
Corporate | (65) | (10) | nm(2) | (68) | (6) | nm(2) | — | — | — | — | — | — | ||||||||
Total | 519 | 595 | (13%) | 739 | 739 | —% | 619 | 657 | (6%) | 56,638 | 36,976 | 53% |
__________ | |
(1) | Represents a non-IFRS financial measure. See the Non-IFRS Financial Measures section in this document and in our Q2 2020 MD&A. |
(2) | Not meaningful. |
Reported net income was
Our reported ROE was 9.4% in the second quarter of 2020. Underlying ROE was 13.4%, compared to 13.7% in the second quarter of 2019, reflecting the increase in common shareholders' equity. Common shareholders' equity increased, driven by shareholders' net income and the impacts of foreign exchange, partially offset by dividend distributions, the impact on equity from the BGO acquisition(2) and the repurchase of common shares.
A leader in insurance and wealth solutions in our Canadian Home Market
We continue to shape the Canadian market with innovative new offerings delivering on our Purpose to help Clients achieve lifetime financial security and live healthier lives. We have taken a leadership position in executing on our sustainability commitment by launching our proprietary Environmental, Social and Governance ("ESG") evaluation framework for every major asset category on our core GRS investment platform. This enables us to empower Clients and plan sponsors in making informed decisions on sustainable investment options. In addition, we continue to maximize the value we provide our Clients by transforming the way we do business, with over 61,000 virtual Advisor-Client meetings in the second quarter and doubling the use of electronic signature options to complete retail wealth transactions.
_______________ | |
(1) | |
(2) | Our acquisition of a majority stake in BentallGreenOak ("BGO acquisition") that closed in |
(3) | Administrative Services Only ("ASO"). |
A leader in
Our strength in the employee benefits marketplace was fueled by several flexible solutions that respond to Client needs during the pandemic which provide a seamless, virtual benefits experience and coverage for out-of-pocket health costs to close financial coverage gaps. We temporarily waived the platform fee for employers on our advanced
A leader in Global Asset Management
Asset Management's reported net income was $223 million in the second quarter of 2020, a decrease of
Asset Management ended the second quarter with
In the second quarter of 2020, 86%, 88% and 80% of MFS's
On
A leader in
We have accelerated digital development across
Corporate
Corporate's reported net loss was $65 million in the second quarter of 2020, an increased loss of
_____________ | |
(1) | Represents a non-IFRS financial measure. See the Non-IFRS Financial Measures section in this document and in our Q2 2020 MD&A. |
(2) | Mercer MPF Market Shares Report, for the three month period ended |
COVID-19 Pandemic Update(1)
COVID-19 has affected all areas of our business and we are working to continue to be there for our Clients, advisors, employees, communities and shareholders. We continue to adjust our operations across each of our businesses as government restrictions and measures evolve around the globe. Our business continuity processes have been successful in ensuring that key business functions and normal operations continue during this unprecedented disruption. We have processes in place to monitor and maintain ongoing systems availability, stability, and security. We thank our employees and advisors for being there for our Clients through these difficult times.
Our working from home strategy continues to operate effectively and return to offices has been gradual and measured to ensure the health and safety of our employees and our communities.
We continue to support Clients facing financial hardships. This includes the extension of grace periods for premium payments for individual insurance and Group Benefits Clients, and rebates and credits to Group Benefits Clients.
Digital enhancements in
For the second quarter, the Sun Life Assurance LICAT ratio ended at 126%, a decrease from year-end, which was primarily driven by a scenario switch(2) in the LICAT calculation, and the subsequent change in credit spread sensitivities. In the past, we have communicated that the impact of the discontinuity caused by the scenario switch can be up to four LICAT ratio percentage points. As a result of OSFI's(3) updated guidance released in April of this year, the discontinuity impact has reduced to less than one LICAT percentage point in the quarter, with the remaining three percentage points decline coming through over the next five quarters if we remain on the current scenario. Subsequent to the scenario switch, our LICAT sensitivity to credit spreads has changed direction such that increases in credit spreads are favourable and decreases in credit spreads are unfavourable. As such, in addition to the one percentage point decline we saw in the second quarter, the remaining drop in the ratio at the end of the second quarter was mainly driven by narrowing credit spreads during the quarter, given the change in the credit spread sensitivities. The LICAT ratio in
In the second quarter, sales were mixed with insurance sales decreasing 6% and wealth sales increasing 53%, in comparison to the prior year. We saw some markets benefiting from digital tools, pre-existing sales pipelines, re-pricing and return to office opportunities in some markets. In other markets, we experienced significant sales declines resulting from strict quarantine protocols impacting face-to-face sales transactions. Strong wealth sales were driven by MFS, SLC Management,
To support our Clients who may be facing financial hardships, we have extended grace periods for premium payment for individual insurance and Group Benefits Clients of up to 90 days. The impact to premium receivables has not been significant. Should we experience a prolonged period of non-payment, we may see a change in lapses and other policyholder behaviour. Up to
Our Group Benefit and Group Pension businesses cover employees in the worksite. To the extent their employment is terminated and not replaced, premiums and business in-force would decline over time, all other things being equal. July premiums and business in force results were relatively unchanged from the end of the second quarter.
As of
Favourable morbidity experience of
In July, our mortality and morbidity claims experience from COVID-19 has been small amounting to less than 5% of our monthly average for mortality and disability claims paid. With
_______________ | |
(1) | Information relating to |
(2) | For additional details regarding the scenario switch on the LICAT calculation, refer to section H - Risk Management in our Q2 2020 MD&A. |
(3) | The Office of the Superintendent |
While there remains uncertainty in our COVID-19-related mortality and morbidity claims experience, we benefited from our product and geographic diversification, and differences in outcomes between the general and our insured population.
For the first six months of 2020, operating expenses are up 4% from the same period last year, or 3% when excluding the impact of foreign exchange translation, primarily from a restructuring provision established in the first quarter, new run rate costs associated with the BGO acquisition, and additional expenditures in response to COVID-19. These increases were partially offset by management actions focused on reducing discretionary spend. The reduction in discretionary spend will allow us to accelerate our investments in digital tools and capabilities to drive greater ease of doing business for Clients.
For our borrowers and real estate tenants, we have granted interest, principal and rent payment deferrals, on a case by case basis, with the majority of the deferrals being up to 3 months. As at
The month of July saw MFS AUM grow 5% to
The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus, potential treatments and therapies, the availability of a vaccine and on actions taken by governments, businesses and individuals, which could vary by country and result in differing outcomes. Given the extent of the circumstances, it is difficult to reliably measure or predict the potential impact of this uncertainty on our future financial results. For additional information, please refer to section H - Risk Management in our Q2 2020 MD&A.
Earnings Conference Call
The Company's second quarter 2020 financial results will be reviewed at a conference call on
Media Relations Contact: | Investor Relations Contact: |
Manager, Corporate Communications | Senior Vice-President, Head of Investor Relations & Capital Management |
Tel: 416-988-0542 | Tel: 647-256-8201 |
irene.poon@sunlife.com | investor_relations@sunlife.com |
Non-IFRS Financial Measures |
1. 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 impacts 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 that differ from our best estimate assumptions, which include: (i) impacts of returns in equity markets, net of hedging, for which our best estimate assumptions are approximately 2% per quarter. This 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 impacts of changes in interest rates 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 impacts of changes in the fair value of investment properties in the reporting period; | |
(b) | assumption changes and management actions, which include: (i) the impacts of revisions to the methods and assumptions used in determining our liabilities for insurance contracts and investment contracts; and (ii) the impacts 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; and | |
(c) | other adjustments: | |
(i) | certain hedges in | |
(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 | |
(iii) | acquisition, integration and restructuring costs (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 below, underlying EPS excludes the dilutive impacts 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 | Year-to-date | |||||||||||
($ millions, unless otherwise noted) | Q2'20 | Q1'20 | Q2'19 | 2020 | 2019 | ||||||||
Reported net income | 519 | 391 | 595 | 910 | 1,218 | ||||||||
Market-related impacts | |||||||||||||
Equity market impacts | |||||||||||||
Impacts from equity market changes | 105 | (303) | 14 | (198) | 82 | ||||||||
Basis risk impacts | (46) | (57) | 6 | (103) | (4) | ||||||||
Equity market impacts | 59 | (360) | 20 | (301) | 78 | ||||||||
Interest rate impacts(1) | |||||||||||||
Impacts of interest rate changes | (123) | (87) | (99) | (210) | (221) | ||||||||
Impacts of credit spread movements | (72) | 127 | (22) | 55 | (49) | ||||||||
Impacts of swap spread movements | (10) | 39 | 7 | 29 | 23 | ||||||||
Interest rate impacts | (205) | 79 | (114) | (126) | (247) | ||||||||
Impacts of changes in the fair value of investment properties | (41) | (12) | (3) | (53) | 3 | ||||||||
Less: | Market-related impacts | (187) | (293) | (97) | (480) | (166) | |||||||
Less: | Assumption changes and management actions | 5 | (53) | (20) | (48) | (31) | |||||||
Other adjustments | |||||||||||||
Certain hedges in | — | (1) | (5) | (1) | (4) | ||||||||
Fair value adjustments on MFS's share-based payment awards | (24) | 10 | (11) | (14) | (19) | ||||||||
Acquisition, integration and restructuring(2) | (14) | (42) | (11) | (56) | (18) | ||||||||
Less: | Total of other adjustments | (38) | (33) | (27) | (71) | (41) | |||||||
Underlying net income | 739 | 770 | 739 | 1,509 | 1,456 | ||||||||
Reported EPS (diluted) ($) | 0.88 | 0.67 | 1.00 | 1.55 | 2.04 | ||||||||
Less: | Market-related impacts ($) | (0.32) | (0.50) | (0.16) | (0.82) | (0.27) | |||||||
Assumption changes and management actions ($) | 0.01 | (0.09) | (0.03) | (0.08) | (0.05) | ||||||||
Certain hedges in | — | — | (0.01) | — | (0.01) | ||||||||
Fair value adjustments on MFS's share-based payment awards ($) | (0.04) | 0.02 | (0.02) | (0.02) | (0.03) | ||||||||
Acquisition, integration and restructuring ($) | (0.03) | (0.07) | (0.02) | (0.10) | (0.03) | ||||||||
Impact of convertible securities on diluted EPS ($) | — | — | — | — | (0.01) | ||||||||
Underlying EPS (diluted) ($) | 1.26 | 1.31 | 1.24 | 2.57 | 2.44 |
(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) | Amounts include acquisition costs for the BGO acquisition, which includes the unwinding of the discount for the Put option and Deferred payments liability of $11 million and |
2. Additional Non-IFRS 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. |
Sales. In 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 the |
Value of New Business. VNB represents the present value of our best estimate of future distributable earnings, net of the cost of capital, from new business contracts written in a particular time period, except new business in our Asset Management pillar. The assumptions used in the calculations are generally consistent with those used in the valuation of our insurance contract liabilities except that discount rates used approximate theoretical return expectations of an equity investor. Capital required is based on the higher of Sun Life Assurance's LICAT operating target and local (country specific) operating target capital. VNB is a useful metric to evaluate the present value created from new business contracts. There is no directly comparable IFRS measure. |
Pre-tax net 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 net 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 |
Forward-looking Statements |
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, which have been further heightened with the current COVID-19 pandemic given the uncertainty of its duration and impact. Factors that could cause actual results to differ materially from expectations include, but are not limited to: 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 experience, morbidity experience and longevity; product design and pricing; the impact of higher-than-expected future expenses; and the availability, cost and effectiveness of reinsurance; credit risks - related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties, other financial institutions and other entities; 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; the environment, environmental laws and regulations; 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, strategic investments 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; liquidity risks - the possibility that we will not be able to fund all cash outflow commitments as they fall due; and other risks - 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. |
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. |
About Sun Life |
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