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Sun Life Financial

SLF to sell domestic U.S. annuity business


Monday December 17, 2012
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In this presentation, Sun Life Financial Inc. and its subsidiaries, joint ventures and associates are
referred to as we, us, our and the Company. SLA refers to Sun Life Assurance Company of
Canada.
Forward-looking statements
Certain statements in this presentation and certain oral statements made during the conference call
(collectively, this presentation), including, but not limited to, statements that are not historical facts,
are forward-looking and are subject to risks, uncertainties and assumptions. Actual results or events
may be materially different from those expressed or implied by these forward-looking statements. As a
result, we cannot guarantee that any forward-looking statement will materialize. The forward-looking
statements are made as of December 17, 2012. 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 this presentation.
Non-IFRS Financial Measures
The Company prepares its financial statements in accordance with international financial reporting
standards (IFRS). This presentation includes financial measures that are not based on IFRS (non-
IFRS financial measures). The Company believes that these non-IFRS financial measures provide
information that is useful to investors in understanding the Companys performance and facilitate a
comparison of the quarterly and full year results of the Companys ongoing operations. These non-
IFRS financial measures do not have any standardized meaning, may not be comparable with similar
measures used by other companies and should not be viewed as an alternative to measures of
financial performance determined in accordance with IFRS.
Additional Information
Additional information concerning forward-looking statements and non-IFRS financial measures is
included at the end of this presentation in the Appendix.
Dean A. Connor
President and Chief Executive Officer
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Subject to customary closing conditions including regulatory approvals
By the end of the second quarter of 2013
Delaware Life Holdings
(1)
will acquire Sun Lifes domestic U.S. annuity
business represents a complete transfer of risk
Transaction summary
Description
Cash purchase price of US$1.35 billion
(2)
Consideration
Closing
conditions
Expected
Close
A transformational change to Sun Lifes business
(1)
A company owned by shareholders of GuggenheimPartners
(2)
Based on financial statements as of September 30, 2012 and subject to certain adjustments reflecting the performance of the business fromSeptember 30,
2012 through closing.
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Strategic rationale
Non-core business not part of the Four Pillar growth strategy
Significantly reduces equity market and interest rate risk
Significantly reduces earnings volatility
Eliminates uncertainty around future policyholder experience and
capital rules related to the U.S. annuity business
Locks in value of future earnings and capital releases from the U.S.
annuity business
Concentrates time and capital on growth
Aligns with company strategy of reducing risk and volatility of earnings
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Significantly improves risk profile
+25%
$200
(400)
Equity Markets Interest Rates
-25%
100
(200)
50% reduction in equity
market sensitivity
Income Impact
(C$ millions)
+100 bps
$200
(400)
-100 bps
100
(250)
35% reduction in interest
rate sensitivity
Q312
Q312
Adjusted
(1)
Q312
Adjusted
(1)
Q312
(1)
Adjusted sensitivities are based on published sensitivities as of September 30, 2012 restated to exclude the U.S. annuity business. For important information on
the market risk sensitivities including key assumptions and risk factors, please refer to the Risk Management section of the Companys Q3 2012 Managements
Discussion and Analysis.
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Key financial metrics
Purchase price
(1)
US$1.35 billion
Price to statutory book value
(2) (5)
1.2x
SLAMCCSR Neutral
Est. SLF cash level at close
(2) (3)
C$1.9 billion
Net IFRS book value of business sold C$2.15 billion
Est. costs and other adjustments C$(150) million
Est. IFRS book value impact
(3)
C$(950) million
Est. IFRS accounting impact
(3)
C$(1.05) billion
Est. EPS impact
(4)
C$(0.22)
Net U.S. statutory book value
(2) (5)
US$1.14 billion
(1) Based on financial statements as of September 30, 2012 and subject to certain adjustments reflecting the performance of the business fromSeptember 30, 2012 through closing.
(2) Pro-forma estimates based on cash and book value levels as of the end of Q312.
(3) Includes estimated impact of closing price adjustments and value of retained assets, net of debt repayment of $350 million in 2013. Some impacts may be recognized prior to
closing. This sale constitutes a disposition of a foreign operation and we anticipate recording the related cumulative foreign Currency Translation Difference of approximately $100
in income. This constitutes forward-looking information, for additional information see accompanying Appendix.
(4) EPS impact calculated using 600 million outstanding shares and estimated 2013 net income fromthe U.S. annuity business being sold, assuming actual experience is in-line with
best estimate assumptions. This is forward-looking information, for additional information see accompanying Appendix.
(5) Net U.S. statutory book value represents statutory capital surplus plus the IFRS book value of two legal entities being sold with the U.S. annuity business. Non-IFRS measure, for
additional information see accompanying Appendix.
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Financial implications
Redeem C$350 million of debt callable in J une, 2013
(1)
Transaction will be neutral to leverage ratio
Consider further redemption opportunities as debt matures
Funding for business growth
Potential smaller acquisitions
Additional funding for organic growth
Strengthens capital position
A significant buffer against adverse market conditions
Expect to maintain the dividend at the current level
(2)
(1) Subject to Board and regulatory approvals and constitutes forward-looking information, for additional information see accompanying Appendix.
(2) Subject to Board approval and constitutes forward-looking information, for additional information see accompanying Appendix.
Transaction crystallizes future earnings stream and capital releases
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U.S. business going forward
Continue to grow our top ten Employee Benefits business
US$2 billion of business in-force
Hitting key milestones in the build out of the Voluntary Benefits
business
Q312 YTD sales growth of 85%
The International High Net Worth business based in Bermuda
continues to be a part of the U.S. business and remains a focus for
growth
Continue to see good value from our in-force individual life insurance
business
U.S. continues to be a key part of the Four Pillar strategy
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2012: A year of transformation
De-risk
U.S. life and annuity sales
ceased
J an. 1, 2012
Sale of annuity business
announced Dec.17, 2012
Actions taken to reduce
interest rate risk during
2012
Transform
Largest number of product
introductions, changes
and re-pricings in recent
history
Significant cultural change
underway
Grow
Four Pillar growth strategy
with 2015 Targets
unveiled at Investor Day
Investments in all Four
Pillars will drive top and
bottom line growth
Sun Life moving quickly to transform business
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Appendix
Forward-Looking Statements
Certain statements in this presentation or that may be made during this conference call (collectively, the presentation) are forward-looking, including, but are not
limited to, statements that are not historical or are predictive in nature or that depend upon or refer to future events or conditions and statements relating to (1) our
growth strategies, financial objectives, future results of operations, and strategic goals, (2) the anticipated timing of the closing of the transaction, (3) the expected
reduction in our exposure to the equity markets and interest rates, (4) the expected reduction in our earnings volatility, (5) the expected impact on the Minimum
Continuing Capital and Surplus Requirements ratio of SLA, (6) the expected cash level available to Sun Life Financial Inc. at the close of the transaction, (7) the net
IFRS book value, the estimated costs, currency and other adjustments, the estimated IFRS price book value impact, the estimated IFRS accounting impact, the
estimated earnings per share impact and the net U.S. statutory price book value as a result of the sale of our U.S. annuity business, (8) the statements relating to
financial implications and our potential uses of proceeds, and (9) the impact of the transaction on our 2015 operating income objective and our 2015 operating return
on equity objective (collectively, our 2015 financial objectives). Forward-looking statements may include words such as aim, anticipate, assumption, believe,
could, estimate, expect, goal, intend, may, objective, outlook, plan, project, seek, should, initiatives, strategy, strive, target, willand similar
expressions. All such forward-looking statements are made pursuant to the safe harbour provisionsof applicable Canadian securities laws and of the United States
Private Securities Litigation ReformAct of 1995.
The forward-looking statements in this presentation represent our expectations, estimates and projections regarding future events as at December 17, 2008 and are
not historical facts. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties and are based on key factors
and assumptions, including without limitation, (1) the assumption that the transaction will be completed, (2) for the estimated cash level at close for Sun Life Financial
Inc. and the net U.S. statutory price book value, the assumption that the underlying figures are the same as the third quarter 2012 figures and (3) other assumptions
set out in this presentation, all of which are difficult to predict. 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 December 17,
2012. If any non-recurring or other special itemor any transaction should occur, the financial impact could be complex and the effect on our operations or results
would depend on the facts particular to such itemand we cannot describe the expected impact in a meaningful way or in the same way we could present known risks
affecting our business.
Our 2015 financial objectives are based on the assumptions and other factors set out in our news release issued on March 8, 2012, Sun Life Financial Investor Day
2012, which is available on our website and has been filed with Canadian and U.S. securities regulators made available at www.sedar.comand www.sec.gov.
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 this
presentation.
Forward-looking statements and estimates are presented to assist investors and others in understanding the potential impact of the proposed sale of our U.S.
annuities business on our financial position and results of operations and our objectives for the transaction, strategic priorities and business outlook following the
transaction, and to obtain a better understanding of our anticipated operating environment following the transaction. Readers are cautioned that such forward-looking
statements may not be appropriate for other purposes and undue reliance should not be placed on these forward looking-statements.
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Risks
Important risk factors that could cause our actual results to differ materially fromthose expressed in or implied by the forward-looking statements in this
presentation are listed below. The realization of our forward-looking statements essentially depends on our business performance which, in turn, is subject to
many risks.
The following are transactional risk factors that could have a material adverse effect on our forward-looking statements: (1) the ability of the parties to complete
the transaction; (2) failure of the parties to obtain necessary consents and approvals as required under the definitive agreement or to otherwise satisfy the
conditions to the completion of the transaction in a timely manner, or at all; (3) failure to effectively or efficiently restructure and reorganize the Companys
remaining businesses after the transaction has closed; and (4) the impact of the announcement of the transaction and the dedication of the Companys
resources to the completion of the transaction and the effect of the transaction on our continuing operations in the U.S. These risks all could have an impact on
the Companys business relationships (including with future and prospective employees, customers, distributors and partners) and could have a material
adverse effect on the current and future operations, financial conditions and prospects of the Company.
In addition, any of the following risks could have a material adverse effect on our forward-looking statements: (1) economic uncertainty and market conditions
that affect our capital position or our ability to raise capital; (2) changes or volatility in interest rates or credit/swap spreads; (3) the performance of equity
markets; (4) credit risks related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, derivative counterparties,
other financial institutions and other entities; (5) risks in implementing business strategies; (6) failure or deficiencies in our risk management practices; (7)
changes in legislation and regulations including capital requirements and tax laws; (8) legal and regulatory proceedings, including inquiries and investigations;
(9) risks relating to product design and pricing; (10) downgrades in our financial strength or credit ratings; (11) our ability to attract and retain employees; (12)
the performance of our investments and the investment portfolios we manage for clients such as segregated and mutual funds; (13) the impact of higher-than-
expected future expenses; (14) risks relating to mortality and morbidity, including the occurrence of natural or man-made disasters, pandemic diseases and
acts of terrorism; (15) risks relating to the rate of mortality improvement; (16) risks relating to policyholder behaviour; (17) risks related to liquidity; (18) our
dependence on third-party relationships including outsourcing arrangements; (19) our inability to maintain strong distribution channels; (20) risks relating to
market conduct by intermediaries and agents; (21) breaches or failure of information systemsecurity and privacy, including cyber terrorism; (22) business
continuity risks; (23) risks relating to financial modeling errors; (24) risks relating to real estate investments; (25) risks relating to estimates and judgments used
in calculating taxes; (26) the impact of mergers and acquisitions; (27) risks relating to operations in Asia including our joint ventures; (28) the impact of
competition; (29) fluctuations in foreign currency exchange rate; (30) risks relating to our closed blocks of business; (31) risks relating to the environment,
environmental laws and regulations and third party policies; and (32) the availability, cost and effectiveness of reinsurance. Additional information about each
of these risk is provided in the Companys annual information formfor the year ended December 31, 2011 (our AIF) under the heading Risk Factors.
Additional factors that may affect actual results fromthose expressed in our forward-looking statements can be found in (1) the Companys managements
discussion and analysis (MD&A) for the quarter ended September 30, 2012 under the headings Impact of Low Interest Rate Environment, Review of
Actuarial Methods and Assumptions and Management Actionsand Capital Management, (2) the Companys annual MD&A for the year ended December 31,
2011 under the headings Critical Accounting Policies and Estimatesand Risk Management; and (3) other factors detailed in the Companys annual and
interimfinancial statements and any other filings with Canadian and U.S. securities regulators made available at www.sedar.com and www.sec.gov.
Use of Non-IFRS Financial Measures
In this presentation, we report certain financial information using non-IFRS financial measures, as we believe that information is useful to investors in
understanding our performance and facilitates a comparison of the quarterly and full year results of our ongoing operations. 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. They should not be viewed as an alternative to measures of financial performance
determined in accordance with IFRS. Additional information concerning these non-IFRS financial measures and reconciliations to IFRS measures are included
in our annual and interimMD&A and the Supplementary Financial Information packages that are available on www.sunlife.comunder Investors - Financial
Results & Reports.
Operating net income (loss), and financial information based on operating net income (loss), including operating earnings per share (operating EPS) and
adjusted operating net income are non-IFRS financial measures. Our annual MD&A for the years ended December 31, 2008, 2009, 2010 and 2011 disclose
the amounts that were excluded from our operating net income (loss) and provide reconciliations to our reported net income for each of those years.