Sun Life Financial Inc. · TSX:SLF
Sun Life Financial — Q1 2003 Earnings Presentation
45 slides from Sun Life Financial's earnings presentation, May 2, 2003
Slide 1: Analyst Presentation: Financial and Operating Results, First Quarter 2003
Analyst Presentation Financial and Operating Results First Quarter 2003 May 2, 2003
Slide 2: Forward Looking Information
Forward Looking Information This presentation contains forward looking statements with respect to the Company, including its business operations and strategy and financial performance and condition. Although Management believes that the expectations reflected in such forward looking statements are r
Slide 3: First Quarter 2003 - Highlights
First Quarter 2003 - Highlights • Earnings up $87 million or 34% from Q1’02 • EPS down 3 cents from Q1’02 with strong Canadian and UK earnings mitigating lower US earnings • Clarica added 5 cents to Q1’03 EPS; on target for 2003 commitment of 20 cents accretion • US earnings lower on 24% reduction i
Slide 4: Shareholders' Net Income
Shareholders’ Net Income ($ Millions) 1,447 1,476 1,420 1,366 S&P 500 (average) 1,273 1,234 1,154 1,115 1,132 1,070 895 886 861 350 361 343 293 243 256 203 211 212 215 197 202 181 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Operating Earnings 181 197 203 211 202 212
Slide 5: Financial Performance
Financial Performance 1,132 S&P 500 (average) 1,070 895 886 861 60 59 59 16.0% 57 58 56 55 14.0% EPS (cents) 50 12.0% ROE 45 10.0% 40 8.0% 35 6.0% Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Operating EPS 59 59 57 58 56 ROE (1) 13.2% 11.7% 9.8% 9.8% 9.3% (1) Based on operating earnings. 5
Slide 6: Premiums and Segregated Fund Deposits
Premiums and Segregated Fund Deposits ($ Billions) 6.6 5.8 5.3 5.3 5.5 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Segregated Fund 1.5 1.5 1.3 2.3 1.3 Deposits Premiums and 3.8 4.3 4.0 4.3 4.2 Premium Equivalents 6
Slide 7: First Year Annualized Premiums
First Year Annualized Premiums ($ Millions) Individual Life & Health Group Life & Health 269 168 121 126 130 110 118 110 95 98 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 U.S. - BOLI (1) 16 2 14 105 3 Canada 43 25 36 26 50 U.S. - Individual 79 53 47 91 55 - ASO 14 10 19 19 16 Canada
Slide 8: Assets Under Management
Assets Under Management ($ Billions) 357 369 347 361 337 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Mutual Funds 152 131 113 117 108 Managed Funds and 75 66 61 68 65 Other Segregated Funds 49 54 50 53 48 General Funds 81 118 123 123 116 8
Slide 9: MFS Net Fund Sales
MFS Net Fund Sales Net New Sales Market Movement (US$ Billions) (US$ Billions) 2.9 1.0 1.3 4.4 0.9 (1.9) (2.4) (1.4) (14.0) (16.3) Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Mutual Funds Mutual Funds (1.3) (10.2) (8.6) 2.7 (1.3) Gross New Sales 5.9 5.0 4.4 4.5 4.5 Managed Redemption
Slide 10: MFS - Top U.S. Mutual Fund Companies
MFS - Top 10 U.S. Mutual Fund Companies Net New Assets Flows (Mar. 31/03) (YTD Mar/03) ($US Billions) 1 Vanguard 452 7.6 2 Fidelity 442 1.4 3 American Funds 321 8.9 4 Franklin Templeton 147 0.8 5 Putnam 125 (4.1) 6 PIMCO Funds 122 8.3 7 T. Rowe Price 76 1.4 8 OppenheimerFunds 71 0.0 9 Janus 68 (1.9)
Slide 11: U.S. Annuity Sales
U.S. Annuity Sales (US$ Millions) 1,458 1,200 1,007 980 896 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Gross Sales Variable Annuities 1,084 611 456 388 390 Fixed Annuities 314 519 467 390 474 Indexed Annuities 60 70 84 118 116 Total Gross Sales 1,458 1,200 1,007 896 980 Net Sales Variable Annuities 276 (278) (35
Slide 12: Revenue
Revenue ($ Millions) 5,832 5,803 6,028 5,758 5,438 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Fee Income 820 821 730 724 705 Investment Income 1,167 1,136 1,377 1,451 1,389 Life & Health 1,363 1,646 2,067 2,397 2,115 Premiums Annuity Premiums 2,088 2,229 1,629 1,456 1,549 12
Slide 13: Operating Expenses
Operating Expenses ($ Millions) Non-MFS MFS 502 40% $300 60% $500 436 427 255 411 30% 242 $400 317 224 217 $300 206 20% $200 40% $200 10% $100 $0 0% $100 20% Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Dispositions 25 23 7 6 5 Operating 255 242 224 217 206 Acquisitions, net - 52 107
Slide 14: Financial Strength
Financial Strength (1) Debt to Total Capital MCCSR 230% 237% 206% 210% 23.2% 23.2% 193% 22.6% 22.1% 22.2% Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 (1) Includes preferred shares and SLEECS as part of debt capital. 14
Slide 15: SLF Canada
SLF Canada ($ Millions) 240 2,000 200 1,600 Net Income Revenue 160 1,200 120 800 80 400 40 0 0 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Revenue 982 1,323 2,059 2,199 2,150 Net Income 61 94 173 185 184 ROE 20.0% 12.3% 10.1% 10.8% 10.7% 15
Slide 16: SLF United States
SLF United States ($ Millions) 3,000 120 Net Income Revenue 2,000 80 1,000 40 0 0 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Revenue 3,314 3,247 2,559 2,757 2,620 Net Income 98 75 101 100 54 ROE 8.7% 6.1% 7.4% 7.3% 4.8% 16
Slide 17: S&P Puts
S&P 500 Puts • Purpose - Partially hedge GMDB and DAC exposure • Units Purchased in Q2, 2001 - 1.23 million • Strike Price - 995 • S&P 500 at March 31 - 848 • Intrinsic Value at March 31 - US $181 million, Cdn. $274 million • Market Value at March 31 - US $230 million, Cdn. $348 million • Earnings C
Slide 18: MFS
MFS 1,132 1,070 S&P 500 (average) Assets Under Management 895 886 861 ($ Billions) 80 220 Net Income (1) 186 60 ($ Millions) 170 178 165 40 20 0 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Mutual Funds 145 122 113 117 108 Net Income 47 58 39 30 28 Managed Funds 75 64 57 61 57 ROE 44.
Slide 19: SLF Asia
SLF Asia ($ Millions) 200 15 Net Income 150 Revenue 10 100 5 50 0 0 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Revenue 123 185 161 192 145 Net Income 2 4 6 12 7 ROE 1.6% 3.3% 4.9% 9.4% 5.6% 19
Slide 20: SLF United Kingdom
SLF United Kingdom ($ Millions) 600 80 60 Net Income Revenue 400 40 200 20 0 0 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Revenue 464 537 395 432 403 Net Income 42 66 34 48 50 ROE 20.1% 32.7% 14.8% 20.4% 19.5% 20
Slide 21: SLF Canada Update
SLF Canada Update Bob Astley, President, Sun Life Financial Canada 21
Slide 22: Overview
Overview • Integration • Business Momentum 22
Slide 23: Integration
Integration Delivered 5 cents accretion Q1/03 • Savings: ¾Reduction of permanent positions on track ¾Sustainable monthly run rate savings was $16.2 million in March • Expenses: ¾Costs within plan 23
Slide 24: Milestones
Milestones Reached all of the planned milestones for Q1/03 9 Conversion of 500,000+ traditional SLF retail policies to a common platform 9 Group Benefits and Group Retirement Services conversion on track and met Q1 targets 9 Rollout of harmonized employee benefits program and compensation program 24
Slide 25: Looking Forward
Looking Forward Key milestones for Q2 ¾ Conversion of SLF branded guaranteed wealth products to a common system ¾ Conversion of securities accounting and admin system ¾ 48% of GRS group member conversions completed ¾ 73% of Group Benefits small business clients and 25% of other clients converted 25
Slide 26: Independent Career Advisors
Independent Career Advisors 4500 4,130 4000 3500 3000 2500 2000 1500 1000 500 0 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 26
Slide 27: Canadian Individual Insurance Sales
Canadian Individual Insurance Sales Sales Market Share ($ millions) (%) 60 40% 44 44 39 30% 40 36 30 20% 20 10% 0 0% Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Sales(1) 39 44 36 44 30 Market Share 15.1% 15.5% 14.2% 14.3% N/A (1) Represents the combined Sun Life and Clarica Individual Life & Health sales 27
Slide 28: Business Momentum
Business Momentum • Sales in Group Benefits solid • GRS sales consistent with market conditions • Customer retention excellent 28
Slide 29: SLF Canada Summary
SLF Canada Summary • Integration remains a key focus • Building for future growth • Continued confidence 29
Slide 30: Investments
Investments Claude Accum, Vice-President 30
Slide 31: Conservative Asset Portfolio
Conservative Asset Portfolio • 91% Cash and Fixed Income Cash & Other • Only 7% in Real Estate and Stock 8% Real Estate • Bonds $71 B 3% Stock – $20 B in Government/Gtd 4% – 96% investment grade • Mortgages $15 B Mortgages – $2.3 B insured 15% Bonds 70% • Market Value exceeds Book Value • Prudent pr
Slide 32: Equity/Property/Mortgage
Equity/Property/Mortgage • Stock 4% of Assets, or $3.6 B market value – 70% for Par account – $0.6 B through Equity Calls (no downside) • Real Estate 3% of Assets, or $3.3 B market value – 70% for Par account – 12% head office • Mortgages $15 B of market value – $2.3 B insured – 0.21% net impaired r
Slide 33: Bonds - $71 Billion
Bonds - $71 Billion • Focus on Spread Bonds – A to BBB middle credits are our strength – Scale and expertise in Privates – Do not buy high yield – Do not buy other people’s residuals • Controlled Risk Taking – Core anchor of 31% AAA – 3.9% below investment grade – Average credit risk: A- to BBB+ – D
Slide 34: Impaired - Sector Detail (C$ millions)
Impaired - Sector Detail (C$ millions) Mar. 31, 2003 Dec. 31, 2002 Gross Specific Net NBV/ Gross Specific Net NBV/ BV Allowance BV GBV BV Allowance BV GBV Communications $22 $6 $16 73% $122 $88 $34 28% Energy 78 26 52 67% 77 30 47 61% Securitization 180 59 121 67% 166 59 107 64% Transportation 236 8
Slide 35: Credit Trends
Credit Trends PROVISIONS FOR CREDIT LOSSES • Provisions down $ Millions – New Impaireds have better recovery value, hence less 100 Provision required – Almost back to normal run rate 0 Q1/'02 Q2/'02 Q3/'02 Q4/'02 Q1/'03 Provision 6 115 128 116 40 CREDIT ALLOWANCES • Specific Allowances down $ Millio
Slide 36: Favourable Credit Risk Trendline
Favourable Credit Risk Trendline • Average Credit Risk tracks close to “A low” (with mortgages included*) • Credit Risk shows stable trendline • US: improvement in average Credit Risk despite downward migration of credits in U.S. BBB Average Credit Risk BBB U.S. TOTAL A Canada A U.K. AA AA Q1/'01 Q2
Slide 37: Investment Highlights
Investment Highlights • Conservative portfolio - 91% cash and fixed income • Modest direct stock and real estate exposure - 7% • Bonds - Disciplined Credit/Spread risk taking – 96% investment grade – Focus on A to BBB middle credits for spread – Do not buy high yield, nor other people’s residuals –
Slide 38: Embedded Value at December 31, 2002
Embedded Value at December 31, 2002 Robert Wilson, Vice-President and Actuary 38
Slide 39: Embedded Value Highlights
Embedded Value Highlights • Embedded Value (EV) increased to $14.2 billion at December 31, 2002 from $11.3 billion at December 31, 2001 • Value of New Business (VNB) written during 2002 was $634 million, up from $512 million in 2001, due to the inclusion of Clarica’s VNB for 2002 and organic growth
Slide 40: Sun Life Financial's Growth in Embedded Value
Sun Life Financial’s Growth in Embedded Value ($ Millions) 2002 2001 Embedded Value at January 1 11,277 11,025 Return on in-force business (1) Expected growth 947 836 Experience Variances - stock (956) (970) Experience Variances - other (2) (407) 255 (416) 121 Value of New Business (1) 634 512 Capit
Slide 41: Embedded Value Principal Assumptions
Embedded Value Principal Assumptions Canada United States United Kingdom Asia GAAP Basis Canadian Canadian Local Local Solvency Capital 150% MCCSR 150% MCCSR Local Solvency margin Local Solvency margin Discount Rate 9.00 7.5 - 8.5 8.0 8 - 16 Risk Margin 3.5 3.5 - 4.5 3.5 4.5 - 6.5 Equity Return (%)
Slide 42: Embedded Value and Sensitivities
Embedded Value and Sensitivities Embedded Value: Value of In-Force Business $6.6 B Value of Shareholder Net Worth $7.6 B Embedded Value at December 31, 2002 $14.2 B Sensitivities: EV at December 31, 2002 $14.2 B EV with Risk Discount Rate increased by 1% $13.0 B Value of New Business in 2002 $634 mm
Slide 43: Sun Life Financial's Earnings by Source
Sun Life Financial’s Earnings by Source ($ Millions) 2002 2001 Expected Profit on in-force operations 1,849 1,148 Strain on new business (278) (292) Experience gains and losses (253) (233) Changes in assumptions 94 140 Earnings on operations 1,412 763 Earnings on surplus 410 396 Operating earnings b
Slide 44: Summary
Summary • Strong Canadian and UK earnings mitigate lower US results • Clarica continues to meet accretion targets • Risk management actions continue to buffer impact of further market declines • Number of shares reduced by 5 million 44
Slide 45: Sun Se.
in d _ \ r Sun Se. Life Financial