Dean Connor may never have imagined that he would be leading an insurance company at this or any other stage in his career, but he’s certainly made the most of his six-plus years as CEO of Sun Life Financial Inc. Starting with a bold pronouncement in 2012 that Sun Life was going to increase annual earnings by a third to $2 billion by 2015, Connor has not been shy about getting the most out of his employees and that drive starts right from the outset. Each new hire, he says, has to raise the collective bar at least a little. Given that there are about 21,000 direct employees around the world, plus another 12,000 employed by its joint ventures in Asia, constant improvement is the name of the game.
Earlier this year, Connor set a new goal for the company to become one of the world’s top asset managers and insurance firms within three years. Called Client 2020, Sun Life plans to grow earnings per share 8-10% per year and return on equity by 12-14%. To help get there, he’s tied 25% of employee incentives to client satisfaction. Technology, including a digital benefits assistant called Ella, is one way Sun Life plans to improve the customer experience, but even with that, employees will have to do most of the heavy lifting, just as they did in 2012 when Connor set his first goal. Analysts back then figured it wouldn’t take much to achieve his goal, just a few interest rate increases. Those increases, as we all know, are only now coming through, but Sun Life easily met a revised target of $1.85 billion after the company sold a couple of assets. It still blew by the original $2-billion target in 2015 and reached nearly $2.6 billion in fiscal 2016. The credit for making up the gap, Connor says, and for him being named Canada’s Outstanding CEO of the Year for 2017 should go to Sun Life’s employees. Nevertheless, he deserves credit for growing a company that now has ventures in 15 countries, including seven in Asia, and 99,865 advisors, including 71,410 in its joint ventures in China, India and the Philippines.
But Asia is just one of the company’s four pillars and Connor sees growth in Canada, the U.S. and asset management as well. Sun Life Investment Management has gone from zero to $55 billion of assets under management in four years and he wants to get to $100 billion organically by 2020. In the U.S., Sun Life has a thriving medical stop loss insurance business that protects employers against very large health claims by employees. And Canadian life insurance sales in the past five years have had some of the strongest growth that Sun Life has ever seen. “There’s actually one hell of a lot going on in all four pillars that gives us confidence about our medium-term growth objectives,” Connor says.
Private debt, the last bastion of alternative assets, gains a new management entrantGrowth in Asia helps Manulife, Sun Life beat earnings forecasts
FPM: At the time you set a fairly audacious goal in 2012 of increasing earnings to $2 billion, you were quoted as saying you wanted to set the bar high. What’s the new bar?
Dean Connor: Earlier this year, at our investor day, we unveiled the next leg of our strategy, which we’re calling Client 2020, which is, of course, all about the client, but attached to that is what I would call a very ambitious goal of becoming one of the best insurance and assessment management companies in the world. We think it’s achievable, and we’ve defined success along five dimensions, one of which is achieving our medium-term financial objectives of 8-10% EPS growth, 12-14% ROE and 40-50% dividend payout ratio. What we haven’t done is what we did before and translate that into a specific earnings goal for the year 2020. But if you did the math and you take the 8-10% EPS, take the mid-range of that, and add to that a dividend yield of 3.7% or whatever we are right now, that’s a total shareholder return that’s 12, 13, 14% compounded and we think that will put us in the top quartile of our industry globally.
FPM: Is there ever a feeling like, okay, you can sort of rest a little bit and relax …
DC: Oh, gosh, no.
FPM: … and enjoy the success?
DC: No, no, not at all, absolutely not. Our business is a long-term business and in many ways you can’t really judge the success of it in short periods, like, five years. You have to look at it in longer periods. I am very focused on Client 2020 and setting ourselves up for this next leg of growth, this next chapter of success and the themes we’re building and implementing and acquisitions. The actions we’re taking today will show up in the image of the company for decades to come. There’s no speed except full speed ahead.
To achieve these new targets, do you foresee a lot more acquisitions or will it be more organic?
Our medium-term objectives are before we consider acquisitions so they are pretty aggressive, ambitious but aggressive growth targets, before considering acquisitions. We’ve deployed about $2.5 billion of capital in 12 transactions over the past few years, so we’ve been very busy on the acquisition front. We’ve been very disciplined, and we’re in a very strong capital position today and will continue to be very active in terms of looking for opportunities that fit our four-pillar strategy. Assuming if and when we can make those acquisitions happen, that will augment the medium-term objectives that we’ve laid out.
FPM: In the four-pillar strategy — Canada, U.S., Asia, asset management — where do you see the most opportunity? Most would assume Asia.
DC: There’s actually terrific opportunity in all four of our pillars. But Asia, if you express it in terms of potential earnings growth, is at the top just because the sheer demographics and economic growth in Asia are such powerful engines. Insurance penetration is low and as economies grow and people move into the middle class and have the financial means to protect their families, to save for their children’s education, and provide for their health care, millions are stepping into what our industry and what Sun Life has to offer. That is a multi-decade driver of growth for the industry and we’re right in the middle of that in seven markets that have over three billion people in them. We’ve grown Asia from roughly 8% to 14% of the company, and we want to get it to 20%. That’s a part of our story that I think five years ago investors didn’t put a lot of weight on. Today, they’re paying a lot more attention to it and I would say to you five years from now they’ll be paying even more attention to it.
FPM: Is there anything about the opportunity in Asia that investors still haven’t wrapped their heads around?
DC: One aspect of our business in Asia that we will be shining a brighter light on, because I don’t think it is fully appreciated, is India. We own 49% of the fourth-largest mutual fund company in India. It’s got about $40 billion of assets under management. We own 49% of the seventh-largest life insurance company in India. This is a country that will soon be the most populous country in the world. This is a country that could grow, with the right government policies and other things going right, at 8%, 9% real GDP growth. This is a country where millions of people are shifting from gold and real estate as the main stores of value to financial assets like mutual funds. We are so well positioned for this next chapter of India’s growth. Just take mutual funds. Mutual fund AUM in the U.S. as a percentage of GDP is over 90%. Here in Canada, it’s over 60%. In India, it’s 7%. We’re at the top of the first inning of what’s going to be, I think, a fabulous game, not without its zigs and zags, but we’re incredibly well positioned to benefit from the growth in India.
FPM: I find it strange that everyone urges Canadian companies to do more business with Asia, but we don’t recognize that a lot of companies like Sun Life and Manulife are already there and doing well.
DC: I’ve gone on record saying that Canadian companies have some natural competitive advantages when we show up to do business in Asia. For starters, we come from Canada and Canada has a great reputation globally. For example, when we went to acquire a business in Malaysia four years ago and we had to get regulatory approval, the moment the regulator heard we were from Canada they said, Oh, it’s a strong regulatory environment. They have a lot of positive impressions of OSFI (Office of the Superintendent of Financial Institutions), our regulator, and that was a very strong calling card. You show up with kind of the halo effect of being from Canada.
The second thing is, among G7 countries, Canada has the highest percentage of people born outside of Canada. It’s less than 1% in France, Germany, U.K., Italy; in the U.S., it’s 9-13%. Canada is 20%, one in five Canadians was born somewhere else. There’s two facets to that. One is we are more, as a general rule, culturally aware and culturally flexible, which is of enormous help when we show up in foreign markets in Asia, each of which has a different culture. Second of all, we have a real competitive advantage in terms of a talent pool here in Canada that we can use and send to those markets. That’s a real advantage as a country, to be able to tap into talent who can kind of, at a minimum, get the language and get the culture.
The other thing I would say is that Export Development Canada has been a great help to many businesses, as has the Department of Foreign Affairs and various branches of government, so there are a lot of people willing to help, and keen to help, Canadian businesses that want to do business in Asia.
FPM: It’s rare that you hear an executive laud the government for anything.
DC: You can always criticize governments for specific actions, but it feels to me like we’ve got more alignment between the federal government, provincial governments and municipal governments than we’ve had in a long time across Canada. You can point out the discontinuities and areas of friction, but it feels to me like Canada has real mojo.
FPM: I’ve noticed a big uptick in U.S. interest in Canada, whether it’s people criticizing or praising our health-care system or Rolling Stone putting Trudeau on the cover.
DC: It’s not one thing, it’s a whole bunch of things. It’s a prime minister who packs some presence on the global stage. It’s a scientific community that was strong enough to put the Vector Institute in Toronto. That created reverberations around the world in the scientific community and the computing community. It’s businesses, like Canadian financial institutions, banks and insurance companies, that I think do punch above their weight on a global stage. As a country of only 35 million people and only 3% of the world’s GDP, I do think we punch above our weight. That said, there’s a lot more to do. We’re behind on innovation, we’re behind on technology investments, we’re behind in many areas that come back to taking more risk ultimately. As a nation, we’ve got to step into taking more risk.
FPM: Speaking of risk, a few people have mentioned that you’re a fairly big fan of fintech, which some people view with suspicion or even fear.
DC: What I’m a fan of is the power of using data and digital predictive models to help our clients. I’ll back up a step. Like many companies and many executive teams, every year we go out to Silicon Valley to meet all the usual suspects, lots of young startups, and try to get a sense of the new disruptive business models that are out there or new technologies that are amazing or talent that’s amazing. Two years ago, I remember on a flight back from San Francisco I was hit by a thunderbolt, which was that what these companies have at their essence is an incredible obsession about the client. That obsession around clients is probably the biggest thing I picked up from our Silicon Valley trips and it has been infused into our Client 2020 strategy. Many companies say they’re client-centric, but what we’ve embarked on is, we think, far beyond that. It is obsessing about the client experience. It is obsessing about client outcomes. It’s not just selling products to clients, it’s about making sure they do what they’re supposed to do, whether it’s investment returns or buying the right insurance product or getting the right advice. One element of that is we put 25% of our annual incentive plan starting this year all around the client experience, which is a bold step and it’s one thing we’ve done to align where we’re going on this journey.
FPM: How do you use fintech?
DC: One example is about two years ago we started to invest in a new thing called a Digital Benefits Assistant. DBA is groundbreaking technology. We don’t think any other insurance company in the world is using this, at least not yet, and the way it works is it looks at all the data that we have on our plan members in group benefits, group pensions, and it uses that data to provide nudges directly to plan members that are personalized and proactive and meant to be helpful. It might nudge you and say, Hey, Andy, your 21-year-old son is about to drop off your benefits plan at work, click here to cover him for out-of-country medical if he’s travelling, or, Hey, Dean, you’re not taking advantage of the company pension plan match, you’re leaving free money on the table, click here to enrol in that. We’ve rolled out 60 of these nudges. We’ve got another 90-100 to go. We’ve spent a lot of time figuring out that line between cool and creepy, you know what I mean? How do we use client data in a really responsible way? Obviously, we’ve erred on the side of being cool. The next thing we just rolled out two weeks ago is the personification of that nudge through Ella. Ella is kind of our robotized persona, for people who are happy doing that, who will speak to plan members, answer simple questions about their benefit plans and help them navigate their plans. Right now, Ella is driven by algorithm, and ultimately she will be driven by AI kinds of models to help her figure out what to talk about to whom. This is very exciting and it started in our Canadian operation and it will be leveraged into our operations around the world.
FPM: You’re almost making insurance sound cool.
DC: It is. It is really cool and it matters to people. I tell lots of stories about how what we do impacts people’s lives. I’ll give you one example. One of our advisers was telling me this story: About five years ago, her husband, a self-employed guy, bought some critical illness insurance from Sun Life through her and a few years ago he was diagnosed with cancer and, while he was fighting cancer, he couldn’t work so he was really stressed out about looking after the family and finances and everything else. She said to me that the day she came home and presented him with this cheque for $200,000, she said, “Dean, it was the first time in our 20-year marriage I’ve ever seen him cry. It likely lifted 100 pounds off his shoulders.” We have stories like that every day in terms of how what we do really touches people and when we couple that with making it easier to do business with us, being more proactive and personalized, and resolving problems better, we see a path.
FPM: If the U.S. ever actually reforms or changes its health care system, how does that affect Sun Life’s business down there?
DC: It really depends on how they reform it. We’re not a direct underwriter of health insurance in the U.S. On the health side, we just do the stop loss portion of it, the high ticket claims. It’s hard to imagine any reform in the U.S. that will reduce the demand for our stop loss business. I mean, I suppose it’s possible, but all the forces seem to be pointing the other way. We’re playing in a niche area of the health system in the U.S., but it’s such a big system with so much money in it that our little niche is actually a fairly big niche, a fairly big contributor of revenue and profit for Sun Life.
FPM: How about Donald Trump’s plans to lower tax rates? And interest rates are finally rising as well.
DC: Those will all be helpers. A lot of people don’t know this: 60% of our earnings come from outside of Canada and a big chunk of that is from the U.S. so any change and improvement in corporate tax rates will help us. Similarly, if and when interest rates go up, particularly at the medium and long end of the curve, that will help us as well. Having said that, five years ago, we set a strategy that I called “planning for war and praying for peace.” We set a strategy where we could win even if the yield curve stayed where it was at that time and, frankly, it’s essentially done that, so in hindsight I’m glad we weren’t counting on rates to go up to improve our business. We kind of said that this is a headwind, we’ve just got to keep going. The sale of our U.S. variable annuity business, the decision to stop selling life insurance in the U.S., all the decisions we made back then to focus on our four pillars have made us less sensitive to interest rates and that’s been a good thing. Having said that, if rates go up, that will be another tailwind, another helper. Again, that’s not factored into our medium-term growth objectives.
FPM: What have you learned about yourself during your time leading Sun Life?
DC: One of the things I’ve learned is that to make big change happen, to change the direction and course of an enterprise, requires far more continued force and continued pressure than you would ever imagine. You say, Guys, we are going to hit this 2015 goal of $1.85 billion in earnings. You can’t just say that once, you can’t just say that twice, you have to align the whole organization and everything you’re doing behind that to do it. Similarly, as we look ahead to the Client 2020 strategy, it’s a big ship to change the direction of. The good news about Sun Life is that this is an organization that when you do that, it’s amazing how people get lined up and recreate alignment around the world. You go to Manila or Montreal or Milwaukee or anywhere in the Sun Life world and you ask, What’s the strategy for the company? You’re going to hear the same thing. If you asked, What’s the focus on talent? You’re going to hear the same mantra, which is that every single person we hire must upgrade the average. I’ve learned that when you create that force, we create alignment. When you create alignment, you can move mountains.
FPM: What do you do for relaxation and fun?
DC: I cycle, I’ve got a road bike. We have a place up near Collingwood that we go to if we’re in town on weekends and so we cycle up there and hike and play golf, and ski in the winter. We’ve got three kids who are grown up, but we spend a lot of time with them travelling and skiing or golfing or whatever we happen to be doing together. I also play guitar. I’ve played guitar almost my whole life and I actually play in a rock band that’s called the Binder Brothers. You can buy our CD on iTunes and if you bought it, our sales would double this year. But it’s a lot of fun. This band has been together since high school, if you can believe that, so really good friends. We’ve played together for, well, since I was 16 and we play four gigs a year. I’d also put my community involvement in the fun category, because I’m chairing the United Way campaign for Toronto and York Region this year. It’s a great honour to do that. It’s unbelievably rewarding, just the people you meet, the stories you hear, the impact you can have. And I’m just finishing chairing the $100-million campaign for Toronto Rehab Institute, which is part of University Health Network.
FPM: Is this kind of what you envisioned your career looking like, or where you anticipated ending up?
DC: Not at all. I’m probably like most people, you just find yourself in a profession in a way by accident. You just keep your head down, you work hard, you learn as much as you can and you’re curious about all kinds of things, you take some risks along the way, some personal risks, and there’s a whole bunch of luck sprinkled on top of all that. And then I woke up one day and I’m doing what I think is one of the best jobs in the world. I’m so lucky. FPM