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Sun Life reports Q2'19 reported net income of $595 million and underlying net income of $739 million

MFS increases gross sales by 22%, expands global retail presence and achieves retail net inflows of US$2 billion.

The information in this document is based on the unaudited interim financial results of Sun Life Financial Inc. ("SLF Inc.") for the period ended June 30, 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". Unless otherwise noted, all amounts are in Canadian dollars.

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

TORONTO, July 31, 2019 /CNW/ - Sun Life Financial Inc. (TSX:SLF - News) (NYSE:SLF - News) today announced its results for the second quarter ended June 30, 2019. Second quarter reported net income was $595 million and underlying net income(1) was $739 million





Quarterly results

Year-to-date

Profitability

Q2'19

Q2'18

2019

2018


Reported net income ($ millions)

595

706

1,218

1,375


Underlying net income(1) ($ millions)

739

729

1,456

1,499

Reported EPS(2) ($)

1.00

1.16

2.04

2.25


Underlying EPS(1)(2) ($)

1.24

1.20

2.44

2.46

Reported ROE(1)

11.0%

13.5%

11.3%

13.3%


Underlying ROE(1)

13.7%

14.0%

13.5%

14.5%

Growth

Q2'19

Q2'18

2019

2018


Insurance sales(1) ($ millions)

657

633

1,437

1,298


Wealth sales(1) ($ billions)

37.0

30.8

73.0

70.6


Value of new business(1) ($millions)

235

266

617

600


Assets under management(1) ($ billions)

1,024.8

986.1

1,024.8

986.1

Financial Strength

Q2'19

Q4'18

2019

2018


LICAT ratios(3)
 Sun Life Financial Inc.

144%

144%

144%

149%


 Sun Life Assurance(4)

133%

131%

133%

134%

Financial leverage ratio(1)

20.4%

21.2%

20.4%

21.8%

 

"We delivered underlying net income of $739 million in the second quarter, up from $729 million in the prior year," said Dean Connor, President & CEO of Sun Life. "Interest rates declined in the quarter leading to lower reported net income, while balance sheet strength continued with a 144% LICAT ratio, $2.2 billion of cash at the holding company level and a low Financial leverage ratio. We are pleased to announce a new share buyback program for the repurchase of up to 15 million shares, subject to regulatory approval."

"We had a number of key developments in our Asset Management businesses this quarter. MFS achieved a pre-tax net operating profit margin ratio of 37%, expanded its non-U.S. distribution, launched two products for European distribution, increased gross sales by 22% and delivered positive net retail fund flows of US$2 billion," Connor added. "We also rebranded our alternatives asset management business to SLC Management. We consolidated our fixed income businesses, Prime Advisors, Ryan Labs and Sun Life Institutional Investments, under this one brand to create an integrated distribution team that offers institutional Clients our broad spectrum of solutions. SLC Management's real estate arm completed the acquisition of a majority stake in BentallGreenOak."














(1)

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

(2)

All 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 (Q2 2019 vs. Q2 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)


Q2'19

Q2'18

change

Q2'19

Q2'18

change

Q2'19

Q2'18

change

Q2'19

Q2'18

change

Canada(3)

148

262

(44)%

243

245

(1)%

194

266

(27)%

3,248

3,039

7%

U.S.(3)

94

105

(10)%

110

125

(12)%

225

155

45%

Asset Management(3)

229

214

7%

245

216

13%

31,929

25,263

26%

Asia(3)

134

133

1%

147

145

1%

238

212

12%

1,799

2,502

(28)%

Corporate(3)

(10)

(8)

nm(2)

(6)

(2)

nm(2)

Total

595

706

(16)%

739

729

1%

657

633

4%

36,976

30,804

20%



(1)

Represents a non-IFRS financial measure. See section M - 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 management's discussion and analysis.

 

Our reported net income of $595 million in the second quarter of 2019 decreased $111 million compared to the second quarter of 2018, primarily reflecting unfavourable market related and assumption changes and management actions(1) ("ACMA") impacts. Underlying net income in the second quarter of 2019 increased $10 million to $739 million compared to the same period in 2018, primarily driven by business growth, favourable expense experience and benefits from tax related items primarily in the U.S., partially offset by unfavourable morbidity experience in Canada and the U.S., lower new business gains in International in Asia, and lower available-for-sale ("AFS") gains in the U.S.

Our reported ROE(1) was 11.0% in the second quarter of 2019. Underlying ROE(1) was 13.7%, compared to 14.0% in the second quarter of 2018, reflecting higher underlying net income offset by increased common shareholders' equity due to higher retained earnings and the impact of market movements reflected in other comprehensive income. SLF Inc. and its wholly-owned holding companies ended the quarter with $2.2 billion in cash and other liquid assets, reflecting the redemption of $250 million of subordinated debt which also decreased our financial leverage ratio(1) to 20.4%.

A Leader in Insurance and Wealth Solutions in our Canadian Home Market
Canada's reported net income was $148 million in the second quarter of 2019, a decrease of $114 million compared to the same period in 2018, predominantly reflecting unfavourable market related and ACMA impacts. Underlying net income was $243 million, in line with the same period in 2018, reflecting favourable expense experience and continued business growth, offset by unfavourable morbidity and credit experience.

Canada insurance sales decreased 27% to $194 million in the second quarter of 2019, reflecting lower sales in Group Benefits ("GB") due to timing of large case sales and individual insurance. Wealth sales were up 7%, driven by increased sales in Group Retirement Services ("GRS"), which continues to lead the industry in assets under administration(1)(2)("AUA").

We are continuing to shape the Canadian market through innovation and digital capabilities that enhance our Client's experience. Our digital platform, Lumino Health, provides Canadians one point of contact for a comprehensive range of health resources, including empowering Canadians to find the health care providers and health innovations they need. Our Sun Life Health platform delivers value to Canadians, as evidenced by over 10 million health care provider user ratings and average usage of approximately 10,000 searches per day.






(1) 

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

(2) 

Benefits Canada's 2018 CAP supplier survey, based on June 30, 2018 AUA.

 

A Leader in U.S. Group Benefits
U.S.'s reported net income was $94 million in the second quarter of 2019, a decrease of $11 million compared to the second quarter of 2018, reflecting more unfavourable market related impacts, partially offset by lower integration costs. Underlying net income was $110 million, a decrease of $15 million from the same period in the prior year, reflecting less favourable morbidity experience and lower AFS gains, partially offset by improved lapse and other policyholder behaviour experience and benefits from tax related items. The after-tax profit margin for Group Benefits1 was 7.3% as of the second quarter of 2019 compared to 6.5% as of the second quarter of 2018.

U.S. Group Benefits sales increased 40% compared to the second quarter of 2018, driven primarily by continued strong momentum and our leadership position in medical stop-loss. Medical stop-loss business in-force increased to US$1.8 billion, up 22% from the same period in the prior year.

During the quarter, the U.S. launched a program to help employers auto-enroll employees in disability coverage, which provides an extra layer of income protection and financial security when members cannot work because of a serious illness or injury, helping to close gaps in coverage for our members. In addition, as the leading independent provider of medical stop-loss coverage, we analyzed our deep database of medical claims and released our annual High-cost claims and injectable drug trends report2, which provides employers with actionable recommendations about the trends and costs affecting their health plans, enabling them to bend the medical cost curve.

A Leader in Global Asset Management
Asset Management's reported net income was $229 million in the second quarter of 2019, an increase of $15 million from the second quarter of 2018, driven by the change in underlying net income, partially offset by higher fair value adjustments in MFS's share based payment awards and acquisition costs in SLC Management. Underlying net income was $245 million, an increase of $29 million from the same quarter last year, driven by expense management, investment income including returns on seed capital and the favourable impact of foreign exchange. The pre-tax net operating profit margin ratio for MFS(1) was 37% in the second quarter of 2019, compared to 36% in the same period last year.

Asset Management ended the second quarter with $708.1 billion in assets under management, consisting of $639.9 billion (US $488.8 billion) in MFS Investment Management ("MFS") and $68.2 billion in SLC Management. MFS experienced net outflows of $8.1 billion (US$6.1 billion) in the quarter, which included positive net retail fund flows of $2.6 billion (US$2.0 billion).

In the second quarter of 2019, 93%, 92% and 84% of MFS's U.S. retail fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance, respectively.

On July 1, 2019, we completed the acquisition of our majority stake in BentallGreenOak, which was the product of the merger of the Bentall Kennedy group of companies and GreenOak Real Estate, a global real estate investment firm. This acquisition increases our global real estate investment footprint, while adding organizational depth and a full spectrum of solutions including equity and debt real estate strategies. The expected reduction to Total shareholders' equity as a result of the acquisition is approximately $850 million, primarily driven by the establishment of financial liabilities associated with the anticipated increase of our future ownership in BentallGreenOak.

A Leader in Asia through Distribution Excellence in Higher Growth Markets
Asia's reported net income was $134 million in the second quarter of 2019, which was in line with the second quarter of 2018, as unfavourable market related impacts were offset by the impact of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income of $147 million was in line with the second quarter of 2018, reflecting favourable expense experience, favourable credit experience, and continued business growth, largely offset by lower new business gains in International.

Asia insurance sales were $238 million in the second quarter of 2019, up 12% compared to the second quarter of 2018, with double-digit growth in most markets. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch. Asia wealth sales were down by 28% to $1.8 billion in the second quarter of 2019, primarily due to lower sales in India as a result of weak market sentiments.

In Asia, we continue to execute our growth strategy. Agency sales in Asia were up 21% from the prior year, backed by our Most Respected Advisor program and digital enhancements to our advisor applications to improve the Advisor and Client experience. We also continued to improve our digital service experience for Clients. For example, Hong Kong launched a group medical app, which had positive adoption with both Client registrations and outpatient claim submissions, and Bowtie(3) launched its online platform and first medical insurance product in April.






(1)

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

(2)

The 2019 High-cost claims and injectable drug trends report can be accessed at https://sunlife.showpad.com/share/7SzmNmJJs1a6msorM0DZA.

(3)

We have a strategic investment in Bowtie Life Insurance Company, the first virtual insurer in Hong Kong approved under the Fast Track process. 

 

Sun Life Financial Inc.

For the period ended June 30, 2019
Dated July 31, 2019

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. 

Legal and Regulatory Matters

K. 

Changes in Accounting Policies

L.  

Internal Control Over Financial Reporting

M. 

Non-IFRS Financial Measures

N. 

Forward-looking Statements

 

About Sun Life
Sun Life Financial Inc. ("SLF Inc.") 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 June 30, 2019, Sun Life had total assets under management ("AUM") of $1,025 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

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. 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 management's discussion and analysis ("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 interim and annual MD&A. We prepare our unaudited Interim Consolidated Financial Statements using International Financial Reporting Standards ("IFRS"), including 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 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 M - 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 and 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 N - 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, 2018. 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  

Year-to-date

($ millions, unless otherwise noted)

Q2'19

Q1'19

Q2'18

2019

2018

Profitability







Net income (loss)






Reported net income (loss)

595

623

706

1,218

1,375


Underlying net income (loss)(1)

739

717

729

1,456

1,499


Diluted Earnings per share ("EPS") ($)







Reported EPS (diluted)

1.00

1.04

1.16

2.04

2.25


Underlying EPS (diluted)(1)

1.24

1.20

1.20

2.44

2.46


Reported basic EPS ($)

1.00

1.04

1.16

2.05

2.26

Return on equity ("ROE") (%)






Reported ROE(1)

11.0%

11.5%

13.5%

11.3%

13.3%


Underlying ROE(1)

13.7%

13.3%

14.0%

13.5%

14.5%

Growth







Sales







Insurance sales(1)

657

780

633

1,437

1,298


Wealth sales(1)

36,976

35,993

30,804

72,969

70,629


Value of new business(1)

235

382

266

617

600


Premiums and deposits







Net premium revenue

4,480

4,370

4,315

8,850

8,960


Segregated fund deposits

2,872

3,064

2,703

5,936

6,098


Mutual fund sales(1)

23,703

23,664

19,265

47,367

43,321


Managed fund sales(1)

10,539

9,976

8,967

20,515

21,312


ASO(2) premium and deposit equivalents(1)

1,681

1,707

1,767

3,388

3,442

Total premiums and deposits(1)

43,275

42,781

37,017

86,056

83,133

Assets under management






General fund assets

174,325

172,348

164,709

174,325

164,709


Segregated funds

111,684

110,011

108,692

111,684

108,692


Mutual funds, managed funds and other AUM(1)

738,767

729,026

712,719

738,767

712,719

Total AUM(1)

1,024,776

1,011,385

986,120

1,024,776

986,120

Financial Strength

Q2'19

Q1'19

Q4'18

2019

2018


LICAT ratios(3)







Sun Life Financial Inc.

144%

145%

144%

144%

149%


Sun Life Assurance(4)

133%

132%

131%

133%

134%

Financial leverage ratio(1)

20.4%

21.1%

21.2%

20.4%

21.8%

Dividend






Dividend payout ratio(1)

42%

42%

42%

42%

38%


Dividends per common share ($)

0.525

0.500

0.500

1.025

0.930

Capital






Subordinated debt and innovative capital instruments(5)

3,491

3,739

3,738

3,491

3,737


Participating policyholders' equity and non-controlling interests

974

930

864

974

517


Total shareholders' equity

23,684

23,782

23,706

23,684

23,216

Total capital

28,149

28,451

28,308

28,149

27,470

Average common shares outstanding (millions)

593

597

602

595

609


Closing common shares outstanding (millions)

591.0

594.6

598.5

591.0

607.0



(1)

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

(2)

Administrative Services Only ("ASO").

(3)

Life Insurance Capital Adequacy Test ("LICAT") ratio.

(4)

Sun Life Assurance Company of Canada ("Sun Life Assurance") 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 the Consolidated Financial Statements. For additional information, see section I - Capital and Liquidity Management - 1 - Capital in our 2018 annual MD&A.

 

C. Profitability

The following table reconciles our reported net income and underlying net income. The table also sets out the impact that other notable items had on our reported net income and underlying net income. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.


Quarterly results  

Year-to-date

($ millions, after-tax)

Q2'19

Q1'19

Q2'18

2019

2018

Reported net income

595

623

706

1,218

1,375

Market related impacts(1)

(97)

(69)

8

(166)

(60)

Assumption changes and management actions(1)

(20)

(11)

1

(31)

(2)

Other adjustments(1)

(27)

(14)

(32)

(41)

(62)

Underlying net income(2)

739

717

729

1,456

1,499

Reported ROE(2)

11.0%

11.5%

13.5%

11.3%

13.3%

Underlying ROE(2)

13.7%

13.3%

14.0%

13.5%

14.5%

Impact of other notable items on reported and underlying net income






Experience related items(3)






Impact of investment activity on insurance contract liabilities ("investing activity")

28

61

30

89

78

Credit

12

(29)

6

(17)

27

Mortality

(3)

15

6

12

(10)

Morbidity

(3)

25

43

22

55

Lapse and other policyholder behaviour

(4)

(8)

(9)

(12)

(38)

Expenses

13

11

(26)

24

(30)

Other experience

(9)

(18)

(5)

(27)

57



(1)

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

(2)

Represents a non-IFRS financial measure. See section M - Non-IFRS Financial Measures.

(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 - Q2 2019 vs. Q2 2018

Our reported net income of $595 million in the second quarter of 2019 decreased $111 million compared to the second quarter of 2018, primarily reflecting unfavourable market related and assumption changes and management actions ("ACMA") impacts. Underlying net income in the second quarter of 2019 increased $10 million to $739 million compared to the same period in 2018, primarily driven by business growth, favourable expense experience, and benefits from tax related items primarily in the U.S., partially offset by unfavourable morbidity experience in Canada and the U.S., lower new business gains in International in Asia, and lower available-for-sale ("AFS") gains in the U.S. Underlying net income increased by $16 million as a result of the impact of foreign exchange translation.

1.    Market related impacts

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

2.    Assumption changes and management actions

The effects of assumption changes and management actions in the second quarter of 2019 decreased reported net income by $20 million compared to an increase of $1 million in the second quarter of 2018.

Due to the long-term nature of our business, we make certain judgments involving assumptions and estimates to value our obligations to policyholders. The valuation of these obligations is recorded in our financial statements as insurance contract liabilities and investment contract liabilities and requires us to make assumptions about equity market performance, interest rates, asset default, mortality and morbidity experience rates, lapse and other policyholder behaviour experience, expenses and inflation and other factors over the life of our products. We will complete our annual review of actuarial methods and assumptions in the second half of 2019, with the majority of changes being implemented in the third quarter. As this is a work in progress, it is not yet possible to determine the impact on net income at this time. See section H - Risk Management for sensitivities associated with Ultimate Reinvestment Rate ("URR").

3. Other adjustments

Other adjustments decreased reported net income by $27 million in the second quarter of 2019, compared to a decrease of $32 million in the second quarter of 2018, largely reflecting lower acquisition, integration, and restructuring costs primarily in the U.S., partially offset by higher fair value adjustments on MFS's share-based payment awards and the unfavourable impact of certain hedges in Canada that do not qualify for hedge accounting.

4. Experience related items

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

  • Unfavourable morbidity experience; and
  • Favourable expense experience resulting from expense discipline while growing the businesses, as well as lower incentive compensation costs reflecting reported net income.


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 second quarter of 2019, our effective income tax rates on reported net income and underlying net income(1) were 11.9% and 15.6% compared to 19.1% and 17.1% in the second quarter of 2018, respectively. Our effective tax rate on underlying net income is within our expected range of 15% to 20%.

6. Impact of foreign exchange rates

During the second quarter of 2019, our reported net income and underlying net income increased by $15 million and $16 million, respectively, due to the impact of foreign exchange translation in the second quarter of 2019 relative to the second quarter of 2018.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018

Our reported net income was $1,218 million for the first six months of 2019, compared to $1,375 million in the first six months of 2018, predominantly reflecting unfavourable market related and ACMA impacts, partially offset by lower acquisition, integration, and restructuring costs. Underlying net income was $1,456 million, compared to $1,499 million in the first six months of 2018, reflecting interest on par seed capital(2) of $110 million in the first quarter of 2018, unfavourable credit experience, less favourable morbidity experience in Canada, and lower new business gains in International in Asia, partially offset by favourable expense experience, business growth, benefits from tax related items primarily in the U.S., improved lapse and other policyholder behaviour experience, and favourable mortality experience.

1. Market related impacts

Market related impacts in the first six months of 2019, compared to the first six months of 2018, reflected unfavourable interest rate impacts and less favourable changes in the fair value of investment properties, partially offset by favourable equity market impacts.

2.   Assumption changes and management actions

Assumption changes and management actions decreased net income by $31 million in the first six months of 2019, compared to $2 million in the first six months of 2018.

3.   Other adjustments

Other adjustments in the first six months of 2019 decreased reported net income by $41 million, compared to a decrease of $62 million in the same period last year, primarily driven by lower acquisition, integration, and restructuring costs and lower fair value adjustments on MFS's share-based payment awards, partially offset by the impact of certain hedges in Canada that do not qualify for hedge accounting.














(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. 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 the first six months of 2018, the significant changes in experience related items are as follows:

  • Unfavourable credit experience, including the net impact resulting from downgrades of indirect exposures to a single name in the utilities sector;
  • Less favourable morbidity experience;
  • Improved lapse and other policyholder behaviour experience; and
  • Favourable expense experience resulting from expense discipline, as well as lower incentive compensation costs.


Other experience for the first quarter of 2018, predominantly included the impact of accrued investment income on seed capital of $110 million - $75 million in Canada and $35 million in the U.S. ("interest on par seed capital"). For further information, please see Note 10.C in the second quarter of 2019 Interim Consolidated Financial Statements.

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.

For the first six months of 2019, our effective tax rates on reported and underlying net income(1) were 11.4% and 16.7%, respectively, compared to 18.0% and 16.4%, respectively, for the first six months of 2018. Our effective tax rate on underlying net income is within our expected range of 15% to 20%.

6.   Impact of foreign exchange rates

During the first six months of 2019, our reported net income and underlying net income increased by $34 million and $37 million, respectively, due to the impact of foreign exchange translation in the first six months of 2019 relative to the first six months of 2018.

D. Growth

1. Sales and Value of New Business


Quarterly results 

Year-to-date

($ millions)

Q2'19

Q1'19

Q2'18

2019

2018

Insurance sales by business group(1)






Canada

194

362

266

556

562

U.S.

225

160

155

385

291

Asia

238

258

212

496

445

Total insurance sales(1)

657

780

633

1,437

1,298

Wealth sales by business group(1)






Canada

3,248

2,825

3,039

6,073

6,864

Asia

1,799

1,881

2,502

3,680

6,238

Total wealth sales excluding Asset Management(1)

5,047

4,706

5,541

9,753

13,102

Asset Management sales(1)

31,929

31,287

25,263

63,216

57,527

Total wealth sales(1)

36,976

35,993

30,804

72,969

70,629

Value of New Business(1)("VNB")

235

382

266

617

600



(1)

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

 














(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 insurance sales were $657 million in the second quarter of 2019, up 4% (2% on a constant currency basis) compared to the same period in 2018.

  • Canada insurance sales decreased in the second quarter of 2019, reflecting lower sales in Group Benefits ("GB") and individual insurance.
  • U.S. insurance sales increased 40% in local currency, predominantly driven by medical stop-loss.
  • Asia insurance sales were up 10% on a constant currency basis, with double-digit growth in most local insurance markets offset by lower sales in International.


Total Company wealth sales were $37.0 billion in the second quarter of 2019, up 20% (16% on a constant currency basis) compared to the second quarter of 2018.

  • Canada wealth sales increased 7%, driven by higher sales in Group Retirement Services ("GRS").
  • Asia wealth sales were down, primarily from lower sales in India, partially offset by the impact of foreign exchange translation.
  • Asset Management gross sales increased 26%, driven by higher mutual and managed fund sales in MFS Investment Management ("MFS"), the impact of foreign exchange translation and higher sales in SLC Management.


The Company's VNB was $235 million in the second quarter of 2019, down 12% compared to the second quarter of 2018, largely due to lower sales in International in Asia and in GB in Canada, partially offset by favourable volume of Group Benefits in the U.S.

2.  Premiums and Deposits

($ millions)

Quarterly results

Year-to-date

Q2'19

Q1'19

Q2'18

2019

2018

Net premium revenue

4,480

4,370

4,315

8,850

8,960

Segregated fund deposits

2,872

3,064

2,703

5,936

6,098

Mutual fund sales(1)

23,703

23,664

19,265

47,367

43,321

Managed fund sales(1)

10,539

9,976

8,967

20,515

21,312

ASO premium and deposit equivalents(1)

1,681

1,707

1,767

3,388

3,442

Total premiums and deposits(1)

43,275

42,781

37,017

86,056

83,133

Total adjusted premiums and deposits(1)(2)

42,210

41,968

37,170

83,525

83,452



(1)

Represents a non-IFRS financial measure. See section M - 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 impact of Constant Currency Adjustment and Reinsurance in Canada's GB Operations Adjustment as described in section M - Non-IFRS Financial Measures in this document.

 

Net premium revenue was $4.5 billion, up $0.2 billion from the second quarter of 2018, primarily driven by increased premium revenue in Canada and the U.S., and the currency impact from the change in the Canadian dollar, partially offset by a decrease in Asia. Net premium revenue was $8.9 billion in the first six months of 2019, compared to $9.0 billion in the same period of 2018. The decrease was primarily driven by lower premiums in Asia and Canada, partially offset by higher premium revenue in the U.S. and the impact of foreign exchange translation.

Segregated fund deposits were $2.9 billion in the second quarter of 2019, up $0.2 billion from the second quarter of 2018, largely attributable to increases in Canada partially offset by lower deposits in Hong Kong in Asia. Segregated fund deposits were $5.9 billion in the first six months of 2019, compared to $6.1 billion in the same period last year, due to lower deposits in Canada and Hong Kong in Asia.

Sales of mutual funds were $23.7 billion in the second quarter of 2019, up from $19.3 billion in the second quarter of 2018. Sales of mutual funds were $47.4 billion for the first six months of 2019, compared to $43.3 billion in the same period in 2018. The higher mutual fund sales in both the second quarter and first six months of 2019 were driven by increased sales in MFS and the impact of foreign exchange translation, partially offset by lower sales in Asia.

Managed fund sales of $10.5 billion in the second quarter of 2019 increased by $1.6 billion from the second quarter of 2018, primarily due to higher sales in MFS and SLC Management, and the currency impact from the change in the Canadian dollar. Sales of managed funds were $20.5 billion for the first six months of 2019, down compared to the same period in 2018, reflecting decreased sales in MFS, partially offset the impact of foreign exchange translation.

ASO premium and deposit equivalents in the second quarter of 2019 of $1.7 billion were slightly lower compared to the second quarter of 2018 due to lower ASO premium and deposit equivalents in Hong Kong in Asia. ASO premium and deposit equivalents for the first six months of 2019 of $3.4 billion were slightly lower compared to the first six months of 2018, due to lower ASO premiums and deposit equivalents in Hong Kong in Asia, partially offset by Canada.

The impact of foreign exchange translation increased total premiums and deposits by approximately $1.2 billion and $2.8 billion, respectively, for the second quarter and the first six months of 2019, in comparison to the respective periods in 2018.

3. Assets Under Management

AUM consist 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)

Q2'19

Q1'19

Q4'18

Q3'18

Q2'18

Assets under management(1)






General fund assets

174,325

172,348

168,765

162,439

164,709

Segregated funds

111,684

110,011

103,062

108,298

108,692

Mutual funds, managed funds and other AUM(1)

738,767

729,026

679,316

712,782

712,719

Total AUM(1)

1,024,776

1,011,385

951,143

983,519

986,120



(1)

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

 

AUM were $1,024.8 billion as at June 30, 2019, compared to AUM of $951.1 billion as at December 31, 2018. The increase in AUM of $73.6 billion between December 31, 2018 and June 30, 2019 resulted primarily from:

(i)

an increase of $116.2 billion from favourable market movements; and

(ii)

an increase of $3.2 billion of other business activities; partially offset by

(iii)

an decrease of $31.5 billion from the impact of foreign exchange translation; and

(iv)

net outflows of mutual, managed, and segregated funds of $14.3 billion.


For the second quarter of 2019, net outflows of mutual, managed and segregated funds were $7.2 billion, predominantly driven by net outflows from MFS of $8.1 billion, partially offset by net inflows of $0.5 billion from Canada, $0.4 billion from Asia, and $0.2 billion from SLC Management.

E. Financial Strength


Quarterly results


Q2'19

Q1'19

Q4'18

Q3'18

Q2'18

LICAT ratio






Sun Life Financial Inc.

144%

145%

144%

145%

149%

Sun Life Assurance

133%

132%

131%

130%

134%

Financial leverage ratio(1)

20.4%

21.1%

21.2%

21.9%

21.8%

Dividend






Dividend payout ratio(1)

42%

42%

42%

40%

40%

Dividends per common share ($)

0.525

0.500

0.500

0.475

0.475

Capital






Subordinated debt and innovative capital instruments(2)

3,491

3,739

3,738

3,738

3,737

Participating policyholders' equity and non-controlling interests

974

930

864

802

517

Preferred shareholders' equity

2,257

2,257

2,257

2,257

2,257

Common shareholders' equity

21,427

21,525

21,449

20,577

20,959

Total capital

28,149

28,451

28,308

27,374

27,470



(1)

Represents a non-IFRS financial measure. See section M - 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 2018 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 June 30, 2019, SLF Inc.'s LICAT ratio was 144%, in line with December 31, 2018. The favourable impact of reported net income and market movements were offset by the impact of the payment of dividends, the repurchases of common shares, the redemption of subordinated debentures, the impact from OSFI's 2019 LICAT guideline revisions and the impact from the de-registration of a U.S. reinsurer.

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary, is also subject to the LICAT guideline. As at June 30, 2019, Sun Life Assurance's LICAT ratio was 133%, compared to 131% as at December 31, 2018. The increase was primarily due to the favourable contribution of reported net income and market movements, partially offset by dividends to SLF Inc. and the unfavourable 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 and preferred shareholders' equity. As at June 30, 2019, our total capital was $28.1 billion, compared to $28.3 billion as at December 31, 2018. The decrease in total capital was primarily due to the payment of $611 million of dividends on common shares of SLF Inc. ("common shares"), foreign currency translation loss of $539 million included in other comprehensive income (loss) ("OCI"), $400 million from the repurchase and cancellation of common shares and the redemption of $250 million principal amount of Series 2014-1 Subordinated Unsecured 2.77% Fixed/ Floating Debentures ("Series 2014-1 Debentures") detailed below, partially offset by total net income of $1,218 million and unrealized gains on AFS assets of $400 million.

SLF Inc. and its wholly-owned holding companies had $2,214 million in cash and other liquid assets(1) as at June 30, 2019 ($2,523 million as at December 31, 2018). The decrease in cash and other liquid assets in the first six months of 2019 includes the impact of the redemption of $250 million principal amount of Series 2014-1 Debentures.

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














(1)

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


On July 2, 2019, SLF Inc.'s Series D Senior Unsecured 5.70% Debentures ("Series D 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 will have 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.

Normal Course Issuer Bids

SLF Inc. launched a normal course issuer bid on August 14, 2018 and amended it effective May 14, 2019 (the "2018 NCIB"). The 2018 NCIB remains in effect until the earlier of August 13, 2019 and the date on which SLF Inc. has purchased an aggregate of 18.0 million common shares under the bid. During the three months and six months ended June 30, 2019, SLF Inc. purchased approximately 3.7 million common shares at a total cost of $200 million, and 7.8 million common shares at a total cost of $400 million, respectively. All of the common shares purchased under the 2018 NCIB were subsequently cancelled. As at June 30, 2019, the total aggregate shares purchased and cancelled and associated cost under the 2018 NCIB are 16.4 million and $825 million, respectively.

On July 31, 2019, SLF Inc. announced that, subject to the approval of OSFI and the Toronto Stock Exchange ("TSX"), it intends to launch a new normal course issuer bid to purchase for cancellation up to 15 million of its common shares (the "2019 NCIB"). The 2019 NCIB is expected to commence on August 14, 2019 and continue until August 13, 2020, or such earlier date as SLF Inc. may determine or as SLF Inc. completes its purchases pursuant to the 2019 NCIB. Purchases under the 2019 NCIB may be made through the facilities of the TSX, other Canadian stock exchanges and/or alternative Canadian trading platforms, at prevailing market rates. Purchases under the 2019 NCIB may also be made by way of private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities. Any purchases made under an exemption order issued by a securities regulatory authority will generally be at a discount to the prevailing market price. The actual number of common shares purchased under the 2019 NCIB, and the timing of such purchases (if any), will be determined by SLF Inc. Any common shares purchased by SLF Inc. pursuant to the 2019 NCIB will be cancelled. The 2019 NCIB will provide the Company with the flexibility to acquire common shares in order to return capital to shareholders as part of its overall capital management strategy.

F. Performances by Business Group

($ millions)

Quarterly results

Year-to-date

Q2'19

Q1'19

Q2'18

2019

2018

Reported net income (loss)






Canada

148

237

262

385

511

U.S.

94

124

105

218

201

Asset Management

229

219

214

448

424

Asia

134

80

133

214

266

Corporate

(10)

(37)

(8)

(47)

(27)

Total reported net income (loss)

595

623

706

1,218

1,375

Underlying net income (loss)(1)






Canada

243

237

245

480

540

U.S.

110

150

125

260

254

Asset Management

245

227

216

472

447

Asia

147

122

145

269

273

Corporate

(6)

(19)

(2)

(25)

(15)

Total underlying net income (loss)(1)

739

717

729

1,456

1,499



(1)

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

 

Information describing the business groups and their respective business units is included in our 2018 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

Year-to-date

($ millions)

Q2'19

Q1'19

Q2'18

2019

2018

Individual Insurance & Wealth

(3)

106

105

103

212

Group Benefits

80

74

103

154

172

Group Retirement Services

71

57

54

128

127

Reported net income (loss)

148

237

262

385

511

Market related impacts(1)

(72)

(1)

15

(73)

(29)

Assumption changes and management actions(1)

(20)

5

(20)

(2)

Other adjustments(2)

(3)

1

(3)

(2)

2

Underlying net income (loss)(3)

243

237

245

480

540

Reported ROE (%)(3)

8.5%

13.5%

15.5%

11.0%

15.3%

Underlying ROE (%)(3)

13.8%

13.5%

14.5%

13.7%

16.2%

Insurance sales(3)

194

362

266

556

562

Wealth sales(3)

3,248

2,825

3,039

6,073

6,864



(1)

Represents an adjustment made to arrive at a non-IFRS financial measure. See section M - 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 M - Non-IFRS Financial Measures in this document.

(3)

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

 

Profitability

Quarterly Comparison - Q2 2019 vs. Q2 2018
Canada's reported net income was $148 million in the second quarter of 2019, compared to $262 million in the second quarter of 2018. Underlying net income was $243 million in the second quarter of 2019, compared to $245 million in the second quarter of 2018.

Reported net income in the second quarter of 2019 compared to the second quarter of 2018 predominantly reflected unfavourable market related impacts, which included the impacts from interest rates and changes in the fair value of investment properties, and unfavourable ACMA. Underlying net income in the second quarter of 2019 was in line with the same period in 2018, reflecting favourable expense experience and continued business growth, offset by unfavourable morbidity and credit experience.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Canada's reported net income was $385 million in the first six months of 2019, compared to $511 million in the same period in 2018. Underlying net income was $480 million in the first six months of 2019, compared to $540 million in the same period in 2018.

Reported net income in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable market related impacts, which included the impacts from interest rates and changes in the fair value of investment properties, partially offset by equity markets, and unfavourable ACMA impact. Underlying net income in the first six months of 2019 compared to the same period in 2018 reflected interest on par seed capital of $75 million in the first quarter of 2018 and unfavourable credit and morbidity experience, partially offset by continued business growth, favourable expense experience and higher investing activity gains.

Growth

Quarterly Comparison - Q2 2019 vs. Q2 2018
Canada individual insurance sales decreased in the second quarter of 2019 to $94 million, compared to $110 million in the same period last year. Sales in GB of $100 million decreased by 36% compared to the second quarter of 2018 due to the timing of large case sales during the first half of the year.

Canada wealth sales of $3.2 billion in the second quarter of 2019 were up compared to $3.0 billion in the second quarter of 2018, driven by increased sales in GRS.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Canada individual insurance sales were $187 million in the first six months of 2019, compared to $198 million in the same period last year. Sales in GB of $369 million were consistent with the first six months of 2018.

Canada wealth sales were $6.1 billion in the first six months of 2019, compared to $6.9 billion in the same period last year. Individual wealth sales of $3.1 billion were down 8% in the first six months of 2019 compared to the same period last year, reflecting a weaker RRSP season across the industry. GRS sales of $3.0 billion were down 15% over the first six months in 2018, mainly due to a large case defined benefit sale in the first quarter of 2018.

2. U.S.


Quarterly results 

  Year-to-date

(US$ millions)

Q2'19

Q1'19

Q2'18

2019

2018

Group Benefits

41

86

57

127

90

In-force Management

29

7

24

36

67

Reported net income (loss)

70

93

81

163

157

Market related impacts(1)

(8)

(11)

(1)

(19)

(21)

Assumption changes and management actions(1)

1

(2)

(3)

(1)

(1)

Acquisition, integration and restructuring(1)

(4)

(6)

(12)

(10)

(20)

Underlying net income (loss)(2)

81

112

97

193

199

Reported ROE (%)(2)

9.9%

13.6%

11.7%

11.8%

11.5%

Underlying ROE (%)(2)

11.6%

16.3%

14.0%

13.9%

14.5%

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

7.3%

7.9%

6.5%

7.3%

6.5%

Insurance sales(2)

168

120

120

288

228

(C$ millions)






Reported net income (loss)

94

124

105

218

201

Underlying net income (loss)(2)

110

150

125

260

254



(1)

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

(2)

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

 

Profitability

Quarterly Comparison - Q2 2019 vs. Q2 2018
U.S.'s reported net income was US$70 million ($94 million) in the second quarter of 2019, compared to US$81 million ($105 million) in the second quarter of 2018. Underlying net income was US$81 million ($110 million) in the second quarter of 2019, compared to US$97 million ($125 million) in the second quarter of 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $3 million and $4 million, respectively.

Reported net income in the second quarter of 2019 compared to the second quarter of 2018 reflected unfavourable market related impacts, predominantly from changes in the fair value of investment properties, partially offset by lower integration costs, as the integration of the U.S. employee benefits business acquired in 2016 nears completion. Underlying net income in the second quarter of 2019 compared to the second quarter of 2018 reflected less favourable morbidity experience driven by unfavourable experience in medical stop-loss partially offset by favourable experience in employee group benefits, and lower AFS gains, partially offset by improved lapse and other policyholder behaviour experience and benefits from tax related items. The after-tax profit margin for Group Benefits(1) was 7.3% as of the second quarter of 2019, compared to 6.5% as of the second quarter of 2018.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
U.S.'s reported net income was US$163 million ($218 million) in the first six months of 2019, compared to US$157 million ($201 million) in the same period in 2018. Underlying net income was US$193 million ($260 million) in the first six months of 2019, compared to US$199 million ($254 million) in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $9 million and $11 million, respectively.














(1)

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


Reported net income in the first six months of 2019 compared to the first six months of 2018 was driven by lower integration costs, as the integration of the U.S. employee benefits business acquired in 2016 nears completion. Underlying net income in the first six months of 2019 compared to the same period in 2018 was driven by favourable mortality experience, improved lapse and other policyholder behaviour experience, benefits from tax related items, and continued business growth, partially offset by interest on par seed capital of US$28 million ($35 million) in the first quarter of 2018, lower AFS gains, and lower investing activity gains.

Growth

Quarterly Comparison - Q2 2019 vs. Q2 2018
U.S. Group Benefits sales of US$168 million in the second quarter of 2019 increased 40% compared to US$120 million in the second quarter of 2018, driven by strong momentum and our leadership position in medical stop-loss, where business in-force increased to US$1.8 billion, up 22% from the same period in the prior year.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018 (year-to-date)
U.S. Group Benefits sales of US$288 million in the first six months of 2019 increased 26% compared to US$228 million in the same period of 2018, primarily driven by increased medical stop-loss sales.

3. Asset Management


Quarterly results

Year-to-date

Asset Management (C$ millions)

 

Q2'19

Q1'19

Q2'18

2019

2018

Reported net income

229

219

214

448

424

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

(11)

(8)

(2)

(19)

(23)

Acquisition, integration and restructuring(1)

(5)

(5)

Underlying net income(2)

245

227

216

472

447

Assets under management (C$ billions)(2)

708.1

698.4

684.0

708.1

684.0

Gross sales (C$ billions)(2)

31.9

31.3

25.3

63.2

57.6

Net sales (C$ billions)(2)

(7.9)

(6.5)

(14.7)

(14.4)

(19.8)

MFS(C$ millions)






Reported net income

225

215

211

440

412

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

(11)

(8)

(2)

(19)

(23)

Underlying net income(2)

236

223

213

459

435

Assets under management (C$ billions)(2)

639.9

631.1

622.5

639.9

622.5

Gross sales (C$ billions)(2)

30.3

29.0

24.1

59.3

53.7

Net sales (C$ billions)(2)

(8.1)

(7.8)

(14.9)

(15.9)

(20.3)

MFS (US$ millions)






Reported net income

168

162

163

330

322

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

(8)

(6)

(1)

(14)

(18)

Underlying net income(2)

176

168

164

344

340

Pre-tax net operating profit margin ratio for MFS(2)

37%

38%

36%

37%

37%

Average net assets (US$ billions)(2)

480.2

456.7

480.9

468.5

487.9

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

488.8

472.9

474.1

488.8

474.1

Gross sales (US$ billions)(2)

22.6

21.8

18.6

44.4

42.0

Net sales (US$ billions)(2)

(6.1)

(5.9)

(11.5)

(12.0)

(15.8)

Asset appreciation (depreciation) (US$ billions)

22.0

50.4

3.4

72.4

(1.7)

S&P 500 Index (daily average)

2,884

2,720

2,704

2,803

2,718

MSCI EAFE Index (daily average)

1,888

1,833

2,018

1,861

2,045

SLC Management (C$ millions)






Reported net income

4

4

3

8

12

Acquisition, integration and restructuring(1)

(5)

(5)

Underlying net income(2)

9

4

3

13

12

Assets under management (C$ billions)(2)

68.2

67.3

61.5

68.2

61.5

Gross sales (C$ billions)(2)

1.6

2.3

1.2

3.9

3.9

Net sales (C$ billions)(2)

0.2

1.3

0.2

1.5

0.5



(1) 

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

(2)

Represents a non-IFRS financial measure. See section M - 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 June 30, 2019.

 

Profitability

Quarterly Comparison - Q2 2019 vs. Q2 2018
Asset Management's reported net income was $229 million in the second quarter of 2019, compared to $214 million in the second quarter of 2018. Underlying net income was $245 million in the second quarter of 2019, compared to $216 million in the second quarter of 2018. The impact of foreign exchange increased reported net income and underlying net income by $8 million.

Asset Management's reported net income in the second quarter of 2019 compared with the second quarter of 2018 was driven by the change in underlying net income, partially offset by higher fair value adjustments on MFS's share based payment awards and higher acquisition costs in SLC Management related to the acquisition of BentallGreenOak ("BGO"). Underlying net income compared to the second quarter of 2018 was driven by expense management, investment income including returns on seed capital, and favourable impact of foreign exchange translation.

In U.S. dollars, MFS's reported net income was US$168 million in the second quarter of 2019 compared to US$163 million in the second quarter of 2018, driven by the change in underlying net income, partially offset by higher fair value adjustments on MFS's share based payment awards. MFS's underlying net income was US$176 million in the second quarter of 2019, compared to US$164 million in the same period in 2018. Both quarters had similar average net assets ("ANA"), and improvements were driven by expense management and investment income including returns on seed capital. The pre-tax net operating profit margin ratio for MFS was 37% in the second quarter of 2019, compared to 36% in the same period last year.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Asset Management's reported net income in the first six months of 2019 was $448 million, compared to $424 million in the same period in 2018. Underlying net income was $472 million in the first six months of 2019, compared to $447 million in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $19 million and $20 million, respectively.

Asset Management's reported net income in the first six months of 2019 compared to the first six months of 2018 was driven by lower fair value adjustments on MFS's share based payment awards offset by acquisition costs related to BGO. Underlying net income compared to the second quarter of 2018 was driven by expense management, favourable results in investment income including returns on seed capital and the favourable impact of foreign exchange translation, partially offset by the impacts from lower ANA.

In U.S. dollars, MFS's reported net income was US$330 million in the first six months of 2019, compared to US$322 million in the first six months of 2018, reflecting lower fair value adjustments on MFS's share based payment awards. MFS's underlying net income was US$344 million in the first six months of 2019, compared to US$340 million for the same period in 2018, driven by expense management and favourable results in investment income including returns on seed capital, partially offset by the impacts from lower ANA.

SLC Management's reported net income in the first six months of 2019 compared to the first six months of 2018 included acquisition costs related to BGO. Underlying net income in the first six months of 2019 was in line with the same period in 2018.

Growth
Asset Management's AUM was $708.1 billion as at June 30, 2019, compared to $649.7 billion as at December 31, 2018. The increase in AUM was primarily due to asset appreciation and the impact of foreign exchange translation, partially offset by net outflows. MFS's AUM was US$488.8 billion ($639.9 billion) as at June 30, 2019, compared to US$428.4 billion ($584.2 billion) as at December 31, 2018. The increase of US$60.4 billion was primarily driven by asset appreciation of US$72.4 billion and gross sales of US$44.4 billion, partially offset by redemptions of US$56.4 billion. MFS continued to report strong retail sales, resulting in positive net retail fund flows of $2.6 billion (US$2.0 billion) for the second quarter of 2019 and $3.6 billion (US$2.7 billion) in the first half of the year.

In the second quarter of 2019, 93%, 92% and 84% of MFS's U.S. retail fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance, respectively.

SLC Management's AUM was $68.2 billion as at June 30, 2019, compared to $65.5 billion as at December 31, 2018.

Acquisition of BentallGreenOak
On July 1, 2019, we completed the acquisition of our majority stake in BGO, which was the product of the merger of the Bentall Kennedy group of companies and GreenOak Real Estate, a global real estate investment firm. This acquisition increases our global real estate investment footprint, while adding organizational depth and a full spectrum of solutions including equity and debt real estate strategies. The expected reduction to Total shareholders' equity as a result of the acquisition is approximately $850 million, primarily driven by the establishment of financial liabilities associated with the anticipated increase of our future ownership in BentallGreenOak. Please refer to the second quarter of 2019 Interim Consolidated Financial Statements for additional details.

4. Asia


    Quarterly results

Year-to-date

($ millions)

Q2'19

Q1'19

Q2'18

2019

2018

Insurance and Wealth

117

101

86

218

191

International

17

(21)

47

(4)

75

Reported net income (loss)

134

80

133

214

266

Market related impacts(1)

(14)

(42)

(56)

4

Assumption changes and management actions(1)

1

1

1

Acquisition, integration and restructuring(1)(2)

(12)

(12)

Underlying net income (loss)(3)

147

122

145

269

273

Reported ROE (%)(3)

9.9%

6.0%

10.9%

7.9%

11.0%

Underlying ROE (%)(3)

10.9%

9.1%

11.8%

10.0%

11.3%

Insurance sales(3)

238

258

212

496

445

Wealth sales(3)

1,799

1,881

2,502

3,680

6,238



(1) 

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

(2) 

The amount in the second quarter of 2018 pertains to a distribution arrangement in India for asset management.

(3) 

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

 

Profitability

Quarterly Comparison - Q2 2019 vs. Q2 2018
Asia's reported net income was $134 million in the second quarter of 2019, compared to reported net income of $133 million in the second quarter of 2018. Underlying net income was $147 million in the second quarter of 2019, compared to $145 million in the second quarter of 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $4 million and $5 million, respectively.

Reported net income in the second quarter of 2019 was in line with the second quarter of 2018, as unfavourable market related impacts, predominantly from interest rates partially offset by equity market impacts, were offset by the impact of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income in the second quarter of 2019 was in line with the same period in 2018, reflecting favourable expense experience, favourable credit experience and continued business growth, largely offset by lower new business gains in International.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Asia's reported net income was $214 million in the first six months of 2019, compared to $266 million in the same period in 2018. Underlying net income was $269 million in the first six months of 2019, compared to $273 million in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $6 million and $8 million, respectively.

Reported net income in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable market related impacts, predominantly from interest rates, partially offset by the impacts of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income in the first six months of 2019 compared to the same period in 2018 reflected lower new business gains in International, and less favourable credit experience, partially offset by higher investing activity gains, continued business growth and improved expense experience.

Growth

Quarterly Comparison - Q2 2019 vs. Q2 2018
Asia insurance sales were $238 million in the second quarter of 2019, compared to $212 million in the second quarter of 2018. Total individual insurance sales increased by 12%, driven by double-digit growth in most markets. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch.

Asia wealth sales were $1.8 billion in the second quarter of 2019, compared to $2.5 billion in the second quarter of 2018. The decrease mainly reflected lower mutual fund sales in India due to weak market sentiments.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Asia insurance sales were $496 million in the first six months of 2019, compared to $445 million in the first six months of 2018. Total individual insurance sales in the first six months of 2019 increased 12% from the first six months of 2018. On a constant currency basis, individual insurance sales increased 11%, with most markets achieving double-digit growth. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch.

Asia wealth sales were $3.7 billion in the first six months of 2019, compared to $6.2 billion in the first six months of 2018. This decrease mainly reflected lower mutual fund sales in India due to weak market sentiments and in the Philippines due to elevated money market sales in the first six months of 2018.

5. Corporate


Quarterly results  

Year-to-date

($ millions)

Q2'19

Q1'19

Q2'18

2019

2018

UK

39

29

37

68

85

Corporate Support

(49)

(66)

(45)

(115)

(112)

Reported net income (loss)

(10)

(37)

(8)

(47)

(27)

Market related impacts(1)

(9)

(6)

(9)

(9)

Assumption changes and management actions(1)

(2)

(9)

(11)

Acquisition, integration and restructuring(1)

(2)

(2)

(3)

Underlying net income (loss)(2)

(6)

(19)

(2)

(25)

(15)



(1) 

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

(2) 

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

 

Profitability

Quarterly Comparison - Q2 2019 vs. Q2 2018
Corporate's reported net loss was $10 million in the second quarter of 2019, compared to reported net loss of $8 million in the second quarter of 2018. Underlying net loss was $6 million in the second quarter of 2019, compared to underlying net loss of $2 million in the second quarter of 2018.

Reported net loss in the second quarter of 2019 compared to the second quarter of 2018 reflected improved market related impacts, more than offset by the change in underlying net loss. Underlying net loss in the second quarter of 2019 compared to the same period in 2018 reflected lower earnings from the run-off businesses, partially offset by favourable expense experience.

Year-to-Date Comparison - Q2 2019 vs. Q2 2018
Corporate's reported net loss was $47 million in the first six months of 2019, compared to $27 million in the same period in 2018. Underlying net loss was $25 million in the first six months of 2019, compared to $15 million in the same period in 2018.

Reported net loss in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable ACMA. Underlying net loss in the first six months of 2019 compared to the same period in 2018 reflected lower earnings from the run-off businesses, and higher regulatory expenses including the adoption of IFRS 17 Insurance Contracts ("IFRS 17"), partially offset by favourable expense experience.

G. Investments

We had total general fund invested assets of $156.6 billion as at June 30, 2019, compared to $151.7 billion as at December 31, 2018. The increase in general fund invested assets was primarily due to the impacts of declining interest rates and operational activity, partially offset by the unfavourable impact from 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)


June 30, 2019     

December 31, 2018

($ millions)

Carrying value

null