Sun Life Reports Second Quarter 2023 Results

TORONTO, Aug. 8, 2023 /PRNewswire/ - Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF) announced its results for the second quarter ended June 30, 2023.

• Underlying net income⁽¹⁾ of $920 million increased $112 million or 14% from Q2'22⁽²⁾; underlying ROE⁽¹⁾ was 17.7%.
  • Wealth & asset management underlying net income⁽¹⁾: $419 million, down $1 million.
  • Group - Health & Protection underlying net income⁽¹⁾: $360 million, up $122 million or 51%.
  • Individual - Protection underlying net income⁽¹⁾: $265 million, up $50 million or 23%.
• Reported net income of $660 million decreased $270 million or 29% from Q2'22⁽²⁾; reported ROE⁽¹⁾ was 12.7%.

"Sun Life delivered good second quarter results as our diversified set of businesses continued to demonstrate resilience in a challenging economic environment," said Kevin Strain, President and CEO of Sun Life. "Health and protection sales growth was strong, which shows the importance and priority that our Clients continue to place on health and protection services. Providing access to health and health education remains a priority for Sun Life. We're excited about our announcement to acquire Dialogue Health Technologies, Canada's leading integrated health platform that provides access to affordable, on-demand, quality care. Our investment in Dialogue allows us to play a larger role in Canada's health ecosystem, while reducing the strain on traditional health care organizations."

"We're also seeing momentum from many of our recent acquisitions and strategic partnerships. This includes solid Q2 results from DentaQuest, the strong start to our 15-year bancassurance partnership with Dah Sing Bank in Hong Kong and the successful IPO for BGO's IREIT, a product that supports our High-Net-Worth alternative strategies, distributed through our U.S. retail distributor, Advisors Asset Management Inc."

Financial and Operational Highlights - Quarterly Comparison (Q2'23 vs. Q2'22)

Underlying net income⁽¹⁾ of $920 million increased $112 million or 14% from prior year, driven by:

• Wealth & asset management⁽¹⁾ down $1 million: Higher investment income driven by volume growth and an increase in yields was largely offset by lower fee-based earnings in MFS⁽²⁾, reflecting equity market declines over the past year, as well as higher expenses in Canada.
• Group - Health & Protection⁽¹⁾ up $122 million: Strong performance driven by good premium growth and better disability experience in Canada and the U.S., as well as a full quarter of DentaQuest contributions.
• Individual - Protection⁽¹⁾ up $50 million: Higher premiums reflecting good sales momentum during the past year in Asia, and improved insurance experience in Canada and the U.S.
• Corporate expenses & other⁽¹⁾ $(59) million increased net loss driven by higher operating expenses including incentive compensation and an increase in debt financing costs.
• Higher earnings on surplus reflecting an increase in realized gains and net interest income from higher rates.
• An increase of $27 million from the impacts of foreign exchange translation.

Reported net income of $660 million decreased $270 million or 29%, driven by:

• Market-related impacts primarily reflecting interest rates and real estate investments⁽³⁾;
• Prior year gain on the sale-leaseback of the Wellesley office in the U.S.; and
• Fair value changes in management's ownership of MFS shares; partially offset by
• The increase in underlying net income.

Asset Management: A global leader in both public and alternative asset classes through MFS and SLC Management

Asset Management underlying net income of $296 million increased $1 million from prior year, driven by:

• MFS up $2 million (down US$10 million): Higher net investment income and the impacts from foreign exchange translation was largely offset by lower average net assets ("ANA") reflecting equity market declines over the past year and net outflows. The MFS pre-tax net operating profit margin⁽¹⁾ was 37% for Q2'23, compared to 36% in the prior year.
• SLC Management down $1 million: Fee-related earnings⁽¹⁾ increased 19% driven by higher AUM, reflecting strong capital raising and deployment across the platform and the AAM acquisition⁽²⁾. Fee-related earnings margin⁽¹⁾ for Q2'23 was 24% compared to 23% in the prior year. Underlying net income was in line with prior year, with the increase in fee-related earnings offset by higher earned operating income in the prior year that did not repeat.

Reported net income of $248 million decreased $50 million or 17%, driven by fair value changes in management's ownership of MFS shares and losses on real estate investments held in the SLC Management surplus account.

Foreign exchange translation led to an increase of $13 million and $12 million in underlying net income and reported net income, respectively.

Asset Management ended Q2'23 with $998 billion of AUM, consisting of $780 billion (US$589 billion) in MFS and $218 billion in SLC Management. Total Asset Management net outflows of $3.3 billion in Q2'23 reflected MFS net outflows of $5.3 billion (US$4.0 billion) partially offset by SLC Management net inflows of $2.0 billion.

Our Asset Management businesses continue to maintain a strong focus on sustainable investing. During the second quarter, BentallGreenOak ("BGO") received Gold Recognition in the 2023 Green Lease Leaders program organized by the Institute for Market Transformation and the U.S. Department of Energy Better Buildings Alliance. InfraRed Capital Partners ("InfraRed") continues to invest capital in companies helping to build a sustainable future. For example, in Q2'23, InfraRed announced an investment in JOLT⁽³⁾, an e-mobility company. InfraRed's investment in JOLT's rapid electric vehicle charging infrastructure supports a low carbon future and supports its target of achieving 50% of AUM⁽⁴⁾ invested in climate solutions by 2025.

Advisors Asset Management, Inc. ("AAM"), a U.S. retail distribution affiliate of SLC Management which we acquired last quarter, announced it will distribute BGO IREIT⁽⁵⁾, a non-traded real estate investment trust launched by BGO, demonstrating the strategic benefit from the AAM acquisition.

Canada: A leader in health, wealth, and insurance

Canada underlying net income of $372 million increased $73 million or 24% from prior year, reflecting:

• Wealth & asset management in line with prior year: Increase in investment income driven by higher volume and yields, largely offset by higher expenses.
• Group - Health & Protection up $48 million: Better disability experience reflecting higher margins, lower claims volumes, and shorter claims durations.
• Individual - Protection up $25 million: Improved insurance experience as well as higher investment contributions.

Reported net income of $210 million decreased $266 million or 56% from prior year, reflecting market-related impacts primarily from interest rates and real estate experience, partially offset by the increase in underlying net income.

Canada's sales⁽⁶⁾:

• Wealth sales & asset management gross flows of $3 billion were down 6%, reflecting lower defined benefit solution sales partially offset by higher defined contribution sales in Group Retirement Services ("GRS").
• Group sales of $153 million were up 66%, reflecting higher large case sales.
• Individual sales of $154 million were up 22%, reflecting higher participating whole life insurance sales.

We continue to deliver on our strategy of strengthening and expanding our health business. We provide Canadians with the support they need to take action throughout their health journey, helping to prevent and mitigate health risks and live healthier lives. During the second quarter, we launched Lumino Health Pharmacy, a new online pharmacy app, which will help Clients consult a knowledgeable pharmacist by chat or a phone call and have medications delivered to their door free of charge. This service helps Clients to keep track of their medications, usage, refills, and sends them important notifications regarding their prescriptions.

In July, we entered into an agreement to acquire Dialogue Health Technologies Inc. ("Dialogue"), Canada's premier virtual health care and wellness platform, providing affordable on-demand access to quality care, which will help us empower Canadians with access to the care they need from the convenience of their home.

U.S.: A leader in health and benefits

U.S. underlying net income of US$160 million increased US$58 million or 57% ($215 million increased $81 million or 60%) from prior year, driven by:

• Group - Health & Protection up US$46 million: Strong performance across all businesses including good premium growth, contribution from the DentaQuest acquisition, higher investment contributions and favourable experience. Experience in the quarter included higher medical stop-loss margins and favourable group disability.
• Individual - Protection up US$12 million: The inclusion of the UK payout annuity business⁽¹⁾ and insurance experience. Mortality experience in the quarter improved compared to the prior year.
• Higher earnings on surplus reflecting an increase in net interest income from higher rates.

Reported net income of US$133 million increased US$20 million or 18% ($175 million increased $26 million or 17%) from prior year, reflecting the increase in underlying net income and favourable ACMA⁽²⁾, partially offset by a prior year gain on the sale-leaseback of the Wellesley office.

Foreign exchange translation led to an increase of $11 million and $10 million in underlying net income and reported net income, respectively.

U.S. group sales of $484 million were up $271 million, driven by higher dental⁽³⁾ and medical stop-loss sales.

We continue to take action to support our strategic priority to help Clients access the health care and coverage they need. In our Dental business, we expanded the Advantage Dental+ care practices with two new offices in Texas. These practices are in areas where access to quality oral health care is a challenge for children with Medicaid coverage. We also recorded the largest Medicare Advantage sale in DentaQuest history, bringing dental sales to approximately $580 million since closing the DentaQuest acquisition on June 1, 2022.

We also announced a relationship with Philadelphia-based Independence Health Group to exclusively provide medical stop-loss insurance for their self-funded group medical clients to help protect against large, unpredictable health care costs. This supports our strategy of partnering with other insurers and health plans to expand our market presence and deliver our expertise to additional Clients.

Asia: A regional leader focused on fast-growing markets

Asia underlying net income of $150 million increased $32 million or 27% from prior year, driven by:

• Wealth & asset management down $2 million: Lower fee-based earnings reflecting lower AUM in the Philippines.
• Individual - Protection up $38 million: Higher premiums reflecting good sales momentum during the past year, and improved expenses and lapse experience in our joint ventures. This was partially offset by less favourable morbidity experience in Hong Kong.
• Regional office expenses & other $(4) million increased net loss: In line with the prior year.

Reported net income of $122 million increased $115 million from prior year, driven by market-related impacts, largely from interest rates partially offset by real estate experience, and the increase in underlying net income.

Foreign exchange translation led to an increase of $3 million in underlying net income and reported net income.

Asia's sales⁽⁴⁾:

• Wealth sales & asset management gross flows of $2 billion were down 51%, primarily reflecting lower money market fund sales in the Philippines.
• Individual sales of $450 million were up 55%, driven by higher sales in Hong Kong, China and India.

New business CSM of $118 million in Q2'23, compared to $70 million in the prior year, was primarily driven by sales and favourable product mix in High-Net-Worth and Hong Kong.

We continue to make progress on our strategic priorities of establishing digital leadership and leveraging distribution excellence. In Hong Kong, we introduced eSunPro, a new digital health care service platform which provides comprehensive, one-stop care and assistance to Clients, ranging from services at the point of diagnosis to post-treatment care, enabling them to access advanced treatment and support throughout their recovery process.

We strive to enhance Clients' experience and make it easier for them to do business with us. During the second quarter, we opened the Sun Gateway prestige Client center ("The Center") in Hong Kong. The Center offers High-Net-Worth Clients professional insurance consultancy and one-stop financial products and services, with a dedicated team of onsite financial advisors and client service representatives catering to their wealth management and protection needs as they evolve through different life stages.

Corporate

Corporate underlying net loss was $113 million compared to underlying net loss of $38 million in the prior year, reflecting higher operating expenses including incentive compensation and an increase in debt financing costs, the impact from the sale of Sun Life UK, partially offset by higher investment income from surplus assets.

Reported net loss was $95 million compared to nil reported net income in the prior year, reflecting the change in underlying net loss and market-related impacts, partially offset by a gain on the sale of Sun Life UK.

Sun Life was recognized as one of Corporate Knights' Global 100 Most Sustainable Corporations in the World for the 14th consecutive year and was the top ranked insurance company globally. We announced our second sustainability bond offering, issuing $500 million. We will invest an amount equal to the net proceeds of this offering into green and/or social assets that meet the eligibility criteria as set out under Sun Life's Sustainability Bond Framework. This supports our continued commitment to sustainable investing.

Earnings Conference Call

The Company's Q2'23 financial results will be reviewed at a conference call on Wednesday, August 9, 2023, at 10:00 a.m. ET. Visit www.sunlife.com/QuarterlyReports 10 minutes prior to the start of the event to access the call through either the webcast or conference call options. 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 Q2'24 period end.

Note to Readers: 2022 Restated Results on Adoption of IFRS 17 and IFRS 9
2022 results have been restated for the adoption of IFRS 17 and the related IFRS 9 classification overlay ("the new standards"). The restated results may not be fully representative of our future earnings profile, as we were not managing our asset and liability portfolios under the new standards. The majority of the actions taken to re-balance asset portfolios and transition asset-liability management execution to an IFRS 17 basis occurred in Q1'23. Accordingly, analysis based on 2022 comparative results may not necessarily be indicative of future trends, and should be interpreted with this context. Using sensitivities to analyze the outlook for market risk and related impacts (e.g., interest rate sensitivities) will be more representative starting with the sensitivities disclosed for Q1'23 and onward in section I - Risk Management in each quarter's respective MD&A document. Certain 2022 restated results and 2023 interim results in the Drivers of Earnings and CSM Movement Analysis were refined to more accurately reflect how management views the business. As these results are not audited, or have not yet been audited, they may still be subject to change.

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 in isolation from or as alternatives to measures of financial performance determined in accordance with IFRS. Additional information concerning non-IFRS financial measures and, if applicable, reconciliations to the closest IFRS measures are available in the Q2'23 MD&A under the heading N - Non-IFRS Financial Measures and the Supplementary Financial Information packages that are available on www.sunlife.com under Investors – Financial results and reports.

1. Underlying Net Income and Underlying EPS
Underlying net income is a non-IFRS financial measure that assists in understanding Sun Life's business performance by making certain adjustments to IFRS income. Underlying net income, along with common shareholders' net income (Reported net income), is used as a basis for management planning, and is also a key measure in our employee incentive compensation programs. This measure reflects management's view of the underlying business performance of the company and long-term earnings potential. For example, due to the longer term nature of our individual protection businesses, market movements related to interest rates, equity markets and investment properties can have a significant impact on reported net income in the reporting period. However, these impacts are not necessarily realized, and may never be realized, if markets move in the opposite direction in subsequent periods or in the case of interest rates, the fixed income investment is held to maturity.

Underlying net income removes the impact of the following items from reported net income:

• Market-related impacts reflecting the after-tax difference in actual versus expected market movements;
• Assumptions changes and management actions;
• Other adjustments:

i. Management's ownership of MFS shares;
ii. Acquisition, integration, and restructuring;
iii. Intangible asset amortization;
iv. Other items that are unusual or exceptional in nature.

For additional information about the adjustments removed from reported net income to arrive at underlying net income, refer to section N - Non-IFRS Financial Measures - 2 - Underlying Net Income and Underlying EPS in the Q2'23 MD&A.

The following table sets out the post-tax amounts that were excluded from our underlying net income (loss) and underlying EPS and provides a reconciliation to our reported net income and EPS based on IFRS.