Q1 2021 Great-West Lifeco Inc Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the Great West Lifeco first quarter 2021 results conference call.
I would now like to turn the conference over to Mr. Paul men, President and CEO of Great West Lifeco. Please go ahead.
Thanks, Sheryl and good afternoon, and welcome to Great West Life goes first quarter of 2021 conference call I Hope you and your families are safe and healthy.
Before I move on to our prepared remarks for the quarter I'm going to take a few moments to touch on the ongoing impacts of COVID-19 on our communities and world.
To start I wanted to acknowledge and thank all of our health care and essential workers. It's been a long road for you and your tireless work is ensure the health and safety and kept our community is running.
And to those of you who have lost a loved one due to COVID-19 my heartfelt condolences go out to you.
Our appreciation also goes out to our dedicated advisors and employees for their ongoing efforts you continue to serve our clients and deliver on our commitments as we balanced family and other responsibilities as well most of your of working from home.
Well Theres real hope is vaccination.
Vaccination efforts.
<unk> the world's also of coping with new waves and variance of COVID-19, and we see health care systems in many countries remaining truly stretched.
<unk> seen the heart wrenching impacts the people and families in India, where we where we actually have in empower retirement team and as a demonstration of care for our over 1000 empower associates living there empower retirement, along with our Canadian operations and together with power Corporation of an AGM are donating over 250000.
To Red Cross disaster relief efforts.
And in other countries like the U S vaccination rates are helping the stemmed the surge of additional COVID-19 infections.
What we see is that's allowing countries to increasingly opened for business travel and things like connecting with family and friends and I would say that the things that we all year end for <unk>.
So you know in my mind, it's clear that vaccinations will be critical to achieving both health safety and a vibrant economy and that's why we're really encouraging vaccination for all of those for eligible including ourselves and the advisors all share that I personally had my first ask Astrazeneca vaccination and I look forward to my second shot.
So getting onto the business joining me on the call today is Gary of Mcnicholas, Executive Vice President and Chief Financial Officer, and together will deliver today's formal presentation.
Also joining us on the call and available to answer your questions are David Harney, President and Chief operating officer in Europe are actual Jamal President and group head of strategy investment reinsurance and corporate development, Jeff Mccall of <unk>, President and Chief Operating Officer, Canada.
Murphy, President and Chief Executive Officer of empower retirement, and Bob Reynolds, President and Chief Executive Officer of Putnam investments.
Before we start I'll draw your attention to our cautionary notes regarding forward looking information and non Io for us financial measures on slide two.
These cautionary note supply to today's discussion and the presentation materials move.
Moving to slide for you'll see a high level summary of the key themes that we're going to cover today.
We reported a solid first quarter with continuation of the momentum we saw in Q4 and strong and consistent operating performances across all segments.
Our recently acquired businesses mass mutual in personal capital are performing well the integrations are on track and mass mutual contributed solidly to the first quarter results.
Our capital position remains strong and our lockout ratio was at 123% at the end of the quarter.
While down six points from Q4 due to rising interest rates in the quarter, we're comfortable with our like that ratio, which remains above our internal target range of 110 to 120 per cent.
And while rising rates of a dampening effect on like the higher interest rate environment is positive for our overall business and the value we can deliver to our customers through our products and services.
From a business perspective, we've experienced modest financial and business impacts from COVID-19 in the quarter, which are outlined on the next slide So please turn to slide five.
From a revenue perspective sales and quote activity are trending upward and in most cases are nearing pre pandemic levels.
Activity remains impacted by Lockdowns in some jurisdictions overall trends are favorable and we've seen good persistency in asset retention across our group businesses.
Well the impact of credit was modest across bonds and mortgages COVID-19 related pressures still exist in some sectors.
We're maintaining a cautious outlook for segments of the office and retail subject sub sectors. We continue to monitor of invested assets portfolio of closely and believe in its high quality diversified nature, which will help to mitigate potential future pressures. So in summary.
Business momentum and our sales pipelines are strong and we remain confident in the resiliency of our business.
Turning to slide six we provide an overview of of earnings based earnings were $739 million and net earnings were $707 million in the first quarter.
Base EPS of <unk>, <unk> was up 36% year over year and steady with last quarter.
Expected profit increased 21%, reflecting solid business growth and an ongoing recovery from the effects of the pandemic in a strong contribution from the mass mutual business acquired last year.
Net earnings of 76 per share posted a strong rebound from the COVID-19 impacted 37 tenths of a year ago net.
Net earnings included modest U K property related impacts and the U S integration costs.
Turning to slide seven.
You'll note we've taken a different approach to operating results slides for this quarter we've.
We've changed the format to focus on segment operating performance, including top line of net growth to facilitate greater insights into growth drivers and market trends.
Turning now to Canada, we saw solid operating performance in Q1.
The group insurance sales were strong due to large cases in overall persistency.
For the second consecutive quarter kind of the life of lead the market in group life and health sales. We also saw strong asset retention in the group wealth as planned number of switching jobs are retiring opted to keep their assets with Canada life through the next step program. This is the same dynamic that we referred to it of empower with our retail area.
Rollover business.
While the individual insurance sales were slightly lower due to fewer large cases code activity is trending upward and we continue to add new products and services and the.
As an example, we launched the Canada life My term flexible life insurance product. This new customizable product allows customers to pick the exact term line. They want between five and 50 years and we're seeing the benefits of our past the investments really playing out with over 80% of individual insurance applications now being done.
Digitally.
This reflects continuing strong adoption of our simple protect digital life insurance out of it.
The individual wealth saw record sales across segregated and mutual funds and positive net flows. These.
These strong results reflect excellent progress in building out our wealth business in Canada, which was advanced through the combination of GLC asset management with Mackenzie investments and the new product launches, we made last year.
The strategic advancements continue including the introduction of an advisor solutions, which provides enhanced support for advisers, who we're doing business directly with Canada life.
The technology enabled offering has adapted to each advisors unique needs, including product support practice management and succession planning.
Please turn to slide eight.
Empower continued its strong growth trajectory after leading the defined contribution recordkeeping market and growth by participants and assets in 2020.
Sales of $64 billion reflected strong results across market segments and included of Mega plant sale with approximately 316000 participants and the U S $49 billion in assets under administration.
As noted in the past and power sales can be lumpy and will be elevated in the quarters. When we onboard large for mega plant sales.
Well the empower is the second largest player in the you see in the U S. D C record keeping market.
Extending the business to meet the retail wealth management needs of its over 12 million participants is a key part of our strategy.
We're pleased to have reached a new milestone of $19 billion and retail area of assets under administration as of quarter end with strong growth enrolling and rollover assets IRA customers and managed account sales.
One of the integration is proceeding personal capital continues to make strong progress as a standalone business with positive growth in new client assets to end the quarter with AUM of $18 billion.
On a combined basis empowering personal capital Standalone retail assets reached $37 billion. This is an.
Increase of 14% from Q4 of 2020 on a year over year basis, including personal capital assets pre acquisition combined retail assets were up 68% from Q1 2020.
The thing on this retail wealth management team in April empower announced it will launch of new digital experience later this year the.
The new offering will bring together the combined experience technology and capabilities of empower and personal capital.
This represents the first stage in a more robust integration of personal capital's technology and client engagement capabilities into empowers D C and retail platforms.
Finally, the acquired mass mutual business contributed strongly to empower base earnings in quarter and the integration is progressing well we've.
We've achieved U S $40 million in annual pretax run rate synergies to date and are on track to reach of our U S $160 million target in 2022.
Please turn to slide nine.
Putnam sales of U S 13 billion were down 14% from last year, but steady with last quarter of sales of short duration income products slowed due to lower yields while equity sales improved.
Net outflows of 2 billion were mainly institutional.
And and and fixed income products behind this result was offsetting net inflows and equity products driven by continuing strong performance with seven of 10 U S equity funds, having four or five star Morningstar ratings.
Putnam is driving organic growth with new fund launches in February it announced the launch of active Etfs with the first of these products is expected to be available this quarter.
Please turn to slide 10.
Europe had a very solid commercial performance from the first quarter with sales and profitability in many product lines and our three markets returning to pre COVID-19 levels.
In addition to the new presentation on this slide we've included additional details on European sales on slide 28 in the appendix.
Well sales of the continued to recover with strong growth in individual pension sales in Ireland and Germany.
German sales were up 20% year over year, and we're excited to have completed our first quarter, where all in quarter sales were processed on our new more digitally enabled administration platform.
Well the client retention in all markets remains solid supported supporting another quarter of positive net flows and AOA growth in local currency.
Europe is up 16% over the last 12 months adjusting for the sale of Irish Progressive services in Q2 2020.
Group wealth is mostly workplace pension sales in Ireland and will vary a lot from quarter to quarter based on when we win large new mandates. Similarly annuity sales will spike in quarters with bulk annuities, while there were no bulk annuities in the first quarter activity has returned to the market with many pension schemes looking to transfer their lives.
<unk> and we are actively engaged in assessing these opportunities.
Individual annuity sales were solid in Q1, and our equity release mortgage business continues to perform well. We're very pleased with this business branded Canada life home finance and the financial flexibility equity release mortgages offer our customers in retirement.
We also maintained our group insurance market, leading position in the U K helped by new services, such as we care, which provides digital and virtual services to support the physical mental and financial well being of employees.
Please turn to slide 11.
Capital of risk solutions had another good quarter. Following a record year in 2020 and has demonstrated strong growth by offering tailored reinsurance products for our clients in the U S and Europe.
Because of these transactions can take different forms and structures expected profit is the best way to see how the segment is performing.
While Crs relies on its established markets and products to sustain strong earnings. It also focuses on developing new markets and new products for growth.
<unk> of this or a large asset based transaction in Japan, and the transaction covering lapse risk in Israel.
Both of our closed in the first quarter and show that we can extend our expertise and creativity beyond North America and Europe.
I'll now turn the call over to Gary to review financial highlights Gary.
Thank you Paul.
Please turn to slide 13.
This EPS of 80 cents was up 36 per cent compared to the prior year.
While there were some COVID-19 related headwinds in base EPS last year. The improvement is more a reflection of underlying business growth, both organic and through M&A.
We've had strong base earnings results across the segments and I'll touch on the highlights momentarily.
Net EPS of 76% was up over 100 per cent.
In addition to growth in base earnings of large part of the year over year swing comes from the COVID-19 driven market related impacts in 2020 with only a modest headwind from excluded items this quarter.
On a segment basis, starting with Canada base earnings were 298 million up 9% from last year.
Continuing the favorable results in health and LTV claims and so the disability of yield enhancement contributed to strong experience gains this quarter.
New business also contributed positively as a result of repricing actions earlier in 2020 and higher interest rates.
In the U S base earnings were up significantly from Q1 2020 the.
Mass mutual business performed well in its first quarter, adding $48 million debates, including early expense synergy gains and strong fee income.
We see an opportunity for further yield and spread pickup as we position investments to our target asset mix in the general account.
First of all capital was in line with our expectations profitable on the imports, but recording of base loss of $14 million as we continue to invest in new customer acquisition to fuel growth and future profitability ex.
<unk> mass mutual in personal capital and Power's base earnings increased by 30% as a result of higher market levels and strong organic growth.
Putnam's results improved sharply year over year.
The seed capital showed a small loss this quarter. It was much improved from the large mark to market losses in Q1 2020.
I would also note the institutional performance fees, which were 30 million benefit last quarter are seasonal and concentrated in Q4 each year. So it did not contribute in Q1.
In Europe base earnings increased 52% over itself. The Q1 2020 with improvements in each of the three geographies based earnings benefited from solid yield enhancement and favorable longevity of morbidity experience, partly offsetting higher life claims.
Capital and risk solutions saw another quarter of strong base earnings growth over 'twenty up 22% over Q1 2020.
Selecting the expected profit contribution on business written in the past year.
COVID-19 continued to impact the mortality rates with higher claims in the U S traditional life reinsurance business being partly offset by favorable longevity experience.
Turning to slide 14.
This table shows the segment and total linked go source of earnings from our base earnings perspective, which excludes the lines from management actions and changes assumptions and other and also excludes certain market related items from experience gains and losses. We introduced this view last quarter given the number of adjustments at the time.
And have maintained the additional disclosure.
Expected profit was up 21% year over year.
Of the 21% increase about half was due to the additions of massmutual and for.
Arsenal capital with the other half of about 11% coming from business growth across the other segments, most notably in capital risk solutions, which is also of 21% from last year.
Regarding new business impacts notable changes include the improvement in Canada mentioned earlier and an increase of new business strain in the U S, which now includes personal capital of mass feature and this is a direct result of strong growth as a reminder, the upstream is on investment contracts and represents business.
<unk> costs that cannot be deferred and drive for apps on the flip side of the benefit of future margins, including margins to recoup those acquisition costs will come through the expected profit line in future periods.
Experienced gains contributed positively in the quarter and I'll cover these on the separate slide later.
The earnings on surplus of minus $31 million is down from the prior year. This is partly due to higher ongoing financing charges. As a result of debt raises last year to support the recent acquisitions as well as lower realized gains on available sales for asset sale.
In light of rising interest rates.
The effective tax rate on base shareholder earnings was 10%, primarily reflecting the jurisdictional mix of earnings with the contribution from getting close to settling certain outstanding CRA matters.
Yes.
Turning to slide 15.
The table on this slide is the reconciliation of base. The net earnings highlighting the key items that are not included in base earnings.
Two items to call out the first being market related impacts. This primarily represents an adjustment to the UK property values used impair the annuity liability calculations and the second is integration costs associated with mass mutual in personal capital and will be noting these each quarter along with the progress towards achieving expenses.
The <unk> targets and as noted earlier massmutual has.
It has hit the run rate of $40 million, so far on route to our $160 million target overall and those are annualized debt pre tax.
There are no further material impacts from assumption changes in the period.
Please turn to slide 16.
This table shows the segment and total LIFO net earnings results from the source of earnings perspective.
Essentially combines the information from the base earnings and with adjustments for the excluded items on the prior slide the.
Other line is where we record the integration costs mentioned earlier and recall these are all pre tax numbers.
Please turn to slide 17, these tables expand on the experience results as well as the management actions and changes <unk>. The highlight various items in the quarter most of which we've touched on earlier as shown in the chart on the left yield enhancement continues to contribute positively, particularly in Canada, and the U K and the market related.
The impact was discussed earlier I'd.
I'd also call out that there was again a positive combined net impact of mortality longevity and morbidity as we continued to benefit from the diversified book of business.
Expense variances reflect strategic project spend mostly in Europe and credit related impacts were negligible this quarter, which is a good outcome. The reflects the quality of the portfolio, but we do continue to watch that closely.
Moving to slide 18, this slide highlights the operating expenses by segment, while expenses are up notably year over year. This is to be expected given the growth in business and expected profit both organically and through M&A activity.
Canada, and Europe expenses are pretty steady year over year.
Crs expenses were up 13%, which compares favorably to the 21% increase in expected profit.
And in the U S expenses were up largely due to mass mutual in personal capital acquisitions, but also due to the business growth at empower.
Please turn to slide 19.
The Q for book value per share of $23 36.
Was up 5% year over year and up 2% sequentially driven largely by increased retained earnings partly offset by currency movements.
The line of Cat ratio of CAD line remained strong although down six points from year end. The primary impact came from the sharp rise in risk free rates, which accounted for three 5% three five points decrease in the ratio. In addition, as noted last quarter. This also includes the continued phase.
And of the new most adverse line cat scenario, which impacted the ratio by one point, assuming we stay in this low interest scenario. The full impact will continue to be smoothed in over the next three quarters at just under one point per quarter.
We've also seen growth in the asset related requirements from increased non fixed income investments and the new reinsurance transactions.
Thanks for a cash of $1 billion is not included in the like cat ratio and would be worth about four points that.
That concludes my formal remarks back to you Paul.
Thank you Gary.
Please turn to slide 20 looking ahead, we will continue to maintain a high level of diligence.
Vigilance around COVID-19, and closely monitor ongoing risks in the markets, where we operate we will also continue to do all we can to support of our employees and communities as the pandemic continues to put so much strain on the health and livelihoods of so many.
In Canada, we remain focused on elevating our wealth management strategies through the combination of GLC asset management with Mackenzie investments, we saw benefits from the first quarter with strong individual wealth sales and positive inflows, we will continue to leverage digital capabilities and product innovations to drive further revenue growth and serve our customers.
In Europe, our focus remains on unlocking value from the investments we've made in our wealth and retirement platforms, including wealth tuck ins in Ireland, and our extension into the German corporate pension space and.
And capital and risk solutions, we will continue to leverage our expertise and experience and longevity of life capital solutions to grow this business and extend into new markets within our risk appetite.
Putnam, we continued to deliver strong performance for our clients and the positive flows we see in the higher fee equity funds illustrates the positive momentum.
And finally at empower we're focused on building out our retail wealth strategy as we integrate personal capital and expand our offering to over $12 million plus planned participants we made solid progress from the first quarter with strong growth in retail assets and plans to rollout the new digital experience to plan participants later this year.
We're also on track to realize the synergies and accretion targets, we set for the mass mutual transaction.
And on that note, please turn to slide 21.
While we are pleased to announce that we will host in the empower retirement Investor day on June eight we will post event details from the coming days and look forward to sharing more with you about the empower business and our plans to grow and win in the U S retirement services and retail wealth management markets. Thus.
That concludes my formal remarks Ariel please open the line for questions.
Thank you we will begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad fewer here of tone acknowledging your request.
If you are using a speakerphone please pick up your handset before pressing any Keith.
Withdraw your question. Please press Star then queue to join the question queue. Please press Star then one now.
Our first question comes from many Grumman of Scotiabank. Please go ahead.
Hi, Good afternoon, Gary when you talked about the tax.
Tax rate this past quarter, you mentioned something about getting close to resolving certain outstanding CRA items. I was just wondering if you can elaborate on that.
What was the impact from.
The core.
Thank you.
Yes.
Gary I, just take that one straightaway.
Okay. Thanks, Paul.
Yes.
So a couple of things to note there.
The thing I called out there that was we reduced our uncertain tax provisions of <unk> by about $30 million as we.
Get close to finalizing of settlement.
So that was the and that was split between I think it was 20, Canada and Europe.
On the other hand, we had other areas, where our tax reasons increased slightly to of the net impact from lower tax provisions was about $15 million overall, but the specific item I was calling out was was about 30.
Okay. Thanks for that and then if I could just ask of the capital and risk solutions business. It sounds like theres lots of momentum there.
Thanks to cross it up 21% year over year.
Just wondering.
As you look ahead do you expect that pace to continue or is there anything in that.
Net.
Yes.
If you would exclude.
Exclude on a run rate basis, how do you look at that sort of expected profit growth going forward.
Yes.
If I refer back to Gary's comments, the expected profit growth you're seeing now is reflective of transactions that we would have done in past quarters of now they are now flowing through and as Gary.
Our XI outlined there was a couple of transactions in quarter, where we'll see.
The lift in future quarters, having said that.
We have huge discipline in terms of our aspiration for growth with this business, where we want to keep it within our risk appetite and we wanted to make sure that we've got really good discipline around.
Our return characteristics of profitability and risk so that would sort of be an overall general comments I'll, let <unk> comment a little bit more on the way, we think about growth going forward partial.
Thank you Paul so in terms of the transactions and the growth we've seen over the last couple of years, we've really seen some outsized growth on the longevity side, particularly in the swap area of bulked in Sterling and in euros.
The market conditions are tightening up a little bit so I think the.
The highest level of growth has already happened, but there are still opportunities for us even in that market.
So continue to see reasonable opportunities for us along across our structured portfolio in the U S, particularly on the health side in Europe around solvency II relief.
And we highlighted of mass slots of transaction in Israel. So again, we've seen reasonable growth in that structured financial solutions area and we'd expect that to continue and then finally on the traditional side.
The tightening of extra of competitive pressures in the U S.
We announced that the transaction in Japan on an older age block for <unk>.
It was very interesting for us because we got all of the premium upfront. So we have very little reinvestment risk.
And we can fully address the interest rate exposure and then over time try to add some spread.
So again, we're not promising the 20% type growth that we've seen in the very recent past.
Theres still lots of opportunity for us to continue to grow reinsurance.
In pace with the.
For the rest of the company.
Thanks for that.
Just as a follow up I know you're emphasizing the June quickly looking outside of North America, and Europe Whats the competitive landscape. Once you go outside.
Of those jurisdictions does it become.
Lots of competitive. Thank you could just give some color on that.
Sure why don't you go straight to the.
Got it thank you.
I think we're really picking our spots we were sort of extending beyond our core markets since the U S and Europe.
Israel is quite attractive for us it is not an overly competitive market, but there are others, who are there, but really in that market. We're benefiting from our solvency II structuring capabilities and in Japan, We're really leveraging the strength of our global investment organization.
Our investments shop in London, Thats part of the UK operation because we got that the large upfront premium from the Japanese clients.
The hedge all of the interest rate risk.
The markets outside the U S and Europe are very large potentially in Asia and other markets as well.
We're only scratching the surface of there. So I think the near term constraint. There is less of the competitive dynamic that is much more finding ways for us the leverage our capabilities and doing that in a way that's consistent with our risk appetite and the growth that we're seeing in the other areas. So I don't want to neglect it all growth opportunities in the U S and Europe.
And I view that geographic expansion is very complimentary for us.
Thank you.
Our next question comes from Mario Mendonca of TD Securities. Please go ahead.
Good afternoon of Paul in your opening remarks, you offered something that was very similar to what we heard from a few of the end of life companies. This quarter, specifically of that higher interest rates could sort of enhance the product offering for.
For customers going forward now when you when.
When I hear an insurance executive offer that I immediately think of.
Better pricing illustrations on Universal life.
Is there more to it than just that is there is there are there other products or is it as simple as just saying long term life insurance illustrates better with the higher rate.
Uh huh.
Well I think I think you captured probably of core issue, which is the reality is the number of these interest sensitive products.
During the do not provide a strong consumer value until you can actually get some real throughput in terms of returns. So I would say that's one driver I think the other dynamic, though I think about it is diversification of our offerings and opportunities for customers because they're just kind of think over the last number of years and our par has tended.
To be.
It has taken up a lot of the sales share for example in Canada in the Universal life is really sort of struggled to offer sort of competitive returns and as we see of those rates rise I think.
It allows for those stronger returns I think the other reality is the stronger returns number one.
Can offer and part better pricing for clients and in part better better margins for us. So overall I think just sort of.
It takes away a dampening effect and opens up the opportunity for a more more diverse and competitive product offering.
And would you point us to either the potential positive some of the higher rates.
Earnings on surplus of new business.
Are there is there more than just margins on sales for you.
For the other things I would I would point to would be things like there's a number of those guaranteed of others products with guarantees rates for match rate. So as we as we have higher rates youre in a better position that were more attractive of annuities would be of a critically important one of if you think about people.
People, who are looking to secure certainty of of lifetime income.
It's hard to take that on when you are in a really low interest rate environment, but the things like annuity products become far more attractive as rates start to widen and I think the other reality is even if you think about long term disability products.
Those.
Disabled life reserves of are also invested in assets from the app to be fairly secure steady assets. So again LTV rates can become more competitive so overall and that's the really broad impact on our business to me I would say, there's lots of potential positive lift.
Given the sort of a different type of the question.
Uh huh.
About the tax rate.
The tax rate does that moves around a lot I think it does for a lot of companies.
What sort of really noticeable for great West life is that over the last day seven quarters. The base tax rate has been around eight or 9%. What are we seeing there is it just that in these last seven quarters Theres just been a lot of.
Opportunities to lower the tax rate true.
Finishing up the audits of our disc special provision has that been released like what are we seeing over the last seven quarters that would lead to such low single digit tax rates for great West life.
Yes.
I'm going to defer to Gary in a moment, but I'll just touch on three things number one we're going to get our relative jurisdictional mix.
Of business, which will drive the <unk>.
But we're having higher growth.
In business and lower tax.
Jurisdictions youre going to see that dampening effect, you will see us obviously, we're working through.
The tax matters with the various.
<unk> and resolving those and I think the other thing is thinking about how do we structure our business in terms of taking advantage of.
The restructuring.
Leveraging.
Yes.
Leveraging various aspects of the business of <unk>, but I think if you look at it overall to of.
A large extent.
Theres lots of those opportunities, but our continuing view would be that we really think that the underlying tax rate really isn't that.
The low to middle double digit rate and I'll, let Gary speak to the other Gary you probably have some stats on sort of where the health of has been from a tax perspective.
Sure Paul I think you've actually simpler well a lot of the benefit.
The lower tax rate it comes from a couple of things.
One is certain of our investment income.
And subject to taxes tax advantaged investment income.
A lot of it really is the mix of jurisdictions of or the.
The where the earnings due to rising of the different jurisdictions, because Canada is the highest of all the I think the small amount of the taxed in Germany, because most of our German business run out of Ireland, as well, which is as you know it would be a lower tax rate. So it really is that jurisdictional mix of our I think the tip of tax rate in that low double digits is not not.
And yes, if you take a longer average I think it.
It is lumpy you're right Mario debt.
But we've had a number of larger.
All of their older tax matters wrapped up and typically we have provision for them. So when we do find the wrap them up we always hope there is a little leftover that falls to the bottom line as we resolve those matters. So on average I think that does for has at least in the past tend to lower the tax rate. So the combination of two of them not surprised and done the average per month.
It would be like this quarter tender or maybe in the last since we have wrapped the field lately.
Okay. Thank you.
Thanks Mario.
Our next question comes from Paul Holden of CIBC. Please go ahead.
Thank you and good afternoon, two questions for you the.
First is on my cat and the interest rate sensitivity. So you do disclose.
The sensitivity number in your DNA.
Using the example of the 50 50 basis point rate increase if I was the think about that type of scenario is that enough to result in the scenario of switch whereby you get out of this more punitive scenario or would you need to see something even higher than that.
Paul I'm going to refer that question on the Gary Gary.
Sure.
At this point I mean, it does when.
When we do the we do put the disclosure you didn't so the 50 basis points and Youll see part of disclosure. It's it still would be hit we don't cross scenarios at this point with 50, it would be higher than that it would likely be over 100 basis points before we crossed and I just wanted to caution though that that debt.
That does change as our business changes whether it's.
We update our actuarial liabilities.
As the overall on our investments used to our invested says they change, but it's I think if you think of it as more than more than 100 bps, that's probably a good spot right now before we switch back.
Got it okay. That's helpful. Thank you.
And then my second question is around the <unk>.
The profit growth in Canada, if I think about the was up 5% year over year and you also saw GLC asset management at the same time I mean, it seems to me like a pretty good.
Results. So maybe you can talk about some of the drivers and sustainability of that type of growth.
Absent the up to now of our GLC.
Well.
I might start with Gary just trying to provide a bit of context around the 5%, but then I think Gary I wanted to pass it over to Jeff Macau because.
Paul the core underlying issue. There is you heard us reference of the growth in our wealth management business out of record level of and we're seeing some net sales there notwithstanding a bit of a softer life quarter, we're seeing pretty solid growth there so underlying that.
Kind of growth.
Growth from the business, but Gary maybe you can provide a little context from the 5% in relation of the GLC and then maybe Jeff can speak to sort of the drivers of growth that are going to support the.
Yes, I'd note a couple of things first of all of the impact of.
The the loss of income I guess following the sale of TLC as we as we call. The at the time was really single digits for the year. So it didn't have much of an impact it was a very small impact on the expected profit of slate.
A slight headwind, but one or $2 million.
The benefits of really come from just the or.
Some of the repricing as we had done in the past in our group business. So just.
Getting the the rate increases there the execution of renewals and.
And good margins in our group business and somewhat lower expenses those have been.
Sort of the net ones that come through the expected profit. So we're seeing some improvement in our in our margins and that's really what drove the 5%.
Paul if I could ask.
The come behind Gary There I would add debt as Gary pointed out Paul.
We started in <unk>.
Call. It late 19, and certainly through 'twenty, the Gary referenced the group block, we took pricing action twice and we're now seeing that debt margin and those that the renewals coming through in a nice way and and our persistency was up in quarter in group. So that's positive on the individual side, Gary and Paul touched on that a little bit.
We also took action on on UL term our cidi.
Starting in late 19 and into 'twenty and so what youre starting to see this is the flow throughs of those actions we took.
In 'twenty.
Okay. So it sounds like sustainable factors.
Great. Thank you that's all the questions I had thanks Paul.
Our next question comes from Gabrielle the shape of National Bank Financial. Please go ahead.
Good afternoon.
Question on mass mutual the U S $38 million of earnings contribution.
Depending on how I treat the thing.
Energy use and the.
Financing costs.
It looks like it may have exceeded the.
The run rate.
The kind of.
Got it in the us to for accretion of 2022 based on the accounting for acquisition presentation with my math of it might be off or the public special happen this quarter.
I'll start with Jerry on the just.
Make sure of that.
That's consistent with our view and then maybe I can just speak to.
The early.
Our early progress which is.
Underlying.
Separate from the numbers underlying.
Going very well right out of the gate, we're really pleased with the mass mutual integration, but Gary why don't you.
For the 38 million of and then maybe you can talk a little bit about the progress and how that might be.
Maybe a bit stronger than we might have expected.
Yes, I think thats, a good way of some of that but I mean, I haven't gone through the the exact Matthew gone through gave you and we're happy to two.
The line those up.
I would say that we're off to a good start to where we'd be cautiously optimistic one thing I'd note is that in our in our original we'd have had a word.
We would of had a certain view on potential of sharp shock loss lapses.
The.
And Ed can speak to this I think we were very pleased with the retention of clients since of that Mike.
Of that might be of help asset levels would have been obviously markets have continued to perform so those higher asset levels as in Q1 than we might have anticipated when we originally and describing the transaction. Those are also obviously mark of the dropdown, but those are also been a positive so I'm not sorry, youre seeing the little better there's a few of few.
The positive factors, there, but maybe Ed can talk about the business.
Sure Thanks, Gary true.
Yes.
Yeah, that's right.
Okay.
Go ahead.
No I was just going to add debt.
We're seeing strong revenue per part there.
We expect that to continue obviously as Gary mentioned the market has helped.
It's still early days, obviously, but in terms of the client retention effort.
We're running ahead of plan there. So I think that is a contributing factor in the program in general is on track budget and as Paul mentioned in his opening remarks.
We're on track on the.
The synergies for the year too.
Okay, great and nothing like what Gary was talking about in terms of the.
Reinvesting some of the general account.
For revenue synergies.
Part of the original plan that's not enough.
It's not anything new the discovery.
No no.
Hello to my notes is that we.
We haven't we haven't quite reached our target asset mix. There. So there is.
There is the potential to add some yield and spread as we reach our target asset mix.
Obviously, the assets of just transferred weighted close at year end so.
We've got some some potential there.
For potential like the.
The $30 million in terms of the revenue synergies.
The above and beyond that because of the possibly.
I think Ed can talk to those I think those who of different type of revenue synergies.
Alright.
The revenue synergies really wont begin to kick in until the relationship for the most part won't be won't really kick in until the relationships come onto our platform.
We will see alright, with a lot of it will.
Yes.
Yes, okay.
The Gabriele.
Character, a clarify I think what Gary is referring to is that if we looked at the overall investment gains in.
Youll, we're expecting on the.
Invested assets once they're brought over in the kind of invested with the target portfolio. We expect a certain level of yield we've not fully transition that we've got some lower yielding assets will get them to the target.
Yes.
Part of that it's just where we were maybe a bit ahead in some areas were a little bit behind on that and all of these things are going to come into the frame in the subsequent quarters.
Okay, great. Thanks for that and sorry for cutting people off the prior to the bill in the third from the stuff.
Sure.
Okay No problem no problem at all good questions.
Once again, if you have a question. Please press Star then one.
Our next question comes from Tom Mackinnon with BMO capital. Please go ahead.
Yes, thanks very much good afternoon.
Curious on your comments about the bulk annuity market.
The activity has returned but.
There haven't been any kind of sales.
Maybe you can describe the.
What's been driving that activity is at the two.
Rising interest rates helped.
And.
What is really your wood.
What differentiates you from your competitors in the bulk annuity marketplace.
In Europe and then.
Have you ever thought about transporting those capabilities.
Capabilities into North America.
And to what extent debt.
An increase in bulk annuity business lead to.
Better yield enhancements, assuming that you source assets true.
Through bulk and does that have any bearing on your ability to have any kind of.
Uptick in the yield enhancements.
Sorry about the bit of a mouthful there, but if you can try to attack all of that that'd be great. Thanks, Okay. Thanks, Tom.
Tom I'll start off net I'm going to turn it to David Harney to provide more color there.
Kind of three questions, there and I'll, let David speak too and of what unlocks the market, whereas the market opening up now versus maybe not over the last few months and reducing interest rates play into the the.
Question about.
When we consider participating in this market for example in Canada, we've called for the single premium group annuity market in every market of the unnamed.
The name for for for a business opportunity and absolutely as we think about.
Longevity of and taking on the.
As part of our within our risk appetite, we do look for opportunities in Canada, and I wouldn't say that the scenario of it.
Our actual demand in the couple in risk solutions group or thinking about I would also note that as we think of playing in the longevity of market. We do it both through the bulk annuity quote unquote business, but also through our capital and risk solutions group.
And for sure to the extent that we are doing transactions that come along with assets yield enhancement is obviously one of the opportunities that comes with that so I will turn it over maybe to the David <unk> to provide a little bit more color and to the extent of Arsenal. The review of anything to add feel free to jump in after that David.
Yes, just our carbon from Vas was it's partly COVID-19 related to an arc of the interest transfer the bulk annuities the big transactions.
Transactions for pension schemes to undertake an execution.
And to take a little bit of time. So we just saw a slowdown in schemes entering the pipeline.
Lost share most of the conference call for it.
And so we're sorry to finish of that now and the debt.
Pipeline.
Of schemes to the rash in the market looking to execute at the moment is back to normal levels.
One for I suppose can you see scheme every quarter.
I suppose we're just calling out of debt that we are active and we would expect to win some schemes again this year and we're finding assets on our pricing is pretty competitive.
I spoke of our competitive advantage comes from the number of sources.
So I've been able to work with the captain in risk solutions team is the bank towards in the U K and then.
The the various investment management companies definitely happen, particularly of the company in the UK.
They work very hard to earn <unk> on the assets that come with these days.
It helps us the competitive in the UK Americas.
David I think it's also fair to say that we've been in this business for a long time and the payout annuity business and I think we actually do have pretty deep expertise on the liability selection side. So the whole managing the liability side understanding those.
Is key and then obviously the asset management side is the other part of that comes into play and.
When we look at those businesses, we think about the combined benefits of do we have the underwriting risk selection expertise.
Can we source assets either.
Through directly through the end market investment management shop, we have or across our group because we look for those things and then the final one is how can we use capital and risk solutions.
Is the reinsurance entity to use some internal reinsurance structures, where we may be able to get some additional advantage. There. So those are the kind of the three parts of the recipe that have allowed us to participate and again that means that we're not blind to opportunities, but we want to make sure. The if we consider things in Canada.
Square that it has the same overall the risk and return profile that we could get in the UK market or if you consider some of the longevity of trucks.
The transactions, we've done in Caf on the risk solutions in Continental Europe, as well partial anything else you'd add to that.
I would add a couple of points, we certainly didn't see through sort of 2019 and 2020 at the way the swap spreads were working it was better for us.
Assets in North America to support our European bulk annuity efforts as of <unk>.
Our originated assets and other places to support of liabilities in Canada. So the swap spread for one of the factors that sort of maybe.
The margins that were available to us of Europe more attractive and then our UK origination of equity release mortgages some of that day.
For the mill didn't happen.
In Canada.
The real constraint for us and Canada to be more active in the FPGA market is really the competitive landscape. The returns have been historically, a little bit lower and we're working hard to see if we can find different investment strategies using some of the capabilities that exist for us outside of Canada.
Bringing those to bear to support cost and cash.
Canada on FPGA.
Cautiously optimistic.
And you force that are operating in Canada will become more competitive.
Find ways to tapping all of our afternoon origination capabilities in the U S and in Europe, and if the swaps going into right direction to support our offering in Canada, but as Paul indicated there are a lot of ways that we can get those assets, having type of transactions bulk annuity of swing insurance FPGA is and we're very cautious.
<unk> of all of the markets that we all of the opportunities that are available and thinking deeply about making sure that we get the best return for our shareholders.
Okay. Thanks for the detail if I could just ask one more one on platinum.
<unk> are down.
The.
The 2% ish range.
The core earnings were.
Alright.
It's back down to low single digits.
In the outflows again.
No.
Well.
What's the thinking on platinum I mean, we had a bit of.
Had some cost cuts margins came back up.
We're back to where we were before.
Yes, Tom I'll start with that one to start with.
Kind of unpack the quarter.
I guess three dynamics at play number one we saw performance fees were.
High in Q4, and I think we disclosed the thought was kind of of not regular repeatable event. They tend to be back ended end of the year. So that was part of what drove the higher margin in Q4.
The other issue we had was.
Gary referenced in the speaking notes was on seed capital.
There was.
From hedge funds that are more tech based where seed capital has been a very strong consistent contributor and what happened with dislocation on some of the tech funds in Q1, as we saw a bit of a fall away of there where we've actually seen the recovery already happening in Q2, So there was sort of.
That dynamic going on.
And I guess, the third one would be the.
Sort of the positive flows we've had has tended to be in.
Fixed income and some shorter duration fixed income and one of the debt dynamics from trends, we've seen has been a.
A bit of a turn in terms of equity flows into equity funds, which we actually think is really pointing to health of the business.
The aligns well with our wholesaling strategies and alike, and so we like where our performance is that our customers are doing very well and I'll, let Bob speak to that but maybe I'll just have Gary provide a little bit more context in terms of our view of this particular corners margins because I think.
Last quarter was elevated I think this quarter was kind of temporarily dampened and I do think we actually feel pretty good about putnam's performance. So I'll, let garry speak for that and then maybe Bob wants to comment a little bit on performance and our views on how the overall franchise is delivering for customers and how that where there.
The real potential for flows from our perspective.
Gary.
Sure I think I'd just call. It a couple of things I think we've noted the the performance fees, which of the institution performance fees are basically.
Q4 items, so that is the seasonality in Putnam.
Couple of things of note the seed capital.
I think we tend to just reported a quarter by quarter, but if I look back it was just.
Over $30 million this would be Canadian dollars, just over $30 million in 2019, and even notwithstanding some of the volatility last year ended up.
The year I think around $45 $47 million. So it has typically been a positive contributor that 8% to 10 of quarter type of contribution and it was minus six this quarter again that was some specific mandates and maybe Bob can touch on those that I think the bounce back in April but the mark to market was not good at the end of Q1, and then just lastly on the.
The seasonality point of the game these are not large numbers, but the.
The overall of the income isn't that large sort of they can have an impact.
Some of the expenses are tend to be front ended.
Some of the expenses of our front ended at Putnam in Q1, just around the.
Payroll taxes that are a bit higher in Q1.
And then there is the.
The stock based.
Compensation tends to be higher in Q1 as well so there's a couple of the seasonality items. So I think I think pulling summed up well I think underlying that.
And of the revenues and the expenses are are trending the right way that there is some noise.
And Bob maybe you can just speak to the two of our view on performance and flows because actually when you come into this quarter feeling pretty good about the strength of the franchise.
Yes.
So very very very good about what's going on.
From a performance standpoint.
Barron's magazine comes out within the App for survey and for the last 10 years.
Putnam was.
<unk> top performing.
Money manager in.
In the U S.
And if you look at vs.
<unk> slipper.
We're in the top.
Third and performance over the last three and five years, respectively. When you look at the total fund assets.
And Paul you touched upon.
Having 20 for funds and <unk>.
Four of five stars the more insurance. So that's that's been reflected in the business.
We touched upon equity flows were positive.
All channels mentioned.
Does it switch.
That means management fees up.
And.
If you look at the pipeline institutionally.
On the retail space being placed on.
Platforms in the model portfolios all of the momentum is there for.
To have the good year.
Thanks, Bob.
Youre welcome.
Thank you.
Our next question comes from Doug Young of data of <unk> capital markets. Please go ahead.
Hi, Good afternoon I'll keep this real quick the $38 million from Massmutual is that yes is that after financing costs.
Yes.
Gary I'll, let you comment on that one.
No I think the.
Sure.
The.
Financing costs I don't think we've attributed directly to the.
The mass mutual.
That would include the amortization.
The amortization of intangibles, but not the the desktop specifically attributed.
And can you break that out for like what was the amortization of intangibles and what would the financing costs the.
Yes.
Net of that or yes.
I can.
Two.
On the amortization of intangibles I think youll find the in the financial statements of doing just remember I believe it was the 19 million of it it didnt. The note three of the financials, you'll you'll see we've set up the intangibles and we call out the amortization in Q1.
And then the financing.
Again, we don't have the specific for masks have been year over year change in financing overall, which is really a company most of the mass reach of a little bit of personal capital and the year over year change was about $12 billion and our financing costs.
And that does that Canadian dollars or is that U S dollars.
That's Canadian assets for the quarter.
Gary.
I think we should probably get back to the 30 day, because I know the 38 definitely has the the <unk>.
Cost of the intangibles, which $15 million to us, but I do think there is some debt cost attributed to the 38, So we should.
Okay, Andre Bulletin, who I think is on the take questions Andre.
More detail on that.
Yes, Paul the 30.
It does include the amortization of the intangible.
The financing costs related to the acquisition of just looking for the breakout of the financing right now.
But it includes both of them, that's what I was hoping for enough debt yes.
Yes, okay. Okay. Okay, and then just on the U S. I'm, sorry of Canadian crude side you had.
Positive group experiencing CNA day believe.
And just hoping you can flesh that out I mean, I understand you did some pricing so that obviously benefited but are you seeing some positive.
Comes from terminations.
Incidence rates, just hoping to get a little more color.
I will pass the one rent over to Jeff Macau, just two on the speak to ours.
<unk> I think youre, mainly speaking to group disability, but.
We tend to look at group morbidity overall, but.
Jeff Why don't you why don't you jump in.
Yes, Thanks, Paul and thank you Doug. So yes, we were very pleased with how we perform debt in quarter of in line with our expectations and and and our incidents and terminations are certainly in line as well with our expectations. So we have not seen all the.
Lift on those and we perform much stronger as Q1 2020 as was called out in the exhibit so.
In part we manage this business very closely I mentioned in an earlier comment.
On renewals and execution of the business, our persistency has gone up and at the same time, we've been able to manage it well the margin. The other thing too is that I think we're providing very good value on the mental health side, we did see mental health claims Raj just a little bit and we've added a number of.
The value add over the last year in the mental health side. So.
We're very pleased where we're at on the group disability side.
Perfect. Thank you.
Yes.
This concludes the question and answer session I would now like to turn the conference back over to Mr. Mann for any closing remarks.
Thank you very much real well I want to thank everyone for.
For participating in todays call I know this has been a long day with lots of reporting going on today and we appreciate you staying with us till the later hour.
Actually really look forward to having you join us on June eight when we can talk more about.
For the empower business the empower business, having taken on mass mutual in personal capital and you'll have an opportunity to.
Meet in the spend some time with Ed in a number of his management team and Gary and I will join in as well.
In the meantime, I'd, just encourage everyone to stay healthy and if youre not yet vaccinated and you get the opportunity. Please take advantage of it for.
For all of Us and thank you very much and see you soon take care.
This.
Today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yes.
Yes.
Okay.
Yes.
Yes.