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Morningstar | SLF Updated Forecasts and Estimates from 26 Feb 2019

We believe Sun Life has effected several key positive changes in its business operations since the financial crisis. The biggest decision was the cessation and eventual sale of its lagging U.S. life insurance and annuities business. This segment had been a key exposure for Sun Life, and difficult-to-price variable-annuity products stung many insurers in the aftermath of the crisis. The firm is now increasingly focused on limiting the drags on returns from its primary insurance and group benefit businesses in Canada and the United States, where returns have marginally exceeded the cost of capital for the past couple of years. That said, we like that its group benefits business has undergone some repricing. Some weaker-performing businesses have terminated coverage, which should positively affect loss ratios and margins. The firm should see potential cross-selling benefits from having a broader portfolio of offerings than its counterparts. We see the firm as the most dedicated to the digital space. In recent years, Sun Life has launched an interactive online assistant and simple financial calculators to drive product interest and sales. In 2016, Sun Life was ranked first among its peers for life insurance digital sales functionality by Forrester Research. Sun Life has also gradually shifted toward higher-return businesses, notably SLF Asset Management, which is its most attractive segment from a return standpoint and the one area that we view as potentially moaty.Canada and the U.S. continue to have several demographic trends working in favor of insurers, especially with wealth- and asset-management businesses, as an aging population increasingly looks to manage its savings. However, areas of growth remain fiercely competitive and life insurance will remain structurally difficult, making it hard for Sun Life to sustain any excess returns over time.Sun Life is also focused on expanding its operations in Asia. While Asia has the potential to offer higher top-line growth, short-term growth is limited by new business strain caused by low initial premiums. We are wary that such a difficult environment can provide value-creative growth for the firm in the long run.