Sun Life Financial reports Operating earnings per share of $1.01, up 9% over Q3 2006
Oct 30, 2007
Operating Return on Equity of 14.8%, up 40 basis points
Note to Editors: All figures shown in Canadian dollars unless otherwise
noted.
TORONTO, Oct. 30 /CNW/ - Sun Life Financial Inc. (TSX/NYSE: SLF) today
announced operating earnings of $583 million. Fully diluted operating earnings
per share (EPS)(1) of $1.01 increased 9% over the third quarter of 2006. The
strengthening of the Canadian dollar relative to foreign currencies since the
third quarter of 2006 reduced earnings by $19 million or $0.04 per share.
Excluding the impact of currency, operating EPS would have increased by 13%
over the same period last year. Operating return on equity (ROE) was 14.8% for
the quarter.
"Strong sales and bottom line growth demonstrate Sun Life's continuing
business momentum across all of its markets and its consistent capacity to
deliver on commitments," said Donald A. Stewart, Chief Executive Officer. "Sun
Life's innovative products and services, combined with its broad distribution
capabilities, continue to fuel sales internationally, positioning the Company
to capitalize on key demographic opportunities."
"Our financial results this quarter reflect the diversity of our earnings
platform and our strong risk management capabilities," said Richard P.
McKenney, Chief Financial Officer. "Despite volatile economic conditions,
we're progressing steadily toward achieving our medium-term financial
objectives."
Operating earnings, operating EPS and operating ROE for the third quarter
of 2007 exclude after-tax charges to earnings of $5 million for re-branding
expenses in Canada and $1 million for the integration costs in SLF U.S.'s
Employee Benefits Group. Including these charges, EPS and ROE for the quarter
were $1.00 and 14.7%, respectively.
Business Highlights
During the third 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.- Individual segregated fund sales in Canada, including deposits from
the SunWise Elite Plus guaranteed minimum withdrawal benefit rider,
increased by 75% to $446 million in the third quarter of 2007 over
the same period last year.
- Sun Life Financial Canada's Group Retirement Services sales increased
22% over the third quarter of 2006 on several large sales, including
Magellan Aerospace at $110 million.
- Sun Life Financial Canada's Group Retirement Services retained
$192 million of assets from members leaving plans this quarter. This
represents an increase of 39% over the third quarter of 2006 and a
retention ratio of 34% for the first nine months of 2007. Sun Life
Financial Canada also announced the extension of its rollover program
to include Group Benefits plan members, offering individuals
transitioning from group benefits plans continued participation in
Sun Life products.
- Sun Life Financial launched its Canada-wide multimedia advertising
campaign in support of its brand strategy and the re-branding of its
career sales force. The Company's "Life's brighter under the sun"
advertising theme reinforces the important role Sun Life plays in the
lives of one in five Canadians.
- Sun Life Financial U.S. continued to build upon the success of its
Income ON Demand(SM) product and enhanced distribution capabilities
with gross domestic variable annuity sales of US$771 million, an
increase of 91% over the third quarter of 2006. Gross domestic
variable annuity sales for the first nine months of US$2.1 billion
have already exceeded full year 2006 sales by 23%.
- Sun Life Financial U.S. further diversified its Individual Life
product line, launching Sun Executive Variable Universal Life and Sun
Executive Universal Life, two new life insurance products designed
for small and mid-size business owners to fund non-qualified
executive benefit plans.
- Responding to the needs of institutional clients, MFS formed a new
subsidiary called Four Pillars Capital Inc. to provide support to
hedge fund managers. The new subsidiary will be run as a separate
entity, with MFS providing key operations, marketing and
distribution support.
- MFS's pre-tax operating profit margin ratio increased to 36% in the
third quarter of 2007 from 30% in the third quarter of 2006.
- MFS continued to achieve superior retail mutual fund performance with
80% of its U.S. mutual fund assets ranked in the top half of their
Lipper Category average over three years, as of September 30, 2007.
- In India, Birla Sun Life Insurance Company sales were up 177% in the
third quarter of 2007 compared to the third quarter of 2006. Birla
Sun Life now has operations in over 200 cities in India.
- In China, sales were up 162% in the third quarter of 2007 over the
same period last year. Sun Life Everbright (SLEB) was awarded two
significant group benefits plans during the quarter. SLEB will
provide group life and health benefits to the 13,000 employees of
China Everbright Group and Everbright Bank, and will provide claims
administration for the three million members of the Tianjin Bureau of
Labour and Social Security. Installation of the plans is expected to
take place in the fourth quarter of 2007.
- Sun Life Financial's CEO, Donald A. Stewart, has been selected as the
2007 International Executive of the Year by the Canadian Chamber of
Commerce and Canada's international business community. The award
recognizes business executives from a Canadian company whose
exemplary leadership has developed a strong, competitive presence for
Canada in global markets.
Financial Highlights
- Operating ROE increased 40 basis points to 14.8% from operating ROE
of 14.4% in the third quarter of 2006. ROE of 14.7% increased
30 basis points from ROE of 14.4% in the third quarter of 2006.
- Operating EPS of $1.01 for the quarter increased 9% compared to
operating EPS of $0.93 in the third quarter of 2006. EPS of $1.00 for
the quarter increased 8% compared to EPS of $0.93 in the third
quarter of 2006.
- Sun Life Financial declared $193 million in common shareholder
dividends during the quarter, representing a payout ratio of 33%.
- Sun Life Financial repurchased approximately 2 million common shares
for $98 million during the third quarter of 2007, for a total share
buyback of $373 million in the first nine months of this year.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 third quarter 2007 financial results will be reviewed at a
conference call today at 11 a.m. ET. To listen to the call via live audio
webcast and to view the presentation slides, please visit our website and
click the Q3 Results link from the homepage 10 minutes prior to the start of
the presentation to access the webcast, along with 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
September 30, 2007, the Sun Life Financial group of companies had total assets
under management of $427 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.
---------------------------
(1) All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.Management's Discussion & Analysis
for the period ended September 30, 2007
Dated October 30, 2007
Earnings and Profitability
-------------------------------------------------------------------------
FINANCIAL SUMMARY
Unaudited
Quarterly Results Year to Date
---------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income ($mm) 577 590 497 545 541 1,664 1,544
Operating
Earnings(1)($mm) 583 593 558 545 541 1,734 1,546
Basic Earnings per
Common Share (EPS)(2)($) 1.02 1.03 0.87 0.95 0.94 2.92 2.67
Fully Diluted EPS ($) 1.00 1.02 0.86 0.94 0.93 2.88 2.65
Fully Diluted
Operating EPS(1)($) 1.01 1.03 0.96 0.94 0.93 3.00 2.65
Return on Common
Equity (ROE) (%) 14.7 14.5 12.0 14.0 14.4 13.7 13.7
Operating ROE(1)(%) 14.8 14.6 13.5 14.0 14.4 14.3 13.7
Average Common Shares
Outstanding (mm) 567.8 570.1 572.0 572.6 574.2 570.0 578.2
Closing Common Shares
Outstanding (mm) 566.4 568.1 571.4 571.8 573.0 566.4 573.0
S&P 500 Index
(daily average) 1,489 1,497 1,425 1,389 1,287 1,471 1,284
S&P 500 Index
(close) 1,527 1,503 1,421 1,418 1,336 1,527 1,336
-------------------------------------------------------------------------Sun Life Financial Inc.(3) reported common shareholders' net income of
$577 million for the quarter ended September 30, 2007, up $36 million from
$541 million in the third quarter of 2006. The increase in common
shareholders' net income was primarily due to business growth, the positive
impact of credit spread movements and equity markets on several of the
Company's North American businesses, lower new business strain on U.S.
universal life sales, the net positive impact of interest rate and equity
hedges in the U.S., the positive impact of the Employee Benefits Group
acquisition (EBG acquisition), and higher earnings in Asia. These gains were
partially offset by the strengthening of the Canadian dollar relative to
foreign currencies, lower earnings in Canadian Group Benefits and reserve
strengthening in run-off reinsurance.
ROE for the third quarter of 2007 was 14.7% compared with 14.4% for the
third quarter of 2006. The 30 basis point increase was primarily the result of
earnings growth, the repurchase of common shares and the change in value of
the foreign currency translation account in the third quarter of 2007. EPS of
$1.00 were 8% higher than the $0.93 reported in the prior year.
Operating EPS, which exclude after-tax charges of $5 million for
re-branding expenses in Canada and $1 million for integration costs in SLF
U.S.'s Employee Benefits Group, were $1.01 for the quarter, up 9% over
operating EPS of $0.93 in the third quarter of 2006. Operating ROE of 14.8%
for the quarter was up from operating ROE of 14.4% in the third quarter of
2006.
Common shareholders' net income of $1,664 million for the first nine
months of 2007 was $120 million higher than in the first nine months of 2006
and EPS of $2.88 for the first nine months of 2007 was 9% higher than EPS of
$2.65 in the first nine months of 2006.
Performance by Business Group
The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia) and Corporate. Additional details concerning the segments and the
purpose and use of the segmented information are outlined in Note 6 to Sun
Life Financial Inc.'s third quarter 2007 Interim Consolidated Financial
Statements, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Where appropriate, information on a business
segment has been presented both in Canadian dollars and the segment's local
currency to facilitate the analysis of underlying business trends. ROE for the
business segments is a "Non-GAAP" financial measure as outlined under "Use of
Non-GAAP Financial Measures."SLF Canada
-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income ($mm)
Individual Insurance
& Investments 152 177 146 156 123 475 429
Group Benefits 59 69 51 60 85 179 187
Group Wealth 46 34 53 41 32 133 122
---- ---- ---- ---- ---- ---- ----
Total 257 280 250 257 240 787 738
ROE (%) 14.7 16.1 14.3 14.3 13.3 15.0 14.0
-------------------------------------------------------------------------
SLF Canada's earnings increased by $17 million or 7%, compared to the
third quarter of 2006. This increase was mainly attributable to the impact of
investing in higher yielding assets in Individual Insurance & Investments and
Group Wealth, partially offset by lower Group Benefit earnings and re-branding
expenses in Individual Insurance & Investments.
- Individual Insurance & Investments earnings for the third quarter of
2007 increased by 24% compared to the third quarter of 2006, mainly
from the impact of investing in higher yielding assets. These results
were partially offset by re-branding expenses of $5 million in the
third quarter of 2007.
- Group Benefits earnings for the third quarter of 2007 decreased by
31% over the third quarter of 2006 resulting primarily from the non-
recurrence of an $18 million positive reserve impact from cash-flow
methodology refinement in the third quarter of 2006.
- Group Wealth earnings for the third quarter of 2007 increased by 44%
from the third quarter of 2006 due to the impact of investing in
higher yielding assets and business growth.
Nine-month earnings increased by $49 million or 7%, over the same period
in 2006 due to the impact of investing in higher yielding assets in Individual
Insurance & Investments and Group Wealth and the impact of an internal
reinsurance transaction on actuarial reserves in Individual Insurance &
Investments, partly offset by a reduction in Group Benefits earnings and
re-branding expenses of $7 million.
SLF U.S.
-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income (US$mm)
Annuities 99 80 80 61 88 259 237
Individual Life 41 37 5 9 22 83 41
Employee Benefits
Group(1) 22 25 (1) 16 11 46 31
----- ----- ----- ----- ----- ---- ----
Total (US$mm) 162 142 84 86 121 388 309
Total (C$mm) 170 156 98 97 136 424 351
ROE (%) 14.7 14.0 9.4 9.7 13.9 12.9 12.1
(1) Employee Benefits Group formerly called Group Life & Health.
-------------------------------------------------------------------------
Earnings for SLF U.S. increased C$34 million or 25% compared to the third
quarter of 2006. The appreciation of the Canadian dollar against the U.S.
dollar reduced earnings in SLF U.S. by C$12 million in the third quarter of
2007 compared to the third quarter of 2006.
In U.S. dollars, earnings were US$162 million, US$41 million or 34% higher
than in the third quarter of 2006. Earnings increased this quarter as a result
of positive equity market movement in Annuities, the net favourable impact of
interest rate hedges, credit spread movement and lower new business strain in
Individual Life, and the favourable impact in the Employee Benefits Group of
the EBG acquisition in the second quarter of 2007.
- Annuities earnings increased by US$11 million compared to the third
quarter of 2006 as a result of increased fee income on higher assets
from positive equity market movements and the net favourable impact
of equity hedges.
- Individual Life earnings increased by US$19 million compared to the
third quarter of 2006 due to the net favourable impact of interest
rate hedges, credit spread movement, business growth and lower new
business strain on U.S. universal life sales.
- Employee Benefits Group earnings increased by US$11 million compared
to the third quarter of 2006 as a result of the positive impact of
the EBG acquisition in the second quarter of 2007.Nine-month earnings increased by US$79 million, or 26%, over the same
period in 2006 due to business growth and favourable interest and credit
spread movement in Individual Life, the positive impact of interest rate and
equity market movements in Annuities and the favourable impact on earnings
from the EBG acquisition in the Employee Benefits Group.MFS
-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income (US$mm) 65 62 61 62 52 188 144
Common Shareholders'
Net Income (C$mm) 68 68 72 71 58 208 163
Pre-tax Operating
Profit Margin Ratio(4) 36% 34% 34% 34% 30% 35% 28%
Average Net Assets (US$B) 199 200 189 182 170 196 169
Assets Under
Management (US$B) 204 202 192 187 175 204 175
Net Sales/(Redemptions)
(US$B) (0.9) (0.1) 0.2 1.0 (0.1) (0.8) (0.8)
Market Movement (US$B) 3.3 9.5 4.4 11.0 6.9 17.2 13.4
S&P 500 Index
(daily average) 1,489 1,497 1,425 1,389 1,287 1,471 1,284
-------------------------------------------------------------------------
Earnings for MFS increased C$10 million, or 17%, compared to the third
quarter of 2006. The appreciation of the Canadian dollar against the U.S.
dollar reduced earnings for MFS by C$5 million in the third quarter of 2007
compared to the third quarter of 2006.
In U.S. dollars, third quarter earnings were US$65 million, US$13 million,
or 25%, higher than in the third quarter of 2006 primarily due to growth in
assets under management and improved margins. Average net assets of US$199
billion increased 17% compared to the third quarter of 2006.
Nine-month earnings increased by US$44 million, or 31%, over the same
period in 2006 primarily due to asset growth and higher margins.
Total assets under management at September 30, 2007 were US$204 billion,
an increase of US$2 billion compared to June 30, 2007, driven by market
appreciation of US$3.3 billion and net managed fund sales of US$0.5 billion.
Market appreciation and managed fund net sales were partially offset by net
retail mutual fund redemptions of US$1.4 billion during the period.
SLF Asia
-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income ($mm) 30 17 38 33 13 85 68
ROE (%) 10.9 6.0 13.5 12.6 5.2 10.1 9.3
-------------------------------------------------------------------------Third quarter 2007 earnings of $30 million were up by $17 million, or
131%, from the third quarter of 2006 primarily due to the effect of strong
equity markets and business growth in Hong Kong and improved results in
Indonesia as the third quarter 2006 earnings were negatively impacted by
reserve strengthening. These earnings increases were partially offset by lower
earnings in India due to higher expansion expenses.
Nine-month earnings were up by $17 million over last year, with higher
earnings in Hong Kong and Indonesia as explained above, partially offset by
higher expansion expenses.
SLF Asia sales momentum continued in the third quarter of 2007, with
sales up 121% in Canadian dollars over the same period in 2006 driven by
triple digit growth in India and China. In local currency, strong demand for
wealth accumulation products in Indonesia and Hong Kong drove sales up by
79%and 59%, respectively, over third quarter 2006 sales. In China, sales grew
162% over last year's sales. In addition, Sun Life Everbright Life Insurance
Company was awarded two large group benefits plans during the third quarter.
Installation of the group plans is expected to take place in the fourth
quarter of 2007. In India, sales increased by 177% over the same period last
year as the expansion continued with operations now in more than 200 cities.
Corporate
Corporate includes the results of Sun Life Financial U.K. (SLF U.K.), Sun
Life Financial Reinsurance (SLF Reinsurance) and Corporate Support, which
includes run-off reinsurance as well as investment income, expenses, capital
and other items not allocated to Sun Life Financial's other business groups.-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Common Shareholders'
Net Income/(Loss) ($mm)
SLF U.K. 48 42 100 28 57 190 143
SLF Reinsurance 21 33 18 35 25 72 58
Corporate Support (17) (6) (79) 24 12 (102) 23
----- ----- ----- ----- ----- ---- ----
Total 52 69 39 87 94 160 224
-------------------------------------------------------------------------Third quarter 2007 earnings decreased by $42 million compared to the
third quarter of 2006 due to less favourable mortality experience in SLF
Reinsurance, reserve strengthening reflecting higher annuitization rates in
run-off reinsurance and the non-recurrence of the reimbursement of certain
mortgage endowment costs in the third quarter of 2006 in SLF U.K.
Nine-month earnings decreased by $64 million, or 29%, 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$600 million of 8.526% Cumulative Capital Securities
in the first quarter of 2007. Partially offsetting these items were higher
earnings in the first quarter of 2007 from SLF U.K. due to the reimbursement
of certain mortgage endowment costs and favourable updates to annuity reserves
and deferred tax liabilities as well as higher earnings in SLF Reinsurance.
Additional Financial Disclosure
Revenue
Under Canadian GAAP, revenues include premium revenue, net investment
income and fee income. Premium revenue includes annuity premiums, certain of
which are excluded as revenue under U.S. GAAP and also for similar products
sold by other financial institutions.
Changes to Canadian investment accounting rules that became effective on
January 1, 2007, have resulted in increased net investment income volatility
arising from quarterly fluctuation in the value of held-for-trading assets.
Changes in the value of held-for-trading assets are largely offset by
corresponding changes in the value of actuarial liabilities.-------------------------------------------------------------------------
Quarterly Results Year to Date
--------------------------------- -------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 2007 2006
----- ----- ----- ----- ----- ---- ----
Revenues ($mm)
SLF Canada 2,500 1,801 2,374 2,520 2,335 6,675 6,813
SLF U.S. 2,052 1,944 2,197 2,392 3,143 6,193 8,073
MFS 417 433 447 444 395 1,297 1,218
SLF Asia 286 182 215 297 240 683 725
Corporate 444 140 351 484 491 935 1,321
------ ------ ------ ------ ------ ------ ------
Total 5,699 4,500 5,584 6,137 6,604 15,783 18,150
-------------------------------------------------------------------------Revenues of $5.7 billion earned in the third quarter of 2007 decreased by
$905 million from the same period in 2006 due to lower annuity premiums of
$873 million, mainly from the non-recurrence of US$900 million in medium-term
notes issued in the third quarter of 2006.
Premium revenues of $3.5 billion in the third quarter of 2007 were $704
million less than the same quarter last year due to lower annuity premiums
from the non-recurrence of medium-term notes issued in the third quarter of
2006. Health insurance premiums rose by $181 million over the third quarter of
2006 as SLF U.S. Employee Benefits Group contributed an additional $154
million, reflecting the favourable impact of the EBG acquisition in the second
quarter of 2007.
Third quarter 2007 annuity premiums of $939 million were lower by $873
million than during the same period in the prior year. SLF U.S. annuity
premiums decreased by $905 million as the issuance of US$900 million in
medium-term notes in the third quarter of 2006 was not repeated in 2007. This
decline was partly moderated by SLF U.S.'s growth in annuity premiums of $99
million over the third quarter of 2006.
Net investment income of $1.4 billion in the third quarter of 2007 fell
by $275 million from the third quarter of 2006 due to changes in Canadian
investment accounting rules that became effective on January 1, 2007.
Fee income of $798 million in the third quarter of 2007 rose by $74
million from the same period in the previous year due to asset management fees
earned on higher average net asset levels.
Changes in actuarial liabilities decreased by $49 million in the third
quarter of 2007 compared to an increase of $1.3 billion in the third quarter
of 2006. The fluctuation of $1.3 billion mostly related to the issue of
medium-term notes in 2006, which did not recur in 2007.
Total revenues of $15.8 billion for the nine months ended September 30,
2007, decreased by $2.4 billion compared to the same period in 2006 primarily
due to lower annuity premiums and lower net investment income. Annuity
premiums of $2.8 billion for the nine months ended September 30, 2007 declined
by $1.5 billion from the same period a year ago as SLF U.S. issued US$1.8
billion in medium-term notes in the second and third quarters of 2006, which
were not repeated in 2007. This decrease was partly compensated by higher
annuity premiums of $179 million in SLF Canada and growth in SLF U.S. premiums
for annuity products of $317 million. Net investment income for the nine
months ended September 30, 2007, dropped by $1.5 billion from the comparable
period a year ago due to rising interest rates primarily in the second quarter
of 2007 that resulted in a decrease in the value of held-for-trading assets,
with a corresponding decrease in actuarial liabilities. Higher health
insurance premiums as well as higher fee income on increased average net
assets somewhat diminished these decreases.
Assets Under Management (AUM)
AUM were $426.7 billion as at September 30, 2007 compared to $440.2
billion as at June 30, 2007, and $405.1 billion as at September 30, 2006. The
decrease of $13.5 billion between June 30, 2007 and September 30, 2007
resulted primarily from:(i) a decrease of $21.6 billion from the stronger Canadian dollar
relative to the prior period currency exchange rates, partially
offset by
(ii) positive market movements of $3.6 billion; and
(iii) net sales of mutual, managed and segregated funds of $3.4 billion.
AUM increased $21.6 billion between September 30, 2006 and September 30,
2007. The increase related primarily to:
(i) robust market performance generating $43.2 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 $6.7 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 $35.5 billion from currency fluctuations.Changes in the Balance Sheet and Shareholders' Equity
Total general fund assets were $113.3 billion as at September 30, 2007,
compared to $113.4 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 EBG acquisition at the end of May 2007 also
contributed to the growth of general fund assets during the current year.
These increases were offset by the $6.2 billion unfavourable currency effect
from the strengthened Canadian dollar against foreign currencies.
Total general fund assets decreased by $4.5 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 $9.4 billion
from a stronger Canadian dollar at the end of the third quarter of 2007.
Actuarial and other policy liabilities of $80.2 billion as at September
30, 2007 rose by $1.8 billion compared to September 30, 2006 due to 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. These increases were partially offset by the unfavourable
impact of $4.4 billion from currency fluctuations.
Actuarial and other policy liabilities as at September 30, 2007 were down
by $876 million from $81.0 billion as at December 31, 2006 primarily
reflecting the impact of changes to Canadian investment accounting rules noted
above, offset by the unfavourable currency effect of $6.7 billion that
resulted from the strengthened Canadian dollar at the end of the third quarter
of 2007.
Shareholders' equity, including Sun Life Financial Inc.'s preferred share
capital and accumulated other comprehensive income, was $16.9 billion as at
September 30, 2007, $147 million lower than as at December 31, 2006.
Shareholders' net income, before preferred share dividends of $52 million,
generated $1.7 billion of additional equity 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 were partially offset by $258 million in other comprehensive
income due to losses on available-for-sale assets. Dividend payments on common
shares of $559 million and $324 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 $1.5 billion.
Shareholders' equity as at September 30, 2007, including Sun Life
Financial Inc.'s preferred share capital and accumulated other comprehensive
income, was $346 million lower than the June 30, 2007 position of $17.3
billion. Shareholders' net income, before preferred share dividends of $18
million, generated $595 million of additional equity. The impact of changes to
Canadian investment accounting rules from January 1, 2007 increased
shareholders' equity during the third quarter by $32 million due to gains on
available-for-sale assets in other comprehensive income. Dividend payments on
common shares of $193 million and $110 million for the cost of common shares
repurchased and cancelled, net of stock-based compensation costs (including
stock options exercised) diminished shareholders' equity. Currency
fluctuations further decreased shareholders' equity by $652 million.
As at October 26, 2007, Sun Life Financial Inc. had 566.4 million common
shares and 61.0 million preferred shares outstanding.Cash Flows
-------------------------------------------------------------------------
Quarterly Results Year to Date
----------------- -----------------
($mm) Q3/07 Q3/06 2007 2006
------- ------- ------ ------
Cash and cash equivalents,
beginning of period 3,313 3,581 4,881 2,740
Cash flows provided by (used in):
Operating activities 765 1,931 568 3,321
Financing activities (326) 54 (726) 312
Investing activities 168 (1,483) (806) (2,190)
Changes due to fluctuations in
exchange rates (31) 20 (28) (80)
------ ------ ------ ------
Increase (decrease) in cash and
cash equivalents 576 522 (992) 1,363
------ ------ ------ ------
Cash and cash equivalents,
end of period 3,889 4,103 3,889 4,103
Short-term securities, end of
period 1,016 694 1,016 694
------ ------ ------ ------
Total cash, cash equivalents
and short-term securities 4,905 4,797 4,905 4,797
------ ------ ------ ------
------ ------ ------ ------
-------------------------------------------------------------------------Net cash, cash equivalents and short-term securities of $4.9 billion as
at the end of the third quarter of 2007 rose by $108 million over the third
quarter of 2006. Cash generated by operating activities was lower by $1.2
billion in the third quarter of 2007 compared to the same period a year ago
mainly because the third quarter of 2006 included the issuance of US$900
million in medium-term notes. Cash used in financing activities increased by
$380 million from the same period in 2006 as a $300 million issue of Senior
Unsecured 5% Fixed/Floating debentures was completed in July 2006, while $3
million in principal amount of the 7.09% funding debenture and $30 million in
principal amount of 6.87% Series A debentures were repurchased on September 7,
2007. Cash generated by investing activities was $1.7 billion higher in the
third quarter of 2007 than in the third quarter of 2006 primarily due to
higher levels of net purchases of invested assets in the third quarter of
2006.
The Company had net cash outflows of $1.0 billion in the first nine
months of 2007 as compared to a $1.4 billion increase in cash and cash
equivalents in the same period of 2006. Cash from operating activities was
$2.8 billion lower in the first nine months of 2007 than in the comparable
period a year ago primarily related to the 2006 issuance of US$1.8 billion
medium-term notes and the impact from the timing of investment transactions.
Cash used in financing activities in the first nine months of 2007 increased
by $1.0 billion from the first nine months of 2006 as the US$600 million
Cumulative Capital Securities were redeemed during 2007. Financing activities
also reflected the issuance of $250 million in senior unsecured debentures,
$400 million in subordinated unsecured debentures and preferred shares of $250
million in the first nine months of 2007 as compared to the $1 billion in
senior unsecured debentures and preferred shares of $250 million issued in the
first nine months of 2006. Cash used in investing activities was lower by $1.4
billion during the first nine months of 2007 than during the same period of
2006 mainly due to the higher levels of net purchases of invested assets in
the prior year partly offset by the EBG acquisition in the second quarter of
2007.
Quarterly Financial Results
The following table provides a summary of Sun Life Financial's results
for the eight most recently completed quarters.-------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY
Unaudited
-------------------------------------------------------
Quarterly Results
-------------------------------------------------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 Q1/06 Q4/05
------ ------ ------ ------ ------ ------ ------ ------
Common
Shareholders'
Net Income
($mm) 577 590 497 545 541 512 491 478
Operating
Earnings($mm) 583 593 558 545 541 512 493 490
Basic Earnings
per Common
Share (EPS)($) 1.02 1.03 0.87 0.95 0.94 0.88 0.84 0.82
Fully Diluted
EPS ($) 1.00 1.02 0.86 0.94 0.93 0.88 0.84 0.81
Fully Diluted
Operating
EPS($) 1.01 1.03 0.96 0.94 0.93 0.88 0.84 0.83
Total Revenue
($mm) 5,699 4,500 5,584 6,137 6,604 6,231 5,315 5,338
Total AUM ($B) 427 440 451 441 405 391 407 391
-------------------------------------------------------------------------Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of the Company's financial reporting and the
preparation of its financial statements in accordance with GAAP.
There were no changes during the Company's most recent three-month period
ended September 30, 2007 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Future Accounting Standards Changes
Effective January 1, 2008 the Company will adopt Canadian Institute of
Chartered Accountants (CICA) Handbook Sections 1535, Capital Disclosures,
3862, Financial Instruments - Disclosures and 3863, Financial Instruments -
Presentation. Section 1535, Capital Disclosures requires that the Company
disclose how it manages its capital and complies with its capital
requirements. Section 3862, Financial Instruments - Disclosures and section
3863, Financial Instruments - Presentation require disclosure concerning
identification and management of risks related to financial instruments. For
more detail on the accounting changes please refer to Note 2 in the Company's
third quarter 2007 unaudited interim consolidated financial statements.
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.
As discussed in the second quarter 2007 earnings conference call, the
Company does not believe it will experience any material losses as a result of
its investments in asset backed securities with residential sub-prime and
Alternative-a (Alt-a)(5) mortgage exposure. Ninety-six percent of these
investments were either issued before 2006 or have a 'AAA' rating. As at
September 30, 2007 the Company had indirect exposure to residential subprime
and Alt-a of $366 million and $191 million respectively, representing
approximately 0.5% of the Company's total invested assets.
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, fully 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 within the reporting period. 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, the denominator of which excludes certain investment income and
includes certain 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.
The following table sets out the items that have been excluded from the
Company's operating earnings in the eight most recently completed quarters and
provides a reconciliation to the Company's earnings based on Canadian GAAP.-------------------------------------------------------------------------
RECONCILIATION OF OPERATING EARNINGS
Unaudited - in millions of Canadian dollars
-------------------------------------------------------
Quarterly Results
-------------------------------------------------------
Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 Q2/06 Q1/06 Q4/05
------ ------ ------ ------ ------ ------ ------ ------
Reported
Earnings
(GAAP-based) 577 590 497 545 541 512 491 478
After-tax gain
(loss) on
special items
Clarica brand
write-off - - (43) - - - - -
Re-branding
expenses in
Canada (5) (2) - - - - - -
EBG integration
costs (1) (1) - - - - - -
Charges for the
integration of
of CMG Asia
and CommServe
Financial
Limited - - - - - - (2) (12)
Premium
payable on the
redemption of
Cumulative
Capital
Securities - - (18) - - - - -
-------------------------------------------------------------------------
Total special
items (6) (3) (61) - - - (2) (12)
-------------------------------------------------------------------------
Operating
Earnings 583 593 558 545 541 512 493 490
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------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; currency exchange 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; 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.---------------------------
(1) For additional information on the Company's use of non-GAAP financial
measures including operating earnings, fully diluted operating EPS
and operating ROE see "Use of Non-GAAP Financial Measures."
(2) All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.
(3) Or together with its subsidiaries and joint ventures "the Company" or
"Sun Life Financial."
(4) The Pre-Tax Operating Profit Margin Ratio is a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures".
(5) Alternative-a mortgages represent residential loans made to customers
with credit profiles that are stronger than sub-prime, but weaker
than prime.
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, Vice-President, Investor Relations, Tel: (416) 204-8163, investor.relations@sunlife.com