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06-Aug-2015

Sun Life Financial, Inc. (SLF)

Q2 2015 Earnings Call

Sun Life Financial, Inc. (SLF) Q2 2015 Earnings Call

Corrected Transcript 06-Aug-2015


2 Copyright © 2001-2015 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Gregory A. Dilworth Vice President-Investor Relations

Dean A. Connor President, CEO & Non-Independent Director

Colm J. Freyne Chief Financial Officer & Executive Vice President

Stephen Clarkson Peacher Chief Investment Officer

Robert Manning Co-CEO & President, Massachusetts, Financial Services Co.

Michael William Roberge Co-CEO & President, Massachusetts Financial Services Co.

Kevin P. Dougherty President, Sun Life Financial Canada

Daniel Richard Fishbein President-US Business

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc.

Larry Madge Senior Vice President & Chief Actuary

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Humphrey Hung Fai Lee Dowling & Partners Securities LLC

Tom MacKinnon BMO Capital Markets (Canada)

Steve Theriault Bank of America Merrill Lynch

Robert Sedran CIBC World Markets, Inc.

Meny Grauman Cormark Securities, Inc.

Gabriel Dechaine Canaccord Genuity Corp.

Peter Routledge National Bank Financial, Inc. (Broker)

Sumit Malhotra Scotia Capital, Inc. (Broker)

Doug Young Desjardins Securities, Inc.

Mario C. Mendonca TD Securities

Daniel B. Bergman UBS Securities LLC





MANAGEMENT DISCUSSION SECTION

Operator: Good morning. My name is Tiffani, and I'll be your conference operator today. At this time, I would

like to welcome everyone to the Sun Life Financial Second Quarter 2015 Financial Results Conference Call and

Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there

will be a question-and-answer session. [Operator Instructions] Thank you.

Greg Dilworth, Vice President of Investor Relations, you may begin your conference. ......................................................................................................................................................................................................................................................


Thank you, Tiffani, and good afternoon, everyone. Welcome to Sun Life Financial's earnings conference call for

the second quarter of 2015. Our earnings release and the slides for today's call are available on the Investor

Relations section of our website at sunlife.com.

We will begin today's presentation with an overview of our second quarter results by Dean Connor, President and

Chief Executive Officer of Sun Life Financial. Following those remarks, Colm Freyne, Executive Vice President and

Chief Financial Officer, will present the second quarter financial results. Steve Peacher, Executive Vice President

and Chief Financial Officer and President of Sun Life Investment Management, will also be on the call this

morning to provide an update on Sun Life's asset management pillar.

After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of

management will also be available to answer your questions on today's call.

Turning to slide two, I draw your attention to the cautionary language regarding the use of forward-looking

statements and non-IFRS financial measures, which form part of this morning's remarks. As noted in the slides,

forward-looking statements may be rendered inaccurate by subsequent events.

And with that, I'll now turn things over to Dean. ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director

Thanks, Greg, and good morning, everyone. Turning to slide four, the company reported strong underlying net

income of CAD615 million, up 23% from the same period last year and an underlying return on equity of 13.9%.

Our expected profit was up 15% from broad growth across our businesses and our result this quarter benefited

from improved mortality and morbidity experience relative to the second quarter of 2014.

Wealth sales in the second quarter were CAD31.9 billion, up 25% over the prior year from higher sales in

individual wealth and group retirement services in Canada, from mutual fund in India and the mandatory

provident fund in Hong Kong, from higher retail mutual fund sales at MFS and from the inclusion of Ryan Labs in

our sales results.

Insurance sales were CAD427 million of new annualized premium, up 8% over the prior year period, driven by

growth in both individual and group benefits products in SLF Canada and strong growth in insurance sales from

our agency channels in Asia.





During the quarter, we completed the acquisitions of Ryan Labs and announced the acquisition of Bentall

Kennedy and Prime Advisors. In just 18 months, these three acquisitions, plus our start-up in Canada, have

created Sun Life Investment Management, an investment manager with over CAD50 billion of assets under

management. At this level of AUM, Sun Life Investment Management is well placed to meet growing client

demand for real estate, alternative yield strategies and liability-driven investing. All of these newly acquired

businesses along with MFS and our general account investment team report to Steve Peacher, and Steve will

spend a few minutes prior to the Q&A portion of this morning's call to discuss our asset management pillar in

more detail.

Turning to slide five, our earnings are well diversified across our businesses both by geography and by type. So,

benefits of geographic diversification are apparent with the softer economy in Canada and strengthening

economies in the U.S. and Europe and continued growth in the middle class in Asia. We also have good balance

between our wealth and protection businesses, with double digit earnings growth from each over the same period

last year.

On slide six, we continue to demonstrate strong execution on our four pillar strategy, one that's focused on higher

ROE and strong capital generation through leading positions in attractive markets globally. In Canada, we

delivered strong top and bottom line growth this quarter, underlying net income was up 28% over the prior year

and we saw double-digit sales growth in every line of business.

Sales in group retirement services were outstanding at CAD3.5 billion, including CAD2 billion in new assets from

the University of British Columbia, the largest ever defined contribution transfer in the Canadian GRS market.

Group benefit sales were up 31% driven by success in the large case market.

In our individual business, insurance sales were up 13% from growth across our career sales force and third-party

distributors. Wealth sales were up 23% from strong growth in our fund business. Sun Life Global Investments, our

Canadian mutual fund business, had gross sales of CAD766 million in the quarter, which is pretty good from a

standing start just four-and-a-half years ago. Retail sales of Sun Life Global Investment funds were up 86% to the

second quarter and we're almost on par with SLGI's strong first quarter sales during RRSP season. In May, we

launched our new segregated fund suite of products and we're off to a fast start with sales of CAD23 million of

these new funds in the quarter.

Turning to our asset management pillar, MFS ended the second quarter with assets under management of

US$440 billion and a strong operating margin of 40% in line with our communicated range. Fund performance

remains very strong with 82%, 88% and 97% of fund assets ranked in the top half of their Lipper categories for

three-year, five-year and 10-year performance.

Gross sales at MFS of US$20.1 billion were up modestly over the same period last year. Overall, MFS had net

outflows of US$1.8 billion. Institutional flows were soft reflecting previous decisions to close certain fund styles to

protect client returns and also due to client rebalancing on the back of strong fund performance as well as industry

trends such as the move from active to passive management.

MFS continues to focus on generating strong investment performance for its clients and selling exciting newer

products such as its lineup of blended research strategies that we expect to drive growth in the future.

Turning to the U.S., our Group Benefits business continues to execute well with earnings growth from investment

in claims management, which in turn helping more disabled members to return to work. We're also seeing the

results from our ongoing pricing actions and expense reductions. We're pleased with the progress in the Group





Business but would reemphasize it will take a number of quarters before Group Benefits achieved its full earnings

potential and experience will fluctuate from quarter-to-quarter.

Sales in Group Benefits were lower, reflecting our repricing strategy, at the same time business in-force has

remained stable at US$2.5 billion of annual premium.

Turning to Asia, we continued our steep trajectory with underlying earnings up 82% to CAD71 million. Over the

past 12 months, these strong results have generated a 230 basis point improvement in return on equity, driven by

strong sales, favorable business mix and growth in our in-force space.

During the second quarter, individual insurance sales increased by 18%, driven primarily by the Philippines where

we saw the number of agents increased by almost 20% over the prior year. We've had strong agency growth in a

number of other markets in Asia, including Indonesia and Hong Kong, and this is driven in part by the continued

rollout of our strategy of building the most respected agency in Asia. We've been placing particular emphasis on

health and accident sales, which increased by 29% over the prior year and accounted for 13% of our total

individual life sales in Asia during the second quarter.

Asian wealth sales were CAD1.6 billion for the quarter driven by strong growth in India, China and Hong Kong. In

Hong Kong, we had continued strong sales of our mandatory provident fund and, in India, Birla Sun Life Asset

Management recorded its highest ever quarterly average assets under management of CAD25 billion.

As a reminder, we own 49% of Birla Sun Life Asset Management, which is the fourth largest mutual fund company

in India, a company that's been growing rapidly in the world's second most populous country and a country that

has a lot of economic runway ahead of it.

So, to conclude, we're very pleased with the results this quarter and the momentum across all four pillars in the

first six months of 2015. We've delivered strong top and bottom line growth and we continue to make significant

investments in growing existing new businesses. We continue to improve the customer experience and we

continue to allocate capital efficiently in ways that drive value for our shareholders.

With that, I'll now turn the call over to Colm Freyne who will take us through the financials. ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President

Thank you, Dean, and good morning, everyone. Turning to slide eight, we take a look at some of the financial

results from the second quarter of 2015.

As Dean noted, we had a strong top line and bottom line performance across all of our businesses this quarter.

Our operating net income for the quarter was CAD731 million, up from CAD488 million in the second quarter last

year. Underlying net income, which excludes the net impact of market factors and assumption changes, amounted

to CAD615 million driven by strong earnings in SLF Canada and MFS, continued progress in our group business

in SLF U.S. and a significant increase in underlying earnings in SLF Asia.

Our underlying return on equity was 13.9% for the quarter, an improvement of 100 basis points over the same

period last year. Second quarter adjusted premiums and deposits went up 12% over the prior year to CAD33.7

billion. And assets under management ended the quarter at CAD808 billion. We maintained a strong capital

position ending the quarter with a minimum continuing capital and surplus requirements ratio for Sun Life

Assurance Company of Canada of 223% and the cash level of CAD1.7 billion at the holding company, SLF Inc.





We continue to focus on the prudent deployment of our excess capital. We've repurchased 2.2 million common

shares during the quarter. We also announced the acquisitions of Bentall Kennedy and Prime Advisors during the

quarter as we expand our asset management pillar.

Turning to slide nine, the net impact of market factors increased earnings in the quarter by CAD97 million after

tax, while the impact of assumption changes and management actions increased net income by CAD19 million

after tax. A favorable net impact of market factors was primarily due to higher interest rates in Canada and the

U.S. Losses from equity markets in the quarter and gains from increases in the fair value of real estate were largely

offsetting. Further details on the impacts of market factors have been provided in the appendix.

Underlying net income of CAD615 million benefited from CAD69 million of notable items that included positive

impacts from investing activity as well as favorable mortality, morbidity and credit experience. These items were

partially offset by adverse experience related to expenses, lapse and policyholder behavior and other experience.

At the bottom of slide nine, we breakdown our earnings contribution by business group. Our results this quarter

reflect strong business performance across all four pillars. In Canada, underlying earnings for the second quarter

were positively impacted by favorable disability results in Group Benefits and investing activity gains. We

continue to see elevated drug claim costs in Group Benefits, adverse lapse and policyholder behavior, experience

in individual insurance in wealth and elevated expense levels from the build out of our retail wealth platform.

In the U.S., we benefited from favorable credit experience and from improved results in our Group Benefits

business reflecting progress on pricing, continued investment and disability claims management and expense

management initiatives. Underlying results with MFS were driven by higher average assets under management

and strong operating profit margins. In Asia, underlying results reflect strong business growth momentum across

the number of markets, most notably in the Philippians and Hong Kong as well as investing activity gains during

the quarter.

Turning next to slide 10, we provide details on our sources of earnings presentation. Expected profit of CAD672

million, increased by CAD90 million from a year ago. The increase over the same period last year is attributable to

business growth across the enterprise, particularly in SLF Asia and MFS, and positive impacts from movements

and exchange rates. Excluding the impact of currency and results of MFS, expected profit was up 5% year-over-

year. New business strain was CAD39 million for the quarter. This represents an increase of CAD11 million over

the same period last year, driven primarily by a reduction and gains in Canada due to the lower level of interest

rates relative to a year ago, as well as higher levels of new business strain in the U.S. due to currency changes.

Experience gains of CAD252 million were driven by a combination of interest rate and other market movements in

the second quarter and a positive impact of the notable items described on the previous slide. Assumption changes

and management actions contributed CAD22 million pre-tax and CAD19 million after tax to results in the quarter.

In the second half of 2015, we will complete our annual review of actuarial methods and assumptions with the

majority of the changes being reflected in the third quarter. We note that our review requires that we assess

assumptions across a large number of products, businesses and geographies, and it is not possible to determine

the overall impact of these reviews on net income at this time.

Earnings on surplus of a CAD126 million were CAD16 million higher than in the second quarter of 2014, as we

benefited from higher investment income, including currency translation gains and the impact of mark-to-market

on real estate. Income taxes of CAD259 million represent an effective tax rate of 25%, which is above our expected

range of 18% to 22%. The higher rate reflects increased level of earnings in higher tax jurisdictions and lower





earnings in lower tax jurisdictions. On an underlying earnings basis, the tax rate was 21% and in line with our

expectations.

Slide 11 shows sales results across our insurance and wealth businesses. Sales from insurance products increased

8% over the prior year, driven by strong sales in Canada and Asia. In Canada, we saw increases in individual

insurance sales sold through third-party advisors and our career sales force and higher large-case sales in Group

Benefits.

In Asia, we benefited from continued strength in agency sales in a number of markets. Sales in SLF U.S. were

lower as we continue to adhere to a disciplined pricing strategy in international life and group. Total wealth sales

were up 25% over the prior year, MFS sales were up 16% reflecting higher retail mutual fund sales and the benefit

of currency. Wealth sales excluding MFS and Sun Life Investment Management were up 58%. In Canada, higher

sales were driven by the CAD2 billion asset transfer from the University of British Columbia Pension Plan and

strong mutual fund sales of Sun Life Global Investments.

In Asia, we saw higher mutual fund sales in India and increased subscriptions to the mandatory provident fund in

Hong Kong. As previously noted, we completed the acquisition of Ryan Labs in the quarter, although institutional

flows can be volatile in the institutional asset management business. We are pleased to report that Sun Life

Investment Management our third-party asset management business had gross sales of CAD619 million, mainly

driven by our acquisition of Ryan Labs.

Turning next to slide 12, we present a breakdown of the change in our year-to-date operating expenses over the

prior year. Our overall operating expenses for the six months ended June 30, 2015 were CAD2.4 billion, up

CAD162 million or 7% over the prior year period. Excluding the impact of currency and MFS, expenses were

CAD1.4 billion, an increase of CAD39 million or 3%.

Total year-to-date volume-related expenses, which are directly driven by sales in asset levels, increased by CAD41

million over the prior year. The net impact of inflation, investments in growth, net of productivity gains and other

year-over-year adjustments reduced operating expenses by CAD2 million compared to last year, demonstrating

solid expense management performance on a year-to-date basis.

Before turning the call over to Steve Peacher to discuss our asset management pillar, I would like to leave you with

a couple of key messages for the quarter. First, we had a strong quarter with broad based contributions from each

of our business groups, strong execution across each of our four pillars that's reflected in good sales results this

quarter and underlying earnings growth. Second, we continue to efficiently manage our capital and our financial

position remains strong. We've been disciplined in our deployment of capital, our actions this quarter reinforce

our balanced approach to capital management supporting long-term business growth, earnings in ROE

improvement, while retaining flexibility for growth opportunities.

And with that, I will turn the call over to Steve. ......................................................................................................................................................................................................................................................

Stephen Clarkson Peacher Chief Investment Officer

Thank you, Colm, and good morning, everyone. Turning to slide 14, when we established Sun Life Investment

Management last year, our goal was to add a new dimension to our asset management pillar by extending the

same core investment capabilities that we've used to manage Sun Life's general account to other institutional

investors. In particular, we set out to offer customized liability-driven investment strategies and alternative yield

strategies to institutional investors across North America.





Over the past 18 months, through both organic growth and acquisitions, we've established Sun Life Investment

Management as a third-party asset manager with over CAD50 billion of assets under management and hundreds

of institutional clients.

Just over a year ago, Sun Life Investment Management Inc. launched a series of alternative yield strategies for

Canadian defined benefit pension plans. We're extremely pleased with the response to date and in the second

quarter we garnered almost CAD500 million of new commitments to these funds. And these commitments will be

funded over coming quarters as we source the individual investments.

In April this year, we closed on the acquisition of Ryan Labs, a tenured institutional fixed income manager in the

U.S. with outstanding investment performance and a particular expertise and liability-driven investing. Ryan Labs

had gross flows of over CAD500 million in the second quarter. Prime Advisors, which closed on July 31, is a

natural addition to Sun Life Investment Management. As it focuses on customized fixed income strategies for

insurance companies that outsource the management of their assets. And Bentall Kennedy provides a premier

platform in real estate investment management in both Canada and the U.S. with assets under management of

CAD28 billion. The Bentall Kennedy transaction is expected to close in the third quarter. We'll be disclosing more

detailed financial information on these businesses on a combined basis in coming quarters.

Turning to slide 15, MFS and Sun Life Investment Management together comprised our asset management pillar

in North America. And we believe the two businesses complement each other well. MFS is a well-established

manager of retail and institutional products and focuses its investment activity in the public markets.

Sun Life Investment Management is centered on customized fixed income solutions for institutional investors and

alternative yield-oriented assets in private markets. The combination of MFS and Sun Life Investment

Management positions the company to benefit from the growth in traditional asset management as well as trends

toward liability-driven investing and alternative asset classes.

And with that, I'll turn it back over to Greg before moving to the Q&A portion of the call. ......................................................................................................................................................................................................................................................


Great, thank you, Steve. To help ensure that all of our participants have an opportunity to ask questions on today's

call, I would ask each of you to please limit yourself to one or two questions and then to re-queue with any

additional questions.

With that, I'll now ask Tiffani to please poll the participants for questions.





QUESTION AND ANSWER SECTION

Operator: [Operator Instructions] ......................................................................................................................................................................................................................................................

Gregory A. Dilworth Vice President-Investor Relations A Tiffani, are we polling the participants for questions? ......................................................................................................................................................................................................................................................

Operator: [Operator Instructions] Your first question comes from the line of Humphrey Lee. ......................................................................................................................................................................................................................................................

Humphrey Hung Fai Lee Dowling & Partners Securities LLC Q Good morning. Thank you for taking my call. I wanted to ask about your appetite in M&A. Given some of the

recent transactions you've done, do you still have any bandwidth for further acquisitions? Specifically since there

are lot of insurance related activities here in the U.S., how do you think about group insurance M&A market in the

U.S.? And then on the flip side, would you consider divesting any kind of non-core or subscale business given the

increased interest in the U.S.? ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Humphrey, it's Dean. Thank you for your question. As we said before, we continue to turn the soil over on

acquisition opportunities in all the four of our pillars and that would include the U.S. group market. Some

investors have lowered their long-term ROE expectations. And I'm thinking of some pension funds and notable

acquisitions by Japanese buyers but we have not lowered our long-term ROE expectations. And you recall that

earlier this year, we stated our medium-term financial objectives to include a 12% to 14% ROE.

So, as we evaluate acquisition opportunities, they do have to be on strategy and, obviously, they have to clear the

hurdle in terms of expected ROE over the life time of the business. And certainly the acquisitions you've seen us

do the acquisition in Malaysia two years ago and all three of our asset management acquisitions as Steve talked

about, have met these criteria. So, I won't comment specifically on the U.S. group market beyond that.

Coming back to your opening question, do we have the bandwidth, we certainly do, as Colm said, we're in a

fortunate position of having excess capital at the hold co and well capitalized in SLA. Would we consider

divestitures? Again, I won't comment on any specific parts of our business but we continue to look at all parts of

the business and how to convey and create the most value for shareholders. And you've seen us divest as well in

terms of our VA business in the United States, but I would say to you today we're happy with the mix of businesses

we've got, and we're looking to add. ......................................................................................................................................................................................................................................................

Humphrey Hung Fai Lee Dowling & Partners Securities LLC Q Okay, thanks. And then switching gear to MFS, we continue to see good retail flows in MFS but managed fund

flows continue being weak. You said some of the reasons are related to kind of your actions and customer

rebalancing and industry trend. When do you expect to see an inflection point related to the [ph] managed fund

(0:25:13) flows? And can you talk about the progress that you have made in terms of product introduction to your

managed fund platform?





Robert Manning Co-CEO & President, Massachusetts, Financial Services Co. A Yeah, that's a good question. We're working pretty hard specifically on the blended research product that we

previous mentioned on the call, which we've talked about in the past. All of those strategies in there are close to,

ten of them have very strong track records, significantly ahead of the benchmarks of which they're measured.

And we sell that against mostly passive strategies in the marketplace, in the sales time because it's unique product

is much longer but we – last year I think we did about 300 meetings with institutions and consultants and we're

going to do about 1,350 meetings this year.

And I can tell you that we are in finals as we speak but as I've mentioned in the past, it's very, very difficult to

predict when those RFPs will be converted into wins and it also depends very much on the investment

environment, it's been very challenging lately, you've had Greece and Puerto Rico and a lot of volatility in the

market. So, we're working really hard at it and we are very, very confident that we're going to be able to turn the

corner at some point down the future but I can't put a specific timeframe on it for you. ......................................................................................................................................................................................................................................................

Humphrey Hung Fai Lee Dowling & Partners Securities LLC Q Okay. And then just one quick follow-up on the retail side. The five-year performance kind of dipped in the second

quarter. You think 88% of your funds are in the top half as opposed to 95% last quarter. Can you provide some

color of kind of what happened there? ......................................................................................................................................................................................................................................................

Michael William Roberge Co-CEO & President, Massachusetts Financial Services Co. A Yeah, this is Mike Roberge. I think as you look at it quarter-over-quarter with a slight reduction from low 90% to

88%, I think from our perspective if you can achieve 88%, our performance relative to peers over a five-year

period of time, that's about as good as you're going to do. And then over longer period of time like 10 years we're

up around a 100%. And so there's nothing meaningful in the quarter that would cause us any alarm. ......................................................................................................................................................................................................................................................

Humphrey Hung Fai Lee Dowling & Partners Securities LLC Q Okay, thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Tom MacKinnon with BMO Capital Markets. Your line is

open. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q Yeah, thanks very much. Good morning. Questions for Colm and then one follow-up. Colm, if we look at the

impact of investment activity on insurance contract liabilities, trying to get a feel for a run rate, I think you had

said several quarters ago that this was probably – you would benchmark us to about CAD10 million to CAD20

million per quarter. And so what's driving these gains you're getting now? And how sustainable are they? And are

you prepared to update the benchmark? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A





Yeah, thanks, Tom. So, you're right, a couple of years ago we talked about investing gain levels around the CAD10

million to CAD20 million level. We did point out at the time that that does tend to fluctuate and of course, it really

does impacts a lot on what's happening on the sales side and the type of product mix that we're bringing on. We

have good capacity to invest and generate investing gains. So, I would say that the CAD33 million that we saw this

quarter, well it's strong, it's not out of line with what we've experienced in the past but I don't think we'd step away

from the sort of CAD10 million to CAD20 million level that we talked about previously as being indicative of a

sustainable run rate level.

This quarter I would point out that within investing gains, we did have a little bit in Asia related to some

rebalancing as a result of ALM activity and that appeared in that line, that was about CAD5 million. But we feel

pretty good about the investing gain capability that we have across the firm. And so with those couple of

additional comments, I think we'd stand by the type of guidance that we've given previously. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q Okay. And maybe just as a follow-up, I can ask about the high level of mortality and morbidity gains that you

appear to get, I think a lot were attributable to the Canadian group benefit marketplace. It may have actually been

a swing from what you saw in the first quarter. Maybe Kevin is there to comment on that and the sustainability of

that. ......................................................................................................................................................................................................................................................

Kevin P. Dougherty President, Sun Life Financial Canada A Sure. Hi Tom, it's Kevin speaking. So, yeah, we saw really, really excellent mortality and morbidity in the group

businesses – the group business in Canada last quarter. I think you – probably what I would say to you is to look

at two quarters combined as the best kind of indicator sort of a normalized and sustainable level. They were down

in the first quarter, above the normal levels in Q2 but if you take them combined, I think that's representative of

where we feel we are, which is quite a healthy level.

We've been investing a lot in our disability business around claims management processes and footprint and

focused re-pricing efforts and management of the block. And so we feel quite good about where we are right now. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q So, are you anticipating – if I took the blend of the down in the first quarter and above normal level in the second

quarter, does that mean that overall this should be generally zero or just modestly positive? ......................................................................................................................................................................................................................................................

Kevin P. Dougherty President, Sun Life Financial Canada A I think it'd be quite positive and I'd say the upside this quarter was half due to volatility and half due to improved

underlying profitability. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q Okay. And if I could just squeeze one more in with Dan, the weakness in the voluntary sales in the U.S., this

appears to be a bit of a trend here and they were particularly weak in the second quarter, just what's going on

there? ......................................................................................................................................................................................................................................................





Daniel Richard Fishbein President-US Business A Sure, Tom. Our sales overall in group benefits were down year-over-year in the comparable quarters and year-to-

date. And that, of course, is due to the pricing actions that we've been taking, so, not unexpected. The component

that is voluntary especially in the second quarter just due to seasonality of sales patterns is a relatively small

number. So, I wouldn't read too much into that alone other than it being reflective of the overall moderation in

sales. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q So, you're trying to moderate both voluntary sales and group benefit sales? Are you having pricing issues in both

of them or is it just more of a seasonality thing in the voluntary? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A The voluntary sales are really a component typically a bundled sales. So, often the employer sponsored in

voluntary sales are – go together. So, the pricing actions that we've taken have been across the board in both

employer sponsored and voluntary products. ......................................................................................................................................................................................................................................................

Tom MacKinnon BMO Capital Markets (Canada) Q Okay, thanks. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Steve Theriault with Bank of America Merrill Lynch. Your

line is open. ......................................................................................................................................................................................................................................................

Steve Theriault Bank of America Merrill Lynch Q Thanks very much. First question for Colm, please, on the basis review. So, I think Colm, you made a similar

statement last year when you reported your Q2 numbers. So, just wondering, is it fair to assume you haven't

uncovered any large positive or negative items so far through the larger annual review? And at this point, the

ultimate effect looks like it's going to be relatively nominal or would you say there's still some material risk one

way or the other on this front? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Yeah, so I'd start up by pointing out that the work is still underway, now it is August, so you can imagine we've

made good progress. We do choose our words carefully as we look at our disclosure. At the time of year relative to

the work. If we're at a point where we had a large negative or a large positive to disclose based on everything we've

done, we would be signaling that to you. So, the work really, as I say, is underway and it covers a lot of topics.

We've clearly are looking at areas where we've had challenges from an experience perspective, so we're taking a

close look at that but of course, we also have management actions that we look at as well and they can turn out to

be positive.

So, when we look at everything together we really don't have a number to put in front of you and that's based on

good level of work done to-date but a fair bit still yet to go.





Steve Theriault Bank of America Merrill Lynch Q Okay, I think that's helpful. And maybe also for you Colm, on excess capital, so a CAD1.7 billion of hold co cash, I

think that's unchanged, you've got the pending completion of the Bentall Kennedy deal for CAD0.5 billion, but

then when you mesh in the MCCSR being higher than probably where it needs to be in some space on debt to total

capital. Net of all that, what do you consider to be your excess capital position in that quarter end? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Yeah so, I think you're right to pro forma in the proceeds that we'll be paying out for Bentall Kennedy. And as we

look at that, we'd still be at above CAD1 billion of cash at the hold co and we obviously have some excess cash at

Sun Life Assurance Company of Canada, if we were to take the – a larger dividend from SLA based on its strong

level. So, we still continue to be in a very good place. And you're absolutely right, with a leverage ratio of 22% we

have capacity, we've talked before that we'd like to run in normal times at 25%, we will be above or below that

depending on circumstances. So, being well below at this point gives us additional capacity, so we're well

positioned if suitable opportunities were to arise. ......................................................................................................................................................................................................................................................

Steve Theriault Bank of America Merrill Lynch Q But would you say CAD1 billion of excess cash certainly undershoots what you think you have in terms of excess

cash? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Yeah, the excess at the holding company again pro forma, the Bentall Kennedy transaction would be below a CAD1

billion because we do like to keep about CAD500 million of excess at the holding company. Just to have a buffer

against the normal requirements there to cover off interest payments and dividends et cetera for hold co. But I

think when you take account of the excess at SLA, you think of the leverage capacity, the number you're talking

about is definitely reasonable. ......................................................................................................................................................................................................................................................

Steve Theriault Bank of America Merrill Lynch Q Okay. And just if I could squeak in maybe a follow-up to Dan from Tom's question. Looking at the in-force has

treaded water at CAD2.5 billion for a couple of years now, so how long [ph] until it (0:36:09) starts getting higher,

and how much of that will be dependent on some of the stuff we've been talking about getting the book re-priced

and how much dependent on just the U.S. economy getting better? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A Sure. With the pricing actions we've been putting through, we're actually pleased with the fact that BIF is stable.

Our mix has changed the course where selling more stop-loss and somewhat less group business than we were

before, so that's balancing out nicely.

In terms of the group pricing, we're about 30% of the way through that in terms of the book of business. So, we

still have ways to go. We would expect that we'd be able to maintain the book of business as we complete that re-

pricing and then growth gradually should resume as we get through that process.





Steve Theriault Bank of America Merrill Lynch Q And can you remind me the – in terms of getting it mostly re-priced, it's another year, I believe, is it? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A Well, we're about a year into the re-pricing at this point, so we probably have in the range of about a year and a

half, in other words to get through another two January renewal cycles until we have the vast majority of the

business re-priced. ......................................................................................................................................................................................................................................................

Steve Theriault Bank of America Merrill Lynch Q Okay, thanks very much for that. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Robert Sedran with CIBC. Your line is open. ......................................................................................................................................................................................................................................................

Robert Sedran CIBC World Markets, Inc. Q Hi Dan, if I can just follow-up on that. Curious to know from a competitive marketplace perspective, you've been

increasing price, has the market been moving at all with you or is it – are you kind of off market and would you

expect the market to move towards you at some point? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A We've been moving with the market. We're actually – we've actually seen a number of competitors taking similar

actions over the past year or so. So, this has turned out to be a favorable time for us to go through a re-pricing of

the book. ......................................................................................................................................................................................................................................................

Robert Sedran CIBC World Markets, Inc. Q Okay, and just the underlying earnings on display in that segment this quarter, it bounced quite nicely from the

Q4 trough. And I know there's some unusual stuff going through there. Colm, I wonder if you can – or Dan for

that matter can provide a little bit of a better sense of where that run rate kind of is at this point, removing some of

the noise that's in the numbers? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A Yeah, I think you're noting obviously the first two quarters have been quite a bit better for group benefits than

where we were last year at this time, we're up about CAD40 million in earnings year-to-date versus the same

period last year. The first quarter we obviously had some – a number of good things happening, including some

likely favorable volatility. We would think of the second quarter as more representative than the first quarter of

the current status of the business. ......................................................................................................................................................................................................................................................

Robert Sedran CIBC World Markets, Inc. Q





Okay. ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A And Colm here, with just one follow-up question, it's the comment is about the U.S. group segment in its totality

we also did have a positive impact from credit in the quarter. And that was from strong recoveries on structured

securities and that was about CAD10 million. And we wouldn't expect that to reoccur on a regular basis, we might

expect to see some further recoveries over time but we wouldn't bake that in on a regular basis. ......................................................................................................................................................................................................................................................

Robert Sedran CIBC World Markets, Inc. Q Okay. The question was on both sides, I appreciate the added color. And just one last quick one for Steve Peacher.

The – at the Sun Life Investment Management, there's Ryan, there's Bentall, there's Prime, there's SLGI. Are there

any synergies between these businesses or are they four standalone businesses that roll up into the same kind of

pillar, I mean revenue or expense synergy? ......................................................................................................................................................................................................................................................

Stephen Clarkson Peacher Chief Investment Officer A Well, thanks for the question. First, just to clarify, SLGI, Sun Life Global Investments is really not part of Sun Life

Investment Management. It's part of the Canadian business. But if you look at the businesses under Sun Life

Investment Management, now there are actually four third-party businesses. There is the business we started in

Canada a year ago, Sun Life Investment Management Inc. Now, there's Ryan Labs, Prime Advisors and Bentall

Kennedy. And they were very much assembled as a spectrum of capabilities that go together. So, while they'll

maintain their independence, their independent brands, we do think there are – and we're already seeing joint

product development opportunities, cross-marketing opportunities. I think it's not so much an expense synergy

story, but it's a revenue synergy story. So, we definitely think these aren't disconnected. We think they're

connected, we think they go together and we think we're going to be able to create growth because they're aligned

under Sun Life Investment Management. ......................................................................................................................................................................................................................................................

Robert Sedran CIBC World Markets, Inc. Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Meny Grauman with Cormark Securities. Your line is open. ......................................................................................................................................................................................................................................................

Meny Grauman Cormark Securities, Inc. Q Hi, good morning. Just following up on that discussion of Sun Life Investment Management, you talk about the

synergies. I'm wondering you've done a few acquisitions here with different capabilities. Is there something else, a

capability that's kind of on your wish list that would fit in nicely here or would you say that you kind of have what

you need in order to move forward? Is there something on the M&A wish list that is still missing from Sun Life

Investment Management? ......................................................................................................................................................................................................................................................

Stephen Clarkson Peacher Chief Investment Officer A





Well, I would say that we've been able to put together a lot in a short period of time. So, we feel like now, with this

spectrum of capabilities and the level of AUM, we've got the core capabilities that we are looking for across both

liability-driven investing and a suite of alternative asset classes which can go together or can be separate. Over

time, if there are opportunities to expand the menu of the alternative asset classes that we could offer, I think the

theme would be the kind of things that would work for us. So, alternative asset classes with a yield orientation, a

high-quality [ph] bent (42:01). If there are capabilities that we encounter over time that would allow us to expand

the menu, we might be interested. But I think our focus at this point – at this moment is to take these entities that

we are just closing on and really work to create a coherent entity and then exploit some of the synergies that we

think exist to accelerate growth. ......................................................................................................................................................................................................................................................

Meny Grauman Cormark Securities, Inc. Q Great, thanks for that. And then just second question on expected profit growth, quite strong for the company as a

whole and you noted impacts of MFS and currency. Looking at Canada specifically though down year-over-year

and it has been sort of sluggish over the last few quarters, I'm wondering if you could just explain what's going on

there. ......................................................................................................................................................................................................................................................

Kevin P. Dougherty President, Sun Life Financial Canada A Sure. Meny, it's Kevin speaking. I'll just note that it's down just slightly sequentially about CAD1 million quarter-

over-quarter. The main story here is really investments in growing the business, in particular more recently

digital. Some minor pressure from economics, but mostly investments in growth. And I would say you're already

seeing some of the benefits of that in places like DB Solutions, where a lot of that investment is behind us, and you

saw CAD400 million of sales this quarter showing up on a different line, the pricing gains line, some nice new

business pricing gains. We would expect that you'll start to see contribution from investments like SLGI as it

moves through break-even early next year and continue to contribute to growing earnings in Canada.

So, I think this is all in line with what we've signaled as investments in what we see as big opportunities for our

growth in Canada, and you'll see a positive trajectory emerging early next year. I would also point you to sort of a

total underlying earnings picture and strong – things like productivity gains coming through, investment gains,

new business gains – well, down a little bit over year-over-year, still CAD17 million on the quarter; stronger LTD

experience gains. So, all of that puts us in a position where underlying earnings are up year-over-year. They are

actually just ahead of – tracking towards our Investor Day target, which is CAD900 million for the year. So, I'm

feeling good about kind of all of those pieces. Now, they fit together and we're managing them. ......................................................................................................................................................................................................................................................

Meny Grauman Cormark Securities, Inc. Q Okay, thank you very much. ......................................................................................................................................................................................................................................................

Gregory A. Dilworth Vice President-Investor Relations A Tiffani, do we have a next question? ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Where's Tiffani? ......................................................................................................................................................................................................................................................





A

Tiffani, do we have any more questions? ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Gabriel Dechaine with Canaccord Genuity. Your line is

open. ......................................................................................................................................................................................................................................................

Gabriel Dechaine Canaccord Genuity Corp. Q Thanks. Firstly, let's go back to this U.S. Group business. And Dan, I like to hear that you think this is a good run

rate representative quarter. But it seems to me like you might be understating things there. You've only gone

through 30% of the re-pricing. And this is the first time, at least that I've noticed, that you talk about claims

management and expense gains. So, it sounds like there's more than just the pricing that's driven the big year-

over-year improvement in earnings in that business. So, maybe you can go through those other two items, the

claims management and the expense gains that have helped this business. And if those are sources of additional

growth and layer on top of that the rest of the re-pricing, we could see profits actually move quite a bit higher than

the CAD22 million. ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A Well, you're right that there's three components to this. Pricing is one of them, and that's the one that will take the

longest simply because of the three-year rates that are typical in this industry. As you've noted, we've also made

investments in improved claims management, and we've already seen quite a bit of the benefit of that already.

Those investments have been in progress for over a year. And we've also been, as you noted, taking expense

actions. And we're probably quite a bit further along in those than we would be on the pricing. So, we're seeing a

good deal of the benefit of that earlier in the process here. But overall, I think you're right that we're not yet at the

full potential that this business has and we have ways to go. ......................................................................................................................................................................................................................................................

Gabriel Dechaine Canaccord Genuity Corp. Q Okay. So, thanks for that. I guess the claims management, is it safe to say that, in prior years, when the emphasis

was on sales perhaps a bit more than it should have been, you weren't doing as good of a job on claims

management and now that you have addressed that, you probably could hope to see less volatility in Group? ......................................................................................................................................................................................................................................................

Daniel Richard Fishbein President-US Business A Well, the nature of Group is inherently volatile. So, I don't think we can guarantee no volatility in the future. In

fact, I would probably expect that over time. But we have made some meaningful investments in claims

management, adding some staff. In the past quarter, we opened a model office for claim management, our new

Sun Life Center for Healthy Work in Scarborough, Maine, in the Portland, Maine area, which is essentially the

focal point for disability insurance in the U.S. So, there's a lot of great talent available there. And we think we've

taken the right actions to put us on a good course to do a really good job for our members helping them get back to

work in the future. ......................................................................................................................................................................................................................................................

Gabriel Dechaine Canaccord Genuity Corp. Q





Okay. And next – thanks for that. Next question is on Asia, a big growth, the 80%-plus earnings growth on an

underlying basis, it doesn't look sustainable but nonetheless you've had excellent growth in that segment for

several years now. So, kudos on that. But it's still a business that generates a sub-10% underlying ROE. I'm just

wondering what you need to get that above the 10% mark; if long-term you expect it to be above the 12% to 14%

target range for the consolidated company; how long it takes to get there. I imagine scale is a big part of this

progress over time. But what is that scale really mean? What do I have to look for in your numbers, just sales

going a lot higher than they already are? ......................................................................................................................................................................................................................................................

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A Gabriel, it's Kevin Strain. And I think you see the combination of the good sales growth we've had in the past,

focus on the persistency of the business, so building the in-force business. Fundamentally, the VMB is also strong.

You heard Dean talk about health and accident being up 29%, and health and accident has a strong VMB. And it's

reflected in our expected profit. So, the expected profit grew CAD20 million in the quarter, which was up 37%.

About half of that was from currency and about half of that was from business growth.

So, there's definitely a currency tailwind in the Asian number, just probably adding about CAD10 million in

income for the quarter. But what you need to do is watch us continue to build our distribution and our sales

momentum. We're seeing very strong growth in agency, which Dean referred to. We're also seeing very strong

growth in our wealth businesses, which also have good VMB and are building the expected profit. So, I think this

is broad-based and our focus is on delivering that growth on a consistent basis. And so, the number is – it's a big

jump in the quarter to the CAD70 million, but it was CAD60 million last quarter. And I think the focus is on

making sure we continue to deliver the VMB and the expected profit growth. ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Hey Gabriel, this is Dean. If I could add one piece to that, which is when you look at the profitability of the

product, they're fundamentally profitable products such that when you layer them on top of the in-force and you

think about Asia for us, where the ratio of new sales to the in-force is higher than you would find in more mature

markets like Canada, you do see a pattern of improving ROE over time, as the new products we're writing come

into the in-force and lift it up. And certainly, that's what you've seen in this more recent period and that's what we

see when we look ahead. ......................................................................................................................................................................................................................................................

Gabriel Dechaine Canaccord Genuity Corp. Q And you do expect Asia to be above the 12% to 14% target range or no? ......................................................................................................................................................................................................................................................

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A That's going to take a long time to build out your in-force and build out your scale and build your business. We're

focused on fundamentally improving the businesses in each of the countries, each and every quarter building the

ROE on a very sustainable strong basis that's based on the fundamentals. And I think if I had to point at one thing,

I'd look at the agency growth, and Dean referred to this, that we've had across the board. And these are in

Canadian dollars, so there is a currency lift to these. But the Philippines was up 72%, Hong Kong was up 14%,

Vietnam was up 71%, Indonesia was up 54%, India was up 16% and Everbright was up 48% – Sun Life China

Everbright was up 48%. So, you can see the type of growth you can create when you get the model right and you

get the right people. And as Dean mentioned, these are fundamentally profitable businesses. So, I think what you





want to watch, Gabriel, is how we continue to grow with a focus on persistency and VMB which should come

through in the expected profit. ......................................................................................................................................................................................................................................................

Gabriel Dechaine Canaccord Genuity Corp. Q All right, thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Peter Routledge with National Bank. Your line is open. ......................................................................................................................................................................................................................................................

Peter Routledge National Bank Financial, Inc. (Broker) Q Just to follow-up on Gabriel's question, in what countries in Asia are you over 12% ROE? ......................................................................................................................................................................................................................................................

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A We're not disclosing the earnings by country or the ROE by country at this point. So, the overall focus is to make

sure we're building the businesses. We're seeing good momentum, as I gave you, across the board on the agency

side and we're seeing a lot of momentum in our MPF business, which was up 20% in the quarter. Dean referred to

our India asset management business, and we've had really strong performance in our equity fund and our fixed

income funds there and very good growth in that business. And the Philippines mutual fund business, which is the

number two mutual fund business, also had solid growth on the wealth side. So, the factor is bringing all of these

together and focusing on growth of each of them. But we're not disclosing the earnings or the ROE by country. ......................................................................................................................................................................................................................................................

Peter Routledge National Bank Financial, Inc. (Broker) Q I think the question behind the question is, a skeptic might say this is just a Hong Kong franchise and the other

franchises are not earning, and will someday, but that's going to be five-plus years away. How would you respond

to that skeptic? ......................................................................................................................................................................................................................................................

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A The skeptic would be quite wrong, because I think we're seeing very good growth. Philippines has been a very

strong performer for us. Colm mentioned Hong Kong. Hong Kong has been a strong performer. So, the Hong

Kong business has done well the last few years. The addition of Malaysia has been quite a profitable business for

us. In the case of India, it's always been profitable to us. It's a profitable business to us, and the growth they're

having in the wealth management business in particular is helping. And in fact, in this quarter, every – and I can't

promise this in every quarter, because we are making investments and there's a number of reasons. But in this

quarter, every country made a profit for Asia. ......................................................................................................................................................................................................................................................

Peter Routledge National Bank Financial, Inc. (Broker) Q Great, great. And just on India, you mentioned it, I think you own 49% of the investment management, but 26% of

the insurance company Sun Life Birla – Birla Sun Life, pardon me. If you went to 49%, assuming you stayed

within your ROIC guidelines for acquisitions, how accretive would it be immediately if you went to 49% from

26%? Would that make a big difference or would it just be a rounding error? ......................................................................................................................................................................................................................................................





Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A It's going to depend on the price we pay, if we do buy that. So, we don't... ......................................................................................................................................................................................................................................................

Peter Routledge National Bank Financial, Inc. (Broker) Q I'm saying, assuming you stay at your – you stay within your disciplined acquisition ROIC targets which you've

done quite well the last several years. ......................................................................................................................................................................................................................................................

Kevin D. Strain President - Sun Life Financial Asia, Sun Life Financial, Inc. A I don't really want to talk about hypotheticals on the call. I think we do like the India business. I mentioned that

it's profitable. We like the partner there. We know the business. We like the management team. But when we have

something to announce, if we ever do have something to announce on an acquisition, you'd get that at that point

in time. ......................................................................................................................................................................................................................................................

Peter Routledge National Bank Financial, Inc. (Broker) Q Okay, fair enough. Thanks for taking my questions. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Sumit Malhotra with Scotia Capital. Your line is open. ......................................................................................................................................................................................................................................................

Sumit Malhotra Scotia Capital, Inc. (Broker) Q Thanks. Good morning. First question is for Colm or Larry. I understand that you probably don't want to go too

much into specific details. But as far as the actuarial review is concerned for next quarter, Larry's talked in the

past few quarters about the consistent negative lapse experience that Sun Life has had. And when we think about

the fact that that's been discussed as something that likely is part of that review, am I wrong to say that that would

be the dominant factor as far as the review is concerned and we're likely setting up for a charge to come through

here for the company? It didn't seem like that was the way you were thinking about it. ......................................................................................................................................................................................................................................................

Larry Madge Senior Vice President & Chief Actuary A Well, it is true that we do expect to strengthen in some areas and lapse and policyholder behavior would be

[Inaudible] (56:25 – 56:37) one to address the recent experience. However, as Colm mentioned, we are reviewing

a number of assumptions across many businesses and in particular are considering some management actions.

So, there are some items that are leaning the other way. At this point, the net impact isn't clear. ......................................................................................................................................................................................................................................................

Sumit Malhotra Scotia Capital, Inc. (Broker) Q Isn't clear, but just as in previous years I think we've had this discussions continually over Q2 and it ends up being

relatively a non-event. Is that the way you would be leaning right now that you have some offsets to areas that are

more clear to be strengthened? ......................................................................................................................................................................................................................................................





Larry Madge Senior Vice President & Chief Actuary A There are some items going each way. But because there's so many items in play, we're just not in a position to be

able to give you guidance one way or another on the total at this point. ......................................................................................................................................................................................................................................................

Sumit Malhotra Scotia Capital, Inc. (Broker) Q All right, thank you. I'll move to my second question, which is around the M&A theme, and it maybe for Dean or

for Kevin Strain. So, firstly, on the wealth management side, so on the three acquisitions the company has

undertaken in 2015, I believe there was only one where you had to disclose the purchase price immediately. And

as far as I know, that's a reflection of size. As you contemplate your acquisition appetite, is that fair to say that the

Bentall Kennedy deal is representative of where you'd be willing to go on the high-end or is crossing the CAD1

billion-mark something that's feasible for Sun Life? ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Thanks Sumit. We don't – we haven't really narrowed or limited the size of transactions. I guess three or four

years ago, given our then current capital position and our then current risk position, including our VA business,

we did talk in terms of smaller acquisitions. And since then, as you know, we sold the U.S. VA business,

significantly de-risked the company, built a sizable capital position and have paid down a lot of debt. So, as Colm

said earlier, we have a fair bit of financial flexibility. So, we haven't limited ourselves in terms of size and we're

more interested in strategic fit.

We're more interested in businesses that when – under our ownership we can accelerate their growth. Coming

back to Steve's point around synergies, we got some very exciting ideas that we're working on with each of the

three companies in Steve's bailiwick in terms of how to grow them more quickly. And then all the partners of those

companies are excited about that as well. So, that's our first strategic fit, an ability to accelerate growth. And of

course, the second source is around the economics, particularly the long-term ROE, the lifetime ROE from the

business has to create value for shareholders. ......................................................................................................................................................................................................................................................

Sumit Malhotra Scotia Capital, Inc. (Broker) Q And I'll stop here. So, the – at least the recent announcements have all been in the asset management space. It's

never been the easiest place to acquire. But just going back to some of Kevin's comments, where does the Asia

opportunity look in terms of partnerships or distribution agreements for Sun Life? Is that something that's still on

the radar or has this become even more organically centered in the near-term? ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Well Sumit, as I said earlier, we continue to turn the soil over in all four pillars, and that would include Asia

looking for opportunities. The nice thing is, we have very strong organic growth opportunities right in front of us.

And so, it gives us time and it gives us the ability to not reach for the pitch, in other words to swing at things and

swing hard at things that we think will really make a difference to the business. There are opportunities all the

time that we're looking at in Asia and I expect that will be true for some time to come. Having said all that, none of

its easy right, because there is lot of capital in the world chasing lot of properties, so we continue to be disciplined

around that. ......................................................................................................................................................................................................................................................





Sumit Malhotra Scotia Capital, Inc. (Broker) Q Thanks for your time. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Doug Young with Desjardins Capital Markets. Your line is

open. ......................................................................................................................................................................................................................................................

Doug Young Desjardins Securities, Inc. Q Yeah, I'll keep this quick, most of my questions have been asked and answered. So, just one that I wanted to go

back to you, Colm, and that's the SLA MCCSR. And I don't think you've ever kind of put a [indiscernible] (61:31)

on what you think are reasonable MCCSRs at the SLA level would be. But obviously as you mentioned, you've

derisked the company over the last little while. And so just wondering, what's a reasonable level? Do you still want

to [indiscernible] (61:47) above 200% to protect in case it's market downturn, just wanted to get a better sense of

that. Thank you. ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Yeah, so I think you're absolutely right. 200% is the level that we operate above, and having a reasonable buffer

above that in the event of interest rate movements, equity movements in the quarter, is always very helpful. So, I

think if you think of somewhere in the 210% range it's reasonable that we would want to be at that level, and 223%

is obviously a strong level for the reasons we've talked about. ......................................................................................................................................................................................................................................................

Doug Young Desjardins Securities, Inc. Q Great. Thank you very much. ......................................................................................................................................................................................................................................................

Operator: Your next question comes from the line of Mario Mendonca with TD Securities. Your line is open. ......................................................................................................................................................................................................................................................

Mario C. Mendonca TD Securities Q Good morning. More of a sort of broad philosophical type question. For several years, reviewing Sun Life's

experience gains and I'm referring more to policyholder experience gains, it was clear that there were mostly

losses. And that seems to have turned the corner. And what I would appreciate hearing from you is whether I've

characterize that correctly, and maybe perhaps why has it turned the corner? Is it just all the management actions,

is it stronger reserving practices, is it mix of business, if you could – maybe Colm, if you could address that

broadly or Larry. ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Well, I think it is – you're right to characterize that as a little bit a philosophical question. It's one that we clearly

grapple with, given the nature of our business and the assumptions that we have to make about events. And

frankly, layering in the economics over the last few years, which have been quite challenging in a low rate

environment, I would point out that one aspect of the charges you see is that they are magnified by a low rate

environment. When you reflect everything at these ultra-low rates, the amounts that you see coming through in

experience are larger, similarly with assumption changes. But I think management activity is very important





point. We've talked about that a fair bit. Both Kevin and Dan talked about the ongoing investing to really manage

our businesses, which has been in place for a while.

The policyholder behavior, we've talked about before, and Larry commented on that as an area where he is taking

a hard look. That is a tougher one in the sense that, again, economics have been a factor as we think about – the

economic environment has been the factor as we think about that one. And so I think all of the above, Mario,

you've really touched on the types of things that drive it.

I think we'd be very cautious, as a management team, to say that it's behind us. I think this is the essence of

insurance and protection businesses that we have to manage all of these items extremely carefully. We do make a

lot of assumptions about how the future will unfold, and the one thing we do know is that it rarely unfolds as we

expect. ......................................................................................................................................................................................................................................................

Mario C. Mendonca TD Securities Q And then more specifically with respect to expense experience, each Q4 that's been a bit of – it's been high and

then somewhat disappointing, particularly in Q4 2014. What – has the company done anything to address that?

Essentially building in the higher expenses into the reserving and therefore expect a profit so that we don't see

that sort of experience loss in Q4? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Well I think a couple of things. I mean first of all, for sure, we really do watch the expenses carefully. And you're

right that we've had spikes in the fourth quarter. I don't think we're unique in that regard but they've been higher

than we would like to see and we have taken actions to make sure that we've got all of the pieces in place to

manage that quarterly process as tightly as we can. But I think the broader topic around expense management

[indiscernible] (65:25) is really the key, again, philosophical question. Are we very focused on that and perhaps

Dean would like to say a few words about that. ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Yeah, thanks, Colm. I think you've heard us speak about the Brighter Way which is our Lean Six Sigma program

that we launched around two years ago. And you would see, and Colm took you through the expense experience

year-to-date, you'd see that controllable expenses i.e., setting aside the volume-related expenses and adjusting for

currency and so on, we're essentially flat versus the prior year.

We're very pleased with that because what it means is we are generating productivity gains through the Brighter

Way that we are reinvesting in growth. And Dan talked about expense management in the U.S. but I would say to

you that all of our businesses and our corporate functions, I think, are doing a fine job, embracing the Brighter

Way. People are lined up to do these Brighter Way projects, these continues improvement projects in their parts of

the business. We have more demand and we have ability to actually get to them.

And so it's been a very important part of the change in culture here that has legs, and it's not a kind of a one

quarter or a one year expense cutting exercise. It's really being infused into the way we work. So, we're pleased

with that Mario, and stay tuned for more that to come. ......................................................................................................................................................................................................................................................





Mario C. Mendonca TD Securities Q Would it be fair to say that in Q4, we're still going to see expense experience losses just perhaps not as large as

they've been in the past? ......................................................................................................................................................................................................................................................

Colm J. Freyne Chief Financial Officer & Executive Vice President A Yeah, I think just a couple of points there. I mean, clearly the fourth quarter does tend to have a bit of seasonality

around it. There are one or two items frankly that are difficult to budget for. I think in Q4 of last year we had some

incentive compensation amounts that were very much related to the final outcome for the year and you cannot

accrue in advance of actually seeing those outcomes, and some of those awards were also market based. So, again,

it wasn't just what was happening within our shop, it was also what was happening more broadly. So, we take all

that into account, so I won't promise you a certain level but you can be assured that we're very focused on it. ......................................................................................................................................................................................................................................................

Mario C. Mendonca TD Securities Q Thank you. ......................................................................................................................................................................................................................................................

Gregory A. Dilworth Vice President-Investor Relations A Tiffani, it's Greg Dilworth. We have time for one more question before we end today's call. ......................................................................................................................................................................................................................................................

Operator: Your last question comes from the line of Dan Bergman with UBS. Your line is open. ......................................................................................................................................................................................................................................................

Daniel B. Bergman UBS Securities LLC Q Hi, good morning. Maybe following-up on an earlier question. U.S. debt levels have been [indiscernible] (67:56)

lately. It seems like [indiscernible] (67:58) pricing action, your benefit and pressure from low rates in the

international sub-segment. Any thoughts you can give around the overall outlook for U.S. sales and whether you

feel we started to see a positive inflection, and if not when that might occur? ......................................................................................................................................................................................................................................................

Dean A. Connor President, CEO & Non-Independent Director A Sure, thanks Dan. You've correctly pointed out that we've definitely seen some moderation in sales in the group

benefits business, and that's related to our pricing actions. As we head into the second half of the year, that's

typically the most active part of the year as we make sales for January 1. And we are seeing increased activity right

now in the business. So, we're optimistic that we'll start to see some improvement in our sales results as we head

into the second half of the year. I would say a similar commentary for the international business. We've been

seeing sequential quarter-over-quarter increases in sales there and there is some continued momentum there,

particularly as we turn on new distributor relationships. ......................................................................................................................................................................................................................................................

Daniel B. Bergman UBS Securities LLC Q That's great, thank you. And then, finally, maybe switching gears, is there any update you can provide on the

ongoing elevated, especially drug claim in Canada? Any color on how much that impacted earnings this quarter

and updated thoughts on how soon this source of pressure may abate would be helpful. Thank you.





Kevin P. Dougherty President, Sun Life Financial Canada A Sure, it's Kevin Dougherty. Well, we see it as, it'll continue to headwind, at least in the short-term, probably

impacted earnings in the range of about CAD9 million. There is a lot of quick action that we are taking that's

underway, including kind of repricing this exposure. We've put in sort of enhanced reviews of new drugs coming

on the markets and our processes around that and in prior authorizations for planned members to use them.

Some of it will kind of be mitigated over time, as drugs, like the Hep-C drug kind of work their way through the

population and that'll play its way out overtime. We're scoring a number of longer term kind of structural

strategies, agreements with manufactures, special agreements with pharmacies, as well around markups and

pricing. And indeed the industry is getting together on a lot of these issues to make sure that we're kind of well

positioned for the future. So, I think it's a combination of all these things. I think it's hard to give you any specific

guidance, but we're working hard on it and we expect it'll get under control over the next few quarters. ......................................................................................................................................................................................................................................................

Daniel B. Bergman UBS Securities LLC Q Great. That's very helpful, thank you. ......................................................................................................................................................................................................................................................


I'd like to thank all of our participants on the call today. If there are any additional questions we will be available

after the call. And should you wish to listen to the rebroadcast, it will be available on our website later this

afternoon. Thank you and have a good day. ......................................................................................................................................................................................................................................................

Operator: This concludes today's conference call. You may now disconnect.

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