Sun Life Financial, Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Delivered strong fourth quarter performance with underlying earnings of $983 million, up 10% year-over-year. Underlying ROE of 18.4% was above medium-term objective.
• Strong results were broad-based across Canada, U.S., and SLC management. Exceptional individual protection sales and good momentum in group health and protection businesses.
• Key initiatives include digital partnerships for health care, forming Sun Life Canada Securities, strategic relationship with Scotiabank, launch of new indexed universal life product in Singapore, and Gen AI experiments for improved productivity.
• Recognitions include being among Global 100 most sustainable corporations and employer recognitions. Manjit Singh's upcoming transition to President of Asia business.

Segment Performance

• Wealth and Asset Management: Comprised 40% of Q4 underlying earnings, up 7% year-over-year. Driven by higher asset management fee-related earnings and investment income.
• Group Health and Protection: Comprised 34% of underlying earnings, grew 14% year-over-year. Driven by sales growth, improved disability experience, and higher investment contribution, partially offset by lower dental earnings.
• Individual Protection: Comprised 26% of underlying earnings, increased 23% from last year. Driven by business growth and higher investment earnings, partially offset by sale of Sun Life U.K. business.
• MFS: Net underlying income US$ 191 million, down 5% year-over-year. AUM US$ 599 billion, up $43 billion from prior quarter.
• SLC Management: Underlying net income $70 million, up from $48 million last year. Fee-related earnings $92 million, up 26% year-over-year.
• Canada: Underlying net income $350 million, driven by strong growth across all businesses.
• U.S.: Underlying net income US$ 187 million, up 8% from last year.
• Asia: Underlying net income $143 million, up 5% year-over-year on constant currency basis.

Guidance

• Focus on next step in digital development, building on digital enterprise program. Evolve to think and act like a digital company with new apps and features.
• Continue to look for synergies between asset management and insurance. Deepen health business in Canada and U.S. and accelerate momentum in Asia.
• Evolve culture towards bolder thinking, bias to action, and delivering results.

Risks

• Real estate valuation impacts, primarily in office properties in U.S. and Canada, with temporary structural issues in office sector.
• Market-related negative impacts including negative interest rate experience and unfavorable real estate experience.
• Equity market exposure in Asia and potential outflows in asset management businesses due to market conditions.
• Factors affecting buyback decisions such as M&A pipeline and material non-public information like CFO transition.

Q: Thanks and good morning. A couple of follow-up questions from me. The first on SLC, I believe you had some seed investment invested this quarter. Just wondering if you could post what that was on a post-tax basis, trying to get a sense of the growth in underlying income year-over-year, excluding those gains and perhaps even what your operating margins would be excluded that A: Most business is steady quarter-to-quarter. Earnings can be impacted by episodic items like mark-to-market gains/losses on seed, catch-up fees, or carried interest. Core earnings rate around $50 million-ish and moving up.

Q: And sorry, could you remind me which segment that was recognized under?

A: Canada Q: Yes. Thanks very much. Just a follow-up question here with the good morbidity experience you continue to have here. Help us understand, do you -- what is contributing to this? Do you -- how much would it be in sort of the company's hands to be able to have continued morbidity experience like claims management and good underwriting or do you think it's more a function of just a strong employment market. Just some context around that? And how -- what's your outlook for this trend just given it's been pretty favorable in the past.

A: Morbidity experience is impacted by pricing decisions, volumes of visible cases, and duration of visible cases. Pricing actions taken early to align with expected experience, volumes influenced by economy/employment, and duration managed by case managers. Outlook is favorable with continued focus on pricing, claims management, and duration reduction.