Sun Life Financial reports first quarter 2008 results; Net income per share increases 8%; Operating earnings per share of $0.93
May 6, 2008
Operating return on equity of 13.4%
Note to Editors: All figures shown in Canadian dollars unless otherwise
noted.
TORONTO, May 6 /CNW/ - Sun Life Financial Inc. (TSX/NYSE: SLF) today
announced operating earnings(1) of $533 million for the first quarter of 2008.
Fully diluted operating earnings per share (EPS)(2) of $0.93 decreased 3% from
the first quarter of 2007. Operating return on equity (ROE) was 13.4% for the
quarter. Reported EPS for the first quarter of 2008 were $0.93, an increase of
8% over reported EPS of $0.86 in the first quarter of 2007, which included
$61 million of non-recurring brand and debt redemption costs.
"Difficult capital markets, global credit pressures and currency
headwinds persisted during the quarter and moderated the Company's financial
results," said Donald A. Stewart, Chief Executive Officer. "Sun Life has
consistently reported strong returns, and an important measure of our success
is our continuing ability to manage through difficult times. All of our
stakeholders can be confident that we are responding to the turbulent economic
forces confronting us."
"Our earnings this quarter are a reflection of the current environment,"
said Richard P. McKenney, Chief Financial Officer. "We remain confident in our
capital flexibility and ability to deliver shareholder value."
Earnings year over year were impacted by the strong performance of the
Canadian dollar relative to foreign currencies since the first quarter of
2007, which reduced operating EPS by $43 million or $0.08 per share. Excluding
the impact of currency operating EPS would have grown by 5% to $1.01.Business Highlights
During the first 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 Guaranteed Minimum Withdrawal Benefit (GMWB) rider,
increased by 29%(3) to $587 million in the first quarter of 2008 over
the same period last year. Building on this momentum, Sun Life
Financial further enhanced its GMWB product during the quarter by
introducing a lifetime withdrawal option on the SunWise Elite Plus
segregated funds rider.
- Individual Insurance and Investments solidified its leadership
position in health insurance finishing the year with the No. 1
positions in Long-Term Care Insurance and Critical Illness Insurance.
- Group Benefits achieved the highest year-over-year increase in
in-force business in the industry in 2007 according to the recently
released Benefits Canada Group Insurance Report, and is now solidly
positioned as the No. 2 group insurance provider in Canada.
- Group Benefits has been selected by the Ontario Medical Association
(OMA) as the insurer for its optional health plan for physicians. The
plan will be available to more than 20,000 physicians currently
practicing in Ontario.
- Group Retirement Services continued to build on its success in the
Defined Contribution (DC) industry in 2007 capturing 37% of the
industry's new sales and 39% of total DC market activity, which
includes new sales and retention activity, as recently reported by
LIMRA.
- Group Retirement Services retained $181 million of assets from members
leaving plans during the first quarter of 2008. This represents an
increase of 10% over the same period last year and a retention ratio
of 40% for the first three months of 2008.
--------------------------------------------
(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.
(3) All figures shown in the Business Highlights are in local currency.
Sun Life Financial U.S. (SLF U.S.)
- On May 5, 2008, the Annuities Division launched a new living benefit
rider for its Sun Life Financial Masters® Variable Annuity series,
the Retirement Income Escalator(SM), which offers clients secure
income for life with the option to maximize income by postponing
withdrawal to a later age.
- SLF U.S.'s Bermuda operations launched its next-generation
international unit-linked investment product, Sun Secured Advantage,
offering high net worth clients in Latin America, Asia and the Middle
East an innovative and flexible solution to help build, preserve and
transfer their wealth with access to a wide range of investment
options from around the world and competitive living benefit options.
- The Individual Insurance division continued its life product
development initiatives, strengthening its variable universal life
(VUL) portfolio with the introduction of Sun Protector VUL(SM) and
enhancement of Sun Prime VUL(SM) for the high net worth market. The
division also enhanced its Sun Universal ProtectorPlus(SM) with
additional rider benefits including long-term care.
- In April 2008, SLF U.S. combined its Individual Insurance and Annuity
divisions to create a single organization focused on the retail
customer - the Retail Insurance and Annuity Division. In addition, SLF
U.S. formed a new distribution organization consisting of its
wholesale broker-dealer, Sun Life Financial Distributors, Inc., and
the Employee Benefits Group division's distribution organization.
These changes will enable SLF U.S. to leverage best practices,
processes and efficiencies in serving its customers and distributors.
MFS
- MFS continued to achieve superior performance with 74%, 89% and 72% of
its fund assets ranked in the top half of their Lipper Category
Average over 3, 5 and 10 years respectively, as of March 31, 2008.
- MFS's pre-tax operating margin ratio was 35% in the first quarter of
2008 compared to 34% in the first quarter of 2007.
- MFS continued to invest strategically in new products during the first
quarter of 2008, seeding three new Japanese Toshin funds as well as
the MFS Meridian Global Conservative Fund.
- On March 3, 2008, USA Today named the MFS Value Fund a "Mutual Fund
All-Star" in the 2008 edition of its annual Mutual Fund All-Stars
feature. The fund was one of 6 funds included in the large cap
category and was one of 20 funds overall to make the roster of
"all-stars."
Sun Life Financial Asia (SLF Asia)
- Birla Sun Life Asset Management Company, the Company's mutual fund
joint venture in India, was awarded Mutual Fund House of the Year for
2007 by CNBC - CRISIL, for outstanding mutual fund performance. Mutual
fund assets under management were $9.5 billion at March 31, 2008, up
71% from a year ago.
- Birla Sun Life Insurance Company individual life insurance sales were
up 133% over the first quarter 2007 from its increased distribution
network of 339 branches serving 294 cities across India. Sun Life,
along with its joint venture partner, significantly increased
investment in Birla Sun Life Insurance during the quarter and made
substantial progress toward having 600 branches operational in the
near-term.
- In China, Sun Life Everbright Life Insurance Company (SLEB) received
regulatory approval to open a branch in the city of Guangzhou in
Southern China. The branch is expected to commence operations in the
third quarter of 2008. Now operating in 17 cities in China, SLEB's
individual life insurance first quarter 2008 sales were up 164% over
the same period last year.
Financial Highlights
- Operating ROE decreased 10 basis points to 13.4% from operating ROE
of 13.5% in the first quarter of 2007. ROE of 13.4% increased
140 basis points from ROE of 12.0% in the first quarter of 2007.
- Operating EPS of $0.93 for the quarter decreased 3% compared to
operating EPS of $0.96 in the first quarter of 2007. EPS of $0.93 for
the quarter increased 8% compared to EPS of $0.86 in the first quarter
of 2007.
- Sun Life Financial declared $203 million in common shareholder
dividends during the quarter, representing a payout ratio of 38%.
- Sun Life Financial repurchased approximately 2.4 million common shares
for $110 million during the first quarter of 2008.
- Sun Life Financial's embedded value from operations increased by 17%
and value of new business increased by 19% for the full year of 2007
over 2006, demonstrating the Company's continued commitment to
delivering profitable growth.
- On January 30, 2008, Sun Life Financial completed a public offering in
Canada of $400 million principal amount of Series 2008-1 Subordinated
Unsecured 5.59% Fixed/Floating Debentures due in 2023.Use of Non-GAAP Financial Measures
Management evaluates the Company's performance on the basis of financial
measures prepared in accordance with Canadian generally accepted accounting
principles (GAAP), including earnings, EPS and ROE. Management also measures
the Company's performance based on certain non-GAAP measures, such as
operating earnings, operating EPS, operating ROE, ROE for business groups,
MFS's pre-tax operating profit margin ratios, financial performance measures
prepared on a constant currency basis, embedded value and value of new
business. Embedded value is an economic measure of the value of the Company,
excluding the impact of any future 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 2008 financial results will be reviewed at a
conference call today at 10 a.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 the link to Q1 results from the
"Highlights" section of the homepage 10 minutes prior to the start of the
presentation. The webcast and presentation will be archived on our website
following the event 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
March 31, 2008, the Sun Life Financial group of companies had total assets
under management of $415 billion.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.Management's Discussion & Analysis
for the period ended March 31, 2008
Dated May 6, 2008
Earnings and Profitability
The financial results presented in this document are unaudited.
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FINANCIAL SUMMARY
---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income ($mm) 533 555 577 590 497
Operating Earnings(1)($mm) 533 560 583 593 558
Basic Earnings per Common
Share (EPS) ($) 0.95 0.98 1.02 1.03 0.87
Fully Diluted EPS ($) 0.93 0.97 1.00 1.02 0.86
Fully Diluted Operating EPS(1)($) 0.93 0.98 1.01 1.03 0.96
Return on Common Equity (ROE) (%) 13.4 14.2 14.7 14.5 12.0
Operating ROE(1)(%) 13.4 14.3 14.8 14.6 13.5
Average Common Shares
Outstanding (mm) 563.8 566.2 567.8 570.1 572.0
Closing Common Shares
Outstanding (mm) 561.9 564.1 566.4 568.1 571.4
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-------------------------------------------------------------------------Sun Life Financial Inc.(2) reported common shareholders' net income of
$533 million for the quarter ended March 31, 2008, compared with $497 million
in the first quarter of 2007. Operating earnings of $533 million for the first
quarter of 2008 were down $25 million from $558 million in the first quarter
of 2007. The strengthening of the Canadian dollar relative to foreign
currencies since the first quarter of 2007 reduced quarterly earnings by
$43 million. On a constant currency basis, operating earnings in the first
quarter of 2008 were up $18 million or 3%.
Income in the first quarter of 2008 was adversely affected by the decline
in equity markets in the Company's North American businesses, the unfavourable
impact of wider credit spreads in SLF U.S. and SLF Asia as well as credit-
related allowances in SLF U.S. These decreases were partially offset by gains
in SLF U.S., including positive interest rate and hedge experience in
Annuities, reduced new business strain in Individual Insurance, and business
growth in the Employee Benefits Group (EBG) as well as the positive effect of
income tax related items in Corporate Support and SLF U.K. The increase in
common shareholders' net income in the first quarter of 2008 compared to the
first quarter of 2007 reflects the impact of after-tax charges to earnings in
the first quarter of 2007 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.
ROE for the first quarter of 2008 was 13.4% compared with 12.0% for the
first quarter of 2007. The 140 basis point increase was primarily the result
of the adverse impact of the charges described above which occurred in the
first quarter of 2007. EPS(3) of $0.93 were 8% higher than the $0.86 reported
in the prior year.
Operating EPS for the first quarter of 2008, were $0.93 for the quarter,
down 3% from operating EPS of $0.96 in the first quarter of 2007. Operating
ROE of 13.4% for the quarter was down from operating ROE of 13.5% in the first
quarter of 2007. Excluding the impact of currency, operating EPS would have
been $1.01, an increase of 5% over the first quarter of 2007.-------------------------------------
(1) Operating earnings and other financial information based on
operating earnings such as operating earnings per share and operating
return on equity are non-GAAP financial measures. For additional
information please see "Use of Non-GAAP Financial Measures."
(2) Together with its subsidiaries and joint ventures "the Company" or
"Sun Life Financial."
(3) All EPS measures in this document refer to fully diluted EPS, unless
otherwise stated.Performance by Business Group
The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia) and Corporate. Additional details concerning the segments and the
purpose and use of the segmented information are outlined in Note 5 to Sun
Life Financial Inc.'s first quarter 2008 Interim Consolidated Financial
Statements, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Where appropriate, information on a business
segment has been presented both in Canadian dollars and the segment's local
currency to facilitate the analysis of underlying business trends. ROE for the
business segments is a "Non-GAAP" financial measure as outlined under "Use of
Non-GAAP Financial Measures."SLF Canada
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---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income ($mm)
Individual Insurance &
Investments 149 147 152 177 146
Group Benefits 49 76 59 69 51
Group Wealth 49 40 46 34 53
------- ------- ------- ------- -------
Total 247 263 257 280 250
ROE (%) 14.1 15.0 14.7 16.1 14.3
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SLF Canada's earnings decreased by 1% compared to the first quarter of
2007. SLF Canada benefited from favourable morbidity and mortality experience
in Group Benefits, asset reinvestment gains from wider credit spreads in Group
Wealth and Individual Insurance & Investments and increased earnings from CI
Financial, offset by the impact of interest rate and equity market declines in
the first quarter of 2008 and the positive impact of actuarial reserve changes
in Group Wealth and Group Benefits that occurred in 2007.
- Individual Insurance and Investments earnings for the first quarter of
2008 increased by 2% from the first quarter of 2007 due to increased
earnings from CI Financial related to tax rate changes which occurred
in the fourth quarter of 2007, and asset reinvestment gains from wider
credit spreads on assets backing longer-term liabilities offset by the
impact of declining interest rates and equity markets.
- Group Benefits earnings for the first quarter of 2008 decreased by 4%
compared with the first quarter of 2007 as favourable morbidity and
mortality experience in the first quarter of 2008 was more than offset
by a change to actuarial reserves to better reflect asset liability
matching in the first quarter of 2007.
- Group Wealth earnings for the first quarter of 2008 decreased by 8%
from the first quarter of 2007 due primarily to the non-recurrence of
the positive impact on actuarial reserves from a reinsurance
transaction in 2007, partly offset by investment gains from wider
credit spreads in the first quarter of 2008.
SLF U.S.
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---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income (US$mm)
Annuities 75 57 99 80 80
Individual Insurance 19 84 41 37 5
Employee Benefits Group 19 24 22 25 (1)
------- ------- ------- ------- -------
Total (US$mm) 113 165 162 142 84
Total (C$mm) 113 157 170 156 98
ROE (%) 10.7 15.3 14.7 14.0 9.4
-------------------------------------------------------------------------
Earnings for SLF U.S. increased C$15 million, or 15%, compared to the
first quarter of 2007. The appreciation of the Canadian dollar against the
U.S. dollar reduced earnings in SLF U.S. by C$19 million in the first quarter
of 2008 compared to the first quarter of 2007.
In U.S. dollars, earnings were US$113 million, US$29 million, or 35%,
higher than in the first quarter of 2007. Earnings increased in the first
quarter of 2008 as a result of improved claims experience and business growth
in EBG, including the impact of the EBG acquisition in the second quarter of
2007, decreased new business strain on universal life sales in Individual
Insurance, favourable interest rate experience in fixed annuities, positive
variable annuity hedge experience and the gain on sale of Sun Life Retirement
Services (U.S.), Inc. (RSI), partially offset by the unfavourable impact of
wider credit spreads and credit-related allowances in Annuities.
- Annuities earnings decreased by US$5 million compared to the first
quarter of 2007 as a result of the unfavourable impact of wider credit
spreads and credit-related allowances on actuarial reserving
requirements in the fixed annuity block, partially offset by
favourable interest rate experience in fixed annuities, positive
variable annuity hedge experience and the gain on sale of RSI.
- Individual Insurance earnings were higher by US$14 million compared to
the first quarter of 2007 primarily due to decreased new business
strain on universal life sales resulting from lower sales and the
implementation of the AXXX financing arrangement in the fourth quarter
of 2007.
- EBG earnings increased by US$20 million compared to the first quarter
of 2007 as a result of business growth, including the impact of the
acquisition in the second quarter of 2007, and favourable claims
experience.
MFS
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---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income (US$mm) 59 74 65 62 61
Common Shareholders' Net
Income (C$mm) 59 73 68 68 72
Pre-tax Operating Profit
Margin Ratio(4) 35% 40% 36% 34% 34%
Average Net Assets (US$B) 187 203 199 200 189
Assets Under Management (US$B) 184 200 204 202 192
Net Sales/(Redemptions) (US$B) (2.7) (3.2) (0.9) (0.1) 0.2
Market Movement (US$B) (12.5) (1.5) 3.3 9.5 4.4
S&P 500 Index (daily average) 1,349 1,495 1,489 1,497 1,425
-------------------------------------------------------------------------
Earnings for MFS decreased C$13 million, or 18%, compared to the first
quarter of 2007. The appreciation of the Canadian dollar against the U.S.
dollar reduced earnings for MFS by C$10 million in the first quarter of 2008
compared to the first quarter of 2007.
In U.S. dollars, first quarter earnings were US$59 million, US$2 million,
or 3%, lower than in the first quarter of 2007 primarily due to lower net
average assets as a result of a decline in equity markets. Average net assets
of US$187 billion decreased 1% compared to the first quarter of 2007.
Total assets under management at March 31, 2008 were US$184 billion, a
decrease of US$15.2 billion compared to December 31, 2007, driven by market
depreciation of US$12.5 billion and net redemptions of mutual funds and
managed funds of US$2.7 billion.
SLF Asia
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---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income ($mm) 13 38 30 17 38
ROE (%) 4.4 13.6 10.9 6.0 13.5
-------------------------------------------------------------------------
First quarter 2008 earnings of $13 million were down by $25 million, or
66%, from the first quarter of 2007 primarily due to lower earnings in Hong
Kong where the first quarter 2007 earnings benefited from the effect of
improved asset liability matching. In addition, the first quarter 2008
earnings were impacted by wider credit spreads on Hong Kong investments, and
by increased investment in India. These were partially offset by changes to
actuarial reserves for Critical Illness riders in Hong Kong.
SLF Asia sales momentum continued in the first quarter of 2008, with
individual life insurance sales up 92% in Canadian dollars over the same
period in 2007 driven by continued demand for unit-linked products and
expanded distribution capacity. In local currency, Hong Kong sales were up 52%
from improved agency productivity; Indonesia's sales were up 78% from higher
alternate distribution sales and improved agency productivity; India's sales
were up 133% from increased sales force; and China's sales were up 164% from
expanded operations.
---------------------------------
(4) Pre-Tax Operating Profit Margin Ratio is a non-GAAP financial
measure. See "Use of Non-GAAP Financial Measures".
Corporate
Corporate includes the results of Sun Life Financial U.K. (SLF U.K.), Sun
Life Financial Reinsurance (SLF Reinsurance) and Corporate Support, which
includes run-off reinsurance as well as investment income, expenses, capital
and other items not allocated to Sun Life Financial's other business groups.
-------------------------------------------------------------------------
---------------------------------------
Quarterly Results
---------------------------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------- ------- ------- ------- -------
Common Shareholders' Net
Income/(Loss) ($mm)
SLF U.K. 59 23 48 42 100
SLF Reinsurance 22 25 21 33 18
Corporate Support 20 (24) (17) (6) (79)
------- ------- ------- ------- -------
Total 101 24 52 69 39
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Earnings in the first quarter of 2008 increased by $62 million compared to
the first quarter of 2007 due to the positive effect of changes in income tax
liabilities in Corporate Support and reserve adjustments for tax timing
differences in SLF U.K. Results in the first quarter 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 $18 million for the premium
payable to redeem Partnership Capital Securities in Corporate Support as well
as higher earnings in SLF U.K. due to the non-recurrence of several items.
Additional Financial Disclosure
Revenue
Under Canadian GAAP, revenues include regular premiums received on life
and health insurance policies as well as fixed annuity products and fee income
received for services provided. Net investment income comprised of income
earned on general fund assets as well as changes in the value of held-for-
trading assets and derivative instruments are also included. Segregated fund
deposits, mutual fund deposits and managed fund deposits are not included in
revenues.
Net investment income can experience volatility arising from quarterly
fluctuation in the value of held-for-trading assets. Changes in the value of
these assets are largely offset by corresponding changes in the value of
actuarial liabilities.
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Quarterly Results
-----------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
------ ------ ------ ------ ------
Revenues ($mm)
SLF Canada 2,320 2,610 2,500 1,801 2,374
SLF U.S. 1,060 1,637 2,052 1,944 2,197
MFS 362 390 417 433 447
SLF Asia 119 294 286 182 215
Corporate 25 474 444 140 351
------ ------ ------ ------ ------
Total as Reported 3,886 5,405 5,699 4,500 5,584
--------------------------------------------------------------------------
Less: Impact of Currency,
Changes in the Fair Value
of Held-for-Trading Assets
and Derivative
Instruments (2,129) (574) (546) (1,311) (207)
Total Adjusted Revenue 6,015 5,979 6,245 5,811 5,791
-------------------------------------------------------------------------Revenues of $3.9 billion earned in the first quarter of 2008 decreased by
$1.7 billion from the same period in 2007 mainly due to the $1.4 billion lower
net investment income caused primarily by a reduction in the fair value of
held-for-trading assets due to the increase in market yields on U.S. bonds and
lower stock values in connection with lower equity markets. Adjusting for the
impact of currency and changes in the fair value of held-for-trading assets
and derivatives, revenues of $6.0 billion were up 4% compared to the first
quarter of 2007 as increased health premiums from the EBG acquisition were
partially offset by lower annuity premiums and lower asset-based fees.
Premium revenue of $3.2 billion declined by $128 million in the first
quarter of 2008 compared to the first quarter of 2007 due to the unfavourable
impact of $261 million from the appreciated Canadian dollar relative to other
foreign currencies. Excluding the impact of currency, premiums increased by
$133 million primarily attributable to the growth in SLF U.S. EBG.
First quarter 2008 health premiums of $980 million increased by $163
million over the comparable period a year ago mainly from the $121 million
growth in SLF U.S. EBG, including the EBG acquisition at the end of May 2007.
This increase was diminished by the decline of $167 million in annuity
premiums from the same period in the prior year as SLF Canada's annuity
premiums decreased by $41 million mainly due to lower structured settlement
premiums in Individual Wealth. SLF U.S. annuity premiums also decreased by
$101 million in the first quarter of 2008 from the comparable period a year
ago, from lower fixed and fixed index annuity products and a reduction of
$80 million from the strengthening of the Canadian dollar.
Life insurance premiums of $1.4 billion in the first quarter of 2008 were
$124 million lower than the first quarter of 2007, primarily from the
unfavourable currency effect of $118 million from a strengthened Canadian
dollar relative to the other foreign currencies.
First quarter 2008 net investment income declined by $1.4 billion
compared to the first quarter of 2007. Volatile market conditions and the
tight credit environment contributed to a net increase in market yields and a
corresponding reduction in the market value of held-for-trading bonds. This,
combined with lower equity market levels, resulted in fair value losses on
held-for-trading assets.
Fee income of $705 million in the first quarter of 2008 was down $125
million compared to the same period in the previous year as lower asset-based
fees were earned on decreased average net assets from poor equity market
performance, especially in the U.S., and the reduction of $88 million related
to the unfavourable currency effect of changes in foreign exchange rates.
Assets Under Management (AUM)
AUM were $415.3 billion as at March 31, 2008 compared to $425.3 billion
as at December 31, 2007, and $451.3 billion as at March 31, 2007. The decrease
of $10.0 billion between December 31, 2007 and March 31, 2008 resulted
primarily from:(i) negative market movements of $16.7 billion;
(ii) net redemptions of mutual, managed and segregated funds of
$0.8 billion; and
(iii) an increase of $8.2 billion from a weaker Canadian dollar
relative to the prior period currency exchange rates.
AUM decreased $36.0 billion between March 31, 2007 and March 31, 2008. The
reduction in AUM related primarily to:
(i) a decrease of $36.5 billion from the strengthening of the
Canadian dollar relative to foreign currencies;
(ii) declining market performance that lowered AUM by $1.7 billion;
partly offset by
(iii) net sales of mutual, managed and segregated funds of
$1.1 billion; and
(iv) an increase of $1.1 billion in mutual funds at the end of
June 2007 from the acquisition of six closed-end funds in MFS.Changes in the Balance Sheet and Shareholders' Equity
Total general fund assets were $115.2 billion as at March 31, 2008,
compared to $122.2 billion a year earlier. The unfavourable impact of $6.8
billion from currency fluctuations reduced general fund assets in the first
quarter of 2008.
Total general fund assets increased by $958 million from the December 31,
2007 level of $114.3 billion. The favourable impact of $1.7 billion from
currency fluctuations boosted general fund assets in the first quarter of
2008. Continued business growth, primarily in SLF Canada, 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 $79.4 billion as at March 31,
2008 decreased by $8.2 billion compared to March 31, 2007. The currency effect
resulting from an appreciated Canadian dollar at the end of the first quarter
of 2008 compared to the same period a year ago reduced actuarial and other
policy liabilities by $4.7 billion. There was also a decrease in actuarial and
other policy liabilities corresponding to the changes in fair value of held-
for-trading assets.
Actuarial and other policy liabilities were lower by $402 million
compared to the December 31, 2007 amount of $79.8 billion. The decrease in
actuarial and other policy liabilities from the changes in fair value of held-
for-trading assets was partially offset by the $1.1 billion favourable
currency fluctuations.
Shareholders' equity, including Sun Life Financial Inc.'s preferred share
capital was $17.4 billion as at March 31, 2008 compared to $17.1 billion as at
December 31, 2007. The increase of $282 million between December 31, 2007 and
March 31, 2008 resulted primarily from:(i) shareholders' net income of $551 million, before preferred
share dividends of $18 million;
(ii) an increase of $266 million from currency fluctuations; partly
diminished by
(iii) unrealized losses of $244 million on available-for-sale assets
in other comprehensive income;
(iv) common share dividend payments of $203 million; and
(v) $70 million for the cost of common shares repurchased and
cancelled, net of stock-based compensation costs (including
stock options exercised).
As at May 2, 2008, Sun Life Financial Inc. had 561.9 million common shares
and 61.0 million preferred shares outstanding.
Cash Flows
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Quarterly Results
------------------
Q1/08 Q1/07
------ ------
($mm)
Cash and cash equivalents, beginning of period 3,603 4,936
Cash flows provided by (used in):
Operating activities 193 44
Financing activities 54 218
Investing activities (602) 194
Changes due to fluctuations in exchange rates 9 22
------ ------
Increase in cash and cash equivalents (346) 478
------ ------
Cash and cash equivalents, end of period 3,257 5,414
Short-term securities, end of period 2,016 1,556
------ ------
Total cash, cash equivalents and short-term securities 5,273 6,970
------ ------
-------------------------------------------------------------------------
Net cash, cash equivalents and short-term securities of $5.3 billion as at
the end of the first quarter of 2008 decreased by $1.7 billion from the first
quarter of 2007 mainly as a result of the timing of investment transactions.
Cash used in investing activities was higher by $796 million in the first
quarter of 2008 than in the same quarter of 2007. Net purchases of invested
assets in the first quarter of 2008 as compared to net sales of invested
assets in the first quarter of 2007 mainly generated the cash outflow.
Cash provided by financing activities in the first quarter of 2008 was
$164 million lower than in the same period a year ago. Subordinated unsecured
fixed/floating debt of $400 million in principal amount was issued during the
first quarter of 2008 as compared to the $250 million in principal amount of
senior unsecured fixed/floating debt and $250 million of preferred shares that
were issued during the first quarter of 2007. In addition, first quarter 2008
dividend payments to common shareholders increased by $20 million over the
first quarter of 2007 and the issuance of common shares on the exercise of
stock options was $29 million less in the first quarter of the current year
versus the same period in the previous year.
Quarterly Financial Results
The following table provides a summary of Sun Life Financial's results for
the eight most recently completed quarters.
-------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY
Quarterly Results
-----------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 Q2/06
------ ------ ------ ------ ------ ------ ------ ------
Common Share-
holders' Net
Income ($mm) 533 555 577 590 497 545 541 512
Operating
Earnings ($mm) 533 560 583 593 558 545 541 512
Basic Earnings
per Common
Share (EPS) ($) 0.95 0.98 1.02 1.03 0.87 0.95 0.94 0.88
Fully Diluted
EPS ($) 0.93 0.97 1.00 1.02 0.86 0.94 0.93 0.88
Fully Diluted
Operating EPS($) 0.93 0.98 1.01 1.03 0.96 0.94 0.93 0.88
Total Revenue
($mm) 3,886 5,405 5,699 4,500 5,584 6,137 6,604 6,231
Total AUM ($B) 415 425 427 440 451 442 405 391
-------------------------------------------------------------------------Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of the Company's financial reporting and the
preparation of its financial statements in accordance with GAAP.
There were no changes during the Company's most recent three-month period
ended March 31, 2008 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
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 as market levels change, new business
is added, or as management actions are taken.
Investments
As at March 31, 2008, the Company held $60.3 billion of bonds, which
constituted 58% of the Company's overall investment portfolio. Bonds with an
investment grade of "A" or higher represented 69%, and bonds rated "BBB" or
higher represented 97% of the total bond portfolio as at March 31, 2008.
As at March 31, 2008, the Company held $11.0 billion of non-public bonds,
which constituted 18% of the Company's overall bond portfolio of $60.3
billion. Corporate bonds that are not issued or guaranteed by sovereign,
regional and municipal governments represented 77% of the total bond portfolio
as at March 31, 2008, compared to 76% as at December 31, 2007.
The Company's bond portfolio as at March 31, 2008 included $6.3 billion
of asset-backed securities, representing approximately 10% of the Company's
bond portfolio, or 6% of the Company's total invested assets, as categorized
in the following table.-------------------------------------------------------------------------
($mm) March 31, 2008 December 31, 2007
-------------------------------------------------------------------------
Investment Investment
Fair Value Grade % Fair Value Grade %
-------------------------------------------------------------------------
Commercial Mortgage-
Backed Securities 2,372 99.6 2,523 99.6
Residential Mortgage-
Backed Securities:
Agency 1,131 100.0 1,112 100.0
Non-Agency 1,338 99.9 1,486 99.9
Collateralized Debt
Obligations 355 96.9 422 97.5
Other 1,110 99.1 1,075 99.6
-------------------------------------------------------------------------
Total 6,306 99.5 6,618 99.6
-------------------------------------------------------------------------As at March 31, 2008, the Company had indirect exposure to residential
sub-prime and Alternative-A (Alt-A) loans of $300 million and $152 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.
97% of these investments either were issued before 2006 or have an "AAA"
rating.
The Company had total exposure of $1,013 million to monoline insurers as
at March 31, 2008, of which $87 million, or 9%, represented direct exposure to
the monoline insurers and $926 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 provides the
underlying bonds with a credit rating of AAA. Absent the credit insurance, the
underlying bonds have an average credit quality of between "A" and "BBB" as at
March 31, 2008.
Included in the Company's diversified investment portfolio as at March
31, 2008 were $854 million of bank sponsored asset-backed commercial paper
(ABCP) in Canada. In addition, the Company had indirect exposure to ABCP of
approximately US$100 million through its money market holdings in the U.S.,
the majority of which was sponsored by major banks in the U.S.
The values of the Company's derivative instruments are summarized in the
following table. The use of derivatives is measured in terms of notional
amounts, which serve as the basis for calculating payments and are generally
not actual amounts that are exchanged.-------------------------------------------------------------------------
($mm) March 31, 2008 December 31, 2007
-------------------------------------------------------------------------
Net fair value 684 1,309
Total notional amount 45,589 42,642
Credit equivalent amount 2,656 2,351
Risk-weighted credit equivalent amount 57 56
-------------------------------------------------------------------------The total notional amount increased to $45.6 billion as at March 31,
2008, from $42.6 billion at the end of 2007, and the net fair value decreased
to $0.7 billion as at March 31, 2008 from the 2007 year-end 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 $69 million as at March 31, 2008, $20 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 March 31, 2008, compared with $2.9 billion
as at December 31, 2007.
Outlook
The Company generally benefits from a credit environment within historic
norms and steady or slowly increasing interest rates from recent levels,
particularly in its universal life businesses; however, this benefit is
partially offset by a flat or inverted yield curve. Declining stock market
indices may adversely affect earnings from market-based products and flows in
the Company's asset management businesses. The Company's earnings will be
impacted by changes in the value of the Canadian dollar versus foreign
currencies, most notably the U.S. dollar.
Regulatory and Legal Matters
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.
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. 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 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
Unaudited - in millions of Canadian dollars
Quarterly Results
------------------
Q1/08 Q4/07 Q3/07 Q2/07 Q1/07 Q4/06 Q3/06 Q2/06
------ ------ ------ ------ ------ ------ ------ ------
Reported Earnings
(GAAP) 533 555 577 590 497 545 541 512
After-tax gain
(loss) on special
items
Intangible asset
write-down for
Clarica brand - - - - (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 533 560 583 593 558 545 541 512
-------------------------------------------------------------------------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; credit
spread fluctuations; 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