2nd Quarter & Interim Results
Sun Life Fin.Services of Canada Inc
3 August 2000
SUN LIFE FINANCIAL OF CANADA REPORTS 19 PER CENT EARNINGS GROWTH
Insurance and Financial Services Provider Accelerates Momentum In Second
Quarter
HIGHLIGHTS AND YEAR-OVER-YEAR COMPARISONS:
* Second quarter earnings improved to $193 million, up from a $77 million
loss.
* Shareholder earnings increased to $197 million, up 19 per cent relative to
adjusted 1999 second quarter performance of $166 million.
* Total assets under management grew by 24 per cent to $330 billion.
* Revenue rose by 15 per cent to $4.2 billion.
* Shareholder return on equity reached 12.9 per cent, up from 11.7 per cent.
(TORONTO - August 2, 2000) Sun Life Financial Services of Canada Inc. (the
Company) today reported shareholder net income of $197 million for the
quarter ending June 30, 2000, an increase of 19 per cent over the $166
million, on an adjusted pro forma basis, earned in the same period in 1999.
For the first six months of 2000, pro forma net income to shareholders
totaled $378 million, an increase of 8.6 per cent over adjusted pro forma net
income to shareholders of $348 million recorded for the first six months of
1999.
Following is a summary table of second quarter and six months information (in
millions, except per share amounts):
(in millions, except per share amounts)
Quarterly Results Six Month Results
2Q'00 1Q'00 2Q'99 2000 1999
Net Income 197 181 166 378 348
Available to
Shareholders *
Net Income (as 193 197 (77) 390 50
reported)
Earnings Per 0.47 0.45 0.41 0.92 0.86
Share*
Average Shares
Outstanding For
EPS 421.0 400.1 400.1 410.5 400.1
Calculation**
*Periods prior to Q2 2000 are on an adjusted pro forma basis
**Initial public offering of shares was March 23, 2000
'We are very pleased with the significant progress our employees and
management team have made in improving the profitability of Sun Life
Financial of Canada,' said Donald A. Stewart, Chairman and Chief Executive
Officer. 'Earlier this year, as part of our demutualization process, we
identified a goal of achieving a return on equity of 13 to 14 per cent by
2002. With a 12.9 per cent return on equity for the quarter, we are making
excellent progress towards achieving this key interim goal. While we take
understandable satisfaction with our rapid progress towards this goal, we
remain committed to maintaining steady, consistent earnings growth going
forward.'
C. James Prieur, President and Chief Operating Officer commented, 'The
quarter's results were characterized by solid core business performances in
our North American franchise including the introduction of new products and
important gains in market share.' Mr. Prieur elaborated, 'The quarter also
included improved earnings in the U.K. coming from the pension and annuity
business. This served to offset lower reported earnings in U.S. individual
life due to mortality as well as new business strain as growth in our U.S.
annuity business accelerated.'
Paul W. Derksen, Executive Vice-President and Chief Financial Officer,
commented on the Company's recent advances in profitability, 'The significant
improvement in return on equity stemmed from investments to enhance the
earnings growth of a number of our businesses. This growth has improved our
strategic positions in key markets.'
FINANCIAL REVIEW
Assets under management is one of the leading drivers of profitability. The
second quarter produced significant growth in this measure of market share
despite significant volatility in worldwide equity and fixed income markets.
At June 30, 2000, assets under management were $330 billion, a 2.8 per cent
increase relative to the $321 billion recorded at March 31, 2000,
representing an annualized growth rate of 11.2 per cent. Assets under
management grew by 9.6 per cent relative to the $301 billion recorded at
December 31, 1999, and rose by $64 billion, or 24 per cent, relative to the
$266 billion recorded one year earlier. These increases were due primarily to
continued growth in the Company's wealth management units, including MFS
Investment Management (MFS), our U.S. mutual fund and investment management
subsidiary, as well as Spectrum Investments and McLean Budden in Canada.
Total revenue in the second quarter was $4.2 billion, an increase of $500
million, or 15 per cent, as compared to the $3.7 billion recorded in the
quarters ending both March 31, 2000 and June 30, 1999. An important
contributor to this growth was continued strong performance in the Company's
fee income businesses, primarily wealth management. Fee income increased 28
per cent to $812 million compared to $635 million for last year's second
quarter and was up 3.8 per cent compared to the $782 million for the first
quarter of 2000. Annuity premiums were also up $288 million over the first
quarter of 2000 and $234 million over the second quarter of 1999. This
increase was primarily the result of the sale of European Medium Term Notes
in the second quarter of 2000 which generated $262 million in premiums.
Earnings attributable to shareholders for the second quarter of 2000 were
$197 million, while earnings per share were $0.47 up from $181 million and
$0.45 earned in the first quarter of 2000, respectively, calculated on a pro
forma basis. This compares favourably to the adjusted pro forma results for
the second quarter of 1999 of $166 million or $0.41 per share. These results
reflect improved earnings in the Company's U.K. operations, favourable
mortality and morbidity experience in both the Canadian and U.K. group
markets, and the aforementioned growth in assets under management.
Return on equity for the second quarter of 2000 was 12.9 per cent, up from
the 11.7 per cent recorded for the second quarter of 1999, as well as showing
an improvement from the 12.6 per cent recorded in the first quarter of 2000.
On a year-to-date basis, revenues were $7.9 billion compared to $7.2 billion,
while shareholder earnings were $378 million compared to $348 million
calculated on an adjusted pro forma basis.
PERFORMANCE BY COUNTRY
In the discussion below, earnings are stated on an adjusted pro forma basis.
Adjustments reflect the exclusion of unusual items which occurred in 1999,
including provisions for pension redress in the Company's U.K. operations and
losses in discontinued reinsurance operations. No such adjustments have been
made to results in 2000. Pro forma earnings reflect the impact of the
demutualization for the full reporting periods.
Net Income by Country*
United States
Canada Sun Life MFS U.K. Asia Other Total
Quarterly
Q2 2000 $ 42 $ 58 $ 62 $ 33 $ 5 $(3) $ 197
Q1 2000 35 65 62 17 7 (5) 181
Q2 1999 45 56 44 19 13 (11) 166
Year-to-Date
2000 $ 77 $ 123 $ 124 $ 50 $ 12 $(8) $ 378
1999 72 94 82 74 28 (2) 348
* Periods prior to Q2 2000 are on a pro forma adjusted basis as defined
above.
CANADA
Earnings for Canada in the second quarter were $42 million, up $7 million, or
20 per cent, compared to the $35 million earned in the first quarter, but
down $3 million, or 6.7 per cent, as compared to the second quarter of 1999.
In the second quarter of 2000, sales in both Group Retirement Services and
Universal Life resulted in new business strain and a consequent reduction in
reported earnings. Earnings from individual life were also adversely affected
by increased mortality. These declines were partially offset by a strong
performance in Group Health which resulted from improved morbidity as well as
a more favourable pricing environment.
UNITED STATES
Earnings for U.S. operations (excluding MFS) for the second quarter were $58
million down $7 million, or 10.8 per cent, compared to the $65 million earned
in the first quarter of 2000, but up $2 million, or 3.6 per cent, compared to
the $56 million earned in the second quarter of 1999. Strong sales growth in
annuities resulted in new business strain. An increase in mortality had an
adverse impact on earnings in individual life. Investment income in the first
quarter of 2000 benefitted from some unusual items, notably venture capital
gains. The net impact of such items in the second quarter of 2000 was
negligible.
MFS INVESTMENT MANAGEMENT
Earnings for the second quarter remained at the record level of $62 million
achieved in the first quarter and were up $18 million, or 41 per cent,
compared to $44 million in the second quarter of 1999. The year-over-year
increase was due to continued strong business growth. MFS's first-half
performance in earnings continues to reflect a robust growth rate relative to
1999's performance through mid-year. Net sales of mutual and managed funds
were $7.9 billion in the second quarter, an increase of $2.2 billion, or 39
per cent, as compared to the $5.7 billion in the first quarter, and an
increase of $2.5 billion, or 46 per cent compared to $5.4 billion in the same
year-earlier period, despite volatile market conditions. MFS funds continued
to enjoy strong ratings as tracked by mutual fund monitoring agency
Morningstar. Currently, 27 MFS funds, representing 83 per cent of MFS's US
mutual fund assets, are ranked either four or five star by Morningstar, an
increase relative to the 21 funds earning this distinction in the first
quarter of 2000.
UNITED KINGDOM
Earnings for the second quarter were $33 million, an increase of $16 million,
or 94 per cent, compared to the $17 million earned in the first quarter of
2000, and an increase of $14 million, or 74 per cent, compared to $19 million
in the second quarter of 1999. The second quarter of 2000 was characterized
by improved earnings in group life as well as strong earnings in the pension
and annuity business. Improved earnings in these businesses were partially
offset by project costs of $18 million incurred to achieve future efficiency
improvements. The restructuring of U.K. operations continues to progress
although the introduction of new products has been deferred from the third to
the fourth quarter.
ASIA
Earnings for the second quarter were $5 million, a decrease of $2 million, or
29 per cent compared to the $7 million earned in the first quarter of 2000,
and a decrease of $8 million, or 62 per cent, compared to $13 million in the
second quarter of 1999. The decreases are attributable to a decline in the
Philippine equity markets and additional investment in China and India. The
Company continues to view the long-term potential of the Asian market as an
important area for long term growth.
MARKETING HIGHLIGHTS
* Group Health in Canada was awarded the contract from the Treasury Board of
Canada to administer the new Pensioners' Dental Services Plan (PDSP). More
than 330,000 federal government pensioners and their family members are
eligible to join the plan.
* Sold a $US 500 million bank owned life insurance product.
* Introduced a new annuity product on May 1 named 'Regatta Extra' which has
already produced $US 130 million in sales.
* MFS sold $US 300 million in collateralized debt obligations on a new high
yield bond fund.
* MFS opened a hedge fund to the public for the first time on July 1.
* Asia operations launched 'Sun Life Prosperity Funds' a new mutual fund
family in the Philippines.
SUN LIFE FINANCIAL
With significant operations in Canada, the United States, the United Kingdom
and Asia for over a century and with a growing range of businesses and
offices in 13 key markets around the world, Sun Life Financial of Canada is a
global force in the international financial services industry today.
Sun Life Financial Services of Canada Inc. is the publicly held parent
company of Sun Life Assurance Company of Canada. Tracing its roots back to
1871, Sun Life Financial of Canada has grown to become a leading
international provider of financial services with total assets under
management of $330 billion (at June 30, 2000).
The Sun Life Financial group of companies provides a wide range of savings,
retirement, pension, and life and health insurance products and services to
individuals and corporate customers in Canada, the United States, the United
Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, Bermuda and
Chile.
Sun Life Financial Services of Canada Inc. trades on the Toronto (TSE), New
York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol
'SLC', and on the London Stock Exchange (LSE) under the ticker symbol 'SFC'.
NOTE TO EDITORS: All figures shown in Canadian dollars.
Media contacts:
Audrey Gouskos Francine Cleroux
(416) 204-8155 (514) 866-2561
Investor Relations contact:
Thomas Rice
(416) 204-8163
Web site: www.sunlife.com
SUN LIFE FINANCIAL SERVICES OF CANADA INC.
COMPARATIVE HIGHLIGHTS - 2000 vs. 1999
(in millions of Canadian dollars)
For three months For six months ended
ended June 30 June 30
2000 1999 Change 2000 1999 Change
$ $ % $ $ %
Revenue
Premium Income 2,380 2,045 16 4,372 3,968 10
Net Investment Income 1,005 971 4 1,968 2,009 (2)
Fee Income 812 635 28 1,594 1,237 29
Total Revenue 4,197 3,651 15 7,934 7,214 10
Net Income (Loss) from 193 (70) 390 89
Continuing Operations
Discontinued Operations, Net - (7) - (39)
of Income Taxes
Net Income (Loss) 193 (77) 390 50
Net Income (Loss)Attributable to
Mutual Operations (Prior to - (77) 179 50
Demutualization)
Participating Policyholders (4) - (4) -
(After Demutualization)
Shareholders (After 197 - 215 -
Demutualization)
193 (77) 390 50
Adjusted Net Income 197 166 19 378 348 9
Attributable to Shareholders (1)
Earnings Per Share (2) 0.47 0.41 15 0.92 0.86 7
Return on Equity (2) 12.9% 11.7% 12.7% 12.2%
Gross Sales and Deposits
Mutual Funds 11,484 10,039 14 23,894 21,920 9
Managed Funds 5,959 4,505 32 11,646 8,261 41
Segregated Funds 2,180 1,065 105 3,387 2,153 57
As at June 30 At Dec 31
2000 1999 Change 1999
$ $ % $
Assets Under Management
General Funds 53,521 53,537 (0) 54,751
Segregated Funds 48,479 39,880 22 46,014
Other Assets Under
Management
Mutual Funds 169,820 132,618 28 152,807
Managed Funds and Other 57,882 39,697 46 47,731
Total Assets Under
Management 329,702 265,732 24 301,303
Equity
Participating Policyholders'
Equity 80 - -
Shareholders' Equity 6,265 - -
Policyholders' Surplus - 5,772 5,878
6,345 5,772 5,878
MCCSR (%) 291 269 262
(1) 1999 and Q1 2000 amounts exclude earnings attributable to
participating policyholders assuming the Company had become public on January
1, 1999. Amounts for the second quarter of 1999 have also been adjusted for
$264 million provisions for U.K. pension business ($326 million for the first
six months) and $7 million loss from discontinued operations ($39 million for
the first six months), less $3 million gain on sales of MFS shares ($18
million for the first six months).
(2) Based on net income attributable to shareholders. Periods prior to Q2
2000 are on an adjusted basis as described in Note 1.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Sun Life Financial Services of Canada Inc.
Consolidated Statement of Operations
(unaudited,in millions of Canadian dollars
except for per share amounts
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
2000 1999 2000 1999
REVENUE
Premium income:
Life insurance $ 906 $ 837 $ 1,729 $ 1,674
Health insurance 325 293 633 576
Annuities 1,149 915 2,010 1,718
2,380 2,045 4,372 3,968
Net investment income 1,005 971 1,968 2,009
Fee income 812 635 1,594 1,237
4,197 3,651 7,934 7,214
POLICY BENEFITS AND EXPENSES
Payments to policyholders,
beneficiaries and depositors:
Death and disability benefits 270 238 562 511
Maturities and surrenders 572 957 1,164 1,655
Annuity payments 240 226 467 452
Interest on claims
and deposits 56 79 124 161
Experience rating refunds 5 19 5 40
Health benefits 259 238 523 472
Policyholder dividends 199 208 402 405
1,601 1,965 3,247 3,696
Net transfers to segregated
funds 640 564 1,289 965
Increase in actuarial
liabilities 630 212 792 555
Commissions 336 273 660 539
Operating expenses 609 547 1,179 1,082
Premium and investment income
taxes 38 23 60 45
Interest on borrowings 21 21 45 43
Cumulative capital securities
dividends 19 19 38 38
3,894 3,624 7,310 6,963
OPERATING INCOME BEFORE INCOME
TAXES 303 27 624 251
Income taxes 108 95 230 150
NET OPERATING INCOME (LOSS) 195 (68) 394 94
Goodwill amortization 2 2 4 5
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS 193 (70) 390 89
Loss for discontinued operations,
net of income taxes (Note 6) - 7 - 39
NET INCOME (LOSS) $ 193 $ (77) $ 390 $ 50
NET INCOME (LOSS) ATTRIBUTED TO:
Mutual operations (prior to
demutualization) $ - $ (77) $ 179 $ 50
Participating policyholders
(after demutualization) (4) - (4) -
Shareholders (after 197 - 215 -
demutualization)
NET INCOME (LOSS) $ 193 $ (77) $ 390 $ 50
BASIC EARNINGS PER SHARE
(Note 3) $ 0.47 $0.51*
ADJUSTED EARNINGS PER SHARE
(Note 3) $0.92**
* Covers the period from March 22 to June 30, 2000.
** Adjusted as if demutualization occurred on January 1, 2000.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet
(unaudited, in millions of
Canadian dollars)
AS AT
JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
ASSETS
Bonds $ 26,390 $ 25,545 $ 24,852
Mortgages 9,970 11,477 11,714
Stocks 4,854 4,689 4,295
Real estate 2,304 2,403 2,451
Policy loans 1,253 1,238 1,214
Cash, cash equivalents
and short-term securities 3,111 3,443 2,934
Other invested assets 1,139 1,191 1,129
Invested assets 49,021 49,986 48,589
Other assets 4,500 4,765 4,948
Total general fund assets $ 53,521 $ 54,751 $ 53,537
Segregated funds net assets $ 48,479 $ 46,014 $ 39,880
LIABILITIES AND EQUITY
Actuarial liabilities $ 32,767 $ 32,370 $ 31,919
Amounts on deposit 3,736 5,260 5,315
Other policy liabilities 1,570 1,925 1,722
Borrowed funds 205 701 408
Deferred net realized gains 3,565 3,356 3,285
Other liabilities 3,702 3,657 3,503
Total general fund
liabilities 45,545 47,269 46,152
Subordinated debt 743 734 737
Cumulative capital securities
of a subsidary 888 870 876
Equity
Participating 80 - -
policyholders' account
Shareholders' equity (Note 2) 6,265 - -
Surplus - 5,878 5,772
Total equity 6,345 5,878 5,772
Total general fund
liabilities and equity $ 53,521 $ 54,751 $ 53,537
Segregated funds
contract liabilities $ 48,479 $ 46,014 $ 39,880
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated Statement of Equity
(unaudited, in millions of Canadian dollars)
FOR THE SIX MONTHS ENDED
PARTICIPATING
SURPLUS POLICYHOLDERS SHAREHOLDERS JUNE 30 JUNE 30
2000 1999
COMMON STOCK
Balance, beginning of
period $ - $ - $ - $ - $ -
New common shares
issued (Note 2) - - 844 844 -
Commissions and
offering costs, net of
tax (Note 2) - - (49) (49) -
Balance, end of period - - 795 795 -
OPERATING RETAINED
EARNINGS
Balance, beginning of
period 5,489 - - 5,489 5,325
Demutualization costs,
net of tax (Note 2) (114) - - (114) -
Net income as a mutual
company 179 - - 179 50
Balance as at
demutualization 5,554 - - 5,554 5,375
Transfers to
shareholders' equity (5,353) - 5,353 - -
Transfers to
participating
policyholders' account - 84 (84) - -
Cash distribution to
policyholders at
demutualization (201) - (375) (576) -
Net income (loss) as a
stock company - (4) 215 211 -
Balance, end of period - 80 5,109 5,189 5,375
CURRENCY TRANSLATION
ACCOUNT
Balance, beginning of
period 389 - - 389 756
Changes for the period
(prior to
demutualization) (20) - - (20) (359)
Transfer to
shareholders' equity
on demutualization (369) - 369 - -
Changes for the period
(after demutualization) - - (8) (8) -
Balance, end of period - - 361 361 397
Total retained earnings - 80 5,470 5,550 5,772
Total equity $ - $ 80 $ 6,265 $ 6,345 $ 5,772
Condensed Consolidated Statement of Cash Flows
(unaudited, in millions of Canadian dollars
FOR THE SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999
CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES
Net income from continuing operations $ 390 $ 89
New mutual fund business acquisition costs capitalized (218) (265)
Adjustments for items not affecting cash 1,007 664
Net cash provided by operating activities 1,179 488
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Borrowed funds (492) 136
Payments to certain participating policyholders
and underwriters at demutualization (Note 2) (658) -
Issuance of common shares (Note 2) 844 -
(306) 136
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Investments (1,148) (231)
Dispositions 160 51
Acquisitions - (43)
(988) (223)
Net cash provided by discontinued operations 26 43
Changes due to fluctuations in the exchange rates 12 (116)
Increase (decrease) in cash and cash equivalents (77) 328
Cash and cash equivalents, beginning of period 1,998 1,465
Cash and cash equivalents, end of period 1,921 1,793
Short-term securities, end of period 1,190 1,141
Cash, cash equivalents and short-term
securities, end of period $ 3,111 $ 2,934
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Statement of
Changes in Segregated Funds Net Assets
(unaudited,in millions of Canadian dollars)
FOR THE SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999
ADDITIONS TO SEGREGATED FUNDS
Deposits $ 3,387 $ 2,152
Net transfers from general funds 1,289 965
Net realized and unrealized gains 457 2,043
Other investment income 667 740
5,800 5,900
DEDUCTIONS FROM SEGREGATED FUNDS
Payments to policyholders and
their beneficiaries 3,007 2,370
Management fees 243 213
Taxes and other expenses 40 65
Effect of changes in currency exchange rate 45 2,585
3,335 5,233
Net additions to segregated
funds for the period 2,465 667
Segregated funds, beginning of period 46,014 39,213
Segregated funds, end of period $ 48,479 $ 39,880
Condensed Consolidated Statement of
Segregated Funds Net Assets
(unaudited, in millions of Canadian dollars)
AS AT
JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
ASSETS
Invested assets $ 49,864 $ 46,882 $ 40,714
Other assets 841 198 505
$ 50,705 $ 47,080 $ 41,219
LIABILITIES $ 2,226 $ 1,066 $ 1,339
Net assets applicable to
segregated funds policyholders $ 48,479 $ 46,014 $ 39,880
Condensed Notes to the Interim
Consolidated Financial Statements
(unaudited, in millions of Canadian dollars,
except for per share amounts)
BASIS OF PRESENTATION
Sun Life Financial Services of Canada Inc. and its subsidiaries are
collectively referred to as 'Sun Life Financial' or 'the Company'. Sun Life
Financial prepares its Consolidated Financial Statements according to
Canadian generally accepted accounting principles (GAAP) including the
requirements of the Office of the Superintendent of Financial Institutions
Canada. For financial statement purposes, the assets, liabilities, surplus
and results of operations of Sun Life Assurance Company of Canada ('Sun Life
Assurance') have been presented in the consolidated statements of Sun Life
Financial on a continuity of interest basis as a continuation of the
historical operations of Sun Life Assurance. These interim Consolidated
Financial Statements follow the same accounting policies and methods of
computation as the annual 1999 Consolidated Financial Statements, with the
exception of the change in accounting for Employee Future Benefits as
described in Note 7.
DEMUTUALIZATION
Sun Life Assurance was organized as a mutual life insurance company until
March 22, 2000. On that date, Sun Life Assurance converted to a stock life
insurance company with common shares following the approvals of its plan to
demutualize by policyholders and the Minister of Finance (Canada). Sun Life
Financial was incorporated on August 5, 1999 under the Insurance Companies
Act of Canada and on March 22, 2000, became an insurance holding company
owning all of the outstanding shares of Sun Life Assurance. To effect the
conversion, Sun Life Financial issued a total of 400 million common shares,
of which 46 million common shares were issued to underwriters at $12.50 per
share and 97 million common shares were sold in a secondary offering on
behalf of certain eligible participating policyholders outside Canada who
elected, or were otherwise required, to sell their common shares under the
terms of demutualization. The remaining 257 million common shares were issued
to certain participating policyholders. Proceeds from the shares issued to
the underwriters amounted to $576 and were used to fund payments to certain
participating policyholders. External costs in respect of demutualization of
$114 after tax were treated as a capital transaction and were deducted from
the surplus of Sun Life Assurance. All underwriting commissions and offering
costs of issuing shares of $43 after tax were treated as a capital
transaction and deducted from the share capital of Sun Life Financial.
In connection with the initial public offering, the Company granted the
underwriters over-allotment options to purchase up to 22 million common
shares from treasury at a price of $12.50 per share. The over-allotment
options were exercisable for a period of 30 days after the closing of the
offering. These options were fully exercised and the shares were issued on
April 4, 2000 for total proceeds of $268, less underwriting costs of $6 after
tax. The proceeds will be used for general corporate purposes.
EARNINGS PER SHARE
At demutualization, the Company issued common shares to certain eligible
participating policyholders and underwriters as described above.
BASIC EARNINGS PER SHARE
PER SHARE
For the period from For the period after
April 1 to June 30, 2000 demutualization
March 22 to June 30, 2000
Net income attributed to
shareholders after
demutualization $197 $215
Weighted average number
of shares outstanding 421 million shares 419 million shares
Basic earnings per share $0.47 per share $0.51 per share
ADJUSTED EARNINGS PER SHARE
Adjusted earnings per share is calculated as if demutualization occurred and
the offerings closed on January 1, 2000.
For the period from
January 1 to June 30, 2000
Net income for the period $390
Add: Net loss attributed to post-demutualization
participating policyholders 4
Less: Adjusted net income attributed to
pre-demutualization participating policyholders (1) (16)
Adjusted net income attributed to shareholders $378
Weighted average number of shares outstanding 411 million shares
Adjusted earnings per share $0.92 per share
(1) After demutualization, net experience gains arising on pre-demutualization
participating policies are not attributed to shareholders.
4. NORMAL COURSE ISSUER BID
On May 11, 2000, the Company announced that the Board of Directors had
authorized the purchase of up to 21 million common shares (the 'Shares'),
representing 5% of the Shares issued and outstanding at that time. As at June
30, 2000, the Company had 422 million Shares issued and outstanding. The
purchases will be made under a normal course issuer bid program in accordance
with the rules of The Toronto Stock Exchange ('Exchange'). The normal course
issuer bid program covers the period from May 15, 2000 to May 14, 2001, unless
the maximum number of Shares is purchased before May 14, 2001. Regulatory
approval for the normal course issuer bid program was received on May 16,
2000. Transactions will be executed on the Exchange at the prevailing market
price in amounts and times determined by the Company. The Company will make
no purchases of Shares other than open-market purchases. Any Shares purchased
as part of the normal course issuer bid program will be cancelled.
5. SEGMENTED INFORMATION
The Company's reportable segments reflect the Company's management structure
and internal financial reporting. Each of these segments has its own
management. All of these segments operate in the financial services industry.
They derive their revenues principally from wealth management operations
(mutual funds, investment management, annuities, trust operations and banking)
and protection services (life and health insurance). Corporate and other
represents amounts not attributed to wealth management and protection. It
primarily includes investments of a corporate nature and earnings on capital
not attributed to the strategic business units.
Other operations include those operations for which management responsibility
resides in head office. As the Company's reinsurance operations are treated
as a discontinued operation, net operating income does not include these
results. However the Company's reinsurance operations are included in other
operations' assets. Net operating income in this category is shown net of
certain expenses borne centrally. Transactions occurring between segments
consist primarily of internal financing agreements. Inter-segment
transactions are measured at market values prevailing when the arrangements
were negotiated. Inter-segment revenue consists of interest of $70 in 2000
($47 in 1999) and fee income of $17 in 2000 ($15 in 1999).
RESULTS BY SEGMENT FOR THE SIX MONTHS ENDED JUNE 30, 2000
United States United Cosolidation Total
Canada Sun Life M.F.S. Kingdom Asia Other Adjustments
REVENUE
Wealth management
$ 808 $ 1,934 $ 1,139 $ 441 $ - $ 5 $ (17) $4,310
Protection
1,221 1,314 - 780 197 8 - 3,520
Corporate and other
10 58 - (2) - 108 (70) 104
$ 2,039 $ 3,306 $ 1,139 $ 1,219 $ 197 $121 $ (87) $7,934
NET OPERATING INCOME (LOSS)
Wealth management
$ 48 $ 29 $ 124 $ 68 $ (2) $ 4 $ (15) $ 256
Protection
38 38 - 15 14 - - 105
Corporate and other
6 56 - (32) - (12) 15 33
$ 92 $ 123 $ 124 $ 51 $ 12 $ (8) $ - $ 394
ASSETS
General fund assets
$17,256 $16,336 $ 1,568 $13,738 $1,427 $3,453 $ (257) $53,521
Segregated fund assets
$ 9,482 $27,006 $ - $11,991 $ - $ - $ - $48,479
Other assets under Management
$24,684 $ 707 $225,104 $ 3,784 $ - $ - $(26,577) $227,702
RESULTS BY SEGMENT FOR THE SIX MONTHS ENDED JUNE 30, 1999
United States United Cosolidation Total
Canada Sun Life M.F.S. Kingdom Asia Other Adjustments
REVENUE
Wealth management
$ 746 $ 1,636 $ 854 $ 544 $ - $ 4 $ (15) $ 3,769
Protection
1,122 1,211 - 804 190 2 - 3,329
Corporate and other
16 48 - 10 - 89 (47) 116
$ 1,884 $ 2,895 $ 854 $1,358 $ 190 $ 95 $ (62) $ 7,214
NET OPERATING INCOME (LOSS)
Wealth management
$ 41 $ 35 $ 82 $ (301) $ (1) $ 4 $ (12) $ (152)
Protection
52 83 - 26 34 2 - 197
Corporate and other
10 12 - 39 - (24) 12 49
$ 103 $ 130 $ 82 $ (236) $ 33 $ (18) $ - $ 94
ASSETS
General fund assets
$ 18,765 $16,366 $ 1,426 $13,561 $1,331 $3,215 $ (1,127) $53,537
Segregated fund assets
$ 6,789 $20,619 $ - $12,472 $ - $ - $ - $39,880
Other assets under Management
$ 19,770 $ 1,944 $167,990 $ 3,472 $ - $ - $ (20,861) $172,315
6. DISCONTINUED OPERATIONS
The Company adopted a formal plan of disposal for its reinsurance operations
on December 15, 1999. On April 10, 2000, the transaction to sell the life
retrocession and financial reinsurance lines of its reinsurance business
closed after receiving all of the necessary regulatory approvals. Details of
the sale are described below. The portion of the reinsurance business which
is not included in the sale, primarily the accident and health reinsurance
lines of business, will be discontinued as the Company does not intend to
continue writing such business and is closing its existing block of business.
There is no net impact on net income from discontinued operations during the
current period ($39 loss in the first six months of 1999).
In the quarter ended December 31, 1999, the Company included in net income the
estimated net loss from discontinued operations after December 15, 1999 of
$150 after tax. This loss consisted of the estimated net loss from
discontinued operations of $229, net of tax of $121, and the estimated gain on
the sale of its life retrocession and financial reinsurance lines of $79, net
of tax of $43, based on the estimated proceeds of $171. The actual gain on
the sale's closing was $79, net of tax of $43. As part of the sale
transaction, sale proceeds of $171 were received and balance sheet assets of
$535 and liabilities of $499 were disposed of during the current quarter.
Included in the estimated net loss from discontinued operations established in
the fourth quarter of 1999 of $229, net of tax of $121, were the provisions
established in connection with the Unicover Managers Inc. business which are
further described in Note 9.
The components of the impact on net income as well as the financial position
of the discontinued operations are as follows:
FOR THE SIX MONTHS
ENDED JUNE 30, 2000 1999 AS AT JUNE 30, 2000 1999
REVENUE $238 $511 ASSETS
EXPENSES 238 575 Invested assets $ 728 $ 943
Other assets 355 478
Loss for discontinued operations Total assets $ 1,083 $1,421
before income taxes
- 64 LIABILITIES
Income taxes benefit Actuarial liabilities and
- 25 other policy liabilities
Loss for discontinued operations, $ 711 $1,209
net of income taxes Other liabilities
$ - $ 39 372 212
Total liabilities $ 1,083 $1,421
7. CHANGE IN ACCOUNTING POLICY
The Company adopted Employee Future Benefits, Canadian Institute of Chartered
Accountants Handbook section 3461, to be applied prospectively effective
January 1, 2000. The impact of this change in accounting policy is not
material to these Consolidated Financial Statements.
8. DISPOSALS
Effective March 1, 2000, the Company sold all of the common shares of Sun Life
Trust Company (SLT), a deposit taking, mortgage lending and trust services
company with assets of $2 billion. Proceeds of $160 from the sale recovered
SLT's net carrying value.
On April 10, 2000, the sale of the reinsurance business closed as described in
Note 6.
9. PROVISIONS FOR CERTAIN CONTINGENCIES
CERTAIN REINSURANCE ARRANGEMENTS
In 1997, the Company entered into an arrangement to participate in the
reinsurance of a risk-sharing pool and related facilities, managed by Unicover
Managers, Inc. (Unicover), which provided reinsurance for U.S. workers'
compensation benefits. During 1998, the premium attributable to the
underlying workers' compensation policies sold and then partially or wholly
reinsured by Unicover materially exceeded expectations. It was expected in
1999 that claims attributable to the entire program could be substantial.
Consequently, the Company has undertaken an extensive review of the Unicover
program and the Company's reinsurances.
The Company has delivered a notice of arbitration to all participants in the
Unicover pool and related facilities seeking rescission of these contracts or
damages. If the remedy of rescission were granted in this case, it would have
the effect of annulling or voiding the Company's contracts with Unicover. It
is possible that the arbitration proceedings will be lengthy and the outcome
of those proceedings not known for quite some time. Based on the information
known to it at this time, the Company believes that it has strong grounds for
rescission.
The Company has entered into settlements which together have significantly
reduced the Company's exposure to losses from the Unicover business. On
January 7, 2000 a settlement agreement was made with Reliance Insurance
Company and Reliance Group Holdings, Inc. (Reliance) with respect to a segment
of the Unicover business. As a result of this settlement, the arbitration
against Reliance for rescission of agreements related to this segment of the
Unicover business will not proceed. On March 27, 2000 the Company settled the
Company's exposure in another segment of the Unicover business by entering
into agreements with Reliance Insurance Company, The Lincoln National Life
Insurance Company and Lincoln National Health and Casualty Insurance Company.
Certain of the companies providing reinsurance protection to the Company have
initiated proceedings to avoid their retrocessional reinsurance. These
proceedings are all in their preliminary stages.
The Company established provisions at a cost of $150 after tax during 1999 in
connection with the Unicover business based on information known to it at the
time. The financial terms of the above settlements and the gain on the sale's
closing are consistent with these provisions established in 1999 and there
were no additional provisions established during the first six months of 2000.
9. PROVISIONS FOR CERTAIN CONTINGENCIES (Cont'd)
LEGAL PROCEEDINGS
Sun Life Financial and its subsidiaries are engaged in litigation arising in
the ordinary course of business. None of this litigation is expected to have
a material adverse effect on the consolidated financial position of the
Company.
PROVISIONS IN THE UNITED KINGDOM
In the United Kingdom, the life insurance industry is being required to
compensate certain policyholders under the Financial Services Authority
guidelines on sales of pension products. The compensation is for sales which
occurred from 1988 to 1994. These guidelines have been significantly expanded
for the second phase of required compensation, which has required the entire
industry to significantly increase its provisions. The Financial Services
Authority is continuing to provide more specific guidance for this
compensation. The liability has been determined by the use of estimates
derived from the regulatory guidance or the Company's prior experience. The
Company's future experience may be different from these estimates and
consequently there is still uncertainty in measuring its ultimate costs.
There was no increase in the provisions for the first six months ($354
increase in the first six months of 1999, included in the maturities and
surrenders line in the Consolidated Statement of Operations) and the total
cost since inception is $1,176. During the six months, the Company paid
compensation of $48 ($81 in the first six months of 1999), for total
compensation payments since inception of $434. At June 30, 2000, the Company
had provisions of $662 ($755 as at June 30, 1999) for future compensation
payments and related expenses.
In 1998, the Company significantly increased its actuarial liabilities in
connection with certain annuities with minimum annuity rates issued prior to
1994 by Confederation Life (U.K.) in the United Kingdom. At June 30, 2000,
the Company included in its actuarial liabilities $431 ($460 as at June 30,
1999) for these liabilities. The Company has instituted a hedging program
with the objective of limiting losses that would otherwise arise upon further
declines in interest rates in the United Kingdom. This program provides a
substantial, although not complete, hedge against declines in interest rates.
There can be no certainty that additional liabilities will not be required in
the future as a result of interest rate changes or other factors.
Friday, 17th May 2024
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