Ultimate Parent: Sun Life Financial Inc
SUN LIFE ASSURANCE COMPANY OF CANADA
150 King Street West
Toronto, ON, Canada M5H 1J9
Tel.: 416-979-9966 AMB#: 007101
Ultimate Parent#: 050913 AIIN#: AA-1561039
Data shown in the financial exhibits of this report is in Canadian dollars. BEST’S CREDIT RATING
Best’s Financial Strength Rating: A+ Outlook: Stable Best’s Financial Size Category: XV
The following text is derived from A.M. Best’s consolidated Credit Report on Sun Life Assurance Company of Canada (AMB# 067413).
Rating Rationale:The rating of Sun Life Assurance Company of Canada (SLA) reflects the company’s market-leading positions in its core Canadian markets, its targeted market focus in the U.S. and its continued expansion in Asia; strong risk-adjusted capitalization and regulatory required capital position; improved operating results from continuing operations; integrated enterprise risk management process and globally diversified operations. The rating also considers recent actions management has taken to reduce the volatility of SLA’s results and free up resources for new growth opportunities. Partially offsetting these strengths is the company’s sizeable exposure to real
estate-linked assets through its investments in commercial mortgage loans, direct real estate and residential and commercial mortgage-backed securities, which could pose continuing risk to its balance sheet and risk-adjusted capitalization as well as increasing competition in the company’s core markets.
SLA maintains a leading market position in several of its worldwide business units through its wealth management and protection businesses. In Canada, SLA holds leading market positions in the individual life and health, group retirement and group benefits markets. The company’s retail market position in Canada is enhanced by its large career sales force, which has contributed to the company’s sales growth and excellent persistency in recent years. SLA benefits from a diversified revenue stream from multiple regions, profitable operations in Canada and favorable risk-adjusted capitalization; the regulatory capital ratio in Canada is considered to be strong. The company also maintains an expanding wealth management segment and life insurance operation in Asia, where marketing recently commenced in Vietnam and Malaysia. The company also benefits from a highly integrated risk management framework to assist in managing, categorizing and monitoring risk exposures globally. Additionally, SLA has reduced the volatility in its results by selling the U.S. annuity business and de-emphasizing universal life and segregated fund sales in Canada. Going forward, Sun Life’s U.S. operations will focus on group insurance, voluntary benefits and wealth management along with retail and institutional asset management through Massachusetts Financial Services Company (MFS). As a result, A.M. Best believes SLA’s target U.S. risk-adjusted capital levels will remain more than adequate going forward with the volatility from the VA business eliminated.
While SLA’s re-positioned U.S. operations’ focus is on markets and businesses that lack sensitivity to interest rates and equity market fluctuations, significant competition remains from established players in these markets as well as in Canada and Asia. As the organization continues to realign its new core business strategies, SLA’s results could remain subject to new business strain and lower investment income. Additionally, the company retains exposure to real estate-linked assets through its investments in
SUN LIFE ASSURANCE COMPANY OF CANADA
Toronto, Ontario, Canada
mortgage-backed securities and may be subject to significant losses should real estate market fundamentals deteriorate. A.M. Best notes that a large portion of SLA’s real estate portfolio is underwritten in Canada, where it typically performs better than similar investments in the United States. While reducing volatility, the sale of the U.S. annuity and certain life businesses will reduce overall revenue and earnings diversification, making SLA more dependent on cash flows from its Canadian, MFS and growing Asian business segments.
Given the stable outlook on SLA’s rating, A.M. Best believes that a positive rating action is unlikely in the near term. Negative rating pressure could occur should operating performance or capital levels substantially deteriorate, if investment and earnings performance fall below A.M. Best’s expectations relative to SLA’s current rating or the execution of the company’s re-focused strategy fails to meet management’s expectations.
FIVE YEAR RATING HISTORY
Date Best’s FSR Date Best’s FSR 05/01/14 A+ 11/28/11 A+ 06/28/13 A+ 10/26/11 A+ u 04/11/12 A+ 10/27/10 A+
KEY FINANCIAL INDICATORS ($000)
Year Assets Capital & Equity AOCI Net Premiums Written Net Invest Income Net Income 2009 73,419,938 10,512,067 -1,467,429 9,494,829 4,711,644 723,528 2010 75,789,831 11,118,689 -1,606,706 9,870,669 5,108,617 1,580,350 2011 146,114,914 10,746,396 133,805 6,112,127 6,554,174 868,583 2012 154,620,990 11,731,285 181,813 5,675,482 4,375,854 1,351,858 2013 166,055,847 12,841,071 430,491 2,973,790 393,290 1,264,436
(*) Beginning year end 2011, Total Assets and Total Liabilities are presented on a gross basis and include Segregated Accounts.
(*) Beginning 2011, Canadian insurers began reporting under International Financial Reporting Standards (IFRS). Data items prior to 2011 are stated under Canadian GAAP, as originally filed with A.M. Best. As a result, prior period may not be comparable.
Balances in the tables shown throughout the report are on a non-consolidated basis for Sun Life Assurance Company of Canada.
The Key Financial Indicators are based upon calculation derived from the non-consolidated financial segments of the Life-1 Annual Return.
Sun Life Assurance Company of Canada (SLA) is the Canadian insurance company and lead insurance company for Sun Life Financial Inc. (SLF).
The following text is derived from A.M. Best’s consolidated Credit Report on Sun Life Assurance Company of Canada (AMB# 067413).
The key life insurance subsidiary of SLF is SLA. SLA owns Sun Life and Health Insurance Company US (SLHIC), which markets group life and A&H products. With the sale of Sun Life Assurance Company of Canada (U.S.) (SLUS) and Sun Life Insurance and Annuity Company of New York (SLNY) in August 2013, SLHIC became the U.S. marketing arm in the State of New York.
SLF executed a definitive agreement with Guggenheim Partners in December 2012, to sell Sun Life’s domestic U.S. annuities business and certain life insurance businesses. The transaction consisted primarily of the sale of 100% of the shares of SLUY, which includes the U.S. domestic variable annuity, fixed annuity and fixed indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products, as well as its wholly owned subsidiary, SLNY. This transaction, which was completed in August 2013, included the transfer of certain related operating assets, systems and employees that support these businesses. Going forward, group and voluntary benefits insurance products will continue to be sold through SLA’s US branch (SLF U.S.) in 49 states, the District of Columbia, Puerto Rico and the US Virgin Islands. SLHIC is licensed in New York, and will write all group and voluntary benefits insurance products in that state, as well as assume this business that had been written by SLNY.
SLA maintains a market leading position in Canada with a customer base representing about one in five Canadians. SLA’s business segments, consisting of Individual Insurance & Investments, Group Benefits and Group Wealth, offer a full range of protection and wealth accumulation products and services to individuals and corporate clients. SLA also has investments in the Canadian asset management sector.
SLA’s Group Benefit (GB) business unit is a leading provider (#1 in business in-force) of group life and health insurance products in Canada. GB provides life, dental, drug, extended health care, disability and critical illness benefits programs to employers of all sizes. In addition, voluntary benefits are offered directly to individual plan members, including post-employment life and health plans to members exiting their plan. Products are marketed and distributed across Canada by sales representatives in collaboration with independent advisors, benefits consultants and the Sun Life Financial Career Sales Force
SLA’s Canadian Individual Insurance and Investments business comprises permanent life, participating life, term life, universal life, critical illness, long-term care and personal health insurance, as well as savings and retirement products, including mutual funds, segregated funds, accumulation annuities, guaranteed investment certificates and payout annuities. Individual insurance and investments retained its first place position in the fixed annuities market in 2013 increasing market share to 32% and maintaining a first place position with 46% market share in payout annuity sales, both as measured by LIMRA.
In September 2012, recognizing of the continuing low interest rates, SLA implemented new cost of insurance rates, which decreased the minimum interest rate guarantees. In addition, SLA closed off new Guaranteed Minimum Withdrawal Benefit segregated fund sales in third-party channels, re-priced of universal life and critical illness insurance products, and the launched Sunflex Retirement Income, a new payout annuity product. Sales of this product increased in 2013 driven by demand for lifetime income after retirement.
While each of its business units remain focused on their respective markets, SLA recognizes the opportunity to serve its clients through the combination of some aspects of these businesses. This has led to the formation of SLA’s Total Benefits offering for group clients and customer solutions, which addresses the needs of individual and group clients as they do business with the company through the exclusive Sun Life Financial Career Sales Force (CSF). The CRS provides solutions to members at the worksite while they are enrolling in group plans and through ongoing services at important life events including transition guidance for members changing jobs or retiring. At year-end 2013, SLA Canada had general fund assets of $64.5 billion and segregated fund of $60.1 billion.
SLF U.S. focuses on the delivery of protection through its Employee Benefits Group (EBG). The EBG business unit offers group life insurance, short-term and long-term disability insurance, dental insurance and medical stop-loss insurance for employers. In 2013 EBG expanded its product suite and released two group voluntary accident insurance plans that provide protection for customers who are injured in a variety of covered accidents. EBG also launched a stop-loss cancer insurance offering that provides an enhanced benefit to self-insured employers. SLF U.S.’s group insurance business has historically been focused on small and medium-sized companies. The group products are marketed and distributed through an extensive network of 30K independent brokers and benefit consultants in approximately thirty-four regional sales offices across the U.S. and approximately 200 employee sales representatives. During 2007, SLF enhanced its U.S. group business platform when it acquired Genworth Financial, Inc.’s U.S. Employee Benefits Group. This acquisition was strategic in nature and bolstered Sun Life’s position in the U.S. market making them a top ten marketer in the U.S. employee benefits industry. In 2012, SLF U.S. transferred US$6.5 billion of variable annuity assets to MFS. This transaction provided policyholders with reduced fees and high-quality asset management services, while SLF U.S. benefited from lower operating costs and a related reduction in insurance contract liabilities. Going forward, Sun Life is looking to reallocate resources toward its highest growth and less capital-intensive segments, with its new focus on the employee benefits and voluntary insurance markets. SLF U.S. announced a significant investment in its voluntary capabilities over the next five years to expand its market presence in the employee voluntary benefits market in an effort to provide protection solutions to more U.S. workers.
SLA’s Group Wealth included ownership of McLean Budden Limited (McLean Budden), a provider of investment management services for individuals, mutual funds, pension plans, and corporations. In 2011 all shares of McLean Budden were transferred to MFS and in 2012, McLean Budden was renamed MFS McLean Budden Limited (MFS McLean Budden) and its private wealth management business was sold. The Wealth Management business includes group pension and annuity products offered through its group retirement services business unit, mutual funds, asset management services primarily conducted through MFS McLean Budden and individual annuities. Product and service distribution is through a multi-channel distribution network of pension consultants, advisors and with teams dedicated to the rollover sector and defined benefit solutions market. MFS McLean Budden was renamed MFS Investment Management Canada Limited in November 2013. In May 2010, SLF added to its wealth management capabilities through the establishment of a proprietary mutual fund company Sun Life Global Investments (Canada) Inc. (SLGI) which offers a proprietary family of funds to be marketed primarily to Canadian Retail Investors. SLGI is an extension of the wealth management capabilities currently recognized in its U.S. mutual fund company, MFS. During 2013 SLGI’s sales reached more than $1.7 billion, client managed AUM grew to $7.2 billion. In addition, during 2013 eight of the original (12) long-term mutual funds passed their three year anniversary and ranked above the median, with four mutual funds are ranked in the top quartile for their respective categories (as measured by Morningstar Research). Sun Life MFS Global Value, Sun Life MFS International Value and Sun Life MFS Global Total Return were rated five stars by Morningstar and delivered top ten performance in each of their respective categories. In addition, SLGI acquired the mutual fund business of MFS McLean Budden in 2012 and launched the Granite Managed Portfolios, which are five internally managed portfolios that offer a multi-manager approach with broad diversification and active management.
MFS, headquartered in Boston, MA, is a global investment management company, acquired by Sun Life in 1982. Additional offices are located in Hong Kong, London, Mexico City, Sao Paulo, Singapore, Sydney, Tokyo and Toronto and offer products and services that address the varying needs of retail and institutional investors over time. Retail investors have access to MFS’ advisory services through a broad selection of financial products including mutual funds, variable annuities, separate accounts, college and retirement savings plans, and offshore investment products. These products are distributed through financial intermediaries that provide sales support, product administration and client services. MFS provides asset management services to institutional clients for corporate retirement plans, separate accounts, public or government funds and insurance company assets. Institutional clients are serviced through a direct sales force and a network of independent consultants. MFS’ strategy has expanded in recent years to include institutional product sales. Over the last few years, MFS has initiated several institutionally focused investment products, designed to better meet the market diversification of investment performance linked to an index and investment performance based on the management of investment vehicles. In 2012 SLF U.S. transferred US$6.5 billion of variable annuity assets to MFS. MFS launched low-volatility mutual funds for its U.S. retail investors during the fourth quarter of 2013, further enhancing its product lines for investment solutions that help conservative investors to access the equity markets. MFS is expected to continue adding intellectual capital to support the increased product offerings and wholesalers to expand distribution capabilities geographically. At year-end 2013, the company’s ownership interest in MFS was 91.19%, with the remainder owned by MFS’ employees. As of year-end 2013, MFS had assets under management (AUM) of US$413 billion, up from US$323 billion at the end of 2012. MFS’ retail fund performance remains strong with 92% of fund assets ranked in the top half of their respective Lipper categories based on three-year performance. MFS maintained in assets under management with roughly 1,700 employees worldwide.
SLF Asia operates in seven markets, through subsidiaries in the Philippines, Hong Kong and Indonesia and through joint ventures (JV) with local partners in India, China, Indonesia, Vietnam and Malaysia, serving about 70% of the Asian population. It provides individual life insurance products and services in all operations, and savings, retirement and pension products and services in India, the Philippines and Hong Kong. Group insurance is also offered in India, the Philippines, Hong Kong and China. These protection and wealth management products are distributed to middle- and upper-income individuals, employer/employee groups and affinity clients. SLF Asia’s parent is SLA. With regional headquarters located in Hong Kong, the group consists
operating entities in Hong Kong, three operations in Indonesia, including CIMB JV, three operating entities in India with two JVs at 26% and 49% ownership and, lastly, a 24.99% JV in China. In May 2012, SLA entered into an agreement with PVI Holdings to form PVI Sun Life Insurance Company Limited in Vietnam, a joint venture life insurance company. PVI Sun Life Insurance Company Limited received its license to operate from the Ministry of Finance of Vietnam in January 2013. In April 2013 SLF entered in to a joint venture with Khazanah Nasional Berhad, the Government of Malaysia’s strategic investment fund, and CIMB Bank in an exclusive 20 year bancassurance to distribute life & takaful business across Malaysia. The two Malaysian JVs were rebranded Sun Life Malaysia in third quarter 2013 and have 425 employees.
SLF Asia’s focus is to increase scale in the markets it serves, developing into a significant growth segment in terms of revenue and earnings. As such, SLF Asia has increased its speed to market capabilities for new products and developing distribution channels, such as bancassurance and telemarketing while it leverages the company’s existing asset management capability. The local initiatives are expected to bolster the leveraging of SLF’s global resources to bring industry-leading products and services to Asia.
Philippines — SLF’s Philippine operations distribute a diverse range of protection and savings products largely through their proprietary career agent sales force. The Business Group offers traditional and unit-linked individual life insurance products as well as mutual funds to individuals, while group life and health insurance products are marketed to employer groups. The Philippines are SLF’s most mature Asian operation (established in 1895) where it has become the #1 life insurer in the country. According to figures released by the Philippines Insurance Commission, the company was the top-ranked life insurer in 2011 as measured by total premium income. Its market position is enhanced with broadened product offerings and customer service capabilities. SLF undertook organizational realignment initiatives and reinforced its customer-oriented focus while actively pursuing strategic alternatives to sell bancassurance products in the country. In addition to their wholly owned life insurance and asset management subsidiaries, SLF maintains a joint venture with the Yuchengco Group, Sun Life Grepa Financial, Inc., in which SLF has a 49% ownership stake.
Hong Kong — SLF’s Hong Kong operation offers a complete range of products to address protection and savings needs. Individual life insurance, group life and health insurance, mandatory provident funds (the government legislated pension plan) and pension administration are supplied to individuals and businesses through a multi-channel distribution system that includes a career agency force, telemarketing, independent financial advisors, bancassurance and brokers. SLF’s success in the Hong Kong market is mainly attributable to its entry into the bancassurance market. The company established a bancassurance relationship with Hong Kong based CITIC Bank International. The bank partner focuses on high-end customers with strong customer service, consistent with SLF’s own marketing strategy. In addition, SLF acquired CMG Asia in 2005, increasing SLF’s share of the individual life market in Hong Kong. Recently, sales from independent financial advisors have contributed significantly to individual life sales.
India — Birla Sun Life Insurance Company Limited (BSLIC), SLF’s insurance joint venture in India, provides a full array of individual life insurance, group life insurance and group savings products. The company markets these products through a multi-channel distribution network, including a career agent sales force, bancassurance arrangements, brokers and worksite marketing, to reach different segments of the market. Diversified distribution network consists of almost over 600 branches, over 100,000 advisors complemented by 5 bancassurance partners. Birla Sun Life Asset Management Company Limited, the company’s asset management joint venture in India, offers a full array of mutual fund products to individuals and institutional investors. Independent financial advisors and banks deliver Birla Sun Life mutual funds to the retail sector, while direct distribution serves corporate accounts. Recent regulatory changes in India’s insurance industry have adversely impacted individual life insurance sales.
China — Sun Life Everbright, SLF’s joint venture in China, operates a multi-distribution model that combines a direct career agency and several bancassurance alliances to sell individual life and health insurance and savings products. On July 20, 2010, Sun Life Everbright Life Insurance Company Limited (SLEB) was restructured as a domestic insurance company. Under the restructuring of the joint venture with China Everbright Group Company, additional strategic investors were introduced, which reduced ownership in SLEB from 50% to 24.99%. SLF will continue to provide its international
The restructuring as a domestic insurer should help drive expansion and further strengthen its position in China’s financial services market. SLEB currently operates in 15 provinces (80 cities) with 128 branches and sales offices that reach 60% of the population. SLF will also be well represented on SLEB’s board of directors and recommend a candidate for the company’s chief actuary, the primary architect of product development, pricing and related responsibilities. The repositioning of SLEB as a domestic insurer in the market should also provide additional avenues of growth in China’s financial services market and enable the company to fully leverage China Everbright Bank’s broad distribution capabilities. Group life and health insurance, along with pension products, are provided to employer groups through brokers, agents and the China Everbright Group Limited, the Company’s joint venture partner.
Sun Life Indonesia — SLF Asia’s Indonesian operations provide both traditional and investment linked individual life insurance to individuals through a career agent sales force with more than 7,100 advisors and bancassurance partners. Life insurance products are also marketed to affinity groups via telemarketing. CIMB Niaga Bank is one of the largest banks in Indonesia, with over 600 branches and three million customers. SLF maintains a joint venture with PT Bank CIMB Niaga, in which they have a 49% ownership stake. Since its inception during the summer of 2009, the segment has reported favorable sales through its in-branch and telemarketing channels. Individual life and health insurance, as well as creditor life insurance is also marketed through a wholly-owned subsidiary, PT Sun Life Financial Indonesia. In December 2010, a Shariah unit was launched. The objective for Shariah business is to contribute 25% of sale by 2015 as Shariah distribution and product suite are built.
The Corporate segment includes the results of SLF U.K and Corporate Support operations that consist of the company’s run-off reinsurance business as well as investment income, expenses, capital and other items not allocated to SLF’s other business segments. Since 2008, SLF began consolidating the results of SLF Reinsurance into Corporate Support as reinsurance business is a closed block that consists of reinsurance assumed from other insurers with coverage of individual disability income, long-term care, group long-term disability and personal accident and medical coverage, as well as guaranteed minimum income and death benefit coverage.
TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS
Reinsurance Period ————DPW———— ——Prem Assumed—— Ending ($000) (% Chg) ($000) (% Chg) 2009 11,075,457 11.6 1,364,775 -75.7 2010 11,374,088 2.7 1,213,582 -11.1 2011 11,330,092 -0.4 1,206,491 -0.6 2012 11,728,791 3.5 528,464 -56.2 2013 13,199,899 12.5 -792,246 -99.9 5-Yr CAGR … 5.9 … -99.9 Reinsurance
Period ———Prem Ceded——— ———NPW——— Ending ($000) (% Chg) ($000) (% Chg) 2009 2,945,461 13.9 9,494,829 -26.7 2010 2,717,059 -7.8 9,870,669 4.0 2011 6,424,456 136.4 6,112,127 -38.1 2012 6,581,773 2.4 5,675,482 -7.1 2013 9,433,863 43.3 2,973,790 -47.6 5-Yr CAGR … 29.5 … -25.5
Territory: The company is licensed in all provinces and territories. It is also licensed in the United States in the District of Columbia, Puerto Rico, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY. The company is also licensed in the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Vietnam and Bermuda. Sun Life is also an accredited reinsurer in the state of New York
2013 BY-LINE BUSINESS ($000) ——DPW—— Reinsurance —Prem Assumed— Product Line ($000) (%) ($000) (%) Individual life 2,419,637 18.3 … … Group life 937,503 7.1 380 0.0 Individual annuities 801,648 6.1 42,853 -5.4 Group annuities 1,310,125 9.9 … … Individual A&S 305,788 2.3 … … Group A&S 3,461,448 26.2 … … Non-Canadian 3,963,750 30.0 -835,479 105.5 Total 13,199,899 100.0 -792,246 100.0 Reinsurance ——Prem Ceded—— ——NPW—— Product Line ($000) (%) ($000) (%) Individual life 806,810 8.6 1,612,827 54.2 Group life 937,883 9.9 … … Individual annuities 481,737 5.1 362,764 12.2 Group annuities 866,681 9.2 443,444 14.9 Individual A&S 63,085 0.7 242,703 8.2 Group A&S 3,460,888 36.7 560 0.0 Non-Canadian 2,816,779 29.9 311,492 10.5 Total 9,433,863 100.0 2,973,790 100.0 BY-LINE RESERVES ($000) Product Line 2013 2012 2011 2010 2009 Individual life 5,998,533 5,966,001 5,430,303 4,647,135 3,710,953 Group life 1,147,777 1,252,434 1,297,787 1,219,787 1,239,995 Individual annuities 8,504,979 9,253,365 9,387,977 9,298,784 9,240,337 Group annuities 8,158,295 7,740,032 7,160,307 6,541,688 6,467,899 Individual A&S 570,871 769,785 548,857 311,092 256,376 Group A&S 6,949,122 6,971,543 6,811,034 6,241,861 5,883,585 Other 17,901,684 17,531,170 16,907,143 15,900,174 14,874,857 Total 49,231,261 49,484,330 47,543,408 44,160,521 41,674,002
LIFE POLICIES STATISTICS
—Individual Policies— —Group Certificates— Year Issued In Force Issued In Force 2009 136,241 2,953,605 1,230,600 8,982,029 2010 121,277 2,928,278 1,428,401 7,294,610 2011 104,909 2,894,764 6,040,500 7,380,008 2012 115,575 2,872,614 6,003,700 7,376,412 2013 120,879 2,852,439 5,521,566 6,948,476
LIFE INSURANCE IN FORCE ($000)
Year Individual Life Insurance Group Total Insurance In Force 2009 159,843,592 494,384,507 654,228,099 2010 131,990,586 460,715,543 592,706,129 2011 127,262,189 481,786,328 609,048,517 2012 132,988,694 477,576,280 610,564,974 2013 160,468,562 509,511,680 669,980,242
NEW LIFE BUSINESS ISSUED ($000)
Year Individual Life Insurance Group Total Insurance Issued Non-Par (%) Par (%) 2009 8,342,106 58,653,573 66,995,679 100.0 … 2010 5,872,926 43,362,343 49,235,269 100.0 … 2011 8,590,996 53,108,374 61,699,370 100.0 0.0 2012 10,491,765 56,214,661 66,706,426 97.2 2.8 2013 9,768,024 77,646,298 87,414,322 99.2 0.8
GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000)
2013 2012 2011 2010 2009 Ontario 4,113,255 3,971,306 4,178,711 3,700,576 3,556,529 Out of Canada 3,963,750 3,159,342 2,903,034 3,581,384 3,288,508 Quebec 1,792,673 1,458,317 1,422,070 1,364,320 1,409,814 Alberta 1,209,105 1,079,418 1,008,794 951,656 928,285 British Columbia 982,102 1,087,016 878,463 860,868 840,345 Saskatchewan 276,842 209,401 198,334 176,897 165,917 Nova Scotia 213,579 208,783 196,526 190,129 184,907 Manitoba 177,614 163,153 157,138 155,145 153,524 Newfoundland and Labrador 173,561 131,625 123,007 118,901 117,415 New Brunswick 156,353 148,210 155,609 141,157 270,222 All Other 141,065 112,220 108,406 133,055 159,991 Total 13,199,899 11,728,791 11,330,092 11,374,088 11,075,457
The following text is derived from A.M. Best’s consolidated Credit Report on Sun Life Assurance Company of Canada (AMB# 067413).
SLF maintains a strong risk management framework that emanates from the Board of Directors and is reflected throughout the management and employees. This framework highlights five major categories of risk; credit risk, market risk, insurance risk, operational risk and strategic risk. Qualitative and quantitative measures have been set out to control the amount of risk the company is willing to bear with respect to each of these risk categories. This risk appetite defines the type and amount of risk SLF is willing to assume in pursuit of its business objectives. The same set of considerations is used in developing business strategy. This risk appetite is laid out in a formal policy that is approved by the Board of Directors. In addition to the company’s risk management framework, SLF uses the DCAT process that is required by the regulator to project income and capital for a five year period based on plausible adverse scenarios. SLF also stress tests the company’s earnings and MCCSR ratio to key emerging risks and scenarios on a regular basis.
SLF’s risk culture is well-defined. Employees at all levels of the organization share a common philosophy and set of values regarding risk. Every employee must feel accountable for achieving the best results for his or her business unit and for SLF as a whole. Business decisions are made at all levels of the organization, and every employee has a role in managing risk, including identification of exposures, and communication and escalation of risk concerns.
SLF’s risk philosophy is based on the premise that SLF is in the business of accepting risks for appropriate return. In conducting its business activities, SLF, driven by shareholder and policyholder expectations, external ratings and its positioning in the marketplace, will take on those risks that meet the objectives of the organization. Risk management is aligned with the corporate vision and strategy, and is embedded within the business management practices of every Business Group and Corporate leader.
SLF defines its risk appetite as the level of enterprise-wide risk that the company is willing to assume in pursuit of its business objectives. It represents a foundational element of the overall Enterprise Risk Management Framework by providing important context to the risk identification, assessment, risk response development, monitoring and control and reporting elements of the framework.
SLF has developed a list of significant risk categories and sub-categories. These categories reflect the business environment and facilitate consistency in reporting and aggregation. Changes to the risk categories or sub-categories must be approved by the Chief Risk Officer. There are five major risk categories – Strategic, Credit, Market, Operational, and Insurance. The SLF risk categorization includes consideration that operational risk does not always exist as a stand-alone risk category; the risks relating to market, credit and insurance risk also include operational risk aspects.
Operating Results:SLF reported net income from continuing operations was CAD1,696 million in 2013, compared to CAD1,374 million in 2012. Operating net income from continuing operations was CAD1,943 million in 2013, compared to CAD1,479 million in 2012. Operating net income from continuing operations excludes the impact of certain hedges that do not qualify for hedge accounting in SLF Canada, fair value adjustments on share-based awards at MFS, loss on the sale of the U.S. Annuity Business, assumption changes and management actions related to the sale of the U.S. Annuity Business, restructuring and other related costs and goodwill and intangible asset impairment charges. The net impact of these items reduced reported net income from Continuing Operations by $247 million in 2013, compared to a reduction of $105 million in 2012.
Reported ROE from combined operations was 6.5% in 2013, compared to 11.6% in 2012. Operating ROE from combined operations was 14.8% in 2013, compared to 12.5% in 2012. The reported ROE from combined operations in 2013 was lower than 2012 largely due to the loss on the sale of the U.S. Annuity Business partially offset by the favorable impact of market factors and underlying growth in earnings during the year.
Net income from continuing operations in 2013 reflected favorable impacts from equity markets, rising interest rates, increases in the fair value of investment properties, and actuarial assumption changes driven by capital markets. These items were partially offset by unfavorable impacts from basis risk, declines in the assumed fixed income reinvestment rates in insurance contract liabilities that were driven by the continued low interest rate environment, and unfavorable impacts from credit spread and swap spread movements. Positive experience items included investment activity on insurance contract liabilities and credit, more than offset by unfavorable impacts from lapse and policyholder behavior experience, expenses and other items. Non-capital market related assumption changes and management actions contributed to net income in 2013, including income of $290 million related to the restructuring of an internal reinsurance arrangement.
Net income in 2012 reflected favorable impacts from equity markets, basis risk and increases in the fair value of real estate classified as investment properties, offset by declines in the fixed income reinvestment rates in our insurance contract liabilities that were driven by the continued low interest rate environment, and unfavorable impact from credit spread and swap spread movements. Investment activity on insurance contract liabilities and credit experience contributed positively, but were offset by unfavorable expense-related items, largely comprised of project-related and non-recurring costs, model experience and other refinements in our variable annuity products being sold, as well as lapse and other policyholder behavior experience. Net realized gains on sales of available for sale securities (AFS) and assumption changes and management actions contributed to net income in 2012.
SLF reported a net loss from Discontinued Operations of CAD754 million in 2013 reflecting the loss on sale of CAD695 million and net loss from operations for the first seven months of the year, including assumption changes and management actions related to the sale of the U.S. Annuity Business. Reported net income in 2012 was CAD180 million reflecting positive impacts from equity markets, basis risk, interest rates, partially offset by unfavorable impacts from swap spread movements, and both capital market and non-capital market related assumption changes and management actions.
SLF Canada’s reported net income of CAD879 million in 2013, compared to CAD788 million in 2012. Operating net income was CAD825 million in 2013, compared to CAD795 million in 2012. Operating net income in SLF Canada excludes the impact of certain hedges that do not qualify for hedge accounting and assumption changes and management actions related to the sale of the U.S. Annuity Business. Assumption changes and management actions related to the sale of the U.S. Annuity Business includes a CAD14 million charge to income for the impact of dis-synergies on insurance contract liabilities and a CAD30 million gain related to the impact on our insurance contract liabilities of the higher yields on the asset-backed securities transferred from Discontinued Operations.
Net income in 2013 reflected favorable equity market experience in Individual Insurance and Investments, new business gains, investment activity gains on insurance contract liabilities, positive credit experience and favorable morbidity experience in GB. These items were partially offset by the unfavorable impact of declines in the assumed fixed income reinvestment rates in our insurance contract liabilities in Individual Insurance, widening of swap spreads in Individual Insurance & Investments and updates to actuarial assumptions and management actions.
Net income in 2012 reflected gains from increases in the value of real estate properties, the favorable impact of assumption changes and management actions in group benefits and group retirement services, and net realized gains on available for sale assets . These items were partially offset by declines in fixed income reinvestment rates in insurance contract liabilities in Individual Insurance & Investments that were driven by the continued low interest rate environment.
Net income in 2011 reflected the net unfavorable impact of assumption changes and management actions, as well as lower equity market levels. The impact of these unfavorable items was partially offset by net realized gains on available for sale assets, the favorable impact of fixed income investment activity on insurance contract liabilities and gains from increases in the value of real estate properties.
SLF U.S.’s reported net income from continuing operations was $577 million in 2013, compared to $324 million in 2012. Operating net income from Continuing Operations was $614 million in 2013, compared to $324 million in 2012. Operating net income in SLF U.S. excludes the impact of restructuring and other related costs and assumption changes and management actions related to the sale of the U.S. Annuity Business. Assumption changes and management actions related to the sale of the U.S. Annuity Business includes a CAD81 million charge to income for the impact of dis-synergies on insurance contract liabilities and a CAD50 million gain related to the impact on insurance contract liabilities of the higher yields on the asset-backed securities transferred from Discontinued Operations.
Net income from continuing operations in 2013 reflected income of $277 million from the restructuring of an internal reinsurance arrangement used to finance U.S. statutory reserve requirements for the closed universal life insurance business in the U.S. Net income also reflected the impact of increased interest rates and net realized gains on the sale of available for sale assets partially offset by unfavorable claims experience in EBG.
Net income from continuing operations in 2012 included favorable impacts from improved equity markets, investment activity on insurance contract liabilities and updates to actuarial assumptions. These items were partially offset by unfavorable impacts from reduced interest rates and credit spread movements. Net income in EBG included unfavorable morbidity experience, an investment in voluntary benefits capabilities and a charge related to a premiums receivable account reconciliation issue.
The loss from continuing operations in 2011 reflected the net unfavorable impact of assumption changes and management actions including the implementation of a change related to hedging in the liabilities. The loss also reflected the unfavorable impacts of interest rates, equity markets and mortality and morbidity experience, partially offset by gains from investment activity on insurance contract liabilities.
Reported net loss from discontinued operations was $719 million in 2013, compared to reported net income of $172 million in 2012. Reported loss from discontinued operations of $606 million in 2011.
MFS reported net income of $244 million in 2013, compared to $208 million in 2012. Operating net income was $465 million in 2013, compared to $302 million in 2012. The increase reflected higher average net assets, which increased from $286.0 billion in 2012 to $367.5 billion in 2013.
Operating net income in MFS during 2012 excludes the impact of fair value adjustments on share-based payment awards, and restructuring and other related costs related to the transition of McLean Budden to MFS in 2011.
SLF Asia reported net income was CAD150 million in 2013, compared to reported net income of CAD129 million in 2012. Operating net income was CAD157 million in 2013, compared to CAD129 million in 2012. Operating net income in 2013 excluded the impact of assumption changes and management actions related to the sale of the U.S. Annuity Business of CAD7 million, which includes a charge to income for the impact of dis-synergies on our insurance contract liabilities.
Net income in 2013 reflected favorable impacts in the Philippines, Hong Kong and Indonesia from market experience, realized gains on the sale of available for sale assets and business growth, and reduced new business strain in China. Net income in 2012 included the unfavorable impact of declining interest rates in Hong Kong and higher levels of new business strain from increased sales in China and the Philippines. These items were partially offset by the favorable impact of assumption changes and management actions, and higher earnings in the Philippines due to business growth. Net income in 2011 reflected business growth, realized gains on available for sale assets, the net favorable impact of assumption changes and management actions and low levels of new business strain as a result of sales levels in India and Hong Kong.
Individual life insurance sales in 2013 were up 12% from 2012. Sales increased in the Philippines, Hong Kong and Indonesia compared to 2012. Growth also reflected the inclusion of the new markets of Malaysia and Vietnam. These increases were partially offset by lower sales in India and China. Sales in the Philippines were up 51% due to agency expansion and strong sales in the bancassurance channel. Sales in Hong Kong and Indonesia were up 43% and 31%, respectively, as a result of distribution growth.
Individual life sales in 2012 were flat from 2011. On a local currency basis, sales growth in the Philippines and China was offset by lower sales in India. Sales in the Philippines were up 58% due to agency expansion, and the launch of Sun Life Grepa Financial, Inc. in October 2011. Sales in China were up 17% as a result of distribution growth.
Corporate includes the results of SLF U.K. and Corporate Support. Corporate Support includes our run-off reinsurance business as well as investment income, expenses, capital and other items that have not been allocated to our other business segments. Discontinued Operations in Corporate relate to Corporate Support only. For 2013 Corporate had a reported loss from Continuing Operations of CAD184 million compared to a reported loss from Continuing Operations of CAD73 million in 2012. Operating net income (loss) excludes restructuring and other related costs and assumption changes and management actions related to the sale of the U.S. Annuity Business. Assumption changes and management actions related to the sale of the U.S. Annuity Business includes a $2 million and $3 million charge to income in SLF U.K. and run-off reinsurance, respectively, related to the impact of dis-synergies on our insurance contract liabilities.
Corporate Support reported a loss from continuing operations was CAD318 million in 2013, compared to a reported loss of CAD286 million in 2012. Restructuring and other related costs were CAD22 million, compared to CAD4 million in 2012. The loss from continuing operations in 2013 relative to 2012, reflected the unfavorable impacts of assumption changes for insurance contract liabilities and other experience in the run-off reinsurance business, partially offset by lower interest expenses.
SLF U.K.’s reported net income was CAD134 million in 2013, compared to CAD213 million in 2012. Net income in 2013 reflected favorable market related impacts, investing activity on insurance contract liabilities and tax items, partially offset by project costs. Net income in 2012 included favorable impacts from investment activity on insurance contract liabilities, refinements to actuarial models and tax related items. Net income in 2011 included a net tax benefit related to the reorganization of the U.K. operations, partially offset by the unfavorable impact of investment activity on insurance contract liabilities. Net income in both 2012 and 2011 reflected investment in regulatory initiatives such as Solvency II.
Comm & Net Inc Net Inc Net Inc Yield on Ben Paid Exp to to Tot to Tot to Invested Total Year to NPW NPW Assets Rev Equity Assets Return 2009 80.4 20.1 1.0 4.8 6.9 8.61 8.61 2010 75.6 19.9 2.1 10.0 14.6 9.11 9.11 2011 74.1 23.5 1.0 6.4 7.9 10.95 10.95 2012 82.3 27.6 1.4 12.4 12.0 6.68 6.68 2013 153.8 58.1 1.2 29.7 10.3 0.57 0.57 5-Year Avg 84.6 25.2 1.3 9.7 10.4 6.92 6.92
BALANCE SHEET STRENGTH
Capitalization: The capitalization of SLA is considered strong on a consolidated basis relative to its current insurance and investment risks. The company’s MCCSR has historically been above 200% (219% and 209% at year-end 2013 and 2012 respectively). In addition, SLA maintains a strong level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). The group’s regulatory capital consists primarily of common equity along with a moderate mix of preferred equity, SLEECS (Sun Life ExchangEable Securities), which qualify as Tier 1 capital for regulatory capital purposes, and subordinated debt. There is an intercompany loan arrangement between SLF and SLA of $500 million. As of year-end 2013 total capital was CAD20.5 billion, up from CAD20.0 billion as of year-end 2012.
The increase in total capital was primarily the result of common shareholders’ net income of CAD942 million, other comprehensive income of CAD446 million partially offset by common shareholders’ dividends (net of the dividend reinvestment and share repurchase plan) of CAD587 million and reduction in subordinated debt of CAD337 million.
Through Sun Life Capital Trust and Sun Life Capital Trust II, open-end trusts established in Ontario, SLA has issued two tranches of long-dated subordinated unsecured debt that qualify as capital for Canadian regulatory purposes (SLEECS Series B and 2009-1). The SLEECS Series B can be converted into SLA’s preferred shares that are exchangeable in certain limited circumstances at a future date into SLF common shares at a price equal to 95% of the trading price at the time of the exchange. The SLEECS represent low-cost and tax-efficient capital that A.M. Best believes provides the company with increased capital flexibility.
In recent years, SLF has recorded a relatively flat shareholders’ equity position, as a result of the global economic pressures and Canadian dollar valuation sensitivities. Cumulative net income has exceeded shareholder dividends and common share repurchases over the last several years. However, Sun Life has a proven ability to raise additional funds through the capital markets as needed. The group’s current debt, hybrid securities, and preferred shares to total capital are within expectations for the current rating level, garnering some equity credit. Through year-end 2012, the group’s debt to capital ratio remained elevated relative to historical levels. SLF has taken advantage of the low interest rate environment in 2012 by refinancing $800 million in subordinated debt at a lower interest rate. The debt to capital ratio improved in 2013 with the redemption of $350 million of subordinated debentures in June 2013. Through the first half of 2014 SLF redeemed $500 million of subordinated debentures, further improving the debt to capital ratio. SLF has also refinanced $250 million of preferred shares with subordinated debentures at a lower rate. Interest coverage continues to improve due to increased profitability and refinancing. Sun Life maintains an excellent liquidity position which provides for favorable debt servicing capabilities from a cash coverage basis.
In November 2013, the Office of the Superintendent of Financial Institutions (OSFI) provided a progress update on its 2012 report titled the Life Insurance Regulatory Framework, which discusses OSFI’s forthcoming regulatory initiatives affecting life insurance companies and industry stakeholders. The initiatives are focused on regulatory capital requirements and financial disclosure transparency. The update indicates OSFI is planning to publish its new capital framework for life insurance companies in 2016, conduct parallel testing with industry participants from 2016 to 2018, and implement the new rules in 2018. The outcomes of this regulatory effort remain uncertain and may impact SLF’s position relative to that of other Canadian and international financial institutions with which they compete for business and capital.
Current BCAR: 248
CAPITAL GENERATION ANALYSIS ($000)
——————Source of Capital/Surplus Growth—————— Pre-tax Change
% Chg Adjusted Income Other in in Year Gain Taxes Changes C&S C&S 2009 522,142 -201,386 -610,631 112,897 1.1 2010 1,800,463 220,113 -973,728 606,622 5.8 2011 869,286 703 -1,240,876 -372,293 -3.3 2012 1,464,976 113,118 -366,969 984,889 9.2 2013 1,310,982 46,546 -154,650 1,109,786 9.5 5-Yr Total 5,967,849 179,094 -3,346,854 2,441,901 4.3 QUALITY OF CAPITAL/SURPLUS ($000)
Other Conditional Unassigned
Capital Adjusted Year Debt Capital Surplus & Equity C&S 2009 4,258,948 2,963,113 7,548,954 10,512,067 14,771,015 2010 3,986,994 3,458,431 7,660,258 11,118,689 15,105,683 2011 2,974,563 3,731,541 7,014,855 10,746,396 13,720,959 2012 2,953,996 4,102,732 7,628,553 11,731,285 14,685,281 2013 3,062,052 4,155,902 8,685,169 12,841,071 15,903,123 LEVERAGE ANALYSIS C&S to Reins NPW Change Year Liab Leverage to Capital in NPW 2009 16.7 92.2 0.9 -26.7 2010 17.2 91.7 0.9 4.0 2011 7.9 94.9 0.6 -38.1 2012 8.2 90.2 0.5 -7.1 2013 8.4 84.7 0.2 -47.6
Liquidity:SLF maintains a portfolio of high quality assets. The investment portfolio is broadly diversified and managed with respect to the company’s underlying policy obligations. The company invests the majority of its general fund assets in medium- to long-term fixed income investments while the assets supporting equity capital are invested in a broader range of asset classes including bonds, mortgages, equity securities, and real estate investments, reflecting management’s focus on the enhancement of risk-adjusted investment returns. The company’s asset portfolio is geographically diversified with thirty-two percent invested in the U.S., fifty-one percent in Canada, and the balance outside of North America, based on the jurisdiction of the incorporation of issuers. Market value for SLF’s invested assets through year-end 2013 was approximately CAD 110 billion.
SLF employs a wide range of liquidity risk management practices and controls, such as:
1) Stress testing of liquidity by comparing liquidity coverage ratios under one-month and one-year stress scenarios to policy thresholds. These liquidity ratios are measured and managed at the enterprise and business segment level. 2) Establishing cash management and asset-liability management programs that support SLF’s ability to maintain its financial position by ensuring that sufficient cash flow and liquid assets are available to cover potential funding requirements, in addition to investing in various types of assets with a view of matching them to liabilities of various durations.
3) Ensure target capital levels exceed internal and regulatory minimums by actively managing and monitoring capital and asset levels, and the diversification and credit quality of investments.
Mtge Affil Loans Invest Quick Quick & RE to to Year Liquidity Liquidity Cap & Surp Capital 2009 10.9 72.9 135.8 79.9 2010 8.4 75.2 124.6 74.8 2011 7.0 62.6 138.6 73.3 2012 6.5 61.2 136.5 70.5 2013 5.2 59.8 129.0 66.8
Investments:Through year-end 2013, general fund invested assets were $109.6 billion. The majority of the general fund is invested in medium- to long-term fixed income instruments, such as debt securities, mortgages and loans. 84.5% of the general fund assets are invested in cash and fixed income investments. Equity securities and investment properties comprised 4.8% and 5.6% of the portfolio, respectively. The remaining 5.1% of the portfolio is comprised of policy loans, derivative assets and other invested assets.
Debt securities represented about 50% of invested assets. The quality of the bond portfolio remains high, with below investment grade issues representing a modest two percent of the total. Impaired assets to total invested assets is small. SLF’s bond portfolio is very diverse, represented by a large number of credits and good diversification across multiple segments. Its bond portfolio is actively managed through a regular program of purchases and sales directed at optimizing yield quality and liquidity, while ensuring that asset/liability matching requirements are met. The company maintains a larger proportion of private placements than historical levels — currently about 24.5% of total bonds, which is a 2.5% increase over the prior year. SLF maintains modest exposures to collateralized mortgage obligations and mortgage-backed
U.S.-domiciled subsidiaries. Although these investments are highly rated, they are volatile in price and duration during changing interest rate environments coupled with volatility in the global economy. The company utilizes derivative instruments to provide hedging protection on interest rates, currency exposures and equity volatility inherent in the VA product offering.
SLF’s mortgage loan portfolio represents 11.4 % of total invested assets through year-end 2013, with the Canadian mortgage portfolio accounting for 60.2% of the total mortgage portfolio. The company’s mortgage portfolio is almost entirely in first mortgages. Mortgages are concentrated in office, retail, industrial and land properties, and apartment properties. Commercial mortgages account for about four-fifths of the total mortgage portfolio with the remainder invested in residential mortgages. The portfolio has a weighted average loan-to-value of around 55% and the estimated weighted average debt service coverage is 1.65 times. The Canada Mortgage and Housing Corporation insures around 22% of the Canadian commercial mortgage portfolio. Impaired mortgages and loans, net of allowances for losses, amounted to CAD 113 million at year-end 2013; substantially lower than the prior year. Approximately 88% of the impaired mortgage loans are in the U.S. A.M. Best will continue to monitor the results of the U.S. mortgage loan portfolio carefully.
The company also originates and manages mortgage-backed investments for institutional clients. The fee-based business allows SLF to leverage its commercial mortgage underwriting expertise and enhance its asset management strength. SLF’s real estate portfolio represents nearly six percent of invested assets as the group actively manages its real estate portfolio focusing on acquisitions and dispositions, leasing and rehabilitation, and the management of foreclosed properties. SLF also benefits from maintaining a portfolio with benign exposure to the U.S. subprime investment issues. Canadian properties account for nearly three-quarters of the portfolio.
SLF’s equity portfolio represents less than five percent of invested assets and remains well diversified by industry classification and issuer. To attain desired spreads and maintain appropriate matching, the company adheres to stringent asset/liability management guidelines for interest-sensitive products. A somewhat less conservative strategy is maintained for non-interest-sensitive products.
The company engages in securities lending for purposes of fee generation. At year-end 2013, securities with an estimated carrying and fair value of CAD1.4 billion were loaned for which collateral held was CAD1.5 billion. This compares to loaned securities of CAD 730 with collateral of CAD 771 million at year end 2012.
SLF has approximately CAD 1 billion of liquidity available for its capital management needs. SLF also has $1 billion CAD of unutilized credit facilities and also receives net income from its asset management companies. SLA maintains an intercompany credit facility (loan agreement) with SLF for CAD 500 million. In addition, Canadian regulatory rules offer flexibility where capital flows are generally unrestricted between SLA and SLF. Dividends can also be paid from SLA and SLF, as long as the operating company continues to maintain adequate levels of capital and liquidity per regulatory guidelines.
SLF has a hedging program, involving the use of derivative instruments, to mitigate a portion of the equity market-related volatility in the cost of providing these guarantees. For segregated fund products (including variable annuities), SLF has implemented hedging programs involving the use of derivative instruments to mitigate a large portion of the equity market risk associated with the guarantees. The unhedged portion of risk for these products reflects equity market risks associated with items such as provisions for adverse deviation and a portion of fee income that is not related to the guarantees provided.
INVESTMENTS - TOTAL PORTFOLIO
2013 2012 2011 2010 2009 Investments (000) 78,581,052 77,309,053 74,185,126 68,314,838 65,701,257 Bonds and debentures 53.1 51.5 51.4 50.9 46.9 Common shares 5.2 5.0 4.8 6.1 5.5 Preferred shares 0.4 0.5 0.5 0.5 0.4 Mortgage loans 14.0 13.4 13.6 14.1 15.5 Real Estates 7.0 7.3 6.5 6.1 6.2 Cash & short term
investments 2.7 4.3 4.9 3.8 6.6 Affiliated investments 11.5 11.2 11.2 12.3 12.9 Other investments 6.0 6.8 7.1 6.1 5.9
Date Incorporated:03/18/1865 Date Commenced:05/01/1871 Domicile:Canada
Originally incorporated as The Sun Insurance Company of Montreal in 1865, the name was changed in 1871 to Sun Mutual Life Insurance Company of Montreal, and in 1882 the present title Sun Life Assurance Company of Canada was adopted. In 1962, the company was organized as a mutual life insurance company. On March 22, 2000, the company completed its demutualization. Sun Life Financial Inc. (SLF) is the publicly traded holding company for its principal Canadian life insurance subsidiary, Sun Life Assurance Company of Canada (Sun Life) and is traded on the major stock exchanges in Toronto, New York and the Philippines.
SLF has made several business transactions to enhance its overall evolving business model.
SLF acquired Clarica Life Insurance Company (Clarica Life) and its wholly owned subsidiary, Clarica Life Insurance Company-U.S. in 2002, as an all-stock transaction valued at approximately $6.9 billion CAD. Clarica Life Insurance Company-U.S. was subsequently sold in early 2003 and Clarica Life Insurance Company was merged into Sun Life at the end of 2002. At the time of the transaction, based on assets under management, Clarica Life was Canada’s fourth largest life insurer with favorable market positions in a number of major Canadian business segments. The consolidation created one of Canada’s largest life insurance companies, with very strong market positions in all major protection and wealth accumulation business segments in Canada.
In 2002, SLF acquired an economic interest in CI in exchange for its subsidiary, Spectrum Investment Management Limited (Spectrum), and Clarica Diversico Ltd. (Diversico), the mutual fund subsidiary of Clarica Life. In 2007, Sun Life introduced an integrated brand strategy to reduce brand duplication and complexity in the Canadian market. This strategy included retiring the Clarica brand and aligning its career sales force with the Sun Life brand.
On May 31, 2007, the Company completed its acquisition of Genworth Financial Inc.’s U.S. Employee Benefits Group (Genworth EBG Business) for $725 million Sun Life Financial’s U.S. group business combined with the Genworth EBG Business and became Sun Life Financial Employee Benefits Group offering customers group life, disability, dental and stop loss insurance, and voluntary worksite products. This acquisition added scale and scope to Sun Life Financial’s U.S. Employee Benefits Group business and solidified its top ten leadership position in the important U.S. employee benefits industry. In addition, the increased access to markets, broadened product and service offerings and strengthened distribution platform position Sun Life Financial for long-term growth.
On June 22, 2007, the Company purchased approximately two million of additional trust units of CI Financial Income Fund for $66 million in order to maintain its existing combined interest in CI Financial Income Fund and Canadian International LP (collectively, CI Financial). SLF’s interest in CI Financial had decreased slightly as a result of CI Financial’s purchase of Rockwater Capital Corporation in the second quarter of 2007.
On November 7, 2007, the Company sold the U.S. subsidiaries that comprised of the Independent Financial Marketing Group business to LPL Holdings, Inc. The sale had no material effect on the 2007 financial results.
On February 29, 2008, the Company sold Sun Life Retirement Services (U.S.), Inc., a 401(k) plan administration business in the United States, to The Hartford Financial Services LLC (Hartford). The sale had no material effect on the 2008 financial results. The sale price was $47 million. Hartford acquired over 400 employees, $17 billion in AUM across roughly 6,000 plans and 465,000 plan participants
On December 12, 2008, SLF sold its 37% interest in CI Financial Income Fund to Bank of Nova Scotia for $2.2 billion CAD. The proceeds included $1.55 billion CAD in cash and the balance in common and preferred shares of Bank of Nova Scotia.
On July 15, 2009, Sun Life Financial and CIMB Group received regulatory approval to form a joint venture to distribute Sun Life Financial’s life, accident and health insurance products through the 600-plus retail branches of PT Bank CIMB Niaga in Indonesia.
On July 29, 2009, the company announced the restructuring of its insurance JV in China. During the third quarter of 2010, SLF repositioned the company in China when it completed its restructuring initiatives, reducing its ownership from 50% to about a 24.9% interest. SLF will continue to provide its international governance, risk management and actuarial expertise and standards to Sun Life Everbright. The repositioning of Sun Life Everbright as a domestic insurer in the market will provide additional avenues of growth in China’s financial services market and enable the company to fully leverage China Everbright Bank’s broad distribution capabilities.
On October 1, 2009, the Company completed the acquisition of the United Kingdom operations of Lincoln National Corporation for $387 million. The purchase price was subject to adjustment related to market and business performance prior to October 1, 2009. There were no material adjustments to the purchase price allocation of 2010.The acquisition increased Sun Life U.K.’s assets under management over 60% to $20 billion and doubled the number of policies in force to 1.1 million.
On December 31, 2010, the Company completed the sale of its reinsurance business to Berkshire Hathaway Life Company of Nebraska.
On October 25, 2011, Sun Life Financial Inc. completed the acquisition of 49% of Grepalife Financial Inc., a Philippine life insurance company. The new joint venture includes an exclusive bancassurance relationship with the Yuchengco-owned Rizal Commercial Banking Corporation, which serves two million customers in more than 350 branches nationwide.
On November 8, 2011, McLean Budden Limited became the wholly owned subsidiary of MFS Investment Management and added approximately $30 billion to MFS’s assets under management. The combined assets under management of MFS and McLean Budden are C$261 billion (US$253 billion). McLean Budden now operates as MFS Investment Management Canada Limited.
In May 2012, the Company entered into an agreement with PVI Holdings to form PVI Sun Life Insurance Company Limited in Vietnam, a joint venture life insurance company, and received its license to operate from the Ministry of Finance of Vietnam in January 2013.
On December 17, 2012, the Company entered into a definitive stock purchase agreement to sell its U.S. annuities business and certain U.S. life insurance businesses (the “U.S. Annuity Business”), including all of the issued and outstanding shares of Sun Life Assurance Company of Canada (U.S.). The U.S. Annuity Business includes domestic U.S. variable annuity, fixed annuity and fixed indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products. The transaction was completed in August 2013.
In January 2013, SLF entered into a strategic partnership with Khazanah Nasional Berhad to acquire 98% of each of CIMB Aviva Assurance Berhad and CIMB Aviva Takaful Berhad (together, “CIMB Aviva”) in Malaysia. The transaction was completed in April 2013. As a result, Sun Life Assurance acquired a 49% interest in CIMB Aviva. The names of the CIMB Aviva entities were subsequently changed to Sun Life Malaysia Assurance Berhad and Sun Life Malaysia Takaful Berhad respectively.
Officers:Chairman of the Board, James H. Sutcliffe; President and Chief Executive Officer, Dean A. Connor; President and Chief Investment Officer, Stephen C. Peacher (Sun Life Investment Management ); Presidents, Kevin P. Dougherty (SLF Canada), Daniel R. Fishbein (SLF U.S.), Kevin D. Strain (SLF Asia); Executive Vice President and Chief Financial Officer, Colm J. Freyne; Executive Vice President and Chief Information Officer, Mark S. Saunders; Executive Vice President and Chief Risk Officer, Claude A. Accum; Executive Vice President and Chief Marketing Officer, Mary De Paoli (Public & Corporate Affairs); Executive Vice President and General Counsel, Melissa J. Kennedy (Corporate Development); Executive Vice President, Carolyn D. Blair (Human Resources).
Directors:William D. Anderson, Richard H. Booth, John H. Clappison, Dean A. Connor, Martin J. G. Glynn, M. Marianne Harris, Krystyna T. Hoeg, Réal Raymond, Hugh D. Segal, Barbara G. Stymiest, James H. Sutcliffe (Chairman).
The 2013 annual independent audit of the company was conducted by Deloitte, LLP. The annual statement of actuarial opinion is provided by Larry R. Madge, Senior Vice President and Chief Actuary.
Reserve basis: (Current ordinary business): Canadian Asset Liability Methodology (CALM).
The maximum net retention is CAD 25,000,000 for single life or joint first-to-die plans and CAD 30,000,000 for joint last-to-die plans in Canada. The maximum net retention is $25,000,000 for lives issued on a single life or joint-first-to-die basis and $30,000,000 for lives issued under joint last-to-die policies in the United States and Bermuda. Lower retention limits apply in other countries.
BALANCE SHEET ($000) - December 31, 2013
Bonds 41,697,169 Net actuarial liabilities 75,608,835 Preferred shares 338,876 Accounts payable 5,468,507 Common shares 4,081,509 Other policy liabilities 4,835,074 Mortgage loans 11,029,880 Other debt 2,712,052 Real estate 5,964,871 Other liabilities 3,149,155 Contract loans 2,428,346 Deferred income tax -579 Joint ventures 412,319 Segregated funds 61,441,732 Cash 547,618
Short-term investments 1,597,605 Total liabilities 153,214,776 Accounts receivable 6,678,934 Policyholders equity 126,635 Accrued invest income 642,002 Shareholders equity 12,714,436 Other assets 29,194,986
Segregated funds 61,441,732
Assets 166,055,847 Total 166,055,847
SUMMARY OF OPERATIONS ($000)
Premiums: Benefits paid 4,573,554 Individual life -34,509 Change in reserves -3,909,347 Individual annuities 586,829 Plcyhldr divs & refunds 319,301 Group life 291,200 Trans from/to oth funds -18,868 Group annuities 483,062 Commissions 289,160 Acc & sickness group 1,404,505 Interest expenses 197,185 Acc & sickness individual 242,703 Gen exp & taxes 1,437,925 Total premiums 2,973,790 Other expenses 62,583 Net investment income 393,290
Misc income 895,395
Total 4,262,475 Total 2,951,493 Gain from operations before IT & extraordinary items... 1,310,982 Provision for inc taxes ... 46,546 Net income (loss) ... 1,264,436 Extraordinary items ... -4,965 Net income after extraordinary items... 1,269,401