Sun Life Financial reports second quarter 2008 results
Jul 31, 2008
Operating earnings per share of $0.91
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 operating earnings(1) of $519 million for the second quarter of
2008. Fully diluted operating earnings per share (EPS)(2) of $0.91 decreased
12% from the second quarter of 2007. Operating return on equity (ROE) was
12.9% for the quarter.
"Sun Life's Canadian platform is performing solidly in a challenging and
highly competitive environment, achieving 6 per cent growth compared to the
same period last year," said Donald A. Stewart, Chief Executive Officer. "In
addition, MFS's performance showed strength with positive flows despite
difficult markets. However, the Company's overall results were affected by the
volatility in global financial markets that persisted during the quarter.
While our overall results are disappointing, realistic expectations must take
into account what is happening in the markets. We remain confident in the
strength of Sun Life's businesses and balanced model, diversified growth
strategy, prudent capital management and leadership strength."
Earnings year over year were impacted by the strong performance of the
Canadian dollar relative to foreign currencies since the second quarter of
2007, which reduced operating earnings by $17 million or $0.03 per share.
Business Highlights
During the second quarter of 2008, 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 Canada (SLF Canada)
- Individual segregated fund sales in Canada, including sales of
SunWise Elite Plus with the guaranteed minimum withdrawal benefit
rider, increased by 55% to $657 million in the second quarter of 2008
over the same period last year. In May 2008, the SunWise Elite Plus
segregated funds surpassed $1 billion in assets under management
since last year's launch.
- Individual Insurance and Investments further diversified its product
line, launching a new packaged Life and Critical Illness product and
an updated Term Life product.
- Sun Life Financial received the 2008 Award of Excellence from the
Insurance and Financial Communicators Association for launching in
early 2008, MyFinancialPlan, a new financial planning section on the
consumer website www.sunlife.ca/MyFinancialPlan.
- Group Retirement Services sales increased by 211% to $1.5 billion
over the second quarter of 2007, including the installation of
Imperial Oil Limited. Also included in Q2 2008 sales was $186 million
of retained assets representing a 42% retention ratio from members
leaving plans during the second quarter of 2008.
- Group Retirement Services continued to build on its success in the
Defined Contribution (DC) industry in the first quarter of 2008
capturing 32% of the industry's new sales and 46% of total DC market
activity, which includes new sales and retention activity, as
recently reported by LIMRA.
------------------------------------------
(1) Operating earnings, operating EPS and operating ROE are non-GAAP
financial measures. For additional information see "Use of Non-GAAP
Financial Measures."
(2) All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.
Sun Life Financial U.S. (SLF U.S.)
- Individual Insurance continued its product development initiatives by
strengthening its variable universal life (VUL) portfolio with the
introduction of Sun Prime Survivorship VUL.
- Individual Insurance continued to diversify core product sales driven
in part by the success of new products developed over the past year
including Sun Executive Product Series, designed for the small
business executive benefits market, and Sun Universal Protector Plus,
a flexible premium universal life product. Core sales increased 54%
over the first quarter of 2008. Through the first six months of 2008,
sales of universal life policies with no-lapse guarantees made up 65%
of core sales in the quarter compared to 95% for the full year 2007.
MFS
- MFS achieved net positive flows of US$1.0 billion in the quarter.
Fund performance remained strong with 78%, 84% and 72% of fund assets
ranked in the top half of their Lipper Category Average over 3, 5 and
10 years respectively, as of June 30, 2008.
- The Wall Street Journal ranked MFS's Utilities Fund as a "Category
King" for its one-year performance in the utility sector, while the
Emerging Markets Equity and International New Discovery funds were
listed among the funds with the best 5- and 10-year performance track
records, respectively.
- MFS expanded its global reach during the quarter establishing an
investment research office in Sydney, Australia. MFS now provides
integrated global sector research coverage in six key financial
centres globally. Also during the quarter, MFS opened its first non-
U.S. trade desk, operating from its London based office.
Sun Life Financial Asia (SLF Asia)
- In India, Birla Sun Life Insurance Company (BSLIC) second quarter
individual life insurance sales in local currency were nearly three
times the volume from a year ago from increased distribution reach.
BSLIC continued its regional expansion with the opening of
254 branches, bringing its branch network close to 600 across India.
- In the Philippines, Sun Life Asset Management Company (SLAMC) won six
fund performance awards from the Investment Company Association of
the Philippines for 2007. SLAMC offers the largest family of mutual
funds in the Philippines.
Financial Highlights
- Operating ROE decreased 170 basis points to 12.9% from operating ROE
of 14.6% in the second quarter of 2007. ROE of 12.9% decreased
160 basis points from ROE of 14.5% in the second quarter of 2007.
- Operating EPS of $0.91 for the quarter decreased 12% compared to
operating EPS of $1.03 in the second quarter of 2007. EPS of $0.91
for the quarter decreased 11% compared to EPS of $1.02 in the second
quarter of 2007.
- Sun Life Financial declared $202 million in common shareholder
dividends during the quarter, representing a payout ratio of 39%.
- Sun Life Financial repurchased approximately 2.2 million common
shares for $99 million during the second quarter of 2008, for total
share repurchases of $209 million in the first six months of this
year.
- On June 26, 2008, Sun Life Financial completed a public offering in
Canada of $350 million principal amount of Series 2008-2 Subordinated
Unsecured 5.12% Fixed/Floating Debentures due in 2018.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 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 2008 financial results will be reviewed at a
conference call today at 4 p.m. ET. To listen to the call via live audio
webcast and to view the presentation slides, as well as related information,
please visit www.sunlife.com and click on the link to Q2 results from the
"Highlights" section of the home page 10 minutes prior to the start of the
presentation. The webcast and presentation will be archived on our website
following the call and can be found at www.sunlife.com/QuarterlyReports.
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, 2008, the Sun Life Financial group of companies had total assets
under management of $413 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.Management's Discussion & Analysis
for the period ended June 30, 2008
Dated July 31, 2008
Earnings and Profitability
The financial results presented in this document are unaudited.
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FINANCIAL SUMMARY
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Quarterly Results Year to Date
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Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders' Net
Income ($millions) 519 533 555 577 590 1,052 1,087
Operating Earnings(1)
($millions) 519 533 560 583 593 1,052 1,151
Basic Earnings per
Common Share (EPS) ($) 0.92 0.95 0.98 1.02 1.03 1.87 1.90
Fully Diluted EPS ($) 0.91 0.93 0.97 1.00 1.02 1.85 1.88
Fully Diluted Operating
EPS(1) ($) 0.91 0.93 0.98 1.01 1.03 1.85 1.99
Return on Common Equity
(ROE) (%) 12.9 13.4 14.2 14.7 14.5 13.2 13.2
Operating ROE(1) (%) 12.9 13.4 14.3 14.8 14.6 13.2 14.0
Average Common Shares
Outstanding (millions) 561.6 563.8 566.2 567.8 570.1 562.7 571.1
Closing Common Shares
Outstanding (millions) 559.9 561.9 564.1 566.4 568.1 559.9 568.1
-------------------------------------------------------------------------Sun Life Financial Inc.(2) reported common shareholders' net income of
$519 million for the quarter ended June 30, 2008, compared with $590 million
in the second quarter of 2007. Operating earnings of $519 million for the
second quarter of 2008 were down $74 million from $593 million in the second
quarter of 2007. The strengthening of the Canadian dollar relative to foreign
currencies since the second quarter of 2007 reduced quarterly earnings by
$17 million. On a constant currency basis, operating earnings in the second
quarter of 2008 were lower by $57 million or 10% compared to the second
quarter of 2007.
Net income in the second quarter of 2008 was affected by a decline in
equity markets in the Company's U.S.-based businesses, the unfavourable impact
of interest rate movements and associated hedges, wider credit spreads and
credit-related allowances on actuarial reserving requirements, and
credit-related losses on asset sales in SLF U.S., as well as the impact of
higher interest rates and increased investment in growth in SLF Asia. These
decreases were partially offset by favourable morbidity experience as well as
the favourable impact of equity markets and higher interest rates in SLF
Canada and changes in income tax liabilities in Corporate Support.
ROE for the second quarter of 2008 was 12.9% compared with 14.5% for the
second quarter of 2007. The 160 basis point decrease was primarily the result
of a reduction in earnings in the Company's U.S.-based businesses. EPS(3) of
$0.91 were 11% lower than the $1.02 reported in the prior year.
Operating EPS for the second quarter of 2008 were $0.91, down 12% from
operating EPS of $1.03 in the second quarter of 2007. Operating ROE of 12.9%
for the quarter was down from operating ROE of 14.6% in the second quarter of
2007. Excluding the impact of currency, operating EPS would have been $0.94, a
decrease of 9% over the second quarter of 2007.
Common shareholders' net income for the first six months of 2008 was
$1,052 million, a decrease of $35 million compared to the same period in 2007.
Earnings in the first six months of 2008 were affected by a decline in equity
markets in the Company's U.S. businesses, the unfavourable impact of wider
credit spreads and credit-related allowances on actuarial reserving
requirements in SLF U.S., the impact of wider credit spreads and increased
investment in growth in SLF Asia and the strengthening of the Canadian dollar
relative to foreign currencies. These decreases were partially offset by
business growth in the Employee Benefits Group and reduced new business strain
in Individual Insurance in SLF U.S. as well as changes in income tax
liabilities in Corporate Support. Results in the first six months of 2007
included after-tax charges to earnings of $43 million related to the
intangible asset write-down for the retirement of the Clarica brand and
$18 million for the premium payable to redeem Partnership Capital Securities
in Corporate Support as well as higher earnings in SLF U.K. as a result of
several non-recurring items.----------------------------------
(1) Operating earnings and other financial information based on
operating earnings such as operating earnings per share and
operating return on equity are non-GAAP financial measures. For
additional information please see "Use of Non-GAAP Financial
Measures."
(2) Together with its subsidiaries and joint ventures "the Company" or
"Sun Life Financial"
(3) All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.Performance by Business Group
The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia) and Corporate. Additional details concerning the segments and the
purpose and use of the segmented information are outlined in Note 5 to Sun
Life Financial Inc.'s second quarter 2008 Interim Consolidated Financial
Statements, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Where appropriate, information on a business
segment has been presented both in Canadian dollars and the segment's local
currency to facilitate the analysis of underlying business trends. ROE for the
business segments is a "Non-GAAP" financial measure as outlined under "Use of
Non-GAAP Financial Measures."SLF Canada
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Quarterly Results Year to Date
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Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders'
Net Income ($millions)
Individual Insurance
& Investments 177 149 147 152 177 326 323
Group Benefits 80 49 76 59 69 129 120
Group Wealth 39 49 40 46 34 88 87
------ ------ ------ ------ ------ ------ -------
Total 296 247 263 257 280 543 530
ROE (%) 16.7 14.1 15.0 14.7 16.1 15.4 15.2
-------------------------------------------------------------------------
SLF Canada's earnings increased by $16 million, or 6%, compared to the
second quarter of 2007. This increase is mainly attributable to the favourable
impact of increased interest rates and equity markets in the second quarter of
2008. Earnings in Q2 2007 included the favourable impact of a $42 million
reinsurance transaction and $18 million in credit-related allowances.
- Individual Insurance & Investments earnings for the second quarter of
2008 were unchanged from the second quarter of 2007. Earnings in the
second quarter of 2008 were favourably impacted by higher interest
rates and favourable equity markets. Prior year's results included
the favourable impact of an internal reinsurance transaction on
actuarial reserves.
- Group Benefits earnings for the second quarter of 2008 increased by
16% from the second quarter of 2007 due primarily to favourable
morbidity experience in Q2 2008 and credit-related allowances
recorded in the second quarter of 2007. This was partially offset by
less favourable mortality experience in the second quarter of 2008.
- Group Wealth earnings for the second quarter of 2008 increased by 15%
from the second quarter of 2007 primarily from credit-related
allowances recorded in the second quarter of 2007.
Six-month earnings increased by $13 million, or 2%, over the same period
in 2007 due to higher earnings in all of SLF Canada's business units. This was
primarily from the favourable impact of morbidity experience, asset
reinvestment gains from wider credit spreads and the negative impact of
credit-related allowances recorded in 2007, partially offset by favourable
actuarial reserve changes that occurred in 2007.
SLF U.S.
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Quarterly Results Year to Date
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Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders' Net
Income (US$millions)
Annuities 22 75 57 99 80 97 160
Individual Insurance 35 19 84 41 37 54 42
Employee Benefits Group 25 19 24 22 25 44 24
------ ------ ------ ------ ------ ------ -------
Total (US$mm) 82 113 165 162 142 195 226
Total (C$mm) 83 113 157 170 156 196 254
ROE (%) 7.8 10.7 15.3 14.7 14.0 9.2 11.8
-------------------------------------------------------------------------Earnings for SLF U.S. decreased C$73 million, or 47%, compared to the
second quarter of 2007. The appreciation of the Canadian dollar against the
U.S. dollar reduced earnings in SLF U.S. by C$7 million in the second quarter
of 2008 compared to the second quarter of 2007.
In U.S. dollars, earnings were US$82 million, 42% lower than in the
second quarter of 2007. Earnings decreased in the second quarter of 2008
primarily as a result of the unfavourable impact of interest rates and
associated hedges, a decline in equity markets, the impact of wider credit
spreads and credit-related allowances on actuarial reserving requirements for
the fixed annuity block and credit-related losses on asset sales.- Annuities earnings decreased by US$58 million compared to the second
quarter of 2007 primarily as a result of the unfavourable impact of
interest rates and associated hedges, a decline in equity markets,
the impact of wider credit spreads and credit-related allowances on
actuarial reserving requirements for the fixed annuity block and
lower spread income in part due to credit-related losses on asset
sales.
- Individual Insurance earnings were lower by US$2 million compared to
the second quarter of 2007 primarily due to credit-related losses on
asset sales, less favourable experience gains and an increase in
credit-related allowances in actuarial reserves, partially offset by
higher in force operating earnings.
- Employee Benefits Group (EBG) earnings were unchanged at
US$25 million compared to the second quarter of 2007 as the growth in
the business, including the acquisition in the second quarter of
2007, was offset by unfavourable mortality experience.Six-month earnings decreased by US$31 million, or 14%, compared to the
same period in 2007 due to the negative impact of wider credit spreads and
credit-related allowances on actuarial reserves for the fixed annuity block,
unfavourable equity market movements and credit-related losses on asset sales.
The negative impact of these amounts was partially offset by positive variable
annuity hedge experience in Annuities in the first quarter of 2008, the
favourable impact of the acquisition in the second quarter of 2007 in EBG and
decreased new business strain on universal life sales in Individual Insurance.MFS
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---------------------------------- --------------
Quarterly Results Year to Date
---------------------------------- --------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders' Net
Income (US$ millions) 55 59 74 65 62 114 123
Common Shareholders' Net
Income (C$ millions) 56 59 73 68 68 115 140
Pre-tax Operating Profit
Margin Ratio(4) 34% 35% 40% 36% 34% 34% 34%
Average Net Assets
(US$ billions) 191 187 203 199 200 189 195
Assets Under Management
(US$ billions) 183 184 200 204 202 183 202
Net Sales/(Redemptions)
(US$ billions) 1.0 (2.7) (3.2) (0.9) (0.1) (1.7) 0.1
Market Movement (US$
billions) (2.0) (12.5) (1.5) 3.3 9.5 (14.5) 13.9
S&P 500 Index (daily
average) 1,371 1,349 1,495 1,489 1,497 1,360 1,461
-------------------------------------------------------------------------Earnings for MFS decreased C$12 million, or 18%, compared to the second
quarter of 2007. The appreciation of the Canadian dollar against the U.S.
dollar reduced earnings for MFS by C$5 million in the second quarter of 2008
compared to the second quarter of 2007.
In U.S. dollars, second quarter earnings were US$55 million,
US$7 million, or 11%, lower than in the second quarter of 2007 primarily due
to lower average net assets as a result of a decline in equity markets.
Average net assets of US$191 billion decreased 5% compared to the second
quarter of 2007.
Six-month earnings decreased by US$9 million, or 7%, compared to the same
period in 2007 primarily due to lower average net assets as a result of a
decline in equity markets.
Total assets under management at June 30, 2008 were US$183 billion, a
decrease of US$1 billion compared to March 31, 2008, driven by market
depreciation of US$2.0 billion, which was partially offset by net sales of
US$1.0 billion.-----------------------------------
(4) Pre-Tax Operating Profit Margin Ratio is a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures."
SLF Asia
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Quarterly Results Year to Date
---------------------------------- --------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders' Net
Income ($millions) 12 13 38 30 17 25 55
ROE (%) 4.1 4.4 13.6 10.9 6.0 4.3 9.7
-------------------------------------------------------------------------Second quarter 2008 earnings for SLF Asia of $12 million were down by
$5 million, or 29%, from the second quarter of 2007 primarily due to lower
earnings in Hong Kong from the effect of higher interest rates, and increased
investment in growth in India. These decreases were partially offset by the
effect of reserve changes reflecting revised interest rate projections in the
Philippines.
Six-month earnings were down 55% from last year due to lower earnings in
Hong Kong where in 2007 the effect of improvements in asset liability matching
resulted in a one-time favourable impact on earnings. In addition, the 2008
earnings were negatively impacted by the effect of wider credit spreads in
Hong Kong, and increased investment in growth in India. These decreases were
partially offset by the favourable impact of reserve changes for Critical
Illness riders in Hong Kong and for revised interest rate projections in the
Philippines.
SLF Asia individual life insurance sales in the second quarter of 2008
were up 89% over the same period last year, driven primarily by strong growth
in India. In India, Birla Sun Life Insurance Company's individual life
insurance sales were nearly three times the volume from the second quarter of
2007 as a result of increased distribution reach. In local currency, sales
were up by 50% in Hong Kong from improved agency productivity. Second quarter
sales grew by 10% and 9% in China and Indonesia, respectively, over the same
period in 2007.
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
---------------------------------- --------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------ ------ ------ ------ ------ ------ -------
Common Shareholders' Net
Income/(Loss) ($millions)
SLF U.K. 41 59 23 48 42 100 142
SLF Reinsurance (1) 22 25 21 33 21 51
Corporate Support 32 20 (24) (17) (6) 52 (85)
---- ---- ---- ---- ---- ---- ----
Total 72 101 24 52 69 173 108
-------------------------------------------------------------------------Earnings in the second quarter of 2008 increased by $3 million compared
to the second quarter of 2007 due to the positive impact of changes in income
tax liabilities in Corporate Support, which were partially offset by lower
earnings from unfavourable mortality and a change in actuarial reserves to
reflect updated cash flow testing in SLF Reinsurance.
Six-month earnings increased by $65 million, or 60%, over the same period
in 2007 due to the positive impact of changes in income tax liabilities in
Corporate Support, partially offset by lower earnings from less favourable
mortality and changes in actuarial reserves to reflect updated cash flow
testing in SLF Reinsurance. Results in the first six months of 2007 included
after-tax charges to earnings of $43 million related to the intangible asset
write-down for the retirement of the Clarica brand and $18 million for the
premium payable to redeem Partnership Capital Securities in Corporate Support
as well as higher earnings in SLF U.K. as a result of several non-recurring
items.
Additional Financial Disclosure
Revenue
Under Canadian GAAP, revenues include regular premiums received on life
and health insurance policies as well as fixed annuity products and fee income
received for services provided. Net investment income comprised of income
earned on general fund assets and changes in the value of held-for-trading
assets and derivative instruments are also included. Segregated fund deposits,
mutual fund deposits and managed fund deposits are not included in revenues.
Net investment income can experience volatility arising from quarterly
fluctuation in the value of held-for-trading assets. Changes in the value of
these assets are largely offset by corresponding changes in the value of
actuarial liabilities on the basis that the projected asset cash flows
continue to be sufficient to provide for the related projected policy
liability cash flows. Reductions in the value of these assets due to changes
in estimates of the projected asset cash flows will result in an increase in
actuarial liabilities recorded in the consolidated statement of operations.-------------------------------------------------------------------------
--------------------------------------- ---------------
Quarterly Results Year to Date
--------------------------------------- ---------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 2008 2007
------- ------- ------- ------- ------- ------- -------
Revenues ($millions)
SLF Canada 2,276 2,320 2,610 2,500 1,801 4,596 4,175
SLF U.S. 1,624 1,060 1,637 2,052 1,944 2,684 4,141
MFS 367 362 390 417 433 729 880
SLF Asia 71 119 294 286 182 190 397
Corporate 73 25 474 444 140 98 491
------- ------- ------- ------- ------- ------- -------
Total as Reported 4,411 3,886 5,405 5,699 4,500 8,297 10,084
-------------------------------------------------------------------------
Impact of currency
and changes in the
fair value of
held-for-trading
assets and
derivative
instruments (1,366) (1,918) (364) (321) (1,106) (3,284) (1,313)
------- ------- ------- ------- ------- ------- -------
Total Adjusted
Revenue 5,777 5,804 5,769 6,020 5,606 11,581 11,397
-------------------------------------------------------------------------Revenues of $4.4 billion earned in the second quarter of 2008 decreased
by $89 million from the same period in 2007 mainly due to lower net investment
income and fee income partially offset by an increase in premiums. Total
revenue when adjusted for the impact of currency and changes in the fair value
of held-for-trading assets and derivative instruments was $5.8 billion, an
increase of $171 million from the Q2 2007 adjusted revenue. This increase
mainly reflected growth in health premiums, including the EBG acquisition
during the second quarter of 2007.
Premium revenue of $3.3 billion rose by $102 million in the second
quarter of 2008 compared to the second quarter of 2007 in spite of the
unfavourable impact of $146 million from the appreciated Canadian dollar
relative to other foreign currencies. Second quarter 2008 health premiums of
$994 million increased by $133 million over the comparable period a year ago
mostly from the $89 million growth in SLF U.S. Employee Benefits Group,
including the EBG acquisition.
Second quarter 2008 net investment income of $390 million declined by
$82 million compared to the second quarter of 2007. Interest income decreased
by $80 million from lower interest rates and a $56 million reduction due to
the strength of the Canadian dollar against foreign currencies since the
second quarter of 2007. The reduction in net investment income due to net fair
value changes on held-for-trading assets and derivative instruments in the
second quarter of 2008 was similar to that in the second quarter of 2007
caused primarily by rising interest rates in each period.
Fee income of $715 million in the second quarter of 2008 was down
$109 million compared to the same period in the previous year as lower fees of
$59 million were earned in SLF U.S. mostly due to the sale of Independent
Financial Marketing Group and Sun Life Retirement Services (U.S.), Inc. There
was also a reduction of $48 million related to changes in foreign exchange
rates.
Total revenues of $8.3 billion for the six months ended June 30, 2008
decreased by $1.8 billion as compared to the same period in 2007 primarily
from lower net investment income. Net investment income of $386 million for
the six months ended June 30, 2008 dropped by $1.5 billion from the comparable
period a year ago, primarily due to the volatile market conditions and the
tight credit environment that resulted in fair value losses on
held-for-trading assets during the first six months of 2008. There was also a
decline of $472 million in total revenues as a result of changes in foreign
exchange rates.
Assets Under Management (AUM)
AUM were $413.2 billion as at June 30, 2008 compared to $415.3 billion as
at March 31, 2008, and $440.1 billion as at June 30, 2007. The decrease of
$2.1 billion between March 31, 2008 and June 30, 2008 resulted primarily from:(i) negative market movements of $0.8 billion;
(ii) a decrease of $2.2 billion from a stronger Canadian dollar
relative to the prior period currency exchange rates; and
(iii) a decrease of $1.3 billion from the change in value of held-for-
trading assets; partially offset by
(iv) net sales of mutual, managed and segregated funds of $2.2 billion.
AUM decreased $26.9 billion between June 30, 2007 and June 30, 2008. The
reduction in AUM related primarily to:
(i) declining market performance that lowered AUM by $15.7 billion;
and
(ii) a decrease of $14.4 billion from currency fluctuations; partly
offset by
(iii) net sales of mutual, managed and segregated funds of $3.2 billion.Changes in the Balance Sheet and Shareholders' Equity
Total general fund assets were $113.6 billion as at June 30, 2008,
compared to $116.1 billion a year earlier, as the unfavourable impact of
$2.5 billion from currency fluctuations reduced general fund assets.
Total general fund assets decreased by $716 million from the December 31,
2007 level of $114.3 billion. The favourable impact of $1.3 billion from
currency fluctuations was more than offset by the declines in general fund
assets in SLF U.S. and SLF U.K. that included the negative changes in value of
held-for-trading assets.
Actuarial and other policy liabilities of $78.2 billion as at June 30,
2008 decreased by $4.8 billion compared to June 30, 2007, mainly due to the
decrease in actuarial and other policy liabilities related to the
corresponding changes in fair value of held-for-trading assets. The currency
effect resulting from an appreciated Canadian dollar at the end of the second
quarter of 2008 compared to the same period a year ago reduced actuarial and
other policy liabilities by $1.7 billion.
Actuarial and other policy liabilities were lower by $1.6 billion
compared to the December 31, 2007 amount of $79.8 billion. The decrease in
actuarial and other policy liabilities resulting from the corresponding
changes in fair value of held-for-trading assets was partially offset by the
$0.9 billion favourable currency fluctuations.
Shareholders' equity, including Sun Life Financial Inc.'s preferred share
capital, was $17.5 billion as at June 30, 2008 compared to $17.4 billion as at
March 31, 2008 and $17.1 billion as at December 31, 2007. The increase of
$79 million between March 31, 2008 and June 30, 2008 resulted primarily from:(i) shareholders' net income of $536 million, before preferred share
dividends of $17 million; mostly diminished by
(ii) a decrease of $19 million from currency fluctuations;
(iii) unrealized losses on available-for-sale assets in other
comprehensive income of $124 million;
(iv) common share dividend payments of $202 million; and
(v) the cost of common shares repurchased and cancelled, net of stock-
based compensation costs (including stock options exercised) of
$95 million.
Shareholders' equity increased $361 million between December 31, 2007 and
June 30, 2008. The increased shareholders' equity related primarily to:
(i) shareholders' net income of $1,087 million, before preferred share
dividends of $35 million; and
(ii) an increase of $247 million from currency fluctuations; partly
diminished by
(iii) unrealized losses on available-for-sale assets in other
comprehensive income of $368 million;
(iv) common share dividend payments of $405 million; and
(v) the cost of common shares repurchased and cancelled, net of stock-
based compensation costs (including stock options exercised) of
$165 million.
As at July 25, 2008, Sun Life Financial Inc. had 559.6 million common
shares and 61.0 million preferred shares outstanding.
Cash Flows
-------------------------------------------------------------------------
Quarterly Results Year to Date
------------------- ----------------
($millions) Q2/08 Q2/07 2008 2007
------- ------- ------- -------
Cash and cash equivalents, beginning
of period 3,257 5,414 3,603 4,936
Cash flows provided by (used in):
Operating activities 599 (247) 792 (207)
Financing activities 124 (618) 178 (400)
Investing activities (819) (1,050) (1,483) (829)
Changes due to fluctuations in
exchange rates (47) (186) 24 (187)
------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents (143) (2,101) (489) (1,623)
------- ------- ------- -------
Cash and cash equivalents, end of
period 3,114 3,313 3,114 3,313
Short-term securities, end of period 2,268 1,265 2,268 1,265
------- ------- ------- -------
Total cash, cash equivalents and
short-term securities 5,382 4,578 5,382 4,578
------- ------- ------- -------
------- ------- ------- -------
-------------------------------------------------------------------------Net cash, cash equivalents and short-term securities of $5.4 billion as
at the end of the second quarter of 2008 increased by $804 million compared to
the second quarter of 2007. Cash generated by operations was $846 million
higher in the second quarter of 2008 than 2007. The increase was due to
business growth in SLF Canada's Wealth business and a reduced level of
surrenders in SLF U.S.'s Annuity operations. Cash used in investing activities
was lower by $231 million in the second quarter of 2008 than in the same
quarter of 2007 as the $725 million acquisition of the Genworth EBG Business
closed on May 31, 2007, and this year's second quarter net purchases of
invested assets increased from the second quarter of 2007. Cash provided by
financing activities in the second quarter of 2008 was $742 million higher
than in the same period a year ago with the US$600 million redemption of
Partnership Capital Securities during the second quarter of 2007. There was
also the issuance of $350 million in principal amount of subordinated
unsecured debentures in the second quarter of 2008, while $400 million in
principal amount of subordinated unsecured debentures was issued during the
second quarter of 2007.
There was a decrease in cash and cash equivalents of $489 million in the
first six months of 2008 as compared to a $1.6 billion decrease in cash and
cash equivalents in the same period of 2007. Cash generated from operating
activities improved by $999 million, primarily due to a lower level of
surrenders and maturities in SLF U.S. Annuities and a reduction in the level
of transfers by policyholders from general funds to segregated funds. Cash
provided by financing activities in the first six months of 2008 increased by
$578 million from the first six months of 2007 as the US$600 million
Partnership Capital Securities were redeemed during 2007. Financing activities
also reflected the issuance of $750 million in principal amount of
subordinated unsecured debentures in the first half of 2008 as compared to the
$400 million in principal amount of subordinated unsecured debentures,
$250 million in principal amount of senior unsecured debentures and preferred
shares of $250 million issued in the first half of 2007. Cash used in
investing activities was higher by $654 million during the first half of 2008
than during the first half of 2007 primarily due to higher net purchases of
invested assets in the current year.
Quarterly Financial Results
The following table provides a summary of Sun Life Financial's results
for the eight most recently completed quarters.-------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY
Unaudited
-------------------------------------------------------
Quarterly Results
-------------------------------------------------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 Q1/07 Q4/06 Q3/06
----- ----- ----- ----- ----- ----- ----- ------
Common
Shareholders'
Net Income
($millions) 519 533 555 577 590 497 545 541
Operating
Earnings
($millions) 519 533 560 583 593 558 545 541
Basic EPS ($) 0.92 0.95 0.98 1.02 1.03 0.87 0.95 0.94
Fully Diluted
EPS ($) 0.91 0.93 0.97 1.00 1.02 0.86 0.94 0.93
Fully Diluted
Operating
EPS ($) 0.91 0.93 0.98 1.01 1.03 0.96 0.94 0.93
Total Revenue
($millions) 4,411 3,886 5,405 5,699 4,500 5,584 6,137 6,604
Total AUM
($billions) 413 415 425 427 440 451 442 405
-------------------------------------------------------------------------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 strategic risk, 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, 2007. Interest rate and equity market sensitivities are
disclosed in the annual MD&A, but change with movements in market levels,
business portfolio changes, or as management actions are taken.
Investments
As at June 30, 2008, the Company held $58.6 billion of bonds, which
constituted 57% of the Company's overall investment portfolio. Bonds with an
investment grade of "A" or higher represented 68%, and bonds rated "BBB" or
higher represented 97% of the total bond portfolio as at June 30, 2008.
As at June 30, 2008, the Company held $10.5 billion of non-public bonds,
which constituted 18% of the Company's overall bond portfolio. Corporate bonds
that are not issued or guaranteed by sovereign, regional and municipal
governments represented 77% of the total bond portfolio as at June 30, 2008,
compared to 76% as at December 31, 2007.
The Company had total exposure of $856 million to monoline insurers as at
June 30, 2008, of which $74 million, or 8.7%, represented direct exposure to
the monoline insurers and $782 million was indirect exposure. The indirect
exposure represents the total value of bonds for which the monoline insurers
have provided credit insurance. Credit insurance generally provided the
underlying bonds with a credit rating of AAA. Absent the credit insurance,
94.5% of the underlying bonds have an investment grade credit rating (0.6%
AAA, 9.1%AA, 37.9% A and 46.9% BBB) and 5.5% have a rating of BB or lower. At
June 30, 2008, no single insurer represented more than 33.7% of the total
monoline exposure and no underlying issuer represented more than 9.5 % of the
total exposure in connection with monoline insurers.
The Company's bond portfolio as at June 30, 2008 included $6.0 billion of
asset-backed securities reported as bonds, representing approximately 10.2% of
the Company's bond portfolio, or 5.8% of the Company's total invested assets.
This compares to $6.6 billion as at December 31, 2007. The $0.6 billion
decrease in the value of asset-backed securities is primarily the result of
the impact of higher credit spreads on asset values.-------------------------------------------------------------------------
($millions) June 30, 2008 December 31, 2007
-------------------------------------------------------------------------
Fair Investment Fair Investment
---- ---------- ---- ----------
Value Grade % Value Grade %
----- -------- ------ --------
Commercial Mortgage-Backed
Securities 2,292 99.6 2,523 99.6
Residential Mortgage-Backed
Securities:
Agency 1,112 100.0 1,112 100.0
Non-Agency 1,251 99.6 1,486 99.9
Collateralized Debt Obligations 355 96.9 422 97.5
Other(*) 947 99.1 1,075 99.6
-------------------------------------------------------------------------
Total 5,957 99.5 6,618 99.6
-------------------------------------------------------------------------
(*) Other includes subprime, a portion of the Company's exposure to alt-a
and other asset-backed securities
The Company's asset-backed securities are further broken down in the
tables below to reflect ratings and vintages of the assets within this
portfolio.
As at June 30, 2008
-------------------------------------------------------------------------
RMBS - RMBS -
CMBS Agency Non-Agency CDOs Other
Rating
AAA 64.2% 100.0% 34.2% 48.7% 25.4%
AA 9.4% 0.0% 47.6% 30.7% 30.3%
A 10.5% 0.0% 13.5% 16.9% 32.7%
BBB 15.5% 0.0% 4.3% 0.6% 10.7%
BB & Below 0.4% 0.0% 0.4% 3.1% 0.9%
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- -------- --------
Vintage
2005 & Prior 79.5% 62.6% 84.9% 63.5% 72.2%
2006 15.1% 9.7% 12.4% 19.4% 14.8%
2007 5.2% 12.2% 2.7% 17.1% 2.5%
2008 0.2% 15.5% 0.0% 0.0% 10.5%
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- -------- --------
CMBS = Commercial Mortgage Backed Securities; RMBS
= Residential Mortgage Backed Securities; CDOs =
Collateralized Debt Obligations
-------------------------------------------------------------------------
As at December 31, 2007
-------------------------------------------------------------------------
RMBS - RMBS -
CMBS Agency Non-Agency CDOs Other
Rating
AAA 63.2% 100.0% 31.8% 43.8% 35.0%
AA 8.3% 0.0% 48.2% 41.4% 22.5%
A 10.5% 0.0% 14.7% 11.7% 28.4%
BBB 17.6% 0.0% 5.2% 0.6% 13.7%
BB & Below 0.4% 0.0% 0.1% 2.5% 0.4%
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100%
-------- -------- -------- -------- --------
Vintage
2005 & Prior 79.9% 68.6% 84.7% 61.5% 80.4%
2006 15.3% 10.3% 12.6% 21.0% 15.9%
2007 4.8% 21.1% 2.7% 17.5% 3.7%
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- -------- --------
CMBS = Commercial Mortgage Backed Securities; RMBS
= Residential Mortgage Backed Securities; CDOs =
Collateralized Debt Obligations
-------------------------------------------------------------------------As at June 30, 2008, the Company had indirect exposure to residential
sub-prime and Alternative-A (Alt-A) loans of $250 million and $166 million,
respectively, together representing approximately 0.4% of the Company's total
invested assets. Alt-A loans generally are residential loans made to borrowers
with credit profiles that are stronger than sub-prime but weaker than prime.
Ninety-seven percent of these investments either were issued before 2006 or
have an "AAA" rating.
The values of the Company's derivative instruments are summarized in the
following table. The use of derivatives is measured in terms of notional
amounts, which serve as the basis for calculating payments and are generally
not actual amounts that are exchanged.($millions) June 30, 2008 December 31, 2007
-------------------------------------------------------------------------
Net fair value 976 1,309
Total notional amount 46,968 42,642
Credit equivalent amount 2,176 2,351
Risk weighted credit equivalent amount 53 56
-------------------------------------------------------------------------The total notional amount increased to $47.0 billion as at June 30, 2008,
from $42.6 billion as at December 31, 2007, and the net fair value decreased
to $1.0 billion as at June 30, 2008 from the December 31, 2007 amount of
$1.3 billion. The credit equivalent amount, a measure used to approximate the
potential credit exposure, is determined as the replacement cost of the
derivative contracts having a positive fair value plus an amount representing
the potential future credit exposure. The risk-weighted credit equivalent
amount is a measure used to determine the amount of capital necessary to
support derivative transactions for certain Canadian regulatory purposes. It
is determined by weighting the credit equivalent amount according to the
nature of the derivative and the creditworthiness of the counterparties.
Net impaired assets for mortgages and corporate loans, net of allowances,
amounted to $82.7 million as at June 30, 2008, $34 million more than the
December 31, 2007 level for these assets. In addition to allowances reflected
in the carrying value of mortgages and corporate loans, the Company had
$3.0 billion for possible future asset defaults for all financial assets
included in its actuarial liabilities as at June 30, 2008, compared with $2.9
billion as at December 31, 2007.
Outlook
The Company's earnings and the value of its fixed income assets may be
adversely affected in a deteriorating credit environment. Declining stock
market indices may also 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
Information concerning legal and regulatory matters is provided in Sun
Life Financial Inc.'s annual Consolidated Financial Statements, annual MD&A
and AIF for the year ended December 31, 2007, copies of which are available on
the Company's website at www.sunlife.com and at www.sedar.com and www.sec.gov.
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 June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Transition to International Financial Reporting Standards (IFRS)
The Canadian Accounting Standards Board (AcSB) has confirmed January 1,
2011 as the date IFRS will replace current Canadian standards and
interpretations as Canadian generally accepted accounting principles (Canadian
GAAP) for publicly accountable enterprises.
In order to prepare for the conversion to IFRS, the Company has developed
an IFRS changeover plan. This plan addresses key elements of the Company's
conversion to IFRS including:
- accounting policy changes;
- information technology and data systems impacts;
- education and training requirements;
- internal control over financial reporting;
- financial reporting requirements; and
- impacts on business activities.
The plan highlights the need to identify key accounting policy changes as
the first step in the conversion process. Once these changes have been
identified, other elements of the plan will be addressed. In order to
facilitate this identification process, the plan provides for education and
training to be provided to selected employees involved in the transition.
Certain elements of the plan have already commenced, including education
and training sessions for employees throughout the organization, and this will
continue throughout the implementation period. The identification of changes
in accounting policies and contract classification for insurance contracts is
currently underway.
As implications of the conversion are identified, information technology
and data systems impacts will be assessed. Similarly, impacts on business
activities will be assessed as differences are identified between the
Company's current accounting policies and IFRS.
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 financial
measures based on operating earnings, including operating EPS and operating
ROE, that exclude certain items that are not operational or ongoing in nature.
Management also uses financial performance measures that are prepared on a
constant currency basis, which exclude the impact of currency fluctuations.
Management measures the performance of the Company's 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. The Company also reviews
adjusted revenue which excludes the impact of currency, and fair value changes
in held-for-trading assets and derivative instruments from total revenue.
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. Value of new business is used to measure overall profitability. Value of
new business is based on actuarial amounts for which there are no 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 and interim 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
($ millions)
-------------------------------------------------------
Quarterly Results
-------------------------------------------------------
Q2/08 Q1/08 Q4/07 Q3/07 Q2/07 Q1/07 Q4/06 Q3/06
----- ----- ----- ----- ----- ----- ----- -----
Reported
Earnings (GAAP) 519 533 555 577 590 497 545 541
After-tax gain
(loss) on
special items
Clarica brand
write-off - - - - - (43) - -
Re-branding
expenses in
Canada - - (3) (5) (2) - - -
EBG integration
costs - - (2) (1) (1) - - -
Premium to redeem
Partnership
Capital
Securities - - - - - (18) - -
-------------------------------------------------------
Total special
items - - (5) (6) (3) (61) - -
-------------------------------------------------------
Operating
Earnings 519 533 560 583 593 558 545 541
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------------------------Forward-Looking Statements
Certain statements 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 and interim MD&A, and 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; investment losses and defaults; movements
in credit spreads; the cost, effectiveness and availability of risk mitigating
hedging programs; the creditworthiness of guarantors and counterparties to
derivatives; risks related to market liquidity; 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; insurance risks including
mortality, morbidity, longevity and policyholder behaviour including 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; currency exchange rate fluctuations; the impact of
competition; risks relating to financial modelling errors; business continuity
risks; failure of information 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;
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, Vice-President, Investor Relations, Tel: (416) 204-8163, investor.relations@sunlife.com