Dan FishbeinPresident, Sun Life Financial U.S.
SLF U.S. REVIEW
ACCELERATED GROWTH, LOWER VOLATILITY
INTERNATIONALLife insurance, Wealth
VOLUNTARY & SPECIALTYVoluntary worksite, Dental,
Emerging products
GROUP INSURANCEDisability, Life
IN-FORCETraditional and Universal
Life
STOP-LOSSCatastrophic medical claim
insurance
GROUP BENEFITS(1)
Leader in U.S. Group Benefits and International High Net Worth Solutions
2
SUN LIFE U.S.
ACCELERATED GROWTH, LOWER VOLATILITY
(1) Formerly called Employee Benefits Group.
SUN LIFE U.S.
• Grew stop-loss business to US$1 billion of in-force premium, solidifying leadership position
• Implemented pricing and expense actions to improve Group Insurance profitability
• Invested in voluntary capabilities and distribution to drive growth
• Grew International business through expanded distribution
• Enhanced earnings of In-force business with restructuring of reinsurance agreements
• Significantly reduced earnings volatility with the sale of the U.S. Annuity Business
• Intensified customer and product focus
SLF U.S. UNDERLYING NET INCOME(C$ millions)
3
2012 2013 2014
266291
264
CONTINUING THE EVOLUTION
201420132012
Small to large national employers, excluding jumbo cases
Solutions delivered through brokers, consultants and private exchanges
Stop-loss
Group and voluntary life, disability, dental
Cancer, critical illness, accident
Specialized expertise and ability to leverage big data in stop-loss
Distribution excellence
Leverage Canadian Group Benefits
Distinctive product features, tools and capabilities
STRATEGIC FOCUS
4
SUN LIFE U.S.
Market Focus
Product Breadth
Basis for winning
GROUP BENEFITS STRATEGIC FOCUS
SUN LIFE U.S.
5
11
18 18
3639
18 19 20
55
42
Stop-loss Disability Life Voluntary Dental
2013 2018 Estimate
INDUSTRY IN-FORCE PREMIUMS(1)(2)
(US$ billions)
ATTRACTIVE GROWTH OPPORTUNITY
(1) Group disability, life and dental based on Sun Life analysis of compiled data from LIMRA; group life reflects group term life excluding association business. Voluntary based on Sun Life analysis of compiled data from LIMRA and Eastbridge and includes voluntary products sold on group and individual platforms; stop-loss data based on company analysis and Managed Care Update report from Citi Research, April 2014.
(2) 2018 estimates for stop-loss based on Sun Life analysis of medical trend and ACA; 2018 estimates for group disability, life, dental and voluntary calculated using the 5-year historical annual growth rate.
SUN LIFE U.S.
BUSINESS IN-FORCE(US$ millions)
2,298
2,4672,555
2013 20142012
Life639
Disability716
Stop-loss1,030
Worksite & Dental
170
6
BALANCED GROUP BENEFITS PORTFOLIO
Life and Disability include Voluntary Life and Disability.
SUN LIFE U.S.
7
Products Capabilities Tools
• Value-added services with best in class partners
• Unique Retro Disability feature
• Customized product suites for specific market verticals
• Unique leave management and ADA products
• Work is Healthy return to work program; new Sun Life Center for Healthy Work
• Best in class appeal rates; indicator of member satisfaction and claim management quality
• Enhanced reporting and analytics for large employers
• Dedicated enrollment consultants and flexible enrollment tools
• Industry leading Benefit Profile Tool
• Thought leadership programs
• Mobile sales tools and internal sales desk to enabledeeper customer relationships
• Exceptional broker partnerships
THE SUN LIFE DISABILITY VALUE PROPOSITION
SUN LIFE U.S.
• Focusing on profitable growth, expense reductions and achieving target ROEs
• Enhancing customer experience and investing in claims management and service capabilities
• Leveraging unique distribution model and consultative sales approach
Improve profitability in GROUPINSURANCE
ACTIONS TAKEN• Increased pricing on new business
• Implemented comprehensive renewal strategy
• Executed targeted expense reductions
• Increased resources in disability claims management
• Enhancing capabilities for the large case market
Sales & Retention
Claims Duration
Group Insurance Earnings Engine
Operating Expenses
Loss Ratio
8
Pricing
IMPROVING PROFITABILITY IN GROUP INSURANCE
SUN LIFE U.S.
• Shifting mix of business toward higher margin voluntary products
• Enhancing enrollment, distribution and technology capabilities
• Taking advantage of opportunities created through Affordable Care Act
ExpandVOLUNTARY &SPECIALTYBUSINESS
ACTIONS TAKEN• Created distinct teams dedicated to three lines of
business: dental, worksite and emerging markets products
• Refocused voluntary distribution specialists to drive growth in worksite products
• Invested in capabilities necessary to compete on private exchanges
• Exploring differentiated market opportunities linked to health care
9
VOLUNTARYBUSINESS IN-FORCE
(US$ millions)
443
524579
2012 2013 2014
EXPANDING VOLUNTARY & SPECIALTY
2012 2013 2014
SUN LIFE U.S.
45%
20%
35% Medical trend
ACA
Market share gains
SUN LIFE AN INDUSTRY LEADING STOP-LOSS PROVIDER IN U.S.
(US$ billions)
247 304 333
816915
1,030
2012 2013 2014
Sales
Business In Force
FUTURE DRIVERS OF SUN LIFE STOP-LOSS BUSINESS GROWTH
• Pricing risk profitably using our large database and strong underwriting and actuarial teams
• Leveraging leadership position in a concentrated market
Leverage leadingSTOP-LOSSBUSINESS
10
LEVERAGING STOP-LOSS LEADERSHIP
2012 2013 2014
SUN LIFE U.S.
• Pricing risk profitably using our large database and strong underwriting and actuarial teams
• Leveraging leadership position in a concentrated market
LEVERAGESTOP-LOSSBUSINESS
• Shifting mix of business toward higher margin voluntary products
• Enhancing enrollment, distribution and technology capabilities
• Taking advantage of opportunities created through Affordable Care Act
EXPANDVOLUNTARY &SPECIALTYBUSINESS
• Focusing on profitable growth, expense reductions and achieving target ROEs
• Enhancing customer experience and investing in claims management and service capabilities
• Leveraging unique distribution model and consultative sales approach
IMPROVE GROUPINSURANCEBUSINESS
11
STRATEGY & KEY INITIATIVES: GROUP BENEFITS
SUN LIFE U.S.
• Manage risks and maximize risk-adjusted returns to shareholders• Protect and enhance the “run-rate” value of the business• Continue to focus on customers and meeting service expectations
Drive efficiencies inIN-FORCE LIFE INSURANCEBUSINESS
OVERVIEW• 135,000 policies
• Approximately US$500 million of annual premium revenue
• US$4.6 billion of account value
• Long-term policies resulting in modest annual run-off of business
• Reinsurance restructuring contributed US$277 million to 2013 net income and US$170 million in 2014
37%
2%
61%
Universal Life COLI Whole Life
Policy Count
12
DRIVE EFFICIENCIES IN IN-FORCE LIFE
SUN LIFE U.S.
13
OVERVIEW• Offer wealth and life insurance solutions to
high net worth customers that reside in countries outside the U.S. and Canada
• Target wealth customers have $1-10 million of investable assets and target life customers have more than $10 million
• Emerging economies driving growth in high net worth assets
• Distribute through financial advisors and large banking relationships
• Relatively rational market with limited number of competitors
• Demand and competitive landscape resulting in higher margin business
Needs of international high net worth customers
Diversification, Protection &
Security
Portability & Convenience
Tax efficiency Financially strong issuer
Intergenerational wealth transfer
INTERNATIONAL SOLUTIONS FOR HIGH NET WORTH INDIVIDUALS
4.5 5.3 5.3
4.65.8 6.7
2012 2013 2014
Wealth Life
SUN LIFE U.S.
• Continue to generate strong margins by leveraging leadership position and expertise
• Diversify geographies and expand regionalized value proposition in selected markets
• Enhance relationships and capabilities with key distributors
Expand footprint of INTERNATIONALBUSINESSES
ACTIONS TAKEN• Reduced risk and volatility with new products
• Expanded distribution in select emerging economies in Asia and Middle East
• Developed regionalized solutions
• Deepened relationships with advisors to deliver integrated life and wealth value proposition
• Enhanced customer experience through service excellence
ACCOUNT VALUE (US$ billions)
9.1
11.112.0
14
2012 2013 2014
EXPAND INTERNATIONAL GEOGRAPHIC FOOTPRINT
SUN LIFE U.S.
LEVERAGE LEADING STOP-LOSS POSITION
IMPROVE GROUP INSURANCE PROFITABILITY AND GROW VOLUNTARY
EXPAND GEOGRAPHIC DISTRIBUTION FOOTPRINT AND DEEPEN KEY RELATIONSHIPS IN INTERNATIONAL
DRIVE EFFICIENCIES IN IN-FORCE LIFE
EXECUTION EXCELLENCE15
CREATING SHAREHOLDER VALUE
SLF ASIA REVIEW
Kevin StrainPresident, Sun Life Financial Asia
Seven higher growth markets
Partners that share our values and have impact in their markets
A mix of products by market that bring favourable return-risk results
Insurance in seven markets, health and accident in six markets, wealth management in four markets
Most Respected Agency and distribution excellence
Leverage Sun Life brand and technology
Recruit, develop and retain the best people
Excellent risk management
2
Market Focus
Product Breadth
Basis for winning
SUN LIFE ASIA
STRATEGIC FOCUS
SUN LIFE ASIA
3
Sun Life markets
Other markets
World average
2013 GDP/capita (Real) (USD)
(Life Market Size, US$ billion)
• Growth is closely linked to GDP and economic development
• Two distinctive groups: (1) large mature markets and (2) developing markets
0%
2%
4%
6%
8%
10%
12%
14%
1,000 10,000 100,000
Philippines (4)
Japan (423)
Singapore (15)
World Average
Malaysia (10)
S. Korea (91)
Thailand (15)
China (152)
Indonesia (14)
India (52)
Vietnam (1)
Taiwan (75)
Hong Kong (32)
2013 LIFE INSURANCE PENETRATION VS GDP/CAPITA
Life penetration(Percent of GDP)
Life Market Size and Penetration from Swiss Re Sigma Report; GDP/capita from EIU Datatool.
MACRO GROWTH TRENDS IN LIFE INSURANCE
SUN LIFE ASIA
286
373
422
INDIVIDUAL LIFE AND HEALTH INSURANCE
SALES(1)
(C$ millions)
2012 2013 2014
UNDERLYING NET INCOME(C$ millions)
CAGR +28% CAGR +21%
4
21 2831
8595
143
Wealth Protection
106123
174
(1) Sales for joint ventures are based on proportionate equity interest.
GROWING EARNINGS POWER
2012 2013 2014
SUN LIFE ASIA
20
• Acquired CIMB Aviva in Malaysia – Commenced Sun Life Malaysia
• Greenfield in Vietnam – PVI Sun Life
• Philippines: #1 position; expanded agency and grew footprint
• Hong Kong: grew agency and broker business; continued MPF growth
• Indonesia: investing $40 million over 3 years to expand agency; first Shariah only agency
• Malaysia: added 138 insurance specialists
• China: successfully launched an online business in China
• Strategic focus on Health and Accident
• Focus on Shariah in Indonesia and Malaysia
• In India, focus on equity fund investment management process resulting in top quartile investment
performance
• Bancassurance joint venture in the Philippines – Sun Life Grepa
• Launched asset management company in China – Sun Life EverBright AMC
• Established the #1 Pensions business in Vietnam
MERGERS & ACQUISITIONS
NEW BUSINESS DEVELOPMENT
PRODUCT EXTENSIONS
DISTRIBUTION GROWTH
5
ACHIEVEMENTS (2012-2014)
6
Sales (in Gross Premium basis) increased 79% in 2013 and a further 36% in 2014
Sales increased by 68% in 2013 and 59% in 2014 driven by improved conversion rates
SUN LIFE ASIA
2011 2012 2013 2014 2011 2012 2013 2014
90 93
166
225
87
11
18
Based on Sun Life Financial analysis. Sun Life Financial acquired the Malaysia business in 2013.
TURNAROUND IN MALAYSIA
BANCASSURANCE SALES(C$ millions)
CAGR +36%
TELEMARKETING SALES(C$ millions)
CAGR +31%
SUN LIFE ASIA
• Bolt-on acquisitions in existing markets and expansion in additional high growth markets
• Implement Most Respected Agency initiative in the Philippines, Hong Kong, Indonesia and Vietnam
• Seek bancassurance opportunities across the region
• Build out digital offering to agents and distribution partners, including
straight-through-processing
• Implement Money for Life, a customer segmentation and advising methodology
• Continue to expand Health & Accident and wealth business
• Continue to expand Shariah in Indonesia and Malaysia
• Expand wealth management businesses
MERGERS & ACQUISITIONS
NEW BUSINESS DEVELOPMENT
PRODUCT EXTENSIONS
DISTRIBUTION GROWTH
PRIMARY FOCUS IS ON ORGANIC GROWTH IN OUR SEVEN MARKETS
KEY GROWTH INITIATIVES (2015 AND BEYOND)
7
SUN LIFE ASIA
8
INDIA85,724
CHINA999
INDONESIA8,322
PHILIPPINES6,666
VIETNAM1,843
HONG KONG1,654
PHILIPPINES• Record agency sales - $123 million• Record agency force headcount• #1 in market
HONG KONG• Record agency sales - $84 million with
25% growth from prior year
INDONESIA• Record agency sales - $27 million with
31% growth from prior year• Record agency force headcount
BUILDING ASIA’S MOST RESPECTED AGENCY
SUN LIFE ASIA
9
OBJECTIVES:
Increase number and quality of agents
Improve customer sales experience and increase persistency
Increase cross sell of life, health and wealth, and deliver holistic advice to customers
MOST RESPECTED AGENCY
SUN LIFE ASIA
10
Joint ventures and partnerships
China:• Agriculture Bank of China• China Construction Bank• China Everbright Bank• Industrial and Commercial Bank
of China• Postal Savings Bank
of China• China Minsheng Bank
India: • Deutsche Bank• DCB Bank• Karur Vysya Bank
Indonesia:• Bank Negara Indonesia • Bank Central Asia• CIMB Niaga• Mutiara Bank• OCBC NISB
Philippines:• Rizal Commercial Banking
Corporation
Malaysia:• CIMB Bank• Bank Rakyat• Bank Persatuan• Kenanga Investment Bank
Berhad• Khazanah Nasional Berhad
Bancassurance relationships
SUN LIFE – A GOOD PARTNER
SUN LIFE ASIA
11
• LEVERAGE current market presence by focusing on our principal markets • Actively analyze and respond to customer needs in Asia• Build broader awareness of HEALTH AND WELLNESS• Holistic product strategy with CONTINUOUS INNOVATION, focused especially on cross-selling and
VNB creation and extending to additional market segments
2014 HEALTH & ACCIDENT SALES (as % of total Individual Sales)
3946
2013 2014
HEALTH & ACCIDENT SALES(C$ millions)
Growth +19%
H&A8%
Others92%
China
HEALTH & ACCIDENT STRATEGY
Asia Wealth Management Businesses
# 2 in AUM(1)
Philippines Asset Management
C$1 billion AUM
#3 in Net Asset Inflow(2)
Hong Kong Mandatory Provident Fund
C$4 billion AUM
#4 in AUM(3)
Birla Sun Life Asset Management
C$22 billion AUM
Sun Life Everbright Asset Management
C$11 billion AUM
SUN LIFE ASIA
WEALTH MANAGEMENT BUSINESSES
• Address savings and retirement market opportunity
• Integrate insurance and wealth for distribution and customer
• Leverage Sun Life global asset management pillar
12
Joint ventures represented at 100%. Values are as at December 31, 2014, except Birla Sun Life Asset Management (India) and Sun Life Everbright Asset Management (China), which are as at November 30, 2014. Sources: (1) The Philippine Investment Fund Association as of November 2014, (2) The Gadbury Report of MPF Market Shares as of December 31 2014, and (3) The Association of Mutual Funds in India as of December 2014.
SLF Asia Digital Direction
13
MONEY FOR LIFE SALES CONCEPT
• Unique customer proposition for agents and sales teams
• Digital platform to educate customers on needs for different products at different life stages
• Engagement strategy to foster customer loyalty
DIGITAL ANALYTICS / INTELLIGENCE
• Integrate data analytics into sales process
DIGITAL MARKETING
• Build brand
• Increase and grow digital touch points to reach new customer segments
• Grow all digital channels into assets for Sun Life
From Fundamental and Tactical to Integrated Stage of Digital Maturity
DISTRIBUTION DIGITIZATION• Improve customer engagement / satisfaction
through better use of digital tools at point of sale
SUN LIFE ASIA
SLF ASIA DIGITAL DIRECTION
SUN LIFE ASIA
14
DIGITAL PRESENCE
HEALTHY LIVING - ACTIVE ROLE IN THE COMMUNITY
BEING VISIBLE
BUILDING THE BRAND
SUN LIFE ASIA
FOCUS ON HIGHER GROWTH MARKETS
DISTRIBUTION EXCELLENCE
DIVERSIFIED AND PROFITABLE PRODUCTS
LEVERAGING STRENGTHS OF SUN LIFE
EXECUTION EXCELLENCE15
SUSTAINABLE SHAREHOLDER VALUE
FINANCIAL REVIEW
Colm J. FreyneExecutive Vice President andChief Financial Officer
SUN LIFE FINANCIAL
Operating Net Income(C$ millions)
2015 Objectives(1) 2014 Underlying Net Income
SLF Canada 900 823
SLF U.S. 345 266
MFS 450 616
SLF Asia 225 174
Corporate
SLF U.K.130 129
CorporateCorporate Support
(200) (192)
Total company 1,850 1,816
2015 net income objective:
$1.85 billion
2015 ROE objective: 12-13%
2
EXECUTION AGAINST OBJECTIVES
(1) The 2015 operating net income and operating ROE objectives were provided on March 8, 2012 and adjusted to reflect the net impact of the sale of our U.S. Annuity Business, effective August 1, 2013. The objectives are forward-looking non-IFRS financial measures and are not earnings guidance. The deployment of capital build up will impact ROE.
SUN LIFE FINANCIAL
ROE objective: 12-14%
Average EPS growth: 8-10% per annum
Payout ratio(2): 40-50%
3
NEW MEDIUM-TERM OBJECTIVES(1)
(1) The objectives are forward-looking non-IFRS financial measures and are not earnings guidance.(2) Dividend payout ratio is based on underlying net income.
SUN LIFE FINANCIAL
• Modest increase in interest rates, broadly in line with forward yield curve
• Average equity market growth of 8% per year, in line with long term experience
• Credit experience within current actuarial assumptions
• No significant changes in regulatory capital requirements
• No significant changes to effective tax rate
• Share repurchases in line with current program
4
KEY ASSUMPTIONS FOR FINANCIAL OBJECTIVES
SUN LIFE FINANCIAL
• Impact of low rates fully reflected in actuarial liabilities under Canadian reserving methodology and required capital
• Actuarial Standards Board changes in Q4 recalibrated the ultimate reinvestment rates – consistent with the long-term view of rates
• Balanced business model moderates the impact of low rates
5
Challenges Opportunities
• Higher levels of new business strain • Higher levels of AFS gains
• Expected profit marginally lower • Increased flows into equity markets
• Impact on assumption changes • Currency movements
MANAGING THE IMPACT OF LOW INTEREST RATES
Available for sale (“AFS”).
SUN LIFE FINANCIAL
6
GROWTH IN CONTROLLABLE EXPENSES (1)
5.9%
8.6%
4.3%
2012 2013 20142012 2013 2014
Elevated levels of expenses in prior years from strategic investments in growth
• SLF Canada
– Sun Life Global Investments
– Wealth distribution/product
– Client Solutions
• SLF Asia
– Investment in new markets
– Investment in agency distribution
TRENDS IN EXPENSES
(1) Year-over-year change excludes MFS and is calculated on a constant currency basis.
SUN LIFE FINANCIAL
• Framework based on proven lean / six sigma best practices of better, faster and cheaper
• Rollout started in 2013
• Savings tracked separately through expense roll-forward methodology
7
THE BRIGHTER WAY MANAGEMENT SYSTEM
SUN LIFE FINANCIAL
ACTION
DIVESTED U.S. Annuity Business (August 2013)
MODERATED exposure to certain segregated fund guarantees
IMPROVED economics of Canada Individual Insurance sales
DEPLOYED risk capacity against credit and longevity
STRENGTHENED future mortality improvement methodology to use global best practice
MANAGING volatility in interest rates, equity markets, credit markets and currency8
DISCIPLINED RISK MANAGEMENT
STRONG CAPITAL AND FINANCIAL POSITION
Sun Life Assurance Company of Canada
2014 2013 2012 2011
A.M Best A+ A+ A+ A+
DBRS IC-1 IC-1 IC-1 IC-1
Moody’s Aa3 Aa3 Aa3 Aa3
Standard & Poor’s AA- AA- AA- AA-
Financial Strength Rating
MCCSR(1) RATIO –SUN LIFE ASSURANCE COMPANY OF CANADA
209%219% 217%
2012 20142013
9
SUN LIFE FINANCIAL
• $1.8 billion cash level at Sun Life Financial Inc. as at December 31, 2014
• $500 million minimum cash target
STRONG CAPITAL AND FINANCIAL POSITION
(1) Minimum Continuing Capital and Surplus Requirements (“MCCSR”).
SUN LIFE FINANCIAL
SLA
SLF
U.K. Canada Bermuda AsiaU.S.
Branch
Capitalized to meet local capital rules
Book value excl. from MCCSR
MFS
$1.8 billion cash at Holding Company
MCCSR of 217%
10
CAPITAL MODEL
SUN LIFE FINANCIAL
• Drive organic growth
• Execute strategic M&A
• Return capital– Share repurchases
– Dividend increases
• Maintain target leverage
• Recapture risk
11
OPTIONS FOR CAPITAL DEPLOYMENT
SUN LIFE FINANCIAL
ROBUST EARNINGS AND SALES GROWTH
AMBITIOUS AND ACHIEVABLE OBJECTIVES
FOCUS ON PRODUCTIVITY
STRONG FINANCIAL POSITION AND CAPITAL DEPLOYMENT OPPORTUNITY
EXECUTION EXCELLENCE12
SUSTAINABLE SHAREHOLDER VALUE
WRAP-UP
APPENDIX
Interest rate sensitivity -100 bps -50 bps +50 bps +100 bps
Potential impact on net income (C$ millions) $(400) $(100) $50 $100
Potential impact on MCCSR (percentage points)12 points decrease
5 points decrease
4 points increase
8 points increase
2
Equity markets sensitivity -25% -10% +10% +25%
Potential impact on net income (C$ millions) $(250) $(50) $50 $150
Potential impact on MCCSR (percentage points)5 points
decrease1 point
decrease1 point
increase1 point
increase
STRONG CAPITAL AND FINANCIAL POSITION
SUN LIFE FINANCIAL
SENSITIVITY TO MARKET SHOCKS(1)
(1) As at December 31, 2014.
In this presentation, Sun Life Financial Inc. and its subsidiaries, joint ventures and associates are referred to as “we”, “us”, “our” and the “Company”.
Use of Non-IFRS Financial MeasuresThe Company prepares its financial statements in accordance with international financial reporting standards ("IFRS"). We report certain financial measures that are not prepared in accordance with IFRS ("non-IFRS financial measures"), as we believe that these measures provide information that is useful to investors in understanding our performance and facilitate a comparison of our quarterly and full year results from period to period. These non-IFRS financial measures do not have any standardized meaning and may not be comparable with similar measures used by other companies. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. These non-IFRS financial measures should not be viewed as alternatives to measures of financial performance determined in accordance with IFRS.
Operating net income and operating ROE are non-IFRS financial measures, that exclude from reported net income and reported ROE the impact of: (i) certain hedges in SLF Canada that do not qualify for hedge accounting; (ii) fair value adjustments on share-based payment awards at MFS; (iii) the loss on the sale of our U.S. annuity business; (iv) the impact of assumption changes and management actions related to the sale of our U.S. annuity business; (v) restructuring and other related costs (including impacts related to the sale of our U.S. annuity business); (vi) goodwill and intangible asset impairment charges; and (vii) other items that are not operational or ongoing in nature.
Underlying net income, underlying EPS and underlying ROE are non-IFRS financial measures that remove the impact of the following items: (a) market related impacts; (b) assumption changes and management actions; and (c) other items that have not been treated as adjustments to operating net income and when removed assist in explaining our results from period to period. Market related impacts include: (i) the net impact of changes in interest rates that differ from our best estimate assumptions in the reporting period on investment returns and the value of derivative instruments used in our hedging programs, including changes in credit and swap spreads, and any changes to the assumed fixed income reinvestment rates in determining the actuarial liabilities; (ii) the net impact of changes in equity markets, net of hedging, above or below our best estimate assumptions of approximately 2% growth per quarter in the reporting period and of basis risk inherent in our hedging program for products that provide benefit guarantees; and (iii) the net impact of changes in the fair value of real estate properties in the reporting period. Assumption changes reflect the impact of revisions to the assumptions used in determining our liabilities for insurance contracts and investment contracts. The impact of assumption changes related to actions taken by management in the current reporting period, referred to as management actions, include for example, changes in the prices of in-force products, new or revised reinsurance on in-force business or material changes to investment policies for asset segments supporting our liabilities.
Management also uses the following non-IFRS financial measures:1. Adjusted revenue. This measure adjusts revenue for the impact of: (i) the effects of exchange rate fluctuations, from the translation of functional currencies to the Canadian dollar, for comparisons (the “Constant Currency
Adjustment”); (ii) excluding fair value and foreign currency changes on assets and liabilities (the “FV Adjustment”); and (iii) excluding reinsurance for the insured business in SLF Canada’s GB operations (the “Reinsurance in SLFCanada’s GB Operations Adjustment”). Adjusted revenue in disclosures prior to 2014 also removed from revenue net premiums from the life insurance business in SLF U.S. that was closed to new sales effective December 30,2011. This measure is an alternative measure of revenue that provides greater comparability across reporting periods.
2. Adjusted premiums and deposits. This measure adjusts premiums and deposits for the impact of: (i) the Constant Currency Adjustment and (ii) the Reinsurance in SLF Canada’s GB Operations Adjustment. Adjusted premiums anddeposits in disclosures prior to 2014 also removed from total premiums and deposits net premiums from the life insurance business in SLF U.S. that was closed to new sales effective December 30, 2011. Prior periods have beenrestated to reflect this change. This measure is an alternative measure of premiums and deposits that provides greater comparability across reporting periods.
3. Sales, including individual and health.4. Pre-tax operating profit margin ratio for MFS. This ratio is a measure of MFS’s underlying profitability, which excludes certain investment income and commission expenses that are offsetting. These amounts are excluded in order to
neutralize the impact these items have on the pre-tax operating profit margin ratio, as they are offsetting in nature and have no impact on MFS’s underlying profitability.5. Impact of foreign exchange. Several IFRS financial measures are adjusted to exclude the impact of foreign exchange rate fluctuations. These measures are calculated using the average or period end foreign exchange rates, as
appropriate, in effect at the date of the comparative period.6. MCCSR market sensitivities.7. Administrative services only, premium and deposit equivalents, mutual fund assets and sales, managed fund assets sales, premiums and deposits, assets under management and assets under administration.8. The value of new business, which is used to measure the estimated lifetime profitability of new sales and is based on actuarial calculations.9. Assumption changes and management actions, which is a component of our sources of earnings disclosure. Sources of earnings is an alternative presentation of our Consolidated Statements of Operations that identifies and
quantifies various sources of income. The Company is required to disclose its sources of earnings by its principal regulator, the Office of the Superintendent of Financial institutions.
3
Forward-Looking StatementsCertain statements made in the presentations prepared for the Sun Life Financial Investor Day 2015 held on March 5, 2015 and certain oral statements made by senior management at the Sun Life Financial Investor Day 2015 (collectively, the “Investor Day presentations”) are forward-looking and include, but are not limited to statements relating to our growth strategies and initiatives, financial objectives, strategic goals, productivity and expense initiatives and other business objectives; and other statements that are not historical or are predictive in nature or that depend upon or refer to future events or conditions. Forward-looking statements may also include words such as "aim", "anticipate", "assumption", "believe", "could", "estimate", "expect", "goal", "intend", "may", "objective", "outlook", "plan", "project", "seek", "should", "initiatives", "strategy", "strive", "target", "will" and similar expressions.
All such forward-looking statements are made pursuant to the "safe harbour provisions" of applicable Canadian securities laws and of the United States Private Securities Litigation Reform Act of 1995.
The forward-looking statements made in the Investor Day presentations are stated as at March 5, 2015 and represent our current expectations, estimates and projections regarding future events and are not statements of historical facts. These forward-looking statements are not a guarantee of future performance and involve inherent risks and uncertainties and are based on key factors and assumptions, all of which are difficult to predict.
Future results and shareholder value may differ materially from those expressed in forward-looking statements due to, among other factors:
• the assumptions and other factors set out in the Investor Day presentations;
• the matters set out in the Company's 2014 annual management's discussion and analysis under Impact of the Low Interest Rate Environment and Critical Accounting Policies and Estimates and Risk Management;
• the risk factors set out in the Company's annual information form for the year ended December 31, 2014 under Risk Factors; and
• other factors detailed in the Company's annual and interim financial statements and any other filings with Canadian and U.S. securities regulators made available at www.sedar.com and www.sec.gov.
By their very nature, forward-looking statements are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in or implied by such forward-looking statements. As a result, we cannot guarantee that any forward-looking statement will materialize and undue reliance should not be placed on these forward-looking statements. The forward-looking statements contained in the Investor Day presentations describe our expectations, estimates and projected future events at March 5, 2015. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in the Investor Day presentations. The forward-looking statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after March 5, 2015.
Forward-looking statements are presented to assist investors and others in understanding our expected financial position and results of operations as at March 5, 2015, as well as our objectives, strategic priorities and business outlook, and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such forward-looking statements may not be appropriate for other purposes.
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Material assumptions and risk factorsThe Company’s medium-term financial objectives do not constitute guidance. Our ability to achieve our medium-term financial objectives is dependent on the Company’s success in achieving the growth initiatives, business objectives and productivity and expense targets that will be described in the Investor Day presentations and on certain other key assumptions that include:
i. a modest increase in interest rates, broadly in line with the forward yield curve;
ii. average equity market growth of 8% per annum, in-line with long term experience;
iii. credit experience within current actuarial assumptions;
iv. no significant changes in regulatory capital requirements;
v. no significant changes to our effective tax rate; and
vi. share repurchases in line with current program;
vii. other key assumptions include: no material changes to our hedging program; hedging costs that are consistent with our best estimate assumptions; no material assumption changes including updates to the economic scenario generator and no material accounting standard changes.
Our medium-term financial objectives are also based on best estimate actuarial assumptions as at December 31, 2014. Our underlying ROE is dependent upon capital levels and options for deployment of excess capital. Our objectives do not reflect the indirect effects of interest rate and equity market movements including the potential impacts on goodwill or the current valuation allowance on deferred tax assets as well as other items that may be non-operational in nature.
Important risk factors that could cause our assumptions and estimates to be inaccurate and our actual results or events to differ materially from those expressed in or implied by the forward-looking statements contained in thie Investor Day presentations, including our financial objectives, are listed below. These risks include, but are not limited to: business risks - economic and geo-political risks; risks in implementing business strategies; changes in legislation and regulations, including capital requirements and tax laws; the inability to maintain strong distribution channels and risks relating to market conduct by intermediaries and agents; risks relating to operations in Asia, including SLF's joint ventures; the impact of competition; the performance of SLF's investments and investment portfolios managed for clients such as segregated and mutual funds; market conditions that affect the SLF's capital position or its ability to raise capital; risks related to liquidity; downgrades in financial strength or credit ratings; risks relating to estimates and judgments used in calculating taxes; the impact of mergers, acquisitions and divestitures; the ineffectiveness of risk management policies and procedures; risks relating to the closed block of business; market, credit and liquidity risks - the performance of equity markets; credit risks related to issuers of securities held in SLF’s investment portfolio, debtors, structured securities, reinsurers, derivative counterparties, other financial institutions and other entities; changes or volatility in interest rates or credit spreads or swap spreads; fluctuations in foreign currency exchange rates; risks relating to real estate investments; risks related to market liquidity; insurance risks - risks relating to the rate of mortality improvement; risks relating to policyholder behaviour; risks relating to product design and pricing; risks relating to mortality and morbidity, including the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism; the impact of higher-than-expected future expenses; the availability, cost and effectiveness of reinsurance; operational risks - breaches or failure of information system security and privacy, including cyber terrorism; risks relating to SLF’s information technology infrastructure; failure of information systems and Internet-enabled technology; the ability to attract and retain employees; legal and regulatory proceedings, including inquiries and investigations; risks relating to financial modelling errors; business continuity risks; dependence on third-party relationships, including outsourcing arrangements; and risks relating to the environment, environmental laws and regulations and third-party policies.
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