TORONTO, ON – (November 2, 2022) – Sun Life Financial Inc.(TSX: SLF) (NYSE: SLF) announced its results for the third quarter ended
September 30, 2022.
• Q3’22 reported net income of $466 million decreased 54% and underlying net income(1) of $949 million increased 5% from Q3’21.
• Q3’22 reported EPS(2) was $0.80 and underlying EPS(1)(2) was $1.62.
• Q3’22 reported ROE(1) was 7.6% and underlying ROE(1) was 15.5%.
• Increase common share dividend from $0.69 to $0.72 per share.
“Sun Life delivered strong third quarter results, continuing to reflect the strength of our diversified business mix, in a challenging economic environment,”
said Kevin Strain, President and CEO of Sun Life. “Sun Life U.S. benefited from the first full quarter of contribution from DentaQuest. Overall insurance sales
across our businesses were strong, reflecting the increased importance Clients are placing on protection and health. In our Asset Management business, we
announced our intention to acquire a majority stake in Advisors Asset Management, Inc., a leading independent U.S. high-net-worth retail distribution firm,
and announced a strategic partnership with Phoenix Group for both MFS and SLC Management in conjunction with the intended sale of our UK business.
These transactions provide attractive opportunities for continued growth in our Asset Management pillar.”
Quarterly results Year-to-date
Profitability Q3’22 Q3’21 2022 2021
Reported net income – Common shareholders ($ millions) 466 1,019 2,109 2,856
Underlying net income ($ millions)(1) 949 902 2,684 2,635
Reported EPS ($)(2) 0.80 1.74 3.59 4.85
Underlying EPS ($)(1)(2) 1.62 1.54 4.58 4.50
Reported return on equity (“ROE”)(1) 7.6% 17.6% 11.7% 16.7%
Underlying ROE(1) 15.5% 15.6% 14.9% 15.4%
Growth Q3’22 Q3’21 2022 2021
Insurance sales ($ millions)(1) 943 628 2,478 2,068
Wealth sales and asset management gross flows ($ millions)(1) 43,096 50,725 158,359 171,700
Value of new business (“VNB”) ($ millions)(1) 256 290 785 852
Assets under management (“AUM”) ($ billions)(1)(3) 1,275 1,386
Financial Strength Q3’22 Q3’21
LICAT ratios (at period end)(4)
Sun Life Financial Inc. 129% 143%
Sun Life Assurance(5) 123% 124%
Financial leverage ratio (at period end)(1) 26.4% 22.2%
(1) Represents a non-IFRS financial measure. For more details, see the Non-IFRS Financial Measures section in this document and in our MD&A for the period
ended September 30, 2022 (“Q3’22 MD&A”).
(2) All earnings per share (“EPS”) measures refer to fully diluted EPS, unless otherwise stated.
(3) AUM is comprised of General Funds and Segregated Funds on our Statements of Financial Position, and other third-party assets managed by the Company
(“other AUM”). For more details, see the Non-IFRS Financial Measures section in this document and in our Q3’22 MD&A.
(4) For further information on the Life Insurance Capital Adequacy Test (“LICAT”), see section E – Financial Strength in our Q3’22 MD&A. Our LICAT ratios are
calculated in accordance with OSFI-mandated guideline, Life Insurance Capital Adequacy Test.
(5) Sun Life Assurance Company of Canada (“Sun Life Assurance”) is SLF Inc.’s principal operating life insurance subsidiary.
EARNINGS NEWS RELEASE Sun Life Financial Inc. Third Quarter 2022 1
Financial and Operational Highlights – Quarterly Comparison (Q3 2022 vs. Q3 2021)
Our strategy is focused on key business segments, where we aim to be a leader in the markets in which we operate.
($ millions, unless otherwise noted)
Reported net income (loss) –
Common shareholders
Underlying
net income (loss)(1)
Insurance
sales(1)
Wealth sales and asset
management gross flows(1)
Q3’22 Q3’21 change Q3’22 Q3’21 change Q3’22 Q3’21 change Q3’22 Q3’21 change
Canada 210 393 (47)% 300 290 3% 233 182 28% 4,131 5,918 (30)%
U.S. 94 46 104% 216 110 96% 366 199 84% — — —
Asset Management 215 301 (29)% 295 362 (19)% — — — 36,434 40,682 (10)%
Asia 125 288 (57)% 175 145 21% 344 247 39% 2,531 4,125 (39)%
Corporate (178) (9) nm(2) (37) (5) nm(2) — — — — — —
Total 466 1,019 (54)% 949 902 5% 943 628 50% 43,096 50,725 (15)%
(1) Represents a non-IFRS financial measure. See the Non-IFRS Financial Measures section in this document and in the Q3’22 MD&A.
(2) Not meaningful.
Reported net income of $466 million decreased $553 million or 54% from prior year, primarily reflecting unfavourable market-related impacts, a
$170 million charge related to the sale of Sun Life UK(1), less favourable ACMA(2) impacts, and an increase in SLC Management’s acquisition-related
liabilities(3)
, partially offset by fair value changes on MFS'(4) share-based payment awards. Underlying net income of $949 million(5) increased $47
million or 5%, driven by business growth and experience in protection and health including a strong contribution from the DentaQuest acquisition.
This was partially offset by lower fee-based income in wealth and asset management, mainly driven by declines in global equity markets.
Canada: A leader in insurance and asset management
Canada reported net income of $210 million decreased $183 million or 47% from prior year, mainly reflecting market-related impacts, due to
interest rate movements and lower equity markets. Prior year reported net income also included increases in the value of real estate investments,
partially offset by a par allocation adjustment(6)
. Underlying net income of $300 million increased $10 million or 3% from prior year, primarily driven
by higher investment gains, partially offset by a higher effective tax rate. Growth in protection and health was mostly offset by lower wealth results
mainly driven by declines in equity markets.
Canada insurance sales were $233 million, up 28% year-over-year, driven by large case group benefits sales in Sun Life Health and higher individual
participating whole life insurance sales. Canada wealth sales were $4 billion, down 30%, reflecting lower defined contribution(7) and defined benefit
solutions sales in Group Retirement Services (“GRS”), and lower individual wealth sales.
We continue to focus on helping our Clients achieve lifetime financial security and live healthier lives. In 2022, over 45,000 financial roadmaps were
created using our Sun Life One Plan digital tool, contributing to our ambition for all Canadians to have a financial plan. This quarter, we also
enhanced our tools with a digital navigation portal, making it easier for Clients to track progress and build flexible scenarios into financial plans. We
also continue to focus on making it easier for Clients to do business with us. This quarter, we introduced a new Voluntary Benefit eApp which
consolidates our voluntary benefit products into a single resource, reducing the application process time for Clients by up to 50%.
U.S.: A leader in health and benefits
U.S. reported net income of $94 million increased $48 million from prior year, driven by an increase in underlying net income, partially offset by
market-related impacts and DentaQuest integration costs. Underlying net income of $216 million increased $106 million, driven by growth across all
businesses, the contribution from the DentaQuest acquisition and favourable experience-related items. Experience in the quarter included
favourable medical stop-loss margins and investment gains. Mortality experience in Group Benefits also improved significantly compared to prior
year due to lower COVID-19-related claims.
Foreign exchange translation led to an increase of $4 million and $8 million in reported net income and underlying net income, respectively.
U.S. insurance sales were $366 million, up 84% year-over-year, driven by higher dental(8) and employee benefits sales.
(1) On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited (“Sun Life UK”) to Phoenix Group Holdings plc (“Phoenix Group”). In
Q3’22, we recognized an impairment charge of $170 million (£108 million) pertaining to the attributed goodwill that is not expected to be recovered
through the sale (“sale of Sun Life UK”). For more details, see section E – Financial Strength in the Q3’22 MD&A.
(2) Assumption changes and management actions (“ACMA”).
(3) Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership
interests of SLC Management affiliates.
(4) MFS Investment Management (“MFS”).
(5) Refer to section C – Profitability in the Q3’22 MD&A for more information about experience-related items and the Non-IFRS Financial Measures section in
this document for a reconciliation between reported net income and underlying net income.
(6) An adjustment of investment income and expense allocations between participating policyholders and shareholders for prior years recorded in Q3’21 (“par
allocation adjustment”).
(7) Defined contribution sales include retained business sales.
(8) Dental sales include sales from DentaQuest, acquired on June 1, 2022.
2 Sun Life Financial Inc. Third Quarter 2022 EARNINGS NEWS RELEASE
As a leader in health and benefits, we are helping Clients get the right care at the right time. In Q3, we established a new partnership with AbleTo, a
virtual behavioural health therapy and coaching program. Sun Life U.S. is the only disability carrier directly partnering with AbleTo, offering
convenient mental health services supporting our disability and critical illness members with a cancer diagnosis.
In addition, DentaQuest announced a new program with Partners Health Plan, a non-profit managed care organization serving individuals with
intellectual and other developmental disabilities. This partnership will increase access to oral health care and help improve outcomes for this
underserved community, contributing to our goal of increasing health equity for all.
Asset Management: A global leader in both public and alternative asset classes through MFS and
SLC Management
Asset Management reported net income of $215 million decreased $86 million or 29% from prior year, driven by an increase in SLC Management’s
acquisition-related liabilities(1) and a decline in underlying net income, partially offset by fair value changes on MFS’ share-based payment awards.
Underlying net income of $295 million decreased $67 million or 19%, due to lower results in MFS, largely reflecting declines in global equity markets,
as well as in SLC Management, due to investment gains in the prior year and continued investments in the businesses.
Foreign exchange translation led to an increase of $10 million in both reported net income and underlying net income.
Asset Management ended Q3’22 with $912 billion in AUM, consisting of $703 billion (US$509 billion) in MFS and $208 billion in SLC Management.
Total Asset Management net outflows of $7.7 billion in Q3’22 reflected MFS net outflows of approximately $13.4 billion (US$10.3 billion), partially
offset by SLC Management net inflows of approximately $5.7 billion.
In the third quarter of 2022, 97%, 94% and 47% of MFS’ U.S. retail mutual fund assets ranked in the top half of their Morningstar categories based
on ten-, five- and three-year performance, respectively. The MFS pre-tax net operating profit margin(2) was 41% for Q3’22, compared to 42% in the
prior year.
In August, we entered into an agreement with Phoenix Group Holdings plc (“Phoenix Group”), establishing a long-term strategic asset management
partnership through MFS and SLC Management, in conjunction with the sale of our Sun Life UK(3) business. Phoenix Group is the UK’s largest longterm savings and retirement business, with £270 billion(4) of assets under administration and approximately 13 million customers. Phoenix Group
has set a goal to invest approximately US$25 billion in North American public and private fixed income and alternative investments over the next
five years and Sun Life will be a material partner to Phoenix Group in achieving this goal.
In September, we announced our intention to acquire a 51%(5) interest in Advisors Asset Management Inc. (“AAM”), a leading independent retail
distribution firm in the U.S., with the option to acquire the remaining interest starting in 2028. AAM will provide access to U.S. retail distribution for
SLC Management. This will allow SLC Management to meet the growing demand for alternative assets among U.S. high-net-worth (“HNW”)
investors.
During the third quarter, InfraRed Capital Partners (“InfraRed”) received a five-star rating in the latest Principles for Responsible Investment (“PRI”)
assessment(6) for the Direct – Infrastructure module. This marks the seventh consecutive assessment where InfraRed has achieved the highest
possible PRI rating for this module, demonstrating the integration of ESG throughout its investment practices. InfraRed also received a five-star
rating for Investment and Stewardship Policy module, which was also above the median score.
Sun Life is continuing progress on its climate commitments with a focus on setting interim targets towards net zero greenhouse gas (“GHG”)
emissions by 2050. MFS has set an interim target to commit 90% of in-scope assets(7) to be managed in-line with net zero carbon emissions by 2030.
We expect our other asset management businesses that are members of the Net Zero Asset Managers (“NZAM”) initiative to communicate their
targets following finalization with NZAM. For Sun Life’s General Account investments, we intend to publish interim targets as part of our 2022
sustainability reporting, to be published in March 2023. Sun Life has also set an interim target of a 50% absolute reduction in GHG emissions by 2030
relative to a 2019 baseline for its operations.
Asia: A regional leader focused on fast-growing markets
Asia reported net income of $125 million decreased $163 million or 57% from prior year, reflecting favourable ACMA impacts in the prior year.
Underlying net income of $175 million increased $30 million or 21%, driven by improved mortality reflecting lower COVID-19-related claims, and
higher investment gains and contributions from our joint ventures, partially offset by lower fee-based income mainly driven by equity market
declines.
Foreign exchange translation led to a $4 million decline in both reported net income and underlying net income.
Asia insurance sales were $344 million, up 39% year-over-year, driven by sales growth across all markets. Asia wealth sales were $3 billion, down
39%, reflecting lower sales in India, the Philippines and Hong Kong.
(1) Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership
interests of SLC Management affiliates.
(2) Represents a non-IFRS financial measure. For more details, see the Non-IFRS Financial Measures section in this document and in the Q3’22 MD&A.
(3) SLF of Canada UK Limited.
(4) As at June 30, 2022.
(5) On a fully diluted basis.
(6) InfraRed PRI Transparency and Assessment Reports are available at https://www.ircp.com/sustainability#documents.
(7) In-scope assets comprise approximately 92% of MFS’s global AUM.
EARNINGS NEWS RELEASE Sun Life Financial Inc. Third Quarter 2022 3
We are committed to helping our Clients achieve lifetime financial security by offering products that fulfill their needs. In Hong Kong, we have seen
strong Client reception for Stellar, the first ESG-focused savings plan(1) in the market that actively integrates environmental, social and governance
(“ESG”) concepts into investment strategies. Following this success, we enhanced our suite of Stellar offerings to include additional cost-effective,
flexible options that allow for broader Client access to sustainable long-term savings products.
We also continue to enhance our product offerings for HNW Clients to diversify, protect, and grow their assets. This quarter, we launched Sun
Global Aurora, a savings-oriented indexed universal life product. Sun Global Aurora is a cost-effective alternative to our core product, providing
Clients the flexibility to customize premium payments to meet their wealth accumulation goals, while offering stable returns and exposure to equity
markets.
Corporate
Corporate reported net loss was $178 million, compared to a net loss of $9 million in the prior year, reflecting a $170 million charge related to the
sale of Sun Life UK, partially offset by favourable ACMA impacts. Underlying net loss was $37 million, compared to a net loss of $5 million in the
prior year, reflecting a higher effective tax rate and lower available-for-sale (“AFS”) gains.
IFRS 17 Insurance Contracts (“IFRS 17”) and IFRS 9 Financial Instruments (“IFRS 9”) to be Adopted
in 2023
For periods beginning on or after January 1, 2023, we will be adopting IFRS 17, which replaces IFRS 4 Insurance Contracts. IFRS 17 establishes the
principles for the recognition, measurement, presentation, and disclosure of insurance contracts. Effective January 1, 2023, we will also be adopting
IFRS 9, which replaces IAS 39 Financial Instruments: Recognition and Measurement.
The adoption of IFRS 17 and IFRS 9 has no material implication on our business strategies. However, upon transition at January 1, 2022, the changes
in measurement of insurance contract liabilities and timing of recognition of earnings would have resulted in the following impacts:
• A net transfer of approximately $4.5 billion from shareholders’ equity, primarily driven by the establishment of the contractual service
margin (“CSM”) on the balance sheet, among other items.
• A mid-single digit decrease in our 2022 underlying net income as we restate the comparative year on an IFRS 17 basis.
The CSM balance will qualify as Tier 1 available capital. On July 21, 2022, OSFI finalized the LICAT guidelines to reflect the IFRS 17 adoption, effective
January 1, 2023. We expect our LICAT ratio to improve on adoption and we also expect capital generation and capital volatility to be relatively
unchanged under the new regime.
Our medium-term financial objectives following the adoption of IFRS 17 and 9 will be:
• Underlying EPS growth: 8-10%
• Underlying ROE: 18%+ (an increase from 16%+ prior to transition)
• Underlying Dividend payout ratio: 40-50%
We continue to assess the impact that the adoption of IFRS 17 and IFRS 9 will have on our Consolidated Financial Statements and estimates of the
financial impacts are subject to change. For additional details, refer to Note 2 in the Interim Consolidated Financial Statements for the period ended
September 30, 2022.