Sun Life Financial(SLF) - 2025 Q2 - Quarterly Report

Executive Summary & Highlights Sun Life Financial Inc. reported strong Q2 2025 results, driven by record underlying net income in Asia, robust protection business growth, and higher wealth management and investment earnings Q2 2025 Performance Overview | Metric | Q2'25 | Q2'24 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Underlying Net Income (Millions USD) | 1,015 | 1,000 | +$15 (+2%) | | Reported Net Income (Millions USD) | 716 | 646 | +$70 (+11%) | | Underlying EPS (USD) | 1.79 | 1.72 | +$0.07 | | Reported EPS (USD) | 1.26 | 1.11 | +$0.15 | | Underlying ROE | 17.6% | 18.1% | -0.5% points | | Reported ROE | 12.4% | 11.7% | +0.7% points | | AUM (Billions USD) | 1,541 | 1,465 | +$76 (+5%) | | LICAT Ratio (SLF Inc.) | 151% | 150% | +1% point | | Financial Leverage Ratio | 20.4% | 22.6% | -2.2% points | - Strategic priorities include driving client outcomes through digital initiatives and GenAI tools, enhancing client experience, and improving productivity[6] - The company maintained a strong capital position with a LICAT ratio of 151% and repurchased nearly $400 million of shares[6] - Asia achieved record underlying net income, driven by strong protection business growth, higher wealth management earnings, and a 15% increase in bancassurance sales[6] Management's Discussion and Analysis This section analyzes Sun Life's financial performance, growth, strength, and risk management across its business segments A. How We Report Our Results Sun Life reports financial results across five segments, adhering to IFRS while utilizing non-IFRS measures for enhanced performance insights - Sun Life operates and reports financial results across five key business segments: Asset Management, Canada, U.S., Asia, and Corporate[4][39] - Unaudited interim consolidated financial statements adhere to International Financial Reporting Standards (IFRS) and IAS 34 Interim Financial Reporting[4][39] - Non-IFRS financial measures provide investors with useful information and facilitate period-to-period comparisons[4][44] - Earnings analysis categorizes business into Asset Management & Wealth, Group - Health & Protection, and Individual - Protection, each with distinct profitability profiles[43] B. Financial Summary This summary presents key profitability, growth, and financial strength metrics for Q2 2025, highlighting increases in net income, EPS, and AUM Profitability Highlights (Q2'25 vs Q2'24) | Metric | Q2'25 | Q2'24 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Underlying Net Income (Millions USD) | 1,015 | 1,000 | +$15 (+2%) | | Reported Net Income (Millions USD) | 716 | 646 | +$70 (+11%) | | Underlying EPS (USD) | 1.79 | 1.72 | +$0.07 | | Reported EPS (USD) | 1.26 | 1.11 | +$0.15 | | Underlying ROE | 17.6% | 18.1% | -0.5% points | | Reported ROE | 12.4% | 11.7% | +0.7% points | Growth Highlights (Q2'25 vs Q2'24) | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :----------- | | Asset Management Gross Flows & Wealth Sales | 52,712 | 46,262 | +$6,450 (+14%) | | Group - Health & Protection Sales | 535 | 494 | +$41 (+8%) | | Individual - Protection Sales | 863 | 753 | +$110 (+15%) | | AUM (Billions USD) | 1,541 | 1,465 | +$76 (+5%) | | New Business CSM (Millions USD) | 435 | 437 | -$2 (-0.5%) | Financial Strength Highlights (Q2'25 vs Q2'24) | Metric | Q2'25 | Q2'24 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | LICAT Ratio (SLF Inc.) | 151% | 150% | +1% point | | LICAT Ratio (Sun Life Assurance) | 141% | 142% | -1% point | | Financial Leverage Ratio | 20.4% | 22.6% | -2.2% points | | Book Value Per Common Share (USD) | 39.57 | 37.70 | +$1.87 | C. Profitability Q2 2025 underlying net income increased 2% due to improved U.S. Dental and favorable Canadian mortality, while reported net income rose 11% from a prior year restructuring charge - Q2 2025 underlying net income increased by $15 million (2%) to $1,015 million, driven by improved U.S. Dental results and favorable Canadian mortality, partially offset by higher Asia expenses and unfavorable mortality in Canada and the U.S.[10][14][51][52] - Q2 2025 reported net income increased by $70 million (11%) to $716 million, primarily due to a prior year restructuring charge and increased underlying net income, partially offset by an impairment charge and unfavorable market impacts[10][14][53][59] - Year-to-date underlying net income increased by $185 million (10%) to $2,060 million, driven by higher fee-related earnings in asset management, improved U.S. Dental results, and business growth in Canada and Asia[62][67] - Global Minimum Tax (GMT) rules, effective January 1, 2024, impact tax rates in jurisdictions such as Bermuda (15% CIT effective January 1, 2025), Hong Kong, and Ireland[60][71] D. Growth Sun Life achieved significant Q2 2025 growth, with asset management gross flows and wealth sales up 14%, group health and protection sales up 8%, and individual protection sales up 15% Q2'25 Sales and Gross Flows (YoY) | Metric | Q2'25 (Millions USD) | Change (YoY) | | :----------------------------------- | :----------------- | :----------- | | Total Asset Management Gross Flows & Wealth Sales | 52,712 | +14% | | Total Group Health & Protection Sales | 535 | +8% | | Total Individual Protection Sales | 863 | +15% | | New Business CSM | 435 | -0.5% | - Asset management gross flows increased by $6.1 billion (16%), driven by higher flows in MFS and SLC Management[73] - Canada's asset management gross flows and wealth sales decreased by 13%, while Group - Health & Protection sales increased by 41%, and Individual - Protection sales decreased by 19%[73] - U.S. Group sales decreased by 7%, primarily due to lower medical stop-loss sales, partially offset by increased Medicaid and commercial dental sales[73] - Asia individual sales increased by 22%, driven by strong performance in Hong Kong, Indonesia (bancassurance), and India (agency and bancassurance)[73] - Total Assets Under Management (AUM) reached $1,541 billion, representing a $76 billion (5%) increase from Q2 2024[9][75] - AUM decreased by $1.4 billion from December 31, 2024, primarily due to foreign exchange translation and net outflows, partially offset by favorable market movements[75][76] E. Contractual Service Margin Total Contractual Service Margin (CSM) increased by $0.3 billion (2%) to $13.7 billion for the first six months of 2025, driven by new insurance business and strong profit margins - Total CSM reached $13.7 billion at Q2 2025, an increase of $0.3 billion (2%) for the first six months of 2025[78] - Organic CSM movement was driven by new insurance business, reflecting strong profit margins and sales in Asia (primarily Hong Kong) and individual protection sales in Canada[78] - Favorable impacts from markets and other factors were driven by interest experience[78] - Unfavorable currency impacts were observed in Asia and the U.S.[78] F. Financial Strength Sun Life maintained strong capital with SLF Inc.'s LICAT ratio at 151% and Sun Life Assurance's at 141%, both exceeding regulatory targets LICAT Ratios (at June 30, 2025) | Metric | June 30, 2025 | Change from Dec 31, 2024 | | :-------------------------- | :------------ | :----------------------- | | Sun Life Financial Inc. | 151% | -1% point | | Sun Life Assurance | 141% | -5% points | - Both LICAT ratios significantly exceed OSFI's supervisory ratio of 100% and the regulatory minimum of 90%[82] - Total capital stood at $45.2 billion as of June 30, 2025, a $0.6 billion decrease from December 31, 2024[84] - Capital decreased due to $976 million in common share dividends, $967 million in unfavorable foreign exchange impacts, and $918 million in share repurchases, partially offset by $1,644 million in reported net income and a $309 million CSM increase[84] - Organic capital generation in Q2 2025 was $673 million, driven by growth in underlying net income and new business CSM[85] - The financial leverage ratio was 20.4% at June 30, 2025[9][79] - In Q2 2025, 4.8 million common shares were repurchased for $398 million; year-to-date, 11.2 million shares for $918 million[89] - On July 15, 2025, $55 million cash was invested in Bowtie Life Insurance Company Limited, increasing ownership by approximately 11%[90][351] G. Performance by Business Segment This section details the financial performance of Sun Life's five business segments, highlighting key drivers of net income, sales, and AUM growth 1. Asset Management Asset Management's Q2 2025 underlying net income decreased 2% due to lower MFS fee income, offset by higher SLC Management earnings - Q2 2025 underlying net income decreased by $7 million (2%) to $300 million, with MFS down $10 million due to lower fee income, while SLC Management was up $3 million from higher fee-related earnings[15][22][95][101] - Q2 2025 reported net income decreased by $20 million (7%) to $254 million, primarily due to market-related impacts in SLC Management[15][95] - Year-to-date underlying net income increased by $62 million (11%) to $651 million[97] - Asset Management AUM was $1,114.2 billion, a $7.1 billion decrease from December 31, 2024, due to net outflows and client distributions[17][94][99] - MFS AUM increased by US$29.6 billion (5%) from December 31, 2024, driven by US$52.0 billion in asset value changes, partially offset by US$22.4 billion in net outflows[99] - SLC Management fee-earning AUM increased by $1.2 billion from December 31, 2024, driven by $14.2 billion in net inflows, largely offset by asset value changes and client distributions[101] 2. Canada Canada's Q2 2025 underlying net income decreased 6% due to lower investment contributions and unfavorable individual protection mortality - Q2 2025 underlying net income decreased by $23 million (6%) to $379 million, primarily due to lower investment contributions and unfavorable individual protection mortality, partially offset by favorable group life mortality[23][103][105] - Q2 2025 reported net income increased by $38 million (13%) to $330 million, driven by favorable equity market and interest rate impacts[18][103] - Canada's Q2 2025 asset management gross flows and wealth sales were $4.7 billion (down 13%), Group - Health & Protection sales were $201 million (up 41%), and Individual - Protection sales were $136 million (down 19%)[23][105] - The Canadian Dental Care Plan (CDCP) was expanded to include eligible adults aged 18-64, aiming to enhance oral health care access for up to nine million Canadians[19] 3. U.S. U.S. Q2 2025 underlying net income decreased 4% due to unfavorable individual protection mortality, while reported net income fell 19% from an impairment charge - Q2 2025 underlying net income decreased by US$6 million (4%) to US$143 million, driven by unfavorable individual protection mortality and credit experience, despite improved Dental results[24][31][107][113] - Q2 2025 reported net income decreased by US$17 million (19%) to US$74 million, primarily due to a US$45 million impairment charge on a U.S. group dental contract[24][107] - Q2 2025 U.S. Group sales were US$226 million (down 7%), primarily due to lower medical stop-loss sales, partially offset by higher Medicaid and commercial dental sales[25][111] - New services include a partnership with Wellthy for bereavement and end-of-life care navigation, and an Expert Cancer Review service for members with cancer diagnoses[26][27] 4. Asia Asia's Q2 2025 underlying net income increased 15% from higher asset management fee income and individual protection growth, despite a 35% decrease in reported net income - Q2 2025 underlying net income increased by $27 million (15%) to $206 million, driven by higher asset management fee income and individual protection growth, partially offset by increased expenses[28][32][115][117] - Q2 2025 reported net income decreased by $53 million (35%) to $98 million, reflecting unfavorable other market and equity market impacts[28][115] - Asia's Q2 2025 individual sales were $727 million (up 22%), and asset management gross flows and wealth sales were $2.5 billion (up 25%), driven by strong performance across multiple markets[29][32][118][124] - New business CSM reached $299 million, up from $220 million in the prior year, primarily due to strong profit margins and higher sales in Hong Kong[29][118] - Strategic investments include increased ownership in Bowtie Life Insurance Company Limited and 100% new business digital adoption by Aditya Birla Sun Life Insurance Company Limited in India[30] 5. Corporate Corporate's Q2 2025 underlying net loss decreased to $65 million, primarily due to strategic investment timing and lower incentive compensation - Q2 2025 underlying net loss was $65 million, a decrease from $92 million in Q2 2024, driven by strategic investment timing and lower incentive compensation[33][121] - Q2 2025 reported net loss was $69 million, a decrease from $198 million in Q2 2024, reflecting a prior year $108 million restructuring charge and the change in underlying net loss[33][121] - Year-to-date underlying net loss was $162 million, a decrease from $175 million in the prior year, driven by strategic investment timing and lower incentive compensation[122] H. Investments Total general fund invested assets were $189.2 billion as of June 30, 2025, a slight decrease primarily due to unfavorable foreign exchange impacts - Total general fund invested assets were $189.2 billion as of June 30, 2025, a $0.6 billion decrease from December 31, 2024[125] - The change was primarily driven by unfavorable foreign exchange translation, partially offset by operating activities and net fair value growth[125] - The debt securities portfolio is highly rated, with 77% rated 'A' or higher and 99% rated 'BBB' or higher, and gross unrealized losses decreased due to declining interest rates[129][130] - Mortgages and loans totaled $57.8 billion, with commercial mortgages comprising the entire portfolio and an uninsured weighted average loan-to-value ratio of approximately 53%[134][135] - Derivatives' net fair value shifted to an asset of $192 million from a $106 million liability, driven by Canadian dollar appreciation, with total notional amount increasing to $81.6 billion[139][140] - Investment properties totaled $9.2 billion, a decrease primarily due to unfavorable foreign exchange, partially offset by net property purchases in Canada[141] I. Risk Management Sun Life employs a comprehensive Risk Management Framework to manage market, insurance, credit, business, operational, and liquidity risks - A comprehensive Risk Management Framework is in place to identify, measure, manage, monitor, and report risks across six major categories[143] - Equity risk arises from asset management fees, protection/wealth contracts, segregated fund benefit guarantees, and direct investments[146][147][148] - Interest rate and spread risk, stemming from asset-liability mismatches, is managed through asset-liability management programs and hedging strategies[149][150] - Real estate risk involves potential financial loss from value fluctuations, impacting net income, CSM, and capital[154][155] - Foreign currency risk from asset, liability, and cash flow mismatches is managed by matching currency profiles and utilizing derivatives[156][157] Market Risk Sensitivities (as at June 30, 2025) | Risk Factor | Change | Potential Impact on Net Income (After-Tax, Millions USD) | Potential Impact on CSM (Pre-Tax, Millions USD) | Potential Impact on OCI (Millions USD) | Potential Impact on LICAT Ratio (Percentage Points) | | :----------------------------------- | :------------------- | :----------------------------------------- | :-------------------------------- | :---------------------- | :------------------------------ | | Private and Public Equity Markets | 10% decrease | $(225) | $(325) | — | 0.5% point decrease | | Interest Rates | 50 basis point decrease | $25 | $175 | $225 | 3.0% point increase | | Credit Spreads | 50 basis point decrease | $100 | $125 | $200 | 2.0% point increase | | Real Estate Values | 10% decrease | $(475) | $(100) | — | — | J. Additional Financial Disclosure This section provides further financial details, including revenue breakdown, changes in financial position, cash flow analysis, and quarterly financial results 1. Revenue Q2 2025 total revenue increased by $0.3 billion year-over-year, driven by higher insurance revenue, particularly in the U.S. and Canada - Q2 2025 total revenue was $9,199 million, an increase of $0.3 billion from the prior year[190] Revenue Components (Q2'25 vs Q2'24) | Revenue Type | Q2'25 (Millions USD) | Q2'24 (Millions USD) | Change (YoY) | | :---------------------- | :----------------- | :----------------- | :----------- | | Insurance Revenue | 5,957 | 5,567 | +$390 | | Net Investment Income (Loss) | 1,107 | 1,272 | -$165 | | Fee Income | 2,135 | 2,077 | +$58 | | Total Revenue | 9,199 | 8,916 | +$283 | - Year-to-date total revenue was $20,550 million, an increase of $4.8 billion from the prior year, driven by net investment income and higher insurance revenue[191] 2. Changes in the Statements of Financial Position and in Shareholders' Equity Total general fund assets decreased slightly to $220.7 billion due to unfavorable foreign exchange, while total shareholders' equity decreased to $24.5 billion - Total general fund assets were $220.7 billion as of June 30, 2025, primarily impacted by unfavorable foreign exchange, partially offset by operating activities and fair value growth[192] - Net liabilities for insurance contracts were $148.0 billion as of June 30, 2025, driven by insurance finance income/expenses and cash flows, partially offset by foreign currency translation[193] - Total shareholders' equity was $24.5 billion as of June 30, 2025[193] - Equity changes included $976 million in common share dividends, $967 million in unfavorable foreign exchange impacts, and $918 million in share repurchases, partially offset by $1,683 million in net income and $150 million in net unrealized gains on FVOCI assets[194] 3. Cash Flows Net cash and cash equivalents decreased by $367 million in Q2 2025, primarily due to financing activities, while operating activities generated $800 million - Net cash and cash equivalents decreased by $367 million in Q2 2025, ending at $7,502 million[195] - Cash flows from operating activities provided $800 million in Q2 2025[195] - Cash flows used in financing activities totaled $864 million, higher year-over-year due to a prior year $750 million subordinated debenture issuance[195][196] 4. Quarterly Financial Results This section summarizes Sun Life's financial performance over the past eight quarters, detailing revenue, net income, and EPS trends Total Revenue Trend | Quarter | Total Revenue (Millions USD) | | :------ | :------------------------- | | Q2'25 | 9,199 | | Q1'25 | 11,351 | | Q4'24 | 7,509 | | Q3'24 | 15,333 | | Q2'24 | 8,916 | | Q1'24 | 6,875 | | Q4'23 | 18,684 | | Q3'23 | 2,439 | Underlying Net Income Trend | Quarter | Underlying Net Income (Millions USD) | | :------ | :--------------------------------- | | Q2'25 | 1,015 | | Q1'25 | 1,045 | | Q4'24 | 965 | | Q3'24 | 1,016 | | Q2'24 | 1,000 | | Q1'24 | 875 | | Q4'23 | 983 | | Q3'23 | 930 | Reported EPS Trend | Quarter | Reported EPS (USD) | | :------ | :--------------- | | Q2'25 | 1.26 | | Q1'25 | 1.62 | | Q4'24 | 0.41 | | Q3'24 | 2.33 | | Q2'24 | 1.11 | | Q1'24 | 1.40 | | Q4'23 | 1.28 | | Q3'23 | 1.48 | K. Legal and Regulatory Proceedings Sun Life is regularly involved in legal and regulatory proceedings, with provisions established as required, and no significant updates reported in Q2 2025 - The company is regularly involved in legal actions and government/regulatory inquiries concerning compliance with various laws[208][348] - Provisions for insurance contract-related legal proceedings are included in Insurance contract liabilities; other provisions are established when probable and reliably estimable[349] - No significant updates to legal and regulatory proceedings were reported for the period[350] L. Changes in Accounting Policies No new IFRS standards were adopted in Q2 2025; an accounting policy change for joint ventures disaggregated insurance finance income/expenses to reduce accounting mismatch - No new or amended IFRS standards were adopted in Q2 2025[209] - An accounting policy change for certain joint ventures disaggregated insurance finance income or expenses between net income and OCI to reduce accounting mismatch[289] - A retroactive adjustment increased opening Retained earnings by $213 million and decreased Accumulated other comprehensive income by $213 million as of January 1, 2024[289] M. Internal Control Over Financial Reporting Management is responsible for internal control over financial reporting, with no material changes reported during Q2 2025 - Management is responsible for establishing and maintaining adequate internal control over financial reporting[210] - No material changes to the company's internal control over financial reporting occurred during Q2 2025[211] N. Non-IFRS Financial Measures This section defines and reconciles non-IFRS financial measures, including underlying net income and EPS, used to assess business performance and facilitate comparisons - Non-IFRS financial measures aid in understanding business performance, inform management planning, and are integral to employee incentive compensation programs[44][221] - Underlying net income adjustments remove market-related impacts, assumption changes and management actions (ACMA), and other specific items like restructuring costs and intangible asset amortization[224] Reconciliation of Underlying to Reported Net Income (Q2'25) | Metric | Underlying Net Income (Millions USD) | Adjustments (Millions USD) | Reported Net Income (Millions USD) | | :----------------------------------- | :------------------------- | :----------------------- | :------------------------- | | Total | 1,015 | (299) | 716 | | Market-related impacts | | (166) | | | Assumption changes and management actions | | 3 | | | Other adjustments | | (136) | | - Key non-IFRS measures defined include AUA, AUM, Capital raising, Cash and other liquid assets, Constant currency, Deployment, Drivers of Earnings (DOE), Earnings on Surplus, Fee earning AUM, Fee-related earnings and Operating income, Financial leverage ratio, LICAT market sensitivities, Organic capital generation, Pre-tax fee related earnings margin, Pre-tax net operating margin, Return on equity (ROE), Sales and flows, Third-party AUM, Total weighted premium income (TWPI), Underlying dividend payout ratio, and Underlying effective tax rate[228][229][230][231][232][233][234][236][237][238][239][240][241][242][243][244][245][247][248][249][250][251][252][254][255][256][257][258][259] O. Forward-looking Statements This section outlines forward-looking statements regarding Sun Life's strategies and future financial performance, which are subject to various risks and uncertainties - Forward-looking statements encompass strategies, plans, targets, goals, priorities, growth initiatives, business objectives, expected annual savings, LICAT ratio changes, and future events or conditions[267] - Forward-looking statements are not guarantees and involve risks including market, insurance, credit, business, operational, and liquidity risks[268][269] - The company does not undertake to update or revise its forward-looking statements unless required by law[270] Consolidated Financial Statements This section presents Sun Life's consolidated financial statements, including statements of operations, comprehensive income, financial position, changes in equity, and cash flows Consolidated Statements of Operations The Consolidated Statements of Operations detail Sun Life's revenues, expenses, and net income for Q2 2025, with total revenue at $9,199 million and common shareholders' net income at $716 million Q2'25 Financial Performance | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | YTD 2025 (Millions USD) | YTD 2024 (Millions USD) | | :----------------------------------- | :----------------- | :----------------- | :-------------------- | :-------------------- | | Total Revenue | 9,199 | 8,916 | 20,550 | 15,791 | | Income (Loss) Before Income Taxes | 976 | 910 | 2,225 | 2,107 | | Total Net Income (Loss) | 778 | 718 | 1,785 | 1,654 | | Common Shareholders' Net Income (Loss) | 716 | 646 | 1,644 | 1,464 | | Diluted EPS (USD) | 1.26 | 1.11 | 2.89 | 2.51 | | Dividends Per Common Share (USD) | 0.880 | 0.810 | 1.720 | 1.590 | Revenue Components (Q2'25) | Revenue Type | Q2'25 (Millions USD) | | :---------------------- | :----------------- | | Insurance Revenue | 5,957 | | Net Investment Income (Loss) | 1,107 | | Fee Income | 2,135 | Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) show Q2 2025 total net income of $778 million but a total comprehensive loss of $(89) million due to foreign currency translation losses Q2'25 Comprehensive Income (Loss) | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | YTD 2025 (Millions USD) | YTD 2024 (Millions USD) | | :----------------------------------- | :----------------- | :----------------- | :-------------------- | :-------------------- | | Total Net Income (Loss) | 778 | 718 | 1,785 | 1,654 | | Total Other Comprehensive Income (Loss) | (867) | 91 | (803) | 450 | | Total Comprehensive Income (Loss) | (89) | 809 | 982 | 2,104 | | Shareholders' Comprehensive Income (Loss) | (140) | 746 | 874 | 1,940 | - A key driver for OCI in Q2 2025 was $(992) million in unrealized foreign currency translation losses[274] Consolidated Statements of Financial Position The Consolidated Statements of Financial Position show total assets of $376.3 billion and total equity of $25.2 billion as of June 30, 2025 Key Balances (as at June 30, 2025 vs Dec 31, 2024) | Metric | June 30, 2025 (Millions USD) | Dec 31, 2024 (Millions USD) | | :----------------------------------- | :------------------------- | :------------------------ | | Total General Fund Assets | 220,671 | 221,935 | | Investments for Account of Segregated Fund Holders | 155,616 | 148,786 | | Total Assets | 376,287 | 370,721 | | Insurance Contract Liabilities (Excluding Segregated Funds) | 148,236 | 147,269 | | Total General Fund Liabilities | 195,487 | 195,806 | | Total Liabilities | 351,103 | 344,592 | | Total Equity | 25,184 | 26,129 | Invested Assets Composition (June 30, 2025) | Asset Type | Carrying Value (Millions USD) | % of Total | | :----------------------------------- | :-------------------------- | :--------- | | Debt Securities | 83,142 | 44% | | Mortgages and Loans | 57,810 | 30% | | Cash, Cash Equivalents and Short-Term Securities | 11,202 | 6% | | Equity Securities | 10,603 | 6% | | Investment Properties | 9,230 | 5% | Consolidated Statements of Changes in Equity The Consolidated Statements of Changes in Equity show total equity decreased to $25.2 billion as of June 30, 2025, primarily due to share repurchases, dividends, and unfavorable foreign currency translation - Total equity was $25,184 million as of June 30, 2025[277][282] - Key changes year-to-date June 30, 2025, included $1,683 million in net income, $(976) million in common share dividends, $(735) million in share repurchases, and $(967) million in foreign exchange translation impacts on OCI[194][282][347] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show net cash and cash equivalents at $7,502 million at Q2 2025, with operating activities providing $800 million and financing activities using $864 million - Net cash and cash equivalents totaled $7,502 million as of June 30, 2025[195][284] - Cash flows from operating activities provided $800 million in Q2 2025[195][284] - Cash flows used in investing activities totaled $53 million in Q2 2025[195][284] - Cash flows used in financing activities totaled $864 million, primarily due to $398 million in common share repurchases and $526 million in dividends paid[195][284] Condensed Notes to the Interim Consolidated Financial Statements This section provides condensed notes to the interim consolidated financial statements, covering general information, accounting policies, segmented information, financial instrument fair values, and risk management 1. General Information Sun Life Financial Inc. is a Canadian holding company, with interim consolidated financial statements prepared under IAS 34 Interim Financial Reporting - SLF Inc. is a publicly traded Canadian holding company for Sun Life Assurance Company of Canada[286] - Interim Consolidated Financial Statements are prepared in accordance with IAS 34 Interim Financial Reporting, consistent with the 2024 annual statements[287] 2. Changes in Accounting Policies No new IFRS standards were adopted in Q2 2025; an accounting policy change for joint ventures disaggregated insurance finance income/expenses to reduce accounting mismatch - No new or amended IFRS standards were adopted in Q2 2025[209][288] - An accounting policy change for certain joint ventures disaggregated insurance finance income or expenses between net income and OCI to reduce accounting mismatch[289] - A retroactive adjustment increased opening Retained earnings by $213 million and decreased Accumulated other comprehensive income by $213 million as of January 1, 2024[289] 3. Segmented Information Sun Life reports financial results across five segments, with revenues primarily from insurance and investment management, and intersegment transactions eliminated - Reportable segments include Canada, U.S., Asset Management, Asia, and Corporate[290] - Revenue sources are primarily life and health insurance, investment management, annuities, and mutual funds[291] - Expenses include direct costs and allocated overhead, with allocation based on a management reporting framework[292] - Intersegment transactions, primarily internal financing and asset management fees, are eliminated in consolidation[293] Q2'25 Segment Revenue and Shareholders' Net Income | Segment | Segment Revenue (Millions USD) | Shareholders' Net Income (Millions USD) | | :---------------- | :------------------------- | :---------------------------------- | | Canada | 2,447 | 330 | | U.S. | 3,637 | 103 | | Asset Management | 1,590 | 254 | | Asia | 1,573 | 98 | | Corporate | 124 | (50) | | Total | 9,199 | 735 | 4.A Fair Value of Financial Instruments This section details the carrying and fair values of financial instruments, categorized by fair value hierarchy levels, including information on CLOs and Level 3 asset reconciliations - Total financial assets as of June 30, 2025, were $178,079 million (Carrying Value) and $178,047 million (Fair Value)[298] - Total financial liabilities as of June 30, 2025, were $21,468 million (Carrying Value) and $21,447 million (Fair Value)[298] Fair Value Hierarchy (June 30, 2025 - Total Assets Measured at Fair Value) | Level | Amount (Millions USD) | | :------ | :------------------ | | Level 1 | 36,923 | | Level 2 | 285,914 | | Level 3 | 18,338 | | Total | 341,175 | - Crescent, a subsidiary, manages CLOs, with assets of $5,403 million and liabilities of $5,057 million as of June 30, 2025, and maximum loss exposure limited to a $282 million investment[299][300][301] - Level 3 assets reconciliation for Q2 2025 shows a beginning balance of $20,137 million, with various movements leading to an ending balance of $18,338 million[308] 4.B Net Investment Income (Loss) Net investment income (loss) for Q2 2025 was $1,107 million, a decrease from Q2 2024, while year-to-date it significantly increased to $4,200 million Net Investment Income (Loss) (Q2'25 vs Q2'24) | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | YTD 2025 (Millions USD) | YTD 2024 (Millions USD) | | :----------------------------------- | :----------------- | :----------------- | :-------------------- | :-------------------- | | Total Net Investment Income (Loss) (Recognized in Income) | 1,107 | 1,272 | 4,200 | 595 | Components of Net Investment Income (Loss) (Q2'25) | Component | Q2'25 (Millions USD) | | :----------------------------------- | :----------------- | | Interest Income (Expense) | 1,773 | | Dividend and Other Investment Income | 143 | | Total Net Realized and Unrealized Gains (Losses) | (771) | | Provision for Credit Losses | (1) | 4.C Cash, Cash Equivalents and Short-Term Securities Net cash, cash equivalents, and short-term securities totaled $11,102 million as of June 30, 2025, a decrease from December 31, 2024 Net Cash, Cash Equivalents and Short-Term Securities | Metric | June 30, 2025 (Millions USD) | Dec 31, 2024 (Millions USD) | June 30, 2024 (Millions USD) | | :----------------------------------- | :------------------------- | :------------------------ | :------------------------- | | Cash, Cash Equivalents and Short-Term Securities | 11,202 | 13,873 | 11,477 | | Less: Bank Overdraft | 100 | 175 | — | | Net Cash, Cash Equivalents and Short-Term Securities | 11,102 | 13,698 | 11,477 | 4.D Mortgage Securitization As of June 30, 2025, the carrying value of securitized mortgages was $1,475 million, with associated liabilities of $1,767 million Securitized Mortgages (June 30, 2025) | Metric | June 30, 2025 (Millions USD) | Dec 31, 2024 (Millions USD) | | :----------------------------------- | :------------------------- | :------------------------ | | Carrying Value | 1,475 | 1,555 | | Fair Value | 1,441 | 1,505 | Associated Liabilities (June 30, 2025) | Metric | June 30, 2025 (Millions USD) | Dec 31, 2024 (Millions USD) | | :----------------------------------- | :------------------------- | :------------------------ | | Carrying Value | 1,767 | 1,854 | | Fair Value | 1,738 | 1,807 | 5. Financial Instrument Risk Management Sun Life manages significant financial instrument risks, including credit, market, and liquidity risks, with an allowance for expected credit losses of $89 million as of June 30, 2025 - Significant financial instrument risks include credit risk, market risk (equity, real estate, interest rate and spread, foreign currency, inflation), and liquidity risk[315] - The allowance for expected credit losses was $89 million as of June 30, 2025[316] - The provision for credit losses increased by $8 million year-to-date June 30, 2025[316] 6. Insurance Contracts This section details changes in insurance contracts issued and reinsurance contracts held, and analyzes insurance revenue, which increased to $5,957 million in Q2 2025 6.A.i Changes in Insurance Contracts Issued and Reinsurance Contracts Held Net Asset or Liability Net balances for insurance contracts issued increased to $147,951 million as of June 30, 2025, while reinsurance contracts held net balances were $4,080 million - Net balances for insurance contracts issued totaled $147,951 million as of June 30, 2025[319] - Key changes year-to-date June 30, 2025, included $(600) million in CSM recognized, $(298) million in risk adjustment recognized, $49 million in new contracts, $1,427 million in other changes, and $459 million in PAA balance changes[319] - Net balances for reinsurance contracts held totaled $4,080 million as of June 30, 2025[320] 6.A.ii Analysis of Insurance Revenue Total insurance revenue for Q2 2025 was $5,957 million, an increase from Q2 2024, driven by both PAA and non-PAA measured contracts Total Insurance Revenue (Q2'25 vs Q2'24) | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | YTD 2025 (Millions USD) | YTD 2024 (Millions USD) | | :----------------------------------- | :----------------- | :----------------- | :-------------------- | :-------------------- | | Total Insurance Revenue | 5,957 | 5,567 | 11,975 | 11,107 | - Revenue from contracts not measured using PAA in Q2 2025 was $1,803 million, including $1,273 million from expected claims, $139 million from risk adjustment release, and $303 million from CSM recognized[321] - Revenue from contracts measured using PAA in Q2 2025 was $4,154 million[321] 7. Fee Income Total fee income for Q2 2025 was $2,135 million, an increase from Q2 2024, primarily from fund management, distribution, and administrative service fees Total Fee Income (Q2'25 vs Q2'24) | Metric | Q2'25 (Millions USD) | Q2'24 (Millions USD) | YTD 2025 (Millions USD) | YTD 2024 (Millions USD) | | :----------------------------------- | :----------------- | :----------------- | :-------------------- | :-------------------- | | Total Fee Income | 2,135 | 2,077 | 4,375 | 4,089 | Fee Income Components (Q2'25) | Component | Q2'25 (Millions USD) | | :----------------------------------- | :----------------- | | Fund Management and Other Asset-Based Fees | 1,492 | | Distribution Fees | 256 | | Administrative Service and Other Fees | 387 | - Distribution and fund management fees are primarily earned in the Asset Management segment, while administrative service and other fees are mainly from the Canada and U.S. segments[322] 8. Income Taxes Sun Life's effective income tax rate for Q2 2025 was 20.3%, lower than Q2 2024, primarily due to lower GMT expense and higher income in lower-tax jurisdictions Effective Income Tax Rate (Q2'25 vs Q2'24) | Period | Effective Tax Rate | | :----------------------------------- | :----------------- | | Q2'25 | 20.3% | | Q2'24 | 21.1% | | YTD 2025 | 19.8% | | YTD 2024 | 21.5% | - The change was driven by lower GMT expense and higher income in jurisdictions with lower tax rates in 2025[324] - GMT rules became effective January 1, 2024, with Bermuda enacting a 15% Corporate Income Tax (CIT) regime effective January 1, 2025, and Hong Kong and Ireland enacting QDMTT[325][326] - A GMT income tax benefit of $(4) million was recorded in Q2 2025 due to prior year adjustments[326] 9. Capital Management Sun Life maintains a strong capital base, with SLF Inc.'s LICAT ratio at 151% and Sun Life Assurance's at 141%, both exceeding regulatory targets 9.A Capital Sun Life's capital base exceeds regulatory and internal targets, with SLF Inc.'s LICAT ratio at 151% and Sun Life Assurance's at 141% as of June 30, 2025 - The capital strategy aims to exceed minimum regulatory and internal targets, maintain strong credit/financial strength ratings, and achieve an optimal capital structure[327] - As of June 30, 2025, SLF Inc.'s LICAT ratio was 151% and Sun Life Assurance's was 141%, both exceeding OSFI's minimum regulatory targets[328][329] - U.S. and other subsidiaries maintained capital levels above minimum local requirements[330] - The capital base comprises common and preferred shareholders' equity, equity in the participating account, non-controlling interest's equity, CSM, and other capital securities[331] 9.B Significant Capital Transactions Sun Life continued its NCIB, repurchasing 11.2 million common shares for $918 million year-to-date June 30, 2025, with the 2025 NCIB authorizing up to 10.6 million shares - Year-to-date June 30, 2025, 11.2 million common shares were repurchased for cancellation for $918 million (average price $81.71/share)[334] - The 2025 NCIB, commenced June 9, 2025, authorizes the purchase of up to 10.6 million common shares until May 21, 2026[332] - On June 30, 2025, 2.7 million Series 9QR Shares were converted into Series 8R Shares[335] 10. Segregated Funds This section details segregated funds classified as investment and insurance contracts, with investments for investment contracts totaling $135,860 million and insurance contracts totaling $19,756 million 10.A Segregated Funds Classified as Investment Contracts Investments for segregated fund holders for investment contracts totaled $135,860 million as of June 30, 2025, with net additions of $7,171 million year-to-date - Total investments for segregated fund holders (investment contracts) were $135,860 million as of June 30, 2025[337] - The composition as of June 30, 2025, was primarily segregated and mutual fund units totaling $134,188 million[337] - Net additions year-to-date June 30, 2025, were $7,171 million, driven by deposits and net gains, partially offset by payments to policyholders and management fees[338] 10.B Segregated Funds Classified as Insurance Contracts Investments for segregated fund holders for insurance contracts totaled $19,756 million as of June 30, 2025, decreasing year-to-date due to cash outflows and foreign currency translation - Total investments for segregated fund holders (insurance contracts) were $19,756 million as of June 30, 2025[339] - The composition as of June 30, 2025, was primarily segregated and mutual fund units totaling $14,761 million[339] - The balance decreased year-to-date June 30, 2025, due to total cash outflows of $(682) million and foreign currency translation of $(301) million, partially offset by $642 million in insurance finance expenses[341] 11. Commitments, Guarantees and Contingencies SLF Inc. provides guarantees on certain subordinated debentures and preferred shares of Sun Life Assurance, and this section presents consolidating summary financial information - SLF Inc. guarantees $150 million of 6.30% subordinated debentures due 2028 issued by Sun Life Assurance, and also provides a subordinated guarantee of preferred shares[342] Consolidating Summary Financial Information (Q2'25) | Metric | SLF Inc. (Unconsolidated, Millions USD) | Sun Life Assurance (Consolidated, Millions USD) | Other Subsidiaries of SLF Inc. (Combined, Millions USD) | Consolidation Adjustments (Millions USD) | SLF Inc. (Consolidated, Millions USD) | | :----------------------------------- | :------------------------------------- | :------------------------------------- | :--------------------------------------------- | :----------------------------------- | :----------------------------------- | | Total Revenue | 82 | 6,758 | 3,027 | (668) | 9,199 | | Shareholders' Net Income (Loss) | 735 | 580 | 132 | (712) | 735 | 12. Earnings (Loss) Per Share This section details basic and diluted EPS calculations, with Q2 2025 basic EPS at $1.27 and diluted EPS at $1.26, based on $716 million net income EPS Calculation (Q2'25 vs Q2'24) | Metric | Q2'25 | Q2'24 | YTD 2025 | YTD 2024 | | :----------------------------------- | :------ | :------ | :------- | :------- | | Common Shareholders' Net Income (Loss) for Basic EPS (Millions USD) | 716 | 646 | 1,644 | 1,464 | | Weighted Average Common Shares Outstanding for Basic EPS (Millions) | 565 | 581 | 568 | 582 | | Basic Earnings (Loss) Per Share (USD) | 1.27 | 1.11 | 2.89 | 2.52 | | Diluted Earnings (Loss) Per Share (USD) | 1.26 | 1.11 | 2.89 | 2.51 | - Sun Life ExchangEable Capital Securities (SLEECS) — Series B are considered in diluted EPS calculation[345] 13. Accumulated Other Comprehensive Income (Loss) Shareholders' accumulated other comprehensive income (loss) decreased to $1,405 million as of June 30, 2025, primarily due to significant unrealized foreign currency translation losses - Shareholders' accumulated OCI was $1,405 million as of June 30, 2025[347] - Key changes year-to-date June 30, 2025, included $(967) million in unrealized foreign currency translation losses and $150 million in unrealized gains on FVOCI assets[347] 14. Legal and Regulatory Proceedings Sun Life is regularly involved in legal and regulatory matters, with no significant updates reported in Q2 2025 - The company is regularly involved in legal actions and government/regulatory inquiries[348] - Provisions for insurance contract-related legal proceedings are included in Insurance contract liabilities; other provisions are established when probable and reliably estimable[349] - No significant updates to legal and regulatory proceedings were reported for the period[350] 15. Subsequent Event On July 15, 2025, Sun Life invested $55 million cash in Bowtie Life Insurance Company Limited, increasing its ownership by approximately 11% - On July 15, 2025, $55 million cash was invested in Bowtie Life Insurance Company Limited[90][351] - This investment resulted in an approximate 11% increase in ownership, excluding dilution[90][351] - Fair value determination and purchase price accounting are not yet complete due to the recent closing[351] Corporate and Shareholder Information This section provides investor relations and share transfer agent contact information, stock exchange listings, and 2025 common share dividend dates - Sun Life Financial Inc. common shares are listed on the Toronto (TSX), New York (NYSE), and Philippine (PSE) stock exchanges under ticker symbol SLF[38][354] - Class A Preferred Shares are listed on the Toronto Stock Exchange (TSX) with various ticker symbols[354][359] 2025 Dividend Dates (Common Shares) | Record Date | Payment Date | | :---------------- | :------------- | | February 26, 2025 | March 31, 2025 | | May 28, 2025 | June 30, 2025 | | August 27, 2025 | September 29, 2025 | | November 26, 2025* | December 31, 2025* | *Subject to approval by the Board of Directors. - Shareholder services contact information is provided for TSX Trust Company (Canada), Equiniti Trust Company, LLC (U.S.), MUFG Corporate Markets (UK) Limited (U.K.), RCBC Trust Corporation (Philippines), and Computershare Hong Kong (Hong Kong, SAR)[354][355][356][357][358][359][361][363][365]