Q4 2020 Great-West Lifeco Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Great West Lifeco fourth quarter 2000, and 'twenty 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, very much Farrell and good afternoon, and welcome to Great West Life goes fourth quarter, 'twenty and 'twenty Conference call I Hope you and your families are safe and healthy.
Before we move on to management's formal comments on the quarter on a full year I want to take a few moments to reflect on the significant change and challenge our world has faced in 2020 and how our companies are responding.
Firstly, the impacts of the Covid pandemic Havana profoundly negative.
On the health and financial wellbeing of so many particularly the vulnerable on.
Our companies have responded to ensure we can operate with customer adviser and staff health and safety is our number one priority.
Beyond this we work to help our customers and communities manage through the financial impacts from the crisis through a combinations and financial support.
And we recognize there are continuing challenges ahead, as we faced second waves and Lockdowns and remain committed to the needs of all of our stakeholders.
2020, I also highlighted the challenges we face as communities countries and across the world with respect to diversity and closeness and social Justice.
Black lives matter and Nicholas Truth, and reconciliation are just too it's important examples of a societal response to these challenges.
The company, we recognize that we must be active supporters and participants and paying for a better world.
Climate change is also front and center.
As a challenge that we collectively face and must collectively address.
The steps we have taken to date were reflected in the a rating great West Lifeco received and the 2020 CVP.
Rankings, putting us among the top five and insurance companies globally.
We remain committed to playing our part and responding to the challenges of the climate and climate change presents today and for future generations as well.
I will now turn to our formal remarks, joining me on today's call as Gary mentioned net loss Executive Vice President and Chief Financial Officer, Gary and I will deliver today's formal presentation on.
Also joining us on the call and available to answer your questions are David Harney, President and Chief operating Officer Europe.
Actual Jamal President and group head strategy investments and reinsurance.
Jeff Mccallum, President and Chief Operating Officer, Canada, Ed Murphy, President and Chief Executive Officer of empower retirement, and Bob Reynolds, President and Chief Executive Officer Putnam investments before we start I'll draw your attention to our cautionary notes regarding forward looking information and non Io for us finance.
And all measures on slide two.
These cautionary notes apply to today's discussion and presentation materials.
Moving to slide four you'll see a high level summary of the key themes, we will cover today.
We reported a very strong fourth quarter to close out the year driven by solid underlying performance across businesses.
S earnings and the quarter were $741 million and net earnings were $912 million.
On a full year basis lifestyle delivered base earnings of $2 7 billion in line with the prior year, while net earnings increased 25% to $2 9 billion.
These are outstanding results, given the extraordinary health and economic crisis since early 2020.
Shouldn't be more proud of my 24000 lifestyle colleagues, whose hard work and creativity enabled these results.
And we'll get into the details of the fourth quarter, shortly but to summarize we've experienced modest business and financial impacts related to COVID-19 to date.
And we're optimistic about improving trends as vaccines vaccines rollout, we are maintaining our heightened vigilance given uncertainty around the recent wave of the virus we.
We are however, confident and the resiliency of our business and our ability to manage any future COVID-19 challenges.
As you know 2020 source advance several strategic initiatives, particularly in the U S, where we acquired personal capital and the retirement services business of mass mutual and we're focused on integrating these businesses and realizing the synergy and accretion targets we've set.
We're also focused on leveraging our digital investments to build out strategies to provide additional advice and services to group plan participants.
We have over 20 million plan participants across our group businesses globally.
We're focused on extending our direct relationships with these customers and empower and Canadian group customer and at Irish life using innovative digital platforms, we've either built or acquired in recent years.
We will capitalize on these and other strategic initiatives to drive further value creation and the year ahead.
I will now turn to slide five for an overview of the fourth quarter results.
<unk> was down 11% year over year from and elevated Q4 2019.
This year over year change reflects a $122 million European tax settlement included in Q4, 2019 that did not repeat and that equated to about 13 cents a share ex.
Excluding that results from a relatively unchanged year over year.
Net earnings of <unk> 98 per share were up 78% year over year.
The 43 swing was doing a large part to the positive impact of the reevaluation of our U S deferred tax asset compared to the negative impact when this portion of the deferred tax asset was de recognized in Q4 2019.
Gary will provide details later in the presentation regarding this matter.
Net earnings this quarter also included a net gain on the sale of GLC, and Canada, as well as some offsets, including restructuring and acquisition related transaction costs.
Turning to slide six I'll provide an update on our invested assets portfolio.
Well performance continues to be strong COVID-19 related pressures still exist and we continue to closely monitor and the portfolio.
First we'll look at the bond portfolio.
153 billion. It represents 71% of our total invested assets, it's diversified and high quality with 99% rated investment grade and 75% rated AA or higher.
You will note our triple B holdings of $37 5 billion are up from last quarter the.
The increase was primarily due to assets, we acquired through the mass mutual transaction.
I will now mutual has a very good investment portfolio. It was a little less conservative than life goes with a higher skew to triple B and below investment grade.
This is very much in line with our competitors on the U S insurance industry.
The portfolio, we acquired was a carve out from the Companys larger portfolio.
We worked through a rigorous asset selection process with mass neutral and are very comfortable with the acquired assets we.
We've added additional disclosure in the appendix to give you a clearer picture of our bond portfolio by rating post and mass mutual transaction.
Turning to and quarter experienced the impact of credit was negligible across both bonds and mortgages.
We received a modest number of requests for mortgage and rent payment deferrals.
Cumulative commercial mortgage loan deferrals were $3 million at the end of Q4, and we've approved $5 million and rent payment deferrals year to date.
Our UK property property related portfolio also saw limited and quarter impacts.
Our evaluation and certainty is returning to some sectors of the real estate market, we are maintaining a cautious outlook for segments of the office and retail subsectors.
We continue to monitor closely and believe the high quality diversified nature of our portfolio will help mitigate potential future pressures.
Please turn to slide seven for an overview of Infor and quarter COVID-19 business impacts.
As you know we've included this slide since the pandemic began in Q1 last year.
Since then the impacts and the outlook has largely been stable to improving and it is no different this quarter.
While sales and quote activity and certain businesses continued to be muted by lockdowns and the impacts remain consistent with a slight improving trend.
Despite continuing pandemic impacts in Q4, our businesses have performed well highlighting the resiliency of lifestyle and the benefits of our disciplined and diversified business model.
Looking ahead, we are optimistic regarding our sales pipeline and the momentum we saw on the fourth quarter performance, which I'll speak to on the next slide.
Turning to slide eight and Canada individual insurance and individual wealth sales were strong with increased momentum through digital channels although.
And although Canadian group sales were lower year over year due to reduced quotation activity, we led the market and group life and health sales in the quarter.
And the U S sales were down 14%, primarily due to lower large plan sales at empower for the quarter, but with a strong pipeline of quotation activity going into 2021.
U S results also included a full quarter of personal capital and institutional sales, which were higher at Putnam.
And Europe sales were flat to last year and constant currency.
While all sales continued at a slower pace and the current environment. We benefited from the reopening of the bulk annuity market and completed two large deals and quarter.
And while not captured by traditional sales metrics on the slide capital and risk solutions completed a 3 billion pound longevity transaction and the U K.
We continue to see strong demand for European longevity, and life capital solutions, and the U S and Europe.
Please turn to slide nine for fee and other income.
Overall life co fees were up 4% year over year excluding.
Excluding those related to personal capital fees were up 1%.
And Canada fees were largely consistent with Q4 and 2009.
And in line with markets.
Turning to the U S fees were up 11%, primarily due to improved performance fees at Putnam, along with higher equity markets and the inclusion and personal capital.
If we exclude personnel capital USPS were up 6% year over year.
And in Europe fees were lower due to legacy block sales in the UK and the FCC on Ireland, partially offset by higher management fees and Germany.
Next on Slide 10, we'll look at expenses life core operating expenses, excluding personal capital and the one time U S pension credit last year were up 4% year over year.
This is in line with our expectation of overall expense growth and reflects good discipline across regions and.
And Canada expenses were up 4%, reflecting investments in digital and an increased focus on building the Canada life brand.
Looking to the U S and removing transaction costs and expenses grew 20%.
However, excluding personal capital the onetime and the onetime pension buyout credit last year growth was a more modest 4%.
European expenses were slightly lower year over year and constant currency.
And capital and risk solutions, which has a smaller expense base saw increases reflecting strong new business growth on.
And then I'll turn the call over to Gary to review financial highlights Gary.
Thank you Paul.
Please turn to slide 12.
Base earnings per share of <unk> was down 11% compared to the prior year and as noted earlier Q4 2019 included a <unk> 13 per share positive impact from a tax settlement and Europe.
This quarter, we've had strong base earnings pretty results pretty much across the segments and I'll touch on highlights momentarily.
Net EPS of 98 and <unk>.
It was up 78% year over year.
While there were a number of items related to closing on recent strategic initiatives, a large part of the swing year over year comes from deferred tax asset movements. The revaluation. This year, given the expected growth and taxable income from our recent acquisitions had a positive <unk> 21 per share impact compared to a negative 22.
When this portion of the DTA was derecognize in Q4 2019.
On a segment basis, starting with Canada base earnings were 348 million up 27% from last year.
Lower health and LTV claims and solid yield enhancement contributed to strong experience gains this quarter and new business also contributed positively as a result of repricing actions earlier in the year and higher sales volumes.
In the U S base earnings overall were unchanged year over year, although there were a number of moving parts. One of these with and unusual 9 million gain on an asset prepayment at empower last year.
Taking that into account and Power's base earnings continued their strong trajectory with higher fees from growth and equity markets, partly offset by catch up and technology investments.
Personal capital recorded a base loss of $7 million in line with our expectations as personal capital continues to invest in new customer acquisition to fuel growth and future profitability.
Putnam's results were nearly double the prior year due to a strong turnaround and performance fees and seed capital investment gains.
And Europe base earnings were down 38% year over year, mainly due to the positive impact of that 122 million tax settlement and last year's results. Excluding that base earnings were comparable to last year with favorable longevity and morbidity experience offsetting higher life claims.
Capital and risk solutions, so on another solid quarter and base earnings although down from a record quarter last year.
The decline was primarily due to upfront strain on our large longevity swap transaction and the quarter compared to new business gains on a similar type of transaction in the fourth quarter last year, while both of these deals that meet or exceed our pricing hurdles and contribute nicely to future expected profit the specifics of a given transaction.
And can lead to either strain or gain at the outset.
And lastly, and.
Reinsurance have reflecting on continued COVID-19 impact on mortality rates and higher claims and the life reinsurance business were partly offset by favorable longevity claims experience.
Turning to slide 13. This table is a new disclosure we've added this quarter. It shows the segment and total life co source of earnings from our base earnings perspective, Youll note the management actions and changes assumption line as well as the other line are excluded we thought it would be helpful to presented based on <unk>.
Given the number of adjustments to get from nice net to base earnings this quarter and also the impact of those items had on the tax line.
We have also added historic eight quarter Soe displays by segment in the supplemental information package to better highlight trends, particularly with the introduction of the capital and risk solutions segment earlier this year.
Turning to the source of earnings table.
Expected profit was up 10% year over year with strong business growth and capital and risk solutions growth at empower and higher performance fees at Putnam improved profitability and Irish life health and the depreciation and European currencies all contributing.
Regarding new business impacts due largely to the longevity reinsurance transactions, which I noted earlier is driving expected profit growth capital and risk solutions went from upfront gains of $53 million and 2019 to a strain of $40 million. This year, a swing of $93 million pre tax.
Other notable changes included the improvement in Canada, due to repricing and sales volumes as well as increased new business strain and the U S. As a result of personal capital customer acquisition costs.
Experienced gains contributed positively and the quarter and I'll cover these on a later slide.
Earnings on surplus of $6 million was in line with the prior quarter, but down from the prior year. This is partly due to lower prevailing interest rates and also 2019 included onetime gains and Europe of about $28 million.
The effective tax rate on base shareholder earnings was 13% and it is not unusual to see our more normalized if I could call it that tax rate.
That low to mid double digit range.
Turning to slide 14, the table on this slide is a reconciliation of base to net earnings highlighting the key items that are not included and base earnings.
As noted net earnings and the fourth quarter included several adjustments the largest of which was the $196 million positive impact of the revaluation of the U S deferred tax asset.
Net earnings also included a net gain on the save and <unk>.
And <unk> of 143 million and other restructuring and integration costs in Canada, and the U S totaling $67 million and.
And then transaction cost with personal capital and mass future of 47 million and.
Assumption changes and appeared netted to a negative which I'll come back to and the market related impacts included some unfavorable changes in certain UK and Irish tax estimates as a result of market increases and the negative impact of lower interest rates and lower property values on our lower growth and property values on insurance liabilities.
Please turn to slide 15.
This table shows segment and total LIFO net earnings results from a source of earnings perspective, and it essentially combines the information from the base earnings yesterday with the adjustments were excluded items on the prior slide the.
And the management actions and changes assumptions line includes integration costs and transaction costs associated with our U S acquisitions and the gain on sale of DLC plus of course, the actuarial basis changes. The other line is where we recorded restructuring costs, which you can see the totals for the Canadian and U S.
Critique initiatives noted earlier.
Recall these are all pre tax numbers and then lastly, the tax line. This reflects the tax impacts of the above most notably the revaluation of the deferred tax asset.
Please turn to slide 16.
And these tables expand on the experience results as well as management actions and changes and assumptions to highlight various items in the quarter most of which we have touched on earlier.
Starting on the left yield enhancement contributing continued to contribute positively, particularly in Canada and I'd also like to call out there was a positive combined impact of mortality longevity and morbidity in many cases it is difficult to determine exactly what is COVID-19 related versus other factors, but again, we benefit from a diver.
<unk> book of business.
Expense variances reflect strategic project spend as well as higher technology and other expenses. This reflects a ramp up of activity and the fourth quarter a bit of a catching up from earlier in the year when certain projects that slowed.
As Paul noted earlier credit related impacts were negligible this quarter, which is a good outcome, reflecting the quality of the portfolio and we will continue to watch that closely.
Looking at the right hand side, you will see the gain on sale of TLC shown growth of restructuring charges and the <unk> acquisition related transaction costs.
Assumption changes and appeared netted to a negative primarily due to updates to policyholder behavior assumptions and Canada. This quarter, we reviewed assumptions for our universal life and term life business based on recent experience.
Policyholder behavior updates were partly offset by longevity assumption reviews, which primarily affects the U K and reinsurance business unit life mortality reviews, and other updates which were generally positive.
Please turn to slide 17 the.
Q4 book value per share of $22 97, and.
It was up 7% year over year and up 2% sequentially driven largely by the increased retained earnings and.
And the light cat ratio at <unk> remained strong although down two points from Q3 continued phase in of the new most adverse like cat scenario impacted the ratio by one point.
Assuming we stay and this like had interest scenario the full impact will continue to be smoothed and over the next four quarters at just under one point per quarter.
We've also seen growth and asset related capital requirements from both asset mix and market appreciation.
And this largely offset the normal growth levels that have typically been about 1% per quarter.
<unk> cash of $9 billion is not included in the light cat ratio.
And that concludes my formal remarks, Paul back to you.
Thanks, Gary.
GAAP up our formal comments on slide 18. So in summary, I believe Q4 was a great and to an unusual and a remarkable year and I have to say I am so proud of the company's performance. Looking ahead, we will continue to capitalize on the strategic investments and initiatives undertaken in 2020.
All of which have set us up for exceptionally well and the future.
And the U S. We're focused on building out our retail wealth strategy as we integrate personal capital with empower and expand our offering to our 12 million plan participants. We're also driven to realize the synergies and accretion targets, we set out when we announced the mass mutual transaction and.
And Canada, our focus remains on elevating our wealth management strategies through the combination of GLC asset management with Mackenzie.
And we will continue to capitalize on digital capabilities to drive further revenue growth.
And Europe, our focus remains on unlocking value from the investments, we've made and our wealth and retirement platforms, including well tuck ins and Ireland and our extension into the group.
And corporate pension space and Germany.
And finally on capital and risk solutions, we will continue to leverage our expertise and experience and longevity and life capital solutions to grow this business within our risk appetite.
And I'll close my formal comments with a few important thank us.
As the COVID-19 vaccination programs rollout around the world, we would like to thank the scientists and health care workers and will work tirelessly to advance vaccine research and deliver immunizations and care for Covid patients.
We also show our continued thanks was essential workers, whose selfless dedication has ensured the smooth functioning of our communities since the start of the pandemic.
And to advisers and employees. Thank you for your ongoing efforts to serve our clients and deliver on our commitments, while balancing family and other responsibilities as you continue to work from home.
With that Ariel Please open the line for questions.
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Our first question comes from many Grumman from Scotia Bank. Please go ahead.
Hi, good afternoon.
First question is on yield enhancement.
And nice benefit this past quarter and I'm just wondering if you can give us a little bit more detail in terms of what drove that.
Most importantly, the sustainability of that going forward.
Thanks, Manny I'll start out by just saying that.
One of the things that we've really advanced over the last number of years and as <unk>.
Starting to look at.
Opportunities for invested assets backing liabilities on a more global basis. So we are not constraining ourselves to available assets and the Canadian market. We are really looking for opportunities for example, and we look to equity release mortgages to back for instance, our Canadian liabilities. So backing our yield enhancement is really starting to leverage some of those.
And you might almost call it sort of alternative asset.
Such that allow us to yield and house, but with that I will turn it to Gary that a little bit more color.
Sure actually volume you've hit it on the head certainly Canada benefited from the <unk>.
Access and the equity release mortgages originated in the U K and that.
Added to.
A good bit to yield and hence it there and then in the UK itself we had.
Property lease extensions that also contributed to our yield enhancement because those flow into our cash flows.
So we added both on the lease extension side.
<unk> and <unk>.
And on those equity those would be the large ones and there's just other other trading I don't know if robyn wants to give any more color, but I think those would be the two I'd call out.
Okay.
Yes, it's from and here.
I agree that the only color I would add and it was diversified across a number of different sources and then within the context of tightening public market spread but there were a number of opportunities and the private market, which really helps so.
That's one thing I would add when you covered it well.
Yes, so how sustainable go ahead.
And I was going to kind of try and wrap it up and say from from so as we think about that we continue to be very active and the equity release mortgage market. So we will continue to be sourcing that as a.
As a source of assets backing liabilities.
I would say and have strengthened our capabilities and private markets and.
And we're looking to both private markets and partnerships. So.
And obviously, there will be volatility from quarter to quarter in terms of opportunity, but we do view these as relatively sustainable ways for us to continue to strengthen the portfolio anything else you'd add to that Robin.
No I agree with that.
Can you sort of have targets in terms of you talked about sort of a shift more to alternatives.
Is there a big opportunity there in terms of what percentage of the portfolio you'd like to see and those kinds of assets.
I'll let.
I'll start out by saying we.
We continue to be very disciplined in terms of diversification and making sure that.
And we have a high quality diversified book, but we also look for yield opportunities to both support pricing and to support and our earnings growth I would say that we're very balanced.
<unk> is there anything else you'd add to that.
And I guess, maybe just to give you a bit more color. If you think about 2020, not just the quarter, but the year and the.
<unk> enhancement and some of it came back and the spring when there was a lot of opportunities and the public markets and were able to.
And engage them on a trading and really benefit from wider spreads there.
<unk> has been a consistent source for us I think other parts of the private markets, whether it be and the mortgage side or on our corporate bond markets had been and good sources of gains for us and as we increase our exposure via partners and Paul mentioned I think that will continue to provide some tailwind for us to access some of these opportunities. So it's hard to pinpoint and give budgets exactly but.
I think there is a number of different ways, we've been able to access yield enhancement.
Thanks Scott.
Thanks, Mike.
Okay.
Our next question comes from Gabrielle Duchaine of National Bank Financial. Please go ahead.
Hi, Good afternoon first on the Canadian Group business you had some positive.
Morbidity experience on LTV.
But in your and your outlook commentary on the slide we talk about mental health.
I guess, the risk factor, which I can.
I understand.
Can you kind of expand on on what Youre seeing Youre your book of business, what kind of trends are evolving and and.
And how youre positioning yourself from a claims management or a pricing standpoint.
There.
Up.
Thanks, Rob and I'll actually deferred I'll defer that one over to adjust Mcgowan and then perhaps Gary might add a little bit of color after that and Jeff.
Thank you Paul and Gabriel Thanks, Thanks for that question.
Perhaps a couple of comments I would make.
We've always been very diligent on our LCD block as you know.
It is renewed generally the most of the block on a on a yearly basis.
So we.
And we're quite aggressive and making sure that we take care of that on an annual basis.
You are correct that we have seen lower incidents and we've seen this now for a couple of quarters in a row and terminations.
In line with the incident. So we've seen good experience on that from a mental health perspective, we continue to monitor that and manage that very closely we haven't seen anything at this point that that concerns us, but obviously, we continue to monitor very closely and <unk>.
And our outlook is that we'll watch the things from a COVID-19 perspective, it's interesting that.
In times like this we do see people.
And making sure they're hanging on to their jobs and if I can call. It that and we have submitted briefs on short term disability at this point Gary did you want to add anything to that I think I would just comment Jeff a little bit.
And I hate to go into the detail, but a little bit on the source of earnings geography, just <unk>.
Some of that caution you to express where I think it's a very thoughtful approach we take.
Does and we did.
Lower our expected profit outlook in this area, but we haven't seen that come through and we've had very positive experience. So.
And obviously, we're managing the book for the total outcome.
Both the expected and the experience. So we may have been a little cautious on the expected.
This quarter in particular, and so I think that's contributing.
Graffiti.
Gotcha and then.
Moving on to empower I guess.
And the sales and the U S down, 12% and I'm just looking at the slide deck U S sales and that concludes personal and Putnam as well, but sales down.
And then the strain and the U S is up a fair bit.
Right.
The drop in sales and.
And.
And we expanded the scale of empower quite a bit. So I'm just wondering why some of those arrows are moving in opposite directions and.
And would expect to see.
So I'll start out with that.
Sales and something that occurs when you book the sales and then obviously.
And we're bringing the customers on that can take especially when youre looking at large large plans.
And the incidence of the cost youre, taking in terms of acquiring the customer can occur over a period of a number of quarters, especially with when you are looking at the Mega cases, So I think sales and strain are always knock on the lineup and the same moment.
Maybe I'll, let garry speak to the strain a little bit and then he can referred on to and to provide you with a little context on.
Sales, but the reality is it was more or less the absence of any very large sales, but as I said.
We like the look of our pipeline going into 2021. So we have seen this type of volatility that can be quite lumpy, but empowers.
Power's value proposition is such that we really do like the pipeline. We have in terms of quotation activity, but Gary do you want to speak to the strength and then Ed can talk to sales, yes, Sir and just quickly on the strategy and really the movement year over year and the U S. I think the movement year over year and was $14 million.
And of that $17 million movement is personal capital just the and we do outline the the Canadian.
Pre tax and remember these are all pre tax it's a customer acquisition cost of personal capital.
Right, Okay apps, and personal capital and drops a bit which I think what you were thinking.
Alright, perfect. Thanks, and then my last quick one putting them on I mean, it's not a massive number but the performance fee 30, some odd million Bucks normally.
And a single digits was there anything noteworthy there.
Gary why don't you start up and maybe.
Gary you can just provide a little bit of context for sort of timing and then Bob I think behind that Gabriele is strong performance. We've had a really strong year, but garry can speak to the timing issue on that.
Good good above can share some insights into performance.
I think and towards the one thing on timing is that.
The institutional.
<unk> fees and a lot of those are and Q4 and so there is there is more on Q4 and you see earlier and the year and then the other thing I'd note is that over the past few years, we did have we.
We had a bit of a drag on performance fees from completely different mandates that we're slowly running off and these were.
We just had to had to have the runoff of those there were three year averages that we're just running off so what I.
I think what you're seeing now is the strong performance is really shining through so maybe Bob and add a little more color on the performance.
Thank you.
Just to add to that obviously it is strong performance and price.
Net fee.
What we see our performance fees and the mutual fund.
Part of the business.
Institutional and we have seen growth metrics.
Growth and hedge.
And on business and all three of those contributed to the.
Performance fee number and.
We're off to a great start this year and so we're very encouraged by that.
Okay. Thank you.
Welcome.
Our next question comes from Paul Holden of CIBC. Please go ahead.
Thank you and good afternoon.
On a go back to the questioning on on empower it seemed like you came into 2020 with a lot of positive momentum and that business with all the investments and integrations you had done and then growth kind of slowed in 2020, so what I'm trying to figure out is to what extent is that simply related to a slowdown.
And on the economy and.
Particularly I guess with respect to employment.
And with job growth starting to pick up and the U S. Like is that is that something that should be a nice tailwind for empowers that material.
Thanks, Paul first off.
And the context of growth.
To your point I think COVID-19 is at and impact on things like quotation activity.
Especially when Youre looking at group businesses, but as I said before we're seeing and our pipelines improve really across most of our group businesses and clothing and power. So theres no doubt theres sort of a there was a bit of a COVID-19 slowdown, but I think to a large extent thats starting to get behind us, but I'll, let ed provide a bit of context is.
Two.
Lay it out through through 2020.
Sure.
Thanks, Paul.
I would say with regard to the book of business typically you would see.
Companies hiring during the course of the year and enrolling new participants. So if you look at our base of business.
Because of the economy, we did not see a lot of growth within the existing base of.
Customers in terms of participant growth.
But as Paul referenced.
And I think Gary mentioned this too I mean, theres some lumpiness to the sales, particularly in the upper end of the of our business.
And we certainly have seen that we only had one significant large market sales in the fourth quarter.
That being said if you look at if you look at January and where we're positioned and 2021, we have commitments now that exceed all of our sales and 2020, So I think really good growth we.
We did see some lag in terms of activity as companies focus more inwardly and their own situations, but now the RFP activity is.
Picked up dramatically and our pipeline frankly is at the highest its ever been and the history of the company.
So I'm pretty optimistic about.
2021.
And then so you've commented on.
On the pipeline now a couple of times wondering if you can give us some kind of sense on closing rates or at least from the perspective, you don't really gives us a closing rate at least from the perspective of.
Closing rates for partner or sorry for empower.
Proved over time with the new technology and scale that you built on that business.
Paul We're certainly we don't want to get into providing the specifics on.
The actual size of the pipeline and closing rates.
For sure and I think I can provide some context around.
Our technology is.
And impacts two things I think number one when you become significantly differentiated.
Advisors can almost can't afford to not have you on on.
On the docket, when Theyre doing and RFP and then the question is do you have a better value proposition. So maybe you can provide a bit of context around that.
Yes, I think theres a lot of dynamics, obviously, the value proposition and the breadth of <unk> capabilities is important.
We're a significant scale player and the market. So we bring some cost advantages and per.
Pricing advantages to the market and historically, if you look at our growth as measured by net participant growth. We typically have been growing at a multiple of market and we expect that to continue.
The other factor, that's playing out and the market is consolidation and.
A disproportionate amount of the new business and the flows essentially go into the top players and the market.
And so we expect that trend to continue and.
See further consolidation and we think and power is well positioned to benefit from that.
Okay, great and all that color is helpful.
One last one from me and this is on the Crs business.
With the great growth they are spending a little bit more time looking at.
Some of the ex the non earnings numbers like premium growth.
Asset growth liability growth and it's hard for me to correlate.
Type of base earnings growth, you've seen and that business relative to some of those other metrics.
As mentioned so just wondering if you can help us understand how we should be looking at the primary underlying drivers of that base earnings growth and if theres anything we can track and yourself back to to help us with that.
Thanks, Paul I'm going to turn that one to two <unk> to provide a bit of color.
Partial price.
Thank you Paul.
I would really describe the business that we have within our reinsurance operating units.
Focusing on four or five product lines, and so we absorb our core U S traditional and our property catastrophe business is that a bit and long standing parts of the businesses and they are relatively low growth and it's really been on the financial solutions businesses, both in the U S and various European market.
And then over the last couple of years really the longevity transactions and that had been driving a 22% growth unexpected profitable for the last 12 months and so.
Those are the areas and we've added and the stat supplement a little bit more detail on the expected profit.
We'll think about how best to communicate some of those forward looking metrics.
Netflix or whatever but it's very difficult to put sort of a longevity swap.
It is two offsetting long term cash flows through our P&L and get something that is.
<unk> to something like a traditional payout annuity or on U S. Traditional like reinsurance and so we struggled with that ourselves.
But we're seeing very very strong growth is on the longevity side, particularly in Europe, and and the like solutions business, both in Europe and then.
And then the U S and those are the fastest growing parts of the reinsurance business, but we're committed to continuing both on the traditional business and the U S and property and catastrophe.
Cash flow fee, but that will be at a slightly slower growth rate.
Yes, I might add that our continuing commitment to U S life and the property.
Catastrophe.
And the fact that when you think about this business is nicely diversified across a range of different risks and it actually diversified as well with the broader lifestyle portfolio and beyond that it actually provides us with expertise as we face off against different other businesses and think about trying to either leverage internal reinsurance or.
Leverage expertise so.
And it's a book and as <unk> said the growth and it has been more on the financial solutions and longevity and transaction by transaction. So it is hard to kind of put a sales forecast but.
We tend to think about it more and the context of and overall risk appetite in terms of.
How much do we want so we'll think about whether there is a better way to guide on that okay.
Okay that'd be great. Thanks for your time.
Thanks, Paul.
Once again, if you have a question. Please press Star then one.
Our next question comes from Tom Mackinnon of BMO capital. Please go ahead.
Yes, thanks very much good afternoon.
Question on empower and then a question about.
Matt.
<unk> gains.
In the supplement the empower if I look at the empower revenue it is.
It's the lowest it's been and.
And fourth quarter was the lowest we've seen in terms of empower revenue for all of 2020, even if we flip them into U S dollars.
And I'm wondering why is that the case.
The revenue be the highest in the fourth quarter as a result of the equity markets being so resilient so.
And then I have a couple of follow ups. Thanks.
I'll, let Gary and start off on revenue and Gary and might want to.
Turn on one that went back to us.
Yes, certainly.
On the revenue when and when you look in the and the supplemental pack, Tom and I think we've talked about this before the revenue. This show and there is the insurance revenue. This is the on balance sheet or the general account option at empower.
So and Thats at risk based premiums line or revenue premiums I think youre looking at there.
Our total net premiums on I think it's also referred to as I think those ones you are looking at.
So I'm looking at total income. So it includes fee income investment income and total net premiums.
Yes.
Net investment income growth is going to have a lot of movement and around fair value. So you always have to be a little cautious there. It's really the on the fees I think had been a very steady increase and as you would expect.
And then the premiums there are the general account premiums and so what we saw and particularly you saw it in and Q1 and Q3, you see a real jump up in money going into the general account is a bit of a safe safer Haven is what that was considered and then you'll see it that's what's causing the ebb and flow this year and.
And you'll see those numbers are up quite a bit from from what they would've been in 2019. So that's that's really there and there is money going into the general account and then overall, obviously the money going into empower is sick fund deposits mutual fund deposits and so on.
And while on a net.
Why were the net earnings on that.
Good day for empower and U S dollars $30 million below what they were and the third quarter.
Yes on the third quarter, we would have called us that had a fairly large I don't remember off top my head fairly large basis change and the third quarter and Mems.
This is just a full net earnings right and there was a basis change and empower.
Again to do that general account and.
I think it was a quite contrary I just don't have the number right in front of me from Q3.
And that's what the jump on.
Yes.
I think it was $23 million.
Yes, yes.
Our P&L on base for empower would actually help if that's the metric to use rather than the reported.
And if I if I go into a falloff here. It has to do on the source of earnings might help you there by the way that.
And then we did have a source of earnings now for the U S and we've got Putnam.
And it's got run off individual insurance, it's Scott.
Yes.
Anyway, Okay, and we can we can help with empower and that could good idea I mean, I don't look at empower as being a source of earnings type business I look at it as being <unk>.
And they'll type business so.
Nonetheless.
If I move into ex.
<unk> gains and losses.
And there's an item called expenses and fees now I assume the fees are ASO fees is that correct and then what are the expenses just the degree to which your.
And your maintenance expenses are coming in line with what you thought and why is this number running negative.
Gary I'll, let you take that one share.
Sure, Yes, I think what.
While we have is we have a certain level of expenses baked into our expected profit as you can imagine and then there are certain types of expenses, which is not really and the running of the business and some of these are planned like if we undertake a.
A short term strategic initiative over there could be a period of time.
And that's not in our sort of ongoing expected profit for the business, but it's going to cover a few quarters or a couple of quarters. Then you can see some expenses from that and again, that's all that's all part of the bottom line.
We put that and as an experience loss rather than and underlying expected profit for the business and then this quarter I think I referenced it earlier and what some of what we saw was really just a a bit of a catching up of where we had some expenses that were lower down whether it's technology, whether it's accruals for certain items. There was a bit of a catch up in Q4. So it was.
A bit of.
It jumped up and expenses that we wouldnt expect to carry through going forward, but it did cause and expected share and experience loss in the quarter.
Okay, Gerry and the fact, you say fees and that does that because you are indeed <unk> is going to be all of your.
And Thats also any variance from generally from market movements relative to what you expect it to start and the quarter and just in your asset all of your various asset related fees and.
And that usually moves a few million every quarter up or down.
Because we reset the expected profit for the.
Our fee based businesses the wealth management business is at the start of every quarter based on asset levels, but obviously it might unfold slightly differently than planned during the quarter and so that variance also goes into the fees.
So even to the extent putnam fees aren't in line with anticipated shows up there.
Yeah.
Yes that would all be and the expenses and fees and infection, Okay and.
And sorry, and just the last one if I look over at.
Management actions and changes and assumptions.
Generally towards the end of the year is when you do a lot more actuarial reviews, and if we take out.
The transaction and the gain on the sale.
Your net negative in terms of.
Changes and assumptions here.
Is that indicative of how should we be thinking of this thing going forward. Traditionally this has been a bit of a source of earnings too.
It's a great west and the past how should we think about and factored and this quarter it was negative.
Yes, I think the quarter was there was really dominated by the one large negative vitamin and Canada on the policy order behavior.
Bit of and outsize relative to what I think we've historically been seeing across our book.
Overall for the year totaled up and I think it was.
Small positive for the year on on the assumption changes.
And certainly going forward, while I'm sure there will be some pluses and minuses I think we still do expect.
And typically have seen a positive contribution from from that source. It's we can't get ahead of ourselves on unpredictable, but there's nothing fundamentally different and our balance sheet and what we would have had.
And in prior years. So obviously, we've also got the transition to our FY 17 coming up soon and so that we.
We've just got to manage that to transition over the next couple of years, but theres, nothing really different and the balance sheet. So.
And I wouldn't be surprised to see them.
Modest positive.
Going forward out of that we just have to do the experience work next year.
Okay. Thanks, Scott Thanks, so much thanks, Tom.
Our next question comes from Darko <unk> of RBC capital markets. Please go ahead.
Yes, hi, Thank you and just as a follow up to that question.
Updated policyholder behavior assumptions.
Assumptions and Canada.
If I sit back and look at Canada, and so this year expected profit growth was actually less than a percent.
So I'm just trying to understand a bit better now that you've made these changes should.
Should we be expecting or all else equal would expected profit growth is similar.
And in Canada.
<unk> rate or should we expect something different like what was it that capped expected profit growth. So low this year.
And I think they can make it to guesses, but I'd, rather and hear what.
You guys are thinking on that and maybe provide a little bit of color on what we should be expecting for 2021.
I'll start out and I'll turn it to Gary ill, just echo one thing that Gary talked about before where we saw the significant experience gains on the.
Group morbidity side.
And we tend to think about expected profit and the experience gains that are going through a period like that we look at it more holistically on and total because we're repricing. The book, we're trying to get a handle on how much of the improved experience that we've seen this year will be continuing how much of it should we be on the degree of caution.
And I think to the extent that we use caution and our expected profit we sort of set.
And then we end up seeing stronger experience gains rolling off and I think Thats. What you saw in particular this quarter you would've seen a degree of caution as we thought about go forward and then you saw actually a better outcome than our cautious approach. So there is generally the same as we as we look at some of these and Canada, but I'll, let Gary get into a little bit.
More of the color on the broader expect expected profit and Canada.
Thanks, Paul Yeah, I think.
Think the moving group was probably the largest single item and you've got some business growth and in some areas.
This is often a little bit of fee compression and the gross disclose R&D and the wealth businesses. So thats.
Thats all it but the largest change you saw year over year wasn't in the group area and it was downward and the group area and again on the results have actually been quite good but the geography was.
And with different so we've got.
As we as we've now had a couple of good quarters of experience gains and that will certainly factor into.
Our deal, perhaps taking a little less cautious view unexpected profit going into next year and then also we do have quite a number of initiatives.
<unk> hasn't talked about them and this call, but we have referred to them on prior calls just a number of initiatives to grow our business and our expected profit and Canada. So we'd expect to see some of those.
Coming online in 2021 as well so cost.
Cautious optimism for.
For some growth there, but I think some of it will just be reflecting on the last couple of quarters of strong experience.
Do we have more confidence and putting that into the expected profit next year.
Okay. Thank you for that.
Maybe just one follow up you mentioned, the longevity business and in the U K.
As being a driver and.
And we are seeing the PRA is considering altering the cash.
Capital requirements and there are some views out there and it says.
She'd be altered to the benefit of.
Players there and.
Should we expect.
It's the solvency regime is relaxed a little bit and there is more.
More capital available what do you mean.
And it would be negative I would think they'd be more competitive pricing and more just more activity and the bulk annuity state maybe you guys can and <unk>.
Linked to that a little bit is that is that a risk to the business.
As you see it.
Darko, it's Paul I'll start out by saying that.
And we like our approach to the overall longevity side, because we don't just participated and UK Bulks. We also participate with our reinsurance on a couple on risk solutions group and <unk>.
We also look to diversify out of the UK and we've actually had a fair bit of participation and Dutch longevity exposure via the reinsurance business. So we tend to look at the sort of more holistically and we look for.
<unk>, where we can add value, where and where there is.
Strong returns for us so that when sort of be a broader perspective, I think partial can give you some context around our views on if there were in fact, some and also.
And the relaxation of some of the drag from solvency to how that might play out Arsenal.
So thank you Paul you did and highlights that are on the reinsurance side. Our longevity swaps are not just in the UK. But also include a number of EU countries, most notably the Netherlands, So any change and maybe payroll impact sort of the competitive landscape and in those other countries and the.
Demand side of it from pension funds. So we're often the client is not another insurance company.
Defined benefit pension plan de risking and so I think those dynamics continue to be very very favorable. If you look ahead to where DB plans are funding levels interest rates and sort of a risk preferences of corporate sponsors and we think there is quite.
A strong tailwind there.
And our capital reductions and U K I think it might help us actually compete in the retail payout annuity market.
And we could offer even better value to customers. So it sort of cautiously optimistic.
Withstanding any regulatory changes.
And we'll continue to see strong demand for all of these types of products both on the reinsurance side and on on the direct side and the UK to retail customers.
And on mobile.
<unk> basis.
Okay, great. Thank you.
Okay.
Our next question comes from Doug Young of Deutsche Bank Capital markets. Please go ahead.
Hi, Good afternoon, just a few quick just maybe clarifications and based on on Slide 14, you removed $23 million and management actions can you.
Just let me know what does that relate to.
Doug It's Paul.
That is a.
And so we are free.
A question and I'm going to I'm going to allow Gary to take that one Gary over to you.
Sure.
And just looking for the actual page numbers here, that's what we outline a little later in the slides.
On the on slide 14.
Parker pages here on slide 14.
The assumption changes management actions, we've actually outlined those on page 17.
Yes.
Mig.
The vast majority of those.
And that adds up to <unk> 29, which is.
So that would be.
Some of the restructuring and I won't be and this restructuring and other but that's a lot of whats out there.
Three the guidance, we have assumptions and the management actions, we called out some of the specifics down below so you've got in that you've got.
The basic changes we touched on.
You've got the.
Both both the pluses and minuses you had a.
Recaptured some reinsurance and that went into that with a positive that went in there and.
And again, it's mostly just the netting out of the basis changes thats the bulk of it plus and recapturing as part of our mortality review, which was positive. We also recaptured some some mortality risk on that.
And again with deposit, bringing it down to our basis. So.
And those would be the drivers there.
Basically other than some of the big.
Strategic initiative related items, we put out but most of it is the basis changes.
And I guess, what I was confused about it because it's a gain management actions was a gain but youre actually adding back and amount and base earnings.
Such that you would think it was a loss and so that's why I was just like the $23 million doesn't really match up we can follow up afterwards.
And just walk you through guidance, Yes, Yes, and then there was a big jump and expected profits and in the U S operations and what did that relate to is that and the inclusion of the mass mutual business.
No that was not the mass future other than the restructuring that we've noted and the transaction Cross match feature was not any closer and at December 31, two.
And really.
It's pretty much split between Putnam and empower in terms of.
Increased and some of that's going to be market growth.
The.
Outlook, because we knew the.
We could see the <unk>.
Performance and how that would lead into performance fees. So we had performance fees and then the margins and the growth and empower has been driving that so pretty much split between Putnam and empower.
Okay, and then lastly, I think there is a restructuring charge and in Canada, and like I get the restructuring charges and the U S.
So I think there was one and candy correct me, if I'm wrong, and maybe that was related to some strategic initiatives if I recall.
Can you, maybe just delve a little bit into that and do you have an idea of what the cost saves that you would come from that.
Yes, Gary I'll, let you start there and then Jeff may want to provide some color on on the work, we've actually been doing and Canada in relation to.
<unk> strengthened our overall distribution and marketing efforts Gary.
Yes, so there were a couple of things and Theyre in.
And Canada, Europe, and part of that that's all that Thats, where we quoted earlier net gain on the.
The distribution.
Divestiture of GLC, our Canadian asset manager.
On to Mackenzie and so the restructuring that went with that as part of that number and then I believe there were some restructuring.
And the Canadian distribution that may be Jeff would want to touch on briefly.
The bulk of that.
Yeah, Thanks, Gary Yes.
We are very pleased with the quarter of course, and you did see some very strong sales at both on the individual side and the group insurance side in part we've made some changes and the latter part of the year on our wholesaling efforts.
Those individuals calling on advisors out in the marketplace, and we established and internal wholesale organization.
And we didn't have that muscle before and that has proved to be very very positive for us and the marketplace and thats allowed us to reach advisors like we never have before whether that'd be digitally or through other methods and as well we've strengthened our external wholesaling organization. So.
And that's the bulk of the story there the other part that Paul referenced to as we've undertaken a pretty strong total review of our distribution organization. We've added a fair bit of muscle to our value propositions and each of the markets that we operate in both on the individual and group side, so that would be the bulk of what it is.
And.
Okay, great. Thank you.
Yes.
This concludes the question and answer session I would like to turn the conference back over to Mr. Mann for any closing remarks.
Thank you Ariel.
To close I would really just like to thank everyone for.
Pending todays call.
I wish everyone, well and in terms of health and safety as we work through hopefully a bit of and opening through the lockdowns that we're all going through so I wish health and safety and to your families and we look forward to connecting with you again at the end of the first quarter. Thanks very much.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Yeah.
Yes.
And.
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