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Sun Life Reports Fourth Quarter and Full Year 2019 Results

The information in this document is based on the unaudited interim financial results of Sun Life Financial Inc. ("SLF Inc.") for the period ended December 31, 2019 . SLF Inc., its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as "the Company", "Sun Life", "we", "our", and "us". We manage our operations and report our financial results in five business segments: Canada , United States ("U.S."), Asset Management, Asia , and Corporate. Unless otherwise noted, all amounts are in Canadian dollars.



Sun Life Financial Inc. (CNW Group/Sun Life Financial Inc.)

TORONTO , Feb. 12, 2020 /CNW/ - Sun Life Financial Inc. (SLF) (SLF) today announced its results for the fourth quarter ended December 31, 2019. Fourth quarter reported net income was $719 million and underlying net income(1) was $792 million .



Quarterly results

Full Year



Q4'19


Q4'18


2019


2018

Profitability




Reported net income ($ millions)

719


580


2,618


2,522


Underlying net income ($ millions)(1)

792


718


3,057


2,947








Reported EPS ($)(2)

1.22


0.96


4.40


4.14


Underlying EPS ($)(1)(2)

1.34


1.19


5.16


4.86








Reported return on equity ("ROE")(1)

13.6%


10.9%


12.3%


12.1%


Underlying ROE(1)

15.0%


13.6%


14.3%


14.2%

Growth




Insurance sales ($ millions)(1)

1,402


1,314


3,524


3,189


Wealth sales ($ millions)(1)

44,872


36,241


158,992


136,702


Value of new business ("VNB") ($ millions)(1)

337


310


1,206


1,154


Assets under management ("AUM") ($ billions)(1)

1,099.3


951.1


1,099.3


951.1

Financial Strength




LICAT ratios(3) (at period end)






Sun Life Financial Inc.

143%


144%





Sun Life Assurance(4)

130%


131%











Financial leverage ratio(1) (at period end)

21.2%


21.2%












"In 2019, we exceeded $3 billion of underlying net income and achieved underlying EPS of $5.16 , underlying return on equity of 14.3% and dividend growth of 10%," said Dean Connor , President and CEO of Sun Life.

"We completed our acquisition of a majority stake in BentallGreenOak and announced our intention to acquire a majority stake in InfraRed Capital Partners, broadening SLC Management's suite of alternative investment solutions within global real estate and infrastructure equity markets," added Connor. "We also continued to make steady progress on distribution in Asia with two new bancassurance agreements in Vietnam and Indonesia , and now have mobile apps in all seven of our local markets, giving our Clients increased access to products and solutions. The strength of our investment capabilities is highlighted by the achievement of a key milestone, surpassing $1 trillion in assets under management in 2019."

__________

(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.

(2)

All earnings per share ("EPS") measures refer to fully diluted EPS, unless otherwise stated.

(3)

For further information on the Life Insurance Capital Adequacy Test ("LICAT"), see section E - Financial Strength in this document.

(4)

Sun Life Assurance Company of Canada ("Sun Life Assurance") is SLF Inc.'s principal operating life insurance subsidiary.



Financial and Operational Highlights - Quarterly Comparison (Q4 2019 vs. Q4 2018)

Our strategy is focused on four key pillars of growth, where we aim to be a leader in the markets in which we operate, with our continued progress detailed below.

($ millions, unless otherwise noted)



Reported

net income(loss)

Underlying

net income(loss)(1)

Insurance

sales(1)

Wealth

sales(1)


Q4'19

Q4'18

change

Q4'19

Q4'18

change

Q4'19

Q4'18

change

Q4'19

Q4'18

change

Canada(3)

275

96

186%

264

245

8%

228

219

4%

5,905

4,883

21%

U.S.(3)

131

118

11%

137

121

13%

813

844

(4)%

Asset Management(3)

228

244

(7)%

281

227

24%

36,847

29,423

25%

Asia(3)

136

125

9%

143

140

2%

361

251

44%

2,120

1,935

10%

Corporate(3)

(51)

(3)

nm(2)

(33)

(15)

nm(2)

Total

719

580

24%

792

718

10%

1,402

1,314

7%

44,872

36,241

24%



(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.

(2)

Not meaningful.

(3)

Prior to the second quarter of 2019, these business segments were referred to as Sun Life Financial Canada, Sun Life Financial U.S., Sun Life Financial Asset Management, Sun Life Financial Asia, and Corporate, respectively, in our interim and annual MD&A.



Reported net income was $719 million in the fourth quarter of 2019, an increase of $139 million or 24% compared to the same period in 2018, driven by favourable market-related impacts, primarily from equity markets, partially offset by higher fair value adjustments on MFS's(1) share-based payment awards(2), unfavourable assumption changes and management actions ("ACMA")(2) impacts and higher acquisition, integration and restructuring costs(2). Underlying net income was $792 million , an increase of $74 million or 10%, driven by business growth, tax benefits in Corporate and favourable credit experience, partially offset by unfavourable morbidity experience in Canada and unfavourable expense experience, predominantly resulting from higher incentive compensation costs reported in Corporate.

Our reported ROE was 13.6% in the fourth quarter of 2019. Underlying ROE was 15.0%, compared to 13.6% in the fourth quarter of 2018, reflecting higher underlying net income. Total shareholders' equity remained flat as increases from earnings were offset by the impact of our acquisition of a majority stake in BentallGreenOak ("BGO acquisition") on common shareholders' equity, dividend distributions and share repurchases. SLF Inc. and its wholly-owned holding companies ended the quarter with $2.3 billion in cash and other liquid assets.

A leader in insurance and wealth solutions in our Canadian Home Market

Canada's reported net income was $275 million in the fourth quarter of 2019, an increase of $179 million compared to the same period in 2018, driven by favourable market-related impacts, predominantly from equity markets, and less unfavourable ACMA. Underlying net income was $264 million , an increase of $19 million or 8%, driven by business growth, higher investing activity, favourable credit experience, higher available-for-sale ("AFS") gains and favourable mortality experience, partially offset by unfavourable morbidity experience in Group Benefits ("GB") and a mortgage impairment.

Canada insurance sales were $228 million in the fourth quarter of 2019, an increase of $9 million or 4% compared to the same period in 2018, driven by increased individual life insurance sales. Canada wealth sales were $5.9 billion in the fourth quarter of 2019, an increase of $1.0 billion or 21% compared to the same period in 2018, driven by Group Retirement Services ("GRS") from large case sales, as described below, and Individual Wealth.

In the quarter, GRS sales grew 19% over prior year driven by strong Defined Benefit Solutions sales of $1.5 billion as we continue to shape the market by bringing customized and innovative solutions to companies to assist them in de-risking their pension plans.  In Individual Insurance & Wealth, AUM for SLGI(3) of $29 billion grew 27% from the prior year, driven by strong performance of the flagship Granite Managed Solutions products, where 98%, 100% and 84% of SLGI Granite Managed Portfolio retail assets exceeded their peer medians for five-, three- and one-year performance, respectively(4).

__________

(1)

MFS Investment Management ("MFS").

(2)

Represents an adjustment made to arrive at a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment.

(3)

Sun Life Global Investments ("SLGI").

(4)

Based on the Funds' Series F returns against their respective Canadian Investment Funds Standards Committee ("CIFSC") peer group.



A leader in U.S. group benefits

U.S.'s reported net income was $131 million , an increase of $13 million or 11% in the fourth quarter of 2019 compared to the same period in 2018. Market-related impacts, ACMA and integration costs were in line with the same period last year. Underlying net income was $137 million, an increase of $16 million or 13%, driven by favourable morbidity experience and higher AFS gains, partially offset by unfavourable mortality experience in In-force Management. The after-tax profit margin for Group Benefits(1) was 7.3% as of the fourth quarter of 2019, compared to 6.7% as of the fourth quarter of 2018.

U.S. Group Benefits sales were US$616 million in the fourth quarter of 2019, a decrease of US$23 million or 4% compared to the same period in 2018, reflecting lower large case employee benefits sales. U.S. Group Benefits full year 2019 sales of over one billion U.S. dollars ( US$1,043 million ) reached a new high, up 4% compared to 2018, driven by growth in medical stop-loss. Medical stop-loss business-in-force increased to US$1.9 billion , an increase of 17% compared to 2018, advancing our leadership position as the largest independent medical stop-loss provider.

We completed the major milestones of our integration of the employee benefits business acquired in 2016, which includes reaching our full target of US$100 million in pre-tax run-rate synergies on schedule. We also surpassed 10,000 employees on the Sun Life + Maxwell Health platform, which was launched earlier in 2019, enabling more families to make better choices for insurance protection that fills financial gaps.

A leader in Global Asset Management

Asset Management's reported net income was $228 million, a decrease of $16 million or 7% in the fourth quarter of 2019 compared to the same period in 2018, reflecting higher fair value adjustments on MFS's share-based payment awards. Underlying net income was $281 million, an increase of $54 million or 24%, driven by higher average net assets ("ANA") in MFS and higher income in SLC Management from the BGO acquisition that closed in 2019. Pre-tax net operating profit margin ratio for MFS(1) for the fourth quarter of 2019 was 40%, compared to 38% in the same period in 2018.

Asset Management ended the fourth quarter with $768.8 billion in AUM, consisting of $684.8 billion ( US$527 .4 billion) in MFS and $84.0 billion in SLC Management. MFS reported net outflows of $1.5 billion ( US$1 .2 billion) and SLC Management reported net inflows of $0 .6 billion in the fourth quarter of 2019. Despite an overall industry trend of net retail outflows, MFS achieved U.S. retail net inflows for the fourth consecutive quarter, demonstrating the continued strength of MFS's performance and brand presence.

In the fourth quarter of 2019, 93%, 93% and 98% of MFS's U.S. retail mutual fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance.

On December 17, 2019 , we entered into an agreement with InfraRed Capital Partners ("InfraRed"), a global infrastructure and real estate investment manager, to purchase 80% of the company and the ability to acquire the remaining interest in the future. As a leader in global infrastructure investing, including renewable energy, InfraRed will further broaden SLC Management's suite of alternative investment solutions, and this transaction also creates the opportunity for InfraRed to access North American investors through our distribution networks.

A leader in Asia through distribution excellence in higher growth markets

Asia's reported net income was $136 million in the fourth quarter of 2019, an increase of $11 million or 9% compared to the same period in 2018, driven by favourable market-related impacts, predominantly from equity markets, largely offset by unfavourable ACMA impacts. Underlying net income was $143 million, an increase of $3 million or 2%, driven by business growth, favourable lapse and other policyholder behaviour experience and lower new business strain, partially offset by unfavourable joint venture experience and other investment-related experience.

Asia insurance sales were $361 million , an increase of $110 million or 44% in the fourth quarter of 2019 compared to the same period in 2018, driven by growth in all local insurance markets and in International. Asia wealth sales were $2.1 billion , an increase of $185 million or 10%, driven by money market sales in the Philippines and growth in the pension business in Hong Kong , largely offset by lower mutual fund sales in India .

We continue to execute on our growth strategies as demonstrated through the following activities in the fourth quarter of 2019:

  • In Vietnam , we signed a 15-year bancassurance partnership with Tien Phong Commercial Bank, a digital leader in Vietnamese banking.
  • In Indonesia , we became the preferred partner to Nobu National Bank by signing an expanded distribution agreement.
  • We commenced sales of Sun Life's sharia-based products via our exclusive bancassurance partnership with Bank Muamalat Indonesia, a pioneer in the Islamic banking industry.
  • As a further testament to our financial strength, Sun Life Hong Kong Ltd. has been assigned "AA-" long-term issuer credit and financial strength ratings by S&P Global Ratings, with a stable outlook, which will help us further support our high‑net‑worth capabilities.

__________

(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



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.

Canada


2.

U.S


3.

Asset Management


4.

Asia


5.

Corporate

G.

Investments

H.

Risk Management

I.

Additional Financial Disclosure

J.

Non-IFRS Financial Measures

K.

Forward-looking Statements



About Sun Life

Sun Life is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate Clients. Sun Life 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, 2019, Sun Life had total AUM of $1 ,099 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., its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as "the Company", "Sun Life", "we", "our", and "us". We manage our operations and report our financial results in five business segments: Canada , U.S., Asset Management, Asia , and Corporate. Prior to the second quarter of 2019, these business segments were referred to as Sun Life Financial Canada, Sun Life Financial U.S., Sun Life Financial Asset Management, Sun Life Financial Asia, and Corporate, respectively, in our interim and annual MD&A. 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.

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 in isolation from or 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, 2019. 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&A 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)

Q4'19

Q3'19

Q4'18


2019

2018

Profitability








Net income (loss)








Reported net income (loss)

719

681

580


2,618

2,522


Underlying net income (loss)(1)

792

809

718


3,057

2,947


Diluted earnings per share ($)








Reported EPS (diluted)

1.22

1.15

0.96


4.40

4.14


Underlying EPS (diluted)(1)

1.34

1.37

1.19


5.16

4.86


Reported basic EPS ($)

1.22

1.15

0.96


4.42

4.16


Return on equity (%)








Reported ROE(1)

13.6%

13.0%

10.9%


12.3%

12.1%


Underlying ROE(1)

15.0%

15.5%

13.6%


14.3%

14.2%

Growth








Sales








Insurance sales(1)

1,402

685

1,314


3,524

3,189


Wealth sales(1)

44,872

41,151

36,241


158,992

136,702


Value of new business(1)

337

252

310


1,206

1,154


Premiums and deposits








Net premium revenue

6,639

4,799

5,313


20,288

18,642


Segregated fund deposits

3,517

2,505

2,763


11,958

11,553


Mutual fund sales(1)

27,177

25,292

22,135


99,836

84,202


Managed fund sales(1)

12,347

12,200

9,629


45,062

38,903


ASO premium and deposit equivalents(1)(2)

1,715

1,699

1,673


6,802

6,808


Total premiums and deposits(1)

51,395

46,495

41,513


183,946

160,108


Assets under management








General fund assets

180,229

180,206

168,765


180,229

168,765


Segregated funds

116,973

112,806

103,062


116,973

103,062


Mutual funds, managed funds and other AUM(1)

802,145

769,920

679,316


802,145

679,316


Total AUM(1)

1,099,347

1,062,932

951,143


1,099,347

951,143

Financial Strength








LICAT(3) ratios








Sun Life Financial Inc.

143%

146%

144%





Sun Life Assurance(4)

130%

133%

131%





Financial leverage ratio(1)

21.2%

22.8%

21.2%





Dividend








Dividend payout ratio(1)

41%

38%

42%


41%

39%


Dividends per common share ($)

0.550

0.525

0.500


2.100

1.905


Capital








Subordinated debt and innovative capital instruments(5)

3,738

4,238

3,738


3,738

3,738


Participating policyholders' equity and non-controlling interests

1,110

1,045

864


1,110

864


Total shareholders' equity

23,398

23,153

23,706


23,398

23,706


Total capital

28,246

28,436

28,308


28,246

28,308


Average common shares outstanding (millions)

588

590

602


592

606


Closing common shares outstanding (millions)

588

588

599


588

599



(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 ratio.

(4)

Sun Life Assurance Company of Canada is SLF Inc.'s principal operating life insurance subsidiary.

(5)

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 2019 annual MD&A.



C. Profitability

The following table reconciles our reported net income and underlying net income. The table also sets out the impacts that other notable items had on our reported net income and underlying net income in 2019 and 2018. 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)

Q4'19

Q3'19

Q4'18


2019

2018

Reported net income

719

681

580


2,618

2,522

Less: Market-related impacts(1)

18

(89)

(153)


(237)

(188)

Assumption changes and management actions(1)

(15)

13


(46)

(155)

Other adjustments(1)

(76)

(39)

2


(156)

(82)

Underlying net income(2)

792

809

718


3,057

2,947

Reported ROE(2)

13.6%

13.0%

10.9%


12.3%

12.1%

Underlying ROE(2)

15.0%

15.5%

13.6%


14.3%

14.2%








Impacts of other notable items on reported and underlying net income







Experience-related items(3)







Impacts of investment activity on insurance contract liabilities

     ("investing activity")

34

8

28


131

135

Credit

47

44

23


74

72

Mortality

(3)

13

(11)


22

(6)

Morbidity

(47)

(45)

(12)


(70)

51

Lapse and other policyholder behaviour

(6)

(6)

(4)


(24)

(49)

Expenses

(45)

3

(26)


(18)

(62)

Other experience

(6)

4

44


(29)

90



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. 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)

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.



Quarterly Comparison - Q4 2019 vs. Q4 2018

Reported net income increased by $139 million or 24% in the fourth quarter of 2019 compared to the same period in 2018, driven by favourable market-related impacts, primarily from equity markets, partially offset by higher fair value adjustments on MFS's share-based payment awards, unfavourable ACMA impacts and higher acquisition, integration and restructuring costs. Underlying net income increased by $74 million or 10%, driven by business growth, tax benefits in Corporate and favourable credit experience, partially offset by unfavourable morbidity experience in Canada and unfavourable expense experience, predominantly resulting from higher incentive compensation costs reported in Corporate.

1. Market-related impacts

Market-related impacts in the fourth quarter of 2019 compared to the same period in 2018 predominantly reflected favourable equity market impacts and improved interest rate impacts, partially offset by unfavourable impacts of changes in fair value of investment properties. See section J - Non-IFRS Financial Measures in this document for a breakdown of components of market-related impacts.

2. Assumption changes and management actions

ACMA decreased reported net income by $15 million in the fourth quarter of 2019, compared to an increase of $13 million in the same period in 2018.

3. Other adjustments

Other adjustments decreased reported net income by $76 million in the fourth quarter of 2019, compared to an increase of $2 million in the same period in 2018, including higher fair value adjustments on MFS's share-based payment awards, restructuring costs in Corporate and higher acquisition and integration costs in SLC Management. The costs in Corporate include severance costs as a result of various initiatives to simplify our organizational structure and drive efficiencies, while the costs in SLC Management relate to the BGO acquisition and the pending InfraRed transaction.

4. Experience-related items

Compared to the fourth quarter of 2018, the significant changes in experience-related items are as follows:

  • Favourable credit experience, primarily in Canada ;
  • Unfavourable morbidity experience in Canada , partially offset by the U.S.;
  • Unfavourable expense experience, predominantly resulting from higher annual incentive compensation costs reflecting reported net income and an increase in long-term incentive compensation costs driven by the increase in the share price of SLF Inc.; and
  • Unfavourable other experience, including higher project spend, including the adoption of IFRS 17 Insurance Contracts ("IFRS 17"), and unfavourable joint venture experience and other investment-related experience in Asia .

5. 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 2019, our effective income tax rates on reported net income and underlying net income(1) were 10.8% and 13.9%, respectively, compared to 14.5% and 16.8%, respectively, in the fourth quarter of 2018. Our effective tax rate on underlying net income in the fourth quarter of 2019 was below our expected range of 15% to 20%, primarily due to higher tax-exempt investment income.

6. Impacts of foreign exchange translation

During the fourth quarter of 2019, the impacts of foreign exchange translation increased reported net income and underlying net income by $2 million .

Year-to-Date Comparison - 2019 vs. 2018

Reported net income increased by $96 million or 4% in 2019 compared to 2018, driven by less unfavourable ACMA impacts, partially offset by higher fair value adjustments on MFS's share-based payment awards and unfavourable market-related impacts. Underlying net income increased by $110 million or 4%, driven by business growth, higher net benefits from tax-related items, improved expense experience, favourable mortality experience in the U.S. and Canada and improved lapse and other policyholder behaviour experience, partially offset by unfavourable morbidity experience in Canada , interest on par seed capital(2) in 2018 and lower new business gains in Canada and Asia .

1. Market-related impacts

Market-related impacts in 2019 compared to 2018 reflected unfavourable impacts from interest rates and changes in the fair value of investment properties, largely offset by favourable impacts from equity markets.

2. Assumption changes and management actions

ACMA decreased reported net income by $46 million in 2019, compared to a decrease of $155 million in 2018. See section D - Profitability - 2019 vs. 2018 - ii. Assumption changes and management actions in the 2019 annual MD&A for details on ACMA in 2019.

3. Other adjustments

Other adjustments in 2019 decreased reported net income by $156 million , compared to $82 million in 2018, reflecting higher fair value adjustments on MFS's share-based payment awards, higher acquisition and integration costs in SLC Management and restructuring costs in Corporate, partially offset by lower integration costs in the U.S. and Corporate. The costs in SLC Management relate to the BGO acquisition and the pending InfraRed transaction. The costs in Corporate include severance costs as a result of various initiatives to simplify our organizational structure and drive efficiencies. The lower costs in the U.S. reflect the successful completion of the integration of the U.S. employee benefits business acquired in 2016.

__________

(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.

(2) 

In the first quarter of 2018, the seed capital that was transferred into the participating account at demutualization was transferred into the shareholder account, along with accrued investment income ("interest on par seed capital"). The results include income of $110 million, of which $75 million was in Canada and $35 million was in the U.S.



4. Experience-related items

Compared to 2018, the significant changes in experience-related items are as follows:

  • Favourable mortality experience in the U.S. and Canada ;
  • Unfavourable morbidity experience in Canada ;
  • Improved lapse and other policyholder behaviour experience in the U.S., Asia and Canada , partially offset by the UK in Corporate;
  • Improved expense experience resulting from expense discipline while growing the businesses, and lower incentive compensation costs; and
  • Unfavourable other experience, including interest on par seed capital of $110 million - $75 million in Canada and $35 million in the U.S. in 2018, and higher project spend including the adoption of IFRS 17.

5. Income taxes

For 2019, our effective tax rates on reported and underlying net income(1) were 8.8% and 14.1%, respectively, compared to 17.0% and 17.2%, respectively, for 2018. Our effective tax rate on underlying net income for 2019 is below our expected range of 15% to 20%, primarily due to the favourable resolution of Canadian tax matters and higher tax-exempt investment income. For additional information, refer to Note 20 in our 2019 Annual Consolidated Financial Statements. Our effective tax rate on underlying net income for 2018 was within our expected range.

6. Impacts of foreign exchange translation

During 2019, the impacts of foreign exchange translation increased reported net income and underlying net income by $33 million and $47 million , respectively.

D. Growth

1. Sales and Value of New Business


Quarterly results


Full Year

($ millions)

Q4'19


Q3'19


Q4'18



2019


2018


Insurance sales by business group(1)







Canada

228


204


219



988


984


U.S.

813


184


844



1,382


1,307


Asia

361


297


251



1,154


898


Total insurance sales(1)

1,402


685


1,314



3,524


3,189


Wealth sales by business group(1)







Canada

5,905


4,136


4,883



16,114


15,286


Asia

2,120


2,573


1,935



8,373


10,101


Total wealth sales excluding Asset Management(1)

8,025


6,709


6,818



24,487


25,387


Asset Management sales(1)

36,847


34,442


29,423



134,505


111,315


Total wealth sales(1)

44,872


41,151


36,241



158,992


136,702


Value of New Business(1)

337


252


310



1,206


1,154




(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



Total Company insurance sales increased by $88 million or 7% ( $86 million or 7%, excluding the impacts of foreign exchange translation) in the fourth quarter of 2019 compared to the same period in 2018.

  • Canada insurance sales increased by 4%, driven by increased individual life insurance sales.
  • U.S. insurance sales decreased by 4%, excluding the unfavourable impacts of foreign exchange translation of $1 million , reflecting lower large case sales in employee benefits.
  • Asia insurance sales increased by 43%, excluding the favourable impacts of foreign exchange translation of $3 million , driven by growth in all local insurance markets and in International.

__________

(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.



Total Company wealth sales increased by $8.6 billion or 24% (the impacts of foreign exchange translation were not significant) in the fourth quarter of 2019 compared to the same period in 2018.

  • Canada wealth sales increased by 21%, driven by large case sales in GRS and increased mutual fund sales in Individual Wealth.
  • Asia wealth sales increased by 8%, excluding the favourable impacts of foreign exchange translation of $30 million , driven by money market sales in the Philippines and growth in the pension business in Hong Kong , largely offset by lower mutual fund sales in India .
  • Asset Management sales increased by 25%, excluding the unfavourable impacts of foreign exchange translation of $41 million , driven by higher mutual and managed fund sales in MFS and higher sales in SLC Management.

Total Company VNB was $337 million in the fourth quarter of 2019, an increase of 9% compared to the same period in 2018, driven by higher sales in Canada and Asia , partially offset by changes in sales mix, pricing and the impact of lower interest rates.

2.  Premiums and Deposits


Quarterly results

Full Year

($ millions)

Q4'19


Q3'19


Q4'18


2019


2018


Net premium revenue

6,639


4,799


5,313


20,288


18,642


Segregated fund deposits

3,517


2,505


2,763


11,958


11,553


Mutual fund sales(1)

27,177


25,292


22,135


99,836


84,202


Managed fund sales(1)

12,347


12,200


9,629


45,062


38,903


ASO premium and deposit equivalents(1)

1,715


1,699


1,673


6,802


6,808


Total premiums and deposits(1)

51,395


46,495


41,513


183,946


160,108


Total adjusted premiums and deposits(1)(2)

51,537


46,625


41,654


181,100


160,710




(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 impacts of Constant Currency Adjustment and Reinsurance in Canada's Group Benefits Operations Adjustment as described in section J - Non-IFRS Financial Measures in this document.



Premiums and deposits increased by $9.9 billion or 24% in the fourth quarter of 2019 compared to the same period in 2018, driven by increased mutual fund sales, managed fund sales, net premium revenue and segregated fund deposits. Premiums and deposits increased by $23.8 billion or 15% in 2019 compared to 2018, driven by increased mutual fund and managed fund sales. The impacts of foreign exchange translation did not impact premiums and deposits in the fourth quarter of 2019 and increased premiums and deposits by $3.4 billion in 2019. Adjusted premiums and deposits increased by $9.9 billion or 24% in the fourth quarter of 2019 compared to the same period in 2018. Adjusted premiums and deposits increased by $20.4 billion or 13% in 2019 compared to 2018. The increase in adjusted premiums and deposits in the fourth quarter of 2019 and in 2019 was driven by increased mutual fund and managed fund sales.

Net premium revenue increased by $1.3 billion or 25% in the fourth quarter of 2019 compared to the same period in 2018. Net premium revenue increased by $1.6 billion or 9% in 2019 compared to 2018. The increase in net premium revenue in the fourth quarter of 2019 and in 2019 was driven by increased premium revenue in Canada , Asia and the U.S. The impacts of foreign exchange translation increased net premium revenue by $4 million and $184 million in the fourth quarter of 2019 and in 2019, respectively.

Segregated fund deposits increased by $754 million or 27% in the fourth quarter of 2019 compared to the same period in 2018. Segregated fund deposits increased by $405 million or 4% in 2019 compared to 2018. The increase in segregated fund deposits in the fourth quarter of 2019 and in 2019 was driven primarily by increased deposits in Canada . The impacts of foreign exchange translation increased segregated fund deposits by $11 million and $37 million in the fourth quarter of 2019 and in 2019, respectively.

Mutual fund sales increased by $5.0 billion or 23% in the fourth quarter of 2019 compared to the same period in 2018. Mutual fund sales increased by $15.6 billion or 19% in 2019 compared to 2018. The increase in mutual fund sales in the fourth quarter of 2019 and in 2019 was primarily driven by increased sales in MFS, the Philippines in Asia and Canada . The impacts of foreign exchange translation did not impact mutual fund sales in the fourth quarter of 2019 and increased mutual fund sales by $2.2 billion in 2019.

Managed fund sales increased by $2.7 billion or 28% in the fourth quarter of 2019 compared to the same period in 2018. Managed fund sales increased by $6.2 billion or 16% in 2019 compared to 2018. The increase in managed fund sales in the fourth quarter of 2019 and in 2019 was primarily driven by increased sales in MFS, SLC Management and Hong Kong in Asia . The impacts of foreign exchange translation decreased managed fund sales by $12 million in the fourth quarter of 2019 and increased managed fund sales by $982 million in 2019.

ASO premium and deposit equivalents increased by $42 million or 3% in the fourth quarter of 2019 compared to the same period in 2018, driven by Hong Kong in Asia and Canada . ASO premium and deposit equivalents in 2019 were in line with 2018. The impacts of foreign exchange translation did not impact ASO premium deposits and equivalents in the fourth quarter of 2019 and increased ASO premium deposits and equivalents by $6 million in 2019.

3. Assets Under Management

AUM consists 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)

Q4'19


Q3'19


Q2'19


Q1'19


Q4'18


Assets under management(1)






General fund assets

180,229


180,206


174,325


172,348


168,765


Segregated funds

116,973


112,806


111,684


110,011


103,062


Mutual funds, managed funds and other AUM(1)

802,145


769,920


738,767


729,026


679,316


Total AUM(1)

1,099,347


1,062,932


1,024,776


1,011,385


951,143


(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



AUM increased by $148.2 billion or 16% as at December 31, 2019 compared to December 31, 2018, resulting primarily from:

(i)

an increase of favourable market movements on the value of mutual funds, managed funds and segregated funds of $166.6 billion;

(ii)

an increase of $12.6 billion from the BGO acquisition;

(iii) 

an increase in AUM of general fund assets of $11.5 billion; and

(iv)

an increase of other business activities of $2.4 billion; partially offset by

(v)

a decrease of $35.6 billion from the impacts of foreign exchange translation (excluding the impacts from general fund assets); and

(vi)

net outflows from mutual, managed and segregated funds of $9.3 billion.

 

The net outflow of mutual, managed, and segregated funds of $9.3 billion in 2019 was predominantly driven by net outflows from MFS of $15.8 billion , which were partially offset by net inflows of $3.6 billion in SLC Management, $2.4 billion in Asia and $1.4 billion in Canada . For the fourth quarter of 2019, net inflows of mutual, managed and segregated funds were $0.9 billion , predominantly driven by net inflows of $1.2 billion in Canada , $0.9 billion in Asia , and $0.6 billion in SLC Management, partially offset by net outflows in MFS of $1.5 billion .

E. Financial Strength


Quarterly results


Q4'19

Q3'19

Q2'19

Q1'19

Q4'18

LICAT Ratio






Sun Life Financial Inc.

143%

146%

144%

145%

144%

Sun Life Assurance

130%

133%

133%

132%

131%

Financial leverage ratio(1)

21.2%

22.8%

20.4%

21.1%

21.2%

Dividend




Dividend payout ratio(1)

41%

38%

42%

42%

42%

Dividends per common share ($)

0.550

0.525

0.525

0.500

0.500

Capital




Subordinated debt and innovative capital instruments(2)

3,738

4,238

3,491

3,739

3,738

Participating policyholders' equity and non-controlling interests

1,110

1,045

974

930

864

Preferred shareholders' equity

2,257

2,257

2,257

2,257

2,257

Common shareholders' equity

21,141

20,896

21,427

21,525

21,449

Total capital

28,246

28,436

28,149

28,451

28,308



(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.

(2)

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 2019 annual MD&A.



The Office of the Superintendent of Financial Institutions ("OSFI") has developed the regulatory capital framework referred to as the Life Insurance Capital Adequacy Test for Canada . LICAT measures the capital adequacy of an insurer using a risk-based approach and includes elements that contribute to financial strength through periods when an insurer is under stress as well as elements that contribute to policyholder and creditor protection wind-up.

SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As at December 31, 2019, SLF Inc.'s LICAT ratio was 143%, which was 1% lower than December 31, 2018. The favourable impacts of reported net income, market movements and net change in subordinated debt were more than offset by the impacts of payment of dividends, repurchases of common shares, redemption of innovative capital instruments, OSFI's 2019 LICAT guideline revisions, the de-registration of a U.S. reinsurer in the second quarter and the BGO acquisition.

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary, is also subject to the LICAT guideline. As at December 31, 2019, Sun Life Assurance's LICAT ratio was 130%, compared to 131% as at December 31, 2018. The favourable contribution of reported net income and market impacts were more than offset by dividends to SLF Inc. and the impact from OSFI's 2019 LICAT guideline revisions. The Sun Life Assurance LICAT ratios in both periods are 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, preferred shareholders' equity, and non-controlling interests. As at December 31, 2019, our total capital was $28.2 billion , largely unchanged from the prior year. The decreases to total capital included the payment of $1,236 million of dividends on common shares of SLF Inc. ("common shares"), the impact related to the BGO acquisition of $860 million (1), the decrease of $592 million from the repurchase and cancellation of common shares, the impacts of foreign exchange translation loss of $564 million included in other comprehensive income (loss), changes in the remeasurement of defined benefit plans of $42 million and net changes in debentures detailed below that net to $nil, largely offset by reported net income of $2,618 million , net unrealized gains on AFS assets of $369 million and change in participating policyholders' equity of $227 million .

The legal entity, SLF Inc. (the ultimate parent company) and its wholly-owned holding companies had $2 .3 billion in cash and other liquid assets(2) as at December 31, 2019 ( $2 .5 billion as at December 31, 2018).

On May 13, 2019 , SLF Inc. redeemed all of the outstanding $250 million principal amount of Series 2014-1 Subordinated Unsecured 2.77% Fixed/Floating Debentures, in accordance with the redemption terms attached to such debentures. The redemption was funded from existing cash and other liquid assets.

On July 2, 2019 , SLF Inc.'s Series D Senior Unsecured 5.70% Debentures matured and SLF Inc. repaid all of the outstanding $300 million principal amount of such debentures together with all accrued and unpaid interest. Under LICAT, senior debentures do not qualify as available capital, as a result, the repayment of the Series D Debentures had no impact on the LICAT ratio of Sun Life Assurance or SLF Inc. In addition, a separate pool of assets had been set aside to support the redemption of these debentures. As such, the redemption did not affect the cash and other liquid assets held by SLF Inc. and its wholly-owned holding companies noted above.

On August 13, 2019 , SLF Inc. completed its issuance of Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures, with a principal amount of $750 million , due 2029. Sun Life intends to use an amount equal to the net proceeds to finance or refinance eligible assets as defined in our Sustainability Bond Framework.

On December 31, 2019 , Sun Life Capital Trust II, a subsidiary of SLF Inc. redeemed all of the outstanding $500 million principal amount of Sun Life ExchangEable Capital Securities - Series 2009-1, in accordance with the terms outlined in the prospectus for the securities.

__________

(1)

For additional information, refer to Note 3 in our 2019 Annual Consolidated Financial Statements.

(2)

Other liquid assets include cash equivalents, short-term investments, and publicly traded securities.



Normal Course Issuer Bids

On August 14, 2019 , SLF Inc. renewed its normal course issuer bid, which remains in effect until August 13, 2020 , or such earlier date as SLF Inc. may determine, or until SLF Inc. has purchased an aggregate of 15.0 million common shares under the bid. Shares purchased in 2019 were as follows:


2019


Common shares
purchased(1)(2) (millions)

Amount
($ millions)

Bid announced August 2018 (expired August 13, 2019)

8.6

445

Bid announced August 2019

2.8

147


11.4

592




(1) All of the common shares purchased under SLF Inc.'s normal course issuer bids during 2019 were subsequently cancelled.

(2) There were no common shares purchased in the fourth quarter of 2019.


F. Performance by Business Group


Quarterly results

Full Year

($ millions)

Q4'19

Q3'19

Q4'18

2019

2018

Reported net income (loss)



Canada

275

223

96

883

942

U.S.

131

(186)

118

163

52

Asset Management

228

221

244

897

909

Asia

136

170

125

520

555

Corporate

(51)

253

(3)

155

64

Total reported net income (loss)

719

681

580

2,618

2,522




Underlying net income (loss)(1)



Canada

264

268

245

1,012

1,036

U.S.

137

135

121

532

514

Asset Management

281

251

227

1,004

925

Asia

143

138

140

550

523

Corporate

(33)

17

(15)

(41)

(51)

Total underlying net income (loss)(1)

792

809

718

3,057

2,947



(1) 

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 2019 annual MD&A. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

1. Canada


Quarterly results

Full Year

($ millions)

Q4'19


Q3'19


Q4'18


2019


2018

Individual Insurance & Wealth

147


32


(27)


282


328

Group Benefits

40


59


59


253


282

Group Retirement Services

88


132


64


348


332

Reported net income (loss)

275


223


96


883


942

Less: Market-related impacts(1)

6


(44)


(134)


(111)


(117)

Assumption changes and management actions(1)

(1)


4


(14)


(17)


23

Other adjustments(1)(2)

6


(5)


(1)


(1)


Underlying net income (loss)(3)

264


268


245


1,012


1,036

Reported ROE (%)(3)

15.5%


12.7%


5.5%


12.6%


13.8%

Underlying ROE (%)(3)

14.9%


15.3%


14.1%


14.4%


15.2%







Insurance sales(3)

228


204


219


988


984

Wealth sales(3)

5,905


4,136


4,883


16,114


15,286



(1)

Represents an adjustment to arrive at a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment.

(2)

Mainly comprised of certain hedges in Canada that do not qualify for hedge accounting and acquisition, integration and restructuring costs. For further information, see section J - Non-IFRS Financial Measures in this document.

(3)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



Profitability

Quarterly Comparison - Q4 2019 vs. Q4 2018

Canada's reported net income increased by $179 million in the fourth quarter of 2019 compared to the same period in 2018, driven by favourable market-related impacts, predominantly from equity markets, and less unfavourable ACMA. Underlying net income increased by $19 million or 8%, driven by business growth, higher investing activity, favourable credit experience, higher AFS gains and favourable mortality experience, partially offset by unfavourable morbidity experience in GB and a mortgage impairment.

Year-to-Date Comparison - 2019 vs. 2018

Canada's reported net income decreased by $59 million or 6% in 2019 compared to 2018, reflecting unfavourable ACMA impacts. Underlying net income decreased by $24 million or 2%, reflecting unfavourable morbidity experience in GB, interest on par seed capital of $75 million in 2018, unfavourable credit experience, a mortgage impairment and lower new business gains, partially offset by business growth, favourable expense experience, higher AFS and investing activity gains, higher net benefits from tax-related items and favourable mortality experience.

Growth

Quarterly Comparison - Q4 2019 vs. Q4 2018

Canada insurance sales increased by $9 million or 4% in the fourth quarter of 2019 compared to the same period in 2018. Individual insurance sales were $117 million in the fourth quarter of 2019, an increase of $9 million or 8% compared to the same period in 2018, driven by increased life insurance sales. Sales in GB were $111 million in the fourth quarter of 2019, in line with the same period in 2018.

Canada wealth sales increased by $1.0 billion or 21% in the fourth quarter of 2019 compared to the same period in 2018. Individual wealth sales were $1.8 billion in the fourth quarter of 2019, an increase of $357 million or 24% compared to the same period in 2018, driven by increased mutual fund sales. GRS sales were $4.1 billion in the fourth quarter of 2019, an increase of $665 million or 19% compared to the same period in 2018, primarily driven by higher sales within our defined benefit and defined contributions pension plan products.

Year-to-Date Comparison - 2019 vs. 2018

Canada insurance sales in 2019 were in line with 2018. Individual insurance sales were $389 million in 2019, a decrease of $7 million or 2% compared to 2018, driven by lower life insurance sales. Sales in GB were $599 million in 2019, an increase of $11 million or 2% compared to 2018.

Canada wealth sales increased by $0.8 billion or 5% in 2019 compared to 2018. Individual wealth sales were $6.4 billion , an increase of $101 million or 2% compared to 2018, driven by increased mutual fund and segregated fund sales, partially offset by lower fixed annuity sales. GRS sales were $9.8 billion in 2019, an increase of $727 million or 8% compared to 2018, driven by improved sales across all products.

AUM for our wealth businesses, including GRS, was $136.6 billion as at December 31, 2019, an increase of $16.4 billion or 14% compared to December 31, 2018, driven by improved markets and net inflows.

2. U.S.


Quarterly results

Full Year

(US$ millions)

Q4'19


Q3'19


Q4'18


2019


2018

Group Benefits

64


(4)


59


187


217

In-force Management

35


(136)


30


(65)


(176)

Reported net income (loss)

99


(140)


89


122


41

Less: Market-related impacts(1)


(21)


4


(40)


(21)

Assumption changes and management actions(1)

(2)


(218)



(221)


(302)

Acquisition, integration and restructuring(1)(3)

(3)


(3)


(6)


(16)


(32)

Underlying net income (loss)(2)

104


102


91


399


396

Reported ROE (%)(2)

14.8%


(21.0)%


13.1%


4.5%


1.5%

Underlying ROE (%)(2)

15.5%


15.4%


13.5%


14.7%


14.6%

After-tax profit margin for Group Benefits (%)(2)(4)

7.3%


7.2%


6.7%


7.3%


6.7%

Insurance sales(2)

616


139


639


1,043


999

(C$ millions)






Reported net income (loss)

131


(186)


118


163


52

Underlying net income (loss)(2)

137


135


121


532


514



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. 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)

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

Quarterly Comparison - Q4 2019 vs. Q4 2018

U.S.'s reported net income increased by US$10 million ( $13 million ) or 11% (11%) in the fourth quarter of 2019 compared to the same period in 2018. Market-related impacts, ACMA and integration costs were in line with the same period last year. Underlying net income increased by US$13 million ( $16 million ) or 14% (13%), driven by favourable morbidity experience and higher AFS gains, partially offset by unfavourable mortality experience in In-force Management. The impacts of foreign exchange translation were in line with the prior year for reported net income and underlying net income.

The after-tax profit margin for Group Benefits(1) was 7.3% as of the fourth quarter of 2019, compared to 6.7% as of the fourth quarter of 2018.

Year-to-Date Comparison - 2019 vs. 2018

U.S.'s reported net income increased by US$81 million ( $111 million ) in 2019 compared to 2018, driven by improved impacts from ACMA and lower integration costs as the integration of the U.S. employee benefits business acquired in 2016 was completed, partially offset by unfavourable market-related impacts, predominantly from changes in the fair value of investment properties. Underlying net income was in line with 2018, reflecting business growth, improved mortality experience, improved lapse and policyholder behaviour experience as well as improved expense experience, offset by interest on par seed capital of US$28 million ( $35 million ) in 2018, and lower investing activity and AFS gains. The impacts of foreign exchange translation increased reported net income and underlying net income by $4 million and $12 million , respectively.

__________

(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



Growth

Quarterly Comparison - Q4 2019 vs. Q4 2018

U.S.'s insurance sales decreased by US$23 million or 4% in the fourth quarter of 2019 compared to the same period in 2018, reflecting lower large case employee benefits sales.

Year-to-Date Comparison - 2019 vs. 2018

U.S.'s insurance sales of over one billion U.S. dollars ( US$1,043 million ) reached a new high, up US$44 million or 4% in 2019 compared to 2018, primarily driven by growth in medical stop-loss in Group Benefits. Medical stop-loss business-in-force increased to US$1.9 billion , an increase of 17% compared to 2018, advancing our leadership position as the largest independent medical stop-loss provider.

3. Asset Management


Quarterly results

Full Year

Asset Management (C$ millions)

Q4'19

Q3'19

Q4'18

2019


2018

Reported net income

228


221


244


897


909

Less: Fair value adjustments on MFS's share-based payment awards(1)

(37)


(8)


28


(64)


(5)

Acquisition, integration and restructuring(1)

(16)


(22)


(11)


(43)


(11)

Underlying net income(2)

281


251


227


1,004


925

Assets under management (C$ billions)(2)

768.8


738.7


649.7


768.8


649.7

Gross sales (C$ billions)(2)

36.8


34.4


29.4


134.5


111.4

Net sales (C$ billions)(2)

(0.9)


3.2


(8.5)


(12.2)


(37.3)

MFS (C$ millions)






Reported net income

229


240


249


909


893

Less: Fair value adjustments on MFS's share-based payment awards(1)

(37)


(8)


28


(64)


(5)

Underlying net income(2)

266


248


221


973


898

Assets under management (C$ billions)(2)

684.8


655.5


584.2


684.8


584.2

Gross sales (C$ billions)(2)

34.0


31.6


27.9


125.0


104.3

Net sales (C$ billions)(2)

(1.5)


1.7


(8.7)


(15.8)


(38.5)

MFS (US$ millions)






Reported net income

173


182


189


685


689

Less: Fair value adjustments on MFS's share-based payment awards(1)

(28)


(6)


22


(48)


(4)

Underlying net income(2)

201


188


167


733


693

Pre-tax net operating profit margin ratio(2)

40%


40%


38%


39%


38%

Average net assets (US$ billions)(2)

507.2


491.3


451.6


484.0


477.5

Assets under management (US$ billions)(2)(3)

527.4


495.2


428.4


527.4


428.4

Gross sales (US$ billions)(2)

25.8


24.0


21.1


94.2


80.6

Net sales (US$ billions)(2)

(1.2)


1.3


(6.6)


(11.8)


(29.7)

Asset appreciation (depreciation) (US$ billions)

33.4


5.0


(50.0)


110.8


(33.5)

S&P 500 Index (daily average)

3,089


2,958


2,689


2,914


2,744

MSCI EAFE Index (daily average)

1,961


1,882


1,809


1,892


1,965

SLC Management (C$ millions)






Reported net income

(1)


(19)


(5)


(12)


16

Less: Acquisition, integration and restructuring(1)

(16)


(22)


(11)


(43)


(11)

Underlying net income(2)

15


3


6


31


27

Assets under management (C$ billions)(2)

84.0


83.2


65.5


84.0


65.5

Gross sales (C$ billions)(2)

2.8


2.8


1.5


9.5


7.0

Net sales (C$ billions)(2)

0.6


1.5


0.2


3.6


1.2



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. 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)

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, 2019.



Profitability

Quarterly Comparison - Q4 2019 vs. Q4 2018

Asset Management's reported net income decreased by $16 million or 7% in the fourth quarter of 2019 compared to the same period in 2018, reflecting higher fair value adjustments on MFS's share-based payment awards. Underlying net income increased by $54 million or 24%, driven by higher ANA in MFS and higher income in SLC Management from the BGO acquisition that closed in 2019. The impacts of foreign exchange translation were in line with the prior year for reported net income and underlying net income.

In U.S. dollars, MFS's reported net income was US$173 million in the fourth quarter of 2019, a decrease of $16 million or 8% compared to the same period in 2018, reflecting higher fair value adjustments on MFS's share-based payment awards. Underlying net income was US$201 million in the fourth quarter of 2019, an increase of US$34 million or 20%, driven by higher ANA. Pre-tax net operating profit margin ratio for MFS(1) for the fourth quarter of 2019 was 40%, compared to 38% for the fourth quarter of 2018.

SLC Management's reported net loss was $1 million in the fourth quarter of 2019, an improvement of $4 million compared to the same period in 2018, reflecting higher acquisition and integration costs related to the BGO acquisition and the pending InfraRed transaction. Underlying net income was $15 million in the fourth quarter of 2019, an increase of $9 million , driven by net income from the BGO acquisition that closed in 2019.

Year-to-Date Comparison - 2019 vs. 2018

Asset Management's reported net income decreased by $12 million or 1% in 2019 compared to 2018, reflecting higher fair value adjustments on MFS's share-based payment awards and higher acquisition and integration costs related to the BGO acquisition and the pending InfraRed transaction. Underlying net income increased by $79 million or 9%, primarily driven by higher ANA, expense management and investment income including returns on seed capital in MFS. The impacts of foreign exchange translation in 2019 increased reported net income and underlying net income by $21 million and $23 million, respectively.

In U.S. dollars, MFS's reported net income in 2019 was in line with 2018, reflecting higher fair value adjustments on MFS's share-based payment awards. Underlying net income increased by US$40 million or 6%, driven by the impacts of higher ANA, expense management and investment income including returns on seed capital.

SLC Management's reported net loss was $12 million in 2019 compared to an income of $16 million in 2018, reflecting higher acquisition and integration costs related to the BGO acquisition and the pending InfraRed transaction. Underlying net income increased by $4 million or 15%, driven by net income from the BGO acquisition that closed in July 2019 , partially offset by an increase in expenses.

Growth

Asset Management's AUM increased by $119.1 billion or 18% as at December 31, 2019 compared to December 31, 2018, primarily driven by asset appreciation of $151.2 billion , partially offset by the impacts of foreign exchange translation of $33.4 billion and net outflows of $12.2 billion .

MFS's AUM increased by US$99.0 billion or 23% as at December 31, 2019 compared to December 31, 2018, primarily driven by asset appreciation of US$110.8 billion , partially offset by net outflows of US$11.8 billion ( $15.8 billion ). In the fourth quarter of 2019, MFS reported net outflows of US$1.2 billion ( $1.5 billion ), due to institutional redemptions, partially offset by continued strong retail sales.

In the fourth quarter of 2019, 93%, 93% and 98% of MFS's U.S. retail mutual fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance.

SLC Management's AUM increased by $18.5 billion or 28% as at December 31, 2019 compared to December 31, 2018, primarily driven by the BGO acquisition of $12.6 billion , asset appreciation of $4.1 billion and net inflows of $3.6 billion , partially offset by the impacts of foreign exchange translation of $2.7 billion . In the fourth quarter of 2019, SLC Management reported net inflows of $0.6 billion .

__________

(1)

Represents a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document.



4. Asia


Quarterly results

Full Year

($ millions)

Q4'19

Q3'19

Q4'18

2019

2018

Insurance and Wealth

91

197

101

506

381

International

45

(27)

24

14

174

Reported net income (loss)

136

170

125

520

555

Less: Market-related impacts(1)

5

(15)

(22)

(66)

(30)

Assumption changes and management actions(1)

(11)

47

9

37

76

Acquisition, integration and restructuring(1)(2)

(1)

(2)

(1)

(14)

Underlying net income (loss)(3)

143

138

140

550

523

Reported ROE (%)(3)

9.8%

12.1%

9.9%

9.5%

11.3%

Underlying ROE (%)(3)

10.2%

9.8%

10.9%

10.0%

10.6%

Insurance sales(3)

361

297

251

1,154

898

Wealth sales(3)

2,120

2,573

1,935

8,373

10,101



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. See section J - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment.

(2)

The amount in 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.



Profitability

Quarterly Comparison - Q4 2019 vs. Q4 2018

Asia's reported net income increased by $11 million or 9% in the fourth quarter of 2019 compared to the same period in 2018, driven by favourable market-related impacts, predominantly from equity markets, largely offset by unfavourable ACMA impacts. Underlying net income increased by $3 million or 2%, driven by business growth, favourable lapse and other policyholder behaviour experience and lower new business strain, partially offset by unfavourable joint venture experience and other investment-related experience. The impacts of foreign exchange translation increased reported net income and underlying net income by $1 million and $2 million , respectively.

Year-to-Date Comparison - 2019 vs. 2018

Asia's reported net income decreased by $35 million or 6% in 2019 compared to 2018, reflecting less favourable ACMA and unfavourable market-related impacts, predominantly from interest rates, partially offset by higher acquisition, integration and restructuring costs in 2018. Underlying net income increased by $27 million or 5%, driven by business growth, improved lapse and policyholder behaviour experience and higher AFS gains, partially offset by unfavourable joint venture experience and higher new business strain primarily in International. The impacts of foreign exchange translation increased reported net income and underlying net income by $15 million .

Growth

Quarterly Comparison - Q4 2019 vs. Q4 2018

Asia insurance sales increased by 43%, excluding the favourable impacts of foreign exchange translation of $3 million , in the fourth quarter of 2019 compared to the same period in 2018. Individual insurance sales were $349 million , an increase of 42%, excluding the favourable impacts of foreign exchange translation of $3 million , driven by growth in all local insurance markets and in International.

Asia wealth sales increased by 8%, excluding the favourable impacts of foreign exchange translation of $30 million , in the fourth quarter of 2019 compared to the same period in 2018, driven by money market sales in the Philippines and continued strong growth in the pension business in Hong Kong , largely offset by lower mutual fund sales in India .

Year-to-Date Comparison - 2019 vs. 2018

Asia insurance sales increased by 26%, excluding the favourable impacts of foreign exchange translation of $20 million , in 2019 compared to 2018. Individual insurance sales were $1,102 million , an increase of 27%, excluding the favourable impacts of foreign exchange translation of $20 million , driven by growth in all local insurance markets, partially offset by lower sales in International.

Asia wealth sales decreased by 18%, excluding the favourable impacts of foreign exchange translation of $120 million , in 2019 compared to 2018, as a result of lower mutual fund sales in India due to weak market sentiment, partially offset by money market sales in the Philippines and growth in the pension business in Hong Kong .

5. Corporate


Quarterly results

Full Year

($ millions)

Q4'19

Q3'19

Q4'18

2019

2018

UK

32

279

31

379

250

Corporate Support

(83)

(26)

(34)

(224)

(186)

Reported net income (loss)

(51)

253

(3)

155

64

Less: Market-related impacts(1)

7

(2)

(2)

(15)

Assumption changes and management actions(1)

236

18

225

140

Acquisition, integration and restructuring(1)

(25)

(4)

(27)

(10)

Underlying net income (loss)(2)

(33)

17

(15)

(41)

(51)



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. 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.



Profitability

Quarterly Comparison - Q4 2019 vs. Q4 2018

Corporate's reported net loss increased by $48 million in the fourth quarter of 2019 compared to the same period in 2018, reflecting restructuring costs and the impacts of favourable ACMA in 2018 relating to the termination of assumed business, partially offset by favourable market-related impacts, predominantly from interest rates. Underlying net loss increased by $18 million , reflecting unfavourable expense experience, lower earnings from the run-off businesses and higher project spend including the adoption of IFRS 17, partially offset by tax benefits. The impacts of foreign exchange translation decreased reported net income by $1 million and were in line with the prior year for underlying net income.

Year-to-Date Comparison - 2019 vs. 2018

Corporate's reported net income increased by $91 million in 2019 compared to 2018, driven by the impacts of favourable ACMA predominantly in the UK, improved market-related impacts, primarily from interest rates, and lower integration costs, partially offset by restructuring costs. Underlying net loss improved by $10 million or 20%, driven by higher net benefits from tax-related items, partially offset by lower earnings from the run-off businesses, higher project spend including the adoption of IFRS 17, unfavourable lapse and other policyholder behaviour experience in the UK and unfavourable expense experience. The impacts of foreign exchange translation decreased reported net income by $7 million and increased underlying net loss by $3 million .

G. Investments

We had total general fund invested assets of $161.6 billion as at December 31, 2019, compared to $151.7 billion as at December 31, 2018. The increase in general fund invested assets was primarily due to an increase in operating activities and net fair value, offset by the impacts of foreign exchange translation. 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, 2019


December 31, 2018

($ millions)

Carrying

value

% of total
carrying value


Carrying

 value

% of total
carrying value

Cash, cash equivalents and short-term securities

9,575

6%


9,506

6%

Debt securities

81,606

50%


74,443

49%

Equity securities

4,787

3%


4,634

3%

Mortgages and loans

48,222

30%


46,822

31%

Derivative assets

1,548

1%


1,112

1%

Other invested assets

5,357

3%


4,830

3%

Policy loans

3,218

2%


3,222

2%

Investment properties

7,306

5%


7,157

5%

Total invested assets

161,619

100%


151,726

100%



(1) 

The values and ratios presented are based on the carrying value of the respective asset categories. Generally, the carrying values for 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 in our 2019 Annual Consolidated Financial Statements.

The carrying value of fair value through profit or loss ("FVTPL") and AFS debt securities by geographic location is presented in the following table.


December 31, 2019

December 31, 2018

($ millions)

FVTPL debt
securities

AFS debt
securities

Total

% of Total

FVTPL debt
securities

AFS debt
securities

Total

% of Total null