Sun Life Financial reports record operating earnings per share of $1.03, up 17% over Q2 2006
Jul 31, 2007
Operating return on equity of 14.6% up 100 basis points
Note to Editors: All figures shown in Canadian dollars unless otherwise
noted.
TORONTO, July 31 /CNW/ - Sun Life Financial Inc. (TSX/NYSE: SLF) today
announced a number of important achievements during the second quarter ended
June 30, 2007, including record operating earnings of $593 million. Record
fully diluted operating earnings per share (EPS) of $1.03 increased 17% over
the second quarter of 2006. Operating return on equity (ROE) was 14.6% for the
quarter.
"Sun Life Financial has achieved strong earnings while making significant
on-going investments in distribution and customer-focused innovation," said
Donald A. Stewart, Chief Executive Officer. "This quarter, we continued to
realize the benefits of our investments in distribution and new products in
the U.S. and Canada. We are pleased with the success of our U.S. variable
annuity strategy, which is generating positive net flows in our U.S. variable
annuities business."
Strong year-to-date sales growth for U.S. and Canadian wealth
accumulation products is being driven by Sun Life's broad distribution
strength and a customer-focused line-up of wealth accumulation products, led
by Income ON Demand(SM) in the United States and SunWise Elite Plus in Canada.
"The results in the quarter reflect our progress toward achieving our
medium-term financial objectives," said Richard P. McKenney, Chief Financial
Officer. "Broad-based strength yielded solid earnings growth, and we continue
to focus on effective capital deployment."
Operating earnings exclude after-tax charges to earnings of $2 million
for re-branding expenses in Canada and $1 million for the integration costs of
Genworth Financial's U.S. Employee Benefits Group. Including these charges,
fully diluted EPS and ROE for the quarter were $1.02 and 14.5%, respectively.Business Highlights
During the second quarter of 2007, the Company progressed on a number of
its strategic objectives and continued to deliver on its growth and
distribution expansion strategies in each of its markets.
- Sun Life Financial U.S. continued to execute on its variable annuity
strategy, achieving strong results with gross U.S. variable annuity
sales in the second quarter of 2007 reaching US$805 million, an
increase of 96% over the second quarter of 2006. The strong second
quarter 2007 sales benefited from the March launch of the Income ON
Demand(SM) lifetime income rider and resulted in positive net
variable annuity sales for the quarter. Total variable annuity
account values increased to a record US$21.8 billion as of June 30,
2007 through a combination of strong sales and market gains.
- On June 20, 2007, Sun Life Financial announced that it has determined
the next generation of its financing structure to support its U.S.
universal life insurance products. As a result, the Company
experienced lower new business strain on sales of U.S. universal life
products in the second quarter of 2007, and expects the full benefits
of the new structure to be realized by year-end.
- Sun Life Financial completed its acquisition of Genworth Financial's
U.S. Employee Benefits Group on May 31, 2007. The acquisition adds
significant scale and scope to Sun Life Financial's U.S. group
business. As of June 30, 2007, Sun Life's U.S. group insurance
business in-force grew to approximately US$2 billion on the strength
of organic growth and the additional in-force business contributed by
the acquisition.
- As part of its integrated brand strategy in Canada, Individual
Insurance & Investments re-branded its career sales force Sun Life
Financial, generating strong enthusiasm among the more than 3,400
advisors.
- Individual segregated fund sales in Canada, including deposits from
the SunWise Elite Plus guaranteed minimum withdrawal benefit rider,
grew to $879 million in the six months ended June 30, 2007, up 16%
over the same period last year.
- Individual life insurance sales in Canada increased by 15% in the
second quarter of 2007 over the same period last year on growth from
both the Sun Life Financial Advisor and wholesale channels.
- Sun Life Financial Canada Group Benefits achieved a 21.8% market
share and the highest year over year growth of in-force business in
the industry in 2006 according to the recently released Fraser Group
Universe report. Sun Life's Canadian group insurance business in
force grew to $6 billion in the second quarter of 2007, up 8% over
the second quarter of 2006.
- Sun Life Financial Canada's Group Retirement Services plan members
leaving their employers' defined contribution plans for retirement or
other reasons during the second quarter of 2007 entrusted $175
million of their plan assets to Sun Life, an increase of 47% over the
second quarter of 2006.
- MFS assets under management grew to US$202 billion at the end of the
second quarter of 2007, including the acquisition on June 29, 2007 of
six closed-end funds with total assets of US$1.0 billion.
- MFS's pre-tax operating profit margin ratio increased to 34% in the
second quarter of 2007 from 27% in the second quarter of 2006.
- MFS continued to achieve superior retail mutual fund performance with
87% of its U.S. mutual fund assets ranked in the top half of their
Lipper Category Average over 3 years, as of June 30, 2007.
- In India, Birla Sun Life Insurance Company agency sales were up 62%
in the second quarter of 2007 compared to the second quarter of 2006
as the direct sales force grew to over 60,000 advisors.
- Sun Life Everbright Life Insurance Company was recently selected to
provide group life and health benefits to the more than 13,000
employees of China Everbright Group and China Everbright Bank. Sun
Life Everbright ranks among the top five foreign joint ventures in
China based on group insurance premium.
- Sun Life Everbright received preparatory approval for Shanghai,
mainland China's financial centre and a very strong operating base
for Sun Life's Chinese joint venture partner, China Everbright Group.
Sales in Shanghai are expected to begin in the fourth quarter subject
to final regulatory approval. Sun Life Everbright also opened two
sales offices in the Jiangsu province during the second quarter of
2007, bringing the Company's operations in China to a total of 14
cities.
- Sun Life Financial was named to the Corporate Knights 2007 Best 50
Corporate Citizens in Canada, based on environment, social and
governance indicators.
Financial Highlights
- Operating ROE increased 100 basis points to 14.6% from operating ROE
of 13.6% in the second quarter of 2006. ROE of 14.5% increased 90
basis points from ROE of 13.6% in the second quarter of 2006. In the
second quarter of 2006, operating ROE and ROE were both 13.6%.
- Fully diluted operating EPS of $1.03 for the quarter increased 17%
compared to fully diluted operating EPS of $0.88 in the second
quarter of 2006. Fully diluted EPS of $1.02 for the quarter increased
16% compared to fully diluted EPS of $0.88 in the second quarter of
2006. In the second quarter of 2006, fully diluted operating EPS and
fully diluted EPS were both $0.88.
- Sun Life Financial increased its quarterly common share dividend to
34 cents per share, representing an increase of 13% over the past 12
months.
- Sun Life Financial repurchased approximately 3 million common shares
for $152 million during the second quarter of 2007, for a total share
buyback of $275 million in the first six months of this year.
- On May 6, 2007, Sun Life Financial completed the redemption of US$600
million principal amount of 8.526% Cumulative Capital Securities
issued by Sun Life of Canada (U.S.) Capital Trust I.
- On May 29, 2007, Sun Life Financial completed a public offering in
Canada of $400 million principal amount of Series 2007-1 Subordinated
Unsecured 5.40% Fixed/Floating Debentures due in 2042.
- On June 22, 2007 Sun Life Financial acquired 2,300,000 trust units of
CI Financial Income Fund to maintain Sun Life Financial's
approximately 36.5% ownership interest in CI.
- Strong growth in wealth sales drove total Annuities premiums up 27%
for the six months ended June 30, 2007 over the comparable period in
2006 (excluding U.S. institutional medium-term notes). Solid sales
and asset growth across the Company drove total fee income up by 9%,
and total life and health premiums were also up by 5% over the same
periods. Lower investment income in the six months ended June 30,
2007 compared to the same period in 2006 was primarily due to rising
interest rates during the second quarter of 2007, which resulted in
lower market values on held-for-trading bonds. Changes to Canadian
investment accounting rules that became effective on January 1, 2007
have resulted in increased net investment income volatility arising
from quarterly fluctuations in the value of held-for-trading assets.
As a result of Sun Life Financial's close duration matching of assets
and liabilities, changes in the value of held-for-trading assets are
largely offset by corresponding changes in the value of actuarial
liabilities.Use of Non-GAAP Financial Measures
Management evaluates the Company's performance on the basis of financial
measures prepared in accordance with Canadian generally accepted accounting
principles (GAAP), including earnings, EPS and ROE. Management also measures
the Company's performance based on certain non-GAAP measures, such as
operating earnings, operating EPS, operating ROE, ROE for business groups,
MFS's pre-tax operating profit margin ratios, financial performance measures
prepared on a constant currency basis, Embedded Value and Value of New
Business. Information concerning these non-GAAP financial measures and
reconciliations to GAAP measures are included in the Company's annual and
interim Management's Discussion and Analysis and its Supplementary Financial
Information packages that are available in the Investor Relations - Financial
Publications section of Sun Life Financial's website, www.sunlife.com.
The financial results presented in this document are unaudited.
Analysts' Conference Call
The Company's second quarter 2007 financial results will be reviewed at a
conference call today at 11:00 a.m. ET. To listen to the call via live audio
webcast and to view the presentation slides, please visit our website and
double click the Q2 Results link from the homepage 10 minutes prior to the
start of the presentation. A link to our webcast page, where you can access
the webcast, will be provided along with links to related information. The
webcast and presentation will be archived on our website following the event.
Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth accumulation
products and services to individuals and corporate customers. Chartered in
1865, Sun Life Financial and its partners today have operations in key markets
worldwide, including Canada, the United States, the United Kingdom, Ireland,
Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of
June 30, 2007, the Sun Life Financial group of companies had total assets
under management of $435 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.Management's Discussion & Analysis
for the period ended June 30, 2007
Dated July 31, 2007
Earnings and Profitability
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FINANCIAL SUMMARY
Unaudited
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Quarterly Results Year to Date
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Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders'
Net Income ($mm) 590 497 545 541 512 1,087 1,003
Operating Earnings(1)($mm) 593 558 545 541 512 1,151 1,005
Basic Earnings per Common
Share (EPS) ($) 1.03 0.87 0.95 0.94 0.88 1.90 1.73
Basic Operating EPS(1)($) 1.04 0.98 0.95 0.94 0.88 2.02 1.73
Fully Diluted EPS ($) 1.02 0.86 0.94 0.93 0.88 1.88 1.71
Fully Diluted Operating
EPS(1)($) 1.03 0.96 0.94 0.93 0.88 1.99 1.71
Return on Common Equity
(ROE) (%) 14.5 12.0 14.0 14.4 13.6 13.2 13.4
Operating ROE(1)(%) 14.6 13.5 14.0 14.4 13.6 14.0 13.4
Average Common Shares
Outstanding (mm) 570.1 572.0 572.6 574.2 578.8 571.1 580.3
Closing Common Shares
Outstanding (mm) 568.1 571.4 571.8 573.0 575.3 568.1 575.3
S&P 500 Index
(daily average) 1,497 1,425 1,389 1,287 1,282 1,461 1,283
S&P 500 Index (close) 1,503 1,421 1,418 1,336 1,270 1,503 1,270
-------------------------------------------------------------------------Sun Life Financial Inc.(2) reported common shareholders' net income of
$590 million for the quarter ended June 30, 2007, up $78 million from
$512 million in the second quarter of 2006. The increase in common
shareholders' net income was primarily due to business growth, broad-based
favourable mortality and morbidity experience, lower new business strain on
U.S. universal life sales, the benefit of an internal reinsurance transaction
in Sun Life Financial Canada, and the positive impact of higher interest rates
and equity market performance on several of the Company's North American
businesses. These gains were partially offset by credit related allowances in
Canada and lower earnings in Asia, the United Kingdom and Corporate Support.
ROE for the second quarter of 2007 was 14.5% compared with 13.6% for the
second quarter of 2006. The 90 basis point increase was primarily the result
of improved earnings in a number of the Company's businesses, the repurchase
of common shares and the change in value of the foreign currency translation
account in the second quarter of 2007. Fully diluted EPS were $1.02, 16%
higher than the $0.88 reported in the prior year.
Fully diluted operating EPS, which exclude after-tax charges of
$2 million for re-branding expenses in Canada and $1 million for the
integration costs of Genworth Financial's U.S. Employee Benefits Group, were
$1.03 for the quarter, up 17% over fully diluted operating EPS of $0.88 in the
second quarter of 2006. Operating ROE of 14.6% for the quarter was up from
operating ROE of 13.6% in the second quarter of 2006.
Common shareholders' net income of $1,087 million for the first six
months of 2007 was $84 million higher than in the first half of 2006 and fully
diluted EPS of $1.88 for the first half of 2007 was 10% higher than the fully
diluted EPS of $1.71 in the first half of 2006.----------------------------
(1) Operating Earnings, Basic Operating EPS, Fully Diluted Operating EPS
and Operating ROE exclude after-tax charges to earnings of $2
million for re-branding expenses in Canada and $1 million for the
integration costs of Genworth Financial's U.S. Employee Benefits
Group taken in the second quarter of 2007, $43 million related to
the intangible asset write-down for the retirement of the Clarica
brand and $18 million for the premium payable to redeem US$600
million of 8.526% Cumulative Capital Securities issued by Sun Life
of Canada (U.S.) Capital Trust taken in the first quarter of 2007,
and a $2 million after-tax charge for the integration of CMG Asia
Limited and CommServe Financial Limited taken in the first quarter
of 2006. See "Use of Non-GAAP Financial Measures".
(2) Or together with its subsidiaries and joint ventures "the Company"
or "Sun Life Financial".
Performance by Business Group
The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia), and Corporate. Additional details concerning the segments and the
purpose and use of the segmented information are outlined in Note 6 to Sun
Life Financial Inc.'s second quarter 2007 Interim Consolidated Financial
Statements, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Where appropriate, information on a business
segment has been presented both in Canadian dollars and the segment's local
currency to facilitate the analysis of underlying business trends. ROE for the
business segments is a "Non-GAAP" financial measure as outlined under "Use of
Non-GAAP Financial Measures".
SLF Canada
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Quarterly Results Year to Date
---------------------------------- -------------
Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders'
Net Income ($mm)
Individual Insurance &
Investments 177 146 156 123 156 323 306
Group Benefits 69 51 60 85 65 120 102
Group Wealth(1) 34 53 41 32 43 87 90
------ ------ ------ ------ ------ ------ ------
Total 280 250 257 240 264 530 498
ROE (%) 16.1 14.3 14.3 13.3 15.0 15.2 14.4
(1) Group Wealth comprises Group Retirement Services and Institutional
Investments.
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SLF Canada's earnings increased by $16 million, or 6%, compared to the
second quarter of 2006. This increase is attributable to a $42 million gain on
an internal reinsurance transaction and the impact of strong equity
performance in Individual Insurance & Investments, partially offset by
$18 million of credit related allowances and the non-recurrence of $19 million
of increased earnings in the second quarter of 2006 related to CI from tax
rate changes in 2006.
- Individual Insurance & Investments earnings for the second quarter of
2007 increased by 13% compared to the second quarter of 2006
including the $42 million positive impact of an internal reinsurance
transaction on actuarial reserves and strong equity performance,
partially offset by the credit related allowances and the non-
recurrence of $19 million of increased earnings in the second quarter
of 2006 related to CI from tax rate changes in 2006.
- Group Benefits earnings for the second quarter of 2007 increased by
6% over the second quarter of 2006 due to favourable mortality and
morbidity experience, partially offset by the credit related
allowances.
- Group Wealth earnings for the second quarter of 2007 decreased by 21%
from the second quarter of 2006 as a result of the non-recurrence of
unusually favourable mortality experience in the second quarter of
2006 and the credit related allowances.
Six-month earnings increased by $32 million, or 6%, over the same period
in 2006 due to higher Individual Insurance & Investments earnings resulting
from the reinsurance transaction and higher Group Benefits earnings from
changes to actuarial reserves to better reflect asset liability matching,
offset by a slight decline in Group Wealth earnings.
SLF U.S.
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Quarterly Results Year to Date
---------------------------------- -------------
Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders'
Net Income (US$mm)
Annuities 80 80 61 88 64 160 149
Individual Life 37 5 9 22 (4) 42 19
Employee Benefits
Group(1) 25 (1) 16 11 20 24 20
------ ------ ------ ------ ------ ------ ------
Total (US$mm) 142 84 86 121 80 226 188
Total (C$mm) 156 98 97 136 90 254 215
ROE (%) 14.0 9.4 9.7 13.9 9.4 11.8 11.0
(1) Employee Benefits Group formerly called Group Life & Health
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Earnings for SLF U.S. increased C$66 million or 73% compared to the second
quarter of 2006. In U.S. dollars, earnings were US$142 million, US$62 million
or 78% higher than in the second quarter of 2006. Earnings increased this
quarter as a result of lower new business strain on U.S. universal life sales
and the positive impact of higher interest rates in Individual Life, improved
interest rate spreads in Annuities and improved claims experience in the
Employee Benefits Group.
- Annuities earnings increased by US$16 million compared to the second
quarter of 2006 from improved interest rate spreads, the positive
impact of equity market movements and earnings from US$1.8 billion of
funding agreement backed medium term notes issued in 2006.
- Individual Life earnings increased by US$41 million compared to the
second quarter of 2006 primarily due to lower new business strain on
U.S. universal life sales and favourable experience, including the
positive impact of higher interest rates.
- Employee Benefits Group earnings increased by US$5 million compared
to the second quarter of 2006 as the result of improved claims
experience and the favourable impact of the acquisition of Genworth's
Employee Benefits Group (Genworth EBG Business), which closed on
May 31, 2007.Six-month earnings increased by US$38 million, or 20%, over the same
period in 2006 due to in-force earnings growth and the favourable impact of
increased earnings from lower tax jurisdictions in Individual Life, improved
interest rate spreads and the positive impact of equity market movements in
Annuities and improved claims experience and the favourable impact of the
acquisition of the Genworth EBG Business in the Employee Benefits Group.
The results of the Genworth EBG Business from June 1, 2007 are included
in the income reported for the three and six months ended June 30, 2007. The
results and assets of the Genworth EBG Business, including goodwill, are
included in the SLF U.S. reportable segment in Sun Life Financial's second
quarter 2007 Interim Consolidated Financial Statements.MFS
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Quarterly Results Year to Date
---------------------------------- -------------
Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders' Net
Income (US$mm) 62 61 62 52 47 123 92
Common Shareholders' Net
Income (C$mm) 68 72 71 58 53 140 105
Pre-tax Operating Profit
Margin Ratio(3) 34% 34% 34% 30% 27% 34% 27%
Average Net Assets
(US$B) 200 189 182 170 168 195 168
Assets Under Management
(US$B) 202 192 187 175 168 202 168
Net Sales/(Redemptions)
(US$B) (0.1) 0.2 1.0 (0.1) (0.4) 0.1 (0.7)
Market Movement (US$B) 9.5 4.4 11.0 6.9 (1.0) 13.9 6.5
S&P 500 Index (daily
average) 1,497 1,425 1,389 1,287 1,282 1,461 1,283
-------------------------------------------------------------------------Earnings for MFS increased C$15 million, or 28%, compared to the second
quarter of 2006. In U.S. dollars, second quarter earnings were US$62 million,
US$15 million, or 32%, higher than in the second quarter of 2006 primarily due
to asset growth and higher margins. Average net assets of US$200 billion
increased 19% compared to the second quarter of 2006.
Six-month earnings increased by US$31 million, or 34%, over the same
period in 2006 primarily due to asset growth and higher margins.
Total assets under management at June 30, 2007 were US$202 billion, an
increase of US$10 billion compared to March 31, 2007, driven by market
appreciation of US$9.5 billion, the acquisition on June 29, 2007 of six
closed- end funds with total assets of US$1.0 billion and net managed fund
sales of US$0.8 billion, partially offset by net retail mutual fund
redemptions of US$0.9 billion during the period.SLF Asia
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Quarterly Results Year to Date
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Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders' Net
Income ($mm) 17 38 33 13 31 55 55
ROE (%) 6.0 13.5 12.6 5.2 12.6 9.7 11.2
-------------------------------------------------------------------------Second quarter 2007 earnings of $17 million decreased by $14 million, or
45%, from the second quarter of 2006 primarily due to the non-recurrence of
unusually favourable investment results in the Philippines in the second
quarter of 2006, and increased expansion expenses.
Six-month earnings were unchanged from last year, with this year's
improved asset/liability matching in Hong Kong offset by lower investment
income in the Philippines.
SLF Asia sales momentum continued in the second quarter of 2007, with
Canadian dollar sales up 36% over the same period in 2006. In local currency,
strong demand for wealth accumulation products in the Philippines and Hong
Kong drove sales up by 40% and 36%, respectively, over the second quarter 2006
sales. In China, sales grew 93% over last year's sales. Sun Life Everbright
Life Insurance Company continued its expansion with the opening of two sales
offices in the Jiangsu province, bringing the operation to 14 cities. Sun Life
Everbright also received preparatory approval for a branch in Shanghai. In
India, agency sales increased by 62% over the same period last year as the
direct sales force grew to over 60,000 advisors during the second quarter.--------------------------
(3) The Pre-Tax Operating Profit Margin Ratio is a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures".Corporate
Corporate includes the results of Sun Life Financial U.K. (SLF U.K.), Sun
Life Financial Reinsurance (SLF Reinsurance) and Corporate Support, which
includes run-off reinsurance as well as investment income, expenses, capital
and other items not allocated to Sun Life Financial's other business groups.-------------------------------------------------------------------------
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Quarterly Results Year to Date
---------------------------------- -------------
Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Common Shareholders' Net
Income/(Loss) ($mm)
SLF U.K. 42 100 28 57 48 142 86
SLF Reinsurance 33 18 35 25 24 51 33
Corporate Support (6) (79) 24 12 2 (85) 11
------ ------ ------ ------ ------ ------ ------
Total 69 39 87 94 74 108 130
-------------------------------------------------------------------------Second quarter 2007 earnings decreased by $5 million compared to the
second quarter of 2006 as higher earnings at SLF Reinsurance from higher
premium revenue were more than offset by increased expenses in Corporate
Support and lower SLF U.K. earnings compared to the second quarter of 2006 due
to the non-recurrence of favourable tax adjustments on pension losses in the
second quarter of 2006.
Six-month earnings decreased by $22 million, or 17%, over the same period
in 2006 due to the after-tax charges to earnings related to the intangible
asset write-down for the retirement of the Clarica brand and the premium paid
to redeem US$600 million of 8.526% Cumulative Capital Securities taken in the
first quarter of 2007, partially offset by higher earnings in SLF U.K. and SLF
Reinsurance.
Additional Financial Disclosure
Revenue
Under Canadian GAAP, revenues include premium revenue, net investment
income and fee income.
Changes to Canadian investment accounting rules that became effective on
January 1, 2007 have resulted in increased net investment income volatility
arising from quarterly fluctuation in the value of held-for-trading assets.
Changes in the value of held-for-trading assets are largely offset by
corresponding changes in the value of actuarial liabilities.
Premium revenue includes annuity premiums, certain of which are excluded
as revenue under U.S. GAAP and also for similar products sold by other
financial institutions.-------------------------------------------------------------------------
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Quarterly Results Year to Date
---------------------------------- -------------
Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 2007 2006
------ ------ ------ ------ ------ ------ ------
Revenues ($mm)
SLF Canada 1,801 2,374 2,520 2,335 2,223 4,175 4,478
SLF U.S. 1,944 2,197 2,392 3,143 2,929 4,141 4,930
MFS 433 447 444 395 407 880 823
SLF Asia 182 215 297 240 259 397 485
Corporate 140 351 484 491 413 491 830
------ ------ ------ ------ ------ ------ ------
Total 4,500 5,584 6,137 6,604 6,231 10,084 11,546
-------------------------------------------------------------------------Revenues of $4.5 billion earned in the second quarter of 2007 decreased
by $1.7 billion from the same period in 2006 due to lower investment income of
$1.1 billion as rising interest rates during the second quarter of 2007
resulted in a decrease in the fair value of held-for-trading assets, with a
corresponding decrease in actuarial liabilities, as required under changes in
Canadian investment accounting rules that became effective on January 1, 2007.
Premiums were also lower by $727 million, mainly from the non-recurrence of
US$900 million in medium-term notes issued in the second quarter of 2006.
Premium revenues of $3.2 billion in the second quarter of 2007 were
$727 million less than the same quarter last year due to lower annuity
premiums. Health insurance premiums rose by $108 million as SLF Canada Group
Benefits and SLF U.S. Employee Benefits Group contributed an additional
$29 million and $71 million, respectively over the second quarter of 2006.
Second quarter 2007 annuity premiums of $874 million were lower by
$822 million than during the same period in the prior year. Annuity premiums
in SLF U.S. decreased by $871 million as the issuance of US$900 million in
medium-term notes in the second quarter of 2006 was not repeated in 2007. This
decline was partly moderated by SLF U.S.'s growth in fixed annuity premiums of
$136 million over the second quarter of 2006.
Net investment income of $472 million in the second quarter of 2007 fell
by $1,069 million from the second quarter of 2006 as rising interest rates
during the second quarter of 2007 resulted in a decrease in the value of held-
for-trading assets, with a corresponding decrease in actuarial liabilities, as
required under changes in Canadian investment accounting rules that became
effective on January 1, 2007. These declines were slightly moderated by the
favourable effect of fluctuations in equity markets.
Fee income of $824 million in the second quarter of 2007 was up $65
million from the same period in the previous year due to asset management fees
earned on higher average net asset levels.
Actuarial liabilities decreased $1.9 billion in the second quarter of
2007 compared to an increase of $985 million in the second quarter of 2006.
The change of $2.9 billion included a reduction related to the decrease in
value of held-for-trading assets. There was a further reduction of $516
million associated with the maturing of European medium-term notes. The 2006
amount also included $1 billion related to the issue of medium-term notes
which did not recur in 2007.
Total revenues of $10.1 billion for the six months ended June 30, 2007
decreased by $1.5 billion as compared to the same period in 2006 primarily due
to lower annuity premiums and lower net investment income. Annuity premiums of
$1.9 billion for the six months ended June 30, 2007 declined by $614 million
from the same period a year ago as SLF U.S. issued US$900 million in medium-
term notes in the second quarter of 2006, which were not repeated in 2007.
This decrease was partly compensated by higher annuity premiums of
$119 million in SLF Canada and growth in SLF U.S. annuities of $218 million.
Net investment income for the six months ended June 30, 2007 dropped by
$1.2 billion from the comparable period a year ago for the same reasons
previously mentioned for the quarter. Higher life and health insurance
premiums as well as higher fee income on increased average net assets somewhat
diminished these decreases.
Assets Under Management (AUM)
AUM were $434.5 billion as at June 30, 2007 compared to $445.8 billion as
at March 31, 2007, and $387.2 billion as at June 30, 2006. The decrease of
$11.3 billion between March 31, 2007 and June 30, 2007 resulted primarily
from:(i) a decrease of $24.0 billion from the stronger Canadian dollar
relative to the prior period currency exchange rates, partially
offset by
(ii) positive market movements of $12.8 billion;
(iii) an increase of $1.1 billion in mutual funds during June 2007
related to the acquisition of closed-end funds in MFS; and
(iv) net sales of mutual, managed and segregated funds of $0.2 billion.
AUM increased $47.3 billion between June 30, 2006 and June 30, 2007. The
increase related primarily to:
(i) robust market performance generating $50.3 billion in additional
value;
(ii) an increase of $4.2 billion in general fund assets on January 1,
2007 related to the changes to Canadian investment accounting
rules;
(iii) net sales of mutual, managed and segregated funds of $2.1 billion;
and
(iv) an increase of $1.1 billion in mutual funds during June 2007
related to the acquisition of closed-end funds in MFS; partly
reduced by
(v) a decrease of $13.7 billion from currency fluctuations.Changes in the Balance Sheet and Shareholders' Equity
Total general fund assets were $116.1 billion as at June 30, 2007,
compared to $110.6 billion a year earlier. An increase of $4.2 billion in
general fund assets on January 1, 2007 arose from the changes to Canadian
investment accounting rules. Continued business growth, primarily in SLF
Canada and SLF U.S., including the acquisition of Genworth Financial Inc.'s
U.S. employee benefits group business at the end of May 2007, was partly
reduced by the $1.9 billion unfavourable currency effect from the strengthened
Canadian dollar against foreign currencies.
Total general fund assets decreased by $1.7 billion from the December 31,
2006 level of $117.8 billion. The $4.2 billion increase in general fund assets
on January 1, 2007 related to the changes to Canadian investment accounting
rules was more than offset by the unfavourable currency impact of $5.3 billion
from a stronger Canadian dollar at the end of the second quarter of 2007.
Actuarial and other policy liabilities of $83.1 billion as at June 30,
2007 rose by $6.1 billion compared to June 30, 2006 with a $7.3 billion
increase on January 1, 2007 related to the change in value of held-for-trading
assets, the reversal of deferred net realized gains and other fair value
adjustments resulting from changes to Canadian investment accounting rules,
partially diminished by the $1.3 billion unfavourable impact of currency
fluctuations.
Actuarial and other policy liabilities of $83.1 billion at June 30, 2007
were up by $2.0 billion compared to December 31, 2006. This increase was
primarily due to the impact of changes to Canadian investment accounting rules
noted above, partially offset by the unfavourable currency effect of $3.9
billion resulting from the strengthened Canadian dollar at the end of the
second quarter of 2007.
Shareholders' equity, including Sun Life Financial Inc.'s preferred share
capital and accumulated other comprehensive income, was $17.3 billion as at
June 30, 2007, $199 million higher than at December 31, 2006. Shareholders'
net income, before preferred share dividends of $34 million, generated
$1,121 million and the issuance of Class A Non-cumulative Preferred Shares,
Series 5 added $245 million, net of expenses. The adjustments to shareholders'
equity related to the implementation of changes to Canadian investment
accounting rules on January 1, 2007 contributed $564 million and was partially
offset by $290 million in other comprehensive income due to losses on
available-for-sale assets. Dividend payments on common shares of $366 million
and $214 million for the cost of common shares repurchased and cancelled, net
of stock-based compensation costs (including stock options exercised) also
diminished the increases. Currency fluctuations further reduced shareholders'
equity by $827 million.
Shareholders' equity as at June 30, 2007, including Sun Life Financial
Inc.'s preferred share capital and accumulated other comprehensive income, was
$708 million lower than the March 31, 2007 position of $18.0 billion.
Shareholders' net income, before preferred share dividends of $18 million,
generated $608 million. The impact of changes to Canadian investment
accounting rules from January 1, 2007 reduced shareholders' equity during the
second quarter by $250 million due to losses on available-for-sale assets in
other comprehensive income. Dividend payments on common shares of $183 million
and $142 million for the cost of common shares repurchased and cancelled, net
of stock-based compensation costs (including stock options exercised) also
diminished shareholders' equity. Currency fluctuations further decreased
shareholders' equity by $724 million.
As at June 30, 2007, Sun Life Financial Inc. had 568,105,192 common
shares and 61,000,000 preferred shares outstanding.Cash Flows
-------------------------------------------------------------------------
Quarterly Results Year to Date
----------------- -----------------
($mm) Q2/07 Q2/06 2007 2006
------- ------- ------- -------
Cash and cash equivalents,
beginning of period 5,414 3,902 4,881 2,740
Cash flows provided by (used in):
Operating activities (236) 1,232 (197) 1,390
Financing activities (618) (441) (400) 258
Investing activities (1,228) (1,013) (974) (707)
Discontinued operations
Changes due to fluctuations in
exchange rates (19) (99) 3 (100)
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents (2,101) (321) (1,568) 841
------- ------- ------- -------
Cash and cash equivalents,
end of period 3,313 3,581 3,313 3,581
Short-term securities,
end of period 1,265 942 1,265 942
------- ------- ------- -------
Total cash, cash equivalents and
short-term securities 4,578 4,523 4,578 4,523
------- ------- ------- -------
------- ------- ------- -------
-------------------------------------------------------------------------Net cash, cash equivalents and short-term securities of $4.6 billion as
at the end of the second quarter of 2007 increased by $55 million over the
second quarter of 2006. Cash and cash equivalents decreased by $2.1 billion
during the second quarter of 2007 compared to a $321 million decrease in the
second quarter of 2006. Operating cash flows in the second quarter of 2006
included the issuance of US$900 million in medium-term notes. Cash used in
financing activities increased by $177 million from the same period in 2006
with the US$600 million redemption of Cumulative Capital Securities partly
offset by the issuance of $400 million in subordinated unsecured debentures
during the second quarter of 2007. Cash used in investing activities was
$215 million higher in the second quarter of 2007 than in the second quarter
of 2006 primarily due to the acquisition of the Genworth EBG Business, which
closed on May 31, 2007, partially offset by higher levels of net purchases of
invested assets in the second quarter of 2006.
There was a decrease in cash and cash equivalents of $1.6 billion in the
first six months of 2007 as compared to an $841 million increase in cash and
cash equivalents in the same period of 2006. The decrease in cash from
operating activities was $1.6 billion lower in the first half of 2007 than in
the comparable period a year ago primarily related to the issuance of medium-
term notes mentioned above. Cash used in financing activities in the first six
months of 2007 increased by $658 million from the first six months of 2006 as
the US$600 million Cumulative Capital Securities were redeemed during 2007.
Financing activities also reflected the issuance of $650 million in senior
unsecured debentures and preferred shares of $250 million in the first half of
2007 as compared to the $700 million in senior unsecured debentures and
preferred shares of $250 million issued in the first half of 2006. Cash used
in investing activities was higher by $267 million during the first half of
2007 than during the first half of 2006 mainly due to the acquisition of the
Genworth EBG business, which closed in the second quarter of 2007, partially
offset by higher levels of net purchases of invested assets in the second
quarter of 2006.
Enterprise Risk Management
Sun Life Financial uses an enterprise risk management framework to assist
in categorizing, monitoring and managing the risks to which it is exposed. The
major categories of risk are credit risk, market risk, insurance risk and
operational risk. Operational risk is a broad category that includes legal and
regulatory risks, people risks and systems and processing risks.
Through its ongoing enterprise risk management procedures, Sun Life
Financial reviews the various risk factors identified in the framework and
reports to senior management and to the Risk Review Committee of the Board at
least quarterly. Sun Life Financial's enterprise risk management procedures
and risk factors are described in Sun Life Financial Inc.'s Management's
Discussion and Analysis (MD&A) and Annual Information Form (AIF) for the year
ended December 31, 2006. Interest rate and equity market sensitivities are
disclosed in the annual MD&A, but change as market levels change, new business
is added, or as management actions are taken.
Outlook
The Company generally benefits from steady or slowly increasing interest
rates from recent levels, particularly in its fixed annuity and universal life
businesses; however, this benefit is partially offset by a flat or inverted
yield curve. Declining stock market indices may adversely affect earnings from
market-based products and flows in the Company's asset management businesses.
The Company's earnings will be impacted by changes in the value of the
Canadian dollar versus foreign currencies, most notably the U.S. dollar.
Regulatory and Legal Matters
Sun Life Financial Inc. and certain of its U.S. subsidiaries are
cooperating with insurance and securities regulators and other government and
self-regulatory agencies in the United States in their ongoing investigations
and examinations with respect to various issues. Certain of these
investigations and examinations may lead to settled administrative actions or
enforcement proceedings and civil actions. As previously disclosed, Sun Life
Financial Inc. and MFS have been named as defendants in multiple lawsuits in
U.S. courts relating to the matters that led to the settlements between MFS
and U.S. regulators in 2004; and MFS continues to defend these actions. In
addition, Sun Life Financial Inc. and its subsidiaries are involved in other
legal actions, both as a defendant and as a plaintiff. While it is not
possible to predict the resolution of these various matters, management
believes, based on the information currently available to it, that the
ultimate resolution will not be material to Sun Life Financial's consolidated
financial position or results of operations.
Additional information concerning these and related matters is provided
in Sun Life Financial Inc.'s annual Consolidated Financial Statements and AIF
for the year ended December 31, 2006, copies of which are available on the
Company's website at www.sunlife.com and at www.sedar.com and www.sec.gov.
Use of Non-GAAP Financial Measures
Management evaluates the Company's performance on the basis of financial
measures prepared in accordance with GAAP, including earnings, Diluted EPS and
ROE. Management also measures the Company's performance based on certain non-
GAAP measures, including operating earnings, and other financial measures
based on operating earnings, including fully diluted operating EPS and
operating ROE, that exclude certain significant items that are not operational
or ongoing in nature. Management also uses financial performance measures that
are prepared on a constant currency basis, which excludes the impact of
currency fluctuations. Management measures the performance of its business
segments using ROE that is based on an allocation of common equity or risk
capital to the business segments, using assumptions, judgments and
methodologies that are regularly reviewed and revised by management.
Management also monitors MFS's pre-tax operating profit margin ratio, which
excludes certain offsetting fee income and commission expenses, as a means of
measuring the underlying profitability of MFS. Embedded Value and Value of New
Business are used to measure overall profitability. Embedded Value and Value
of New Business are based on actuarial amounts for which there are not
comparable amounts under GAAP. Management believes that these non-GAAP
financial measures provide information useful to investors in understanding
the Company's performance and facilitate the comparison of the quarterly and
full-year results of the Company's ongoing operations. These non-GAAP
financial measures do not have any standardized meaning and may not be
comparable with similar measures used by other companies. They should not be
viewed as an alternative to measures of financial performance determined in
accordance with GAAP. Additional information concerning these non-GAAP
financial measures and reconciliations to GAAP measures are included in Sun
Life Financial Inc.'s annual MD&A and the Supplementary Financial Information
packages that are available in the Investor Relations - Financial Publications
section of Sun Life Financial's website, www.sunlife.com.
Operating earnings, fully diluted operating EPS and operating ROE exclude
after-tax charge to earnings of $2 million for re-branding expenses in Canada
and $1 million for the integration costs of Genworth Financial's U.S. Employee
Benefits Group taken in the second quarter of 2007, a $43 million and a
$18 million after-tax charge to earnings related to the intangible asset
write- down for the retirement of the Clarica brand and the premium paid to
redeem the outstanding US$600 million principal amount of 8.526% Cumulative
Capital Securities issued by Sun Life of Canada (U.S.) Capital Trust,
respectively, taken in the first quarter of 2007, and a $2 million after-tax
charge for the integration of CMG Asia Limited and CommServe Financial Limited
taken in the first quarter of 2006.
Forward-Looking Statements
Certain statements contained in this document, including those relating
to the Company's strategies and other statements that are predictive in
nature, that depend upon or refer to future events or conditions, or that
include words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates" or similar expressions, are forward-looking statements
within the meaning of securities laws. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company. These statements represent the Company's expectations, estimates and
projections regarding future events and are not historical facts. Forward-
looking statements are not guarantees of future performance and involve
certain risks and uncertainties that are difficult to predict. Future results
and stockholder value may differ materially from those expressed in these
forward-looking statements due to, among other factors, the matters set out
under "Risk Factors" in the Company's AIF and the factors detailed in its
other filings with Canadian and U.S. securities regulators, including its
annual MD&A, and annual and interim financial statements which are available
for review at www.sedar.com and www.sec.gov.
Factors that could cause actual results to differ materially from
expectations include, but are not limited to, the performance of equity
markets; interest rate fluctuations; changes in legislation and regulations
including tax laws; regulatory investigations and proceedings and private
legal proceedings and class actions relating to practices in the mutual fund,
insurance, annuity and financial product distribution industries; risks
relating to product design and pricing; investment losses and defaults; the
occurrence of natural or man-made disasters, pandemic diseases and acts of
terrorism; risks relating to operations in Asia, including risks relating to
joint ventures; failure of computer systems and internet enabled technology;
breaches of computer security and privacy; the availability, cost and
effectiveness of reinsurance; the inability to maintain strong distribution
channels and risks relating to market conduct by intermediaries and agents;
dependence on third party relationships including outsourcing arrangements;
currency exchange rate fluctuations; the impact of competition; downgrades in
financial strength or credit ratings; the ability to successfully complete and
integrate acquisitions; the ability to attract and retain employees; and the
performance of the Company's investments and investment portfolios managed for
clients such as segregated and mutual funds. The Company does not undertake
any obligation to update or revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events, except as required by law.
For further information:
For further information: Media Relations Contact: Susan Jantzi, Senior Manager, External Communications & Corporate Affairs, Tel: (519) 888-3160, susan.jantzi@sunlife.com; Investor Relations Contact: Paul Petrelli, Assistant Vice-President, Investor Relations, Tel: (416) 204-8163, investor.relations@sunlife.com