Sun Life Financial Inc. (SLF) Q2 2012 Earnings Call August 9, 2012 10:00 AM ET Executives Philip Malek – VP, IR Dean Connor – President and CEO Colm Freyne – EVP and CFO Robert Manning – Chairman and CEO, Sun Life Global Investments Wes Thompson – President, Sun Life Financial U.S. Kevin Dougherty – President, Sun Life Financial Asia Steve Peacher – EVP and Chief Investment Officer Claude Accum – EVP and Chief Risk Officer, Corporate Actuarial and Risk Management Analysts Gabriel Dechaine – Credit Suisse Steve Theriault – Bank of America Merrill Lynch Robert Sedran – CIBC Michael Goldberg – Desjardins Securities Peter Routledge – National Bank Financial Joanne Smith – Scotia Capital Doug Young – TD Securities Tom MacKinnon – BMO Capital Markets André Hardy – RBC Capital Markets Presentation Operator
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Turning to slide two, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form a part of this morning’s remark. 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 Connor Thanks, Phil, and good morning, everyone. Yesterday Sun Life reported results for the second quarter of 2012 with operating income of C$59 million or C$0.10 per share on a fully diluted basis. These results reflect global economic conditions affecting the industry, including low interest rates and weak equity markets, and our results were generally in line with our published market sensitivities. Operating income excluding the net impact of market factors was C$379 million, an improvement over the C$357 million reported last quarter, reflecting a number of notable items, including higher levels of securities gains in the second quarter. Year-to-date, we have reported operating net income of C$786 million and operating ROE of 11.7%. Despite challenging conditions, we continue to make excellent strides in executing on our strategy, including strong sales growth in a number of key businesses while reducing total company expenses. Total adjusted premiums and deposits grew 21% year-over-year to C$25.1 billion. Strong top line growth continues to reflect momentum in asset management, particularly mutual fund sales at MFS. Sun Life’s assets under management increased to C$496 billion from C$474 billion a year ago. MFS reported a very strong quarter with gross sales of U.S. C$19.7 billion, surpassing last quarter’s record level and strong net flows of C$4.2 billion. Robert Manning will provide a more detailed update on MFS later on the call. Sun Life Global Investments Canada continued its rapid expansion with retail mutual fund sales of C$51 million and institutional sales of C$828 million, bringing client AUM to C$5.3 billion. SLGI attracted 14% of the mutual fund sales of our Career Sales Force in Canada, up from 3% a year ago and 11% in the prior quarter.
Our insurance operations in Asia also continued to expand. Sales in the Philippines were up 74%, expanding on our number one market position and reflecting both the successful integration of the Grepa Sun Life acquisition as well as strong execution in our new bancassurance partnership with Rizal Commercial Banking Corporation.Sales in China were up 35% and Sun Life Everbright Insurance marked its 10th anniversary during the quarter, now serving more than 8.5 million customers in 100 branches in China. Sales declined in India where we continue to see the impact of regulatory change, and this was a driver of the overall 3% decline in Asian sales in the quarter. Net sales in Asia are lumpier than we’d like, reflecting in part the fact that we operate in both mature markets like Hong Kong and the Philippines, and immature markets like India, China and Indonesia. On a year-to-date basis, we’re pleased to see individual insurance sales up 15% in Asia over prior year. Asia net income declined in the quarter primarily due to lower interest rates in Hong Kong. Again, net income is lumpier than we’d like but we continue to see significant upside in our Asian income over the coming years. As part of our Asian strategy, we’re expanding our footprints in the fast-growing ASEAN region. During the quarter, we announced an agreement to create a joint venture life insurance company in Vietnam called PVI Sun Life Insurance. Our partner, PVI Insurance, is a leading property and casualty insurer in Vietnam with 95 regional offices, 25 branches and our new business will combine Sun Life’s product and risk capabilities with PVI’s customer base and branch network for distribution. PVI Sun Life will start operations in the second half of 2012. In the United States, we’re hitting our key milestones in Employee Benefits and Voluntary Benefits. In Voluntary, we’ve now hired 17 experienced external sales leaders, which is our target for the year, and we’ve created an internal sales desk with five sales professionals. In June, we launched our first three products customized for the Voluntary market and have further launches on track for the fall. Total sales in our Employee Benefits Group increased 13%, including more than 50% growth in Voluntary Benefits sales over the same period last year.
In Canada, individual life and health sales grew 7%. Over the past three years, we’ve increased our individual life and health sales by 44% and advanced our market share. And we’ve done that while repositioning the product shelf to meet return hurdles in a low interest rate environment, nearly tripling the VNB through better product mix, renegotiating reinsurance rates and implementing price increases, including the further price increases for universal life and critical illness announced earlier this week. These changes continue to provide an attractive value proposition to our customers and on a basis that works for us in a low interest rate environment.Read the rest of this transcript for free on seekingalpha.com