Sun Life Financial Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Business Resilience: Results highlighted the strength and resilience of the balanced and diversified business model; underlying EPS was $1.79, up 4% year-over-year; underlying net income was strong at over $1 billion; underlying ROE was 17.6%.
• Strategic Imperatives: Progress against strategic imperatives like asset management, Asia, health, digital, and people; SLC Management had strong capital raising, MFS had strong total gross sales, and Canada/Asia businesses showed growth.
• Digital Leadership: Deployed generative AI capabilities, launched reimagined mobile app in Canada, enhanced operations with real-time underwriting in Malaysia, and piloted AI chatbot in Hong Kong.
• Leadership Changes: Dan Fishbein to retire, David Healy to become President of Sun Life U.S.; Kevin Morrissey to retire, Brennan Kennedy to be Chief Actuary.

Segment Performance

• Asset Management and Wealth: Underlying earnings were flat year-over-year, with higher fee income at SLC Management in Asia offset by lower fee income at MFS and lower investment spread income in Canada.
• Group Health and Protection: Underlying earnings increased 7% year-over-year due to higher U.S. Dental results and favorable mortality experience in Canada.
• Individual Protection: Underlying net income decreased 10% year-over-year from unfavorable mortality experience in Canada and the U.S.
• MFS: Underlying net income was USD 184 million, down 5% year-over-year, primarily due to lower fee income from lower average net assets.
• SLC Management: Underlying net income was $45 million, up 7% year-over-year, but down from the prior quarter, driven by strong capital raising with $6 billion of assets raised.
• Canada: Underlying net income was $379 million, down 6% year-over-year, offset by lower investment results and less favorable insurance experience.
• Sun Life U.S.: Underlying net income was USD 143 million, down 4% year-over-year; Group Health and Protection underlying earnings were up 10% year-over-year, while Individual Protection underlying earnings were down 46% year-over-year.
• Asia: Posted a record underlying net income of $206 million, up 13% year-over-year; Individual Protection earnings were up 7% year-over-year, and Asset Management and Wealth earnings grew 67% year-over-year.

Guidance

• Underlying EPS was $1.79, up 4% year-over-year; underlying net income was over $1 billion; underlying ROE was 17.6%.
• SLC Management aims to track well for the year, with a target of $235 million at Investor Day.
• U.S. Dental business reforecasted earnings outlook but remains confident in the long-term; commitment to share buyback program, repurchased ~$400 million of Sun Life shares this quarter.

Risks

• U.S. Dental business affected by U.S. health care environment, with potential write-downs of intangible assets due to client terminations.
• MFS experienced outflows, impacted by market volatility, affecting margins and AUM.
• Uncertainty in Medicaid funding slowing U.S. Dental repricing actions, impacting earnings outlook.
• Volatility in equity markets affecting MFS' performance and margins.

Question and Answer

Q: Just maybe starting out on the U.S. group and the Dental side. You no longer think you can hit USD 100 million of earnings in 2025. I don't think that will be a shock to most people. But you also put out a target of $250 million by 2029, no mention of that. Just wondering how we should think of the evolution of the U.S. Dental business over, call it, the next 5 years? And if you can weave in, I think you said you think 1/3 of U.S. earnings growth is going to come from the Dental business. Maybe if you can kind of wrap that all together. And then there's obviously a lot of goodwill and intangibles related to the business. You spent $3.1 billion on it. And the questions I'm getting is that does that need to get written off? At what point in time do you look at that as a potential write-off? And can you talk about the size of the goodwill and the intangibles related to DentaQuest.

A: Tim Deacon responded that they're reforecasting earnings outlook for the U.S. Dental business, refer back to the 12% plus medium-term earnings growth objective for the U.S. segment, and Dental is expected to contribute at least 1/3 of that growth. On intangibles, customer relationship intangibles tied to specific contracts, with one unique contract terminating early, but overall confident in carrying values.

Q: I want to ask a question on the -- particularly on the U.S. medical stop-loss business. So just trying to -- looking at the Group Benefits underlying earnings of $121 million for the quarter versus $124 million a year ago in the same quarter. So trying to get a sense of what proportion of that might be stop-loss versus employee plans and then also sort of any need to accelerate repricing actions in stop-loss, given claims loss trends across the industry.

A: Daniel Richard Fishbein responded that stop-loss results were in line with expectations, experience has stabilized, and pricing for 2025 was adjusted, with business properly priced going forward.