Sun Life Financial Inc. 2020 Earnings, Price Target Update
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Sun Life Financial Inc. is an international financial services organization providing insurance, wealth and asset management solutions to individual and corporate clients. Sun Life has operations in a number of markets worldwide, including Sun Life Financial Inc. trades on the TSX, NYSE and Philippine (PSE) stock exchanges under the ticker symbol SLF. Sun Life provides savings, retirement, and pension products, and life and health insurance to individuals and corporate clients through operations in Canada, US, United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. They also operate mutual fund and investment management businesses, primarily in Canada, U.S. UK and Asia. Revenues include; premiums received on life and health insurance policies and fixed annuity products, investment income earned on assets, fee and other income received for services provided; and realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities. Revenues also include investment management fees from administrative services only. Deposits received on investment contracts such as segregated funds, mutual funds and managed funds are not included in revenue; however fee income from these products, is included in revenue. Approximately 60% of revenues are from insurance premiums, with the balance split equally between investment income on funds held as insurance reserves and fees on investment products. About 33% of adjusted net income is from Canadian insurance operations, 8% from the US, 35% from asset management, and 24% from Asia.
As of Dec-31-2020, total assets under management (AUM) were $1.247T compared to $1.099T as at Dec-31-2019. Excluding the segregated fund, assets are mainly comprised of insurance reserves held in investment portfolios and mortgages. Total assets excluding amounts managed for third parties were $322.6B at Dec-31-2020 compared to $293.4B at Dec-31-2019. This includes $125.9M of segregated funds at Dec-31-2020.
Segregated funds include variable annuities, unit-linked products and universal life insurance policies, in Canada, the U.S., the U.K., and Asia. Under these contracts, the benefit amount is contractually linked to the fair value of the investments in the particular segregated fund. Policyholders can select from a variety of categories of segregated fund investments. Although the underlying assets are registered in Sun Life's name and the segregated fund contract holder has no direct access to the specific assets, the contractual arrangements are such that the segregated fund policyholder bears the risk and rewards of the funds' investment performance. Therefore, net realized gains and losses, other net investment income earned, and expenses incurred on the segregated funds are attributable to policyholders and not to Sun Life. However, certain contracts include guarantees Sun Life. Sun Life is exposed to equity market risk and interest rate risk as a result of these guarantees. They derive fee income from segregated funds. Market value movements in the investments held for segregated fund holders impact the management fees earned on these funds.
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