Earnings Call Transcript - SLF Q2 2020

Operator, Operator

Good morning, ladies and gentlemen. My name is Dikitriya and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q2 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. The host of the call is Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management. Please go ahead, Ms. Chalmers.

Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management

Thank you, Dikitriya and good morning everyone. Welcome to Sun Life Financial’s earnings conference call for the second quarter of 2020. 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 Dean’s remarks, Kevin Strain, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. 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 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today’s remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I will now turn things over to Dean.

Dean Connor, President and Chief Executive Officer

Thanks, Leigh and good morning everyone. As communities around the world continue to grapple with the health and economic impacts of COVID-19, our thoughts go out to the many people whose lives continue to be affected. In the midst of that, Sun Life is continuing to help our clients, employees, advisors and communities navigate their way through these times and that sense of shared purpose is stronger than ever. This quarter, we have also had many important conversations across Sun Life about underrepresented communities, including Blacks, Indigenous, and people of color. We know that building diverse teams, creating an inclusive environment free of racial discrimination and providing a sense of belonging are all keys to our success. And we have committed to an action plan. It will take time. But I have high confidence in the ability of people at Sun Life to make this happen. Turning to Slide 4, during this past quarter, we continued on our relentless journey of putting clients at the center of everything we do. In Asia, we further advanced our digital capabilities, rolling out new virtual sales experiences in Hong Kong, Indonesia, India, and the Philippines. Clients don’t have to leave their homes in order to connect with their Sun Life advisor. Instead, they can transact safely from application submission to digital signings without using paper or meeting face-to-face. At this year’s Age of Trusted Life Agents and Advisors Awards, I am really pleased to report that we won three awards, all won by our team in Hong Kong, including Insurance Company of the Year. During the quarter, we received an insurance license from the Monetary Authority of Singapore, which will enable us to provide life insurance solutions to help high net worth clients grow, protect, and transfer their wealth to the next generation. This now expands our presence to eight markets in Asia and we expect to begin our Singapore operations early next year. In the second quarter, 85% of individual life insurance applications in Canada were processed without the need for lab tests, supported by the introduction of accelerated underwriting last fall and special accommodations for COVID-19. We also launched the Sun eApp, which helps clients and their third-party advisors through the process of applying for life and critical illness insurance digitally—a faster process with clients receiving a decision in as little as 24 hours. In Q1, using our Lumino Health platform, we rolled out virtual healthcare from Dialogue, Canada’s leading telemedicine provider to Sun Life Group Plan members across Canada. And then last week, we announced a strategic partnership and $33 million equity investment in Dialogue. It’s one more example of innovation in a rapidly changing healthcare landscape that supports our purpose of helping clients live healthier lives. Our group retirement services business in Canada invests over $100 billion of assets in retirement savings for 1.4 million Canadians who are members of a workplace pension or savings plan. And in the quarter, we launched a new ESG framework that helps those clients identify the investment firms that are ESG leaders in every major asset category offered on our platform. We know that a strong focus on ESG by investment managers often means superior investment performance. In the U.S., we made it easier to work with us virtually by temporarily waiving the platform fee for employers on our advanced Maxwell Health digital benefits platform. In addition, we launched several new capabilities, including enhanced mobile enrollment, text messaging, and live chat features and additional integration for employee payroll deductions. We also added other virtual options to enroll members for Sun Life benefits, including one-on-one or group enrollment meetings to help ensure they can easily choose their benefits at any time on any device. These investments in digital are making a difference in winning new business as technology becomes a bigger decision driver for employers and their brokers and advisors. Also in the U.S., our new disability administration system, Sun Works, is hitting its stride, with 3,500 clients now on the platform with really positive client feedback. Turning to Slide 5, reported net income of $519 million was down 13% from the second quarter of 2019, reflecting lower interest rates and credit spreads, with a partial offset from equity market gains in the second quarter. While the economic impact of COVID-19 increased credit charges and we had a higher effective tax rate on underlying earnings in the quarter, underlying net income remained level with the prior year at $739 million, in part reflecting good underlying business growth as evidenced by the 11% growth in expected profit. We generated an underlying return on equity of 13.4% for the quarter. The LICAT ratio at SLF increased to 146%, a strong level that’s well in excess of the supervisory minimum. At Sun Life Assurance, our LICAT ratio ended the quarter at 126%, a decrease from the prior quarter, which was primarily driven by a scenario switch in the LICAT calculation and the subsequent change in market sensitivities for credit spreads. And Kevin will expand on this when he takes us through the results in a minute.

Kevin Strain, Executive Vice President and Chief Financial Officer

Thanks, Dean and good morning everyone. Turning to Slide 7, our reported net income for the quarter was $519 million, down 13% when compared to the same period a year ago. The drop in reported income was primarily from unfavorable market-related impacts, resulting from COVID-19, specifically lower interest rates, narrowing credit spreads, and changes in the fair value of investment properties, partially offset by equity market impacts as markets rebounded from the lows we saw in the first quarter. Positive equity market impacts also included basis risk, primarily on our Canadian segregated funds, which was negative this quarter, and the impact of lower valuations on private equities. Underlying net income of $739 million and earnings per share of $1.26 remains level with Q2 2019. Our underlying results this quarter versus the prior year were driven by strong growth and expected profit, investing activity gains, favorable morbidity experience, and higher net investment returns on surplus offset by unfavorable tax impacts on adjustments relating to the prior year’s Canadian tax filings of approximately $50 million and lower tax-exempt investment income, unfavorable credit experience of $58 million in the quarter primarily driven by downgrades, and unfavorable expense experience from lower expense recoveries in our Canadian group benefits administration’s business. Our underlying return on equity for the quarter was 13.4%, within our medium-term objective of 12% to 14%. Assets under management grew by nearly $100 billion in the quarter to over $1.1 trillion driven by the strong recovery in equity markets and the overall net inflows, partially offset by foreign exchange impacts. Book value per share of $37.56 increased by 4% over the prior year reflecting reported net income and foreign exchange gains in other comprehensive income over the last 12 months. Our capital position remains strong at 146% LICAT at SLF and 126% LICAT at SLA. Our strong capital position gives us flexibility for investments in organic and M&A growth as well as protecting us against economic volatility. Reduction in the SLA LICAT ratio from the prior quarter reflects the impact of a scenario switch in the LICAT calculation. As we switch scenarios in Q2, we saw approximately a 1 percentage point reduction from the shifting coming through this quarter, with a further 3 percentage points that come through over the next five quarters, assuming we remain on the new scenario. In addition, under the new interest scenario, the narrowing of credit spreads now results in a lower LICAT ratio and this amounted to a 2 percentage point reduction in the SLA LICAT ratio in the quarter. SLF’s LICAT ratio experienced similar impacts, but increased quarter-over-quarter to 146% due to the $1 billion subordinated debt offering in May, which added 5 percentage points to the SLF LICAT ratio. Our cash at SLF remains strong at $3.5 billion and our financial leverage at 23.2% remains below our target of 25% at the end of Q2, both reflecting the $1 billion debt offering in May. Since quarter-end, we completed the acquisition of InfraRed, which reduced our cash position by approximately $510 million and our SLF LICAT ratio by 2.5%. Subject to regulatory approval, we also anticipate redeeming $500 million of subordinated debt callable in September, which will further reduce our cash balance and our SLF LICAT ratio by a further 2.5% and reduce our financial leverage ratio by 1.3%. Pro forma these two transactions, the SLF LICAT ratio would be 141% and leverage would be 21.9%. The SLA LICAT ratio will not be affected as these transactions are funded solely from SLF. No buybacks were completed during the quarter, following OSFI’s request in March that all federally regulated financial institutions in Canada halt share buybacks and dividend increases. As a result, our normal course issuer bid will expire on August 30 and we will wait until OSFI’s halt is lifted before revisiting our share buyback program. Slide 8 shows business group performance on a reported and underlying net income basis. In Canada, reported net income was down 21% driven by unfavorable market-related impacts, primarily reflecting lower interest rates and corporate spreads, partially offset by equity market growth. On an underlying basis, Canada delivered underlying net income that was 60% higher than the same period in 2019 driven by higher investing activity and strong growth in expected profit, partially offset by credit experience and unfavorable results in group benefits. The unfavorable results in group benefits reflected continued long-term disability experience as a result of rising mental health claims and lower transaction fees in our group administration services business from lower dental and extended healthcare claims. This was partially offset by the favorable impact of lower dental and paramedical claims in our fully insured block of business. Reported net income in the U.S. increased by 23% in U.S. dollars against the same period last year, reflecting improved market-related impacts and lower integration costs following the completion of the integration relating to the Assurant acquisition at the end of last year. U.S. underlying net income increased by 11% in U.S. dollars driven by business growth, again from the conclusion of a legal matter and a favorable morbidity experience in group benefits, partially offset by unfavorable mortality and credit experience. In our asset management businesses, we saw reported earnings that were slightly lower than the prior year driven by unfavorable fair value adjustments on MFS share-based payment awards and costs related to the accretion of the put liability on the acquisition of BentallGreenOak. On an underlying basis, asset management earnings are increased by 6%, driven by an increase in performance fees at SLC and the contribution from BGO, partially offset by higher sales expenses in MFS. Asia’s reported net income was $8 million lower year-over-year, primarily due to the impact of narrowing credit spreads in the quarter. Underlying net income for Asia decreased by $3 million due to unfavorable credit experience and lower AFS gains largely offset by a gain from a mortgage investment prepayment and favorable morbidity experience. Our corporate segment, which includes the U.K. run-off business, was down $62 million in underlying net income compared to Q2 2019. The decline was primarily due to an unfavorable adjustment relating to the prior year’s Canadian tax filings and lower tax-exempt investment income in Canada, partially offset by higher net investment returns on surplus of $23 million predominantly from seed investment gains, where we recovered our losses from the prior quarter related to credit spreads. In the U.K., we had unfavorable credit experience offset by higher investing activity and favorable mortality experience in the annuity business. Slide 9 provides an overview of our sources of earnings. Despite the challenging environment, expected profit increased 11% compared to Q2 2019 given by widespread growth. Asia grew modestly, Canada grew 12%, the U.S. grew 23%, and our asset management businesses grew 10% driven by SLC management’s acquisition of BentallGreenOak. New business strain of negative $5 million in the quarter was in line with the same period a year ago and was mostly impacted by lower sales as a result of COVID-19 offset by strong sales in international hubs in Asia and re-pricing of individual insurance products in Canada. Experienced losses of $403 million pre-tax were largely driven by unfavorable market-related impacts of $432 million pre-tax primarily relating to the impact of falling interest rates, in particular, at the longer end of the yield curve in Canada, the narrowing of credit spreads, and impacts of appraised values for investment properties, partially offset by the rise in equity markets during Q2. Other experience items, which we have called other notable items impacted both reported and underlying earnings and were $29 million pre-tax as strong investing activity results offset credit experience. Credit experience was negative $72 million pre-tax, reflecting the impact of downgrades and impairments in our fixed income portfolio. In addition to our quarterly loan review process, we increased our focus on areas where we saw potential for higher yield, higher levels of rating migrations given the impact of the pandemic in the current economic environment. This included both sectors that we highlighted in our MD&A this quarter. We had a small impact from assumption changes in management actions during the quarter of $3 million. Other negative $52 million in our source of earnings includes acquisition and integration costs relating to acquisitions in SLC management and fair value adjustments on share-based payment awards at MFS. Earnings on surplus increased year-over-year primarily driven by gains on seed investments as a result of narrowing credit spreads and higher AFS gains offset by market losses on real estate investments. Our effective tax rate on a reported basis was 8.6%, reflecting tax-exempt investment income within market-related impacts, which was partially offset by an unfavorable adjustment relating to the prior year’s Canadian tax filings. The latter adjustments also impacted our effective tax rate on an underlying basis, which was 26.1%, above our expected range of 15% to 20%. Slide 10 shows sales results by business group for the quarter. While COVID-19 had an impact across many of our businesses, we saw resilience in several channels as we pivoted to digital tools and solutions to meet client needs. In the U.S. insurance sales in the second quarter of 2020 were in line with the same period in 2019 on a constant currency basis, reflecting strong performance across all businesses in a challenging environment. In Asia, insurance sales were also in line year-over-year on a constant currency basis, despite many of the countries in which we operate remaining in lockdown for most of the quarter. We had strong performance in our high net worth businesses in international hubs, as well as higher sales in China and Vietnam. This was mostly offset by lower sales in those markets that experienced more severe lockdowns like the Philippines, Malaysia, Indonesia, and India. In Canada, fewer group clients came into the market, along with lower individual insurance sales, primarily in the third party high net worth channel reduced sales by 22% year-over-year. Wealth sales increased by $19.7 billion, or 53% over the prior year. While Canada saw a sales decrease by 20% due to lower sales in group retirement services and individual wealth, this was more than offset by a 36% increase in Asia wealth sales and a 56% increase in asset management sales, both on a constant currency basis. Asia wealth sales were driven by fixed income sales in India and money market sales in the Philippines. While asset management sales were driven by higher mutual fund and managed fund sales in MFS, MFS saw a positive flow of U.S. 5.4 billion dollars this quarter driven by retail, making Q2 the sixth successive quarter of positive retail flows. Institutional flows were slightly negative, driven by client rebalancing. Value of new business was $206 million in Q2, a decrease of 12% year-over-year, largely driven by lower sales in Canada and Asia due to the impact of COVID-19, partially offset by favorable product mix in Canada individual insurance and international hubs. Moving to Slide 11, operating expenses for the first half of the year increased 3% on a constant currency basis over the same period of last year. Controllable expenses are up a modest 2% reflecting savings from lower discretionary spending like travel and conference-related costs due to COVID-19, partially offset by continued investment in digital initiatives across the company. As we continue to work through the impact of COVID-19, we want to give you a view into what July looks like for sales claims and other items impacted by the pandemic. In the month of July, sales across our products and businesses were mixed, with total individual insurance sales at approximately 95% of the levels in July of 2019 and wealth sales at 110% of July 2019 levels for group benefits. For July, premium volumes and business in force were relatively unchanged from the end of the second quarter. In July, our mortality and morbidity claims experienced from COVID-19 has been small, amounting to less than 5% of our monthly average for mortality and disability claims paid. With Canada and the U.S. gradually reopening businesses and services, health and dental benefits claims have increased compared to the monthly average of the second quarter. However, we are still below historical levels. For our borrowers and real estate tenants, we have granted interest, principal, and rent payment deferrals on a case-by-case basis, with the majority of the deferrals being up to three months. During the second quarter, we collected 99% of our expected investment-related cash inflows, outstanding deferrals as at the end of July were just less than $40 million with additional requests currently under assessment. To conclude, COVID-19 and associated economic conditions continue to present challenges, but we remain well positioned with strong capital and liquidity supported by a low financial leverage ratio, strong LICAT ratios and excess cash ratio. After taking into account the InfraRed acquisition and our anticipated debt redemption in September, our strong risk management, strong balance sheet, diversified and derisked business mix, and innovative digital solutions and capabilities that support our clients and advisors all contribute to our strong positioning and continuing to manage through these turbulent times. With that, I’ll turn the call back to Leigh for the Q&A portion of the call.

Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management

Thank you, Kevin. To help ensure that all of our participants have an opportunity to ask questions on today’s call. I ask that each of you please limit yourself to one or two questions and then to re-queue with any additional questions. With that, I will allow now ask Dikitriya to please poll the participants for questions.

Operator, Operator

Thank you. Your first question comes from Gabriel Dechaine with National Bank Financial.

Gabriel Dechaine, Analyst

Alright, good morning. My first question for Jacques and Dan, I guess, the group business, we touched on a lot of times talking about claims, I want to get a sense for the revenue or premium outlook over the next 12, 24, maybe 12 months that you have for the business considering the trend in unemployment and maybe even business decisions like some employers may choose to cut coverage to offset the premium increases you are probably going to be putting through?

Jacques Goulet, President, Sun Life Canada

Kevin, should I go first?

Kevin Strain, Executive Vice President and Chief Financial Officer

Yes, Jacques, why don’t we start with you and then move to Dan.

Jacques Goulet, President, Sun Life Canada

Hey, Gabriel. Good morning. Thank you for your questions. It’s you point to a bunch of good factors there, employment levels is something we have been watching. Interestingly, I have seen, Gabriel, we haven’t seen much of an impact so far. There have been layoffs in many cases temporary, so benefit coverage has not necessarily stopped. The other issue is looking at the segmentation of clients as you know in our Canadian business we would have a larger proportion of large national accounts. I think there has been more stability in that part of the economy. So, sectors of the economy, of course, also have an impact. We also have what I would describe as mitigating factors. So, as you know, in our group businesses, when people terminate, they can roll over into individual products. So that sort of plays a bit of an offsetting impact. So at a macro level, all the things you say are things that we also think about and are watching, we haven’t really seen that much of an impact. Of course, the trajectory of the disease and the impact on the economy going forward is going to have to be watched carefully, but as I said so far, not that much of an impact.

Daniel Fishbein, President, Sun Life U.S.

And this is Dan Fishbein. Let me add on for the U.S. To date like Jacques is describing, we have not seen much impact. Premium revenues have stayed fairly close to where we would have expected them to be. We have been watching that very closely. We did give extended grace periods during the second quarter. Those have now largely ended and we have seen clients make the payments for anything that was deferred under those grace periods. So, our premium receipts are right about where they would have been without the pandemic. We think what’s happening to some degree is that the CARES Act in the U.S., the government support has been very effective. And combine that with the fact that it’s clear that our clients value these benefits and want to keep providing them to people even those who have furloughed workers have continued paying for benefits during those furlough periods. And certainly, the government supports have been very helpful in that regard. We are obviously watching very carefully what’s going on in Washington right now with potential extension of those kinds of supports. That will be important to us. But with that said, as we get into more structural layoffs versus furloughs, we have to keep watching that because that could create a different dynamic in the coming months. The final comment I will make like Jacques, our mix is somewhat favorable. We have measured that and evaluated that very carefully and the industries we serve are somewhat more resilient in this economy than the economy as a whole.

Gabriel Dechaine, Analyst

Okay. Thanks for both responses. And my next question and it’s a bit more morbid, but a core one to the life insurance business and mortality and I guess there is – if you see mortality or some negative mortality experience this quarter, I guess where that’s coming from. I am more curious though about your longer term outlook and maybe Kevin for you, there is some direct impact from COVID then indirect, economic downturns are likely to lead to health issues and mortality rates moving higher. And if it lasts a long time, then that could be a secular trend. Just wondering how you think your business is positioned for potentially higher mortality rates over the next few years? You are long or short mortality, I should say, but then the individual product mix, the insured population also play a role here.

Dean Connor, President and Chief Executive Officer

Gabe, I am going to suggest that Kevin Morrissey start with some of the answers to this question. And then we can pass it to the business group presidents if there’s additional color to add, because it is different, as you noticed a little bit different by country and by market.

Kevin Morrissey, Chief Actuary

Yes, Gabriel, it’s Kevin Morrissey. Thanks for that question. I think when we are thinking about the impacts of mortality, it's important for Sun Life to step back and look at the different types of diversification and risk mitigation that we had. So far, what we have experienced as a result of COVID-19, we have seen significant product diversification. As you’re aware, we have life insurance and annuity products. And so we are seeing some of that offsetting of risks. We are also benefiting so far from geographic diversification. So, to date, the pandemic has been more severe in the U.S. and U.K. and less severe in Canada and the Asian countries where we operate. We also seen a significant risk mitigation for the impacts on the insured population versus the general population. And so across those three dimensions, where we are seeing some significant risk mitigation. Also, I would highlight we have significant use of reinsurance across a number of our blocks. So when we are looking across all of our businesses, we have the experience to date, we have had some significant diversification and that has helped us so far in what we have seen in our experience. Longer term, I guess, it’s tough to say about the trajectory of what it will do for mortality, I think we are still very early days in the pandemic. And I think it’s tough to draw conclusions around longer term where this would go. So I think at this point, I will probably reserve opinion. We are closely monitoring it both our experience and industry experience and we will have to, I think time will tell longer, longer term but at this stage a little early to make conclusions.

Dean Connor, President and Chief Executive Officer

Gabe, it’s Dean and I don’t think we need to go by geography. The only thing I would add to it is a significant part of our mortality exposure is in our group businesses in Canada and the U.S. where we have the ability to re-price so to the extent that trends over the longer period turn negative on mortality, we can catch that up in relatively quick order through pricing.

Gabriel Dechaine, Analyst

Thanks. Thanks for that.

Operator, Operator

And your next question comes from the line of Steve Theriault with Eight Capital.

Steve Theriault, Analyst

Thanks very much. If I could start with a question on Asia, likely for Leo. Leo, on the sales front, Hong Kong is coming through the pandemic very well, in terms of top line in sales, but more volatility in the local markets. Kevin gave a view from the top of the house. And things are changing pretty swiftly in terms of additional waves. But to the extent possible, can you give us a bit of an update on what you are seeing sort of early Q3 and maybe help us? If you could point to geographies where your outlooks getting better or worse, that would be helpful in terms of how we think in the second half of the year?

Leo Grepin, Executive Vice President, Asia

Okay, good morning, Steve. Thank you for the question. So, if you look at our sales in Q2, maybe I will start with momentum. If you recall our Q1 analyst call. We shared sales for the month of April at 80% of prior year. We ended up the quarter, basically flat to prior year. So that tells you a little bit about the momentum through the quarter, which we feel quite good about. Now, as you mentioned the trends are a little bit different market to market. So you talked about international hubs. That’s our international business in Hong Kong being quite strong in Q2. We also had strong results in China and in Vietnam. Whereas the markets like Indonesia, Philippines, Malaysia were quite a bit weaker. I think you can link that quite directly to what’s happening in terms of COVID-19 measures in these different markets. The Southeast Asian countries had much more severe levels of COVID-19 cases and therefore much more severe social distancing measures throughout the quarter. Now, despite all of that, I talked about the momentum across the region, you can assign that in part to some of the relaxation of social distancing in Southeast Asia, but also to a lot of their capabilities that we deployed to all of our markets in Q2, where we equipped our advisors with a number of new digital capabilities to allow them to interact with their clients non-face-to-face. And to give you a bit of a sense of what that means, for example, if you take the Philippines in the month of June, 75% of our applications were submitted via digital remote capabilities. We have also seen quite a bit of new creative and productive activities being rolled out across the region. So, for example, one of the ways our advisors operate is that they create client seminars and would typically bring 100 clients together in a conference room and have an educational seminar. In the middle of the crisis, we moved all of that to webinars online and we are having attendance of several thousand clients joining these digital venues. So, all of that is fueling good momentum, which is offsetting some of the headwinds related to social distancing measures. So, we see that momentum across the region. And then of course, at the same time, we do see quite a bit of uncertainty into Q3 as you would have seen Vietnam and Hong Kong have had a resurgence of COVID-19 cases. And Hong Kong is going through its toughest wave of social distancing measures so far in the last 6 months. And so that’s definitely a headwind. The Philippines announced a new set of social distancing and quarantine measures earlier this week. So that’s also going to obviously be a headwind. But we are cautiously optimistic in terms of the momentum of our business, all of these headwinds notwithstanding.

Steve Theriault, Analyst

Can you give a sense – last quarter you mentioned how April is 80% of prior year – can you – does that – can you roll that up into something in terms of July?

Kevin Strain, Executive Vice President and Chief Financial Officer

So, it’s Kevin. We gave the disclosure for a total company at 95%, but we weren’t going to break it up by business group. You can imagine that it’s pretty current information. We just ended July a few days ago. And so we are trying to keep that at the total company level, but maybe Leo can talk a little bit more kind of trends in the quarter, which I think is sort of addressed by the nature of what’s happening.

Leo Grepin, Executive Vice President, Asia

Yes, I think what you described at a global level, Kevin, is quite in line in terms of momentum. April versus July, the trends would be similar in the context of Asia.

Scott Chan, Analyst

Good morning. Just on the URR, your competitors have offered some guidance on timing and the potential range, and I was wondering if you could update us on that if you can?

Dean Connor, President and Chief Executive Officer

Kevin Morrissey, do you want to give an update on the URR?

Kevin Morrissey, Chief Actuary

Yes, thanks for the question, Scott. This is Kevin Morrissey. So, as you’ve probably heard, the actual standard boards is going to be reviewing the URR. So the ASP review and analysis is not done yet. So I don’t know if a change will be made, but if a change is made by the ASP, it would be promulgated next year and we would make our update at that time. As a reminder, the last URR change was in 2019 where the URR decreased by 15 basis points, about $93 million absent tax loss.

Mike Roberge, President, MFS

Yes, I would just say the work that we have been doing to continue to broaden the opportunity set around the world by client. What’s interesting, I think, with MFS relative probably to what you are seeing broadly, in the active marketplaces is much of what we have been distributing institutionally has been equities. And so we are winning in the equity platform. And I would also say from a product perspective is we did see several years of redemptions in the institutional channel. There have been some strategies that were capacity constrained that we have reopened and we have seen some interest in those as well. And so I think there are number of things that we are doing in terms of prospecting, engaging with clients cross-selling to existing clients. And I do believe the investment platform on the consistency of the performance and risk management has resonated around the world and we are seeing a lot of interest in a variety of products across the platform.

Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management

Thank you, Kevin. To help ensure that all of our participants have an opportunity to ask questions on today’s call. I ask that each of you please limit yourself to one or two questions and then to re-queue with any additional questions. With that, I will now ask Dikitriya to please poll the participants for questions.

Operator, Operator

Thank you. Your first question comes from Gabriel Dechaine with National Bank Financial.

Gabriel Dechaine, Analyst

Jacques Goulet, President, Sun Life Canada

Kevin, should I go first?

Kevin Strain, Chief Financial Officer

Yes, Jacques, why don’t we start with you and then move to Dan.

Jacques Goulet, President, Sun Life Canada

Daniel Fishbein, President, Sun Life U.S.

And this is Dan Fishbein. Let me add on for the U.S. To date like Jacques is describing, we have not seen much impact. Premium revenues have stayed fairly close to where we would have expected them to be. We have been watching that very closely. We did give extended grace periods during the second quarter. Those have now largely ended and we have seen clients make the payments for anything that was deferred under those grace periods. So, our premium receipts are right about where they would have been without the pandemic. We think what’s happening to some degree is that the CARES Act in the U.S., the government support has been very effective. And combine that with the fact that it’s clear that our clients value these benefits and want to keep providing them to people even those who have furloughed workers have continued paying for benefits during those furlough periods. And certainly, the government supports have been very helpful in that regard. We are obviously watching very carefully what’s going on in Washington right now with potential extension of those kinds of supports. That will be important to us. But with that said, as we get into more structural layoffs versus furloughs, we have to keep watching that, because that could create a different dynamic in the coming months. The final comment I will make like Jacques, our mix is somewhat favorable. We have measured that and evaluated that very carefully and the industries we serve are somewhat more resilient in this economy than the economy as a whole.

Gabriel Dechaine, Analyst

Okay. Thanks for both responses. And my next question and it’s a bit more morbid, but a core one to the life insurance business and mortality and I guess there is – if you see mortality or some negative mortality experience this quarter, I guess where that’s coming from. I am more curious though about your longer term outlook and maybe Kevin for you, there is some direct impact from COVID than indirect, economic downturns are likely to lead to health issues and mortality rates moving higher. And if it lasts a long time, then that could be a secular trend. Just wondering how you think your business is positioned for potentially higher mortality rates over the next few years? You are long or short mortality, I should say, but then the individual product mix, the insured population also play a role here.

Dean Connor, President and Chief Executive Officer

Kevin Morrissey, Chief Actuary

Dean Connor, President and Chief Executive Officer

Gabriel Dechaine, Analyst

Thanks. Thanks for that.

Operator, Operator

And your next question comes from the line of Steve Theriault with Eight Capital.

Steve Theriault, Analyst

Thanks very much. If I could start with a question on Asia, likely for Leo. Leo, on the sales front, Hong Kong is coming through the pandemic very well, in terms of top line in sales, but more volatility in the local markets. Kevin gave a view from the top of the house. And things are changing pretty swiftly in terms of additional waves. But to the extent possible, can you give us a bit of an update on what you are seeing sort of early Q3 and maybe help us? If you could point to geographies where your outlook is getting better or worse, that would be helpful in terms of how we think in the second half of the year?

Leo Grepin, Executive Vice President, Asia

Okay, good morning, Steve. Thank you for the question. So, if you look at our sales in Q2, maybe I will start with momentum. If you recall our Q1 analyst call. We shared sales for the month of April at 80% of prior year. We ended up the quarter, basically flat to prior year. So that tells you a little bit about the momentum through the quarter, which we feel quite good about. Now, as you mentioned the trends are a little bit different market to market. So you talked about international hubs. That’s our international business in Hong Kong being quite strong in Q2. We also had strong results in China and in Vietnam. Whereas the markets like Indonesia, Philippines, Malaysia were quite a bit weaker. I think you can link that quite directly to what’s happening in terms of COVID-19 measures in these different markets. The Southeast Asian countries had much more severe levels of COVID-19 cases and therefore much more severe social distancing measures throughout the quarter. Now, despite all of that, I talked about the momentum across the region you can assign that in part to some of the relaxation of social distancing in Southeast Asia, but also to a lot of capabilities that we deployed to all of our markets in Q2, where we equipped our advisors with a number of new digital capabilities to allow them to interact with their clients non-face-to-face. And to give you a bit of a sense of what that means, for example, if you take the Philippines in the month of June, 75% of our applications were submitted via digital remote capabilities. We have also seen quite a bit of new creative and productive activities being rolled out across the region. So, for example, one of the ways our advisors operate is that they create client seminars and would typically bring 100 clients together in a conference room and have an educational seminar. In the middle of the crisis, we moved all of that to webinars online and we are having attendance of several thousand clients joining these digital venues. So, all of that is fueling good momentum, which is offsetting some of the headwinds related to social distancing measures. So, we see that momentum across the region. And then of course, at the same time, we do see quite a bit of uncertainty into Q3 as you would have seen Vietnam and Hong Kong have had a resurgence of COVID-19 cases. And Hong Kong is going through its toughest wave of social distancing measures so far in the last 6 months. And so that’s definitely a headwind. The Philippines announced a new set of social distancing and quarantine measures earlier this week. So that’s also going to obviously be a headwind. But we are cautiously optimistic in terms of the momentum of our business, all of these headwinds notwithstanding.

Steve Theriault, Analyst

Can you give a sense – last quarter you mentioned how April is 80% of prior year – can you – does that – can you roll that up into something in terms of July?

Kevin Strain, Chief Financial Officer

Leo Grepin, Executive Vice President, Asia

Yes, I think what you described at a global level, Kevin, is quite in line in terms of momentum. April versus July, the trends would be similar in the context of Asia.

Scott Chan, Analyst

Good morning. Just on the URR, your competitors have offered some guidance on timing and the potential range, and I was wondering if you could update us on that if you can?

Dean Connor, President and Chief Executive Officer

Kevin Morrissey, do you want to give an update on the URR?

Kevin Morrissey, Chief Actuary

Mike Roberge, President, MFS

Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management

Thank you, Kevin. To help ensure that all of our participants have an opportunity to ask questions on today’s call. I ask that each of you please limit yourself to one or two questions and then to re-queue with any additional questions. With that, I will now ask Dikitriya to please poll the participants for questions.

Operator, Operator

Thank you. Your first question comes from Gabriel Dechaine with National Bank Financial.

Gabriel Dechaine, Analyst

Jacques Goulet, President, Sun Life Canada

Kevin, should I go first?

Kevin Strain, Chief Financial Officer

Yes, Jacques, why don’t we start with you and then move to Dan.

Jacques Goulet, President, Sun Life Canada

Daniel Fishbein, President, Sun Life U.S.

And this is Dan Fishbein. Let me add on for the U.S. To date like Jacques is describing, we have not seen much impact. Premium revenues have stayed fairly close to where we would have expected them to be. We have been watching that very closely. We did give extended grace periods during the second quarter. Those have now largely ended and we have seen clients make the payments for anything that was deferred under those grace periods. So, our premium receipts are right about where they would have been without the pandemic. We think what’s happening to some degree is that the CARES Act in the U.S., the government support has been very effective. And combine that with the fact that it’s clear that our clients value these benefits and want to keep providing them to people even those who have furloughed workers have continued paying for benefits during those furlough periods. And certainly, the government supports have been very helpful in that regard. We are obviously watching very carefully what’s going on in Washington right now with potential extension of those kinds of supports. That will be important to us. But with that said, as we get into more structural layoffs versus furloughs, we have to keep watching that, because that could create a different dynamic in the coming months. The final comment I will make like Jacques, our mix is somewhat favorable. We have measured that and evaluated that very carefully and the industries we serve are somewhat more resilient in this economy than the economy as a whole.

Gabriel Dechaine, Analyst

Dean Connor, President and Chief Executive Officer

Kevin Morrissey, Chief Actuary

Dean Connor, President and Chief Executive Officer