Sun Life Financial Inc. · TSX:SLF
Sun Life Financial — Investor Presentation (May 2022)
34 slides from Sun Life Financial's investor presentation, May 31, 2022
Slide 1: IFRS 17 Investor Education
IFRS 17 Investor Education May 31, 2022
Slide 2: Yaniv Bitton
Yaniv Bitton Vice President, Head of Investor Relations & Capital Markets S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 3: Forward-looking statements
In this presentation, Sun Life Financial Inc. (“SLF” or “SLF Inc.”), its subsidiaries and, where applicable, its joint ventures and associates are referred to as “we”, “us”, “our”, “Sun Life” and the “Company”. Forward-looking statements Certain statements in this presentation and certain oral state
Slide 4: Manjit Singh
Manjit Singh Executive Vice President & Chief Financial Officer S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 5: Strong underlying business fundamentals not impacted by IFRS 17
Strong underlying business fundamentals not impacted by IFRS 17 1 No impact on business strategies Medium-term financial objectives: increase in underlying ROE; maintain underlying EPS growth and 2 underlying dividend payout ratio 1 At transition, 15-20% of shareholders’ equity transfers to liabilit
Slide 6: No impact on business strategy; IFRS 17 impacts by business type
No impact on business strategy; reported net income for a majority of Sun Life businesses not significantly impacted IFRS 17 impacts on earnings timing, earnings volatility, and capital by business type Asset management, Pass-through & fee- Traditional insurance wealth & group benefits based insuran
Slide 7: Asset Management, Canada and the U.S. will have no to moderate impact
Asset Management, Canada and the U.S., which comprise a majority of earnings1, will have no to moderate impact Asset Management U.S. Canada Asia No impact Low impact Moderate impact Higher impact • Group businesses mostly • Group and wealth • Traditional insurance not impacted businesses have low bu
Slide 8: Strong medium-term financial objectives reflect our diversified business mix
Strong medium-term financial objectives reflect the benefits of our diversified business mix 8-10% 18%+ 40-50% UNDERLYING UNDERLYING UNDERLYING EP S G ROW TH 1,2 RETURN ON DIV IDEND PAYOUT EQ UI TY 1,2 RA TI O1,2 • Expect positive underlying net • At transition, transfer from • Positive impact to LI
Slide 9: Kevin Morrissey
Kevin Morrissey Senior Vice President & Chief Actuary S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 10: Sun Life's financial position remains strong
Sun Life’s financial position remains strong IFRS 17 will impact presentation and timing of earnings recognition IFRS 17 will result in some key changes to the balance sheet and timing of income recognition for some 1 products Shareholders’ equity impact at transition is driven by new CSM liability,
Slide 11: Overview of key IFRS 17 changes
1 Overview of key IFRS 17 changes Pricing gains are deferred and recognized over time through CSM amortization, New business gains1 whereas losses (new business strain) are recognized in net income at origination Removal of direct link between the asset and liability discount rates and the Discount
Slide 12: Overview of key IFRS 17 changes (continued)
1 Overview of key IFRS 17 changes (continued) Changes in measurement and composition of liabilities will result in higher sources of future profit Measurement of liabilities (Illustrative; not to scale) Sources of future profit Contractual Service Reinvestment PfADs Margin (CSM) 1 CSM: Unearned insu
Slide 13: Impact of IFRS 17 changes
Impact of IFRS 17 changes At transition Subsequent to transition Shareholders’ equity impact at transition driven by Modest reduction to underlying net income1 changes to composition and remeasurement of in the 2022 comparative year insurance liabilities • IFRS 17 generally defers new business gains
Slide 14: Equity impact at transition is driven by new CSM liability
2 Equity impact at transition is driven by new CSM liability, which qualifies as LICAT capital, and is amortized into future income Impact to shareholders’ equity at transition (Illustrative; not to scale) Transfer from shareholders’ equity 2 of 15-20% to reflect the new measurement/components of IF
Slide 15: Approximately 2/3 of the transfer is related to CSM
2 Approximately 2/3 of the transfer from shareholders' equity is related to establishing the CSM Recent IFRS 4 new business gains1 represent only one component of Sun Life's transition CSM Transition CSM impacts on shareholders’ equity (Illustrative; o1 Open blocks with recent new business gains: Gr
Slide 16: Expect underlying net income growth
3 Expect underlying net income1 growth - 2022 (IFRS 4) to 2023 (IFRS 17) Growth in other businesses Mid-single digit reduction to not impacted by IFRS 17 and Overall underlying net underlying net income in growth in insurance income growth in 2023 2022 comparative year businesses Key sources of IFRS
Slide 17: Gains from profitable sales will be amortized
3 Gains from profitable sales will be amortized over life of contracts; onerous contracts will continue to be recognized as strain at issue • Under IFRS 4, we record the present value of future profits Impact of new business1 under IFRS 4 & IFRS 17 above risk margins at origination of contract. Net
Slide 18: IFRS 17 defers profitability of Asia VUL product
3 IFRS 17 defers profitability of Asia Variable Universal Life (VUL) product, creating earnings (and equity) impact at transition • VUL is an investment-linked insurance product with Earnings recognition of Asia VUL product under IFRS 4 & IFRS 17 recurring fees that are higher in the first few years
Slide 19: Strong capital position expected to improve at transition
4 Strong capital position expected to improve at transition • Transfer of equity to CSM is neutral to capital as both LICAT ratio – improves are considered available capital under LICAT framework • Sun Life’s prudent risk management will continue • CSM generated by new business qualifies immediately
Slide 20: Sun Life's financial position remains strong
Sun Life’s financial position remains strong IFRS 17 will impact presentation and timing of earnings recognition IFRS 17 will result in some key changes to the balance sheet and timing of income recognition for some 1 products Shareholders’ equity impact at transition is driven by new CSM liability,
Slide 21: Natalie Brady
Natalie Brady Senior Vice President, Strategic Finance Initiatives (IFRS 17 Project Lead) S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 22: New IFRS 17 reporting will provide more transparency
New IFRS 17 reporting will provide more transparency into key business drivers 1 The new income statement provides additional transparency into sources of profit 2 Will continue to provide a view of underlying net income 1 through the Drivers of Earnings2 3 The CSM Movement Analysis2 will provide a
Slide 23: The new income statement provides more transparency
1 The new income statement provides additional transparency into sources of profit Simplified IFRS 17 Income Statement (Illustrative) Net Insurance Service Result Insurance revenue • Isolates the revenue and expenses from providing Insurance service expenses insurance contract services Net Insurance
Slide 24: Simplified building blocks of reported net income
1 Simplified building blocks of reported net income Asset Group Pass-through & fee- Traditional insurance 1 IFRS 17 Income Statement (Illustrative) management1 benefits based insurance 1,2 Insurance revenue Short term CSM and risk adjustment CSM and risk adjustment insurance product amortization amo
Slide 25: New Drivers of Earnings will complement IFRS statement
2 New Drivers of Earnings1 will complement IFRS 17 income statement Drivers of Earnings: Net Income Analysis (illustrative) The Drivers of Earnings (DOE) analysis will provide additional Risk adjustment release detail on the sources of IFRS 17 earnings CSM amortization Earnings on other short term i
Slide 26: Will continue to provide a view of underlying net income
2 Will continue to provide a view of underlying net income 1 through the Drivers of Earnings2 Drivers of Earnings: Non-IFRS Earnings Measure Analysis Our philosophy for underlying net income is not Risk Adjustment release changing CSM amortization Earnings on other short term insurance businesses •
Slide 27: The CSM will be a leading indicator of future earnings
3 The CSM will be a leading indicator of future insurance earnings CSM Movement Analysis1,2 (illustrative) • The CSM will provide a view of both: 1. The stored value of our in-force insurance CSM Beginning of Period business Impact of new insurance business 2. The growth derived from new insurance s
Slide 28: IFRS 17 will bring more transparency, stability and predictability
4 IFRS 17 will bring more transparency, stability and predictability to insurance business relative to IFRS 4 Impact on stability & IFRS 17 change Commentary transparency of earnings1,2 Removal of present valuing of sales 3 and investment trades will make Timing of recognition underlying net income
Slide 29: Q&A
Q&A S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 30: Appendix
Appendix S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
Slide 31: IFRS 17 takes an incomplete view in assessing which contracts are onerous
IFRS 17 takes an incomplete view in assessing which contracts are onerous Onerous contracts ignore important sources of profits associated with the insurance contract, including: The release of the Risk Adjustment - compensation for Risk Adjustment (RA) taking risk Reinsurance profits Additional pro
Slide 32: Footnotes
Footnotes From slide 5 1 Underlying ROE, underlying EPS, and underlying dividend payout ratio are medium-term financial objectives and non-IFRS financial measures. Refer to “Medium-term financial objectives” and “Non- IFRS financial measures” on slide 3 for more information 2 Represents a non-IFRS f
Slide 33: Footnotes (continued)
Footnotes (continued) From slide 25 1 Represents a non-IFRS financial measure. This is anticipated to be a new non-IFRS financial measure to be included in our quarterly disclosures effective Q1 2023 2 Includes insurance experience and market experience. Market experience for certain contracts, such
Slide 34: S U N L I F E • I F R S 1 7
S U N L I F E • I F R S 1 7 • M A Y 2 0 2 2
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