|
The information in
this document is based on the unaudited interim financial results
of Sun Life Financial Inc. for the period ended December 31, 2018.
Sun Life Financial Inc., its subsidiaries and, where applicable,
its joint ventures and associates are collectively referred to as
"the Company", "Sun Life Financial", "we", "our", and "us". Unless
otherwise noted, all amounts are in Canadian dollars.
|
TORONTO, Feb. 13, 2019 /CNW/ - Sun Life
Financial Inc. (TSX: SLF) (NYSE: SLF) today announced its results
for the fourth quarter ended December 31,
2018. Fourth quarter reported net income was $580 million and underlying net
income(1) was $718
million.
|
Quarterly
results
|
Full Year
|
|
Q4'18
|
Q4'17
|
2018
|
2017
|
Profitability
|
|
Reported net income
($ millions)
|
580
|
207
|
2,522
|
2,149
|
Underlying net
income(1) ($ millions)
|
718
|
641
|
2,947
|
2,546
|
Reported
EPS(2) ($)
|
0.96
|
0.34
|
4.14
|
3.49
|
Underlying
EPS(1)(2) ($)
|
1.19
|
1.05
|
4.86
|
4.15
|
Reported
ROE(1)
|
10.9%
|
4.1%
|
12.1%
|
10.7%
|
Underlying
ROE(1)
|
13.6%
|
12.7%
|
14.2%
|
12.7%
|
Growth
|
|
Insurance
Sales(1) ($ millions)
|
1,314
|
1,106
|
3,189
|
3,042
|
Wealth
Sales(1) ($ billions)
|
36.2
|
35.3
|
136.7
|
145.3
|
Value of new
business(1) ($ millions)
|
310
|
265
|
1,154
|
968
|
Assets under
management(1) ($ billions)
|
951.1
|
974.8
|
951.1
|
974.8
|
Financial
Strength
|
|
LICAT
ratios(3)
|
|
|
|
|
Sun Life Financial
Inc.
|
144%
|
n/a
|
144%
|
n/a
|
Sun Life
Assurance(4)
|
131%
|
n/a
|
131%
|
n/a
|
Financial leverage
ratio(1)
|
21.2%
|
23.6%
|
21.2%
|
23.6%
|
____________
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
All EPS measures
refer to fully diluted EPS, unless otherwise stated.
|
(3)
|
For further
information on the Life Insurance Capital Adequacy Test ("LICAT")
effective January 1, 2018, see section E - Financial Strength in
this document. LICAT ratios are not applicable before January 1,
2018.
|
(4)
|
Sun Life Assurance
Company of Canada ("Sun Life Assurance") is Sun Life Financial
Inc.'s ("SLF Inc.") principal operating life insurance
subsidiary.
|
"Our fourth quarter capped off a year of strong performance for
Sun Life, generating annual underlying net income of $2.9 billion. In 2018, we achieved double-digit
growth in earnings and value of new business, we increased
underlying return on equity to 14.2% and delivered dividend growth
of 9%," said Dean Connor, President
& CEO, Sun Life Financial.
"Around the Sun Life world we are putting Clients at the centre
of everything we do. We are making it easier for Clients to get
what they need, when they need it, on their mobile devices, the
web, from our call centres and from their financial advisors,"
noted Connor. "We launched Lumino Health in SLF Canada, our premier
digital health network that offers ratings of health providers,
price comparisons and health tips, which is already generating
impressive usage statistics. As part of our focus on innovation, in
Asia we completed our investment
in the first virtual insurer approved under the Fast Track process
in Hong Kong, Bowtie Life
Insurance Company Limited."
"During the quarter, we also announced our plan to merge Bentall
Kennedy, our North American real estate and property management
firm, with GreenOak Real Estate, and we will acquire a majority
stake in the combined entity. This transaction is right on
strategy, broadening our asset management pillar by expanding the
capabilities of our alternatives manager, Sun Life Investment
Management," said Connor. "Combining the strengths of two leading
and globally respected real estate investment managers will bring
Clients a broader range of real estate investment solutions across
North America, Europe and Asia."
Financial and Operational Highlights
($ millions, unless
otherwise noted)
|
|
|
|
|
Reported net income(loss)
|
Underlying
net income(loss)(1)
|
Insurance
sales(1)
|
Wealth
sales(1)
|
|
Q4'18
|
Q4'17
|
change
|
Q4'18
|
Q4'17
|
change
|
Q4'18
|
Q4'17
|
change
|
Q4'18
|
Q4'17
|
change
|
SLF Canada
|
96
|
172
|
(44)%
|
245
|
232
|
6%
|
219
|
227
|
(4)%
|
4,883
|
3,183
|
53%
|
SLF
U.S.(2)
|
118
|
(63)
|
nm(3)
|
121
|
95
|
27%
|
844
|
627
|
35%
|
—
|
—
|
—
|
SLF Asset
Management
|
244
|
114
|
114%
|
227
|
226
|
—%
|
—
|
—
|
—
|
29,423
|
28,514
|
3%
|
SLF
Asia(2)
|
125
|
121
|
3%
|
140
|
111
|
26%
|
251
|
252
|
—%
|
1,935
|
3,603
|
(46)%
|
Corporate
|
(3)
|
(137)
|
nm(3)
|
(15)
|
(23)
|
nm(3)
|
—
|
—
|
—
|
—
|
—
|
—
|
Total
|
580
|
207
|
180%
|
718
|
641
|
12%
|
1,314
|
1,106
|
19%
|
36,241
|
35,300
|
3%
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
Effective January 1,
2018, we transferred our International business unit from SLF U.S.
to SLF Asia, and comparative figures in 2017 have been changed to
conform with the current year presentation.
|
(3)
|
Not
meaningful
|
Our reported net income of $580
million in the fourth quarter of 2018 increased over the
fourth quarter 2017 result of $207
million primarily due to the $251
million charge in 2017 related to the enactment of the U.S
tax reform(1). The increase also reflected positive
impacts from other adjustments and assumption changes and
management actions ("ACMA"), partially offset by market related
impacts. Underlying net income in the fourth quarter of 2018
increased $77 million to $718 million compared to 2017, driven by the
effect of the lower income tax rate in the U.S., favourable expense
experience that resulted from ongoing expense management and lower
incentive compensation costs, and other experience, partially
offset by mortality and morbidity experience. Market volatility
reduced our fee income from our asset management and wealth
businesses primarily due to lower asset values, offsetting business
growth in our life and health insurance businesses. Our reported
net income and underlying net income increased by $18 million and $16
million, respectively, as a result of the impact of the
movement of the Canadian dollar in the fourth quarter of 2018
relative to the average exchange rates in the fourth quarter of
2017.
Insurance sales and wealth sales were up 19% and 3% over the
prior year quarter, respectively.
In the fourth quarter of 2018, our reported and underlying ROE
increased to 10.9% and 13.6%, respectively, reflecting higher
earnings. SLF Inc. and its wholly owned holding companies ended the
quarter with $2.5 billion in cash and
other liquid assets.
Our strategy is focused on four key pillars of growth, where we
aim to be a leader in the markets in which we operate. We detail
our continued progress in the four pillars below.
A Leader in Insurance and Wealth Solutions in our Canadian
Home Market
SLF Canada's reported net income of $96 million in the fourth quarter of 2018, down
44% compared to the same period in 2017, reflected equity market
impacts partially offset by favourable credit spread impacts, and
favourable ACMA. Underlying net income of $245 million in the fourth quarter of 2018
increased 6% from the same period in 2017, reflecting favourable
expense experience that resulted from ongoing expense management
and lower incentive compensation costs, and other experience,
partially offset by less favourable investment experience.
Insurance sales were down 4% in the fourth quarter of 2018 due
to lower individual insurance sales compared to the same quarter in
2017, partially offset by slightly higher Group Benefits sales.
Wealth sales were up 53% compared to the same quarter in 2017
mainly due to large case Defined Benefit Solutions ("DBS") sales in
Group Retirement Services ("GRS") in 2018, while individual wealth
sales were consistent with the prior year.
In the quarter, we continued to advance our digital
capabilities. We launched Lumino Health, Canada's premier network of health resources
free to all Canadians that enables Canadians to find highly rated
health providers, compare costs and receive health tips, helping
them to make informed health care decisions. By December, we were
reaching annualized health-related search volumes of 3.5 million
across all our digital platforms, with visitors to Lumino Health
spending double the industry standard time engaged with the
platform(2). Digital tools and robotics are making it
easier to do business with us. For example, in addition to straight
through electronic underwriting, which occurs for 25% of our
individually underwritten applications compared to the industry
average of 9%(3), we are utilizing artificial
intelligence to assist our underwriters in decision making for
Client applications from our Career Sales Force channel.
A Leader in U.S. Group Benefits
SLF U.S.'s reported
net income of $118 million in the
fourth quarter of 2018 increased $181
million compared to the $63
million net loss in the fourth quarter of 2017, reflecting
the $114 million charge in 2017
related to the enactment of the U.S tax reform and favourable
interest rate impacts. Underlying net income of $121 million in the fourth quarter of 2018 was up
27% from the same period in the prior year, reflecting the impact
of lower income tax rates in the U.S., business growth, favourable
lapse and policyholder behaviour experience and other experience,
partially offset by unfavourable morbidity and mortality
experience. The after-tax profit margin for Group
Benefits(4) was 6.7% as of the fourth quarter of 2018,
compared to 5.0% as of the fourth quarter of 2017.
SLF U.S. Group Benefit's sales were US$639 million in the fourth quarter of 2018, up
29% compared to the fourth quarter of 2017, driven by growth in
both employee benefits and medical stop-loss. Full year 2018 sales
were US$1.0 billion, a record high
for Group Benefits, and up 16% compared to 2017.
We created the FullscopeRMS brand to offer our comprehensive
suite of capabilities to be sold and serviced by employee health
plans and other insurance providers, including a turn-key stop-loss
offering. FullscopeRMS, which grew from our successful Disability
RMS business, now offers solutions for disability, life, stop-loss
and voluntary coverages including product development, actuarial
support, underwriting, claim administration, risk management and
distribution training.
A Leader in Global Asset Management
SLF Asset
Management's reported net income of $244
million was up 114% from the fourth quarter of 2017, which
reflected the $78 million charge in
2017 related to the enactment of the U.S tax reform. The increase
also reflects the impact of negative fair value adjustments on MFS
Investment Management's ("MFS") share-based payment awards.
Underlying net income of $227 million
in the fourth quarter of 2018 was in line with the fourth quarter
of 2017 as a result of the lower income tax rate in the U.S. offset
by lower average net assets ("ANA"). The pre-tax net operating
profit margin ratio for MFS(4) for the fourth quarter of
2018 was 38%, down from 40% for the fourth quarter of 2017.
In the fourth quarter of 2018 SLF Asset Management's gross sales
were consistent with the fourth quarter of 2017 on a constant
currency basis.
SLF Asset Management ended the fourth quarter with $650 billion in assets under management ("AUM"),
consisting of $584 billion
(US$428 billion) in MFS and
$66 billion in Sun Life Investment
Management ("SLIM"). SLIM continued its momentum with its twelfth
consecutive quarter of net inflows, while MFS experienced net
outflows of $8.7 billion
(US$6.6 billion) in the quarter.
MFS's long-term retail fund performance remained strong with
78%, 79% and 94% of MFS's U.S. retail mutual fund assets ranked in
the top half of their Lipper categories based on three-, five-, and
ten-year performance, respectively, as at December 31, 2018.
We announced our plan to merge Bentall Kennedy with GreenOak
Real Estate ("GreenOak"), a global real estate investment firm with
approximately $15 billion
(US$11 billion) in assets under
management as at December 31, 2018
and nine offices globally. Sun Life Financial will acquire a
majority stake in the combined Bentall Kennedy and GreenOak entity
that will be named Bentall GreenOak and be part of SLIM. This will
extend our capabilities in real estate investment solutions in a
complementary way and on a pro forma basis will increase SLIM's
total AUM to approximately $80
billion(4). This will bring Clients a broader
range of investment solutions that include core, core plus and
value add real estate(5), plus senior and tactical real
estate debt strategies across North
America, Europe and
Asia. The pending transaction is
expected to be accretive to underlying earnings per share and
return on equity in 2019.
A Leader in Asia through
Distribution Excellence in Higher Growth Markets
SLF Asia's
reported net income of $125 million
in the fourth quarter of 2018 was consistent with the fourth
quarter of 2017, reflecting unfavourable market related impacts,
partially offset by positive ACMA. Underlying net income was
$140 million, up 26% from the fourth
quarter of 2017, reflecting favourable investment experience,
partially offset by higher new business strain.
SLF Asia insurance sales of $251
million in the fourth quarter of 2018 were in line with the
fourth quarter of 2017, as strong sales growth in the Philippines, India and Hong
Kong was offset by lower sales in International due to the
competitive environment and market shifts. SLF Asia wealth sales
were $1.9 billion in the fourth
quarter of 2018 compared to $3.6
billion in the fourth quarter of 2017. Lower mutual fund
sales in India arising from market
volatility and the Philippines due
to elevated money market sales in 2017 were partially offset by
continued strong growth in our pension business in Hong Kong.
We completed a strategic investment in Bowtie Life Insurance
Company Limited ("Bowtie"), the first virtual insurer in
Hong Kong approved under the Fast
Track process(6). The investment in Bowtie is a
reflection of our continued investment in technology and innovative
ways to provide life and health insurance solutions.
_________
|
(1)
|
U.S. tax reform
refers to the impacts of the U.S. Tax Cuts and Jobs Act signed into
law on December 22, 2017.
|
(2)
|
Lumino visitor
average time spent is 5.5 minutes per visit, compared to the
industry average of 2-3 minutes.
|
(3)
|
Munich Re's 2018
Individual Insurance survey
|
(4)
|
Based on AUM as at
December 31, 2018 for each of SLIM and GreenOak. AUM represents a
non-IFRS financial measure. See section J - Non-IFRS Financial
Measures in this document.
|
(5)
|
Value add and core
plus strategies typically involve properties that have in-place
cash flows, but have the potential to increase that cash flow over
time by making improvements to, or repositioning the
property.
|
(6)
|
Fast Track process
refers to the pilot launched by the Insurance Authority of Hong
Kong on September 29, 2017. It is a fast track for application for
authorizations of new insurers owning and operating solely digital
distribution channels.
|
|
Table of
Contents
|
|
A.
|
How We Report Our
Results
|
|
B.
|
Financial
Summary
|
|
C.
|
Profitability
|
|
D.
|
Growth
|
|
E.
|
Financial
Strength
|
|
F.
|
Performance by
Business Group
|
|
|
1.
|
SLF Canada
|
|
|
2.
|
SLF U.S
|
|
|
3.
|
SLF Asset
Management
|
|
|
4.
|
SLF Asia
|
|
|
5.
|
Corporate
|
|
G.
|
Investments
|
|
H.
|
Risk
Management
|
|
I.
|
Additional Financial
Disclosure
|
|
J.
|
Non-IFRS Financial
Measures
|
|
K.
|
Forward-looking
Statements
|
|
About Sun Life Financial
Sun Life Financial Inc. ("SLF
Inc.") is a leading international financial services organization
providing insurance, wealth and asset management solutions to
individual and corporate Clients. Sun Life Financial has operations
in a number of markets worldwide, including Canada, the United
States, the United Kingdom,
Ireland, Hong Kong, the
Philippines, Japan,
Indonesia, India, China,
Australia, Singapore, Vietnam, Malaysia and Bermuda. As of December
31, 2018, Sun Life Financial had total assets under
management ("AUM") of $951 billion.
For more information please visit www.sunlife.com.
Sun Life Financial Inc. trades on the Toronto (TSX), New
York (NYSE) and Philippine (PSE) stock exchanges under the
ticker symbol SLF.
A. How We Report Our Results
Sun Life Financial Inc. ("SLF Inc."), its subsidiaries and,
where applicable, its joint ventures and associates are
collectively referred to as "the Company", "Sun Life Financial",
"we", "our", and "us". We manage our operations and report our
financial results in five business segments: Sun Life Financial
Canada ("SLF Canada"), Sun Life Financial United States ("SLF
U.S."), Sun Life Financial Asset Management ("SLF Asset
Management"), Sun Life Financial Asia ("SLF Asia"), and Corporate.
Information concerning these segments is included in our annual and
interim consolidated financial statements and accompanying notes
("Annual Consolidated Financial Statements" and "Interim
Consolidated Financial Statements", respectively, and "Consolidated
Financial Statements" collectively) and annual management's
discussion and analysis ("MD&A"). We prepare our unaudited
Interim Consolidated Financial Statements using International
Financial Reporting Standards ("IFRS"), and in accordance with the
International Accounting Standard ("IAS") 34 Interim Financial
Reporting. Reported net income (loss) refers to Common
shareholders' net income (loss) determined in accordance with IFRS.
Effective in the first quarter of 2018, we transferred our
International business unit from SLF U.S. to SLF Asia and
comparable periods have been changed to conform with the current
year presentation.
The information in this document is in Canadian dollars unless
otherwise noted.
1. Use of Non-IFRS Financial Measures
We report
certain financial information using non-IFRS financial measures, as
we believe that these measures provide information that is useful
to investors in understanding our performance and facilitate a
comparison of our quarterly and full year results from period to
period. These non-IFRS financial measures do not have any
standardized meaning and may not be comparable with similar
measures used by other companies. For certain non-IFRS financial
measures, there are no directly comparable amounts under IFRS.
These non-IFRS financial measures should not be viewed as
alternatives to measures of financial performance determined in
accordance with IFRS. Additional information concerning these
non-IFRS financial measures and reconciliations to the closest IFRS
measures are available in section J - Non-IFRS Financial Measures
in this document. Non-IFRS financial measures and reconciliations
are also included in our annual and interim MD&A and the
Supplementary Financial Information packages that are available on
www.sunlife.com under Investors – Financial results &
reports.
2. Forward-looking Statements
Certain statements
in this document are forward-looking statements within the meaning
of certain securities laws, including the "safe harbour" provisions
of the United States Private Securities Litigation Reform Act of
1995 and applicable Canadian securities legislation. Additional
information concerning forward-looking statements and important
risk factors that could cause our assumptions, estimates,
expectations and projections to be inaccurate and our actual
results or events to differ materially from those expressed in or
implied by such forward-looking statements can be found in section
K - Forward-looking Statements in this document.
3. Additional Information
Additional information
about SLF Inc. can be found in the Consolidated Financial
Statements, the annual and interim MD&A and SLF Inc.'s Annual
Information Form ("AIF") for the year ended December 31, 2018. These documents are filed with
securities regulators in Canada
and are available at www.sedar.com. SLF Inc.'s Annual Consolidated
Financial Statements, annual MD&A and AIF are filed with the
United States Securities and Exchange Commission ("SEC") in SLF
Inc.'s annual report on Form 40-F and SLF Inc.'s interim MD&As
and Interim Consolidated Financial Statements are furnished to the
SEC on Form 6-Ks and are available at www.sec.gov.
B. Financial Summary
|
Quarterly
results
|
Full Year
|
($ millions, unless
otherwise noted)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Profitability
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
|
|
|
Reported net income
(loss)
|
580
|
567
|
207
|
2,522
|
2,149
|
Underlying net income
(loss)(1)
|
718
|
730
|
641
|
2,947
|
2,546
|
Diluted Earnings
per share ("EPS") ($)
|
|
|
|
|
|
Reported EPS
(diluted)
|
0.96
|
0.93
|
0.34
|
4.14
|
3.49
|
Underlying EPS
(diluted)(1)
|
1.19
|
1.20
|
1.05
|
4.86
|
4.15
|
Reported basic EPS
($)
|
0.96
|
0.94
|
0.34
|
4.16
|
3.51
|
Return on equity
("ROE") (%)
|
|
|
|
|
|
Reported
ROE(1)
|
10.9%
|
10.8%
|
4.1%
|
12.1%
|
10.7%
|
Underlying
ROE(1)
|
13.6%
|
14.0%
|
12.7%
|
14.2%
|
12.7%
|
Growth
|
|
Sales
|
|
|
|
|
|
Insurance
sales(1)
|
1,314
|
577
|
1,106
|
3,189
|
3,042
|
Wealth
sales(1)
|
36,241
|
29,832
|
35,300
|
136,702
|
145,314
|
Value of new
business(1)
|
310
|
244
|
265
|
1,154
|
968
|
Premiums and
deposits
|
|
|
|
|
|
Net premium
revenue
|
5,313
|
4,369
|
4,078
|
18,642
|
15,281
|
Segregated fund
deposits
|
2,763
|
2,692
|
2,680
|
11,553
|
10,858
|
Mutual fund
sales(1)
|
22,135
|
18,746
|
21,329
|
84,202
|
87,515
|
Managed fund
sales(1)
|
9,629
|
7,962
|
11,170
|
38,903
|
44,093
|
ASO(2)
premium and deposit equivalents(1)
|
1,673
|
1,693
|
1,709
|
6,808
|
6,933
|
Total premiums and
deposits(1)
|
41,513
|
35,462
|
40,966
|
160,108
|
164,680
|
Assets under
management
|
|
|
|
|
|
General fund
assets
|
168,765
|
162,439
|
162,720
|
168,765
|
162,720
|
Segregated
funds
|
103,062
|
108,298
|
106,392
|
103,062
|
106,392
|
Mutual funds, managed
funds and other AUM(1)
|
679,316
|
712,782
|
705,673
|
679,316
|
705,673
|
Total
AUM(1)
|
951,143
|
983,519
|
974,785
|
951,143
|
974,785
|
Financial
Strength
|
|
LICAT(3)(4)
ratios
|
|
|
|
|
|
Sun Life
Financial
|
144%
|
145%
|
n/a
|
144%
|
n/a
|
Sun Life
Assurance(5)
|
131%
|
130%
|
n/a
|
131%
|
n/a
|
Financial leverage
ratio(1)
|
21.2%
|
21.9%
|
23.6%
|
21.2%
|
23.6%
|
Dividend
|
|
|
|
|
|
Dividend payout
ratio(1)
|
42%
|
40%
|
43%
|
39%
|
42%
|
Dividends per common
share ($)
|
0.500
|
0.475
|
0.455
|
1.905
|
1.745
|
|
Capital
|
|
|
|
|
|
Subordinated debt and
innovative capital instruments(6)
|
3,738
|
3,738
|
4,136
|
3,738
|
4,136
|
Participating
policyholders' equity and non-controlling interests
|
864
|
802
|
650
|
864
|
650
|
Total shareholders'
equity
|
23,706
|
22,834
|
22,321
|
23,706
|
22,321
|
Total
capital
|
28,308
|
27,374
|
27,107
|
28,308
|
27,107
|
Average common shares
outstanding (millions)
|
602
|
606
|
612
|
606
|
613
|
Closing common shares
outstanding (millions)
|
598.5
|
603.3
|
610.5
|
598.5
|
610.5
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
Administrative
Services Only ("ASO").
|
(3)
|
Life Insurance
Capital Adequacy Test ("LICAT") ratio.
|
(4)
|
LICAT ratios are not
applicable before January 1 2018; we previously used the Minimum
Continuing Capital and Surplus Requirements ("MCCSR") guideline,
the former capital regulatory guideline.
|
(5)
|
Sun Life Assurance
Company of Canada ("Sun Life Assurance") is SLF Inc.'s principal
operating life insurance subsidiary.
|
(6)
|
Innovative capital
instruments consist of Sun Life ExchangEable Capital Securities,
and qualify as regulatory capital. However, under IFRS they are
reported as Senior debentures in the SLF Inc. Consolidated
Financial Statements. For additional information, see section I -
Capital and Liquidity Management - 1 - Capital in our 2018 annual
MD&A.
|
C. Profitability
The following table reconciles our reported net income and
underlying net income. The table also sets out the impact that
other notable items had on our reported net income and underlying
net income in 2018 and 2017. All factors discussed in this document
that impact our underlying net income are also applicable to
reported net income.
|
Quarterly
results
|
Full Year
|
($ millions,
after-tax)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Reported net
income
|
580
|
567
|
207
|
2,522
|
2,149
|
Market related
impacts(1)
|
(153)
|
25
|
(57)
|
(188)
|
(7)
|
Assumption changes and
management actions(1)(2)
|
13
|
(166)
|
(34)
|
(155)
|
81
|
Other
adjustments(1)
|
2
|
(22)
|
(92)
|
(82)
|
(220)
|
U.S. tax
reform(2)
|
—
|
—
|
(251)
|
—
|
(251)
|
Underlying net
income(3)
|
718
|
730
|
641
|
2,947
|
2,546
|
Reported
ROE(3)
|
10.9%
|
10.8%
|
4.1%
|
12.1%
|
10.7%
|
Underlying
ROE(3)
|
13.6%
|
14.0%
|
12.7%
|
14.2%
|
12.7%
|
Impact of other
notable items on reported and underlying net income
|
|
|
|
|
|
Experience related
items(4)
|
|
|
|
|
|
Impact of investment
activity on insurance contract liabilities
|
28
|
29
|
15
|
135
|
86
|
Mortality
|
(11)
|
15
|
11
|
(6)
|
70
|
Morbidity
|
(12)
|
8
|
10
|
51
|
25
|
Credit
|
23
|
22
|
23
|
72
|
74
|
Lapse and other
policyholder behaviour
|
(4)
|
(7)
|
(12)
|
(49)
|
(49)
|
Expenses(5)
|
(26)
|
(6)
|
(45)
|
(62)
|
(49)
|
Other(5)
|
44
|
(11)
|
(8)
|
90
|
(60)
|
(1)
|
See section J -
Non-IFRS Financial Measures in this document for a breakdown of
components within this adjustment.
|
(2)
|
ACMA in 2017 excludes
the charge that is included in U.S. tax reform, shown
separately.
|
(3)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial
Measures.
|
(4)
|
Experience related
items reflect the difference between actual experience during the
reporting period and best estimate assumptions used in the
determination of our insurance contract liabilities.
|
(5)
|
In 2018, Expense
experience has been revised to exclude certain project spending,
which is now presented in Other. Prior periods have been conformed
to this presentation.
|
Q4 2018 vs. Q4 2017
Our reported net income of $580
million in the fourth quarter of 2018 increased compared to
the 2017 result of $207 million which
reflected the $251 million charge
related to the enactment of the U.S tax reform. The increase also
reflected positive impacts from other adjustments and ACMA,
partially offset by market related impacts. Underlying net income
in the fourth quarter of 2018 increased $77
million to $718 million from
2017, driven by the effect of the lower income tax rate in the
U.S., favourable expense experience and favourable other
experience, partially offset by unfavourable mortality and
morbidity experience. Market volatility reduced our fee income from
our asset management and wealth businesses primarily due to lower
asset values, offsetting business growth in our life and health
insurance businesses.
- Market related impacts
Unfavourable market related
impacts increased in the fourth quarter of 2018 compared to the
fourth quarter of 2017, largely driven by unfavourable equity
impacts, primarily in SLF Canada, as well as in SLF Asia. Net
positive interest rate impacts were driven by the favourable impact
of credit spreads over 2017, primarily in SLF Canada and SLF
U.S.
- Assumption changes and management actions
During the
fourth quarter of 2018, the net impact of ACMA resulted in an
increase to reported net income of $13
million compared to a decrease of $34
million in the fourth quarter of 2017.
- Other adjustments
Other adjustments increased
reported net income by $2 million in
the fourth quarter of 2018, compared to a decrease of $92 million in the fourth quarter of 2017. The
change of $94 million was primarily
driven by negative fair value adjustments on MFS's share-based
payment awards and the $44 million
restructuring charge incurred in the fourth quarter 2017 to enhance
business processes and organizational structures and
capabilities.
- U.S. tax reform
The U.S. Tax Cuts and Jobs Act ("U.S.
tax reform") legislation signed into law on December 22, 2017, which took effect on
January 1, 2018, included a reduction
to the U.S. corporate tax rate from 35% to 21% for tax years
beginning after 2017, and a number of base broadening measures
including provisions limiting the deductibility of certain payments
to related foreign taxpayers. Interpretive guidance on the base
broadening provisions was issued by the U.S. Treasury late in 2018,
however it is in the form of Proposed Regulations and is subject to
change.
As a result of this legislation, the Company recorded a net charge
of $251 million ($444 million pre-tax) in the fourth quarter of
2017. This reflects an after-tax charge of $288 million ($444
million pre-tax) to ACMA, and a one-time charge on the
deemed repatriation of foreign earnings of $46 million. These are partially offset by a
benefit of $83 million(1)
relating to the revaluation of deferred tax balances from 35% to
21%.
- Experience related items
Experience related items in
the fourth quarter of 2018 compared to the fourth quarter of 2017
reflected favourable impacts of: expense experience that resulted
from ongoing expense management and lower incentive compensation
costs; lapse and policyholder behaviour experience in SLF U.S.; and
other experience including policy and reinsurance administration
updates in SLF Canada and SLF U.S. and investment related
experience in International. These were partially offset by the
unfavourable impacts of mortality and morbidity experience
primarily in SLF U.S.
- Income taxes
Our statutory tax rate is normally
reduced by various tax benefits, such as lower taxes on income
subject to tax in foreign jurisdictions, a range of tax exempt
investment income, and other sustainable tax benefits that are
expected to decrease our effective tax rate.
In the fourth quarter of 2018, our effective income tax rates on
reported net income and underlying net income(2) were
14.5% and 16.8%, respectively, compared to (36.7)% and 21.5%,
respectively, in the fourth quarter of 2017. Our effective tax rate
on underlying net income in the fourth quarter of 2018 was within
our expected range of 15% to 20%.
- Impact of foreign exchange rates
During the fourth
quarter of 2018, our reported net income and underlying net income
increased by $18 million and
$16 million, respectively, as a
result of the impact of the movement of the Canadian dollar in the
fourth quarter of 2018 relative to the average exchange rates in
the fourth quarter of 2017.
(1)
|
Excludes $(30)
million relating to the net impact on deferred tax balances
attributable to participating policyholders.
|
(2)
|
Our effective income
tax rate on underlying net income is calculated using underlying
net income and income tax expense associated with underlying net
income, which excludes amounts attributable to participating
policyholders.
|
2018 vs. 2017
Our reported net income increased to $2,522 million for 2018 compared to $2,149 million in 2017, which primarily reflects
the $251 million charge in 2017
related to the enactment of the U.S tax reform. The increase also
includes lower fair value adjustments on MFS share-based payment
awards and acquisition, integration and restructuring charges,
partially offset by the unfavourable impact of ACMA and market
related impacts. Underlying net income growth of 16% to
$2,947 million was driven by the
effect of the lower income tax rate in the U.S., growth in the
business, interest on par seed capital, investment experience,
favourable morbidity experience and favourable other experience
partially offset by unfavourable mortality experience.
- Market related impacts
Market related impacts in 2018
compared to 2017 were largely driven by unfavourable equity impacts
partially offset by net interest rate impacts that included the
favourable impact of credit spreads. Market related impacts were
unfavourable in SLF Canada and SLF Asia due to equity impacts,
unfavourable in SLF U.K. as a result of positive net interest rate
impacts and net interest rate impacts were favourable in SLF Canada
and SLF U.S.
- Assumption changes and management actions
ACMA
decreased reported net income by $155
million in 2018, compared to an increase of $81 million in 2017 (which excluded the impact of
the U.S. tax reform). See section D - Profitability - 2018 vs. 2017
- ii. Assumption changes and management actions in our 2018 annual
MD&A for details on ACMA in 2018.
- Other adjustments
Other adjustments in 2018 decreased
reported net income by $82 million,
compared to a reduction of $220
million in 2017. The change was driven by lower fair value
adjustments on MFS's share-based payment awards resulting in a
favourable impact of $76 million, a
favourable impact of $41 million from
reduced acquisition, integration and restructuring costs in 2017,
which included the 2017 restructuring charge, and the improved
impact of certain hedges that do not qualify for hedge
accounting.
- U.S. tax reform
As a result of the U.S. tax reform
legislation signed into law on December 22,
2017, which took effect on January 1,
2018, the Company booked a net charge of $251 million in the fourth quarter of 2017. See
Q4 2018 vs. Q4 2017 for additional information.
- Experience related items
Experience related items in
2018 compared to 2017 reflected favourable impacts of other
experience, including interest on par seed capital and investment
related experience in International, impacts of investment activity
on insurance contract liabilities, and morbidity experience,
partially offset by unfavourable mortality experience.
- Income taxes
For 2018, our effective tax rates on
reported and underlying net income(1) were 17.0% and
17.2%, respectively, compared to 10.8% and 20.5%, respectively, for
2017. Our effective tax rate on underlying net income for 2018 is
within our expected range. See Q4 2018 vs. Q4 2017 subsection 6.
Income Taxes for additional information on our expected effective
tax rate range.
- Impact of foreign exchange rates
During 2018, our
reported and underlying net income decreased by $6 million and $8
million, respectively, as a result of the impact of the
movement of the Canadian dollar in 2018 relative to the average
exchange rates in 2017.
(1)
|
Our effective income
tax rate on underlying net income is calculated using underlying
net income and income tax expense associated with
underlying net income, which excludes amounts attributable to
participating policyholders.
|
D. Growth
1. Sales and Value of New Business
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Insurance
sales(1)
|
|
|
|
|
|
SLF Canada
|
219
|
203
|
227
|
984
|
1,125
|
SLF
U.S.(2)
|
844
|
172
|
627
|
1,307
|
1,106
|
SLF
Asia(2)
|
251
|
202
|
252
|
898
|
811
|
Total insurance
sales(1)
|
1,314
|
577
|
1,106
|
3,189
|
3,042
|
Wealth
sales(1)
|
|
|
|
|
|
SLF Canada
|
4,883
|
3,539
|
3,183
|
15,286
|
14,976
|
SLF Asia
|
1,935
|
1,928
|
3,603
|
10,101
|
13,056
|
Total wealth sales
excluding SLF Asset Management(1)
|
6,818
|
5,467
|
6,786
|
25,387
|
28,032
|
SLF Asset Management
sales(1)
|
29,423
|
24,365
|
28,514
|
111,315
|
117,282
|
Total wealth
sales(1)
|
36,241
|
29,832
|
35,300
|
136,702
|
145,314
|
Value of New
Business(1) ("VNB")
|
310
|
244
|
265
|
1,154
|
968
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
Effective January 1,
2018, we transferred our International business unit from SLF U.S.
to SLF Asia, and comparative figures in 2017 have been changed to
conform with the current year presentation.
|
Total Company insurance sales were $1,314
million in the fourth quarter of 2018, up 19% (16% on a
constant currency basis) compared to the same period in 2017.
- SLF Canada insurance sales decreased due to lower individual
insurance sales compared to the same quarter in 2017, while Group
Benefits ("GB") sales were slightly higher than in the fourth
quarter of 2017.
- SLF U.S. insurance sales increased driven by both higher
stop-loss sales and employee benefits sales.
- SLF Asia insurance sales were in line with the fourth quarter
of 2017, on Canadian dollar and constant currency bases, as sales
growth in the Philippines,
India and Hong Kong was offset by lower sales in
International due to the competitive environment and market
shifts.
Total Company wealth sales were $36.2
billion in the fourth quarter of 2018, up 3% (unchanged on a
constant currency basis) compared to the fourth quarter of
2017.
- SLF Canada wealth sales increased mainly due to large case
annuity sales in DBS in GRS sales, while individual wealth sales
were in line with the fourth quarter of 2017.
- SLF Asia wealth sales were lower as a result of lower sales in
India and Philippines and the currency impact from the
change in the Canadian dollar, partially offset by growth in
Hong Kong pension sales compared
to the fourth quarter of 2017.
- SLF Asset Management gross sales were consistent with the
fourth quarter of 2017 on a constant currency basis, and up
slightly after reflecting the impact of the movement of the
Canadian dollar.
The Company's VNB was $310 million
in the fourth quarter of 2018, up 17% compared to the fourth
quarter of 2017, driven by new business volume, improved
profitability in the U.S., and improved mix in GB in Canada, partially offset by lower volume in
International in SLF Asia.
2. Premiums and Deposits
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Net premium
revenue
|
5,313
|
4,369
|
4,078
|
18,642
|
15,281
|
Segregated fund
deposits
|
2,763
|
2,692
|
2,680
|
11,553
|
10,858
|
Mutual fund
sales(1)
|
22,135
|
18,746
|
21,329
|
84,202
|
87,515
|
Managed fund
sales(1)
|
9,629
|
7,962
|
11,170
|
38,903
|
44,093
|
ASO premium and
deposit equivalents(1)
|
1,673
|
1,693
|
1,709
|
6,808
|
6,933
|
Total premiums and
deposits(1)
|
41,513
|
35,462
|
40,966
|
160,108
|
164,680
|
Total adjusted
premiums and deposits(1)(2)
|
40,512
|
34,939
|
41,731
|
161,371
|
167,706
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
Adjusted premiums and
deposits is a non-IFRS financial measure that excludes from
premiums and deposits the impact of Constant Currency Adjustment
and Reinsurance in SLF Canada's Group Benefits Operations
Adjustment as described in section J - Non-IFRS Financial Measures
in this document.
|
Net premium revenue was $5.3
billion, up $1.2 billion from
the fourth quarter of 2017. Net premium revenue was $18.6 billion in 2018, up $3.4 billion from 2017. In both the fourth
quarter of 2018 and 2018, net premium growth was primarily driven
by increases in GB and GRS in SLF Canada, partially offset by lower
premiums in International in SLF Asia.
Segregated fund deposits were $2.8
billion in the fourth quarter of 2018, compared to
$2.7 billion in the fourth quarter of
2017. Segregated fund deposits were $11.6
billion in 2018, compared to $10.9
billion in 2017. In both cases, the increase was primarily
driven by GRS and Individual Wealth in SLF Canada.
Sales of mutual funds were $22.1
billion in the fourth quarter of 2018 increased $0.8 billion from the fourth quarter of 2017,
largely driven by higher sales in MFS and the currency impact from
the change in the Canadian dollar, partially offset by lower sales
in India and the Philippines in SLF Asia. Sales of mutual
funds were $84.2 billion in 2018,
compared to $87.5 billion in 2017,
primarily due to the decreased sales in India and the
Philippines in SLF Asia, and the currency impact from the
change in the Canadian dollar.
Sales of managed funds of $9.6
billion in the fourth quarter of 2018 decreased by
$1.6 billion from the fourth quarter
of 2017, primarily due to lower sales in MFS and SLIM, partially
offset by the currency impact from the change in the Canadian
dollar and increased sales in Hong
Kong in Asia. Sales of
managed funds of $38.9 billion in
2018 decreased $5.2 billion from 2017
primarily due to decreases from MFS and SLIM, partially offset by
increased sales in Hong Kong in
SLF Asia.
ASO premium and deposit equivalents in the fourth quarter of
2018 and for 2018 were both down compared to the same periods in
2017. In both cases, the decrease was attributable to Hong Kong in SLF Asia, partially offset by
increases in GRS and GB in SLF Canada.
The currency impact for total premium and deposits for the
fourth quarter of 2018 from the change in the Canadian dollar
relative to average exchange rates in the fourth quarter of 2017
increased total premiums and deposits by approximately $1.1 billion. The change in the Canadian dollar
in 2018 relative to average exchange rates in 2017 decreased total
premium and deposits by $0.7
billion.
3. Assets Under Management
AUM consist of
general funds, segregated funds, and other AUM. Other AUM includes
mutual funds and managed funds, which include institutional and
other third-party assets managed by the Company.
|
Quarterly
results
|
($
millions)
|
Q4'18
|
Q3'18
|
Q2'18
|
Q1'18
|
Q4'17
|
Assets under
management(1)
|
|
|
|
|
|
General fund
assets
|
168,765
|
162,439
|
164,709
|
163,499
|
162,720
|
Segregated
funds
|
103,062
|
108,298
|
108,692
|
106,221
|
106,392
|
Mutual funds, managed
funds and other AUM(1)
|
679,316
|
712,782
|
712,719
|
709,206
|
705,673
|
Total
AUM(1)
|
951,143
|
983,519
|
986,120
|
978,926
|
974,785
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
AUM were $951.1 billion as at
December 31, 2018, compared to AUM of
$974.8 billion as at December 31, 2017. The decrease in AUM of
$23.7 billion between December 31, 2017 and December 31, 2018 resulted primarily from:
|
(i)
|
a decrease of $52.1
billion from unfavourable market movements;
|
|
(ii)
|
net outflow of
mutual, managed, and segregated funds of $34.5 billion; partially
offset by
|
|
(iii)
|
an increase of $57.9
billion from the weakening of the Canadian dollar relative to
exchange rates at the end of the fourth quarter of 2017;
and
|
|
(iv)
|
an increase of $5.0
billion of business growth and other activities.
|
The net outflow of mutual, managed, and segregated funds of
$34.5 billion in 2018 was
predominantly driven by net outflows from MFS of $38.5 billion, which were partially offset by net
inflows of $2.0 billion in SLF
Canada, $1.7 billion in SLF Asia, and
$1.2 billion in SLIM. For the fourth
quarter of 2018, net outflows of mutual, managed and segregated
funds were $7.7 billion,
predominantly driven by net outflows in MFS of $8.7 billion, partially offset by net inflows of
$0.2 billion in SLIM, $0.7 billion in SLF Asia and $0.4 billion in SLF Canada.
E. Financial Strength
|
Quarterly
results
|
|
Q4'18
|
Q3'18
|
Q2'18
|
Q1'18
|
Q4'17
|
LICAT
Ratio(1)
|
|
|
|
|
|
Sun Life Financial
Inc.
|
144%
|
145%
|
149%
|
149%
|
n/a
|
Sun Life
Assurance
|
131%
|
130%
|
134%
|
139%
|
n/a
|
Financial leverage
ratio(2)
|
21.2%
|
21.9%
|
21.8%
|
22.2%
|
23.6%
|
Dividend
|
|
|
|
|
|
Dividend payout
ratio(2)
|
42%
|
40%
|
40%
|
36%
|
43%
|
Dividends per common
share ($)
|
0.500
|
0.475
|
0.475
|
0.455
|
0.455
|
Capital
|
|
|
|
|
|
Subordinated debt and
innovative capital instruments(3)
|
3,738
|
3,738
|
3,737
|
3,736
|
4,136
|
Participating
policyholders' equity and non-controlling interests
|
864
|
802
|
517
|
475
|
650
|
Preferred
shareholders' equity
|
2,257
|
2,257
|
2,257
|
2,257
|
2,257
|
Common shareholders'
equity
|
21,449
|
20,577
|
20,959
|
20,547
|
20,064
|
Total
capital
|
28,308
|
27,374
|
27,470
|
27,015
|
27,107
|
(1)
|
LICAT ratios are not
applicable before January 1, 2018.
|
(2)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(3)
|
Innovative capital
instruments consist of Sun Life ExchangEable Capital Securities,
and qualify as regulatory capital. However, under IFRS they are
reported as Senior debentures in our Consolidated Financial
Statements. For additional information, see section I - Capital and
Liquidity Management - 1 - Capital in our 2018 annual
MD&A.
|
Effective January 1, 2018, the
Office of the Superintendent of Financial Institutions ("OSFI")
replaced the MCCSR capital adequacy guideline with Life Insurance
Capital Adequacy Test. The LICAT guideline established the
standards used by OSFI to assess whether a life insurer maintains
adequate capital or an adequate margin to support risks specific to
the life insurance business.
SLF Inc. is a non-operating insurance company and is subject to
the LICAT guideline. As at December 31,
2018, SLF Inc.'s LICAT ratio was 144%, which is well above
OSFI's regulatory minimum ratio of 90%.
Sun Life Assurance, SLF Inc.'s principal operating life
insurance subsidiary, is also subject to the LICAT guideline. As at
December 31, 2018, Sun Life
Assurance's LICAT ratio was 131%, well above OSFI's supervisory
ratio of 100% and regulatory minimum ratio of 90%.
Our total capital consists of subordinated debt and other
capital instruments, participating policyholders' equity, and total
shareholders' equity which includes common shareholders' equity and
preferred shareholders' equity. As at December 31, 2018, our total capital was
$28.3 billion, compared to
$27.1 billion as at December 31, 2017. The increase in total capital
was primarily the result of common shareholders' net income of
$2,522 million and the foreign
currency translation gain included in other comprehensive income
(loss) ("OCI") of $906 million,
partially offset by the payment of $1,147
million of dividends on common shares, common shares
purchased under the normal course issuer bid of $641 million detailed below, and the redemption
of $400 million of subordinated
debentures detailed below.
The legal entity, SLF Inc. (the ultimate parent company), and
its wholly-owned holding companies had $2,523 million in cash and other liquid assets as
at December 31, 2018 ($2,019 million as at December 31, 2017). The increase in cash and
liquid assets in these holding companies in 2018 was primarily
attributable to the dividends from the operating companies
including Sun Life Assurance, which were partially offset by the
payment of $1,147 million of
dividends on common shares, common shares purchased under the
normal course issuer bid of $641
million, and redemption of $400
million of subordinated debentures. Liquid assets as noted
above include cash and cash equivalents, short-term investments and
publicly traded securities.
On January 30, 2018, SLF Inc.
redeemed all of the outstanding $400
million principal amount of Series 2008-1 Subordinated
Unsecured 5.59% Fixed/Floating Debentures at a redemption price
equal to the principal amount together with accrued and unpaid
interest to that date.
Normal Course Issuer Bid
On August 14, 2018, SLF Inc. renewed its normal
course issuer bid. This normal course issuer bid remains in effect
until the earlier of August 13, 2019
and the date on which SLF Inc. has purchased an aggregate of 14.0
million common shares under the bid. Share purchases were as
follows:
|
Q4'18
|
2018
|
|
Common
Shares
|
Amount
|
Common
Shares
|
Amount
|
|
Purchased(1) (millions)
|
($
millions)
|
Purchased(1) (millions)
|
($
millions)
|
Bid announced August
2017 (expired August 13, 2018)
|
—
|
—
|
4.0
|
216
|
Bid announced August
2018
|
5.0
|
235
|
8.6
|
425
|
|
5.0
|
235
|
12.6
|
641
|
|
|
(1) All of
the common shares purchased under SLF Inc.'s normal course issuer
bids during 2018 were subsequently cancelled.
|
F. Performance by Business Group
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Reported net income
(loss)
|
|
|
|
|
|
SLF Canada
|
96
|
335
|
172
|
942
|
963
|
SLF
U.S.(1)
|
118
|
(267)
|
(63)
|
52
|
(144)
|
SLF Asset
Management
|
244
|
241
|
114
|
909
|
653
|
SLF
Asia(1)
|
125
|
164
|
121
|
555
|
778
|
Corporate
|
(3)
|
94
|
(137)
|
64
|
(101)
|
Total reported net
income (loss)
|
580
|
567
|
207
|
2,522
|
2,149
|
Underlying net income
(loss)(2)
|
|
|
|
|
|
SLF Canada
|
245
|
251
|
232
|
1,036
|
949
|
SLF
U.S.(1)
|
121
|
139
|
95
|
514
|
376
|
SLF Asset
Management
|
227
|
251
|
226
|
925
|
812
|
SLF
Asia(1)
|
140
|
110
|
111
|
523
|
461
|
Corporate
|
(15)
|
(21)
|
(23)
|
(51)
|
(52)
|
Total underlying net
income (loss)(2)
|
718
|
730
|
641
|
2,947
|
2,546
|
(1)
|
Effective January 1,
2018, we transferred our International business unit from SLF U.S.
to SLF Asia, and comparative figures in 2017 have been changed to
conform with the current year presentation.
|
(2)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
Information describing the business groups and their respective
business units is included in our 2018 annual MD&A. All factors
discussed in this document that impact our underlying net income
are also applicable to reported net income.
1. SLF Canada
|
Quarterly
results
|
Full Year
|
($ millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Individual Insurance
& Wealth
|
(27)
|
143
|
42
|
328
|
415
|
Group
Benefits
|
59
|
51
|
78
|
282
|
332
|
Group Retirement
Services
|
64
|
141
|
52
|
332
|
216
|
Reported net income
(loss)
|
96
|
335
|
172
|
942
|
963
|
Market related
impacts(1)
|
(134)
|
46
|
(38)
|
(117)
|
8
|
Assumption changes and
management actions(2)
|
(14)
|
39
|
(24)
|
23
|
22
|
Other
adjustments(3)
|
(1)
|
(1)
|
2
|
—
|
(16)
|
Underlying net income
(loss)(2)
|
245
|
251
|
232
|
1,036
|
949
|
Reported ROE
(%)(2)(4)
|
5.5
|
19.4
|
9.0
|
13.8
|
12.6
|
Underlying ROE
(%)(2)(4)
|
14.1
|
14.5
|
12.2
|
15.2
|
12.4
|
Insurance
sales(2)
|
219
|
203
|
227
|
984
|
1,125
|
Wealth
sales(2)
|
4,883
|
3,539
|
3,183
|
15,286
|
14,976
|
(1)
|
See section J -
Non-IFRS Financial Measures in this document for a breakdown of
components within this adjustment.
|
(2)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(3)
|
Mainly comprised of
certain hedges in SLF Canada that do not qualify for hedge
accounting. For further information, see section J - Non-IFRS
Financial Measures in this document.
|
(4)
|
The adoption of LICAT
impacted the capital allocation for SLF Canada. As a result,
reported and underlying ROEs increased approximately 1.6% and
1.8%, respectively, in both the fourth quarter of and
year ended 2018.
|
Profitability
Q4 2018 vs. Q4 2017
SLF Canada's reported net income
was $96 million in the fourth quarter
of 2018, compared to $172 million in
the fourth quarter of 2017. Underlying net income in the fourth
quarter of 2018 was $245 million,
compared to $232 million in the
fourth quarter of 2017.
Reported net income in the fourth quarter of 2018 compared to
the fourth quarter of 2017 reflected unfavourable equity market
impacts partially offset by favourable credit spread impacts, and
favourable ACMA. Underlying net income in the fourth quarter of
2018 compared to the same period in 2017 reflected favourable
expense experience that resulted from ongoing expense management
and lower incentive compensation costs and favourable policy
administration updates, partially offset by less favourable
investment experience.
2018 vs. 2017
Reported net income was $942 million in 2018, compared to $963 million in 2017. Underlying net income was
$1,036 million in 2018, compared to
$949 million in 2017.
Reported net income in 2018 compared to 2017 reflected
unfavourable equity market impacts partially offset by favourable
credit spread impacts and a favourable impact from certain hedges
that do not qualify for hedge accounting. Underlying net income in
2018 compared to 2017 reflected the interest on par seed capital,
business growth and favourable expense experience that resulted
from ongoing expense management and lower incentive compensation
costs, partially offset by less favourable impacts from investment
experience.
Growth
Q4 2018 vs. Q4 2017
SLF Canada insurance sales were
$219 million in the fourth quarter of
2018, compared to $227 million in the
fourth quarter of 2017, due to lower individual insurance
sales compared to the same quarter in 2017. Sales in GB of
$111 million increased 4% compared to
fourth quarter 2017, driven by higher life and ASO sales.
SLF Canada wealth sales of $4.9
billion in the fourth quarter of 2018 increased compared to
$3.2 billion in the fourth quarter of
2017, primarily due to large case annuity sales in DBS in GRS.
Individual wealth sales of $1.5
billion were in line with the same quarter of the prior
year.
2018 vs. 2017
SLF Canada insurance sales were
$984 million in 2018, compared to
$1,125 million in 2017, following a
strong first quarter in 2017 in individual insurance sales as a
result of tax legislation and product design changes. Sales in GB
of $588 million decreased 13%
compared to 2017 due to several large case sales in 2017.
SLF Canada wealth sales were $15.3
billion in 2018, compared to $15.0
billion in 2017. Individual wealth sales of $6.3 billion were up 6% in 2018 compared to 2017,
driven by continued growth in our wealth manufactured(1)
products, including SLGI(2) mutual funds and Sun
GIF(3) segregated funds. GRS sales of $9.0 billion were in line with 2017.
AUM for our wealth businesses, as at December 31, 2018 was $120.2 billion, a slight decrease from
$120.8 billion at year-end 2017.
Market depreciation from capital markets movements was largely
offset by net inflows to our funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents individual
wealth products developed by Sun Life Financial, which include Sun
Life Global Investments mutual funds, Sun Life Guaranteed
Investment Funds segregated funds, Guaranteed Investment
Certificates, and Accumulation and Payout Annuities.
|
(2)
|
Sun Life Global
Investments (Canada) Inc.
|
(3)
|
Sun Life Guaranteed
Investment Funds
|
2. SLF U.S.
|
Quarterly
results
|
Full Year
|
(US$
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Group
Benefits
|
59
|
68
|
30
|
217
|
140
|
In-force
Management
|
30
|
(273)
|
(79)
|
(176)
|
(247)
|
Reported net income
(loss)
|
89
|
(205)
|
(49)
|
41
|
(107)
|
Market related
impacts(1)
|
4
|
(4)
|
(25)
|
(21)
|
(44)
|
Assumption changes and
management actions(1)(2)
|
—
|
(301)
|
—
|
(302)
|
(210)
|
Acquisition,
integration and restructuring(3)
|
(6)
|
(6)
|
(8)
|
(32)
|
(52)
|
U.S. tax
reform(2)
|
—
|
—
|
(90)
|
—
|
(90)
|
Underlying net income
(loss)(1)
|
91
|
106
|
74
|
396
|
289
|
Reported ROE
(%)
|
13.1
|
(30.6)
|
(7.2)
|
1.5
|
(4.1)
|
Underlying ROE
(%)(1)
|
13.5
|
15.7
|
10.9
|
14.6
|
11.1
|
After-tax profit margin
for Group Benefits (%)(4)
|
6.7
|
6.4
|
5.0
|
6.7
|
5.0
|
Insurance
sales(1)
|
639
|
132
|
494
|
999
|
863
|
|
|
|
|
|
|
(C$
millions)
|
|
|
|
|
|
Reported net income
(loss)
|
118
|
(267)
|
(63)
|
52
|
(144)
|
Underlying net income
(loss)(1)
|
121
|
139
|
95
|
514
|
376
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
ACMA in 2017 excludes
the charge included in U.S. tax reform, shown
separately.
|
(3)
|
Acquisition,
integration and restructuring amounts related to the acquisition
and integration costs of the U.S. employee benefits business
acquired in 2016 and Maxwell Health acquired in 2018.
|
(4)
|
Based on underlying
net income, on a trailing four quarter basis, and which is
described in section J - Non-IFRS Financial Measures in this
document.
|
Profitability
Q4 2018 vs. Q4 2017
SLF U.S.'s reported net income was
US$89 million ($118 million) in the fourth quarter of 2018,
compared to reported net loss of US$49
million ($63 million) in the
fourth quarter of 2017. Underlying net income was US$91 million ($121
million), compared to US$74
million ($95 million) in the
fourth quarter of 2017. The impact from the movement of the
Canadian dollar in the fourth quarter of 2018 relative to average
exchange rates in the fourth quarter of 2017 increased reported and
underlying net income by $5
million.
Reported net income in the fourth quarter of 2018 compared to
the fourth quarter of 2017 reflected the US$90 million ($114
million) charge in 2017 related to the enactment of the U.S.
tax reform. The increase also reflected favourable interest rate
impacts in the fourth quarter of 2018. Underlying net income in the
fourth quarter of 2018 compared to the fourth quarter of 2017
reflected the impact of lower income tax rates in the U.S.,
business growth, favourable lapse and policyholder behaviour
experience in In-force Management, and reinsurance administration
updates, partially offset by unfavourable morbidity experience in
Group Benefits and unfavourable mortality experience in In-force
Management.
The after-tax profit margin for Group Benefits was 6.7% as of
the fourth quarter of 2018, compared to 5.0% as of the fourth
quarter of 2017.
2018 vs. 2017
SLF U.S.'s reported net income was
US$41 million ($52 million) in 2018, compared to reported net
loss of US $107 million ($144 million) in 2017. Underlying net income was
US$396 million ($514 million) in 2018 compared to US$289 million ($376
million) in 2017. The impact from the movement of the
Canadian dollar in 2018 relative to average exchange rates in 2017
did not impact reported net income, and decreased underlying net
income by $1 million.
Reported net income in 2018 compared to 2017 reflected the
US$90 million ($114 million) charge in 2017 related to the
enactment of the U.S. tax reform. The increase also reflected less
unfavourable net interest rate impacts, and lower acquisition,
integration, and restructuring costs as the integration of the 2016
employee benefits acquisition was drawing to a successful close.
These increases were partially offset by more unfavourable
ACMA(1). Underlying net income in 2018 compared to 2017
reflected the impact of lower income tax rates in the U.S.,
business growth, the interest on par seed capital, favourable
morbidity experience, and the impact of investment activity on
insurance contract liabilities. These items were partially offset
by unfavourable mortality experience.
Growth
Q4 2018 vs. Q4 2017
SLF U.S. insurance sales were
US$639 million in the fourth quarter
of 2018 compared to US$494 million in
the fourth quarter of 2017 were driven by 33% growth in employee
benefits, largely due to an increase in group disability sales, and
27% growth in medical stop-loss.
2018 vs. 2017
SLF U.S. insurance sales of US$999 million increased by US$136 million or 16% in 2018 compared to 2017,
driven by growth in both employee benefits and medical stop-loss,
up 16% and 15%, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See section D -
Profitability - 2018 vs. 2017 - ii. Assumption changes and
management actions in our 2018 annual MD&A for
details on ACMA in 2018.
|
|
3. SLF Asset Management
|
Quarterly
results
|
Full Year
|
SLF Asset
Management (C$ millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Reported net
income
|
244
|
241
|
114
|
909
|
653
|
Fair value adjustments
on MFS's share-based payment awards(1)
|
28
|
(10)
|
(34)
|
(5)
|
(81)
|
Other(2)(3)
|
(11)
|
—
|
(78)
|
(11)
|
(78)
|
Underlying net
income(1)
|
227
|
251
|
226
|
925
|
812
|
Assets under management
(C$ billions)(1)
|
649.7
|
687.2
|
677.6
|
649.7
|
677.6
|
Gross sales (C$
billions)(1)
|
29.4
|
24.4
|
28.5
|
111.4
|
117.3
|
Net sales (C$
billions)(1)
|
(8.5)
|
(9.0)
|
(3.4)
|
(37.3)
|
(22.4)
|
MFS (C$
millions)
|
|
|
|
|
|
Reported net
income
|
249
|
232
|
91
|
893
|
612
|
Fair value adjustments
on MFS's share-based payment awards(1)
|
28
|
(10)
|
(34)
|
(5)
|
(81)
|
U.S. tax
reform(3)
|
—
|
—
|
(95)
|
—
|
(95)
|
Underlying net
income(1)
|
221
|
242
|
220
|
898
|
788
|
Assets under management
(C$ billions)(1)
|
584.2
|
625.9
|
618.3
|
584.2
|
618.3
|
Gross sales (C$
billions)(1)
|
27.9
|
22.8
|
25.6
|
104.3
|
106.5
|
Net sales (C$
billions)(1)
|
(8.7)
|
(9.5)
|
(5.0)
|
(38.5)
|
(28.5)
|
MFS (US$
millions)
|
|
|
|
|
|
Reported net
income
|
189
|
178
|
72
|
689
|
471
|
Fair value adjustments
on MFS's share-based payment awards(1)
|
22
|
(8)
|
(27)
|
(4)
|
(64)
|
U.S. tax
reform
|
—
|
—
|
(75)
|
—
|
(75)
|
Underlying net
income(1)
|
167
|
186
|
174
|
693
|
610
|
Pre-tax net operating
profit margin ratio(1)
|
38%
|
40%
|
40%
|
38%
|
38%
|
Average net assets (US$
billions)(1)
|
451.6
|
482.9
|
482.6
|
477.5
|
460.5
|
Assets under management
(US$ billions)(1)(4)
|
428.4
|
485.0
|
491.6
|
428.4
|
491.6
|
Gross sales (US$
billions)(1)
|
21.1
|
17.4
|
20.1
|
80.6
|
82.1
|
Net sales (US$
billions)(1)
|
(6.6)
|
(7.3)
|
(4.0)
|
(29.7)
|
(21.8)
|
Asset appreciation
(depreciation) (US$ billions)
|
(50.0)
|
18.2
|
21.4
|
(33.5)
|
87.8
|
S&P 500 Index
(daily average)
|
2,689
|
2,849
|
2,605
|
2,744
|
2,448
|
MSCI EAFE Index (daily
average)
|
1,809
|
1,964
|
2,005
|
1,965
|
1,886
|
SLIM (C$
millions)
|
|
|
|
|
|
Reported net
income
|
(5)
|
9
|
23
|
16
|
41
|
Other(2)(3)
|
(11)
|
—
|
17
|
(11)
|
17
|
Underlying net
income(1)
|
6
|
9
|
6
|
27
|
24
|
Assets under management
(C$ billions)(1)
|
65.5
|
61.3
|
59.3
|
65.5
|
59.3
|
Gross sales (C$
billions)(1)
|
1.5
|
1.6
|
2.9
|
7.0
|
10.8
|
Net sales (C$
billions)(1)
|
0.2
|
0.5
|
1.6
|
1.2
|
6.1
|
(1)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(2)
|
Includes $11 in
acquisition, integration, and restructuring amounts in 2018
relating to the merger of Bentall Kennedy and GreenOak, expected to
close in 2019.
|
(3)
|
In the fourth quarter
of 2017, this consists of a charge of $32 million relating to the
revaluation of its deferred tax balances, consisting of a charge of
$49 million for MFS, partially offset by a benefit of $17 million
for SLIM, and a one-time charge on the deemed repatriation of
foreign earnings of $46 million for MFS in the fourth quarter of
2017.
|
(4)
|
Monthly information
on AUM is provided by MFS in its Corporate Fact Sheet, which can be
found at www.mfs.com/CorpFact. The Corporate Fact Sheet also
provides MFS's U.S. GAAP assets and liabilities as at December 31,
2018.
|
Profitability
Q4 2018 vs. Q4 2017
SLF Asset Management's reported
net income was $244 million in the
fourth quarter of 2018 compared to $114
million in the fourth quarter of 2017. SLF Asset Management
had underlying net income of $227
million in the fourth quarter of 2018 compared to
$226 million in the fourth quarter of
2017. The impact from the movement of the Canadian dollar in the
fourth quarter of 2018 relative to average exchange rates in the
fourth quarter of 2017 increased reported net income and underlying
net income by $10 million and
$9 million, respectively.
MFS's reported net income was US$189
million in the fourth quarter of 2018 compared to
US$72 million in the fourth quarter
of 2017. MFS's reported net income compared to the fourth quarter
of 2017 reflected the US$75 million
charge in 2017 related to the enactment of the U.S. tax reform. The
increase also reflected the impact of negative fair value
adjustments on MFS's share-based payment awards. MFS's underlying
net income was US$167 million in the
fourth quarter of 2018 compared to US$174
million in the fourth quarter of 2017 as a result of lower
average net assets, largely offset by the lower income tax rate in
the U.S. The pre-tax net operating profit margin ratio for MFS for
the fourth quarter of 2018 of 38%, was down from 40% for the fourth
quarter of 2017.
SLIM's reported net loss was $5
million compared to net income of $23
million in the fourth quarter of 2017, primarily due to the
$17 million benefit in 2017 related
to the enactment of the U.S. tax reform. The decrease also
reflected acquisition expenses incurred in 2018 for the pending
GreenOak transaction. SLIM's underlying net income of $6 million was in line with the fourth quarter of
2017.
2018 vs. 2017
SLF Asset Management's reported net
income in 2018 was $909 million
compared to $653 million in 2017.
Underlying net income was $925
million in 2018 compared to $812
million in 2017. The impact from the movement of the
Canadian dollar in 2018 relative to average exchange rates in 2017
decreased reported net income and underlying net income by
$2 million.
MFS's reported net income in 2018 was US$689 million compared to US$471 million in 2017. MFS's reported net income
in 2018 compared to 2017 reflected the US$75
million charge in 2017 related to the enactment of the U.S
tax reform. The increase also reflected the impact of lower fair
value adjustments on MFS's share-based payment awards. MFS's
underlying net income was US$693
million in 2018 compared to US$610
million in 2017 which reflected the impact of the lower
income tax rate in the U.S. and higher fee income from higher
average net assets.
SLIM's reported net income in 2018 was $16 million compared to $41 million in 2017, reflecting the $17 million benefit in 2017 related to the
enactment of the U.S tax reform. The decrease also reflected the
impact of acquisition expenses incurred in 2018 for the pending
GreenOak transaction. SLIM's underlying net income was $27 million compared to $24 million in 2017.
Growth
SLF Asset Management's AUM was $649.7
billion as at December 31,
2018, compared to $677.6
billion as at December 31,
2017. The decrease in AUM was primarily due to asset
depreciation and net outflows, partially offset by currency impact.
MFS's AUM was US$428.4 billion
($584.2 billion) as at December 31, 2018, compared to US $491.6 billion ($618.3
billion) as at December 31,
2017. The decrease of US$63.2
billion was primarily driven by asset depreciation of
US$33.5 billion, and net outflows of
US$29.7 billion.
78%, 79% and 94% of MFS's U.S. retail fund assets ranked in the
top half of their Lipper categories based on three-, five-, and
ten-year performance, respectively, as of December 31, 2018.
SLIM's AUM was $65.5 billion as at
December 31, 2018, compared to
$59.3 billion as at December 31, 2017. This increase was primarily
due to the impact of movement of the Canadian dollar relative to
exchange rates in 2017 and asset appreciation.
4. SLF Asia
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Insurance and
Wealth
|
101
|
89
|
83
|
381
|
326
|
International
|
24
|
75
|
38
|
174
|
452
|
Reported net income
(loss)
|
125
|
164
|
121
|
555
|
778
|
Market related
impacts(1)
|
(22)
|
(12)
|
15
|
(30)
|
38
|
Assumption changes and
management actions(1)
|
9
|
66
|
—
|
76
|
284
|
Other(2)
|
(2)
|
—
|
(5)
|
(14)
|
(5)
|
Underlying net income
(loss)(3)
|
140
|
110
|
111
|
523
|
461
|
Reported ROE
(%)(3)(4)
|
9.9
|
13.3
|
9.0
|
11.3
|
14.4
|
Underlying ROE
(%)(3)(4)
|
10.9
|
8.9
|
8.2
|
10.6
|
8.5
|
Insurance
sales(3)
|
251
|
202
|
252
|
898
|
811
|
Wealth
sales(3)
|
1,935
|
1,928
|
3,603
|
10,101
|
13,056
|
(1)
|
See section J -
Non-IFRS Financial Measures in this document for a breakdown of the
components.
|
(2)
|
Full Year 2018
pertains to a distribution arrangement in India for asset
management.
|
(3)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
(4)
|
As a result of a
revision of the capital allocation model for SLF Asia, reported and
underlying ROEs increased by 1.5% in both the fourth quarter of and
year ended 2018.
|
Profitability
Q4 2018 vs. Q4 2017
SLF Asia's reported net income was
$125 million in the fourth quarter of
2018 compared to reported net income of $121
million in the fourth quarter of 2017. Underlying net income
was $140 million compared to
$111 million in the fourth quarter of
2017. The impact from the movement of the Canadian dollar in the
fourth quarter of 2018 relative to average exchange rates in the
fourth quarter of 2017 increased reported net income and underlying
net income by $1 million and
$2 million, respectively.
Reported net income in the fourth quarter of 2018 compared to
the fourth quarter of 2017 reflected unfavourable market related
impacts, primarily equity markets as well as net interest rate
impacts, partially offset by favourable ACMA. Underlying net income
in the fourth quarter of 2018 compared to the fourth quarter of
2017 reflected favourable investment experience and investment
related experience in International, partially offset by higher new
business strain.
2018 vs. 2017
Reported net income was $555 million in 2018 compared to $778 million in 2017. Underlying net income in
2018 was $523 million compared to
$461 million in the prior year. The
impact from the movement in the Canadian dollar in 2018 relative to
average exchange rates in 2017 decreased reported net income and
underlying net income by $12 million
and $10 million, respectively.
Reported net income in 2018 compared to 2017 predominantly
reflected less favourable ACMA and unfavourable equity markets.
Underlying net income in 2018 compared to 2017 reflected growth in
the business and investment related experience in International,
partially offset by higher new business strain, unfavourable
expense experience reflecting business growth initiatives across
SLF Asia and unfavourable mortality experience in
International.
Growth
Q4 2018 vs. Q4 2017
SLF Asia insurance sales of
$251 million in the fourth quarter of
2018 were in line with $252 million
in the fourth quarter of 2017. On a Canadian dollar and a constant
currency basis, total individual insurance sales were in line
compared to the fourth quarter of 2017 as sales growth in
the Philippines, India and Hong
Kong was offset by lower sales in International due to the
competitive environment and market volatility.
SLF Asia wealth sales were $1.9
billion in the fourth quarter of 2018, compared to
$3.6 billion in the fourth quarter of
2017 as a result of lower fixed income and equity sales in
India due to market volatility and
in our asset management company in the
Philippines due to elevated money market sales in 2017,
partially offset by strong growth in Hong
Kong pension sales.
2018 vs. 2017
SLF Asia insurance sales were
$898 million in 2018 compared to
$811 million in 2017. On a constant
currency basis, individual insurance sales increased 13%, driven by
growth in the Philippines,
India, and Hong Kong, partially offset by lower sales in
International due to the competitive environment and market
volatility.
SLF Asia wealth sales were $10.1
billion in 2018 compared to $13.1
billion in 2017. Wealth sales were down 20% on a constant
currency basis from 2017 as a result of lower mutual funds sales in
India due to market volatility and
in the Philippines due to money
market sales in 2017, partially offset by growth in our
Hong Kong pensions business.
5. Corporate
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
SLF U.K.
|
31
|
134
|
6
|
250
|
181
|
Corporate
Support
|
(34)
|
(40)
|
(143)
|
(186)
|
(282)
|
Reported net income
(loss)
|
(3)
|
94
|
(137)
|
64
|
(101)
|
Market related
impacts(1)
|
(2)
|
(4)
|
—
|
(15)
|
5
|
Assumption changes and
management actions(1)(2)
|
18
|
122
|
(10)
|
140
|
55
|
Acquisition,
integration and restructuring(3)(4)
|
(4)
|
(3)
|
(50)
|
(10)
|
(55)
|
U.S. tax
reform(2)
|
—
|
—
|
(54)
|
—
|
(54)
|
Underlying net income
(loss)(4)
|
(15)
|
(21)
|
(23)
|
(51)
|
(52)
|
(1)
|
See section J -
Non-IFRS Financial Measures in this document for a breakdown of the
components.
|
(2)
|
ACMA in 2017 excludes
the charge included in U.S. tax reform, shown
separately.
|
(3)
|
Acquisition,
integration and restructuring amounts for the fourth quarter of
2017 consisted primarily of the impact of the restructuring charge
related to Company's plan to enhance business processes and
organizational structures and capabilities. The adjustment also
includes acquisition and integration costs from Bentall Kennedy
Group of Companies, Prime Advisors Inc. and Ryan Labs Asset
Management Inc. in Corporate Support.
|
(4)
|
Represents a non-IFRS
financial measure. See section J - Non-IFRS Financial Measures in
this document.
|
Profitability
Q4 2018 vs. Q4 2017
Corporate had reported net loss of
$3 million in the fourth quarter of
2018, compared to reported loss of $137
million in the fourth quarter of 2017, which reflected the
$54 million charge in 2017 related to
the enactment of the U.S tax reform. The favourable change also
reflected the 2017 restructuring charge and favourable ACMA in 2018
relating to the termination of assumed business. Underlying net
loss was $15 million in the fourth
quarter of 2018, compared to underlying loss of $23 million in the fourth quarter of 2017.
SLF U.K.'s reported net income in the fourth quarter of 2018
increased compared to the fourth quarter of 2017, reflecting the
unfavourable impacts from the treatment of policyholder tax losses
in 2017 and ACMA.
Corporate Support had a reported net loss of $34 million in the fourth quarter of 2018,
compared to a reported net loss of $143
million in the fourth quarter of 2017. The favourable change
was primarily due to the $54 million
charge in 2017 related to the enactment of the U.S. tax reform and
the 2017 restructuring charge. The favourable change also reflected
favourable ACMA relating to the termination of assumed
business.
2018 vs. 2017
Reported net income was $64 million in the Corporate segment in 2018,
compared to a reported net loss of $101
million in 2017, which reflected the $54 million charge in 2017 related to the
enactment of the U.S tax reform and the 2017 restructuring charge.
The increase also reflected the favourable impact of ACMA,
partially offset by unfavourable market related impacts,
predominately due to net interest rate impacts. Underlying net loss
was $51 million in 2018, compared to
an underlying net loss of $52 million
in the prior year, reflecting increased profitability in SLF U.K.
and higher investment income on surplus assets, largely offset by
lower benefit of tax related items. The impact from the movement of
the Canadian dollar relative to average exchange rates in 2017
decreased reported net loss by $8
million and decreased underlying net loss by $5 million.
SLF U.K.'s reported net income in 2018 compared to 2017
reflected the favourable impact of ACMA, increased profitability,
partially offset by unfavourable market related impacts,
predominately due to net interest rate impacts.
In Corporate Support, the reported net loss in 2018 was
$186 million compared to a reported
net loss of $282 million in 2017. The
decrease in loss was primarily due to the $54 million charge in 2017 related to the
enactment of the U.S tax reform and the 2017 restructuring charge.
The favourable change also reflected favourable ACMA relating to
the termination of assumed business, higher investment income on
surplus assets, partially offset by lower benefit of tax related
items.
G. Investments
We had total general fund invested assets of $151.7 billion as at December 31, 2018, compared to $146.1 billion as at December 31, 2017. The increase in general fund
invested assets was primarily due to an increase in operating
activities as well as changes in the currency impact from the
weakening of Canadian dollar relative to exchange rates at the end
of the fourth quarter of 2017, offset by a decline in net fair
value. Our general fund invested assets are well diversified across
investment types, geographies and sectors with the majority of our
portfolio invested in fixed income high-quality assets.
The following table sets out the composition of our general fund
invested assets.(1)
|
December 31,
2018
|
December 31,
2017
|
|
Carrying
|
% of
total
|
Carrying
|
% of total
|
($ millions)
|
value
|
carrying
value
|
value
|
carrying
value
|
Cash, cash equivalents
and short-term securities
|
9,506
|
6%
|
8,890
|
6%
|
Debt
securities
|
74,443
|
49%
|
72,619
|
50%
|
Equity
securities
|
4,634
|
3%
|
6,020
|
4%
|
Mortgages and
loans
|
46,822
|
31%
|
42,805
|
29%
|
Derivative
assets
|
1,112
|
1%
|
1,478
|
1%
|
Other invested
assets
|
4,830
|
3%
|
4,154
|
3%
|
Policy loans
|
3,222
|
2%
|
3,106
|
2%
|
Investment
properties
|
7,157
|
5%
|
7,067
|
5%
|
Total invested
assets
|
151,726
|
100%
|
146,139
|
100%
|
(1)
|
The values and ratios
presented are based on the carrying value of the respective asset
categories. Generally, the carrying values for Fair value through
profit or loss ("FVTPL") and AFS invested assets are equal to their
fair values; however our mortgages and loans are generally carried
at amortized cost. For invested assets supporting insurance
contracts, in the event of default, if the amounts recovered are
insufficient to satisfy the related insurance contract liability
cash flows that the assets are intended to support, credit exposure
may be greater than the carrying value of the assets.
|
1. Debt Securities
Our debt securities portfolio
is actively managed through a regular program of purchases and
sales aimed at optimizing yield, quality and liquidity, while
ensuring that it remains well diversified and duration-matched to
insurance contract liabilities. With the exception of certain
countries where we have business operations, including Canada, the United
States, the United Kingdom
and the Philippines, our exposure
to debt securities from any single country did not exceed 1% of
total invested assets on our 2018 Annual Consolidated Financial
Statements.
The carrying value of FVTPL and AFS debt securities by
geographic location is presented in the following table.
|
December 31,
2018
|
|
December 31,
2017
|
|
|
FVTPL
|
|
|
|
FVTPL
|
|
|
|
|
debt
|
AFS
debt
|
|
|
debt
|
AFS debt
|
|
|
($
millions)
|
securities
|
securities
|
Total
|
% of
Total
|
securities
|
securities
|
Total
|
% of Total
|
Debt
securities
|
|
|
|
|
|
|
|
|
Canada
|
25,091
|
4,217
|
29,308
|
38%
|
24,132
|
4,114
|
28,246
|
39%
|
United
States
|
21,329
|
5,917
|
27,246
|
37%
|
20,758
|
5,719
|
26,477
|
36%
|
Europe
|
8,840
|
1,278
|
10,118
|
14%
|
8,923
|
1,402
|
10,325
|
14%
|
Asia
|
3,673
|
445
|
4,118
|
6%
|
3,694
|
571
|
4,265
|
6%
|
Other
|
2,469
|
1,184
|
3,653
|
5%
|
2,460
|
846
|
3,306
|
5%
|
Total debt
securities
|
61,402
|
13,041
|
74,443
|
100%
|
59,967
|
12,652
|
72,619
|
100%
|
Our debt securities with a credit rating of "A" or higher
represented 72% of the total debt securities as at December 31, 2018, compared to 71% as at
December 31, 2017. Debt securities
with a credit rating of "BBB" or higher represented 99% of total
debt securities as at December 31,
2018, compared to 98% as at December
31, 2017.
Our gross unrealized losses as at December 31, 2018 for FVTPL and AFS debt
securities were $1.4 billion and
$0.2 billion, respectively, compared
with $0.3 billion and $0.1 billion, respectively, as at December 31, 2017.
2. Mortgages and Loans
Mortgages and loans in
this section are presented at their carrying value on our
Consolidated Statements of Financial Position. Our mortgage
portfolio consisted almost entirely of first mortgages and our loan
portfolio consisted of private placement loans.
The carrying value of mortgages and loans by geographic location
is presented in the following table.(1)
Mortgages and Loans by Geography
|
December 31,
2018
|
December 31,
2017
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Canada
|
8,557
|
13,238
|
21,795
|
8,390
|
13,265
|
21,655
|
United
States
|
7,876
|
11,458
|
19,334
|
7,103
|
9,542
|
16,645
|
Europe
|
—
|
3,628
|
3,628
|
—
|
2,706
|
2,706
|
Asia
|
—
|
332
|
332
|
—
|
265
|
265
|
Other
|
—
|
1,733
|
1,733
|
—
|
1,534
|
1,534
|
Total
|
16,433
|
30,389
|
46,822
|
15,493
|
27,312
|
42,805
|
% of Total Invested
Assets
|
11%
|
20%
|
31%
|
11%
|
19%
|
29%
|
(1)
|
The geographic
location for mortgages is based on the location of the property and
for loans it is based on the country of the creditor's
parent.
|
As at December 31, 2018, we held
$16.4 billion of mortgages compared
to $15.5 billion as at December 31, 2017. Our mortgage portfolio
consists entirely of commercial mortgages, including retail,
office, multi-family, industrial and land properties. As at
December 31, 2018, 33% of our
commercial mortgage portfolio consisted of multi-family residential
mortgages; there are no single family residential mortgages. Our
uninsured commercial portfolio had a weighted average loan-to-value
ratio of approximately 55% as at December
31, 2018, consistent with December
31, 2017. While we generally limit the maximum loan-to-value
ratio to 75% at issuance, we may invest in mortgages with a higher
loan-to-value ratio in Canada if
the mortgage is insured by the Canada Mortgage and Housing
Corporation ("CMHC"). The estimated weighted average debt service
coverage for our uninsured commercial portfolio is 1.75 times. Of
the $3.5 billion of multi-family
residential mortgages in the Canadian commercial mortgage
portfolio, 93% were insured by the CMHC.
As at December 31, 2018, we held
$30.4 billion of loans, compared to
$27.3 billion as at December 31, 2017. Private placement loans
provide diversification by type of loan, industry segment and
borrower credit quality. The private placement loan portfolio
consists of senior secured and unsecured loans to large- and
mid-market sized corporate borrowers, securitized lease/loan
obligations secured by a variety of assets, and project finance
loans in sectors such as power and infrastructure.
Mortgages and Loans Past Due or Impaired
The gross
carrying value and allowance for mortgages and loans past due or
impaired are presented in the following table.
|
December 31,
2018
|
|
Gross carrying
value
|
Allowance for
losses
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Not past
due
|
16,427
|
30,332
|
46,759
|
—
|
—
|
—
|
Past due:
|
|
|
|
|
|
|
Past due less than 90
days
|
—
|
14
|
14
|
—
|
—
|
—
|
Past due 90 days or
more
|
—
|
—
|
—
|
—
|
—
|
—
|
Impaired
|
31
|
93
|
124
|
25 (1)
|
50
|
75
|
Total
|
16,458
|
30,439
|
46,897
|
25
|
50
|
75
|
|
December 31,
2017
|
|
Gross carrying
value
|
Allowance for
losses
|
($
millions)
|
Mortgages
|
Loans
|
Total
|
Mortgages
|
Loans
|
Total
|
Not past
due
|
15,482
|
27,180
|
42,662
|
—
|
—
|
—
|
Past due:
|
|
|
|
|
|
|
Past due less than 90
days
|
—
|
71
|
71
|
—
|
—
|
—
|
Past due 90 days or
more
|
—
|
—
|
—
|
—
|
—
|
—
|
Impaired
|
33
|
89
|
122
|
22
(1)
|
28
|
50
|
Total
|
15,515
|
27,340
|
42,855
|
22
|
28
|
50
|
(1)
|
Includes $21 million
of sectoral provisions as at December 31, 2018, and $20 million of
sectoral provisions as at December 31, 2017.
|
Our impaired mortgages and loans, net of allowances for losses,
were $49 million as at December 31, 2018, compared to $72 million as at December
31, 2017.
3. Derivative Financial Instruments
The values
associated with our derivative instruments are presented in the
following table. Notional amounts serve as the basis for payments
calculated under derivatives contracts and are generally not
exchanged.
($
millions)
|
December 31,
2018
|
December 31,
2017
|
Net fair value asset
(liability)
|
(1,183)
|
(278)
|
Total notional
amount
|
59,198
|
54,121
|
Credit equivalent
amount(1)
|
542
|
561
|
Risk-weighted credit
equivalent amount(1)(2)
|
14.5
|
n/a
|
(1)
|
Amounts presented are
net of collateral received.
|
(2)
|
The December 31, 2018
risk-weighted credit amount is calculated under the new LICAT
guidelines which were effective January 1, 2018. LICAT ratios are
not applicable before January 1, 2018.
|
The total notional amount of our derivatives increased to
$59.2 billion as at December 31, 2018 from $54.1 billion as at December 31, 2017. The change in notional amount
is mainly attributable to an increase of $2.6 billion in foreign exchange contracts used
for hedging foreign currency assets, as well as an increase of
$2.3 billion in interest rate
contracts for risk management purposes.
The net fair value of derivatives was a liability of
$1,183 million as at December 31, 2018, compared to a liability of
$278 million as at December 31, 2017. The increase in the liability
was primarily due to the impact from changes in foreign exchange
rates and swap curves.
4. Asset Default Provision
We make provisions
for possible future credit events in the determination of our
insurance contract liabilities. The amount of the provision for
asset default included in insurance contract liabilities is based
on possible reductions in future investment yields that vary by
factors such as type of asset, asset credit quality (rating),
duration and country of origin. To the extent that an asset is
written off, or disposed of, any amounts that were set aside in our
insurance contract liabilities for possible future asset defaults
in respect of that asset are released.
Our asset default provision reflects the provision relating to
future credit events for fixed income assets currently held by the
Company that support our insurance contract liabilities. Our asset
default provision as at December 31,
2018 was $2,389 million
compared to $2,288 million as at
December 31, 2017. The increase of
$101 million was primarily due to
increases in the provision for assets purchased net of
dispositions, weakening of the Canadian dollar, and changes to
credit ratings, offset by the release of provisions on fixed income
assets supporting our insurance contract liabilities.
H. Risk Management
The Company has established a Risk Management Framework to
assist in identifying, measuring, managing, monitoring and
reporting risks. The Risk Management Framework covers all risks and
these have been grouped into six major categories: credit, market,
insurance, business and strategic, operational and liquidity
risks.
Through our enterprise risk management processes, we oversee the
various risk factors identified in the Risk Management Framework
and provide reports to senior management and to the Board
Committees at least quarterly. Our enterprise risk management
processes and risk factors are described in our annual MD&A and
AIF.
When referring to segregated funds in this section, it is
inclusive of segregated fund guarantees, variable annuities and
investment products and includes Run-off reinsurance in our
Corporate business segment.
1. Market Risk Sensitivities
Our net
income(1) is affected by the determination of
policyholder obligations under our annuity and insurance contracts.
These amounts are determined using internal valuation models and
are recorded in our Annual Consolidated Financial Statements,
primarily as Insurance contract liabilities. The determination of
these obligations requires management to make assumptions about the
future level of equity market performance, interest rates, credit
and swap spreads and other factors over the life of our products.
Differences between our actual experience and our best estimate
assumptions are reflected in our Annual Consolidated Financial
Statements. Refer to Additional Cautionary Language and Key
Assumptions Related to Sensitivities in this section for important
additional information regarding these estimates.
The market value of our investments in fixed income and equity
securities fluctuates based on movements in interest rates and
equity markets. The market value of fixed income assets designated
as AFS that are held primarily in our surplus segment increases
with declining interest rates and decreases with rising interest
rates. The market value of equities designated as AFS and held
primarily in our surplus segment increases with rising equity
markets and decreases with declining equity markets. Changes in the
market value of AFS assets flow through OCI and are only recognized
in net income when realized upon sale, or when considered impaired.
The amount of realized gains (losses) recorded in net income in any
period is equal to the unrealized gains (losses) or OCI position at
the start of the period plus the change in market value during the
current period up to the point of sale for those securities that
were sold during the period. The sale or impairment of AFS assets
held in surplus can therefore have the effect of modifying our net
income sensitivity.
We realized $25 million (pre-tax)
in net gains on the sale of AFS assets during the fourth quarter of
2018 ($41 million pre-tax in the
fourth quarter of 2017). The net unrealized (losses) gains or OCI
position on AFS fixed income and equity assets were $(98) million and $43
million, respectively, after-tax as at December 31, 2018 ($171
million and $175 million,
respectively, after-tax as at December 31,
2017).
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net income refers to
common shareholders' net income in section H - Risk Management in
this document.
|
Equity Market Sensitivities
The following table sets out the estimated immediate impact on,
or sensitivity of, our net income and OCI and Sun Life Assurance's
LICAT ratio to certain instantaneous changes in equity market
prices as at December 31, 2018 and
December 31, 2017.
As at December 31,
2018
|
|
|
|
|
($ millions, unless
otherwise noted)
|
|
|
|
|
Change in Equity
Markets(1)
|
25%
decrease
|
10%
decrease
|
10%
increase
|
25%
increase
|
Potential impact on
net income(2)(3)
|
$
|
(300)
|
$
|
(100)
|
$
|
100
|
$
|
250
|
Potential impact on
OCI(3)
|
$
|
(100)
|
$
|
(50)
|
$
|
50
|
$
|
100
|
|
|
|
|
|
Potential impact on
LICAT(2)(4)
|
2.0% point
decrease
|
1.0% point
decrease
|
0.5% point
increase
|
1.0% point
increase
|
|
|
|
|
|
|
|
As at December 31,
2017
|
|
($ millions, unless
otherwise noted)
|
|
Change in Equity
Markets(1)
|
25%
decrease
|
10%
decrease
|
10%
increase
|
25%
increase
|
Potential impact on
net income(2)(3)
|
$
|
(300)
|
$
|
(100)
|
$
|
100
|
$
|
300
|
Potential impact on
OCI(3)
|
$
|
(200)
|
$
|
(50)
|
$
|
50
|
$
|
200
|
Potential impact on
LICAT(2)(4)
|
n/a
|
n/a
|
n/a
|
n/a
|
(1)
|
Represents the
respective change across all equity markets as at December 31, 2018
and December 31, 2017. Assumes that actual equity exposures
consistently and precisely track the broader equity markets. Since
in actual practice equity-related exposures generally differ from
broad market indices (due to the impact of active management, basis
risk, and other factors), realized sensitivities may differ
significantly from those illustrated above. Sensitivities include
the impact of re-balancing equity hedges for dynamic hedging
programs at 2% intervals (for 10% changes in equity markets) and at
5% intervals (for 25% changes in equity markets).
|
(2)
|
The market risk
sensitivities include the estimated mitigation impact of our
hedging programs in effect as at December 31, 2018 and December 31,
2017, and include new business added and product changes
implemented prior to such dates.
|
(3)
|
Net income and OCI
sensitivities have been rounded to the nearest $50 million. The
sensitivities exclude the market impacts on the income from our
joint ventures and associates, which we account for on an equity
basis.
|
(4)
|
The LICAT
sensitivities illustrate the impact on Sun Life Assurance as at
December 31, 2018. LICAT ratios are not applicable before January
1, 2018. LICAT ratios are rounded to the nearest 0.5%.
|
Interest Rate Sensitivities
The following table sets out the estimated immediate impact on,
or sensitivity of, our net income and OCI and Sun Life Assurance's
LICAT ratio to certain instantaneous changes in interest rates as
at December 31, 2018 and December 31, 2017.
Sun Life Assurance's LICAT ratio decreases with rising interest
rates and increases with declining interest rates, which is
opposite to our net income sensitivity. Increases to interest rates
will reduce the value of our assets and margins in our actuarial
liabilities, resulting in a lower LICAT ratio (LICAT includes the
change in OCI associated with assets designated as AFS). On
adoption of LICAT, given the change in the sensitivity profile, the
ranges of sensitivities were reviewed and updated accordingly.
|
($ millions, unless
otherwise noted)
|
|
As at December 31,
2018
|
|
As at December 31,
2017
|
Change in Interest
Rates(1)
|
|
50 basis point
decrease
|
|
50 basis
point
increase
|
|
50 basis
point
decrease
|
|
50 basis
point
increase
|
Potential impact on
net income(2)(3)(4)
|
$
|
(100)
|
$
|
50
|
$
|
(100)
|
$
|
50
|
Potential impact on
OCI(3)
|
$
|
250
|
$
|
(250)
|
$
|
250
|
$
|
(250)
|
Potential impact on
LICAT(2)(5)
|
|
2.5% point
increase
|
|
1.5%
point
decrease
|
|
n/a
|
|
n/a
|
(1)
|
Interest rate
sensitivities assume a parallel shift in assumed interest rates
across the entire yield curve as at December 31, 2018 and December
31, 2017 with no change to the Actuarial Standards Board ("ASB")
promulgated Ultimate Reinvestment Rate ("URR"). Variations in
realized yields based on factors such as different terms to
maturity and geographies may result in realized sensitivities being
significantly different from those illustrated above. Sensitivities
include the impact of re-balancing interest rate hedges for dynamic
hedging programs at 10 basis point intervals (for 50 basis point
changes in interest rates).
|
(2)
|
The market risk
sensitivities include the estimated mitigation impact of our
hedging programs in effect as at December 31, 2018 and December 31,
2017, and include new business added and product changes
implemented prior to such dates.
|
(3)
|
Net income and OCI
sensitivities have been rounded to the nearest $50 million. The
sensitivities exclude the market impacts on the income from our
joint ventures and associates, which we account for on an equity
basis.
|
(4)
|
The majority of
interest rate sensitivity, after hedging, is attributed to
individual insurance products. We also have interest rate
sensitivity, after hedging, from our fixed annuity and segregated
funds products.
|
(5)
|
The LICAT
sensitivities illustrate the impact on Sun Life Assurance as at
December 31, 2018. LICAT ratios are not applicable before January
1, 2018. LICAT ratios are rounded to the nearest 0.5%.
|
Interest rate sensitivities do not include any impact from
changes to the ASB promulgated URR. In 2014, ASB made changes to
the Canadian actuarial standards of practice with respect to
economic reinvestment assumptions used in the valuation of
insurance contract liabilities. The changes relate to assumed
future interest rates, credit spreads and the use of non-fixed
income assets supporting fixed obligations. When the ASB
promulgated these changes, the intention was to review these
assumptions every five years, or sooner if circumstances warrant.
The last update to the URR was a 10 basis point reduction in 2017.
Given the continuing low interest rates, we expect the ASB will
revisit the reinvestment assumptions in 2019, but the magnitude of
any potential changes due to the promulgation remains uncertain.
Based on current assumptions, as at December
31, 2018, our estimated sensitivity to a 10 basis point
decrease in the URR would have been a decrease in reported net
income of approximately $75 million.
The actual impact could differ from the Company's estimate. The
statements concerning expected URR changes are forward-looking.
2. Credit Spread and Swap Spread
Sensitivities
We have estimated the immediate impact or
sensitivity of our net income attributable to certain instantaneous
changes in credit and swap spreads. The credit spread sensitivities
reflect the impact of changes in credit spreads on our asset and
liability valuations (including non-sovereign fixed income assets,
provincial governments, corporate bonds, and other fixed income
assets). The swap spread sensitivities reflect the impact of
changes in swap spreads on swap-based derivative positions and
liability valuations.
($ millions, unless
otherwise noted)
|
|
Credit Spread
Sensitivities(1)
|
|
Swap Spread
Sensitivities
|
Net income
sensitivity(2)
|
|
50
basis point
decrease
|
|
50 basis
point
increase
|
|
20 basis
point
decrease
|
|
20 basis
point
increase
|
December 31,
2018
|
$
|
(75)
|
$
|
75
|
$
|
25
|
$
|
(25)
|
December 31,
2017
|
$
|
(100)
|
$
|
100
|
$
|
25
|
$
|
(25)
|
(1)
|
In most instances,
credit spreads are assumed to revert to long-term insurance
contract liability assumptions generally over a five-year
period.
|
(2)
|
Sensitivities have
been rounded to the nearest $25 million.
|
The credit and swap spread sensitivities assume a parallel shift
in the indicated spreads across the entire term structure.
Variations in realized spread changes based on different terms to
maturity, geographies, asset classes and derivative types,
underlying interest rate movements, and ratings may result in
realized sensitivities being significantly different from those
provided above. The credit spread sensitivity estimates exclude any
credit spread impact that may arise in connection with asset
positions held in segregated funds. Spread sensitivities are
provided for the consolidated entity and may not be proportional
across all reporting segments. Refer to Additional Cautionary
Language and Key Assumptions Related to Sensitivities in this
section for important additional information regarding these
estimates.
3. General Account Insurance and Annuity
Products
Most of our expected sensitivity to changes in
interest rates and about two-thirds of our expected sensitivity to
changes in equity markets are derived from our general account
insurance and annuity products. We have implemented market risk
management strategies to mitigate a portion of the market risk
related to our general account insurance and annuity products.
Individual insurance products include universal life and other
long-term life and health insurance products. Major sources of
market risk exposure for individual insurance products include the
reinvestment risk related to future premiums on regular premium
policies, asset reinvestment risk on both regular premium and
single premium policies and the guaranteed cost of insurance.
Interest rate risk for individual insurance products is typically
managed on a duration basis, within tolerance ranges set out in the
applicable investment policy or guidelines. Targets and limits are
established so that the level of residual exposure is commensurate
with our risk appetite. Exposures are monitored frequently, and
assets are re-balanced as necessary to maintain compliance within
policy limits using a combination of assets and derivative
instruments. A portion of the longer-term cash flows are backed
with equities and real estate.
For participating insurance products and other insurance
products with adjustability features, the investment strategy
objective is to provide a total rate of return given a constant
risk profile over the long term.
Fixed annuity products generally provide the policyholder with a
guaranteed investment return or crediting rate. Interest rate risk
for these products is typically managed on a duration basis, within
tolerance ranges set out in the applicable investment guidelines.
Targets and limits are established such that the level of residual
exposure is commensurate with our risk appetite. Exposures are
monitored frequently, and are re-balanced as necessary to maintain
compliance within prescribed tolerances using a combination of
fixed income assets and derivative instruments.
Certain insurance and annuity products contain minimum interest
rate guarantees. Market risk management strategies are implemented
to limit potential financial loss due to reductions in asset earned
rates relative to contract guarantees. These typically involve the
use of hedging strategies utilizing interest rate derivatives such
as interest rate floors, swaps and swaptions.
Certain insurance and annuity products contain features which
allow the policyholders to surrender their policy at book value.
Market risk management strategies are implemented to limit the
potential financial loss due to changes in interest rate levels and
policyholder behaviour. These typically involve the use of hedging
strategies such as dynamic option replication and the purchase of
interest rate swaptions.
Certain products have guaranteed minimum annuitization rates.
Market risk management strategies are implemented to limit the
potential financial loss and typically involve the use of fixed
income assets, interest rate swaps, and swaptions.
4. Segregated Fund Guarantees
Approximately
one-third of our equity market sensitivity and a small amount of
interest rate risk sensitivity as at December 31, 2018 are derived from segregated
fund products. These products provide benefit guarantees, which are
linked to underlying fund performance and may be triggered upon
death, maturity, withdrawal or annuitization. The cost of providing
these guarantees is uncertain and depends upon a number of factors
including general capital market conditions, our hedging
strategies, policyholder behaviour and mortality experience, each
of which may result in negative impacts on net income and
capital.
The following table provides information with respect to the
guarantees provided for our segregated fund products.
As at December 31,
2018
|
|
|
|
|
($
millions)
|
Fund
value
|
Amount at
Risk(1)
|
Value
of
guarantees(2)
|
Insurance
contract
liabilities(3)
|
SLF Canada
|
11,202
|
792
|
10,742
|
552
|
SLF
Asia(4)
|
2,798
|
444
|
3,165
|
147
|
Run-off
reinsurance(5)
|
2,215
|
277
|
1,219
|
255
|
Total
|
16,215
|
1,513
|
15,126
|
954
|
|
|
|
|
|
As at December 31,
2017
|
|
|
|
|
($
millions)
|
Fund value
|
Amount at
Risk(1)
|
Value of
guarantees(2)
|
Insurance
contract
liabilities(3)
|
SLF Canada
|
12,448
|
315
|
10,875
|
399
|
SLF
Asia(4)
|
3,727
|
250
|
3,755
|
107
|
Run-off
reinsurance(5)
|
2,534
|
375
|
1,546
|
385
|
Total
|
18,709
|
940
|
16,176
|
891
|
(1)
|
The Amount at Risk
represents the excess of the value of the guarantees over fund
values on all policies where the value of the guarantees exceeds
the fund value. The Amount at Risk is not currently payable as the
guarantees are only payable upon death, maturity, withdrawal, or
annuitization if fund values remain below guaranteed
values.
|
(2)
|
For guaranteed
lifetime withdrawal benefits, the value of guarantees is calculated
as the present value of the maximum future withdrawals
assuming market conditions remain
unchanged from current levels. For all other benefits, the value of
guarantees is determined assuming 100% of the claims are made at
the valuation date.
|
|
(3)
|
The insurance
contract liabilities represent management's provision for future
costs associated with these guarantees and include a
provision for adverse deviation in
accordance with Canadian actuarial standards of
practice.
|
|
(4)
|
Effective January 1,
2018, we transferred our International business unit from SLF U.S.
to SLF Asia, and comparative figures in 2017 have been changed to
conform with the current year presentation. For further
information, see Section F. Performance by Business
Group
|
(5)
|
The Run-off
reinsurance business includes risks assumed through reinsurance of
variable annuity products issued by various North American
insurance companies between 1997 and 2001. This line of business is
part of a closed block of reinsurance, which is included in the
Corporate segment.
|
The movement of the items in the table above from December 31, 2017 to December 31, 2018 primarily resulted from the
following factors:
(i)
|
the total fund values
decreased due to a decline in equity markets and net redemptions
from products closed to new business, which was partially offset by
the weakening of the Canadian dollar against the U.S.
dollar;
|
(ii)
|
the total amount at
risk increased due to a decline in equity markets and the weakening
of the Canadian dollar against the U.S. dollar, which was partially
offset by net redemptions from products closed to new
business;
|
(iii)
|
the total value of
guarantees decreased due to net redemptions from products closed to
new business, which was partially offset by the weakening of the
Canadian dollar against the U.S. dollar; and
|
(iv)
|
the total insurance
contract liabilities increased due to a decline in equity markets
and the weakening of the Canadian dollar against the U.S. dollar,
which was partially offset by net redemptions from products closed
to new business.
|
5. Segregated Fund Hedging
Our hedging programs
use derivative instruments to mitigate the interest and equity
related exposure of our segregated fund contracts. As at
December 31, 2018, over 90% of our
segregated fund contracts, as measured by associated fund values,
were included in a hedging program. While a large percentage of
contracts are included in the hedging program, not all of our
market risk exposure related to these contracts is hedged. For
those segregated fund contracts included in the hedging program, we
generally hedge the value of expected future net claims costs and
associated margins.
The following table illustrates the impact of our hedging
program related to our sensitivity to a 50 basis point decrease in
interest rates and a 10% and 25% decrease in equity markets for
segregated fund contracts as at December 31,
2018 and December 31,
2017.
Impact of Segregated Fund Hedging
December 31,
2018
|
|
|
|
($
millions)
|
Changes in
interest rates(1)
|
Changes in equity
markets(2)
|
Net income
sensitivity(3)(4)
|
50 basis point
decrease
|
10%
decrease
|
25%
decrease
|
Before
hedging
|
(150)
|
(150)
|
(450)
|
Hedging
impact
|
150
|
100
|
350
|
Net of
hedging
|
—
|
(50)
|
(100)
|
|
|
|
|
December 31,
2017
|
|
|
|
($
millions)
|
Changes in interest
rates(1)
|
Changes in equity
markets(2)
|
Net income
sensitivity(3)(4)
|
50 basis point
decrease
|
10%
decrease
|
25%
decrease
|
Before
hedging
|
(200)
|
(150)
|
(450)
|
Hedging
impact
|
200
|
100
|
350
|
Net of
hedging
|
—
|
(50)
|
(100)
|
(1)
|
Represents a parallel
shift in assumed interest rates across the entire yield curve as at
December 31, 2018 and December 31, 2017, with no change to the ASB
promulgated URR. Variations in realized yields based on factors
such as different terms to maturity and geographies may result in
realized sensitivities being significantly different from those
illustrated above. Sensitivities include the impact of re-balancing
interest rate hedges for dynamic hedging programs at 10 basis point
intervals (for 50 basis point changes in interest
rates).
|
(2)
|
Represents the change
across all equity markets as at December 31, 2018 and December 31,
2017. Assumes that actual equity exposures consistently and precisely track the broader equity
markets. Since in actual practice equity-related exposures
generally differ from broad market indices (due to the impact of
active management, basis risk, and other factors), realized
sensitivities may differ significantly from those illustrated
above. Sensitivities include the impact of re-balancing equity
hedges for dynamic hedging programs at 2% intervals (for 10%
changes in equity markets) and at 5% intervals (for 25% changes in
equity markets).
|
|
(3)
|
Net income
sensitivities have been rounded to the nearest $50
million.
|
(4)
|
Since the fair value
of benefits being hedged will generally differ from the financial
statement value (due to different valuation methods and the
inclusion of valuation margins in respect of financial statement
values), this will result in residual volatility to interest rate
and equity market shocks in net income and capital. The general
availability and cost of these hedging instruments may be adversely
impacted by a number of factors, including volatile and declining
equity and interest rate market conditions.
|
6. Real Estate Risk
Real estate risk is the
potential for financial loss arising from fluctuations in the value
of, or future cash flows from our investments in real estate. We
are exposed to real estate risk and may experience financial losses
resulting from the direct ownership of real estate investments or
indirectly through fixed income investments secured by real estate
property, leasehold interests, ground rents, and purchase and
leaseback transactions. Real estate price risk may arise from
external market conditions, inadequate property analysis,
inadequate insurance coverage, inappropriate real estate
appraisals, or from environmental risk exposures. We hold direct
real estate investments that support general account liabilities
and surplus, and fluctuations in value will impact our
profitability and financial position. A material and sustained
increase in interest rates may lead to deterioration in real estate
values. An instantaneous 10% decrease in the value of our direct
real estate investments as at December 31,
2018 would decrease net income(1) by
approximately $275 million
($250 million decrease as at
December 31, 2017). Conversely, an
instantaneous 10% increase in the value of our direct real estate
investments as at December 31, 2018
would increase net income by approximately $275 million ($250
million increase as at December 31,
2017).
____________
|
(1)
|
Net income
sensitivities have been rounded to the nearest $25
million.
|
7. Additional Cautionary Language and Key Assumptions
Related to Sensitivities
Our market risk sensitivities are
measures of our estimated change in net income and OCI for changes
in interest rates and equity market price levels described above,
based on interest rates, equity market prices and business mix in
place as at the respective calculation dates. These sensitivities
are calculated independently for each risk factor, generally
assuming that all other risk variables stay constant. The
sensitivities do not take into account indirect effects such as
potential impacts on goodwill impairment or valuation allowances on
deferred tax assets. The sensitivities are provided for the
consolidated entity and may not be proportional across all
reporting segments. Actual results can differ materially from these
estimates for a variety of reasons, including differences in the
pattern or distribution of the market shocks, the interaction
between these risk factors, model error, or changes in other
assumptions such as business mix, effective tax rates, policyholder
behaviour, currency exchange rates and other market variables
relative to those underlying the calculation of these
sensitivities. The extent to which actual results may differ from
the indicative ranges will generally increase with larger capital
market movements. Our sensitivities as at December 31, 2017 have been included for
comparative purposes only.
We have also provided measures of our net income sensitivity to
instantaneous changes in credit spreads, swap spreads, real estate
price levels, and capital sensitivities to changes in interest
rates and equity price levels. The real estate sensitivities are
non-IFRS financial measures. For additional information, see
section J - Non-IFRS Financial Measures in this document. The
cautionary language which appears in this section is also
applicable to the credit spread, swap spread, real estate, and
LICAT ratio sensitivities. In particular, these sensitivities are
based on interest rates, credit and swap spreads, equity market,
and real estate price levels as at the respective calculation dates
and assume that all other risk variables remain constant. Changes
in interest rates, credit and swap spreads, equity market, and real
estate prices in excess of the ranges illustrated may result in
other-than-proportionate impacts.
As these market risk sensitivities reflect an instantaneous
impact on net income, OCI, and Sun Life Assurance's LICAT ratio,
they do not include impacts over time such as the effect on fee
income in our asset management businesses.
The sensitivities reflect the composition of our assets and
liabilities as at December 31, 2018
and December 31, 2017, respectively.
Changes in these positions due to new sales or maturities, asset
purchases/sales, or other management actions could result in
material changes to these reported sensitivities. In particular,
these sensitivities reflect the expected impact of hedging
activities based on the hedge programs in place as at the
December 31 calculation dates. The
actual impact of hedging activity can differ materially from that
assumed in the determination of these indicative sensitivities due
to ongoing hedge re-balancing activities, changes in the scale or
scope of hedging activities, changes in the cost or general
availability of hedging instruments, basis risk (i.e., the risk
that hedges do not exactly replicate the underlying portfolio
experience), model risk, and other operational risks in the ongoing
management of the hedge programs or the potential failure of hedge
counterparties to perform in accordance with expectations.
The sensitivities are based on methods and assumptions in effect
as at December 31, 2018 and
December 31, 2017, as applicable.
Changes in the regulatory environment, accounting or actuarial
valuation methods, models, or assumptions (including changes to the
ASB promulgated URR) after those dates could result in material
changes to these reported sensitivities. Changes in interest rates
and equity market prices in excess of the ranges illustrated may
result in other than proportionate impacts.
Our hedging programs may themselves expose us to other risks,
including basis risk (i.e., the risk that hedges do not exactly
replicate the underlying portfolio experience), volatility risk,
derivative counterparty credit risk, and increased levels of
liquidity risk, model risk and other operational risks. These
factors may adversely impact the net effectiveness, costs, and
financial viability of maintaining these hedging programs and
therefore adversely impact our profitability and financial
position. While our hedging programs are intended to mitigate these
effects (e.g., hedge counterparty credit risk is managed by
maintaining broad diversification, dealing primarily with highly
rated counterparties, and transacting through over-the-counter
contracts cleared through central clearing houses, exchange-traded
contracts or bilateral over-the-counter contracts negotiated
directly between counterparties that include credit support
annexes), residual risk, potential reported earnings and capital
volatility remain.
For the reasons outlined above, our sensitivities should only be
viewed as directional estimates of the underlying sensitivities of
each factor under these specialized assumptions, and should not be
viewed as predictors of our future net income, OCI, and capital.
Given the nature of these calculations, we cannot provide assurance
that actual impact will be consistent with the estimates
provided.
Information related to market risk sensitivities and guarantees
related to segregated fund products should be read in conjunction
with the information contained in the section in the annual
MD&A under the headings M - Accounting and Control Matters - 1
- Critical Accounting Policies and Estimates. Additional
information on market risk can be found in Note 6 of our 2018
Annual Consolidated Financial Statements and the Risk Factors
section in the AIF.
I. Additional Financial Disclosure
1. Revenue
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Premiums
|
|
|
|
|
|
Gross
|
5,935
|
4,928
|
5,308
|
20,981
|
19,838
|
Ceded
|
(622)
|
(559)
|
(1,230)
|
(2,339)
|
(4,557)
|
Net
premiums
|
5,313
|
4,369
|
4,078
|
18,642
|
15,281
|
Net investment
income
|
|
|
|
|
|
Interest and other
investment income
|
1,475
|
1,414
|
1,399
|
5,641
|
5,413
|
Fair
value(1) and foreign currency changes on assets
and liabilities
|
(116)
|
(1,304)
|
1,610
|
(3,373)
|
2,603
|
Net gains (losses) on
available-for-sale assets
|
25
|
19
|
41
|
121
|
195
|
Fee
income
|
1,483
|
1,500
|
1,520
|
5,966
|
5,842
|
Total
revenue
|
8,180
|
5,998
|
8,648
|
26,997
|
29,334
|
Adjusted
revenue(2)
|
8,319
|
7,363
|
7,803
|
31,034
|
29,757
|
(1)
|
Represents the change
in FVTPL assets and liabilities.
|
(2)
|
Adjusted revenue is a
non-IFRS financial measure that excludes from revenue the impact of
Constant Currency Adjustment, FV Adjustment and Reinsurance in SLF
Canada's GB Operations Adjustment as described in section J -
Non-IFRS Financial Measures in this document.
|
Revenue in the fourth quarter of 2018 was $8.2 billion, compared to $8.6 billion in the fourth quarter of 2017. The
decrease was mainly attributable to decreases in the fair value of
FVTPL assets due to widening credit spreads and higher interest
rates in the fourth quarter of 2018, compared to net gains
generated from decreases in interest rates and narrowing credit
spreads in the same period last year, partially offset by increased
net premiums. The currency impact from the change in the Canadian
dollar relative to average exchange rates in the fourth quarter of
2017 increased revenue by $121
million.
Revenue was $27.0 billion in 2018,
down $2.3 billion from the comparable
period in the prior year. The decrease was mainly attributable to
decreases in the fair value of FVTPL assets largely due to widening
credit spreads and higher interest rates in 2018, partially offset
by higher net premium revenue in SLF Canada. The currency impact
from the change in the Canadian dollar relative to average exchange
rates in 2017 reduced revenue by $50
million.
Adjusted revenue was $8.3 billion
in the fourth quarter of 2018, up $0.5
billion from the fourth quarter of 2017 driven by increased
net premiums. Adjusted revenue of $31.0
billion in 2018 was $1.3
billion higher compared to the same period in 2017. The
increase was primarily driven by higher net premium revenue in SLF
Canada, partially offset by lower fee income due to market
volatility from our asset management and wealth businesses
primarily due to lower asset values.
2. Changes in the Statements of Financial Position and
in Shareholders' Equity
Total general fund assets were
$168.8 billion as at December 31, 2018, compared to $162.7 billion as at December 31, 2017, primarily a result of a
$5.2 billion increase from the
strengthening of the Canadian dollar relative to exchange rates at
the end of the fourth quarter of 2017 and an increase of
$4.2 billion from business
activities, partially offset by a decrease of $3.4 billion from the change in value of FVTPL
assets and liabilities.
Insurance contract liabilities (excluding other policy
liabilities and assets) of $114.9
billion as at December 31,
2018 increased by $3.8 billion
compared to December 31, 2017, mainly
due to balances arising from new policies and changes in balances
on in-force policies (which include fair value changes on FVTPL
assets supporting insurance contract liabilities), partially offset
by the currency impact of the strengthening of the Canadian dollar
relative to exchange rates as at December
31, 2017.
Shareholders' equity, including preferred share capital, was
$23.7 billion as at December 31, 2018, compared to $22.3 billion as at December 31, 2017. The increase in shareholders'
equity was primarily due to:
(i)
|
shareholders' net
income of $2.6 billion in 2018, before preferred share dividends of
$94 million;
|
(ii)
|
an increase of $757
million from the change of the Canadian dollar relative to exchange
rates at the end of the fourth quarter of 2017;
|
(iii)
|
the impact of $89
million from the transfer of seed capital from the participating
account to the shareholder account;
|
(iv)
|
changes in the
remeasurement of defined benefit plans of $84 million;
and
|
(v)
|
$13 million from
stock options exercised and $4 million from stock-based
compensation; partially offset by
|
(vi)
|
common share dividend
payments of $1,147 million;
|
(vii)
|
a decrease of $641
million from the repurchase and cancellation of common shares;
and
|
(viii)
|
net unrealized losses
on AFS assets in OCI of $402 million.
|
3. Goodwill Impairment Testing
The Company
completed its annual goodwill and indefinite life intangible asset
impairment testing in the fourth quarter of 2018. No impairment
charges on goodwill and indefinite life intangible assets were
recognized in 2018 or 2017.
J. Non-IFRS Financial Measures
1. Underlying Net Income and Underlying EPS
Underlying net income (loss) and financial measures based on
underlying net income (loss), including underlying EPS or
underlying loss per share, and underlying ROE, are non-IFRS
financial measures. Underlying net income (loss) removes from
reported net income (loss) the impact of the following items that
create volatility in our results under IFRS and when removed assist
in explaining our results from period to period:
(a)
|
market related
impacts that differ from our best estimate assumptions, which
include: (i) impact of returns in equity markets, net of hedging,
for which our best estimate assumptions are approximately 2% per
quarter. This also includes the impact of the basis risk inherent
in our hedging program, which is the difference between the return
on underlying funds of products that provide benefit guarantees and
the return on the derivative assets used to hedge those benefit
guarantees; (ii) the impact of changes in interest rates in the
reporting period and on the value of derivative instruments used in
our hedging programs including changes in credit and swap spreads,
and any changes to the assumed fixed income reinvestment rates in
determining the actuarial liabilities; and (iii) the impact of
changes in the fair value of investment properties in the reporting
period;
|
(b)
|
assumption changes
and management actions, which include: (i) the impact of revisions
to the methods and assumptions used in determining our liabilities
for insurance contracts and investment contracts and (ii) the
impact on insurance contracts and investment contracts of actions
taken by management in the current reporting period, referred to as
management actions which include, for example, changes in the
prices of in-force products, new or revised reinsurance on in-force
business, and material changes to investment policies for assets
supporting our liabilities; and
|
(c)
|
Other
adjustments:
|
|
|
(i)
|
certain hedges in SLF
Canada that do not qualify for hedge accounting - this adjustment
enhances the comparability of our net income from period to period,
as it reduces volatility to the extent it will be offset over the
duration of the hedges;
|
|
|
(ii)
|
fair value
adjustments on MFS's share-based payment awards that are settled
with MFS's own shares and accounted for as liabilities and measured
at fair value each reporting period until they are vested,
exercised and repurchased - this adjustment enhances the
comparability of MFS's results with publicly traded asset managers
in the United States;
|
|
|
(iii)
|
acquisition,
integration and restructuring costs (including impacts related to
acquiring and integrating acquisitions); and
|
|
|
(iv)
|
other items that are
unusual or exceptional in nature.
|
All factors discussed in this document that impact our
underlying net income are also applicable to reported net
income.
All EPS measures in this document refer to fully diluted EPS,
unless otherwise stated. As noted below, underlying EPS excludes
the dilutive impact of convertible instruments.
The following table sets out the amounts that were excluded from
our underlying net income (loss) and underlying EPS, and provides a
reconciliation to our reported net income (loss) and EPS based on
IFRS.
Reconciliations of
Select Net Income Measures
|
|
|
|
|
|
|
|
Quarterly
results
|
Full Year
|
($ millions, unless
otherwise noted)
|
Q4'18
Q3'18
|
Q4'17
|
2018
2017
|
Reported net
income
|
580
567
|
207
|
2,522
2,149
|
Equity market
impact
|
|
|
|
Impact from equity
market changes
|
(139)
|
—
|
30
|
(159)
|
68
|
Basis risk
impact
|
(4)
|
5
|
(11)
|
(15)
|
(6)
|
Equity market
impact
|
(143)
|
5
|
19
|
(174)
|
62
|
Interest rate
impact(1)
|
|
|
|
|
|
Impact of interest
rate changes
|
(68)
|
17
|
(75)
|
(116)
|
(79)
|
Impact of credit
spread movements
|
36
|
(3)
|
(26)
|
56
|
(54)
|
Impact of swap spread
movements
|
(9)
|
—
|
(9)
|
(31)
|
(24)
|
Interest rate
impact
|
(41)
|
14
|
(110)
|
(91)
|
(157)
|
Impact of changes in
the fair value of investment properties
|
31
|
6
|
34
|
77
|
88
|
Market related
impacts
|
(153)
|
25
|
(57)
|
(188)
|
(7)
|
Assumption changes and
management actions(2)
|
13
|
(166)
|
(34)
|
(155)
|
81
|
Other
adjustments:
|
|
|
|
|
|
Certain hedges in SLF
Canada that do not qualify for hedge accounting
|
(1)
|
(1)
|
2
|
5
|
(16)
|
Fair value adjustments
on MFS's share-based payment awards
|
28
|
(10)
|
(34)
|
(5)
|
(81)
|
Acquisition,
integration and restructuring
|
(25)
|
(11)
|
(60)
|
(82)
|
(123)
|
Total of other
adjustments
|
2
|
(22)
|
(92)
|
(82)
|
(220)
|
U.S. tax
reform(2)
|
—
|
—
|
(251)
|
—
|
(251)
|
Underlying net income
(loss)
|
718
|
730
|
641
|
2,947
|
2,546
|
Reported EPS
(diluted) ($)
|
0.96
|
0.93
|
0.34
|
4.14
|
3.49
|
Market related impacts
($)
|
(0.25)
|
0.04
|
(0.10)
|
(0.31)
|
(0.01)
|
Assumption changes and
management actions ($)
|
0.02
|
(0.27)
|
(0.05)
|
(0.26)
|
0.13
|
Certain hedges in SLF
Canada that do not qualify for hedge accounting ($)
|
—
|
—
|
—
|
0.01
|
(0.03)
|
Fair value adjustments
on MFS's share-based payment awards ($)
|
0.05
|
(0.02)
|
(0.05)
|
(0.01)
|
(0.13)
|
Acquisition,
integration and restructuring ($)
|
(0.04)
|
(0.02)
|
(0.10)
|
(0.14)
|
(0.20)
|
U.S. tax
reform
|
—
|
—
|
(0.41)
|
—
|
(0.41)
|
Impact of convertible
securities on diluted EPS ($)
|
(0.01)
|
—
|
—
|
(0.01)
|
(0.01)
|
Underlying EPS
(diluted) ($)
|
1.19
|
1.20
|
1.05
|
4.86
|
4.15
|
(1)
|
Our exposure to
interest rates varies by product type, line of business, and
geography. Given the long-term nature of our business, we have a
higher degree of sensitivity in respect of interest rates at long
durations.
|
(2)
|
ACMA in 2017 excludes
the charge that is included in U.S. tax reform, shown
separately.
|
2. Additional Non-IFRS Measures
Management also
uses the following non-IFRS financial measures:
Return on equity. IFRS does not prescribe the calculation
of ROE and therefore a comparable measure under IFRS is not
available. To determine reported ROE and underlying ROE,
respectively, reported net income (loss) and underlying net income
(loss) is divided by the total weighted average common
shareholders' equity for the period. The quarterly ROE is
annualized.
Financial leverage ratio. This total debt to total
capital ratio is ratio of debt plus preferred shares to total
capital, where debt consists of all capital qualifying debt
securities. Capital qualifying debt securities consist of
subordinated debt and innovative capital instruments.
Dividend payout ratio. This is the ratio of dividends
paid per share to diluted underlying EPS for the period.
Sales. In SLF Canada, insurance sales consist of sales of
individual insurance and group benefits products; wealth sales
consist of sales of individual wealth products and sales in GRS. In
SLF U.S., insurance sales consist of sales by Group Benefits. In
SLF Asia, insurance sales consist of the individual and group
insurance sales by our subsidiaries and joint ventures and
associates, based on our proportionate equity interest, in
the Philippines, Hong Kong, Indonesia, India, China,
Malaysia, and Vietnam and sales from our International
business unit; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales by
our India and China insurance joint ventures and associates,
and Aditya Birla Sun Life AMC Limited's equity and fixed income
mutual fund sales based on our proportionate equity interest,
including sales as reported by our bank distribution partners. SLF
Asset Management sales consist of gross sales (inflows) for retail
and institutional Clients; unfunded commitments are not included in
sales. Sales are also expressed on a constant currency basis, which
is a measure of sales that provides greater comparability across
reporting periods by excluding the impact of exchange rate
fluctuations from the translation of functional currencies to the
Canadian dollar.
Value of New Business. VNB represents the present value
of our best estimate of future distributable earnings, net of the
cost of capital, from new business contracts written in a
particular time period, except new business in our SLF Asset
Management pillar. The assumptions used in the calculations are
generally consistent with those used in the valuation of our
insurance contract liabilities except that discount rates used
approximate theoretical return expectations of an equity investor.
Capital required is generally based on Sun Life Assurance's LICAT
operating target. VNB is a useful metric to evaluate the present
value created from new business contracts. There is no directly
comparable IFRS measure.
Adjusted revenue. This measure is an alternative measure
of revenue that provides greater comparability across reporting
periods, by excluding the impact of: (i) exchange rate
fluctuations, from the translation of functional currencies to the
Canadian dollar, for comparisons ("Constant Currency Adjustment");
(ii) Fair value and foreign currency changes on assets and
liabilities ("FV Adjustment"); and (iii) reinsurance for the
insured business in SLF Canada's GB operations ("Reinsurance in SLF
Canada's GB Operations Adjustment").
|
Quarterly
results
|
Full
Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Revenue
|
8,180
|
5,998
|
8,648
|
26,997
|
29,334
|
Constant Currency
Adjustment
|
118
|
81
|
—
|
(62)
|
—
|
FV
Adjustment
|
(116)
|
(1,304)
|
1,610
|
(3,373)
|
2,603
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
(141)
|
(142)
|
(765)
|
(602)
|
(3,026)
|
Adjusted
revenue
|
8,319
|
7,363
|
7,803
|
31,034
|
29,757
|
Adjusted premiums and deposits. This measure is an
alternative measure of premiums and deposits that provides greater
comparability across reporting periods by excluding the impact of:
(i) the Constant Currency Adjustment; and (ii) the Reinsurance in
SLF Canada's GB Operations Adjustment.
|
Quarterly
results
|
Full Year
|
($
millions)
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Premiums and
deposits
|
41,513
|
35,462
|
40,966
|
160,108
|
164,680
|
Constant Currency
Adjustment
|
1,142
|
665
|
—
|
(661)
|
—
|
Reinsurance in SLF
Canada's GB Operations Adjustment
|
(141)
|
(142)
|
(765)
|
(602)
|
(3,026)
|
Adjusted premiums and
deposits
|
40,512
|
34,939
|
41,731
|
161,371
|
167,706
|
Pre-tax net operating profit margin ratio for MFS. This
ratio is a measure of the profitability of MFS, which excludes the
impact of fair value adjustments on MFS's share-based payment
awards, investment income, and certain commission expenses that are
offsetting. These commission expenses are excluded in order to
neutralize the impact these items have on the pre-tax net operating
profit margin ratio and have no impact on the profitability of MFS.
There is no directly comparable IFRS measure.
After-tax profit margin for SLF U.S. Group Benefits. This
ratio assists in explaining our results from period to period and
is a measure of profitability that expresses SLF U.S. Group
Benefits underlying net income as a percentage of net premiums.
This ratio is calculated by dividing underlying net income (loss)
by net premiums for the trailing four quarters. There is no
directly comparable IFRS measure.
Impact of foreign exchange. Items impacting our
Consolidated Statements of Operations, such as Revenue, Benefits
and expenses, and Total net income (loss), are translated into
Canadian dollars using average exchange rates for the respective
period. For items impacting our Consolidated Statements of
Financial Position, such as Assets and Liabilities, period end
rates are used for currency translation purposes.
Several IFRS financial measures are presented on a constant
currency adjusted basis to exclude the impact of foreign exchange
rate fluctuations. These measures are calculated using the average
or period end foreign exchange rates, as appropriate, in effect at
the date of the comparative period.
Assumption changes and management actions. In this
document the impact of ACMA on shareholders' net income (after-tax)
is included in reported net income and is excluded in calculating
underlying net income, as described in section C - Profitability in
this document.
Note 10.A of our Annual Consolidated Financial Statements shows
the pre-tax impact of method and assumption changes on shareholder
and participating policyholder Insurance Contract Liabilities net
of reinsurance assets, excluding changes in other policy
liabilities and assets.
The view in this document of assumption changes and management
actions is the impact on shareholders' net income (after tax). The
Annual Consolidated Financial Statement view is a component of the
change in total company liabilities. The following table provides a
reconciliation of the differences between the two measures.
|
Quarterly
results
|
Full year
|
|
Q4'18
|
Q3'18
|
Q4'17
|
2018
|
2017
|
Impact of method and
assumption changes on Insurance Contract Liabilities
(pre-tax)(1)
|
(2)
|
281
|
(436)
|
278
|
173
|
Less: Participating
Policyholders(2)
|
7
|
525
|
35
|
533
|
181
|
Impact of method and
assumption changes excluding participating policyholders
(pre-tax)
|
(9)
|
(244)
|
(471)
|
(255)
|
(8)
|
Less: Tax
|
(5)
|
(86)
|
(160)
|
(90)
|
(51)
|
Impact of method and
assumption changes excluding participating policyholders
(after-tax)
|
(4)
|
(158)
|
(311)
|
(165)
|
43
|
Add: Management
Actions (after-tax)(3)
|
14
|
9
|
—
|
23
|
(243)
|
Other
(after-tax)(4)
|
3
|
(17)
|
(11)
|
(13)
|
(7)
|
Assumption changes
and management actions (after-tax)(5)(6)(7)
|
13
|
(166)
|
(322)
|
(155)
|
(207)
|
(1)
|
Note 10.A of our
Annual Consolidated Financial Statements shows the pre-tax impact
of method and assumption changes on shareholder and participating
policyholder Insurance contract liabilities net of reinsurance
assets, excluding changes in other policy liabilities and assets.
The amount shown in the table above is the shareholders' income
impact related to the amount shown in Note 10.A of our Annual
Consolidated Financial Statements.
|
(2)
|
Adjustment to remove
the pre-tax impact of method and assumption changes on amounts
attributed to participating policyholders.
|
(3)
|
Adjustment to include
the after-tax impact of management actions on insurance contract
liabilities and investment contract liabilities which include, for
example, changes in the prices of in-force products, new or revised
reinsurance on in-force business, and material changes to
investment policies for assets supporting our
liabilities.
|
(4)
|
Adjustments to
include the after-tax impact of method and assumption changes on
investment contracts and other policy liabilities.
|
(5)
|
Includes the tax
impacts of assumption changes and management actions on insurance
contract liabilities and investment contract liabilities,
reflecting the tax rates in the jurisdictions in which we do
business.
|
(6)
|
Assumption changes
and management actions is included in reported net income and is
excluded in calculating underlying net income, as described in
section C - Profitability in this document.
|
(7)
|
In the fourth quarter
of 2017, an impact on reported net income of a decrease of $34
million is presented as an adjustment to arrive at underlying net
income as Assumption changes and management actions. The impact on
reported net income of a decrease of $288 million ($444 million
pre-tax) related to the U.S. tax legislation changes enacted on
December 22, 2017, included in the $(207) million above, is
included as part of the U.S. tax reform impact that is reported
separately as an adjustment to arrive an underlying net income (see
section C - Profitability - 4 - U.S. tax reform).
|
See section D - Profitability - 2018 vs. 2017 - ii. Assumption
changes and management actions in our 2018 annual MD&A for
details on ACMA in 2018.
Real estate market sensitivities. Real estate market
sensitivities are non-IFRS financial measures for which there are
no directly comparable measures under IFRS so it is not possible to
provide a reconciliation of these amounts to the most directly
comparable IFRS measures.
Other. Management also uses the following non-IFRS
financial measures for which there are no comparable financial
measures in IFRS: (i) ASO premium and deposit equivalents, mutual
fund sales, managed fund sales, insurance sales, and total premiums
and deposits; (ii) AUM, mutual fund assets, managed fund assets,
other AUM, and assets under administration; (iii) the value of new
business, which is used to measure the estimated lifetime
profitability of new sales and is based on actuarial calculations;
and (iv) assumption changes and management actions, which is a
component of our sources of earnings disclosure. Sources of
earnings is an alternative presentation of our Consolidated
Statements of Operations that identifies and quantifies various
sources of income. The Company is required to disclose its sources
of earnings by its principal regulator, OSFI.
K. Forward-looking Statements
From time to time, the Company makes written or oral
forward-looking statements within the meaning of certain securities
laws, including the "safe harbour" provisions of the United States
Private Securities Litigation Reform Act of 1995 and applicable
Canadian securities legislation. Forward-looking statements
contained in this document include statements (i) relating to our
strategies, (ii) relating to our growth initiatives and other
business objectives, (iii) relating to the expected impact of the
U.S. tax reform on the Company's tax expense, (iv) relating to the
merger of Bentall Kennedy and GreenOak and our acquisition of a
majority stake in the combined entity, (v) relating to our expected
tax range for future years, (vi) set out in this document under the
heading H - Risk Management - 1. Market Risk Sensitivities - Equity
Market Sensitivities and Interest Rate Sensitivities, (vii) that
are predictive in nature or that depend upon or refer to future
events or conditions, and (viii) that include words such as
"achieve", "aim", "ambition", "anticipate", "aspiration",
"assumption", "believe", "could", "estimate", "expect", "goal",
"initiatives", "intend", "may", "objective", "outlook", "plan",
"project", "seek", "should", "strategy", "strive", "target",
"will", and similar expressions. Forward-looking statements include
the information concerning our possible or assumed future results
of operations. These statements represent our current expectations,
estimates, and projections regarding future events and are not
historical facts. Forward-looking statements are not a guarantee of
future performance and involve risks and uncertainties that are
difficult to predict. Future results and shareholder value may
differ materially from those expressed in these forward-looking
statements due to, among other factors, the matters set out in this
document under the headings C - Profitability - 4 - U.S. tax
reform, C - Profitability - 6 - Income taxes, E - Financial
Strength and H - Risk Management and in SLF Inc.'s 2018 AIF under
the heading Risk Factors and the factors detailed in SLF Inc.'s
other filings with Canadian and U.S. securities regulators, which
are available for review at www.sedar.com and www.sec.gov,
respectively.
Important risk factors that could cause our assumptions and
estimates, and expectations and projections to be inaccurate and
our actual results or events to differ materially from those
expressed in or implied by the forward- looking statements
contained in this document, are set out below. The realization of
our forward-looking statements, essentially depends on our business
performance which, in turn, is subject to many risks. Factors that
could cause actual results to differ materially from expectations
include, but are not limited to: credit risks - related to
issuers of securities held in our investment portfolio, debtors,
structured securities, reinsurers, counterparties, other financial
institutions and other entities; market risks - related to
the performance of equity markets; changes or volatility in
interest rates or credit spreads or swap spreads; real estate
investments; and fluctuations in foreign currency exchange rates;
insurance risks - related to policyholder behaviour;
mortality experience, morbidity experience and longevity; product
design and pricing; the impact of higher-than-expected future
expenses; and the availability, cost and effectiveness of
reinsurance; business and strategic risks - related to
global economic and political conditions; the design and
implementation of business strategies; changes in distribution
channels or Client behaviour including risks relating to market
conduct by intermediaries and agents; the impact of competition;
the performance of our investments and investment portfolios
managed for Clients such as segregated and mutual funds; changes in
the legal or regulatory environment, including capital requirements
and tax laws; the environment, environmental laws and regulations;
tax matters, including estimates and judgments used in calculating
taxes; our international operations, including our joint ventures;
market conditions that affect our capital position or ability to
raise capital; downgrades in financial strength or credit ratings;
and the impact of mergers, acquisitions and divestitures;
operational risks - related to breaches or failure of
information system security and privacy, including cyber-attacks;
our ability to attract and retain employees; legal, regulatory
compliance and market conduct, including the impact of regulatory
inquiries and investigations; the execution and integration of
mergers, acquisitions, strategic investments and divestitures; our
information technology infrastructure; a failure of information
systems and Internet-enabled technology; dependence on third-party
relationships, including outsourcing arrangements; business
continuity; model errors; information management; and liquidity
risks - the possibility that we will not be able to fund all
cash outflow commitments as they fall due.
The following risk factors are related to the merger of Bentall
Kennedy and GreenOak and our acquisition of a majority stake in the
combined entity that could have a material adverse effect on our
forward-looking statements: (1) the ability of the parties to
complete the transaction; (2) failure of the parties to obtain
necessary consents and approvals or to otherwise satisfy the
conditions to the completion of the transaction in a timely manner,
or at all; (3) our ability to realize the financial and strategic
benefits of the transaction; (4) failure to effectively or
efficiently reorganize the operations of Bentall Kennedy and
GreenOak after the transaction has closed; and (5) the impact of
the announcement of the transaction and the dedication of Sun Life
Financial's resources to completing the transaction on Bentall
Kennedy and GreenOak. These risks all could have an impact on our
business relationships (including with future and prospective
employees, Clients, distributors and partners) and could have a
material adverse effect on our current and future operations,
financial conditions and prospects.
The Company does not undertake any obligation to update or
revise its forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events, except as required by law.
Earnings Conference Call
The Company's fourth quarter
2018 financial results will be reviewed at a conference call on
Thursday, February 14, 2019, at
10:00 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 on
the link to Quarterly reports under Investors – Financial results
& reports 10 minutes prior to the start of the call.
Individuals participating in the call in a listen-only mode are
encouraged to connect via our webcast. Following the call, the
webcast and presentation will be archived and made available on the
Company's website, www.sunlife.com, until the Q4 2020 period end.
The conference call can also be accessed by phone by dialing
647-427-2311 (International) or 1-866-521-4909 (toll-free within
North America). A replay of the
conference call will be available from Thursday, February 14, 2019 at 4 p.m. ET until 11:59 p.m. ET on Thursday,
February 28, 2019 by calling 416-621-4642 or 1-800-585-8367 (toll
free within North America) using
Conference ID: 2378488.
Consolidated Statements of Operations
|
For the three months
ended
|
For the twelve months
ended
|
(unaudited, in
millions of Canadian dollars except for per share
amounts)
|
December
31,
2018
|
December
31, 2017
|
December
31,
2018
|
December
31, 2017
|
Revenue
|
|
|
|
|
Premiums
|
|
|
|
|
Gross
|
$
|
5,935
|
$
|
5,308
|
$
|
20,981
|
$
|
19,838
|
Less: Ceded
|
622
|
1,230
|
2,339
|
4,557
|
Net
premiums
|
5,313
|
4,078
|
18,642
|
15,281
|
Net investment income
(loss):
|
|
|
|
|
Interest and other
investment income
|
1,475
|
1,399
|
5,641
|
5,413
|
Fair value and foreign
currency changes on assets and liabilities
|
(116)
|
1,610
|
(3,373)
|
2,603
|
Net gains (losses) on
available-for-sale assets
|
25
|
41
|
121
|
195
|
Net investment income
(loss)
|
1,384
|
3,050
|
2,389
|
8,211
|
Fee income
|
1,483
|
1,520
|
5,966
|
5,842
|
Total
revenue
|
8,180
|
8,648
|
26,997
|
29,334
|
Benefits and
expenses
|
|
|
|
|
Gross claims and
benefits paid
|
4,102
|
3,890
|
15,986
|
15,353
|
Increase (decrease) in
insurance contract liabilities
|
1,641
|
3,138
|
312
|
5,327
|
Decrease (increase) in
reinsurance assets
|
(92)
|
23
|
97
|
821
|
Increase (decrease) in
investment contract liabilities
|
3
|
1
|
(31)
|
41
|
Reinsurance expenses
(recoveries)
|
(498)
|
(1,082)
|
(2,021)
|
(4,373)
|
Commissions
|
603
|
631
|
2,339
|
2,403
|
Net transfer to (from)
segregated funds
|
(152)
|
(63)
|
(308)
|
(119)
|
Operating
expenses
|
1,625
|
1,749
|
6,432
|
6,410
|
Premium
taxes
|
95
|
100
|
375
|
379
|
Interest
expense
|
79
|
81
|
305
|
303
|
Total benefits and
expenses
|
7,406
|
8,468
|
23,486
|
26,545
|
Income (loss)
before income taxes
|
774
|
180
|
3,511
|
2,789
|
Less: Income tax
expense (benefit)
|
112
|
(66)
|
597
|
302
|
Total net income
(loss)
|
662
|
246
|
2,914
|
2,487
|
Less: Net income
(loss) attributable to participating policyholders and
|
|
|
|
|
non-controlling
interests
|
59
|
16
|
298
|
245
|
Shareholders' net
income (loss)
|
603
|
230
|
2,616
|
2,242
|
Less: Preferred
shareholders' dividends
|
23
|
23
|
94
|
93
|
Common
shareholders' net income (loss)
|
$
|
580
|
$
|
207
|
$
|
2,522
|
$
|
2,149
|
|
|
|
|
|
|
|
|
|
Average exchange
rates during the reporting periods:
|
|
|
|
|
|
|
U.S.
dollars
|
|
1.32
|
|
1.27
|
|
1.30
|
|
1.30
|
|
|
|
|
|
|
Earnings (loss)
per share
|
|
$
|
0.96
|
$
|
0.34
|
$
|
4.16
|
$
|
3.51
|
Basic
|
|
$
|
0.96
|
$
|
0.34
|
$
|
4.14
|
$
|
3.49
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per
common share
|
|
$
|
0.500
|
$
|
0.455
|
$
|
1.905
|
$
|
1.745
|
Consolidated Statements of Financial Position
|
|
As at
|
(unaudited, in
millions of Canadian dollars)
|
|
December
31, 2018
|
December
31, 2017
|
Assets
|
|
|
|
Cash, cash equivalents
and short-term securities
|
|
$
|
9,506
|
$
|
8,890
|
Debt
securities
|
|
74,443
|
72,619
|
Equity
securities
|
|
4,634
|
6,020
|
Mortgages and
loans
|
|
46,822
|
42,805
|
Derivative
assets
|
|
1,112
|
1,478
|
Other invested
assets
|
|
4,830
|
4,154
|
Policy
loans
|
|
3,222
|
3,106
|
Investment
properties
|
|
7,157
|
7,067
|
Invested
assets
|
|
151,726
|
146,139
|
Other
assets
|
|
4,498
|
4,408
|
Reinsurance
assets
|
|
4,141
|
4,028
|
Deferred tax
assets
|
|
1,209
|
1,295
|
Intangible
assets
|
|
1,779
|
1,667
|
Goodwill
|
|
5,412
|
5,183
|
Total general fund
assets
|
|
168,765
|
162,720
|
Investments for
account of segregated fund holders
|
|
103,062
|
106,392
|
Total
assets
|
|
$
|
271,827
|
$
|
269,112
|
Liabilities and
equity
|
|
|
|
Liabilities
|
|
|
|
Insurance contract
liabilities
|
|
$
|
121,923
|
$
|
117,785
|
Investment contract
liabilities
|
|
3,164
|
3,082
|
Derivative
liabilities
|
|
2,295
|
1,756
|
Deferred tax
liabilities
|
|
322
|
403
|
Other
liabilities
|
|
12,153
|
11,987
|
Senior
debentures
|
|
1,299
|
1,299
|
Subordinated
debt
|
|
3,039
|
3,437
|
Total general fund
liabilities
|
|
144,195
|
139,749
|
Insurance contracts
for account of segregated fund holders
|
|
96,663
|
99,121
|
Investment contracts
for account of segregated fund holders
|
|
6,399
|
7,271
|
Total
liabilities
|
|
$
|
247,257
|
$
|
246,141
|
Equity
|
|
|
|
Issued share capital
and contributed surplus
|
|
$
|
10,749
|
$
|
10,911
|
Shareholders' retained
earnings and accumulated other comprehensive income
|
|
12,957
|
11,410
|
Total shareholders'
equity
|
|
23,706
|
22,321
|
Participating
policyholders' equity
|
|
864
|
650
|
Total
equity
|
|
$
|
24,570
|
$
|
22,971
|
Total liabilities
and equity
|
|
$
|
271,827
|
$
|
269,112
|
|
|
|
|
Exchange rates at
the end of the reporting periods:
|
|
|
|
|
U.S.
dollars
|
1.36
|
1.26
|
Media Relations Contact:
Irene
Poon
Corporate Communications
Tel: 647-256-2330
irene.poon@sunlife.com
Investor Relations Contact:
Gregory Dilworth
Vice-President, Investor Relations
investor.relations@sunlife.com
Tel: 416-979-6230
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SOURCE Sun Life Financial Inc.