Check against delivery
2015 Annual Meeting – May 6, 2015
Remarks by Dean A. Connor, President and Chief Executive Officer
Thank you, Jim. Let me add a warm welcome to our shareholders, policyholders and guests on
behalf of everyone at Sun Life Financial. This is a particularly special Annual General Meeting, as
it marks the 150th anniversary of the Company’s founding in Montreal.
It was in 1865, two years before Canada became a country, that Sun Life was granted its
charter. Since that time, we have survived and thrived through two World Wars, a Great
Depression, a Great Recession and countless changes in governments. If our founders could see
Sun Life today—serving 37 million customers in 26 countries around the world, with over $800
billion of assets under management—in one sense they would be amazed. In another sense
though, they would have expected nothing less from subsequent generations of Sun Life
leaders.
So we have a remarkable past, and a very bright future. This morning, I’ll report on our
continued progress in 2014, and outline our priorities for the future.
In 2014 we grew underlying net income by 15% to $1.82 billion. Operating net income, which
includes the impact of capital markets, assumption changes and management actions, was
$1.92 billion, and operating return on equity was 12.2%. Total shareholder return was 15.9% for
the year, well ahead of the TSX, the TSX Financial Services Index and our North American peers.
Yesterday we reported on our first quarter results. It was a strong quarter, with Underlying Net
Income of $516 million, up 17% from the first quarter of 2014. Operating Net Income was $446
million, level with last year and reflecting the impact of lower interest rates. Assets
under management reached a record $813 billion.
Three years ago we established objectives for 2015—and I’m pleased to say we are on track to
exceed our earnings objective of $1.85 billion, and to achieve our ROE target of 12-13%.
Yesterday we also announced an increase in our quarterly dividend from 36 to 38 cents per
share. This reflects our confidence in underlying business momentum. It also reflects a muchimproved business mix that is lighter in capital requirements and has less volatility, one that has
allowed us to strike a higher dividend payout ratio at 40 to 50% of earnings.
With a Minimum Continuing Capital and Surplus Requirement Ratio of 216%, Sun Life is well
capitalized. This is important, because we are a long term business, built on trust. For example,
in Hong Kong our longest standing customer bought his insurance policy on March 3, 1949, and
next year he turns 100. We are writing promises we must keep for decades.
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In addition to a strong MCCSR ratio, we have excess capital that we are putting to work to grow
the business and to buy back shares.
Looking ahead, we summarize our top priorities as follows.
First, continue to improve on customers, people and productivity. Making it easier for
customers to do business with us through our Lean/Six Sigma program, The Brighter Way, and
through digital investments. Efficiently managing closed blocks of business in the U.S. and the
U.K. to deliver excellent customer service. Building Sun Life’s ‘talent machine’ where every
single person we hire raises the average, and our people are challenged, are growing, are
trained and coached, and feel highly valued. Continually strengthening risk management to
widen our peripheral vision and to ensure we understand, and are charging appropriately, for
the risks we are taking.
Speaking of talent, later in the meeting we will showcase the names of our employees who won
the CEO’s Award of Excellence, our annual recognition of the most extraordinary
accomplishments of our people. They are doing some truly brilliant work!
Our second priority is to continue to allocate capital in smart ways to broaden and strengthen
each of our four pillars. We want our Canadian Individual Wealth business to be larger. We
want our U.S. Group Benefits business to be larger. We want to broaden our Asset
Management pillar with investment capabilities that complement MFS and tap into new areas
of growth. And we want Asia to be larger. And it’s not just about being larger, but about being
more profitable as well. All of this supports our balanced and diversified business model which
cuts across many geographies and 24 different business units.
And our third priority is to continue to invest in organic growth and to harvest the fruits of that
growth. Let me give you a few examples.
We started our Canadian Defined Benefit Solutions business in 2009 because we heard many
of our pension clients wanting help with their Defined Benefit plans. So we launched DB
Solutions, and since then clients have shifted approximately $5 billion of pension liabilities from
their balance sheets to ours. They can now focus on running the business, and take comfort
that the pension plan is in good hands.
In addition, in the first quarter we announced a ground-breaking agreement with BCE
Inc. to transfer longevity risk for $5 billion worth of Bell Canada pension plan liabilities to Sun
Life and our reinsurance partners. It was the first deal of its kind in North America, and
demonstrates the kind of client-centered innovation and strong execution that has propelled
our Canadian operations to number one in virtually all the market share categories.
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Sun Life Global Investments is another important organic growth initiative. Launched in
October 2010, SLGI has grown from zero to $10.5 billion in AUM in just over four years and is
delivering strong investment performance for customers.
Building a business from scratch like SLGI takes money and takes patience, two things that are
sometimes hard to come by in a world of quarterly reporting. But we see a real winner here.
Asia is another important focus for organic growth. In 2012 Sun Life Asia delivered 8% of our
underlying earnings. Last year, it delivered 10%, and in the first quarter, 12%. Our goal is to
create the Most Respected Agents in each of our Asian markets, agents that are professional,
well trained, provide the right advice to clients and who can make a good living in our industry.
This investment in our agents, combined with growth in Wealth and Health and
Accident products, should drive growth in Asia for years to come.
To give you a sense of the growth potential, consider the Philippines. Sun Life has been doing
business in the Philippines since 1895. We are the #1 life insurer in this country of 100 million
people with a market share over 20%. And yet we have less than 1 million individual clients.
President Aquino will be here in Toronto on Friday, and he has every reason to be proud of the
Philippines' growth during his tenure. And as GDP per capita grows, so does the percentage of
GDP spent on insurance.
All in, including MFS customers in Asia Pacific, and customers in our rapidly-growing
International High Net Worth insurance business, Asia constitutes around 20% of Sun Life’s
underlying net income today, and we expect that to continue to grow.
I'd like to conclude with some thoughts on today's low interest rate environment, what we're
doing to help our customers, and what it means for Sun Life investors.
Interest rates have reached historical lows driven in part by quantitative easing by central
banks. One of the great financial inventions of the 20th century—pension plans—have become
vast, ever-growing, yield-seeking pools of capital. More of those plans are de-risking and
investing even more of their assets into fixed income, driving down yields at the long end of the
curve.
It is quite possible we will experience low interest rates for another five, maybe ten years. Our
mission is to Help Customers Achieve Lifetime Financial Security, so what are we doing to help
people manage through this? The short answer is: a lot.
In Canada, our participating whole life insurance customers share in the investment experience
of our Par funds. These funds are invested in a diversified portfolio of bonds, private fixed
income, mortgages, real estate and equities. The current dividend for Sun Par is 6.75%; this will
decline over time if investment returns stay low, but it is a gradual decline, and still attractive
compared to other fixed income investments available to retail investors in Canada. Customers
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who seek life insurance with a savings element have found Par whole life insurance attractive in
this low yield environment.
For those closer to retirement or in retirement, we are working hard to educate them on the
role of life annuities as one element of Money For Life. Think of a life annuity as an asset class, a
type of fixed income investment that pays a guaranteed yield plus an additional yield the longer
you live—a longevity dividend. When interest rates are low, that ‘longevity dividend’ can make
a real difference.
But Money For Life is not just about life annuities. It’s about creating a holistic financial plan
that protects what’s most precious to you, helps you plan for life’s events and navigates a path
to a secure retirement through low yields. Last year our Sun Life Career Sales Force advisors in
Canada delivered over 58,000 new financial plans—real plans with real actions and that will
bring real outcomes.
And earlier this week, we expanded our Money for Life solutions with the launch of a new suite
of Guaranteed Investment Funds (GIF). These allow investors to invest with many of the leading
investment managers in Canada, with the ability to access various guarantees. For example,
with some of the new Sun Life GIF products, investors can lock-in market gains each year to
protect their retirement savings, or protect their retirement income, or their estate values.
For pension fund customers, Sun Life Investment Management, launched a year ago, is bringing
higher yield assets—private fixed income, real estate and commercial mortgages—that we use
in our own general account, to our pension clients in Canada. Ryan Labs, the newest addition to
the Sun Life family, helps US pension funds invest in ways that manage interest rate risk, and
our DB Solutions business in Canada, is helping pension funds manage and transfer interest and
longevity risk.
MFS Investment management is bringing the world to its retail and institutional investors,
through its successful Emerging Markets Debt products and series of successful International
equity products. In a low yield world, every 25, 50 or 100 basis points of alpha generation, net
of fees, packs a lot of punch, and it’s the reason investors have to think long and hard before
simply accepting index returns.
The bottom line is we are doing a lot to help our customers manage through a low return
world. And this focus on customers is being noticed. We are pleased to have been recognized
for the sixth consecutive year as Canada’s Most Trusted Life Insurance Company by Readers’
Digest magazine.
And what about Sun Life investors? As inflation and real rates of return have declined, so too
have the hurdle rates of many investors, including large pension funds, private equity firms and
insurance companies. We compete against these firms for real estate acquisitions, for
infrastructure debt and other investments, and rates of return have come down. We also
compete with these investors as we pursue acquisitions.
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As evidenced by our medium term ROE objective of 12-14%, we have not reduced our longterm return expectations. We continue to apply capital to support organic sales growth at
returns that meet our long-term goals. And on acquisitions, we continue to have high
expectations for long-term returns. To make up for lower investment income, we must be
relentless on productivity improvement. We must continue to aggressively grow those
businesses like Asia, like Asset Management, like Group Benefits that are less interest-rate
sensitive, and for those that do have interest sensitivity, we must get product mix and pricing
right.
At our Investor Day in March, we laid out our strategy and communicated these new mediumterm objectives beyond 2015:
• Average growth per year of 8 to 10 per cent in earnings per share;
• Return on Equity of 12 to 14 per cent;
• And, a payout ratio at 40 to 50 per cent of underlying net income.
We see these goals as ambitious but achievable. And for our investors we think this will
represent a premier performance—especially in this low-return environment.
The first 150 years of Sun Life’s history have been defined by an unwavering commitment to
customers, to people and to strong risk management. As we carry these principles into the
future, we do so with confidence and optimism for continued growth in Sun Life across all four
pillars. None of this would be possible without the support of our policyholders and customers,
our advisors, our employees and our investors, who are so ably represented by a strong Board
of Directors. Thank you all for your support!
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