Q1 2020 Earnings Call

Thank you for standing by this is the conference operator.

Welcome to the Great West life coal first quarter 2020 results conference call.

As a reminder, all participate all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question Q You May Press Star then one on your telephone keypad should you need assistance during the conference call May signal, operator by pressing star and zero.

I would now like turn the conference over to Mr., Paul Man, President and CEO of Great West Life Cope. Please go ahead.

Thanks.

Good afternoon, and welcome to Great West Life goes first quarter Twentytwenty Conference call.

Funds, you an older family safe and well during these unprecedented times before we got started I want to take a moment to acknowledge and thank all the front one workers around the world to put themselves at risk as we all do our apart by physically distancing, we're truly grateful for your courage and commitments and helping US go through this crisis.

With me on the call today is very much like less executive Vice President and Chief Financial Officer, Gary and I will deliver todays formal presentation and also joining on the call or David Harney, President and Chief operating Officer, Europe partial Jamal prison, that's out strategy investment reinsurance on corporate development, Josh Mccown frozen and my trip.

Turning off sort of Canada.

<unk>, President and Chief Executive Officer, empower retirement, and bought rentals, President and Chief Executive Officer Putnam investments.

Before we start all draw your attention to the cautionary note regarding forward looking information and non <unk> for us financial measures on slide two these cautionary notes will apply to today's discussion as well as to the presentation material. Our presentation will follow a slightly different form out this quarter.

I will start by addressing the company's response and positioning as it relates to cope with 19 pandemic Oh discuss the impacts that pandemic has had on the company today. The actions, we're taking in response and our expectations for the near term.

Well then take you through more detailed financial review following their prepared remarks, well open the lines of questions. So I'll ask you to turn to slide four.

From the onsite coal was 19 pandemic Oh, we made safeguarding the health well being of our employees our number one priority.

In mid March reenacted, our business continuity plans across the organization and today, 98% of our employees around the globe are working remotely I would like to thank our 24000 employees across Canada. The U.S. in Europe for the resiliency and commitment during this period of extraordinary change.

Could not be prouder of how we as a company have embraced and adopt into these new ways of working well maintain business operations by leveraging the investments we've made in technology and Weve quickly adopt new digital ways of working this includes allowing you signatures on virtual claims and increasing.

Increasingly using toll like simple protect our online life insurance application.

Also helping our customers whether financial and personal challenges, we've extended grace periods for life insurance premium payments and we're providing mortgage payment deferrals for those who lost their income because of the crisis.

Also helping our Canadian customers manage their physical and mental health by connecting them with health care professionals by a dialogue or virtual health care.

We have invested in.

On the group side, we've reduced health insurance premiums for employer sponsored plans supporting over 26000, small and medium sized business isn't kind of that we're also.

Allowing plan sponsors to extend disability coverage and other benefits for temporarily laid off workers and the U.S. empower retirement as waiving fees that all new retirement plan loans, and Archer withdrawals and Irish life, This providing health insurance customers with rebates falling into temporary nationalisation, a private hospitals in Ireland.

In addition to a greater use of digital tools, we're adopting our processes to align with the reality is a physical distancing we have temporarily relaxed some of our medical underwriting requirements. The capital life in Canada, allowing us to fulfill a wider range of customer needs and the UK, where traditional approaches to property valuations are no longer fuses.

Well, we're transitioning to a remote valuations for equity release mortgages across the organization, we've extended call center hours and increased call center capacity to accommodate higher coal volumes.

We've also been partnering with government regulators and the industry to support the economy.

In line with us the guidelines, we have suspended share buybacks and have no plans to increase dividends for the time being.

The premium rebates announced by kind of the life or an extension of our participation in the Canadian business Resiliency network.

Continued to work with the federal government to champion released measures for Canadian businesses.

We have donated over $2 million to relief efforts in communities across Canada, The U.S. UK and Ireland. These contributions will help support food banks frontline workers and those most vulnerable and these challenging times.

These types of responses from governments and businesses along with the amazing commitment of the frontline workers have helped to create some stability.

We recognize that there's still much uncertainty ahead as countries' economies gradually reopened but it.

We'll take discipline adaptability and creativity to manage the way forward.

Fortunately our company has entered this period and a strong financial position our balance sheet the strength of which was born out during the financial crisis 11 years ago is even more resilient now with lessons learned from that prices and the year since we've invested heavily in our risk management capabilities and taken action to de risk our investment portfolios.

These actions stand us in good stead to navigate the current environment.

We entered 2020 with the strong capital position are like out ratio at the end of the first quarter was 133% well above our internal target range of 110% to 120%.

We have a diversified and resilient business model that has a balanced across geographies products and rest types. Our investment portfolio is conservative and of high quality and our asset liability matching philosophy, we largely insulate us from interest rate movements.

You know unless our disciplined and sophisticated risk management capability. That's supported important scenario based analysis, we've done related to this crisis.

Discipline extends the every aspect of how we manage our business from pricing to reserving to how we approach M&A. We're also disciplined when it comes to expense management and we will continue to look for opportunities to reduce costs with continuing to invest important <unk> an important initiatives. Please turn to slide five.

Well the crisis only took hold in mid March the swifton severe downturn in markets had a significant impact on our first quarter results, reducing net earnings by approximately $300 million. As a reminder, we've adopted a new non <unk> for US earnings measure called base earnings to help describe our results.

Its earnings were 59 cents per share for the first quarter up 2% year over year.

Well the year started off strongly in a number of areas. The onset of covert 19 mechanism really impacted base earnings by seven cents per share.

Approximately half of the impact was due to seed capital losses that Putnam and the remainder from impacts on fee income in Canada, the U.S. in Europe.

Net earnings of 37 cents for sure Oh were down 45% year over year and included the negative impact of actuarial assumption changes and management actions and other market related impacts Gary will take you through details of the earnings and his formal comments.

I will now I'll comment on slide six and seven.

These slides will give you more color on what we're seeing in each of our businesses.

We've also provided details on our near term actions and expectations moving forward recognizing there's still much uncertainty regarding how this pandemic and its economic impacts will play out.

Across let go fee income was negatively affected by the market declines, but the impact was relatively modest given the timing later in the quarter expectations for fee income going forward will depend on future market movements.

We did not see any material impacts from mortality across the businesses. We would expect limited financial impact from increased mortality given the age demographic and diversification of our life and annuity liabilities.

In Canada, we've seen slow a lower health and dental claims as clinics have closed and we provided premium reductions to reflect this reduced access to services. We've also seen a modest increase in disability plans, we expect health and Thats all claims to gradually returning to normal levels and more closely monitor disability claims experience.

Beyond the adjusting price as access increases, we will leverage our prescription drugs and disability management services to help employers navigate this complexity.

[noise], increasing unemployment could lead to impacts on our group businesses in Canada, Ireland and also on power well there is potential for an increase in plan terminations.

Element programs and the flexibility we have introduced as limited any significant impacts today.

We've seen a slowdown in group the group sales cycle across geographies as some businesses remain in lock down. However, today. We've also seen this offset by lower than expected plan terminations.

Our or we could also see declines in assets in fees as planned participants under financial stress Morro or withdraw from their retirement savings under the cares up.

Today, we have seen limited withdrawals from plan participants state and they've stayed invested.

No. We've seen increased interest in digitally delivered managed accounts advisory and financial wellness offerings.

One grade aspect of their power platform is that it focuses the participant on their future monthly retirement income rather than their current account value. This creates less sensitivity to market movements and limits reactive selling.

We've also expanded the availability of one on one counseling session that in power to meet the needs of retirement investors seeking advice.

Pardon the market volatility in the first quarter led to elevated redemptions in particular in the short duration and the ultra short duration lower fee fixed income products.

And as well as seed capital losses, and April as markets stabilize and improved seed capital losses up partly recovered and Putnam has moved to positive net cash flows overall.

Putnam continues to focus on strong investment performance with 28 funds, having morningstar four or five star Star performance.

And the UK, we've seen a slowdown in individual and bulk annuity sales as market instability and lower asset values keep people and pension funds on the sidelines. We expect this is temporary and we expect to see a return to more normal sales levels as markets stabilize.

There's been a slowdown in equity release mortgage originations, but our transition to remote valuations could help on this front.

Similar to Canada, rising unemployment and lot bounds could impact group rest sales in the UK in Ireland, but we expect this will be offset by lower planned terminations.

I'd Irish life health premiums are down because of the rebates, but these are essentially offset by lower claims due to the temporary nationalization of private hospitals in Ireland.

Turning to our newest reporting segment capital in risk solutions, we started the year with a strong sales pipeline, which remains intact. We expect more demand for life capital solutions in the U.S. and Europe. While demand is currently strong for European longevity, we do expect it to slow later in the year and early next year pricing.

The demand are solid for PNC reinsurance and we will continue to participate in that market in line with our risk appetite.

Please turn to slide eight for a deeper dive on our invested assets portfolio and the actions we've taken to de risk the portfolio since the financial crisis.

Today, the portfolio has diversified high quality and well positioned for the current economic challenges, it's made up of 69% bonds, which 99% are investment grade.

Since the financial crisis, we have reduced below investment grade exposure to $643 million or 0.5% of the bond portfolio and our European subordinated bank exposure is one quarter or what it was in 2009.

Turning to our UK retail property related portfolio I would note default following high level points, there have been no new purchases of direct non food retail property since 2010.

We have limited new commercial mortgage exposure and all post crisis loans are at low LTV is what strong come in production and we have taken opportunities to reduce direct retail property assets and pre crisis commercial loans more specifically, our UK retail property related portfolios is $2.4 billion.

A little over 1% of invested assets mortgages have an average LTV of 51% and the majority of mortgage and investment property exposure a little over 70% is grocery warehouse and distribution centers. These are properties, which are more resilient both to online shopping trends as well as that.

Economic downturns.

Across life scope.

Negative earnings impact from corporate bond downgrades in the quarter was $19 million.

There was a 32 million dollar after tax negative impact related to UK property related investment losses.

We expect to see impacts of a similar magnet magnitude for the next few quarters as companies remain challenged and the downgrade cycle continues.

While we remain cautious we expect the impact of downgrades and defaults in our corporate bond portfolio, resulting from the credit credit downturn three manageable in the context of our total invested assets.

Please turn to slide nine for a summary of other results in the quarter.

In Canada strong individual wealth sales were driven by our new segregated fund shelf and higher individual insurance sales were driven in part by a new par product we launched on January 1st.

Well Cobas 19, as impacted advisor customer interaction tools like our simple protect up of helps sustain momentum.

In the U.S. and power recorded sales of $25 billion, driven by a higher mid and small small market plan sales.

Our year decline reflects a large planned sale with 200000 participants that we booked in Q1 2019.

And all the sales cycle has slowed empowers plus pipeline remains strong.

Putnam gross sales were up but net outflows increase significantly with steep decline in market towards the end of the corner.

And your up sales were up 47% over Q4, 2019, but down 14% compared to Q1.

Q1 last year.

One of annuities were partially offset by higher equity release mortgage sales in the UK sales were lower in Ireland compared to Q1, 2019, which included a large fundament mandated eilam and there was higher pension sales in Germany.

Turning to slide 10.

Go fees were level year over year, excluding Q1, 2019 fees related to the sold us individual markets business as equity market declines occurred later in the quarter fees reflected higher average equity markets and asset and assets when compared to the first quarter last year.

Excluding fees related to the sold the U.S. individual markets business last year fees in the U.S. were up 8%, reflecting participant growth and empower and improved performance fees as Putnam.

As in Europe were down due to the Scottish friendly transaction in the UK and other income in Ireland.

Turning to slide 11 dealing with expenses like those operating expenses were up 3% year over year, reflecting continued expense discipline companywide and strong business growth and capital in risk solutions without ill now turn the call over to Gary Gary. Thank you, Paul starting with slide 13.

They eat gas was 50 910 up 2% year over year. This includes the combined impact at the sale of the U.S. individual markets business, which had contributed 33 million to base earnings in Q1 last year and the substantial issuer bid, which offset the dilution through share buybacks.

In Canada base earnings improved 6% from last year with strong trading gains being partially offset by higher disability claims.

In the U.S., we saw good underlying business growth in in power with participant growth at 6%, but this was offset by seed capital losses of 30 million in patent and driven by market decline.

As noted the prior year included 33 million from the individual markets business.

In Europe base earnings were down 19% due to lower new business gains and a swing in the impact of credit downgrades, which were positive in Q1 last here and a negative this quarter.

The capital in risk solutions segment saw very strong year over year business growth, particularly in longevity reinsurance solutions.

Base earnings were up 60%, which also reflects new business strain last year that did not repeat this quarter.

Overall before cope with 19 emerged based earnings had been on track for a strong year over year growth driven by buoyant markets coming into 2020, and good underlying performance with growth in all segments, particularly reinsurance and in power.

By quarter end market turmoil caused by covered at negatively impacted both base and net earnings as highlighted in more detail on the next slide.

So turning to slide 14, the upper table on this slide is a reconciliation of base to net earnings.

It is important to note that not all the items excluded Workover 19 related for example, the negative 52 million of actuarial assumption changes I imagine actions included negative 98 million rate the co bid and a positive 46 million for other actuarial reviews.

It is also important to note that the market related impacts include 35 million of a UK tax benefit as a result of the market declines, which led to a low overall tax rate, but did not affect the tax rate on the base earnings.

The lower table set has the impact of Kobin 19 on both base and net earnings.

Impact on base earnings was a negative 65 million compared to expectations largely reflecting the fall in markets in March with fee income impacted by 31 million and seed capital by 34 million.

The fee income variants.

It's a run rate impact with the go forward and completely dependent on the trajectory of markets and average levels over time.

The seed capital loss is a mark to market impact an unrealized gain loss position they get evaluated at a point in time for example at April month end seed capital had recovered some 40% at the reported loss as markets rebounded.

For excluded items, the actuarial assumption changes relate to updated equity return assumptions following the market decline in the quarter.

Market related impacts include included Remeasuring segregated fund liabilities from the lower starting point at quarter end market levels.

Also includes the impact of hedging effectiveness and the UK tax gain noted earlier.

Please turn to slide 15.

This table shows the segment and total Lytro net earnings results from a source of earnings perspective, and as a reminder of the S. we categories above the line are shown pretax.

Excluding U.S. individual market expected profit was up 10% year over year, reflecting market gains during 2019 and strong business growth at in reinsurance in power noted earlier.

New business strain of 86 million pre tax in quarter with a little higher than Q1 19, largely in Canada individual insurance business due to declines that interest rate that have not yet been fully factored into repricing.

Experienced gains and losses reduced earnings by 195 million in quarter, which includes 237 million related to covert 19, and a positive 42 million from other experience.

Management actions and changes in assumptions reduced earnings by 81 million this quarter updates to equity return assumptions reduced pre tax earnings by 134 million other changes in assumptions contributed to positive 53 again these are pre tax.

Earnings on surplus of 4 million in quarter reflected 37 million pretax losses on T. capital, primarily it Putnam due to the cobot 19 market related impacts.

Capital gains had been a positive quarter a positive contributor both in prior quarter end in the prior year.

The effective tax rate on share Hurler shareholder earnings was marginally negative this quarter as net earnings benefited from approximately 35 million of UK tax recoveries following the market decline.

No. This benefit is excluded from base earnings.

The effective tax rate on base earnings was 9%, which reflects the jurisdictional mix of income this quarter.

Please turn to slide 16.

These tables expand on the experience results and changes in assumptions to highlight various items in the quarter again. These are on a pre tax basis.

Starting with the experience results yield enhancement continued to contribute positively while there were some limited benefit from the widening spreads in March this could be an opportunity going forward.

The market related impact on liabilities includes the impact on the value of segregated fund in variable annuity guarantees, including legacy blocks in Irish life and reinsurance largely a result of remeasuring the liabilities using the market level and interest rates at the ended the quarter.

Spirits losses also includes some hedge ineffectiveness on our GMWB products, given the extreme market volatility.

Also included the impact of a decline in market value of certain UK properties, which support insurance contract liabilities as Paul noted earlier.

We observed mortality gains on our annuity and life books across Canada, you can Ireland. This quarter, although we have not yet seen the expected increases in mortality, particularly the older Ages as a result of cobot 19.

And the credit related impacts arose from bond downgrades in the quarter, meaning in UK portfolio.

Please turn to slide 17.

Our book value per share was $22.34.

While the substantial issuer bid impacts the year over year comparison, you can see good sequential growth primarily due to currency translation.

Lifepro cash rose to 900 million with additional dividends from kind of life in period. This in turn reduce the candid lifelike at ratio modestly since July so cash balance is not included in light cat.

Business growth, particularly reinsurance added to requirements, which also tend to lower the ratio.

Given the like that design the market impacts were minimal and we remain well positioned from a capital standpoint.

That concludes my formal remarks, Paul back to you.

Yeah.

Thank you Paul.

Thanks, I was I was being very eloquent there on mute apologies to.

Everyone on the call.

Lastly, the turn to slide 18, well conclude the formal presentation by emphasizing our focus on protecting adopting and growing our business first we turn to the safety and security use of our employees advisors and customers, which remains Paramount as jurisdictions open up we will be cautious as our business model is working very well the way.

It is today.

Second we've seen an acceleration and adoption of digital platforms, perhaps two or three years of expected progress and one month.

We will invest further both in our existing businesses and through acquisitions to invest this and improve customer and business outcomes.

Third we recognize that more than ever capital is critically important to our stability adaptability and growth.

We will actively and prudently manage our capital with a balance focused on stability and growth and finally, despite the challenges presented by covert 19, we remain proactively focused on growth. We view this as the time to identify and act on opportunities that alive drive long term growth and shareholder value.

So before closing let me reiterate my thanks to all of our stakeholders for doing their part to collectively respond to and overcome this crisis.

With that I'm going to ask the operator to open the line for questions.

Given our team is spread across multiple locations I would ask that analysts. Please direct all questions to me and I will steer them to the appropriate respondent.

And we should just recognize there may be a pause as people mute and on mute and I think I'm a perfect example of that just a couple of minutes ago. So with that operator could we now please open the line.

Certainly thank you we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.

We'll hear tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing anyway.

To withdraw your question. Please press Star then.

We will pause for a moment this colors join the queue.

Our first question comes from.

Real Duchaine of National Bank financial Please go ahead.

I got one question about.

Your European business, and specifically about the regulators and.

Some of the restrictions that are being.

Being.

Implemented on dividend payments to shareholders I'm, just wondering how you're thinking about that in relation to your European sub Dividending ER and earnings to.

You know the Canadian holding company and how that affects the a Canadian dividend to Canadian shareholders and it looks like the UK.

More flexibility, Germany, as well, but ireland might be a bit about hitch. Thanks.

Got real I'll take that one.

I'll start off by just outlined that we do recognize the importance of dividends for shareholders and ill remind us.

Listeners that we have a long track record of maintaining dividends, even including through the last financial crisis.

And of course, we can't predict the future, but as things stand, we actually expect to be able to continue paying dividends at current levels and will be monitoring the situation and to your point, we operate in a number of jurisdictions and local regulators Khan from time to time delay dividends up to our holding company, but the reality is we've actually man.

That's true through those issues in the past and today, our capital position on liquidity, a great West life will remain strong.

Go to jurisdictions, you know, Canada, there has been direction to not M&A increases or buybacks in the UK Theres just been guidance to insurance to use pruett prudent says and take into account stress scenarios.

And Ireland, yes, there has been.

Rep, a recommendation or a direction to defer until we fully assess risk and I would say none of this is on the norm. So we feel quite comfortable right now.

Can you remind me of previous instances and this is a problem.

Or an issue or whatever this would have just been one we are going through various restructuring or acquisitions in the like.

What have been nothing.

It wouldn't have been a systemic issue whether just as we're managing our affairs.

Okay. Thanks.

Yeah.

Our next question comes from Tom Mackinnon of BMO capital. Please go ahead.

Thanks, Good afternoon.

Yeah, a couple of questions first is just a why the move to base here.

Yes, I mean traditionally.

You are.

It is really focused on reported numbers and why are you that moving to this base earnings metric.

And did you have the second question, Tom or was that the single question at the SEC Yeah, sorry, that's good point or the second question is really just.

Given locked down and everything else just wondering how sales are progressing I think you did mention your positive net flows in April that Putnam, but are you seeing how land sales are going to any kind of globally with you guys in April and both on the individual side and the group side as well.

Okay, well, let's so we'll deal with those and the order in which you asked them, Tom and I will defer to Gary in a moment on in terms of base earnings.

We essentially believed that we can better describe our earnings at our movements by using this non IRS measure I think it.

Provides insight into the ongoing growth in our sort of core operating income as opposed to the movements on the balance sheet. We think it's a good way to differentiate those two we also think it will serve us very well as we transition diet for F 17, but I'll, let Gary out a little more color on that and then he can pass it back over to me.

To deal with the sales and then I'm going to actually referred to some of our other leaders to provide a little bit of insight on where sales are out in April Gary over to Jim Yes I.

I think you've hit the the two key points. One is that we are aware that you're reading reports that a lot of people do adjust out and try to.

Make adjustments are various factors, we've called them out in the past in Indeterminant adjusted earnings for things like restructuring and some of these other items. So we already had an adjusted metric and we found that formalizing the measures and making an effort to align it with some of that appears in the industry. So there's some level of consistency.

And in preparation Brian for 17, we just felt it was a.

Right direction to go and again at the time, we're bringing it in Africa 17 was two years away and it seemed like the at the right kind to be making this move to again regularized the adjustments and have them clearly defined and laid out in the mdna.

And then the say for the market related that a lot of that is where we see things going on that front 17 side. So that's the background to it.

Oh I should add.

Well for the benefit of all.

In no way signals a change in our views on a on the importance of any of the aspects of it we continue to manner fares. The same way. This is a a presentation to try and make it easier period over period to see the underlying growth in the business.

We've had a history of positive contributions from some of the items that are excluded and we're still managing our balance sheet in the same fashion.

So I wouldn't lead to any any other conclusions in that just I want to reinforce it hasn't changed our view on our our total earnings.

Thanks, Gary.

Tom.

The other thing I would say that this is something I've been working out as Gary pointed out for about a year.

We've been back testing and looking at is one thing about this and our timing was interesting at all given the fact that we go it was upon us.

March but the reality is we decided it was still the right thing to proceed and that's what we had sort of developed.

Right.

Turning to your question on sales I'll, just generally sale that say that.

Well the whole issue a physical distancing.

Creates it requires a change in approaches in terms of the sales processes on the sales cycle, we've actually.

No actually quite pleased with what we've seen through April and the reality as you can kind of I guess when exactly how the future will play out we have seen pretty good.

Pretty good resiliency in the whole sales process and sales as they flown through maybe I'll ask you should the leaders in each of the regions and I'll just call him. You wanted a time provide a little bit of color on where are you seeing sale that going to start with new first Jeff Mccown on Canadian sales in quarter in April.

Paul Thank you and Tom.

So let me expand on Paul's question, Yeah, I'm quite pleased to say that that our strong start in the quarter on on individual individual life and wealth business.

Has continued into April as a matter of fact in April.

We saw an increase in April.

20 over 19.

Now I will say that we do come into this with a relatively large pipeline and a I would suspect that will start to see that dropped a bit in may and obviously beyond but a very strong April I'd also say on the life side that it's interesting as Paul outlined we've transitioned nicely to the digital world.

And in the month of April close to 70% of our transactions were done non face to face using simple protect which Paul talked about earlier so.

Strong strong in April I'm also pleased to say that the product enhancements, we made on the well site in late in the year and into at 20 that we saw positive flows in the month of a month of April on our wealth side to in our proprietary funds third party and and sake. So.

Although gross sales were down positive flows on the group side, we have seen lower amounts of activity.

Quotes are down about half.

And that would be a that would be similar in the industry. I am pleased to say, though that terminations that were very low in the month of of April so with lower quote you get lower terminations and I would say that's the same for both the life and health and retirement site.

Paul Thanks, Jeff maybe I'll ask.

Murphy just to speak to what what are you seeing on Mpower.

Yes. Thank you Paul we had a very strong first quarter sales April.

Sales were a little bit weaker off about 1 billion versus prior year, but the pipeline remains very strong over 600 billion are large mega market.

Had a strong first quarter and how to had a strong April where we where we've seen a little bit of softness in the smaller end of the market call. It under a thousand employee companies.

But that's also where we have a pretty significant pipeline, so I would say that.

I'm pretty optimistic on the year I think that the sale cycles, Ben extended elongated a bit in light of cobot.

But.

But but I'm encouraged with the pipeline in the activity that we're seeing in the marketplace.

Bob Bob is there any other color you'd like to provide on sales that youre seeing them I mean, obviously aware I I made reference to positive flows and sales coming back any additional color on that.

No. The only thing I would say is you know having 28 formed five star.

On.

By Morningstar performance is strong across the board.

The primary outflow in the first quarter was in one fund the ultra short duration were.

At a point in March.

It's really.

The spread of rates really ratcheted up due to the liquidity issues. So it was driven by primarily one fund.

Thanks, Bob.

Finally, David Harding do want to provide a little color on what you're seeing going on in Europe on the sales side.

Yeah like us as Tom said, so there's got to that does vary between retail and non retail in Germany. Most of our San sorry, 10, Rene said, plus I think that country has been less impacted by.

The crisis, Todd do you care, Ireland, So sands in Germany actually continue to be going on here today Saar up on last year that because.

With India, Okay, we have less exposure to reach as sans the story and UK as being.

No. Our both can you say well know about can you just answered the first quarter both.

Hi, this activity now rich returning to the market there and you know we would expect as.

Well its communities has over the rest of Twentytwenty.

And within our Doesnt am I supposed to satisfy our space between retail and coffers corporate business and its have been very good Sam in quarter. One hanta in April also and we are seeing a slowdown in retail says most overall artists as would still be up on last year.

And I suppose the cash great. That's outside of all of those assays are large institutional investment only type sales.

Fair enough really impacted by the crisis, but that the winning of dollars Montana Sam.

There are pretty lumpy indentures vary over time anyway.

Yes.

I think we'll close maybe with and I mean, we're taking a bit of a trip around the world and ourselves business is actually virtual because it's in every continent. So arsenal maybe can comment on a on reinsurance capital in risk solutions and activity.

Yes, Paul Lang.

Could you give a little bit of color on that reinsurance side, we're having very active conversations with all of our existing clients stay on top of the performance of our existing transactions.

More importantly declines are very open to considering.

Not only on our traditional product ranges that on the PMC side, but also on the longevity side, we see a very strong pipeline and good conversations underway and then on the structure capital solutions side of the business.

People are feeling pressure or expecting to feel pressure on their businesses in the coming months. There are lot of conversations underway. So again I'd be very optimistic that any disruption will be very short term or whatever and by the ended the year there won't be in a very good position from a sales perspective.

Thanks, Thank commercial so so Tom.

Took a lot of time, that's probably the longest answer you've ever had to a question, but it was a fairly broad when I thought it was helpful that.

That all call participants will get some insights into that.

Operator next question.

Certainly our next question comes from Paul Holden CBC. Please go ahead.

Thank you good afternoon.

Paul in your prepared remarks, you made some comments that you remain committed to capital deployment.

Auctions wondering.

If the current situation health or is the way you're looking at some of those options or maybe focuses you on certain priorities over over others and then maybe within that you can comment around comfort around timing of completing say a large M&A.

Deal.

Yeah.

So I.

May not get to the level of detail that you're hoping for their but I'll give you some context.

The way we look at it appears like now where Theres dislocation is that it is hard to it is always more difficult to price the transaction that a period like this where you have a lot of market volatility and instability are you pricing it off of.

Mark at levels that started a middle or beginning of March end of March what's happened today versus next week, but as markets stabilize you can get some better comfort around you know the underlying.

Underlying value and I think thats, both you know a mindset for the by around the seller you're trying to find the right value I think the second I'd say.

Dislocation actually create some opportunity.

So we would characterize so those characterize ourselves as having strong capital and you've got to make sure that you're balancing your capital relative to the the no apparent risk today, but also thinking about opportunity and if I reflect back on you know our move on Irish life. If you go back to those were looking.

Through the you know 2011 12 13.

13 periods, you know when we moved on it.

One of the things that wouldn't characterize that moved with the there was this location and some of the other people who might have been or organizations that might have been seeking that business chose to pull back. Our view is dislocation. If it's a good value property is one where it could create some some opportunity the other.

After I would put into play is that I think.

We've always been thinking about making sure that our businesses.

You know our upscale but also thing about how do you want to house capability from a digital perspective, and as we're looking at transactions now and thinking about.

The uptake and leverage in digital capabilities, it's something that is top of mind as we're assessing opportunities and targets right now isn't going to be something that's going to really enhance our business because I think a lot of this shift in behavior is not going to be short term in nature I think a lot of its going to be locked in in terms of the ways.

Working or waves of selling or ways of advising into the future. So that would be another mindset, we though I would say from a geographic perspective, we continue to view of the U.S.

In power in particular, the place where theres going to be opportunities to bolster skill and capability Putnam the right targets in terms of scaling assets, there and Europe.

We'll continue to have a focus there, but again, we will look at all these things in the context of ensuring that.

We feel confident and devaluation and we feel confident and our ability to execute.

And then environment, that's going to be I'll have a little bit more uncertainty. So thats the contact second provided on that.

Okay. That's helpful.

Second question for me is if you can provide us some contacts for take up on.

Premium.

For all I can give it on an aggregate basis or maybe sort of on a on a segmented basis.

So that's the first part of the question. The second kind of part of that question is how does that how to premium to froze flow through on an accounting basis in terms of.

In terms of the.

[music].

Okay. Good actually let I think thats, a two parter part of it is take up and when I think about trim deferrals thats been predominantly a Canadian phenomena.

No that within the power business Theres been no allowing for.

You know people that took that not being charged in a loan fees that as they are not a material amount. It's a pickup doesn't do high there and it's not material in the context of Canada, I think James Josh Mccown can provide a little bit of insight into you know whether premium deferrals has been significant.

What's the scale of it and I don't think just going to provide you an exact dollar amount, but I can give you assess of whether it's sort of meeting where expectations were and then secondarily I think Gary could provide a little bit of color on on a on the accounting treatment of that.

And so I'm going to turn that over refers to a first to jump account for a little bit of context on the premium deferral activity we've seen.

Thank you Paul.

So I think as you know and Paul called out in his comments.

We did have premium credits, we'll call it to small and medium sized businesses about 26000 across Canada. That's the context of the of the scope of where we put through a credit in the month of April.

And Weve indicated we would be looking at that on a monthly basis, we will be moving forward again in the month of May.

We will continue to monitor that month by month to see where we're at with regards to.

Dental clinics, and our pair medical services et cetera. So the take up on now not be 100% of all the clients and the feedback has been as you might imagine outstanding.

For the clients. So we do provide a credit on that and the percentages varied by the benefit.

So that will continue on month by month until such time that so we feel were back in a position where everything is running smoothly on individual side.

We haven't had significant take up on on the on the deferrals in terms of moving call. It.

AIDS I would say, it's been relatively small as a percentage of our of our overall block at this point. So those are the comments I would offer hall at this point.

Paul the point I'd make on the on the premium deferrals that just as we're referencing there is that was those were calculated frankly to offset the reduction in claims that we were seeing so the actual impact that we'll see it will be lower revenue and lower claims broadly offsetting one another.

And from the standpoint of other deferrals, we really havent been deferring premiums beyond that because this has allowed employers to keep their plans in place and as as we previously outlined we're not seeing a spike in terminations were actually seeing terminations.

That have that have come down Gary any any comments on the.

On the accounting treatment of that or is it just sort of flow through yeah. I've just I'll just to clarify two things one is the to the sent to the extent we've had I'll call premium reductions Robin deferrals just to get the terminology.

Just him we had a premium reduction and we're on the anticipation of lower claims than both those adjustments the lower premium programs will go through experience gain loss and.

Obviously, we're looking to set that up to its roughly a balancing.

Then on premium deferrals, where we extend grace periods or something that won't have an impact on.

Earnings I think to the extent and sort of go into the next step. Your question. If if eventually people can't pay and there's lapses.

That lots experienced positive name, which you up in in a in the policyholder behavior side, but the active a premium to grow itself extending the grace periods. It doesn't have any any earnings impact.

Any material earnings impact.

Thank you. Thank you for your answered thank you Paul.

Our next question comes from Doug Young danger done capital markets. Please go ahead.

Good afternoon, just I guess, a few questions. The actuarial assumption change the 98 million related to changes in economic assumptions and I apologize. If you covered this in your prepared remarks, but.

Flush flesh that out.

As well the 149 million that said that you kind of straight, though I think you said that that in that also factors in the 35 billion you UK tax gains. So that's that's taken at the base earnings I just wanted to clarify that and then I've a follow up one follow up after that.

Okay, Gary I'm going to let you take those two.

Sure I'll.

I'll answer the first one and I was there was right my answer down I'll get to just to reiterate the second one in a moment. The first one on the and the 98 million that was the that's the equity growth returns that these are for equities comps.

That are backing our long tail liabilities in Canada. So we take that as certain portion of our long tail nonparticipating liabilities in the back those.

With the Weve equities and Weve.

Adjusted the growth assumption that typically for small movement you you can assume that the.

The market to rebound or in the case of market moves up they are they come down again at towards your central assumption to market move was so large that we're bumped up against the actuarial limits and so we had to just lower our overall growth assumption to align with the standard. So that's a that's what that really was is just a long term equity growth assumption came.

Down.

Yes, if you don't mind repeating the second one that would be helpful.

Gary just before you the I would just I would characterize you know.

The reality is it was debt following actuarial standards and as always we're going to approach. These things with the appropriate level of conservatism because that does the reality of the way actuarial standards work.

Gary though Paul during the second question can you provide just maybe if I can follow up on that one before we go. One is this are you wouldn't like you mark to market the equities backing liabilities or do you use a corridor approach and that's you're just kind of adjusting that corridor approach.

Yes. It is more the larger it's more of a smoothing approach and we're just at the a boost theres no further room to just moved those so we took it.

In a and.

Actively worked a bit like a mark to market on the on the amount that was outside that corridor smoothing and the I think where are you may be going to Congress. So that is it would tend to reverse as a as markets improve our obviously it could go the other way if markets got worse, but would you tell it around a bit more like and we entered the market.

Sorry go ahead, I know I, just given how much like how much buffered you had before you like in the in that quarter, if you're willing to tolerate like how much.

Do you typically have before you have to make a change to your.

To your reserves backing long term liabilities.

It's I don't have a quantity like a dollar quantification forward it's the.

More of a complex moving mechanism so I think.

We are closer to the to limit to that that's where a lot of the change went through the end markets and then again as markets improve a lot of it comes back but it is safe.

It is more complicated than just dollar figure corridor.

They are probably second question is whether the one is through the mechanism.

Yes.

Your second question.

Yes, just in the 149 does that I think you said, it's factors in that 35 million tax gain like that's embedded in that so you are backing that out is that correct.

Correct. It would've been 184, and then the tax benefit was a positive so it's a 149.

Okay, and then lastly, the U.S. I think you said in your presentation. The U.S. expense growth. If you exclude individual markets last year was about 10%.

I didn't see any.

Indication what was happening there so I'm just looking for a little more detail as to what drove that.

I think the and the main driver the growth would've been just to growth in the business at a at in power at a I think the participant growth alone was up.

6%.

Yes, Rob talked my head, where the currency had an impact but that was a lot of it was due to growth in business and.

Okay, and Putnam would have grown these were up 11 business why I beg your pardon.

I was just said fees were up 11%.

Yes, the fees would've been up commensurately with it. So that's that's where you have growth on both sides.

Yeah perfect. Okay. Thank you thanks, Doug.

Once again, if you have a question. Please press Star then one our next question comes from Mario Mendonca of TD Securities. Please go ahead.

Good afternoon could you just clarify that hundred 34 million that Doug was referring to it is possible then given how sharply markets rallied since end of the quarter that a portion of that would come back in Q2 is that is that fair.

That is correct.

And then.

Specifically now on the $215 million the market related impacts.

On liabilities that goes through experience gains and losses.

Has the company provided.

Ah sensitivity, we could use to gauge that.

Well tend to the potential gains and losses going forward the experience gains and losses now.

Gary.

Yes in fact that we've expanded our.

Our disclosures in this Oh this last frankly, just to add to that both at 10 to 20, we found that with the potential market swings that perhaps a 10% plus or minus was not enough. So we've added to a twice that so we do have the the a impacts.

That can arise from these changes.

In terms, so some of them would be some of the elements such as a hedge and effectiveness.

Those are those would not to they would not be incentive that that in period due to extreme market volatility. So you wouldn't see that it's more just the.

The actual liability changes from the movement to markets and that's really a the way you do you take refunds using that the current market level since the start point to run all your various liability models.

Okay Alpine that just one final quick one I think in your opening comments I think it might have a new Gary or maybe Paul referred to.

The strain being higher because you hadn't priced in the reduction in strike is the suggestion then that you have the flexibility to raise pricing and we could see strain come down meaningfully in the short term.

I think there's there's there's two issues to that.

If we raise pricing for sure you would see strain on new sales come down. So you always have the flexibility to raise price.

And then the question is where we are relative to where we want to be from a pricing perspective, and I'd say right now we're taking a closer look about we took some pricing action.

The first quarter uncertain Canadian products, I think Jeff. Good Oh, you don't provide you some context on that and then the question is what do we what do we do on pricing now relative to our in our life and disability and individual disability products that where we would have seen that sprint, Jeff any comment on pricing actions taking and.

Obviously, you're not going to provide.

No guidance on specific pricing action, but the way you're thinking about it.

Yes, Thank you Paul and Mariano Oh, we did get ahead of this on the you outside a number of months back so you'll you'll see that start to flow through and ER and on the Terminator inside of course, we have plans to to get after that as well, but I would say the UL is the main area.

Yeah, and what do you see in any given period is you know products that would have been so underwritten or.

Slide under a pricing basis that was a couple of months ago and to the extent that we were now starting to the sales that are following through on the higher pricing basis, you'll probably somewhat so you'll see some less stream coming through.

Thank you.

Thanks Mario.

Our next question comes from Darko Mihelic of RBC capital markets. Please go ahead.

Hi, Thank you good afternoon I just wanted to go back to the dividend question for a second than just whereas I understand you're committed to it I think what might help also is just the level of importance.

Of Ireland in say the UK.

In terms of cash that's pulled up back to the life.

Holdco I should say and any other levers you could call or that you know would give investors comfort that you could break a short term.

Multi tier a time.

Bye bye bye pulling on other cash leaders I understand the 900 million at the Holdco I'm, just wondering how much LG could pull from others bids and and or other cash resources you could use to bridge a period of time, where regulators name restrict you from from pulling cash out of Europe.

I'll start and then I'm going to turn that when the Gary I'll start off by saying that.

The overall you know disclosure, we provided was that given the current conditions and looking at the current environment, we're comfortable with our ability to.

To continue on with dividends at their current levels for the foreseeable future. So that is that as the comment we've made in the context of the various jurisdictions.

One for Ireland as a place where they've said you know until things stabilize a bit but the reality is you know we do have excess capital in various parts of our business as the other comment I'd make is that when we report on our overall European.

Business.

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There's also elements, our business, where we're reinsuring and using our reinsurance internal reinsurance capabilities. So you know.

Not all of our earnings that would come out of Europe are going to be fully limited by any any actions taken by a regulator, but I think I'll, let Gary start off without an Arsenal names may want to provide a little bit of context as well Gary.

Gary I think your Oh, sorry, I am a muted I was just a.

Which.

Which aspect in terms of the.

The geographic Spudded the earnings.

Yes, just just our comfort in terms of having access to enough liquidity.

For a for an interim period, if there was any restriction oh.

Well certainly first of all we are we're starting to stay with the the a delightful cash up at.

At 900 million. So this said, there's a fair bit there to start and then.

You know, our overall capital ratios that but I can't ratio well above our target. So again there is a there is there is room there within the European segments. That's just one segment, we've got the reinsurance which is buying loans outside of the European jurisdictions or is a subsidiary there, but most of reinsurance is outside of Europe.

And then the as you other than the other thing we do we do have internal reinsurance arrangements for some of our European business. So this actually reinsured inside of a sum to do for capital management purposes that does allow any profits on that business too to flow up a again not through Europe as well so some of the elements.

Okay, and I guess the.

The question is.

There is 900 million of cash, which we which is substantial and certainly pay.

The question I guess is what is the access what does accessibility and how much more cash could you quickly access over the course of the next year or so should should there be is one of the things that we worry about is if one jurisdiction.

Events, you from pulling cash out others could quickly follow suit because they want to be rated either right. So so the concern would be that eventually what we see and perhaps some jurisdictions that actually ask you to downstream capital. So.

No what is the what does the capability of you raising cash rather quickly here over the course of the next year just to make sure that dividend.

Both craft and calm and are taking care of.

Yeah, well certainly we do have a and untapped the leverage capacity at the moment they were.

A fair bit under the under the ratio sets a.

Everyone to do their own estimates, but probably two two and a half billion of of capacity. There. So there we would an i. I think I would not be unfair to save you have.

Good access to the Canadian market and we have at both the U.S. market in European markets in the past in terms of debt raising so I think we've got.

Flexibility in terms of which markets and I think we'd have good access to markets and we have we have leveraged through at our current ratings, yes. The other point I'd make darko is that.

Two.

Oh, sorry, I'm getting a bit of an ACO there maybe anybody who is.

Not on mute could go on mute.

I would have to inject any capital into any any of our subsidiaries.

And so I'd point out.

Very very strong RBC ratios in the U.S.. So that gives you a sense of the capital strength and resiliency there.

We are above our solvency to target ranges and.

And your in our European operations, So again theres strength there. So the you know we're not sure short on having overall capacity.

The quarter issue is that we have the flexibility and what we're saying is that as we look at our situation. We believe we have enough flexibility in the system.

That's great. Thanks, very much appreciate that.

Okay.

This concludes the question and answer session I'd like to turn the conference back over to Mr. men for any closing remarks.

Thank you very much.

Mario.

I just like the closing say I do want to thank everyone. I realize this is a this has been an exceptional quarter for our organization I'm sure. It's an exceptional quarter end for all of you and the work that you do and I know, there's been lots and information coming from us coming out you I appreciate your youre, a thoughtful questions and.

I will say that we've totally look forward to hopefully a more sample and the Q2 and in the meantime, please take care of yourselves and your file in your loved ones. Thanks very much.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.