Sun Life Financial(SLF) - 2025 Q1 - Quarterly Report

First Quarter 2025 Financial and Operational Highlights Overall Performance Summary Sun Life reported strong Q1 2025 top and bottom-line growth, with underlying net income increasing 19% to $1,045 million and reported net income rising 13% to $928 million Q1 2025 Key Financial Metrics vs. Q1 2024 | Metric | Q1'25 | Q1'24 | Change | | :--- | :--- | :--- | :--- | | Profitability | | | | | Underlying net income ($M) | 1,045 | 875 | +19% | | Reported net income ($M) | 928 | 818 | +13% | | Underlying EPS ($) | 1.82 | 1.50 | +21.3% | | Reported EPS ($) | 1.62 | 1.40 | +15.7% | | Underlying ROE | 17.7% | 16.0% | +1.7 p.p. | | Growth | | | | | AUM ($B) | 1,551 | 1,470 | +6% | | Asset management gross flows & wealth sales ($M) | 62,221 | 46,898 | +33% | | Financial Strength | | | | | SLF Inc. LICAT ratio | 149% | 148% | +1 p.p. | - The company announced a 5% increase in its common share dividend, raising it from $0.84 to $0.88 per share[6][10] - Sun Life is seeking to renew its normal course issuer bid (NCIB) to continue its share buyback program, reflecting confidence in its financial position[6] Business Group Performance Highlights All business groups contributed to strong Q1 2025 results, with Asset Management underlying net income up 24%, Canada up 21%, U.S. up 15%, and Asia up 11% Q1 2025 Underlying Net Income by Business Group (vs. Q1 2024) | Business Group | Q1'25 Underlying Net Income ($M) | YoY Change | Key Drivers | | :--- | :--- | :--- | :--- | | Asset Management | 351 | +24% | Higher fee-related earnings and strong performance in SLC Management. | | Canada | 376 | +21% | Business growth and favourable protection experience. | | U.S. | 218 | +15% | Higher Dental results and improved credit experience. | | Asia | 197 | +11% | Good sales momentum, in-force business growth, and higher JV contributions. | | Corporate | (97) | (17)% | Lower investment income from surplus assets. | - Asset Management experienced net outflows of $8.7 billion, primarily from MFS retail outflows, but this was partially offset by strong capital raising and net inflows of $2.9 billion at SLC Management[17] - Asia's individual sales increased by 17%, driven by strong performance in India, Hong Kong, and China. New business CSM in Asia grew to $273 million from $230 million in the prior year[33][37] Management's Discussion and Analysis (MD&A) Financial Summary Sun Life's Q1 2025 financial summary shows underlying net income increasing to $1,045 million, total AUM growing to $1,550.9 billion, and a solid SLF Inc. LICAT ratio of 149% Quarterly Financial Summary | Metric | Q1'25 | Q4'24 | Q1'24 | | :--- | :--- | :--- | :--- | | Profitability | | | | | Underlying net income ($M) | 1,045 | 965 | 875 | | Reported net income ($M) | 928 | 237 | 818 | | Underlying EPS ($) | 1.82 | 1.68 | 1.50 | | Underlying ROE (%) | 17.7% | 16.5% | 16.0% | | Growth | | | | | Total AUM ($B) | 1,550.9 | 1,542.3 | 1,470.1 | | New business CSM ($M) | 406 | 306 | 347 | | Financial Strength | | | | | SLF Inc. LICAT ratio (%) | 149% | 152% | 148% | | Financial leverage ratio (%) | 20.1% | 20.1% | 21.1% | Profitability Analysis Q1 2025 underlying net income increased 19% to $1,045 million, driven by broad-based growth across all business types, while reported net income rose 13% to $928 million - The increase in underlying net income was primarily driven by higher fee-related earnings in SLC Management, business growth and favorable protection experience in Canada, and growth in Asia[57][58] - Reported net income was positively impacted by improved real estate experience and favorable interest rate movements, but partially offset by unfavorable equity market impacts and prior year gains from the partial sale of ABSLAMC[59][65] - Notable experience items in the quarter included favorable morbidity experience in Canada and unfavorable expense experience in the U.S. and Canada[66] Growth Metrics Sun Life demonstrated strong Q1 2025 growth, with total asset management gross flows and wealth sales up 33% to $62.2 billion, contributing to a 17% increase in new business CSM and a 6% rise in total AUM to $1.55 trillion Q1 2025 Sales Performance (vs. Q1 2024) | Sales Category | Q1'25 ($M) | Q1'24 ($M) | YoY Change | | :--- | :--- | :--- | :--- | | Asset management gross flows & wealth sales | 62,221 | 46,898 | +33% | | Group - Health & Protection sales | 580 | 528 | +10% | | Individual - Protection sales | 874 | 757 | +15% | | New business CSM | 406 | 347 | +17% | - AUM increased by $8.5 billion from Q4 2024, driven by favorable market movements ($9.2B) and foreign exchange ($2.5B), partially offset by net outflows from segregated funds and third-party AUM ($6.4B)[71][73] - The $6.4 billion in net outflows was primarily due to MFS net outflows of $11.6 billion, which were partially mitigated by SLC Management net inflows of $2.9 billion and Canada/Asia inflows of $2.3 billion[72] Contractual Service Margin (CSM) The Contractual Service Margin (CSM) increased by $0.3 billion (2%) to $13.6 billion in Q1 2025, primarily driven by $406 million from new insurance business reflecting strong sales in Asia and Canada Q1 2025 CSM Movement ($ millions) | Component | Amount | | :--- | :--- | | Beginning of Period | 13,366 | | Impact of new insurance business | 406 | | Expected movements | 191 | | Insurance experience gains/losses | 20 | | CSM recognized for services provided | (303) | | Organic CSM Movement | 314 | | Impact of markets & other | (74) | | Impact of change in assumptions | (6) | | Currency impact | 19 | | Total CSM Movement | 253 | | End of Period | 13,619 | Financial Strength Sun Life maintained a strong Q1 2025 financial position with a 149% SLF Inc. LICAT ratio and stable 20.1% financial leverage, supported by $308 million in organic capital generation and $1.3 billion in liquid assets Key Financial Strength Indicators (Q1'25) | Indicator | Q1'25 | Q4'24 | | :--- | :--- | :--- | | SLF Inc. LICAT ratio | 149% | 152% | | Sun Life Assurance LICAT ratio | 141% | 146% | | Total capital ($B) | 46.0 | 45.9 | | Financial leverage ratio | 20.1% | 20.1% | | Underlying dividend payout ratio | 46% | 50% | - During Q1 2025, the company repurchased and cancelled 6.4 million common shares for a total of $520 million under its Normal Course Issuer Bid (NCIB)[84] - Subsequent to the quarter end, on May 8, 2025, SLF Inc. announced its intention to renew its NCIB, planning to purchase up to an additional 10 million common shares after completing the current program[85] Performance by Business Segment This section details the performance of Sun Life's five business segments, highlighting strong underlying income growth in Asset Management (+24%), Canada (+21%), U.S. (+15%), and Asia (+11%), while Corporate reported a higher net loss Asset Management Asset Management's underlying net income increased 24% to $351 million, driven by higher fee-related earnings at SLC Management and favorable foreign exchange impacts at MFS, despite MFS net outflows Asset Management Financials (Q1'25 vs Q1'24) | Metric | Q1'25 | Q1'24 | Change | | :--- | :--- | :--- | :--- | | Underlying net income (C$M) | 351 | 282 | +24% | | Reported net income (C$M) | 326 | 284 | +15% | | AUM (C$B) | 1,123.7 | 1,078.6 | +4.2% | | Net flows (C$B) | (8.7) | (10.1) | N/A | - MFS's underlying net income was down $3 million on a U.S. dollar basis, as higher fee income was offset by lower net investment income. Its pre-tax net operating profit margin was 35.4%, down from 37.2% in the prior year[95] - SLC Management's underlying net income grew significantly by $57 million, with fee-related earnings up 43% driven by higher catch-up fees from strong capital raising[95] Canada The Canada segment delivered a strong quarter with underlying net income increasing 21% to $376 million, driven by broad-based growth in Group Health & Protection and Individual Protection, alongside robust sales performance Canada Financials (Q1'25 vs Q1'24) | Metric | Q1'25 ($M) | Q1'24 ($M) | Change | | :--- | :--- | :--- | :--- | | Underlying net income | 376 | 310 | +21% | | Reported net income | 351 | 290 | +21% | | Asset management & wealth sales | 6,527 | 4,079 | +60% | | Group - Health & Protection sales | 375 | 311 | +21% | | Individual - Protection sales | 139 | 130 | +7% | - The increase in underlying net income was driven by favorable protection experience, including shorter claims durations in morbidity and lower claims severity in mortality[99] U.S. The U.S. segment reported a 7% increase in underlying net income to US$151 million, driven by higher Dental results and improved investment income, despite a 13% decline in group sales U.S. Financials in USD (Q1'25 vs Q1'24) | Metric | Q1'25 (US$M) | Q1'24 (US$M) | Change | | :--- | :--- | :--- | :--- | | Underlying net income | 151 | 141 | +7% | | Reported net income | 129 | 71 | +82% | | Group - Health & Protection sales | 123 | 142 | -13% | - Reported net income saw a significant 82% increase, largely due to favorable market-related impacts from improved real estate experience and interest rates[101] - Higher Dental results were a key driver, reflecting the impact of Medicaid repricing and prior year impacts following the end of the Public Health Emergency[104] Asia The Asia segment's underlying net income grew 11% to $197 million, fueled by strong sales momentum, in-force business growth, and higher joint venture contributions, despite a reported net income decrease due to prior year gains Asia Financials (Q1'25 vs Q1'24) | Metric | Q1'25 ($M) | Q1'24 ($M) | Change | | :--- | :--- | :--- | :--- | | Underlying net income | 197 | 177 | +11% | | Reported net income | 166 | 235 | -29% | | Individual - Protection sales | 735 | 627 | +17% | | New business CSM | 273 | 230 | +19% | - Individual sales growth was driven by higher sales in India (bancassurance, direct-to-consumer), Hong Kong (agency, bancassurance), and China (bancassurance)[110] Corporate The Corporate segment reported an increased underlying net loss of $97 million, primarily due to lower investment income from surplus assets, with a reported net loss of $101 million - The underlying net loss increased to $97 million from $83 million in Q1'24, mainly reflecting lower investment income from surplus assets[112] - The reported net loss of $101 million was wider than the prior year's $88 million, consistent with the decline in underlying results[113] Investments Total general fund invested assets reached $191.0 billion as of March 31, 2025, maintaining a well-diversified and high-quality portfolio with 76% of debt securities rated 'A' or higher General Fund Invested Assets as of March 31, 2025 | Asset Class | Carrying Value ($M) | % of Total | | :--- | :--- | :--- | | Debt securities | 84,630 | 44% | | Mortgages and loans | 58,749 | 31% | | Cash, cash equivalents and short-term securities | 11,506 | 6% | | Equity securities | 9,656 | 5% | | Investment properties | 9,335 | 5% | | Other invested assets | 15,330 | 8% | | Total Invested Assets | 191,045 | 100% | - The debt securities portfolio remains high quality, with 76% rated 'A' or higher and 99% rated 'BBB' or higher[120] - The commercial mortgage portfolio of $14.6 billion has no single-family residential exposure. The uninsured portion has a weighted average loan-to-value of 54% and debt service coverage of 1.77 times[125] Risk Management This section details Sun Life's market risk exposures and management, providing sensitivity analyses on the estimated immediate impact of various market shocks on net income, CSM, OCI, and the LICAT ratio Market Risk Sensitivities as of March 31, 2025 | Scenario | Impact on Net Income ($M) | Impact on LICAT Ratio | | :--- | :--- | :--- | | 10% decrease in Equity Markets | (225) | -0.5% points | | 10% increase in Equity Markets | 225 | +0.5% points | | 50 bps decrease in Interest Rates | (25) | +2.5% points | | 50 bps increase in Interest Rates | 0 | -2.5% points | | 50 bps increase in Credit Spreads | (75) | -2.5% points | | 10% decrease in Real Estate Values | (475) | Not provided | - The company's primary exposure to interest rate risk arises from insurance and investment contracts with embedded guarantees. This risk is managed through an asset-liability management program, which may include the use of derivatives[140] - Foreign currency risk is managed by generally matching the currency profile of assets to liabilities and required capital in each country of operation. Net income earned outside of Canada is generally not currency hedged[147][148] Non-IFRS Financial Measures This section defines and reconciles key non-IFRS financial measures, such as 'Underlying Net Income', which adjusts reported net income to reflect underlying business performance by removing market-related impacts and other specific items - Underlying net income is a key non-IFRS measure that removes market-related impacts, assumption changes and management actions (ACMA), and other adjustments (e.g., acquisition costs, intangible amortization) from reported net income[207][209] Reconciliation of Underlying to Reported Net Income (Q1'25, $M) | Description | Amount | | :--- | :--- | | Underlying net income | 1,045 | | Market-related impacts | (22) | | Assumption changes and management actions | (4) | | Other adjustments | (91) | | Reported net income - Common shareholders | 928 | - Other important non-IFRS measures discussed include Return on Equity (ROE), Assets Under Management (AUM), Financial Leverage Ratio, and various sales and CSM metrics[214][240][241] Condensed Consolidated Financial Statements Consolidated Statements of Operations For Q1 2025, Sun Life reported total revenue of $11.35 billion, driven by a positive swing in net investment income, resulting in net income attributable to common shareholders of $928 million or $1.62 per diluted share Q1 2025 Statement of Operations Highlights ($ millions) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Insurance Revenue | 6,018 | 5,540 | | Net Investment Income (Loss) | 3,093 | (677) | | Fee Income | 2,240 | 2,012 | | Total Revenue | 11,351 | 6,875 | | Income (loss) before income taxes | 1,249 | 1,197 | | Common shareholders' net income (loss) | 928 | 818 | | Diluted EPS ($) | 1.62 | 1.40 | Consolidated Statements of Financial Position As of March 31, 2025, Sun Life's total assets reached $373.0 billion, with total liabilities at $346.9 billion and total equity at $26.0 billion, reflecting a stable financial position Balance Sheet Highlights ($ billions) | Account | March 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total General Fund Assets | 223.3 | 221.9 | | Total Assets | 373.0 | 370.7 | | Total General Fund Liabilities | 197.3 | 195.8 | | Total Liabilities | 346.9 | 344.6 | | Total Shareholders' Equity | 25.4 | 25.6 | | Total Equity | 26.0 | 26.1 | Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities significantly improved to $382 million, with cash used in financing activities at $1.64 billion, ending the period with $11.5 billion in cash and equivalents Q1 2025 Cash Flow Summary ($ millions) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | (382) | (2,487) | | Net cash provided by (used in) investing activities | (80) | 16 | | Net cash provided by (used in) financing activities | (1,642) | (925) | | Increase (decrease) in cash and cash equivalents | (2,085) | (3,262) | | Net cash, cash equivalents and short-term securities, end of period | 11,477 | 11,123 |