Sun Life Financial Inc.

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Sun Life Financial Inc.

150 King Street West
Toronto, Ontario M5H 1J9
Canada
Telephone: (416) 979-9966
Fax: (416) 979-7892
Web site: http://www.sunlife.com

Public Company
Incorporated: 1865 as Sun Insurance Company of Montreal
Employees: 18,300
Total Assets: CAD 201.89 billion ($173.24 billion) (2006)
Stock Exchanges: Toronto New York Philippine
Ticker Symbol: SLF
NAIC: 525910 Open-End Investment Funds; 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers; 525110 Pension Funds; 551112 Offices of Other Holding Companies

Sun Life Financial Inc. ranks among the top North American publicly traded life insurance companies, in terms of market capitalization. A leading Canadian insurer, the diverse financial services operation also serves customers in the United States, Asia, and the United Kingdom. In addition to life insurance, the company offers a range of wealth management and protection products to both corporations and individuals.

EARLY ACHIEVER

Sun Life Financial Inc.'s earliest predecessor, Sun Insurance Company of Montreal, was chartered in 1865; subsidiary Sun Life Assurance was also incorporated that year. Six years later the parent company became Sun Mutual Life Insurance Company of Montreal, operating as a joint-stock enterprise. According to the company's web-based history, the structure allowed the company to develop quickly and compensate agents in a manner that helped further stimulate growth. Between late summer and year-end 1871, Sun issued $404,000 in policies. Founder Matthew Hamilton Gault, a member of an Irish immigrant family, served as managing director, then as vice-president.

In 1880, the company broke ground with the introduction of the "unconditional" policy, lifting occupational and residency restrictions. The move riled established players in the industry, but eventually took hold worldwide. Sun Life began international operations during the year, in Barbados.

Sun Life entered into business in the United Kingdom in 1893 and in the United States two years later; both markets would yield significant business. Other international locales established by 1900 included: the Philippines, Japan, China, Hong Kong, Malaysia, India, Egypt, Palestine, and points throughout South America. Within another 15 years, Sun Life expanded its reach to 68 countries, with 35 percent of its business outside of Canada.

In addition to establishing an international presence early in its history, Sun Life was an innovator in Canada's group insurance market. The segment would be an important area of business for decades to come. Sun Life was also quick to begin acquiring other businesses during an early period of consolidation in the industry.

Robertson Macaulay, who rose from secretary to company president, left his mark on every area of the operation, from the agency system to governance policies during the first part of the 20th century. His son Thomas Bassett Macaulay succeeded him in 1915.

The younger Macaulay spearheaded the development of an investment department geared toward supporting corporate growth rather than seeking speculative returns. He carried clout in both the private and public sectors, gaining the ear of prime ministers.

The 1920s saw spectacular growth; assets rose from $74 million in 1915 to more than $568 million at the end of 1929. Seventy percent of the company's holdings were in common and preferred stock.

The devastating stock market crash took its toll on Sun Life and countless other companies. Yet by 1933, Sun Life was putting finishing touches on a new building. Located in Dominion Square, the structure remained a city of Montreal landmark into the 21st century.

GLOBAL EVENTS IMPACTING BUSINESS

As they had in World War I, Sun Life employees were among those making the ultimate sacrifice for their country during World War II. Sun Life, not only a leading subscriber to Canadian, British, and American war bonds, also secretly stored foreign securities used by the British government to support the war effort beginning in 1940.

However, the war ate away at Sun Life's international business; by 1963 only Hong Kong and the Philippines ventures remained afloat in Asia. Geopolitical conditions such as they were, Sun Life concentrated on its North American market. In 1956, a group disability business was established and would serve as the basis for the company's long-term disability (LTD) protection products.

During the first half of the 1950s, an American financier attempted but failed to take over Sun Life. Aware of the general risk to Canadian insurers, the government passed the Mutualization Bill in 1957. Sun Life made the switchover, repurchasing capital from its shareholders, under George W. Bourke's leadership.

In 1962, Alistair Matheson Campbell took the helm as president of the mutual insurance company. The industry had greatly increased in complexity during the postwar years and Campbell put agent and staff training high on his list of priorities. Sun Life also began formulating a decentralization plan during the 1960s and would move its headquarters to Toronto in the following decade.

Sun Life LTD business gained a boost in 1970 with a contract to provide Canadian federal government employees with coverage. Groundbreaking moves, such as the introduction of nonsmoker rates in 1984, helped Sun Life climb to the top in the Canadian LTD protection market.

Global economic challenges put pressure on the financial services industry during the final two decades of the 20th century, as did increased competition. Opportunities, however, also appeared. In 1991, the Canadian government removed barriers between banks, trust companies, brokerage houses, and insurers, allowing Sun Life to add new products and services.

In 1999, the Sun Life board approved demutualization, setting in motion the conversion back to a public company. The company expected to benefit in terms of access to capital and therefore in its ability to compete in an increasingly consolidated industry.

OPEN TO THE PUBLIC: 2000–06

Donald A. Stewart served as CEO and chairman of Sun Life Financial Services of Canada Inc., the new public entity, which began trading on the Toronto, New York, London, and Philippine stock exchanges in 2000.

Aided by renewed focus on its core competencies and attention to the long-term financial needs of its customers, the company racked up record earnings for the year, according to Private Banker International. The company targeted protection and wealth management, both high growth areas, as sectors of expansion.

COMPANY PERSPECTIVES

Our Mission—To provide lifetime financial security.

Our Vision—To be an international leader in wealth management and protection.

Sun Life moved closer to its goal of becoming a top-ten annuity provider by way of two acquisitions in May 2001. Keyport Life Insurance Company and Independent Financial Marketing Group, purchased from Liberty Financial Group of Boston, moved Sun Life into the U.S. bank channel for insurance distribution. The new additions were expected to boost U.S. operations' share of net income from half to two-thirds, according to American Banker. Bank sales of annuities experienced a strong uptick during 2000. Sun Life planned to also use internal growth to aid its climb from 18th place in annuity sales. Meanwhile, Sun Life began restructuring its U.K. business. Capital from the scaled-back operations was diverted to more promising regions.

In December 2001, Sun Life agreed to acquire Clarica Life Insurance Company. The all-stock deal, valued at CAD 7.3 billion, created Canada's biggest life insurer of the day. Combined, the company's annual revenue would be CAD 21.7 billion, with assets under management of CAD 344 billion and a sales force of 4,500. In terms of clientele, Sun Life's tended to be more affluent than Clarica's. Together the pair held 22 percent of Canada's individual life insurance market and about 21 percent of its group life market. Sun Life already held 8.7 percent of Clarica shares, purchased on the open market. Anticipation of mergers and acquisitions had driven up the stock prices on Canada's demutualized insurance companies, according to the New York Times.

Donald A. Stewart, chairman and CEO, who was charged with the integration of the two companies, brought an information management bent to his leadership. In addition to serving as Sun Life's president and COO, Stewart was the company's chief information officer from 1987 to 1992.

"Today there is more sobriety about the future and, therefore, spending discipline is under closer scrutiny," Stewart said in Insurance and Technology in June 2002. "Those of us familiar with technology are still excited [about its promise], but we realize that it will take longer for us to work through." He noted that in a post–September 11 world (referring to the 2001 terrorist attacks on the United States), remote communication, such as videoconferencing, already had increased in popularity.

Sun Life Everbright Life Insurance Co. entered Tianjin, China, in June 2002, the first foreign life insurance joint venture to do so. Sun Life began operating in Hong Kong, its Asian regional headquarters, in 1891 and had a presence in Tianjin and other mainland China cities in the early 1900s. Sun Life returned to the mainland in 1995, with the opening of a Beijing office, according to American Banker.

Stewart relinquished his role as chairman of the board in 2003, part of a trend toward separating roles of chairman and chief executive officer. Lead director and longtime board member William W. Stinson was named nonexecutive chairman of Sun Life Financial Services of Canada Inc. and Sun Life Assurance Company of Canada. Stewart continued as CEO and as a member of both boards. Also in 2003, the public holding company changed its name to Sun Life Financial Inc.

Sun Life worked to grow its wealth management business in Canada at the end of the 20th and the beginning of the 21st centuries. Sun Life held a 56 percent interest in McLean Budden Limited, an institutional asset manager, and 35 percent of CI Financial Inc, a mutual fund company.

On the other side of the border, a segment of its wealth management business was caught in the Securities and Exchange Commission (SEC) probe of mutual fund companies for illegal or inappropriate trading activities. In 2004, subsidiary Massachusetts Financial Services (MFS) agreed to pay $175 million to harmed shareholders, a $50 million fine, and reduce fees about $25 annually over the next five years, according to Business Week Online. Two top officials received suspensions and other sanctions. MFS was the 11th largest mutual fund group in the United States, holding $140 billion in assets under management at the end of 2003. A fourth quarter charge of $221 million put a dent in the company's net earnings for 2003 of $1.3 billion. Other companies making settlements included Alliance Capital Management Holding and Putnam Investments.

KEY DATES

1865:: Sun Insurance Company of Montreal begins operation.
1880:: Company embarks on international business.
1929:: Assets reach $568 million prior to stock market crash.
1940:: Company provides support for British war effort.
1956:: Group disability business is established.
1962:: Sun switches to mutualized company.
1984:: Company brings nonsmoker rates to Canada's long-term disability protection market.
2000:: Sun returns to public sector.
2002:: Company buys rival Clarica Life Insurance.
2003:: Sun Life Financial Inc. is adopted as new name.
2006:: Company continues to build presence in Chinese market.

The SEC and New York state Attorney General Eliot Spitzer maintained the company allowed some investors to trade frequently in and out of funds to the detriment of others. Sun Life was not tapped for late day trading, in which some investors were allowed to buy funds after the market closed. MFS saw no mass exodus of investors, actually gaining ground in the fourth quarter.

MFS had been expanding its services beyond its U.S.-based retail mutual fund sales, a trend which continued in 2005. More than 25 percent of equity assets under management were international versus just 4 percent a half decade earlier. MFS was acquired by Sun Life in 1982.

During 2005, Sun Life continued to pursue growth in key markets of India, China, and Hong Kong. The purchase of CMG Asia and CommServe Financial, in Hong Kong, elevated the company into the top ten life insurers based on premiums from new sales. Along with pursuing continued growth in India, the company established the India Service and Technology Centre to provide customer services on a global level. Ranked among the top five private insurers, Sun Life had reentered India in 1999, first in asset management and two years later in the life market. In China, two additional offices opened, on the way to a goal of 30 by 2007.

Canada remained the company's stronghold, producing more than 50 percent of operating earnings. Sales growth in the country hinged on the aging Canadian population, in need of healthcare, retirement savings, and estate planning.

During 2006 Sun Life entered into a groundbreaking deal to distribute pension products through one of China's largest state-owned banks. Sun Life was most likely the first foreign insurer to enter the $13 billion market, one which was expected to more than quadruple over the next four years. Janet De Silva, president and CEO of Sun Life Everbright Life Insurance Co., a 50-50 venture with China Everbright Group Ltd., told globeandmail.com the "enterprise annuities" business was a "very significant" part of the company's Chinese growth plan.

"In Canada, Sun Life has lobbied against allowing banks to sell insurance products through their branches," Sinclair Stewart wrote, "but has made use of these very channels to fuel its expansion in India and China. The insurer has maintained that these markets are different, since they don't have the same concentration of banking powers in only a few hands." Sun Life aspired to a top ten spot among all life insurers in China. In 2006, it ranked in the top 15. Competition included larger foreign-owned operations and state-run financial giants.

Kathleen Peippo