Sun Life Financial reports record fully diluted operating earnings per share of $0.96, up 14.3% over Q1 2006
May 1, 2007
Operating ROE of 13.5% up 30 basis points
TORONTO, May 1 /CNW/ - Sun Life Financial Inc. (TSX/NYSE: SLF) today
announced record fully diluted operating earnings per share (EPS) of $0.96 for
the quarter ended March 31, 2007, up 14.3% over fully diluted operating EPS of
$0.84 in the first quarter of 2006. Operating return on equity (ROE) was 13.5%
for the quarter, up from 13.2% in the first quarter of 2006.
"Our diversified earnings platform once again delivered strong earnings
growth this quarter as we continued to invest in global distribution and
growth opportunities," said Donald A. Stewart, Chief Executive Officer.
"Looking ahead, our strong risk management capabilities will enable us to more
effectively manage through changing economic conditions," he said.
Richard P. McKenney, in his first quarter as Executive Vice-President and
Chief Financial Officer, noted, "We remain focused on our financial
commitments to shareholders. We continue to deliver EPS growth and operating
ROE improvement while executing on key strategic initiatives and strengthening
our capital position."
Operating earnings exclude 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 US$600 million of
8.526% Cumulative Capital Securities. Including these charges, fully diluted
EPS and ROE for the quarter were $0.86 and 12.0%, respectively.
Business Highlights
During the first 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.- On March 26, 2007, Sun Life Financial announced that it is
integrating its brand strategy in Canada to more effectively leverage
the Sun Life brand. As part of the integrated strategy, the Company
will be retiring the Clarica name.
- Sun Life Financial received a strong Enterprise Risk Management (ERM)
rating from Standard & Poor's following an extensive review of its
risk management practices. In an Insurance Credit Report published on
March 28, 2007, Standard & Poor's reported that ERM at Sun Life is a
well-established and highly embedded discipline that touches on all
decisions.
- On January 11, 2007, Sun Life Financial announced the acquisition of
the U.S. group benefits business of Genworth Financial, Inc. for
US$650 million. The acquisition, which is expected to close in the
second quarter of 2007, adds significant scale and scope to Sun
Life's U.S. group business and is expected to be immediately
accretive to operating EPS and ROE.
- Individual life insurance sales in Canada increased by 24%(1) in the
first quarter of 2007 over the same period last year on growth in
both Sun Life's career sales force and wholesale channel sales.
- Sun Life Financial Canada's Individual Insurance & Investments
business unit, in partnership with CI Investments, launched its
SunWise Elite Plus Guaranteed Minimum Withdrawal Benefit (GMWB)
rider. The new rider builds on the well-established SunWise Elite
segregated funds and is directed at Canadians who are focused on the
income phase of retirement planning.
- Group Benefits in Canada continues to achieve success in the small to
medium-sized case market, attaining the second largest market share
of new sales in this segment for 2006(2).
- Sun Life Financial Canada's Group Retirement Services' gross sales of
$746 million increased over 50% from the first quarter of 2006 and
included the installation of new plans with Prairie Mines and Kraft
Canada. Group Retirement Services also retained $165 million of
assets from members leaving plans this quarter, an increase of 35%
over the first quarter of 2006.
- Sun Life Financial U.S. continued to execute on its variable annuity
strategy with gross U.S. variable annuity sales in the first quarter
of 2007 increasing 39% over the first quarter of 2006, to
US$523 million.
- Responding to the needs of U.S. Baby Boomers for more flexible
annuity income, Sun Life Financial U.S.'s Annuities division launched
Income ON Demand(SM), the industry's first-ever Income Storage
Benefit. This innovative, next generation living benefit combines the
availability of annual withdrawals with the flexibility to store
income for future use. Introduced late in the first quarter, the new
benefit has been well received by distributors.
- MFS assets under management exceeded US$200 billion for the first
time on April 13, 2007. MFS achieved net positive flows again during
the first quarter of 2007.
- MFS's pre-tax operating profit margin ratio increased to 34% in the
first quarter of 2007 from 26% in the first quarter of 2006.
- MFS continued to achieve superior performance with 74%, 82% and 75%
of its funds ranked in the top half of their Lipper Category Average
over 1, 3 and 5 years, respectively, as of March 31, 2007.
- Birla Sun Life Insurance Company's direct sales force in India grew
to over 45,000 advisors in 116 branches serving 95 cities. Agency
sales increased 65% during the first quarter of 2007 compared to the
first quarter of 2006.
- Sun Life Everbright Life Insurance Company celebrates its 5th year of
operating in China this year. Sales in the first quarter of 2007 grew
by 90% over the first quarter of 2006. Sun Life Everbright opened a
sales office in Yiwu this quarter and now operates in twelve cities
in the People's Republic of China.
Financial Highlights
- Operating ROE increased 30 basis points to 13.5% from operating ROE
of 13.2% in the first quarter of 2006. Operating ROE was reduced by
45 basis points this quarter as a result of $564 million of opening
equity adjustments required by changes to Canadian investment
accounting rules that came into effect on January 1, 2007. ROE of
12.0% decreased 110 basis points from 13.1% in the first quarter of
2006.
- Fully diluted operating EPS of $0.96 for the quarter increased 14.3%
compared to fully diluted operating EPS of $0.84 in the first quarter
of 2006. Including the $61 million of charges noted above, fully
diluted EPS of $0.86 increased 2.4% over fully diluted EPS of $0.84
in the first quarter of 2006.
- Sun Life Financial declared $183 million in common shareholder
dividends during the quarter, representing a payout ratio of 33%.
- Sun Life Financial repurchased approximately 2.4 million common
shares for $124 million during the first quarter of 2007.
- Sun Life Financial completed a $250 million domestic public offering
of Series B Senior Unsecured 4.95% Fixed/Floating Debentures due in
2036 in February 2007.
- As part of its ongoing capital management program, Sun Life Financial
announced on March 26, 2007 that the US$600 million principal amount
of 8.526% Cumulative Capital Securities issued by Sun Life of Canada
(U.S.) Capital Trust I have been called for redemption on May 6,
2007.
- Demonstrating its continued commitment to delivering profitable
growth, Sun Life Financial's Embedded Value per share grew by 18% and
Value of New Business grew by 10% (in constant currency) for the full
year in 2006 compared to 2005.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, including
operating earnings, operating EPS, operating ROE, ROE for business groups,
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 first quarter 2007 financial results will be reviewed at a
conference call today at 11:00 a.m. ET. To listen to the call via live audio
webcast and to view the presentation slides, please visit our website and
double click the Q1 Results link from the homepage 10 minutes prior to the
start of the presentation. A link to our webcast page, where you can access
the webcast, will be provided along with links to related information. The
webcast and presentation will be archived on our website following the event.
Sun Life Financial
Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth accumulation
products and services to individuals and corporate customers. Chartered in
1865, Sun Life Financial and its partners today have operations in key markets
worldwide, including Canada, the United States, the United Kingdom, Ireland,
Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of
March 31, 2007, the Sun Life Financial group of companies had total assets
under management of $446 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.
Note to Editors: All figures shown in Canadian dollars unless otherwise
noted.
---------------------------
(1) All figures shown in the Business Highlights are in local currency.
(2) Source: LIMRA.
Management's Discussion & Analysis
for the period ended March 31, 2007
Dated May 1, 2007
Earnings and Profitability-------------------------------------------------------------------------
FINANCIAL SUMMARY
Unaudited
---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Revenues ($mm) 5,584 6,137 6,604 6,231 5,315
Common Shareholders'
Net Income ($mm) 497 545 541 512 491
Operating Earnings(1)($mm) 558 545 541 512 493
Basic Earnings per Common Share
(EPS)($) 0.87 0.95 0.94 0.88 0.84
Basic Operating EPS(1) ($) 0.98 0.95 0.94 0.88 0.85
Fully Diluted EPS ($) 0.86 0.94 0.93 0.88 0.84
Fully Diluted Operating EPS(1) ($) 0.96 0.94 0.93 0.88 0.84
Return on Common Equity (ROE) (%) 12.0 14.0 14.4 13.6 13.1
Operating ROE(1) (%) 13.5 14.0 14.4 13.6 13.2
Average Common Shares
Outstanding (mm) 572.0 572.6 574.2 578.8 581.8
Closing Common Shares
Outstanding (mm) 571.4 571.8 573.0 575.3 580.9
S&P 500 Index (daily average) 1,425 1,389 1,287 1,282 1,283
S&P 500 Index (close) 1,421 1,418 1,336 1,270 1,295
-------------------------------------------------------------------------Sun Life Financial Inc.(2) reported common shareholders' net income of
$497 million for the quarter ended March 31, 2007, up $6 million from
$491 million in the first quarter of 2006. The increase in common
shareholders' net income was primarily due to earnings growth from MFS, Sun
Life Financial Canada's Group Benefits and Group Wealth divisions, the Hong
Kong operations of Sun Life Financial Asia, and Sun Life Financial U.K. These
gains were partially offset by lower Corporate Support earnings, mostly due to
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 US$600 million of 8.526% Cumulative Capital
Securities, and lower earnings from Sun Life Financial U.S.
ROE was reduced by 40 basis points and operating ROE was reduced by 45
basis points this quarter as a result of a $205 million increase in opening
retained earnings and a $359 million increase in opening accumulated Other
Comprehensive Income required by changes to Canadian investment accounting
rules that came into effect on January 1, 2007. ROE for the first quarter of
2007 was 12.0% compared with 13.1% for the first quarter of 2006. The 110
basis point decrease was primarily the result of the $61 million in charges
and the January 1, 2007 opening equity adjustments noted above, partially
offset by improved earnings in a number of the Company's businesses and the
repurchase of common shares. Fully diluted EPS were $0.86, 2.4% higher than
the $0.84 reported in the prior year.
Fully diluted operating EPS, which do not include the $61 million in
charges, were $0.96 for the quarter, up 14.3% over fully diluted operating EPS
of $0.84 in the first quarter of 2006. Operating ROE of 13.5% for the quarter,
which excludes the charges but includes the additional $564 million increase
in equity resulting from the changes to Canadian investment accounting rules,
was up from operating ROE of 13.2% in the first quarter of 2006.---------------------------
(1) Operating Earnings, Basic Operating EPS, Fully Diluted Operating EPS
and Operating ROE exclude 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 US$600 million of 8.526% Cumulative Capital
Securities issued by Sun Life of Canada (U.S.) Capital Trust, taken
in the first quarter of 2007, and a $2 million after-tax charge for
the integration of CMG Asia Limited and CommServe Financial Limited
taken in the first quarter of 2006. See "Use of Non-GAAP Financial
Measures".
(2) Or together with its subsidiaries and joint ventures "the Company" or
"Sun Life Financial"Performance by Business Group
The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia), and Corporate. Additional details concerning the segments and the
purpose and use of the segmented information are outlined in Note 6 to Sun
Life Financial Inc.'s first quarter 2007 Interim Consolidated Financial
Statements, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Where appropriate, information on a business
segment has been presented both in Canadian dollars and the segment's local
currency to facilitate the analysis of underlying business trends. ROE for the
business segments is a "Non-GAAP" financial measure as outlined under "Use of
Non-GAAP Financial Measures".SLF Canada
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---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Revenues ($mm) 2,374 2,520 2,335 2,223 2,255
Common Shareholders'
Net Income ($mm)
Individual Insurance
& Investments 146 156 123 156 150
Group Benefits 51 60 85 65 37
Group Wealth(1) 53 41 32 43 47
------- ------- ------- ------- -------
Total 250 257 240 264 234
ROE (%) 14.3 14.3 13.3 15.0 13.7
(1) Group Wealth comprises Group Retirement Services and Institutional
Investments.
-------------------------------------------------------------------------SLF Canada's earnings increased by $16 million, or 7%, compared to the
first quarter of 2006. SLF Canada results reflected increased earnings in
Group Benefits and Group Wealth, offset by a slight decline in Individual
Insurance & Investments earnings.- Individual Insurance & Investments earnings for the first quarter of
2007 decreased by 3% compared to the first quarter of 2006 as higher
estimated earnings from CI Financial were more than offset by lower
Individual Wealth results due to the non-recurrence of unusually
favourable investment results in the first quarter of 2006.
- Group Benefits earnings for the first quarter of 2007 increased by
38% over the first quarter of 2006 due to changes to actuarial
reserves to better reflect asset liability matching. First quarter
typically includes less favourable morbidity and mortality
experience.
- Group Wealth earnings for the first quarter of 2007 increased by 13%
over the first quarter of 2006 including the positive impact of a
reinsurance transaction on actuarial reserves, as well as continued
growth in assets under management.
SLF U.S.
-------------------------------------------------------------------------
---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Revenues (US$mm) 1,876 2,102 2,804 2,608 1,734
Revenues (C$mm) 2,197 2,392 3,143 2,929 2,001
Common Shareholders'
Net Income (US$mm)
Annuities 80 61 88 64 85
Individual Life 5 9 22 (4) 23
Group Life & Health (1) 16 11 20 -
------- ------- ------- ------- -------
Total (US$mm) 84 86 121 80 108
Total (C$mm) 98 97 136 90 125
ROE (%) 9.4 9.7 13.9 9.4 12.9
-------------------------------------------------------------------------Earnings for SLF U.S. decreased C$27 million or 22% compared to the first
quarter of 2006. In U.S. dollars, earnings were US$84 million, US$24 million
or 22% lower than in the first quarter of 2006. Earnings decreased this
quarter as a result of continuing increased new business strain in Individual
Life and the non-recurrence of variable annuity Guaranteed Minimum Death
Benefit (GMDB) reserve releases recognized in the first quarter of 2006. These
decreases were partially offset by the impact of favourable credit experience
on interest rate spreads and increased fee income in Annuities and the
favourable impact of increased earnings from lower tax jurisdictions in
Individual Life.- Annuities earnings decreased by US$5 million compared to the first
quarter of 2006 as the impact of favourable credit experience on
interest rate spreads and increased fee income were more than offset
by the non-recurrence of GMDB reserve releases recognized in the
first quarter of 2006.
- Individual Life earnings decreased by US$18 million compared to the
first quarter of 2006 due to increased new business strain of
US$38 million, partially offset by the favourable impact of increased
earnings from lower tax jurisdictions.
- Group Life & Health earnings were essentially flat compared to the
first quarter of 2006. First quarter typically includes less
favourable claims experience.
MFS
-------------------------------------------------------------------------
---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Revenues (US$mm) 382 390 352 362 360
Revenues (C$mm) 447 444 395 407 416
Common Shareholders'
Net Income (US$mm) 61 62 52 47 45
Common Shareholders'
Net Income (C$mm) 72 71 58 53 52
Pre-tax Operating Profit
Margin Ratio 34% 34% 30% 27% 26%
Average Net Assets (US$B) 189 182 170 168 167
Assets Under Management (US$B) 192 187 175 168 170
Net Sales/(Redemptions) (US$B) 0.2 1.0 (0.1) (0.4) (0.3)
Market Movement (US$B) 4.4 11.0 6.9 (1.0) 7.5
S&P 500 Index (daily average) 1,425 1,389 1,287 1,282 1,283
-------------------------------------------------------------------------Earnings for MFS increased C$20 million, or 38%, compared to the first
quarter of 2006. In U.S. dollars, first quarter earnings were US$61 million,
US$16 million, or 36%, higher than in the first quarter of 2006 primarily due
to asset growth. Average net assets of US$189 billion increased 13% compared
to the first quarter of 2006. Total revenues of US$382 million grew by 6%
compared to the first quarter of 2006. Advisory revenues for the first quarter
increased 14% to US$233 million consistent with asset growth.
Total assets under management at March 31, 2007 were US$192 billion, an
increase of US$5 billion compared to December 31, 2006, driven by market
appreciation of US$4.4 billion and net managed fund sales of US$0.8 billion
partially offset by net retail mutual fund redemptions of US$0.6 billion
during the period.SLF Asia
-------------------------------------------------------------------------
---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Revenues ($mm) 215 297 240 259 226
Common Shareholders'
Net Income ($mm) 38 33 13 31 24
ROE (%) 13.5 12.6 5.2 12.6 10.2
-------------------------------------------------------------------------SLF Asia's first quarter 2007 revenues decreased 5% compared to the first
quarter of 2006 primarily due to increased sales of wealth accumulation
products that are not recorded as revenues under Canadian accounting rules,
and the effect on investment income of the changes to Canadian investment
accounting rules that came into effect on January 1, 2007.
First quarter 2007 earnings of $38 million increased by $14 million, or
58%, over the first quarter of 2006 primarily due to improved asset liability
matching in Hong Kong, partially offset by lower income in the Philippines.
SLF Asia sales momentum continued in the first quarter of 2007, with
sales up 27% in Canadian currency over the same period last year. In local
currency, the Philippines had a strong first quarter of sales, with individual
life and pre-need sales up 38% over last year, while sales in Indonesia were
up a strong 28%. In India, the direct sales force grew to over 45,000 advisors
in 116 branches serving 95 cities, contributing to a 65% growth in agency
sales during the first quarter of this year. In China, sales grew by 90% over
the first quarter of 2006. Sun Life Everbright Life Insurance Company opened a
sales office in Yiwu in the Zhejiang province during the first quarter of
2007. Hong Kong sales were also up during the period.
Corporate
Corporate includes the results of Sun Life Financial U.K. (SLF U.K.), Sun
Life Financial Reinsurance (SLF Reinsurance) and Corporate Support, which
includes run-off reinsurance as well as investment income, expenses, capital
and other items not allocated to Sun Life Financial's other business groups.-------------------------------------------------------------------------
---------------------------------------
Quarterly Results
---------------------------------------
Q1/07 Q4/06 Q3/06 Q2/06 Q1/06
------- ------- ------- ------- -------
Common Shareholders'
Net Income/(Loss) ($mm)
SLF U.K. 100 28 57 48 38
SLF Reinsurance 18 35 25 24 9
Corporate Support (79) 24 12 2 9
------- ------- ------- ------- -------
Total 39 87 94 74 56
-------------------------------------------------------------------------First quarter 2007 earnings decreased by $17 million compared to the
first quarter of 2006 primarily due to lower Corporate Support earnings
resulting from 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 US$600 million of 8.526%
Cumulative Capital Securities, and an increase in tax provisions for
withholding taxes on unremitted earnings. The lower results in Corporate
Support were partially offset by higher earnings in SLF U.K. due to the
reimbursement of certain mortgage endowment costs and favourable updates to
annuity reserves and deferred tax liabilities.
Additional Financial Disclosure
Revenue
Under Canadian GAAP, premium revenue includes annuity premiums, which are
excluded as revenue under U.S. GAAP and also for similar products sold by
other financial institutions.
Revenues of $5.6 billion in the first quarter of 2007 increased by
$269 million over the same period in 2006. Higher premiums of $320 million,
mainly from annuities, and $77 million in higher fee income were partly offset
by $128 million in lower investment income.
Premium revenue rose to $3.3 billion in the first quarter of 2007,
improving by $320 million over the same quarter last year.
Annuity premiums were higher by $208 million than during the same period
in the prior year. SLF Canada's annuity premiums increased by $86 million on
higher sales in Group Wealth and Individual Wealth. SLF U.S. produced
$90 million of additional annuity premiums primarily from sales of fixed
annuities. SLF U.K. annuity premiums increased by $32 million due to higher
vestings over the comparable period a year ago.
Health premiums increased by $64 million over the first quarter of 2006
as business growth from SLF Canada Group Benefits and SLF U.S. Group Health
contributed $34 million and $32 million, respectively.
First quarter 2007 net investment income declined by $128 million or 8%
from the first quarter of 2006 due to changes to Canadian investment
accounting rules that became effective on January 1, 2007. These declines were
partially moderated by the favourable impact of fluctuations in equity markets
and interest rate levels.
Fee income of $830 million in the first quarter of 2007 was up
$77 million from the same period in the previous year due to asset management
fees earned on higher average net asset levels.Assets Under Management
AUM were $445.8 billion at March 31, 2007 compared to $436.5 billion as at
December 31, 2006, and $402.4 billion at March 31, 2006. The increase of $9.3
billion between December 31, 2006 and March 31, 2007 resulted primarily from:
(i) positive market movements of $7.0 billion;
(ii) an increase of $4.2 billion in general fund assets on January 1,
2007 related to the changes to Canadian investment accounting
rules; and
(iii) net sales of mutual, managed and segregated funds of $0.5 billion;
partially offset by
(iv) a decrease of $3.2 billion from the stronger Canadian dollar
relative to the prior period currency exchange rates.
AUM increased $43.4 billion between March 31, 2006 and March 31, 2007. The
increase related primarily to:
(i) an increase of $4.2 billion in general fund assets on January 1,
2007 related to the changes to Canadian investment accounting
rules;
(ii) $33.6 billion arising from robust market performance; and
(iii) $1.7 billion of net sales of mutual, managed and segregated funds;
partly reduced by
(iv) a $1.1 billion decrease from currency fluctuations.Changes in the Balance Sheet and Shareholders' Equity
Total general fund assets were $122.3 billion as at March 31, 2007,
compared to $112.4 billion a year earlier. A $4.2 billion increase in general
fund assets on January 1, 2007 related to the changes to Canadian investment
accounting rules. Continued business growth, primarily in SLF Canada and SLF
U.S. and $632 million from the favourable impact of currency fluctuations also
boosted general fund assets in the first quarter of 2007.
Total general fund assets increased by $4.5 billion from the December 31,
2006 level of $117.8 billion. A $4.2 billion increase in general fund assets
on January 1, 2007 related to the changes to Canadian investment accounting
rules. Continued business growth in the general fund assets were partly
diminished by the unfavourable currency impact of $618 million from a stronger
Canadian dollar at the end of the first quarter of 2007.
Actuarial and other policy liabilities of $87.7 billion at March 31, 2007
rose by $10.3 billion compared to March 31, 2006 due to business growth,
largely in SLF Canada and SLF U.S., and $7.3 billion from the impact of
changes to Canadian investment accounting rules. The favourable impact of
currency fluctuations also added $586 million.
Actuarial and other policy liabilities of $87.7 billion at March 31, 2007
were up by $6.6 billion compared to December 31, 2006 as the impact of changes
to Canadian investment accounting rules were partially offset by the
unfavourable currency effect resulting from the strengthened Canadian dollar
at the end of the first quarter of 2007.
Shareholders' equity, including Sun Life Financial Inc.'s preferred share
capital, was $18.0 billion at March 31, 2007, $907 million higher than at
December 31, 2006. Shareholders' net income, before preferred share dividends
of $16 million, generated $513 million and the issuance of Class A Preferred
Shares, Series 5 added $244 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 $535 million,
including a decrease of $29 million in Other Comprehensive Income in the
quarter. Dividend payments on common shares of $183 million and $72 million
for the cost of common shares repurchased and cancelled, net of stock-based
compensation costs (including stock options exercised) somewhat diminished
these increases. Currency fluctuations further reduced shareholders' equity by
$114 million.
As at March 31, 2007, Sun Life Financial Inc. had 571,355,895 common
shares and 61,000,000 preferred shares outstanding.Cash Flows
-------------------------------------------------------------------------
---------------
Quarterly
Results
---------------
($mm) Q1/07 Q1/06
------- -------
Cash and cash equivalents, beginning of period 4,881 2,740
Cash flows provided by (used in):
Operating activities 44 158
Financing activities 218 699
Investing activities 249 306
Changes due to fluctuations in exchange rates 22 (1)
------- -------
Increase in cash and cash equivalents 533 1,162
------- -------
Cash and cash equivalents, end of period 5,414 3,902
Short-term securities, end of period 1,556 1,275
------- -------
Total cash, cash equivalents and short-term securities 6,970 5,177
------- -------
-------------------------------------------------------------------------Net cash, cash equivalents and short-term securities at the end of the
first quarter of 2007 increased by $1.8 billion from the first quarter of 2006
mainly as a result of the timing of investment transactions. The increase in
cash and cash equivalents was $629 million lower in the first quarter of 2007
as compared to the same period in the prior year due mainly to financing
activities that generated $481 million less in cash flows during the first
quarter of 2007 than in the comparable quarter of 2006. Financing activities
reflected the issuance of $250 million fixed/floating debentures during the
first quarter of 2007 as compared to the $700 million fixed/floating
debentures issued in March 2006. Preferred shares of $250 million were issued
during the first quarter of both 2007 and 2006.
Risk Management
Sun Life Financial has developed a 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 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 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.
Sun Life Financial received a strong Enterprise Risk Management (ERM)
rating from Standard & Poor's following an extensive review of its risk
management practices. In an Insurance Credit Report published on March 28,
2007, Standard & Poor's reported that ERM at Sun Life is a well-established
and highly embedded discipline that touches on all decisions.
Outlook
During the past quarter, major North American stock market indices were
somewhat volatile, ending the quarter slightly higher than the end of 2006.
U.S. interest rates steepened during the quarter led by rallies in two- and
five-year Treasuries. In Canada, longer term interest rates increased slightly
compared to the fourth quarter of 2006. The Canadian dollar strengthened
compared to the U.S. dollar during the quarter.
The Company generally benefits from steady or slowly increasing interest
rates from recent levels, particularly in the U.S. 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 benefit from a reduction in
the value of the Canadian dollar versus foreign currencies, most notably the
U.S. dollar.
Regulatory and Legal Matters
Sun Life Financial Inc. and certain of its U.S. subsidiaries are
cooperating with insurance and securities regulators and other government and
self-regulatory agencies in the United States in their ongoing investigations
and examinations with respect to various issues. Certain of these
investigations and examinations may lead to settled administrative actions or
enforcement proceedings and civil actions. As previously disclosed, Sun Life
Financial Inc. and MFS have been named as defendants in multiple lawsuits in
U.S. courts relating to the matters that led to the settlements between MFS
and U.S. regulators in 2004; and MFS continues to defend these actions. In
addition, Sun Life Financial Inc. and its subsidiaries are involved in other
legal actions, both as a defendant and as a plaintiff. While it is not
possible to predict the resolution of these various legal and regulatory
proceedings, management believes, based on the information currently available
to it, that the ultimate resolution of these matters will not be material to
Sun Life Financial's consolidated financial position or results of operations.
Additional information concerning these and related matters is provided
in Sun Life Financial Inc.'s annual Consolidated Financial Statements and AIF
for the year ended December 31, 2006, copies of which are available on the
Company's website at www.sunlife.com and at www.sedar.com and www.sec.gov.
Use of Non-GAAP Financial Measures
Management evaluates the Company's performance on the basis of financial
measures prepared in accordance with GAAP, including earnings, Diluted EPS and
ROE. Management also measures the Company's performance based on certain
non-GAAP measures, including operating earnings, and other financial measures
based on operating earnings, including fully diluted operating EPS and
operating ROE, that exclude certain significant items that are not operational
or ongoing in nature. Management also uses financial performance measures that
are prepared on a constant currency basis, which excludes the impact of
currency fluctuations. Management measures the performance of its business
segments using ROE that is based on an allocation of common equity or risk
capital to the business segments, using assumptions, judgments and
methodologies that are regularly reviewed and revised by management.
Management also monitors MFS's pre-tax operating profit margin ratio, which
excludes certain fee income, as a means of measuring the underlying
profitability of MFS. Embedded Value and Value of New Business are used to
measure overall profitability. Embedded Value and Value of New Business are
based on actuarial amounts for which there are not comparable amounts under
GAAP. Management believes that these non-GAAP financial measures provide
information useful to investors in understanding the Company's performance and
facilitate the comparison of the quarterly and full-year results of the
Company's ongoing operations. These non-GAAP financial measures do not have
any standardized meaning and may not be comparable with similar measures used
by other companies. They should not be viewed as an alternative to measures of
financial performance determined in accordance with GAAP. Additional
information concerning these non-GAAP financial measures and reconciliations
to GAAP measures are included in Sun Life Financial Inc.'s annual MD&A and the
Supplementary Financial Information packages that are available in the
Investor Relations-Financial Publications section of Sun Life Financial's
website, www.sunlife.com.
Operating earnings, fully diluted operating EPS and operating ROE exclude
a $43 million and a $18 million after-tax charge to earnings related to the
intangible asset write-down for the retirement of the Clarica brand and the
premium paid to redeem the outstanding US$600 million principal amount of
8.526% Cumulative Capital Securities issued by Sun Life of Canada (U.S.)
Capital Trust, respectively, taken in the first quarter of 2007, and a
$2 million after-tax charge for the integration of CMG Asia Limited and
CommServe Financial Limited taken in the first quarter of 2006.
Forward-Looking Statements
Certain statements contained in this document, including those relating
to the Company's strategies and other statements that are predictive in
nature, that depend upon or refer to future events or conditions, or that
include words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates" or similar expressions, are forward-looking statements
within the meaning of securities laws. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company. These statements represent the Company's expectations, estimates and
projections regarding future events and are not historical facts.
Forward-looking statements are not guarantees of future performance and
involve certain risks and uncertainties that are difficult to predict. Future
results and stockholder value may differ materially from those expressed in
these forward-looking statements due to, among other factors, the matters set
out under "Risk Factors" in the Company's AIF and the factors detailed in its
other filings with Canadian and U.S. securities regulators, including its
annual MD&A, and annual and interim financial statements which are available
for review at www.sedar.com and www.sec.gov.
Factors that could cause actual results to differ materially from
expectations include, but are not limited to, the performance of equity
markets; interest rate fluctuations; changes in legislation and regulations
including tax laws; regulatory investigations and proceedings and private
legal proceedings and class actions relating to practices in the mutual fund,
insurance, annuity and financial product distribution industries; risks
relating to product design and pricing; investment losses and defaults; the
occurrence of natural or man-made disasters, pandemic diseases and acts of
terrorism; risks relating to operations in Asia, including risks relating to
joint ventures; failure of computer systems and internet enabled technology;
breaches of computer security and privacy; the availability, cost and
effectiveness of reinsurance; the inability to maintain strong distribution
channels and risks relating to market conduct by intermediaries and agents;
dependence on third party relationships including outsourcing arrangements;
currency exchange rate fluctuations; the impact of competition; downgrades in
financial strength or credit ratings; the ability to successfully complete and
integrate acquisitions; the ability to attract and retain employees; and the
performance of the Company's investments and investment portfolios managed for
clients such as segregated and mutual funds. The Company does not undertake
any obligation to update or revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events, except as required by law.
For further information:
For further information: Media Relations Contact: Susan Jantzi, Senior Manager, External Communications & Corporate Affairs, Tel: (519) 888-3160, susan.jantzi@sunlife.com; Investor Relations Contact: Kevin Strain, Vice-President, Investor Relations, Tel: (416) 204-8163, investor.relations@sunlife.com