Q4 2019 Earnings Call
Once again, please continue to spend money and we thank you for your patience.
[music].
All participants please standby you're meeting its ready to be gets good afternoon, and welcome to the great West Life Coast fourth quarter 2019 results conference call I would I like to turn the meeting over to Mr. format, President and Chief Executive Officer upgrade cycle. Please go ahead Mr. mine.
Thank you.
Good afternoon, and welcome to Great West Life goes fourth quarter 29 seem conference call with me on the call is very much Nicholas Executive Vice President and Chief Financial Officer area.
Todays formal presentation.
Also joining us on the call at available to answer questions Arsenal, well, President and Chief operating officer.
Jonathan Cohen, President and Chief operating Officer, Canada involved rentals, President and Chief Executive Officer Putnam investments.
Murphy, President and Chief Executive Officer of empower retirement will not be participating on today's call as his father recently passed away and he is with family.
That sounds honorable it's in our power CFO has joined the call.
Well.
No questions regarding Europe in reinsurance results on todays call I wanted to know that earlier today, we announced the number of organizational changes that will take effect following today.
These include Arsenal Jamal moving to a newly formed role.
Slifko, those president and group hub strategy investments reinsurance and corporate development.
Working with these teams at operating company President this focus will be on identifying and driving value creation initiatives across frequent slip cool.
As a result of this appointment David Hernia currently C O a virtualized group has been named President and COO Europe.
Social and David will report to me and I'm looking forward to working with each of them in their new roles.
I'd also note that Dan Mccarthy, our deputy CFO will continue to be associated with Gary Mcnicholas, but will work very closely with Marshall and his new role.
Before we started all draw your attention to our cautionary notes regarding forward looking information and all of the IRS financial measures on flood to.
These cautionary notes will apply to today's discussion.
As well as to the presentation material.
I will begin with an overview of west coast fourth quarter results and business development. Gary will then take you through the more detailed financial review.
After our prepared remarks, we'll open the line for questions. Please turn to slide for.
The company reported adjusted earnings of 80 cents per share up 11% year over year.
These results reflect strong underlying growth in our operating businesses a significant improvement in equity markets compared to Q4 last year the sale of the U.S. individual markets business and our successful substantial issuer bid in the spring.
In Canada earnings included strong business growth and group customer and investment gains.
However, this was more than offset by the impact about trail basis changes.
The U.S. adjusted earnings were higher due to improved marketing expense discipline, and Putnam participant grow southern power and the net benefit from some onetime items.
In Europe higher earnings reflected solid solid underlying growth across all geographies, particularly in reinsurance as well as the benefit of successfully resolve a longstanding touch letter in the UK.
There were three adjustments to net earnings in the quarter.
There were a putnam the first was $199 million charge related to the reevaluation of it but deferred tax asset and the second was a 36 million dollar restructuring charge related to cost savings initiatives.
Third adjustment was a gain of $8 million realized on the sale of our UK heritage policies to Scottish friendly completed on November 1st.
Jerry will provide additional color on these adjustments later in the presentation.
On a full year basis adjusted earnings per share were $2, a 94 cents, while down from 2018 business fun fundamentals remain solid and our capital position remains strong the.
The companies like <unk> ratio was 135% at the end of the fourth quarter, well above our internal target range of 110% to 120%. Unlike co cash was $700 million, giving us ample financial flexibility.
We also were also pleased to announce that the board approved to 6% increase in our common dividend, making this our sixth consecutive year of dividend increases I.
I would now like to take a few minutes to update you on our strategic priorities and recent business developments turning to slide five.
In Canada, we entered the new year as one strong unified company under the brand candidly.
With the amalgamation of our three insurance company is complete we are sharpening our focus on growth while capitalizing on efficiencies from ongoing simplification of our business model.
We continue to be an industry leader in group benefits and we've demonstrated that leadership with the highest group life and health sales among our peers again this year.
Innovative benefit solutions and service excellence contributed to these outstanding results.
Key part of our growth strategy is deepening relationships with a 9 million Canadians, we count as group customers.
So this then we're continuing to introduce new digital capabilities to increase group member engagement and the example is the pending launch of a new integrated member digital platform, which will deliver a seamless experience to group customers, who are both benefits and savings products with us.
Turning to our individual business, we launched a new patent life segregated fund shelf in the fourth quarter, bringing together the best funds from our three legacy platforms to create a simplified shelf for all adviser channels.
Success of the launch and the attractiveness of the New Seg fund products shelf helped boost our fourth quarter results and positions us well going forward.
We also invested in digital tools and technologies to support the advisor community a new advisor portal is currently in pilots and receiving positive feedback.
In the U.S. and power finished the year with record sales and impressive growth across small mid and large funds segments.
However continues to be highly rated by retirement plan advisors. It was recognized as the number one value for price for a fifth consecutive year by planned advisor magazine and received top March for client service and online tools external endorsements like these are driving a robust pipeline at in power.
Putnam strong investment performance is attracting flows with mutual fund net inflows of $1.5 billion in the quarter, the highest level and over a year.
As of December 31, 2019, 82% and 86% of funds fund assets performed at levels above deliberately then on a three year and five year basis, respectively.
This combined with expense discipline is contributing to an improvement in.
Putnam's profitability.
Turning to Europe, our reinsurance business continued to demonstrate the strength and risk and capital solutions.
Issuing a long term contract covering the longevity risk within a 12 million euro portfolio of Dutch pension liabilities.
This was another significant transaction earlier in the your covering 5.5 billion of Euro pension liabilities also in the Netherlands.
These transactions to our diverse longevity portfolio and highlight our expertise and creating unique risk pressed for structures to benefit our clients globally.
Okay. We closed the sale of the heritage walk in policies to Scottish friendly freeing up capital, allowing us to focus on growth in the UK retirement and group benefits markets.
We're also leveraging recent acquisitions to extend distribution and growth of our wealth management franchise in Ireland, and expand our footprint and the German broker market.
Please turn to slide six for further discussion of our fourth quarter results.
In Canada sales were up 5% as noted group customer led the industry and group life and health sales in the fourth quarter and for the year individual wealth sales were higher compared to last year in part due to higher segregated fund sales as advisors and clients respond favorably to the new cannibalize shelf.
In the U.S. empower recorded sales of US 12 billion with growth driven by mid and small plan sales.
Net flows were positive on the back of lower gross sales.
In Europe sales were up 10% with higher fund management sales in Ireland will not included in traditional sales metrics. The major reinsurance transaction noted earlier drove new business gains in the quarter and will add to future earnings.
Turning to slide seven let go fees were up 7% year over year with strong growth across segments.
Excluding the divested us individual markets business from Q4 2018 figures.
These were up 10% and season, the U.S. were up 13%.
As noted on the slide higher fees were driven by strong market growth participant growth at Mpower improved performance fees that Putnam and strong net flows in the UK, Ireland and Germany.
Referring to slide eight wesco adjusted expenses were down 2% year over year, 1% in constant currency with excellent cost control across segments.
In Canada expenses were flat, reflecting continue that continued expense discipline.
Adjusting for onetime items in the fourth quarter last year expense growth was approximately three 3.5% inline with our expectations.
In the U.S. expenses were down 3%, but again adjusting for the sale of the individual markets business would have increased by 3%.
Power expenses were higher in line with sales and participant growth and the expenses at Putnam were down 6% in local currency, reflecting benefits achieved to date with restructuring.
And in Europe expenses were flat and up 2% in constant currency as we continue to balance growth initiatives with good expense controls I will now I'll turn the call over to Gary Gary. Thank you Paul starting with Slide 10 earnings in the quarter were 80 cents per share on an adjusted basis, an increase 11% year over year.
Adjusted EPS growth reflects solid operating performance as well as the combined impact at the sale of us individual markets business and our substantial issue a bit earlier this year.
The results included a number of larger items that overall were generally offsetting however created variability within the segments.
In Canada fee growth good expense discipline and strong trading gains were more than offset by reserve strengthening which led to a 39% decline in earnings.
In the U.S. empowering our 77 million with strong underlying business results and the benefit of a positive basis change.
Then corn at earnings improved to 13 million from a loss of 22 million in Q4, 2018, primarily due to higher fees and lower operating expenses.
Europe's adjusted earnings were up 27% and included a gain on the large reinsurance transaction good yield enhancing results in the settlement of a UK tax issue, partially offset by adverse health and disability claims.
Please turn to slide 11.
This table summarizes adjustments to our net earnings in 2019 and 2018.
The first adjustment I'd call. It was 199 million charge related to the revaluation of deferred income tax asset at Putnam.
This is a noncash accounting change in respect of certain restricted tax losses that arose in the years immediately following the Putnam acquisition.
It is important to note the tax losses are still available and management intends to utilize these losses in due course through a combination of continued organic growth tax planning strategies and potential strategic initiatives such as M&A.
From a prudent accounting perspective, we're limited income we can project from these activities, which resulted in the revaluation.
The second adjustment I note was 36 million restructuring charge at Putnam covering expense initiatives, including realigned technology and facilities consolidations and staff reductions.
We expect to realize 33 million us and pre tax annual expense savings as a result in the restructuring mostly by the end of 2020.
You asked 24 million savings achieved to date.
The third adjustment with an 8 million gain on the sale of UK heritage policies disguised friendly.
While the earnings impact is modest this sale freed up approximately 70 million of life had capital and position the UK to move off certain legacy systems as part of its overall transformation efforts.
Please turn to slide 12.
This table shows the segment and total like our results from a source of earnings perspective, and as a reminder, the SMB categories above the line has shown pretax.
Looking first at expected profit and excluding U.S. individual markets, which accounted for 35 million in Q4 2018.
The year over year increase was 7% reflecting growth in platinum and power and reinsurance and improved volumes in Canadian group customers.
New business strain was lower than both prior quarter in prior year do a couple of factors Putnam and empower showed higher strain, but we think this is good strain, reflecting primarily non deferred sales costs on strong new business activity.
Allocating this was the upfront gain on the longevity reinsurance transaction noted earlier.
Experience gains contributed 55 million in the quarter, while management actions and changes in assumptions reduced pre tax earnings by $112 million I will discuss both on the next line.
Earnings on surplus of 57 million improved due to a number of favorable items, including realized gains on trading a surplus assets and the swing in key seed capital impacts from a negative last year in the market turmoil. Two again this period. This most notable that Putnam.
And in the tax line you can see the impact of resolved in the UK tax matter noted earlier.
Turning to slide 13.
These tables expand on the experience results management actions and basis changes to highlight various items in the quarter again on a pre tax basis.
Turning that expands results strong yield enhancement was supported by equity release mortgages originated in the UK through kind of like home finance.
These gains however, partly offset by experienced pressures from morbidity expenses and policyholder behavior.
There were continued morbidity losses in Ireland, The group Ltd, and health as we've noted in prior quarters, we have taken repricing actions, including several increases in health insurance premiums, but the impact will come in over time as repricing occurs at contract renewal dates.
Also some morbidity impacting Canada due to recent changes, but we expect this to be temporary as the market adjust.
The expense variance was primarily in Europe industries represented higher strategic cost in Q4 than originally planned as we continue to make some good progress there.
This quarter, we completed a number of actuarial reviews in Canada.
Basically these views results in both some positives and negatives this quarter, while none of the individual changes was material there were fewer positives, resulting in an overall negative $113 million.
In the U.S., we strengthen mortality assumptions on retained US legacy block there was not part of the individual markets transaction, but this was offset by the positive impact of a partial pension close as.
Turning to slide 14. This table shows the segment in total ankle results by source of earnings perspective for the full year 2019, I'll just make a couple of comments here.
With expected profit again, excluding us individual markets from the prior periods like as expected profit of 2.9 billion in 2019 was up 4% year over year.
Experience gains in 2019 were comparable to 2018 strong trading gains were partially offset by UK retail property losses as noted in Q2, especially at morbidity losses in Ireland, which we are working to turn around.
Management actions and changes sanctions were 139 million compared to a historically high level of 717 million last year driven in part last year by the sharp changes in UK longevity.
We have commented throughout the past year provided additional disclosure to explain the drivers of lower contribution basis changes most material, which was policyholder behavior in Q3.
Offsetting this were positive contributions from individual mortality and economic and some morbidity updates.
While contributions from basis changes were lower this year the balance sheet remains as strong as ever.
Starkly expands gains and basis changes together have averaged around 20% of total earnings with about 60% of that coming from basis changes.
Well always difficult to quantify and advance given the balance sheet fundamentals remain consistent we'd expect thinks it seems to continue to contribute positively.
However, given our focus on operational growth, including investment in pricing actions noted earlier.
We expect operating earnings over time, including experience gains will be a higher proportion of total earnings.
In total adjusted earnings before tax for 3.3 billion for 2019, and the full year effective tax rate on shareholders earnings was 10% compared to 13% last year.
Turning to slide 15 book value per share was 20, 153 down 2% from last year, primarily reflecting the impact of the substantial issuer bid and currency translation.
Our light cat ratio was 135% down from 139% last quarter. The four point decline was mostly related to the capital.
Because a large reinsurance transaction in the quarter.
As a reminder, return on equity is based on a rolling four quarters adjusted return on equity was 13.8% in the fourth quarter and we continue to target a longer term, our we have at least 15%.
Reported our we have 11.7% includes adjustments for loss on sale of the U.S. individual markets business in Q2, 2019, and those noted this quarter.
Turning to slide 16, I just noticed assets under administration were 1.6 trillion up $231 billion or 17% year over year, reflecting higher markets and business growth.
That concludes my formal remarks about few Paul Thanks, very much Gary.
So with slide 17, I'm going to close our formal comments so referring to slide 17, as we look ahead. Many of the same value creation drivers from 2019 will continue to be our focus and the focus of our efforts in 2020.
We made strong progress in expanding our IRA rollover and Canadian next step rollovers strategies. These strategies are being strengthened by highly engaging and digitally enabled platforms like empowers my total retirement.
We will continue to build up these and other workplace delivered solutions to meet the lifetime needs of millions of plan members across all of our businesses.
We continue to invest in digital tools like simple protecting Canada, and our redesigned retirement account in the UK.
The focus is on helping advisors be more effective and productive and delivering wealth management solutions to their clients.
We will continue to advance these capabilities to grow our share of advised wealth management customer assets.
This continued investment in distribution is key to our meeting the needs of affluent and high net worth customer segments.
We leveraged our reinsurance in bulk annuity expertise to capture significant pension risk transfer opportunities in Europe, and North America.
We will continue to strengthen and expand these capabilities to increase our share and a large and growing market for risk and capital solutions.
We delivered excellent performance driving positive flows across many of our asset management platforms. We also leverage new investment capabilities like equity release mortgages to support liability pricing and yield enhancement.
And we will continue to invest in expertise and innovation to drive strong asset management performance and investment solutions to deliver 80 loan growth and strong general account performance.
That concludes my formal remarks.
And we will now open the line for analyst questions.
Terrific. Thank you we will now take questions from the telephone line. If you had a question and you using speakerphone. Please pick two handsets from making your selection. If you have a question. Please press star one on your telephone keypad.
Any time you wish to cancel your question. Please.
Please press star one at this time, if you had a question.
Our first question is from Gabrielson sang from National Bank Financial. Please go ahead.
Hey, good afternoon.
First here, but anyway.
Discuss them or better the issues in Canada, and Ireland I. These comments before I just want to get some acquitted timing on while our first of all your the size you know how much are that in Canada I went through that Mary Lynne.
Then enough that a good timing on.
When you expect the repricing initiatives.
You know.
Bring margins back up to a normal standard.
Okay. Thanks, Joe rail that is sort of the two region Threepar question, So I'm going to start off with us.
So generally speaking we're talking about group businesses.
Where and but in slightly different shapes and sizes. So if you think about the group business in Canada annually renewable so as we see some challenge on the morbidity side, we've done we've take pricing reaction.
And generally those pricing actions will apartment over a 12 month period as we as we sort of increase pricing through the renewal process.
Well, let Gary speak to sort of the size and scale of that on the Irish side. This was more market related increases in claims in the market. It was not anything to do with our book in particular were just higher claims rates read across the markets and as a result, we're putting through pricing increases and the bottom line is overtime that will also carbon.
And I think Gary again can provide a bit of insight into the skills, so slightly different drivers but.
Reality is.
These are things on both disability and health, where we're really trying to make sure that we're on top of pricing on very would have reference one of the things we had some changes to Ohio, plus where there was some increase in claims as result of the change in government policy again, we'll adjust pricing and we'll get back on site. So these are.
These are the NIM typical ebbs and flows of more more ability businesses, where you just absolutely on top of pricing and we're very very disciplined in doing that you are you willing to give some context sure. So we showed I think 58.
Pre tax in the source of earnings disclosures for this.
Yes, just over 20 that was in Canada, and taking it a couple of factors.
We had good experience of recently so to more of a.
So if issue and I think that will work its way through pretty pretty quickly.
On the the remainder which was in Europe, but most of that was in Ireland and again, it's probably the health business, which is annually renewable and we have already put those increases in and then submit into group Ltd, which has longer renewal date set off in two or three years in Ireland and again, we'll bring those in the once you've heard about early in the or primarily on.
Health side and that it wasn't industry wide phenomenon. So that that gives you a little more color.
So Canada quick fix your of might take a little longer.
That's good characterization, thank you and the.
The I.
I guess warmer in.
Canada overall aside from this morbidity issue if I if I ignore the the management actions are the reserve.
Earnings with go down 13%.
A weaker than what we've seen over the course with the rest of the year, but you know the rest of year.
I agree flow either.
Just wondering if you can give me a sense of what's going on in the Canadian business and.
What your outlook is there if I could be put it that but simply.
Yes.
I'll start off with that one and then I will follow I'll defer to Jeff Mccallum provides a bit of color. So as we look at the outlook for Canada. We're very bullish overall on on our business are very strong platform on the group side.
So we're taking some pricing action, where where theres a little bit of drag there, but we really see significant upside as we have stronger sell through and we talked about mixed up rollover offsets and those are very profitable businesses. We really turn people from group plan members into more lifetime customers. We also like the fact that we're leveraging real strength.
On the life and health side into the group well side.
The individual business I'd say, we're more in the process of retooling I mean, when you think about it theres lots going on in terms of digitizing advisors theres the pressure of low interest the low interest environment.
But at the end of the day, we think that's critically important business for reaching high net worth affluent customers from a standpoint of wealth management I'll, let Joe through a little more color. Thanks, Paul Gabriel just to pick up on the morbidity sizes as Gary mentioned we've.
We've taken action on that Gary called out on the health and on the disability.
We put through an adjustment on the rates earlier in the year and of course.
I'll mention that renewable on annually or so I feel we're on top of that to get a little bit more bullish on the EMS look going forward on the group side as Paul mentioned.
Our plan really to engage the plan members directly.
In 2020.
Mentioned the next steps programs as an example of that and we've seen actually 17% growth over the past year alone on that so we have and number of plans and actions underway. Our sales are good as Paul mentioned that number one for the last two years in a row and we have a number of.
Our actions and digital implementations coming forward in 20 on individual side just to build off of Paul.
We are looking to more modernize our product shelf, both on the life and well sign.
Our taking our typical protect.
Option too.
Our bar the term and our side and is also mentioned at the start we have a number of launches underway on the well sign, particularly we launched in November on the same site. So we believe these are strong opportunities for growth and in 2020.
Thanks, Gary any comment on the growth number the real reference yes.
Just I was looking at some of the source of earnings.
Yeah.
Well I see there I mean, the expected profit was was up over year over year was up modestly, but it was up over here and.
As a little bit of pressure on new business gains in Canada, that's really just that fall into straight to the back ended the year takes time to reprice lower interest rates now those with that large size was increasing 13% dropping enough not higher adjusted you're happy to take that offline later on the alright. Thanks. Thank you.
Thank you. Our next question is from Sumit Malhotra from Scotiabank. Please go ahead.
Thanks, guys. Good afternoon start with a with Gary on page number 12 of the of the slides.
This is maybe just a little bit more.
Interpretation based in nature, so great west compared to most of your peers has never been a company. That's done a lot of adjustments I think you've basically a for the most for reported it as we look at the adjustments today and and come to the the results. We see here in the segments was you referenced so Europe actually has.
The recovery, which I think you said is due to a a local settlement why wouldn't something like that when we are actually having a recovery in taxes be included in.
Adjustments, if you're going to go that route and reported adjusted number philosophically how do you how do you decide what comes in and what Doesnt because that.
Seems like something that would be seen as nonrecurring.
No I'm going to let Gary touched on that one yes.
We do actually.
Used a very consistent approach over this time and as the things that we look out as a as adjustments have typically been restructurings.
We've seen that a couple times candidate in platinum UK last year.
See.
Intangibles those type of things that are that.
So those are there was quite unusual items. If you look at something like the tax case resolution I mean, it was a larger item.
But we that's a part of our regular business, we have tax settlements and generally been positive gains what we've held against them.
This one's a little largest didn't allow that Ben but we've had some large ones in the past as well.
German when we call that a couple of years ago. It was.
Emphasize adopt more of its quite a substantial one got a number of them in Canada over the years, that's part of our regular business. It wasn't larger so we make sure we disclose it.
I would also when you think about that the tax gain.
We were dampening earnings over many years as we were setting up you know you're setting up a provision in anticipation of challenge and the reality is then you ultimately end up wherever you saw off with the tax authority and the reality is that was dampening earnings and it's now coming back and earning so I wouldn't characterize that as an adjustment similar to something like.
The the due to write downs the DTA the adjustments, we make our few and far between a more restructuring some more recently, but the the rest of the earnings like the large PNC things that come in every now and then the UK retail property losses, we just slow those two earnings and whether they are positives or negatives that's.
Part of our business. So we have been very consistent to not just they have to be in the same period. So I understand the question.
No and Thats why I started the way I did you guys have been.
Shall we say Uh huh.
There's been less and the way of adjustments taken from this company over the years, but.
Look when you when you see a.
When you see an outright tax recovery in.
Your largest segment. It just seems like if you are going to call. It three things and it seems like at least to me that would have been a fourth if we're trying to get to a run rate earnings power, but I understand your point.
Okay, let's move on for that Paul. This is one just you know it's a conversation that's come up with investors in the last few months. So I thought it ask it to you in this forum.
Obviously, a the since we had one of these calls last year was the transaction between.
Shall we say you're a your partners that are financial Ferro Corporation.
How how if at all would you.
Described to shareholders, how this transaction impacts great West life, whether it be from a management oversight regulatory expense is there anything that shareholders will see different under that the change in structure between those entities.
The reality of life co is a.
Separately.
Regulated entity.
Independent of that with different shareholders and the reality is there is no direct impact.
I would say, though that if you think about.
Transaction I think it's reflective of an increased focus on value creation and that will flow through to our board in our management team and so it's sort of a sharpening our focus I think the market actually responded quite favorably to it I think it's a real buyers, it's showing a biased action, that's what I would characterize but that will be more.
The board table at local which is separate from what's going on in those predict in those holding companies.
And last question. This this might go back to Gary.
I appreciate you talking about the.
Impact of the basis.
We use this quarter in the in the management actions and changes in assumptions line.
Your <unk> I agree with something you said, you've Gotta go back a long way to see a quarter in which that particular component of the so we.
Posted a negative result, and you seem to be suggesting.
I'm going to be negative, it's just not going to be quite as large going forward, we look at a year in which.
A year measure adjusted EPS was was lower.
Obviously, you had a few two moving parts.
Is the contribution of this stream.
Been impacted by the fact that there have been.
Consistent gains that had been realized for a number of years in there just isn't as much in the way of of basis changes that can be released back in earnings is at the right way, we should be we should we thinking about that going forward.
Gary I'll, let you sure I think the first thing I comment on and it's particularly the last few years. So a lot of the base. It changes have been driven by good experience. So we put on the right side of a number of experienced trends such as the the longevity. So that really has impacted the margins on our balance sheet and as I think I made clear.
We feel our balance sheet is just as strong in terms of.
The.
The margins that are in our balance sheet that happened in the past so we would be expecting the.
Positive contribution going forward a part of my comment there was around our increasing focus on growing our operating earnings and really turning around our experience gains in getting those which are more influenced by managing getting those stronger contributions. So naturally is always grow if the other makes a steady contribution that percentage will decline.
Comment I'd make a good as a natural if you think about the shape of our business in terms of.
Growth, we're growing wealth management platforms, we're focused on trying to unlock value on the asset management side and those are businesses that are going to attend to flow into more and operating earnings view than sort of building up balance sheet strength. So I think it's just a natural evolution, but as Gary said, we have strengthened the balance sheet.
We just see that as a natural progression of the business theres going to abuse stronger.
Stronger contributions on the operating earnings side and some of those balance sheet items will continue to make contributions, but probably on balance not not to the same extent as the operating earnings growth.
So to paraphrase into wrap it up for me Paul It seems like the way you're describing it it's more of a.
Your fee of the sources of earnings were going to see more through the expected profit line and then likely less through the.
Basis change line is that if I have to paraphrase, what you're saying, yes, that's a good way to appointed and frankly, that's kind of the world growth will all be look again, when we get though for US 17, as well so I know its natural progression of the business.
We'll leave it there thanks for your thank you.
Thank you.
So again, please press star one Arnie telephone keypad. If you have a question. Our next question is from Tom Mackinnon from BMO capital. Please go ahead.
Yes, just continuing on that point.
Yeah, I think you said, 20% Aries typically were from the combination of though.
Okay.
Periods gains and actuarial assumption changes.
And 60% of the this 20 was from actuarial assumption changes. So that's 12% of earning so give us a metric as to what this might be going forward. If it typically been around 12% of earnings you think probably somewhere in the area.
Three quarters or two thirds of that number.
Just to help us.
You didn't get a handle as to how we should be able to forecast that impact yes. So so Tom as Paul that I'll start off the not being an actuary I'll answer that one.
As a starting point no say the you know we can't forecast exactly what's going to happen under five years ago, six usually a weaker than the forecast what was going to happen with UK mortality overtime, you can't forecast, what's going on with morbidity.
And the like.
There is obviously controllable things, where we're driving down expenses, we got to look at your expense reserves, you got to discipline and you're on the investment side and you will have us a default provisions in the light, but at the end of the day you can't forecast that we're saying is that as we drive the business forward, we see a lot of potential upside and growth in our operating.
The earnings and of that will flow through in your experience games.
And your new business gains.
And as we shift of the business that way it will naturally a bit of a moderation in the contribution from the balance sheet, but it's still a strong belts. You. This is strong as it ever was it's just the shifting of the business. So Gary I don't know I don't think youre going to give a number of at all.
Oh go there because you have this is actuarial standards, where if you knew when it was no we'd be we'd be put it we'd be addressing it in our earnings right now no I think.
You mentioned, 12% and.
Suggesting it's going to moderate a bit and you can put your own number a moderate a bit means.
Let's think all ahead.
Yeah, maybe it's a function to some extent as to how much of the businesses balance sheet related versus how much is really off balance sheet related in platinum and empire really off balance sheet related so.
As those become a bigger portion hopefully that then this find it by this naturally should fall is that a safe assumption.
That is and even thinking about we've got our wealth management businesses, which are far less about related than the traditional life businesses that we would hub and so it's just you know at our reinsurance business is a lot of those that have very little balance sheet impact so as we see growth.
It will have its they are all different shapes in terms of the profit signatures and the capital signatures in the balance sheet signatures. Okay. That's great.
A couple of questions with respect to numbers questions with respect to slide 12.
The fact that the tax rate was actually negative tax rate do we have do we know what.
With the help was from.
The tax settlement I mean that 19 negative.
In taxes in the.
From that slide we know what.
What was driving the fact that you get a tax rebate here.
Yes, I think it as noted in the Mdna, which I think that mind right Tonami here, but I believe it was 100 to 100 million 101 million was the UK tax issue in the tax line, Okay, and then 30.
Turning to unsurpassed gain in Europe is that largely FX gain.
It's a it's a combination of a couple of things there are certainly access gains in in bookings came in Ireland and there's we have had we've had some interest accrued.
But we haven't we had that flow through earnings. This is Paul was saying we've been adding to the.
<unk> expenses and interest accruals to these attacks so some of that reversed as well so but it was.
Hey, if asking but all in Ireland in the UK and the 30 impact the new business in Europe with from the.
The.
The reinsurance transaction is that correct that was the number one driver. We ask you had strong annuity gains in Q4 last year actually and then we had some again this year last time it was in the UK in the box. This time was in the reinsurance, but thats whats driving that and the last one is the partial pension cost was that in the rest is that it would that booked in the empire.
Our numbers that we get on the other supplement.
No I see the.
There was another change.
Sounds quite make the make the list it was the partial pension closeouts and that legacy.
Mortality adjustment for both in the retained business and so they were largely offsetting.
And then the Mpower you've got about a 22 million list if I recall us dollars after tax from.
From a net interest margin reduction on the general account product.
And it.
Is that do we look at that is more of a onetime item.
Yes, thats it thats, how I mean, we have strong interest margins, but that was that was a onetime basis change.
Okay.
Alright, okay. Thanks, Thanks, Tom.
Thank you.
A reminder, please press star one.
You bet. If you have a question. Our next question is from Doug Young from Janney Capital. Please go ahead.
Hi, good afternoon, just on the empowers so if I take that 60.
76, I think given I don't have the page after the 76 million.
I think that to us of earnings so I would take out if I wanted to try to get to a normalized journey from power I would take out that 22 million. After tax gain that you just talked about and I think you correct me if I'm wrong and then I think Theres also some higher investment gains that empower I'm trying just to get a sense of what.
If you normalize empower nothing is ever a normal quarter, but if you normalize it what would have been the earning power for empower in the corridor.
[music].
Gary.
Better color on the yes, just I'd add a bit I think we're showing.
Empowerment at 77.
If I had a ballpark. It said again. This is always says it's always a bit and always there you mentioned, we didnt have both that.
Based change and the again I would I said around the 45 billion range.
Compared to 32 million this time last year, so as a good increase.
We are assessed.
That that range I.
I know, we tried to lay it out the M&A, but it's hard to that's how I think of it.
Around 45 million U.S. versus 32, okay.
And the Gary just you know in Canada, there was quite a few.
In the management action assumption changes and I apologize if you've covered this already but policyholder behavior was negative Canadian longevity was negative.
Medium morbidity was negative can talk a little bit about obviously you finished up some studies can you talk a bit about what the drivers were for each of those three items.
Yes, sure I mean as anywhere.
As I went through as we are preparing for year end go through use a lot of them were just experienced says it really wasnt hadn't been updated for a couple of years and it was just finalizing.
Even within those numbers there were often two or three smaller pieces, so they breathing where lots of.
Tens and 20 cents to that added up.
There were some in units there are couple of Universal I think also behaviors really focus on universal life.
In two different product lines within that some limited paying some some wire team as small changes in each of those.
Disability gain that was just catching up on the experience and disability.
And then the.
Try my with the last homeless along driven all the longevity that we've done a favorite of work on the longevity getting there has been reflecting pricing success recently on really drilling down.
It's more refined approach and we've applied that back to some of our older groups. We it we focused on our getting our new business right and we put this new mortifying methodology back in totally it all came out.
There's a refinement, but it was a slight adjustment.
Thats a.
Onetime item replied to all all smaller type items, it's Paul.
I would note that in behind those three category as you probably have.
Six or more items that are moving there typically we would see you know three positive three but the good three might be three with the release in three of US and strengthening this was just an unusual quarter in that regard where they all moved in the same direction, but it's not indicative of any weakness and the balance sheet that syndicate.
We chose to do this quarter.
So the policyholder experience was individual insurance more limited pay why our TV or video is more like long term disability in the group side and then the longevity is more the payout annuity and just basically catching up than what you've been doing on the pricing they catch that right.
Except for one thing the disability was on the individual side, rather than the group side, the innovate, okay and and so the morbidity side. So what was the morbidity did I catch that.
Yes that was Thats just based on the individual so that's okay perfect. Okay. Great. Thank you. Thank you.
Thank you.
What's more please press star one on you telephone keypad, if you had a question.
This is the end of the question answer session I would now like to turn the meeting over to Mr. Bowman.
Thanks, very much Roxanne so with that.
We'd like to thank all of you for joining the call today.
And if you do have any other questions or wanted to dig into more detail. Please do contact our investor relations.
For those follow ups and we look forward to speaking with you at the end of next quarter.
They take care.
Thank you.
Vince has now ended please disconnect your lines at this time, we thank you for your participation.
This conference is no longer being recorded.
As you put modest at Oklahoma that doesn't.
[music].
Stifel. Please.
Please note that this conference call has ended please disconnect your lines at this time. Thank you.
Okay opinion.
Okay.
Okay.
Yes.
[music].