Sun Life Financial Inc. Q2 FY2024 earnings call

• Delivered strong second quarter results with $1 billion in underlying net income, 9% growth over prior year. Strength from diversified business strategy.
• Strong individual protection sales in Canada and Asia; U.S. Group Benefits performing well. Wealth and asset management earnings lifted by increased assets under management.
• Executed largest Canadian pension risk transfer transaction (1.2 billion institutional sale in Defined Benefit Solutions).
• Scaled generative AI across Sun Life; expanded partnership with Goodpath in U.S., launched new point of sale platform in Vietnam, introduced Sun Life Term Insurance for Diabetes in Canada.
• SLC Management launched SLC Global Insurance Group and Scotia Private Real Estate Fund; completed third sustainability bond offering ($750 million) for green and social projects.
• Recognized as one of Canada's 50 best corporate citizens for the 19th time.

Wealth and Asset Management

• Underlying net income of $194 million, up 4% year-over-year. AUM of 618 billion, up 5% year-over-year but down 2% quarter-over-quarter due to net outflows. Comprised 41% of Q2 underlying earnings, up 9% over prior year on higher fee income from increased assets under management.

Group Health and Protection

• Comprised 28% of underlying earnings, down 15% year-over-year. Results reflected strong business growth in U.S. group benefits and Canada but were offset by unfavorable morbidity experience and lower U.S. dental results. Canada's group health and protection underlying earnings down 5% year-over-year; U.S. Group results down 24% year-over-year due to unfavorable morbidity and dental results.

Individual Protection

• Comprised 31% of underlying earnings, up 31% year-over-year. Driven by strong sales in Canada, Asia; new business CSM up 62% year-over-year. Strong individual protection sales in Canada (SLFD and third party channel), Hong Kong bancassurance partnership, and India joint venture.

• Expect underlying earnings levels from dental to be approximately $100 million for 2025.
• Underlying EPS growth of 10% and ROE of 18.1% achieved.
• SLC expects to grow earnings by growing AUM and delivering strategies to existing and new clients, with cost discipline playing a role but growth in AUM and revenue as key drivers.

• U.S. dental business facing headwinds from Medicaid redetermination, leading to increased loss ratio and higher utilization from remaining members.
• MFS experiencing net outflows ($14.8 billion) due to secular shifts (active to passive, public to private, alternatives) and cyclical impacts of high interest rates.
• Real estate continuing to experience headwinds consistent with industry environment.

Q: Meny Grauman asked about the restructuring charge and its segment impact.

A: Tim Deacon responded it's a broad-based enterprise-wide program across all business groups and corporate functions, focusing on digitization, eliminating duplicative capabilities, and optimizing external spend, with over $200 million pre-tax in efficiencies expected by 2026, and a small portion already coming through but more in the second half.

Q: Tom McKinnon asked about MFS net outflows and expense cuts.

A: Kevin Strain stated MFS is an important part of the asset management strategy, with actions taken to address challenges, and Tim Deacon mentioned expense cuts are broad-based and will impact margins but MFS is part of the overall cost discipline.

Q: Doug Young asked about underlying earnings.

A: Kevin Strain said last quarter was an anomaly, and this quarter is a return to expected underlying earnings levels; Dan Fishbein discussed normalization of utilization in stop-loss business and seasonal reserving patterns.

Q: Paul Holden asked about organic capital generation and SLC's 2025 target.

A: Tim Deacon explained organic capital generation ranges 20%-30% of underlying net income, and Steve Peacher stated SLC is on track for targets, with growth from AUM and strategies being key, and cost discipline supporting but not driving earnings.

Q: Mario Mendonca asked about dental loss ratio and U.S. dental business potential.

A: Dan Fishbein explained loss ratio impact from Medicaid re-determination and churn, and Kevin Strain reaffirmed the long-term thesis for the U.S. dental business, expecting it to return to normal pricing and grow.