Sun Life Financial Inc. Q2 FY2026 earnings call

Overall Financial Performance

• Delivered strong double-digit underlying EPS growth of 13% year-over-year to $2.02, with underlying net income of $1.12 billion (up from $1.02 billion YoY) and underlying return on equity of 19.1%, approaching the company's 20% medium-term target
• Reported net income was $1.01 billion, up from $716 million YoY
• Insurance sales company-wide increased 20% YoY, with total asset management net flows and net wealth sales improving by $16.3 billion
• Ended the quarter with a strong LICAT ratio of 145% and holding company cash of $2.3 billion, after completing a $750 million sub-debt issuance at the lowest 7-year spread for Canadian financial sector issuers in 25 years
• Renewed the normal course issuer bid to repurchase up to 10 million common shares, and had purchased 0.8 million shares under the program as of the call
• Returned $500 million to shareholders via dividends in the quarter, with a 3.8% dividend yield and a 48% payout ratio within the 40-50% target range

Digital & AI Transformation

• Became a founding member of a cross-industry AI consortium with Scotiabank, Telus, and Lightworks to build responsible, governance-aligned AI infrastructure for regulated industries, accelerating adoption while sharing costs
• Launched an internal proprietary agentic AI platform to automate manual trade-off analysis for technology architecture teams, speeding up decision-making
• Deployed client and advisor-facing AI tools: AI-enhanced contact center routing in Indonesia, integrated health capabilities in Canada's MySunLife app, and an AI concierge for Sun Life Financial Distributors advisors to free up time for client relationship building

Asset & Wealth Management Strategy

• Completed the first full quarter of Sun Life Asset Management operating as a unified combined platform, retaining strong talent and focusing on unlocking combined capabilities
• Notable milestones include: Crescent closing its largest ever direct lending fund with $10.8 billion in investable capital; Crescent and Pantheon closing a $3.2 billion private credit continuation vehicle (the largest ever in the private credit secondaries market); Aditya Birla Sun Life Asset Management winning a large Indian government fixed income mandate that doubled its AUM to $113 billion; Canadian wealth sales growing 60% YoY supported by record defined contribution sales

Regional Business Progress

• Asia: Achieved broad-based, resilient growth across multiple markets and channels, with total CSM now exceeding $7 billion, up over 90% since IFRS 17 adoption, creating a strong foundation for future earnings
• U.S.: Expanded health solution offerings via a new partnership that provides clinical trial access for members with complex health conditions, aligning with the strategy to improve care access and outcomes; continues repositioning the dental business to prioritize profitable commercial growth over unprofitable government (Medicaid) business
• Canada: Sustained positive insurance experience from multi-year investments in people, processes, and health-focused claims management capabilities, with both insurance and wealth business delivering consistent earnings growth

1. Sun Life Asset Management: Underlying net income was $262 million, a 4% year-over-year increase, contributing approximately 23.4% of total company underlying net income. Capital raising hit $4.7 billion (up 8% YoY) and deployment activity reached $6.2 billion (up 42% YoY), driven by strength in private credit and fixed income strategies. MFS continued to experience net outflows due to industry-wide pressure on active U.S. equity managers, but its active ETF business saw strong growth with inflows tripling year-over-year, and AUM doubling to $3 billion since the start of 2026.
2. Canada: Underlying net income was a record $427 million, a 23% year-over-year increase, contributing approximately 38.1% of total underlying net income. Favorable insurance experience drove most of the gain, with wealth business underlying earnings growing over 19% on AUM growth. Total assets under management and administration reached $286 billion, up 18% YoY, supported by record defined contribution sales and strong rollover activity. Reported net income was $443 million including favorable market impacts.
3. U.S.: Underlying net income increased 15% year-over-year, driven by business growth in medical stop-loss, favorable investment results, and better insurance experience in in-force management. Reported net increased 69% YoY due to a prior year intangible impairment charge in dental. Medical stop-loss sales grew 86% YoY on strong pricing discipline and risk selection. In dental, the company continues repositioning: Medicaid membership declined 9% from exiting unprofitable contracts, while commercial dental sales grew 10% YoY, and loss ratios improved.
4. Asia: Underlying net income increased 21% year-over-year, driven by robust organic CSM growth, lower expenses, and improved credit experience, contributing approximately 22.3% of total underlying net income. Reported net income increased 158% YoY on positive market impacts and higher underlying earnings. Total individual insurance sales grew 20% to $875 million, with 20% growth in Hong Kong (advisor force up 28% to nearly 4,000) and 69% growth in Indonesia driven by the expanded CIMB partnership. New business CSM declined year-over-year due to increased competitive pressure in Hong Kong, though margins remained strong.

• Maintains medium-term targets of 10% annual underlying EPS growth and a 20% underlying ROE; Q2 2026 results of 13% underlying EPS growth and 19.1% ROE are in line with or above these targets
• For the U.S. dental business, the company expects the ongoing repositioning (exiting unprofitable Medicaid contracts, growing commercial dental) to gradually improve earnings over the next 1-2 years, with Medicaid membership expected to remain lower through 2026
• Sun Life Asset Management targets operating margins expanding to over 30% over the coming years, with a mid-30% or higher margin expected within five years, and 20% medium-term underlying earnings growth; flow growth is expected to pick up over 2027 and 2028 as the unified platform captures cross-selling and efficiency opportunities
• New business CSM margins in Asia are expected to remain at current lower levels (relative to 2025's elevated levels) given the current competitive environment in Hong Kong
• The company's organic capital generation came in at 41% in Q2, above its 30-40% guidance range, and continues to maintain strong capital flexibility to invest in growth and return capital to shareholders

• MFS (Sun Life's U.S. active asset management business) continues to face elevated net outflows from industry-wide pressure on active U.S. equity managers amid growing popularity of lower-cost passive and low-tracking-error strategies
• The U.S. Medicaid dental business continues to face significant volume headwinds that will suppress overall dental earnings through 2026, and the shift to a profitable commercial mix will take 1-2 years to complete, with continued near-term pressure on results
• Hong Kong's insurance market is highly competitive, leading to compressed new business margins relative to prior years, and Mainland Chinese client business (30% of Hong Kong sales) faces potential impacts from new regulatory and tax policy changes, requiring increased due diligence from bank distribution partners
• Emerging 2026 stop-loss cohort experience is still only 15% complete, requiring ongoing monitoring as claim patterns emerge over the course of the policy year
• Sun Life Asset Management's SLC segment is still in the early stages of operating as a unified combined platform, and the realization of expected efficiency and growth synergies will take time to materialize

Q: The U.S. dental business is exiting unprofitable Medicaid contracts; how much more business will be shed and what is the timeline for the shift to commercial dental? / A: Near-term Medicaid volume pressures will not be fully offset by new commercial growth, and membership will remain lower for all of 2026. The state/Medicaid dental business will become a fundamentally smaller part of the portfolio, and building out the higher-margin commercial business will take 1-2 years, with gradual earnings improvement expected over that period. Progress should be measured by growth in commercial dental rather than performance of the legacy government business.

Q: What explains the disconnect between strong APE sales growth and lower year-over-year new business CSM in Asia? Is this specific to Q2, or should we expect lower margins to persist? / A: 2025 saw extraordinary CSM growth due to regulatory tailwinds that pulled forward high-margin sales, so current year-over-year comparisons are against an unusually strong baseline. Margins have evened out to mid-30% levels, which are still acceptable and profitable. Hong Kong's competitive market has forced some pricing adjustments, and these margin levels are appropriate for the current environment and are expected to persist going forward, rather than being a one-off Q2 dynamic. The company remains comfortable with current growth and profitability levels.

Q: For SLC (unified Sun Life Asset Management), fee-related earnings are flat year-over-year despite improved flows; what gives you confidence 20% medium-term earnings growth will be achieved by 2007, and what metrics should investors watch? / A: SLC is now fully unified after prior independent operation of acquired businesses, so the company can now pursue cross-platform distribution opportunities and expense efficiencies that were not prioritized previously. SLC's core strategies (private credit, real estate, real estate debt, infrastructure) have strong market tailwinds, and expansion into wealth channel strategies is a new growth driver that will ramp up over coming years. Flows will remain lumpy quarter-to-quarter due to the institutional fund closing cycle, but overall flows are expected to pick up over time. Margins are expected to expand to over 30% (mid-30%+ within five years) from current flat levels as scale and efficiencies kick in.

Q: What explains strong 86% stop-loss sales growth but a lack of a corresponding large lift in U.S. segment earnings? / A: The strong stop-loss performance is masked by a pullback in the broader employee benefits business, which had a record quarter with very favorable one-time disability experience in Q2 2025 that did not recur in 2026. Stop-loss itself is performing in line with expectations for growth and margins, with loss ratios holding steady in the targeted mid-70s range, and the business is benefiting from a hardening market and strong pricing discipline.