Sun Life Financial Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Client Impact Strategy: Continued delivery with mixed underlying earnings, strong Asia performance offset by weaker US and SLC. Strong insurance sales, CSM, and AUM growth.
• Canada Initiatives: Strong demand for dental care plan, launched diabetes care program, innovative solutions to improve health outcomes.
• US Initiatives: Differentiated in large employer group benefits with health navigator, launched family leave insurance in several states.
• Hong Kong and India: Strong individual protection sales in Hong Kong, value from strategic investments in India, sold 6.3% ownership in asset management JV unlocking $98 million pretax gain.
• AI Adoption: Generative AI used in Health and Risk Solutions to summarize medical records and in Sun Life Global Investments for better client experience.
• Sustainability: SLC investing in assets with stable yield and positive environmental impact, BGO completed all-electric net zero carbon industrial building, InfraRed invested in renewable energy assets.

Segment Performance

• Wealth and asset management: Comprised 42% of Q1 underlying earnings, down 1% year-over-year due to higher compensation expenses and mark-to-market losses on seed investments in SLC.
• Group Health & Protection: Comprised 29% of underlying earnings, down 8% year-over-year due to less favorable morbidity experience and lower dental results.
• Individual Protection: Comprised 29% of underlying earnings, down 4% year-over-year primarily due to the sale of Sun Life UK. New business CSM was $347 million, up 50% year-over-year.
• MFS: Underlying net income $189 million in line with prior year, AUM $630 billion up $31 billion from prior quarter.
• SLC: Underlying net income $28 million flat year-over-year, fee-related earnings $69 million up 1% year-over-year, total AUM $226 billion up $8 billion from prior year.
• Canada: Underlying net income $310 million modestly lower year-over-year, wealth and asset management down 4%, group health & protection up 20%, individual protection down 19%.
• US: Underlying net income $141 million down 20% year-over-year, group health & protection benefited from strong revenue growth but offset by less favorable morbidity experience and lower dental results.
• Asia: Underlying net income $177 million up 27% year-on-year on constant currency basis, strong sales momentum particularly in Hong Kong, new business CSM $230 million up 128% year-over-year.

Guidance

• 2025 Underlying Earnings: SLC expects to achieve $235 million underlying earnings.
• Dental Results: Expect dental results to return to profitability in 2025 with income levels approximately $100 million.
• ROE: Confident in meeting medium-term 18% ROE objective.
• Investor Day: Hosting Investor Day on November 13, 2024, in Toronto.

Risks

• US Dental Business: Impacted by Medicaid member disenrollment and higher claims ratios, repricing ongoing with 25% repriced during Q1, remaining 75% to be repriced by end of year.
• Interest Rates: Alternatives business faces headwinds from higher interest rates.
• Real Estate Returns: Cautious on near-term real estate returns, though long-term returns have exceeded expectations.
• Regulatory Issues: Potential impacts from regulatory investigations in broker channels in Hong Kong.

Question and Answer

• Q: Talked about policyholder experience came in unfavorable especially relative to expectations and impacted Canada and then in the US. How temporary you expect these pressures to be both in Canada and in the US?

A: Kevin Morrissey and others addressed, mentioning normal volatility, seasonality, and repricing efforts.

• Q: On SLC, talk about the $50 million kind of run rate for underlying earnings for that. And it's $28 million in the quarter. Color with respect to SLC and the outlook there?

A: Steve Peacher discussed mark-to-market losses on seed assets and seasonality in compensation.

• Q: On Asia, Sun Life's Hong Kong sales were very strong. Any effect from regulatory investigation in broker channel?

A: Manjit Singh stated no impact seen to date.

• Q: On ROE, any reason to believe won't be able to hit 18% for remainder of the year?

A: Kevin Strain confident in meeting medium-term ROE objective despite dental challenges.