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12-Feb-2015
Sun Life Financial, Inc. (SLF)
Q4 2014 Earnings Call
Sun Life Financial, Inc. (SLF) Q4 2014 Earnings Call
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CORPORATE PARTICIPANTS
Gregory A. Dilworth Vice-President, Investor Relations, Sun Life Financial, Inc.
Dean A. Connor President, CEO & Non-Independent Director
Colm J. Freyne Chief Financial Officer & Executive Vice President
Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co.
Daniel Richard Fishbein President-US Business
Larry Madge Senior Vice President & Chief Actuary
Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc.
Kevin P. Dougherty President, Sun Life Financial Canada
................................................................................................................................................................................................................................
OTHER PARTICIPANTS
Steve Theriault Bank of America Merrill Lynch
Tom MacKinnon BMO Capital Markets (Canada)
Gabriel Dechaine Canaccord Genuity Corp.
Meny Grauman Cormark Securities, Inc.
Peter Routledge National Bank Financial Brokers
Sumit Malhotra Scotia Capital Markets
Asim Imran Macquarie Capital Markets Canada Ltd.
Mario C. Mendonca TD Securities
Doug Young Desjardins Securities, Inc.
Darko Mihelic RBC Dominion Securities, Inc.
Robert Sedran CIBC World Markets, Inc.
Sun Life Financial, Inc. (SLF) Q4 2014 Earnings Call
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MANAGEMENT DISCUSSION SECTION
Operator: Ladies and gentlemen, thank y ou for standing by. Welcome to the Sun Life Financial Fourth Quarter
2014 Financial Results Conference Call and Webcast. During the call, all participants will be in a listen -only mode.
After the presentation, we will conduct a question-and-answer session. [Operator Instructions]
Please note that this call is being recorded today, Thursday, February 12, 2015 at 10:00 a.m. Eastern Time.
I would now like to turn the meeting over to y our host for today's call, Greg Dilworth, Vice President, Investor
Relations at Sun Life Financial. Please go ahead. ................................................................................................................................................................................................................................
Gregory A. Dilworth Vice-President, Investor Relations, Sun Life Financial, Inc.
Thank y ou, Anastasia, and good morning, everyone. Welcome to Sun Life Financial's earning conference call for
the fourth quarter of 2014. Our earnings release and the slides for today's call are available on the Investor
Relations section of our website at sunlife.com.
We will begin today 's presentation with an overview of our fourth results by Dean Connor, President and Chief
Executive Officer of Sun Life Financial. Following those remarks, Colm Freyne, Executive Vice President and Chief
Financial Officer, will present the fourth quarter financial results. After the prepared remarks, we will move to the
question-and-answer portion of the call. Other members of management will also be av ailable to answer your
questions on today's call.
Turning to slide two, I draw y our attention to the cautionary language regarding the use of forward -looking
statements and non-IFRS financial measures, which form part of this morning's remarks. As noted in the slides,
forward-looking statements may be rendered inaccurate by subsequent events.
And with that, I'll now turn things over to Dean. ................................................................................................................................................................................................................................
Dean A. Connor President, CEO & Non-Independent Director
Thanks, Greg, and good morning, everyone. Turning to slide four, the company reported fourth quarter operating
net income of $511 million, and underlying net income of $360 million. While operating net income was strong
reflecting good business growth along with management actions and assumption changes that w ere
communicated last quarter, our underlying net income was below expectations, and I'll speak to that in a minute.
The lower underlying result in the fourth quarter capped off what was otherwise a strong y ear overall in 2014.
Operating net income for the full y ear was $1.9 billion, and underlying net income was $1.8 billion, up 15% from
the $1.6 billion of underlying net income we reported last year. Expected profit was up 15%, reflecting growth
across most of our businesses and earnings on surplus were up 38% in 2014.
Insurance sales in 2014 were $2.1 billion of annualized premium, up 10% over the prior y ear period, driven by
growth in both indiv idual and Group Benefits products. Sales of wealth products totaled $111 billion, down 3%,
driven by lower sales at MFS. Assets under management reached $734 billion, up 15% from a y ear ago.
Sun Life Financial, Inc. (SLF) Q4 2014 Earnings Call
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Our capital position is strong. We remain committed to allocating capital in way s that support long -term business
growth and earnings and ROE improvement, while retaining flexibility for growth. During the quarter, we
repurchased approximately 1 million shares under our normal course issuer bid and our quarterly common share
div idend remains unchanged at $0.36 per share.
As y ou'll recall, during our third quarter earnings call, we said we would rev isit our dividend level in 2015. In
doing so, we will look at where we are relative to the 40% to 50% div idend payout ratio range we previously
communicated. We finished 2014 at the higher end of that range, and as we look through 2015, we expect to move
down in that range and so we are still on track to revisit the dividend this y ear.
Turning to slide five, we continue to execute on our four -pillar growth strategy, one that is focused on high ROE
and strong capital generation through leading positions in attractive markets globally. We have a leadership
position in financial protection and wealth in our Canadian home market, MFS is a premier global asset manager
with an excellent record of performance. Our US business has a solid and growing position in the group and
voluntary insurance market, a leading medical stop-loss business and a leading presence in the international high
net worth market. Our footprint in Asia provides exposure exclusively to high growth markets in the regi on, and
our rapid growth in Asia means it is becoming a larger part of the company over time.
On slide six , I'll discuss a few key items for the quarter. Sun Life Canada's earnings were below our expectations
due to higher than expected LTD claims experie nce, mortality losses and policyholder experience. We expect that
experience to reverse to more normal historical levels over coming quarters. Fourth quarter sales in Canada were
very strong, with overall insurance sales up 78% and wealth sales up 64% over prior year. Group wealth and group
insurance sales were up an impressive 104% and 161% respectively.
Our Defined Benefit Solutions business recorded more than $500 million in sales for the quarter, and this
contributed to more than $1.2 billion in group DB Solutions sales for the y ear, a new milestone for that business.
Indiv idual wealth sales were up 10%, with strong growth in sales of Sun Life Global Investments Mutual Funds.
Indiv idual insurance sales were on par with last y ear and up 10% for the y ear overall. Next, our asset management
businesses continued to perform well. MFS ended the y ear with assets under management of US$431 billion and
generated an operating margin of 39% in the fourth quarter, in line with our communicated range.
Fund performance remained strong, with 81%, 92% and 97 % of fund assets ranked in the top half of their Lipper
categories for three-year, five-year and 10-year performance. Retail net sales were positive in the fourth quarter,
offset by institutional net outflows, resulting in overall net outflows of US$2 billion. As you know, MFS has grown
faster than the industry over the past several y ears, in recent quarters; we've seen MFS flows come more in line
with the rest of the industry, reflecting in part a more challenging e nvironment.
Mike Roberge is on the call with us today and will be available to provide further color during the Q&A. During the
quarter, MFS partnered with several other asset managers to launch a new trading venue called Luminex.
Through Luminex, investment managers, such as MFS, will have the ability to transact in a lower -cost trading
environment, creating the opportunity to pass along the benefits of those lower costs to clients.
In January , we also announced the acquisition of New Y ork-based Ry an Labs Asset Management. The acquisition
brings us an established and successful asset management platform for liability -driven investing and total return
fixed income strategies in the US market. It's a logical extension of Sun Life Investment Management, the
business we launched in Canada last y ear that's bringing private fixed income, commercial mortgages, real estate
and LDI capabilities to pension funds and other investors. These investment management businesses, along with
MFS and our general account investment team, report to Steve Peacher.
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In the US, Group Benefits net income was below our expectations. Colm will cover the details in a minute, but the
results reflect mortality and morbidity losses that fell outside what we would normally expect and which we expect
will come back in line in subsequent quarters, as well as continued experience losses in our LTD line. Since he
joined us last March, Dan Fishbein has been leading a significant change program that touches pricing, renewals
and expense management. We see good progress being made and expect to see earnings progress in the quarters
ahead.
Group Benefits business inforce grew to US$2.6 billion. Of this total, voluntary benefits business inforce was
US$579 million, up 10%. We also grew our medical stop-loss business, surpassing $1 billion of premium inforce
for the first time. Sales of other group lines declined, as we put through significant price increases. We continue to
expand distribution through private exchanges, adding our suite of employee b enefits to the PlanSource
OneMarket private exchange in the quarter. International sales were lower, as we maintained our pricing
discipline in this market during the low interest rate environment.
Finally , our operations in Asia demonstrated strong growth, with underlying earnings up 47% to $50 million and
a 26% increase in indiv idual life sales, with broad-based growth in the Philippines, Hong Kong, Indonesia, China
and Malay sia. Asian wealth sales reached $2.2 billion, fueled in part by strong sales of our Mandatory Provident
Fund products in Hong Kong, which grew by 53%.
Slide seven and eight recap the progress across our four pillars in 2014. I won't read the points here, but I would
like to emphasize two overall points in particular. First, we have c ontinued to invest in growth across all four
pillars, and we are seeing the results of that coming through in terms of strong sales, growth in premium inforce,
growth in assets under management and growth in expected profit.
Secondly, we continue to benefit from a balanced and diversified business model. While low interest rates are a
challenge for all life insurers, we do benefit from having a larger proportion of our business in wealth, including
MFS, Group Retirement Services, Sun Life Global Investments, Hong Kong Mandatory Provident Fund and other
businesses.
Our Group Benefits business is less sensitive to low interest rates and these products can be reprised over time.
We have significant presences in the US and Asia, two parts of the world tha t are showing stronger GDP growth
today than other markets, and which should be net beneficiaries of lower energy prices. And having roughly half of
our business outside of Canada has helped as the US dollar as strengthened.
Turning to slide nine, I'll leave y ou with a few key takeaways for the quarter and for the y ear. Notwithstanding
lower-than-expected underlying results in the fourth quarter, the overall y ear produced strong results. We
continue to make significant investments in growing existing and new businesses and are funding an increasing
proportion of those investments through productivity gains.
We remain focused on the efficient management of capital, and the reduction in leverage and commencement of
share buy backs are two examples of that. And lastly, on execution, people in all parts of Sun Life are focused on
driv ing a high performance environment, on creating great customer experiences and on continuously improving
productivity, and their actions are producing tangible results.
I'll now turn the call over to Colm Freyne, who will take us through the financial results. ................................................................................................................................................................................................................................
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Colm J. Freyne Chief Financial Officer & Executive Vice President
Thank y ou, Dean, and good morning, everyone. Turning to slide 11, we take a look at some of the financial results
from the fourth quarter of 2014. Our operating net income for the quarter was $511 million, down from $642
million in the fourth quarter last y ear. The results this quarter include a number of assumption changes and
management actions, which we had previously communicated along with our third quarter results.
The results a y ear ago also included a significant impact from assumption changes, making y ear-over-year
comparisons more difficult. Underlying net income, which excludes the net impact of mar ket factors and
assumption changes, amounted to $360 million, driven primarily by negative mortality, morbidity and one -time
expenses. Fourth quarter adjusted premiums and deposits were $31 billion and closing assets under management
for the quarter reached a new high of $734 billion, from business growth and the benefit of currency and market
movements.
Moving to slide 12, you can see key financial metrics for the fourth quarter. Underlying earnings of $360 million
for the quarter were lower than the same period one y ear ago. However, on the full y ear basis, underlying earnings
of $1.8 billion were up $235 million over the prior y ear. Our capital position remains strong, we ended the quarter
with a minimum continuing capital and surplus requirements ratio for Sun Life Assurance Company of Canada of
217%, and a cash level of $1.8 billion at the holding company, SLF Inc.
As y ou can see on slide 13, assumption changes and management actions had a substantial impact on our results
and increased earnings by $172 million, while the net impact of market factors reduced earnings in the quarter by
$21 million.
As outlined in our third quarter disclosure, there are three significant assumption changes and management
actions being contemplated before year end, each o f which was implemented in the quarter. First, we had
Actuarial Standards Board changes with respect to reinvestment assumptions, which contributed $378 million to
net income.
The second significant assumption change was related to future funding costs on no-lapse guarantee products in
SLF US. During the fourth quarter, the National Association of Insurance Commissioners adopted a new guideline
on captive financing arrangements that provided greater clarity and certainty on these types of structures. This
allowed us to release the remaining provision for future funding costs in our insurance contract liabilities, which
contributed $193 million to net income. As a result, we no longer expect future contributions related to the release
of these funding costs that were contributing $15 million to $20 million to net income per annum.
Finally , we moved to a new approach for setting our mortality assumptions that we believe is in line with global
best practices and positions us well as leaders in the Defined Bene fit Solutions and indiv idual payout markets in
Canada. The new approach reflects improvements in mortality rates that provide us with greater confidence in
future profitability of both inforce and new business we're writing. The net impact of this assumpti on change
reduced our net income by $347 million.
Moving on to the net impact of market factors, we experienced the net impact that was primarily due to lower
interest rates. The net impact from interest rates, including swap and credit spread movements, was a reduction
in net income of $21 million. We have provided more detail on the impacts of market factors in the appendix. I
would also note that the fourth quarter reinvestment assumption changes promulgated by the Actuarial Standards
Board did not have a material impact on our enterprise-wide interest rate sensitivities. The changes did, however,
dampen the impact of lower rates on net income in the quarter.
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Other notable items contributed a net reduction of $115 million, consisting primarily of adverse mortality,
morbidity, expense and policyholder experience, which I'll speak to in the next slide on our sources of earnings. At
the bottom of slide 13, we break down our earnings contribution by business group. In Canada, underlying results
for the fourth quarter benefited from investing gains and new business gains that were more than offset by
unfavorable mortality, morbidity and policyholder behavior experience.
Underly ing results at MFS were driven by strong asset levels, but were down from last y ear due to a one-time
reduction in compensation expense recognized in the prior year. Excluding this adjustment and the impact of
currency, earnings were up by 10% y ear-over-year. Underlying results in Asia reflected strong business growth
over the past year across a number of markets. And finally, weak underlying results in the US were primarily
impacted by negative mortality and unfavorable underwriting and claims results.
Turning next to slide 14, we provide details on our sources of earnings presentation. Expected profit of $597
million increased by $6 million from a y ear ago. Increases in expected profit from business growth and SLF
Canada and SLF Asia were more than offset – more than offset declines in SLF US and MFS. The decline in SLF
US reflected reductions in group insurance expected profits.
New business strain was $43 million for the quarter. The increase in new business strain of $35 million over the
same period last y ear is driven by lower sales and unfavorable economics in our individual wealth business in
Canada and our international life business. Lower interest rates impact new business strain as a result of lower
sales from reduced demand for fixed rate products, and from the impact of competition when competitors do not
match our pricing discipline.
In light of the current level of lower rates, our previously communicated run rate of $20 million to $30 million for
new business strain is expected to be higher at current interest rate levels, in the range of $30 million to $40
million per quarter. Some of that increase is related to the impact of foreign currency. You'll note that we had
adverse experience in a few important areas over the course of the quarter. And I'll take a few moments to speak to
each in turn.
The first was mortality and morbidity, where we had adverse experience of $64 million after tax. About one-third
of this impact was from unfavorable mortality experience, where we had losses from higher [ph] non -refund
(0:18:03) life claims in Group Benefits in Canada and a small nu mber of larger non-reinsurance claims in our US
inforce business. The remaining two-thirds of these losses was from morbidity. In Canada, we experienced higher
incident rates on long-term disability in our Group Benefits business. Similarly, we had poor lo ng-term disability
experience in the US group business as a result of higher notices, as well as a higher inventory of claims in the US
stop- loss business. It should be noted that this stop-loss experience for the first three quarters of 2014 was strong
and the fourth quarter experience brought the full y ear in line with expectations.
Our expense experience of $58 million after-tax was consistent with the same period last year. There were a few
items of note driv ing the higher expense this quarter. In par ticular, we had higher compensation costs related to
long-term incentives as a result of strong relative share performance of Sun Life, some y earend true-ups and
higher seasonal costs.
Finally , we had unfavorable policyholder behavior and lapse experience in the quarter of $19 million after tax,
arising predominantly in our Canadian operations. We experienced increased lapses from term replacements and
conversion activity during our fourth quarter insurance sales campaign, and adverse y ear-end policyholder
behavior on segregated funds.
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Assumption changes of $214 million were driven primarily by the three large assumption changes I noted on slide
11 . Earnings on surplus of $104 million were higher than in the fourth quarter of 2013 and benefited from higher
investment income, lower financing costs and higher gains from sale of available-for-sale securities. Income taxes
at $113 million are slightly below our expected range for our effective tax rate of 18% to 22%. On an underlying
basis, the tax rate was 17%. However, when we adjust for the tax impact of the notable items, the effective tax rate
for the quarter was 21%, and in line with our expectations.
Slide 15 shows sales results across our insurance and wealth businesses. Sales from insurance increased 14% over
the prior y ear, a period driven by strong growth in Canada Group Benefits, and by strong agency sales in a number
of markets in Asia. This was offset by lower sales in US Group Benefits and international insurance, as we
continue to adhere to our disciplined pricing. Sales from wealth products were up 10%, driven primarily by higher
mutual fund sales in Asia and Canada and strong defined contribution retain sales in our Group Retirement
Serv ices business.
Turning next to slide 16, we present a breakdown of the increase in our y ear-to-date operating expenses. Overall
operating expenses for 2014 were $4.5 billion, up $398 million or 10% over the prior y ear period. Excluding the
impact of currency and of MFS, expenses were $2.8 billion, up $171 millio n or 6%. This expense growth was
comprised of two categories. Approximately $70 million of the increase was from volume-related expenses, which
are directly driven by sales and asset levels. The remaining $100 million is from investments and growth, inflat ion
and other items, which includes our investments in various initiatives, such as expanded wealth distribution in
Canada, the build-out of Sun Life Global Investments and Sun Life Investment Management and growth in Asia
distribution.
Before moving to the Q&A portion of the call, I will summarize by saying that this was a relatively noisy quarter
that capped off what has otherwise been a good y ear. We continue to operate in a challenging environment
characterized by volatility and persistently low interest rates. While there has been a recent focus on declining
interest rates, we have been managing through this paradigm for a number of y ears.
We've been active in reducing our exposure to various higher -risk businesses, we've modified a significant number
of products in terms of pricing and design and finally , we've increased the amount of hedging in our risk -sensitive
businesses.
And with that, I will turn the call back to Greg before moving to the Q&A portion. ................................................................................................................................................................................................................................
Gregory A. Dilworth Vice-President, Investor Relations, Sun Life Financial, Inc.
Thank y ou, Colm. To help ensure that all of our participants have an opportunity to ask questions on today's call, I
would ask each of y ou to please limit y ourselves to one or two questions and then to re -queue with any additional
questions.
With that, I will now ask Anastasia to please poll the participants for questions.
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QUESTION AND ANSWER SECTION
Operator: [Operator Instructions] Your first question comes from Steve Theriault with Bank of America Merrill
Ly nch. Your line is open. ................................................................................................................................................................................................................................
Steve Theriault Bank of America Merrill Lynch Q Thanks very much. I think I heard that Rob Manning is may be not on the call today, so for Mike Roberge, if that's
the case. So, on the retail front, net sales have been under some pressure for a couple of quarters now. I do see
that performance metrics have picked up a little quarter-on-quarter. But my question, I guess, is, is how worried
should we be that we might begin to see some downward pressure on – on y our Morningstar ratings? And may be
for perspective, y ou could update us on may be y our market share of net flows, what percent of y our AUM are
currently four or five-star Morningstar rated, and how that's changed maybe over the last little bit? ................................................................................................................................................................................................................................
Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co. A Y es, maybe – may be – this is Mike. Good morning. May be as a follow-up, we can provide – I don't have those
numbers directly in front of me, so we can follow-up and give you the numbers. ................................................................................................................................................................................................................................
Steve Theriault Bank of America Merrill Lynch Q Okay . ................................................................................................................................................................................................................................
Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co. A What I would say is, when y ou look at longer-term performance, we continue to have favorable long-term
performance. That is the primary driver of Morningstar rating is the longer-term performance numbers. And so,
we're pretty comfortable that we're in pretty good shape as far as performance goes. In terms of flows, y ou look at
retail flows, our market share actually went up in the fourth quarter in retail. So, where you've see a deceleration
in retail flows quarter-over-quarter is a more function of the industry. And so, in Q4, we saw an increase in market
volatility. We saw a significant decline in oil during that period of time and that caused retail investors to pull
back. But our market share actually went up in the quarter. ................................................................................................................................................................................................................................
Steve Theriault Bank of America Merrill Lynch Q And so even though the three-to-five-year performance is still good, it's not as good as it was, say , may be 18
months ago. Y ou don't see that as being a driver on y our Morningstar ratings really? ................................................................................................................................................................................................................................
Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co. A I mean, if y ou look at three-year, five-year, 10-year, we're looking at Lipper here, three-year, five-year, 10-year at
81%, 92% and 97 %, the vast majority of our strategies are outperforming. So, we do not expect a significant
change in Morningstar at this point in time. ................................................................................................................................................................................................................................
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Steve Theriault Bank of America Merrill Lynch Q Okay . And if I could just slip in a follow-up for Colm. The guidance on strain being a little bit higher, or it seems
like there's a – y ou mentioned a number of impacts. Could y ou give us a bit of a split between c urrency and rates
and sales as to how – what the split of how that's driv ing the guidance about $10 million higher? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es. So, Steve, if y ou think about the change quarter over – y ear-over-year, we're down $35 million, so strain
higher by $35 million than a y ear ago. And really that breaks down primarily between Canada and the US. And in
Canada, it's as a result of higher strain on wealth's – indiv idual wealth sales and Defined Benefit Solutions sales.
Now, the Defined Benefit Solutions sales, of course, can be quite lumpy, so I caution around that.
On the US side, it's really the international insurance business. And we have had lower sales there because, as I
mentioned in my remarks, we have not moved our crediting rate to a higher level where some competitors sit and
we think that, that – their crediting rates will come down and we think that we'll see some higher sales there. So,
when that happens, we'll pick up some gain there. But just on balance, I would say of that $10 million higher new
business strain quarter-to-quarter, think of about half of it being related to currency, but there is definitely – in
this kind of an environment, there is – there is a definite impact from economics. ................................................................................................................................................................................................................................
Steve Theriault Bank of America Merrill Lynch Q Thanks so much. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Tom MacKinnon with BMO Capital Markets. Y our line is open. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q Y es. Thanks very much. Good morning, everyone. Just a couple quick questions for Colm, and then a follow -up for
Dan here. Colm, I think y ou had mentioned that there was a reduction in expected profit for group related – for
group insurance. I wonder if y ou could qualify or quantify that. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A I think in – oh, in respect of the US, so expected profit is down in the US and it is in respect of the group loss
experience that we've seen. I'd say it's about $8 million is how I think about may be year-over-year. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q So, y ou've just recalibrated y our expectations? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es, that's correct. ................................................................................................................................................................................................................................
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Tom MacKinnon BMO Capital Markets (Canada) Q Okay . And then, can y ou quantify what the policyholder experience losses were in the LTD markets in US and in
Canada? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A So in LTD, on the group side, y ou're talking about the policyholder experience? ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q Y es. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A We did – the policyholder experience of $15 million – of $19 million after-tax really relates to Canada, it's not
related to the group side, it's related to individual. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q No – I mean, y ou had discussed within those experience gains and losses, policyholder losses related to US group
and LTD, and Canadian LTD, higher incidents, higher notices, things like that. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es, sorry, I misunderstood, so you're really referencing the morbidity experience. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q That's – pardon me, y es, y es. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es. So, we're definitely seeing the impact there in the United States. On the stop -loss side, as I mentioned, it was
really the fourth quarter where we've had a good y ear, but a poor fourth quarter and I think y ou could think of
about $10 million being related to that portion. And the group morbidity in the US on the LTD side was also weak
and perhaps I'll ask Dan to say a few words about the experience there. But it was weak, but some of that we
expect to recover fairly quickly and some of it will take a little bit of time to work through. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q And then Canada? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A
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Y es, Canada, the amount I would put against that would be about $10 million. And in the grand scheme of things
against the Canadian group business, that's not a large amount, but we do think that we can work through that as
well of ov er 2015. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q Okay . And then for Dan, y ou're looking at putting in price increases associated with this book. January renewals
are a big time here. How long do these take to work through your book? Do y ou have three-year guarantees, one-
y ear guarantees? When should we start seeing improvement here? And then, I mean, what happens if y ou end up
just lapsing all these cases here, as well, so to what extent would you run any kind of expense overruns? ................................................................................................................................................................................................................................
Daniel Richard Fishbein President-US Business A Okay . Sure, let me take those questions. First, we started to re -price the long-term disability block, actually, in late
2013, some initial price increases were put through, there were additional increases in the middle of 2014. And
then we essentially redid the pricing for LTD in September of last y ear. So we've started already to see some
impact from those adjustments. Y ou asked about January 1 business. We are generally satisfied with the increases
that we got, even though the increases are quite substantial, we have achieved or largely achieved the increases on
the business that renewed as well as new sales.
As y ou noted, it does take some time for the impact of that pricing to work its way through the block. Indeed, most
group business, group disability and group life in the US is sold on three y ear rates. So we have to work through
that full cy cle. We would expect 40% to 50% of the block to be fully re -priced by next January 1 .
Y ou also asked about lapses. We are seeing some increase in lapsation, I would call it a moderate increase beyond
where we were. Generally, we're getting the rate increases that we've been looking for, but we've also studied the
quality of the business that we've lapsed versus the business we've kept. And the business lapsing has substantially
higher loss ratios than the business we're keeping. So that actually has a positive tailwind impact on our results
going forward. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q Okay . Thanks for that. And Colm had mentioned that y ou might be able to provide what the morbidity loss was for
US group LTD. He just said it was weak. Do y ou have a number for that in the quarter? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es, so what I've – Tom, what I was referencing is that we would think about $20 million of the morbidity loss was
related to the group LTD and some of that, as I say , is a bit unusual to the quarter, a bit of a heavier incident, some
of it will take a little bit longer, so that should – that piece should come back relatively quickly, but some of it will
be – will take longer to come back. ................................................................................................................................................................................................................................
Tom MacKinnon BMO Capital Markets (Canada) Q Okay . Thanks for that. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Gabriel Dechaine with Canaccord Genuity. Your line is open.
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Gabriel Dechaine Canaccord Genuity Corp. Q Good morning. So firstly , on the mortality reserve charge, that's more like longevity, I'm assuming. This is the
second biggest charge you've taken this y ear. Can y ou even give me some idea of why we're seeing this again? And
is it just y ou're really padding reserves there, your assumption for mortality improvement, is it twice what the
pension fund would use, any thing like that y ou can tell me? ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A Hi, Gabriel, it's Larry Madge here. So, we have talked about this on a couple of occasions, because we wanted to
give – give warning that, that we were intending to make a change that was material this y ear. But we – we
actually didn't put it through until this quarter. So really this is the only mortality improvement charge that we've
taken. And y es, it is on – on our annuity books where we are ensuring that – that we've well provisioned both for
our existing inforce business, but also that as new business comes on that we're confident it's going to meet our –
our profitability targets. Comparing to the pension business, there is going to be a variety of practice through that
industry , but it would be slightly more – more conservative than what y ou would see as the – the standard
pension assumption in the market today. And we're going to continue to review our place. But it's not – it's not
significantly more conservative, but it's slightly more. ................................................................................................................................................................................................................................
Gabriel Dechaine Canaccord Genuity Corp. Q So – but what's the timing of Pad releases on that? Are we really back-end loaded, or do we start to see an uptick
in expected profit in the near term? ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A Well, y es, it will have may be a small impact on expected profit, but this is long-term business. And so, in addition
I should mention that it would have the opposite impact on new business strain to the extent that you didn't
adjust y our pricing for it. So as we look forward, we don't re ally see it hav ing a material impact on next y ear's
earnings. ................................................................................................................................................................................................................................
Gabriel Dechaine Canaccord Genuity Corp. Q Okay . And the group – the US group re-pricing, so y ou've got two factors to consider here, what the competition is
doing and low interest rates. Are low interest rates and the slow investment returns on the investment portfolio, is
that pushing people to chase market share more or is the focus on underwriting a more powerful factor now that
y ou're seeing in the market? ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A We're seeing a hardening market, generally. We're seeing a number of our competitors having some similar
experience and adjusting pricing in the market. And interest rate is one – interest rates – low interest rates are
one of several drivers that are causing some price increases. So we've actually been pleased with the level of
increases that we were able to get this fall for January 1 business. ................................................................................................................................................................................................................................
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Gabriel Dechaine Canaccord Genuity Corp. Q All right. My last one is on expenses. We've had – since y ou started disclosing this every quarter, so 13 quarters of
that experience line and the other notable items has been negative. So just wondering, should I hold my breath in
hopes that at one point we're going to see that go to zero or maybe positive? What's the – like a – given the
environment and may be the onus on offsetting the impact of low rates, are there any cost cutting initiatives going
on at Sun Life that might cause that to swing? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Gabriel, it's Colm here. So, I think there's a couple of things. I mean, clearly the fourth quarter expense
experienced at $58 million is beyond what y ou would expect to see and we would expect to see. And as I
mentioned, there is a number of items that are non-recurring in that, there is a long-term incentive plan accrual in
respect of the Sun Life share performance and that amounts to about $15 million. There is a number of other
items within the corporate segment, including the UK and some Solvency II costs that we wrote off in the quarter.
And then, there is the – some investment management and some seasonal marketing factors that's about $10
million. And then we did have – in the US, we had a commission true-up, which is about $10 million. So that's the
$35 million, just so y ou take that off that $58 million, y ou're back down in the $20 million zone. We have been
investing heavily in ongoing growth initiatives and some of that does appear in the expense – experience line. And
I'll turn the call over to Larry just to comment on that in a moment. But we believe very firmly that the expense
initiatives that we have, the growth initiatives that we have are going to pay off. They are, we believe, paying off,
y ou see that in some of our sales numbers today, very strong sales and they will pay off in the future.
But, of course, we have to manage the expense side very carefully, because if the expenses become intractable and
they are not commensurate with our maintenance costs and required acquisition costs, we do have problems. We
don't think we have a problem at this point, but we are managing it carefully, but maybe Larry y ou could say a
word about the reserving. ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A Y es, I can certainly talk about how expenses show up in the source of earnings. So, for the most part, these
expenses are not maintenance expenses, and that's why – that's why they are not showing up in assumption
changes. They're more growth and distribution related. And if we look at these expenses as being temporary in
nature, then we're willing to – to leave them in the expense gain/loss line and that's – and that's what we've done
in terms of the investments in growth. However, if they look like they 're going to be more persistent beyond two or
three y ears, then we'll move them up either to new business gain if they 're to do with life or annuity sales or we'll
move them up to expected profit if they 're to do with mutual fund sales. So, at this point, we're looking at those
investments in growth as being not persistent beyond the two or three -year point and hence they continue to show
in the expense gain-loss line. ................................................................................................................................................................................................................................
Dean A. Connor President, CEO & Non-Independent Director A And Gabriel, it's Dean. One last comment on expenses, y ou would see that our y ear-over-year growth rate in
controllable expenses has actually been slowing. And as we look ahead into 2015, we see it continuing to slow, in
part because of actions taken by business group leaders. Dan – I referred in my remarks to actions that Dan has
taken in the United States to reduce expenses directly over the past six months and more – and has – has done
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more in this first quarter. And as well, a greater share of the growth initiatives that Colm referred to, we are
funding through productivity gains. So we – as Colm said, we feel pretty good about the path we're on, on
productivity and expenses. ................................................................................................................................................................................................................................
Gabriel Dechaine Canaccord Genuity Corp. Q Well, I mean, the two-to-three y ear time horizon, we've seen two -to-three y ears of expense losses – or experience
losses. I mean, at some point, it's got to go to zero, no? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es, I think Gabriel, just to further comment, I mean, this is the source of earnings v iew. And when y ou
benchmark source of earnings through an expected lens, you do have these variances. But recall that we are
investing organically, growing organically in a number of our markets. And if y ou have an acquisition, it's all
capitalized, if y ou grow organically, you have to spend. So the key is to control the spend and to make sure it's in
line with business cases and required returns and we believe we're achieving that. ................................................................................................................................................................................................................................
Gabriel Dechaine Canaccord Genuity Corp. Q Okay . Thank y ou. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Meny Grauman with Cormark Securities. Your line is open. ................................................................................................................................................................................................................................
Meny Grauman Cormark Securities, Inc. Q Y es. Hi, good morning. Question, really on sort of big picture in Asia, definitely looking strong, particularly on the
sales front. I'm wondering from a macroeconomic point of v iew, in terms of the different countries that y ou're in,
we focus a lot on the volatility and we're very focused on North America, but I'm wondering if there's any sort of
issues in any of y our markets that you would highlight in terms of causing y ou increased stress looking forward, in
terms of the sales outlook and the performance outlook in Asia? ................................................................................................................................................................................................................................
Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A Meny , it's Kevin Strain. I think there is lots of growth available to us in Asia. We're seeing five of our seven
countries were profitable this y ear. We are seeing lots of momentum, as Dean and Colm had mentioned, in the
Philippines and Hong Kong, Malay sia, some momentum building in China, India sort of turning a corner. So I
think broadly, from a macroeconomic environment, there is still lots of GDP growth in the region. The Philippines
is one of the biggest winners of the lower oil prices. We kind of got a balanced economy here with GDP per capita
still growing, middle class still growing and lots of opportunities. So I would say broadly, we remain confident in
the growth. We had a very good fourth quarter, a strong year and we see that momentum continuing into 2015. ................................................................................................................................................................................................................................
Meny Grauman Cormark Securities, Inc. Q Thank y ou. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Peter Routledge with National Bank Financial. Your line is open.
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Peter Routledge National Bank Financial Brokers Q Hello. Thank y ou. MFS questions, sort of some numbers. I'm on page 16 of the sup pack, which is the MFS
financial statement, and then the source of earnings on page 23. The first question, you've got, in US dollars,
expected profit from MFS of $231 million, and then net income before taxes for MFS on the financial statements is
$215 million. Normally, I sort of attribute that difference to the fair value adjustments on share -based payments,
but those were zero this quarter. So I wonder, what's the true -up from $215 million to $231 million? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Peter, it's Colm here. Y es, I'll have to get back to y ou on the specifics of that. There are some differences because
that's a pre-tax line item. And just need to make sure we can track that down for y ou, but there is nothing unusual
there in terms of the quarter. ................................................................................................................................................................................................................................
Peter Routledge National Bank Financial Brokers Q Okay . And then, y ou may have to get back to me on this as well, but y ou've got a non -controlling interest charge in
the source of earnings of $15 million for MFS, and then it's zero in the statement of operations. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es. So, we do an adjustment, because the sources of earnings v iew, we restate that to show the non -controlling
interests, but that's not in the statement of operations, because that's a non-GAAP measure, it's an adjustment we
make because of the long-term share base compensation plan at MFS. ................................................................................................................................................................................................................................
Peter Routledge National Bank Financial Brokers Q Okay . I mean, a final question, I promise. The liability for share-based comp goes from [ph] 878 to 827 (0:43:11).
So I guess I was wondering why did it go down. I mean, there was no adjustment on fair value. There's no fair
value adjustment on share-based payment. So why did it dropped from [ph] 878 to 827 (0:43:28)? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es. So, y ou're quite right. There was no change in the fair market value per share in the quarter. But there were
share repurchases and that's a normal part of the movement in the ownership of the management at MFS.
Sometimes they will exercise and rebalance their position. ................................................................................................................................................................................................................................
Peter Routledge National Bank Financial Brokers Q I guess, why I'm asking is we haven't seen that liability go down, so I'm wondering, should we be worried that the
employees at MFS are putting back shares to Sun Life? Is there something in that that suggests maybe 2015
outlook isn't great? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A
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Well, I'll answer the first part around the movement in that and I'm sure Mike will want to speak to the ownership
comment. But the reason that y ou can't really just look at that movement on its own and make an inference from
it is that it's made up of the fair market growth, as well as the movement in the ownership position. And the fair
market value growth has been substantial in recent periods as a result of the very strong performance at MFS. So
that has been lifting – that has been lifting that balance.
So, Mike, I'm sure y ou might want to comment on ownership. ................................................................................................................................................................................................................................
Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co. A Y es. We certainly want to ensure that key employees at the firm, that would be senior management, key
investment employees, have a significant interest in the firm and we continue to ensure that's true. We continue
through the annual compensation process to hand out long-term compensation to employees. So, we do believe
that employees here are properly aligned with the long-term interest of the firm and the long-term interest of our
clients as well. ................................................................................................................................................................................................................................
Peter Routledge National Bank Financial Brokers Q The – so what I infer from that is, y ou're not seeing unusually high amounts of put -backs this quarter relative to
prior quarters? And what was causing the – why that may not have come through, is that the value of the firm was
going up? That's what I heard from Colm. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es. That's right. I mean, the value of the firm goes up in periods when earnings are increasing, AUM is increasing
and revenues are increasing. And if there is a period when that momentum has slowed, which is the case in the
fourth quarter, then the effect of share repurchases by management is amplified. But in terms of the level of
repurchases and the amount, as Mike say s, that's still reflective of a very strong level of ownership and
commitment by the management team at MFS. ................................................................................................................................................................................................................................
Dean A. Connor President, CEO & Non-Independent Director A And Peter, it's Dean. I'll add one other thing. I think the senior leaders at MFS, I think, have done and continue to
do a terrific job recycling their shares to make sure there is enough shares for the y ounger people comi ng up
through the pipeline, and that's what y ou saw in part in the fourth quarter, as we get ready for this round of stock
grants. ................................................................................................................................................................................................................................
Peter Routledge National Bank Financial Brokers Q Okay . Appreciate that. Thank y ou. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Sumit Malhotra with Scotia Bank. Y our line is open. ................................................................................................................................................................................................................................
Sumit Malhotra Scotia Capital Markets Q
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Thanks. Good morning. My question's around individual insurance in Canada and specifically the pricing
environment. You've obviously had a strong sales trend at the high end of the industry for a couple of y ears now. If
I think about y our sales performance in Canada and tie that in with the guidance that – or with the comment that
strain is likely to move higher, how much capacity do you feel there is for Sun Life to increase pricing in Canada,
and would y ou be willing to do that, given the detrimental effect it may have on the stronger sales performance? ................................................................................................................................................................................................................................
Kevin P. Dougherty President, Sun Life Financial Canada A It's Kevin Dougherty, I'll take that. So in Canada, actually, we have positive strengths. We have a gain, and so
when that rolls up into the enterprise picture, it sort of reduces the overall strain in the company. And Colm was
signaling that there's sort of potentially a little bit less gain in Canada... ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Right. ................................................................................................................................................................................................................................
Kevin P. Dougherty President, Sun Life Financial Canada A ...in our pricing in this environment. I think as we look at current pricing, we have got good IRRs coming in on our
insurance products and don't have any plans to adjust them in particular, but we will continue to monitor it and
monitor the environment. Our sales growth has been related mostly to expansion of distribution, not related to
pricing. So y ou will see, in particular, career sales force, we've had good growth over the last several y ears. We've
got now five y ears of growth in the number of advisors and crossed 3,900 in Q4, en route to 4,000.
On the third-party side, we have seen a y ear-over-year increase in sales of over 30%. And that's really just
momentum with our products and our brand and our wholesalers. And so our sort of key in terms of growing sales
in the indiv idual insurance part of the business has been really more about distribution than pr icing. And we try to
price towards our target IRRs and grow our sales power. ................................................................................................................................................................................................................................
Sumit Malhotra Scotia Capital Markets Q I hear y ou there, Kevin, and I hear y ou on the strain being a positive. If I've got that right, y ou may see the benefit
diminish somewhat, but for now y ou're not contemplating any pricing action? ................................................................................................................................................................................................................................
Kevin P. Dougherty President, Sun Life Financial Canada A Y es, that's – that's exactly right. And I think Colm mentioned especially on the wealth side of the business. What
we've seen on the pay out annuity market, for example, is that some competitors – it's kind of surprising – only
adjust their annuity rates, say, once a month or every six weeks and kind of periodically. And so in a kind of
rapidly declining rate environment, they're down so rt of 90 basis points last y ear and I think 34 basis points in Q4.
Some of them take a while to kind of catch up to what we would perceive as proper pricing. But once markets –
once rates kind of reach a sort of a stable position, they kind of all fall in the line and then our volumes increase,
and we'll see gains that way . So I think that sort of muted our gains in Q4. And so we'll pay attention to that and
work a lot on product mix to try to have as much come though as we can as part our plans for this y ear. ................................................................................................................................................................................................................................
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Sumit Malhotra Scotia Capital Markets Q Thanks for y our time. ................................................................................................................................................................................................................................
Kevin P. Dougherty President, Sun Life Financial Canada A Thanks. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Asim Imran with Macquarie. Y our line is open. ................................................................................................................................................................................................................................
Asim Imran Macquarie Capital Markets Canada Ltd. Q A quick question on Asia. Sun Life has obviously achieved strong growth through both its key distribution
channels. Could y ou just give us some thoughts on the competitive market [ph] for agents and footprints
(0:50:39) you're in, and as well as any comments on potential regulatory and competitive issues when it comes to
growing the bank assurance network in Asia? ................................................................................................................................................................................................................................
Kevin P. Dougherty President, Sun Life Financial Canada A Okay , that's a broad question. I'll – it's Kevin again and I'll try to address it in parts. On the agency side, we've
seen very strong growth, in particular, in the Philippines, in Hong Kong over the last y ear, and in Indonesia. And
we've hit record sales in all three of those markets this year. And in Hong Kong, it was past 2006 was the last time
we had hit the levels we did this y ear. And in Indonesia was 2007 and we're seeing both the size of the agency and
also the productivity of the agency growing. And we've been taking pretty much a sty le of try ing to become – we're
calling it the most respected agents. So we're focusing on quality of the agents and the productivity of the agents as
we build it out. And we see lots of growth potential still in those three markets for agency.
In India, agency has gone through a lot of change and a lot of regulatory change. And again, the management team
there is focusing on quality. We're seeing the number of high quality agents growing quite rapidly in spite of that.
And I think we'll see agency turning corner this y ear in India. And in Vietnam, we're fairly new on the agency
front. And in China, it's a smaller piece. So I think in the big four markets for agency, we see lots of opportunity for
growth, in particular, I think Philippines, Hong Kong and Indonesia [ph] wil l certainly grow agency (0:52:17).
For bank assurance, also lots of opportunity on the bank assurance side. Our Malay sian business that we entered
in 2013 has been ahead of our business case, had really strong growth last year and very profitable growth. The
bank assurance in China is growing quite strongly. And our bank assurance operations in the Philippines and
Indonesia for various reasons were a bit slower in 2014. But we see that picking up in 2015.
So, I would say that on agency, broadly across the region, we expect to continue to see strong growth in number
and productivity and a real focus on quality. And on the bank assurance side, lots of opportunity, lots of focus on
things like digital and data analy tics and building out multiple level distribution. We distribute to banks in
multiple way s, from specialists to telemarketing, to online. And I think we'll continue to see that grow as well. ................................................................................................................................................................................................................................
Asim Imran Macquarie Capital Markets Canada Ltd. Q Great. Thank y ou.
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Dean A. Connor President, CEO & Non-Independent Director A I should add, for those of y ou wondering about the background noise, this is Kevin dialing in, I think, at mid -night
from an airport in Asia, so we apologize for that noise. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Mario Mendonca with TD Securities. Your line is open. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q Good morning. Larry, could y ou help me think through the accounting and reserving in US Group Benefits? So
these experience losses came through. And I understand that the reserving accounting is different from a more
traditional insurance business. And what I'm getting with this is, is there any mechanism that would allow you to
book reserves – increased reserves in that business now to cope with the higher experience losses going forward,
or is that not how that business is accounted for? ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A Y es. Generally speaking, in the group insurance business, it's primarily a cash business, so this month's premium
covers this month's new claims, expenses and profits. And when that's not true, then we have an opportunity to
re-price that at the next renewal. And so, as y ou mentioned, that means we don't tend to hold reserves for future
incidents, because the future premiums will cover those. And if not, then we get into the renewal side. So we do
hold reserves, of course, but they're for past claims, both reported and unreported, and that's not where our
problem has been, so it really hasn't been a reserving problem, it's – or solution, it's a pricing solution. And Dan
talked about how we're going to deal with that going forward.
So, that's where we're at. We do test to make sure that there isn't a premium deficiency reserve in the sense that –
that we wouldn't need to hold some additional reserve over and above the normal – the normal way that we
manage the business. But I talked about the way we manage the business, which is more or less on a cash basis for
future incidents. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q So that would mean that on a – from a sources of earnings perspective, the claims would be netted against the
premiums and it would be – that would all appear in expected profit? ................................................................................................................................................................................................................................
Larry Madge Senior Vice President & Chief Actuary A Y es. And to the extent that you then don't get y our e xpected profit, then that's where you get the morbidity loss. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q I understand. Okay . So that makes sense to me. And y our second point was an important one, so you don't see any
premium deficiency right now? ................................................................................................................................................................................................................................
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Larry Madge Senior Vice President & Chief Actuary A That's right. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q So, sort of a different – somewhat different question then, and maybe for Dan. How does something like this play
out? And what I mean by this is, if y ou can just go back three, maybe four years, when Sun Life – there was an
important call where Sun Life made a point of say ing – or the company's going to grow aggressively in US Group
Benefits, and we saw very strong growth in several lines. And now several y ears later, we're seeing that, in fact,
there may be some issues here. So how does something like this happen? Is it just the case of mispricing or just
pushing too aggressively in this market, or did something else change? ................................................................................................................................................................................................................................
Daniel Richard Fishbein President-US Business A Y es, I think y ou're hitting it right. There was – it was definitely a push to grow aggressively in the market. And I
think now if y ou look back with [ph] 2020 (0:57:05) hindsight, that there was aggressive pricing that was
supporting that and probably more aggressive than it should have been. So now, we're taking action to adjust for
that. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q And Dan, is it fair to say that y ou weren't there for that, like – y ou're new on the scene? ................................................................................................................................................................................................................................
Daniel Richard Fishbein President-US Business A Y es. I got here last March. ................................................................................................................................................................................................................................
Mario C. Mendonca TD Securities Q Understood. Thank y ou. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Doug Y oung with Desjardins Capital Markets. Your line is open.
Again, Doug Y oung? ................................................................................................................................................................................................................................
Doug Young Desjardins Securities, Inc. Q Y es, sorry. Most of my questions have been asked. But just one question on MFS, going back to, obviously, the
institutional flows is where you've been in net redemption. Just wondering if y ou can quantify, was there any
redemption noise or rebalancing that happened in that business this quarter that we should be thinking about?
And I know it's mostly a gross sales item, so on that kind of point, when should we expect the initiative to turn
around institutional flows, i.e., around kind of those new products that you're launching, when should we start
seeing rubber hit the road and start seeing sales flow into that? ................................................................................................................................................................................................................................
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Michael William Roberge President & Chief Investment Officer, Massachusetts Financial Services Co. A Y es, this is Mike. Y es, if y ou look at net flows y ear-over-year, most of the delta and the reduction in flows was in
the institutional business. On the gross sales side, much of that was due to actions that we have taken, given the
significant growth we've had over the last five y ears in our non-US global business. So we've a closed a variety of
strategies to protect clients from a performance perspective. And that clearly had an impact on gross sales. From a
net perspective, there are a couple of things that are impacting net, and these are actually industry factors. The
first would be de-risking, we continue to see – particularly as equity markets continue to perform well, we see
clients around the world, DB clients selling equities and moving into fixed income as th ey de-risk.
The second factor, I think, playing into the net for the industry, which has impacted us as well, is 2014 was
another tough year for active management relative to passive, less than 20% of active managers outperformed the
benchmark. So we are seeing clients – even where we've had good performance, we're seeing clients generally at
an accelerated rate moving money out of active management into passive. And so those two things are impacting
the net part of the business.
So, what are some of the things that we can then do to move the needle on the gross? As y ou mentioned, the first
is, we've built out a suite of blended research products which go at the enhanced index business, which allows us
to compete in that passive to quasi-passive space. So that suite of products is out there. We're actively talking to
clients. We have been winning business in that suite of products and we're hopeful that we'll see an acceleration in
that suite.
The second suite of products which we are building out as our g lobal fixed income solutions for clients, that one
has got a little longer tail on it in that it is both a build-out of team, but also a build-out of product in terms of
globalizing our product set. We're in the works on that. Again, we're engaged with cli ents on part of that platform.
I think we will be – we are a couple of y ears away from, I think, where the entire platform is up and we think that
we can go to any client around the world and position any global – or a global product that will work for any of
those clients. So, one of those, we're currently talking to clients about, the other one is in transition, will be fully
up to speed over the next 18 months to 24 months. ................................................................................................................................................................................................................................
Doug Young Desjardins Securities, Inc. Q Great. Thank y ou very much. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Darko Mihelic with RBC Capital Markets. Y our line is open. ................................................................................................................................................................................................................................
Darko Mihelic RBC Dominion Securities, Inc. Q Hi, thank y ou. Just a question for Colm and may be even for Dean, I'm not sure. But on slide four, one of the things
that interested me was y our expected profit. You talk about the annual results of expected profit being up 15%. But
when I look at it, the vast majority of that came from MFS. So within the context of low rates, can y ou speak to
what y our expectations would be for expected profit growth in 2015? And I understand that you could talk in wide
ranges here, but any help on the emergence of the raise of Pads in y our insurance businesses, rather than MFS,
would be helpful here, especially in the context, again, of this low rate environment. ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A
Sun Life Financial, Inc. (SLF) Q4 2014 Earnings Call
Corrected Transcript 12-Feb-2015
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23 Copyright © 2001-2015 FactSet CallStreet, LLC
Y es. Well, Darko, I mean, I think clearly you're seeing strong growth in expected profit in Asia and we expect that
to continue. And Canada has had go od growth in expected profit on the group businesses and both Group
Retirement Services and Group Benefits. The seg funds piece, however, has been a bit of a headwind in Canada, so
that's countering that.
On the US side, we've talked on the call about the impact of the claims exceeding the – and the claims and the
premium challenge that we have and that's been a headwind for us, and that's brought us down. So, when y ou
exclude MFS, which I think is entirely reasonable to do as we think about expected profi t, it is – it's really coming
from Asia, Canada and we think that the US, as it turns around, will also at least stabilize and not be a headwind.
It's a good topic for our investor call, which will – our Investor Day , which we'll be having in early March. And I'm
sure, we'll be speaking more about that at that point. ................................................................................................................................................................................................................................
Darko Mihelic RBC Dominion Securities, Inc. Q Okay . Thank y ou. ................................................................................................................................................................................................................................
Operator: Y our next question comes from Robert Sedran with CIBC. Y our line is open. ................................................................................................................................................................................................................................
Robert Sedran CIBC World Markets, Inc. Q Hi, thanks for squeezing it in. Just a quick follow-up on the mortality experience in the quarter, I think I
understand that this has nothing to do with the mortality reserve build, or at least it's not in the same business
line as the mortality reserve build. Can y ou just confirm that it is just a one-off negative experience in the quarter
and not part of something more systemic? ................................................................................................................................................................................................................................
Colm J. Freyne Chief Financial Officer & Executive Vice President A Y es, it's Colm here. So absolutely, this is what we would consider to be in the normal fluctuation range, it has
absolutely nothing to do with the mortality improvement charge that we took. It's spread across a number of
businesses, Canada and the US. But within the US, it's spread across group and the infor ce business, and also a
little bit in the international life business. So, put it down to the normal fluctuations, y ou see a mortality. ................................................................................................................................................................................................................................
Robert Sedran CIBC World Markets, Inc. Q Okay . That's it from me. Thank y ou. ................................................................................................................................................................................................................................
Operator: There are no further questions at this time. I turn the call back over to the presenters. ................................................................................................................................................................................................................................
Gregory A. Dilworth Vice-President, Investor Relations, Sun Life Financial, Inc.
Thanks, Anastasia. I would like to thank all of our participants today. And if there are any other additional
questions, we will be available after the call. Should y ou wish to listen to the rebroadcast, it will be available on our
website later this afternoon. Before ending today's call, I would like to remind members of our investment
community of our upcoming Investor Day on March 5, 2015 featuring presentations from Dean Connor, President
and Chief Executive Officer and other members of Sun Life Financial's Executive team. Thank y ou, and have a
good day .
Sun Life Financial, Inc. (SLF) Q4 2014 Earnings Call
Corrected Transcript 12-Feb-2015
1-877-FACTSET www.callstreet.com
24 Copyright © 2001-2015 FactSet CallStreet, LLC
Operator: This concludes today's conference c all, y ou may now disconnect.
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