Q2 2021 Great-West Lifeco Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Great West Life co second 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.
The real good afternoon, and welcome to Great West Lifeco second quarter of 2021 Conference call. We hope you and your families are safe and healthy and we continue to encourage vaccination for all of those for eligible joining me on today's call as Gary mentioned, the cliffs Executive Vice President and Chief Financial Officer, and together, we will deliver it today is for.
Formal presentation also joining us on the call and available to answer your questions are David Harney, President and Chief operating Officer, Europe, Our actual Jamal President and group head strategy investments reinsurance and corporate development, Jeff Macmillan, President and Chief operating officer of Canada.
Ed 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 for our cautionary notes regarding forward looking information and non <unk> for his financial measures on slide 2.
These apply to today's discussion and presentation materials.
So please turn to slide for.
Before we get into a review of of the second quarter results I'll take a few minutes to touch on progress relative to other value creation priorities as.
As we continue to advance each of our business unit strategies. We're pleased to have recently announced for strategic transactions, which align with these priorities.
In the U S empowers the acquisition of Prudential's full service retirement business adds significant scale and reinforces empowers leading position in the U S retirement market.
The addition of this business is expected to increase on Power's base to over 16 million participants 71000 workplace savings plans and approximately 1.4 trillion in the U S and assets under administration.
The deal will further strengthen empowers the overall offering for participants in the sponsors through additional expertise and expanded product offering and new capabilities acquired from Prudential.
Once fully integrated by the end of 2023, we expect empowers contribution to great West life goes earnings to be 30% further diversifying the life goes earnings profile with another strong cash generative business.
The acquisition of claims secure Canada life is investing further in workplace capabilities in Canada of core strategic focus for lifestyle.
This deal increases the number of planned number of served by Canada life by 1.25 million individuals including plan members on their dependents with annual claims payments of more than $1.2 billion Canadian.
It will also enhance our ability to provide leading workplace benefit solutions by extending our presence in a growing market for T. P. A N T P P services.
We also recently announced the acquisition of Arc life in Ireland. The transaction, we will see approximately of 150000 policies and $2.1 billion in assets moved to Irish life's balance sheet. This is the straightforward integration given that we already administered the business, including management of assets backing liabilities.
These policies were previously underwritten by Allied Irish Bank.
This transaction the lines with another strategic step, we recently announced where we will be expanding our distribution relationship with AIB into a full of joint venture.
Moving to slide 5 we recently shared our medium term financial objectives as noted on this slide these.
These objectives include the benefits of the personal capital and mass mutual transactions and are supported by the lifestyles diversified portfolio and significant organic and extension of growth potential.
The expected benefits of the recently announced Prudential the transaction will be incremental to these EPS and ROE objectives.
Moving to slide 6 our second quarter results were driven by strong earnings across all operating segments base earnings were 826 million and net earnings were $784 million base EPS of <unk> 89 cents was up 17% year over year and up from last quarter.
Expected profit increased 26%, reflecting solid business growth higher markets and a strong contribution from the mass mutual acquisition.
The second quarter results reflect strong organic performance across our businesses and capture of some of the expected mass mutual integration benefits net.
Net earnings of 84 cents per share were down 9% year over year, you may recall last year's second quarter included large positive market related impacts due to the rapid market recovery work for reversed most of the Q1 'twenty 'twenty initial COVID-19 impacts.
Q2, 'twenty 'twenty..1 also includes the U S transaction and integration costs related to recent acquisitions and the unfavorable impact of UK corporate tax increases.
Moving to slide 7 we're pleased to see the very strong sales performance in Canada This quarter.
Looking first to insurance on the group side sales were strong in the small and mid sized segments with limited large case activity individual insurance sales were consistent with pre COVID-19 levels individual.
The individual wealth sales in asset growth was strong with proprietary mutual fund sales up 23% year over year.
Similar to the empowers retail strategy to capture of rollover enrolling assets Canada's group asset retention strategy focuses on maintaining our relationship with customers. When they are leaving their defined contribution plans.
Second quarter of asset protection sales increased by more than 20 per cent compared to the same quarter last year.
Our Canadian strategy includes continuing investments in digital and technology advancement of enhancements to improve customers and advisers experience.
A great example is our virtual health offering enabled by the dialogue, whereas this quarter, we surpassed more than 500000 group members and their dependents being eligible for this service, which has been so important during the Covid lockdowns.
We're proud of this achievement, which helps enhance the Canadians access to health care when they need it.
We've also been investing in artificial intelligence to improve both renewal and long term disability management for group insurance.
AI data AI is data driven insights should strengthen our ability to deliver the best outcomes for plan sponsors plan members and advisors.
Moving to slide 8 empower its strong growth trajectory of continued this quarter with large plan sales driving of year over year increase combined with strong growth in the core and retail segments.
Power's retail business continues to accelerate with total retail wealth management anyway, now exceeding the U S $40 billion.
This includes empower IRA and personal capital of.
Of note empower of IRA assets have doubled in the last 2 years from $10 billion to 20 billion on the back of our existing model, even before leveraging personal capital capabilities.
We're pleased that person on the personal capital business has been making significant progress in signing up new client assets and is running ahead of our expectations at the time of acquisition.
The integrations of mass mutual and personal capital businesses are progressing well.
We achieved the U S 48 million of an annual pre tax run rate synergies to date related to the mass mutual and are on track to reach our U S $160 million target in 'twenty to 'twenty 2.
Moving to slide 9.
Assets under management at Putnam of grown by U S $30 billion year over year to just under 200 billion net.
The net outflows of $3.7 billion were mainly from fixed income products, while equity products saw net inflows investment performance continues to be strong with 24 of funds, having 4 or 5 star Morningstar ratings the cause.
On by the impact of market growth on the AUM and the shift in flows to equities drove strong fee income and putnam's core margin improved to 13% in the quarter.
1 of them also launched its first actively managed Etfs, which are based on 4 of the friends, leading equity strategies, including 2 sustainable funds.
Moving to slide 10.
Europe demonstrated very solid commercial performance this quarter with strong underlying performance in all 3 operating countries.
Notably individual wealth sales are now higher than pre pandemic levels with strength in the U K, Ireland, and Germany and.
<unk> client retention in all countries continued to be strong supporting another quarter of positive net inflows.
Excluding the impact of the sale of the MSC business in Q3 'twenty 'twenty.
Assets under administration are up 13% over the last 12 months.
We're pleased with the continued performance of our equity release mortgage business as it helps our customers use the value in the U K residential properties to gain financial flexibility on their retirement.
Our bulk annuity pipeline is building and we're actively engaged in quotation activity with potential for sales in the second half of this year.
Moving to slide 11.
Capital and risk solutions had another solid quarter with expected profit growth of 10% year over year.
The quarter over quarter decline was largely due to currency impacts the pipeline for new business remains strong in both structured life and longevity and we completed 2 new longevity reinsurance agreements in the U K during the quarter.
With that I'll now turn the call over to Gary to review the financial highlights over the you Gary.
Thank you Paul Please turn to slide 13.
Base EPS of <unk> 89, tenths of it was up 17 per cent compared to the prior year due to the business growth improved market levels and the significant acquisitions, we made last year.
On a constant currency basis, which takes account of the sharp decline in U S dollars since Q2 'twenty 'twenty.
Base earnings were up 22 per cent.
All of core segments of again delivered strong base earnings results and I'll provide highlights of momentarily.
Net EPS of 84 cents was the decline from last year, largely due to several market rebound related the positive impacts experienced in Q2, 'twenty 'twenty that were excluded from base earnings the.
The excluded items this quarter were primarily cost related to the U S acquisition last year as well as the recently legislated U K corporate tax rate increase.
On a segment basis, starting with Canada base earnings for 293 million down 7% from a strong Q2 last year.
Business performance was good with expected profit up 8% and insurance results across life health and disability producing a net gain.
Canada also saw a solid contribution from U of enhancement, although down from the elevated levels seen in Q2 'twenty 'twenty.
Favorable outcomes on tax matters pardon me the office at 1 time expenses and asset impairment items.
In the U S base earnings were up significantly from Q2 'twenty 'twenty the.
The acquired mass mutual business continued to perform well, adding 63 million to base.
Including some early expense synergy gains and strong fee income.
This also included the positive 7 million true up from Q1.
Customer retention has been excellent and integration activity is on track.
Personal capital continues to be profitable on in force, but recorded of base loss of $9 million as we continue to invest in new customer acquisition to fuel growth and future profitability the Roe.
All of our personal capital digital capabilities to benefit the broader empower client base continues on schedule for later this year.
Excluding mass reach you on personal capital and Power's base earnings essentially doubled year over year as the result of higher markets. That's the.
On the expense management and strong organic growth.
And on the results also improved sharply year over year, while T capital showed less of the game than the rebound related gains in Q2, 'twenty 'twenty. If the revenues are up due to the growth in the U M and in particular in equity mandates relative to shorter duration fixed income.
In Europe base earnings increased 3% good underlying performance is in the U K, Ireland, and Germany were driven by continued recovery in sales favorable insurance experience and strong yield enhancement.
It was partially offset by net 1 off negative tax adjustments of $32 million.
Capital and risk solutions saw another quarter of strong base earnings growth up 9% over Q2, 2020 and up 15% on the constant currency basis, which reflects the substantial portion of that segment's earnings in U S dollars.
Covid continue to impact the mortality rates, though the financial impacts remain modest with higher claims in the U S like reinsurance business being offset by experience in the European longevity business.
Turning to slide 14.
We've added an additional table this quarter to show the more material tax impacts by segment.
There were several items this period in part due to a backlog of matters with tax authorities due to COVID-19.
Base earnings items are typically interpretation and audit related issues from tax filings that have been resolved either positively or negatively the heating period relative to the provisions established ita.
Items excluded from base would typically be those related to tax legislation changes such as the deferred tax liability Inc. Crease of rising this quarter from the recent corporate tax.
The increase in the U K.
The overall impact of these tax matters was not material.
Turning to slide 15 the.
This table shows the segment and total life of those sorts of earnings from our base earnings perspective, the lines for management actions and changes in assumptions and other as well as certain market related items and the experience gain losses are excluded.
Expected profit was up 26% year over year, notwithstanding some currency pressure from the decline in the U S dollar.
The majority of the growth came from the U S segment with the addition of Matt speech on personal capital plus the increased fee revenue from higher stock markets and organic business growth.
The other segment showed good growth as well with Canada, and Europe benefiting from higher fee income and capital risk solutions from continued business growth.
Regarding new business impacts, we saw an increase in new business strain in the U S, which now includes personal capital on mass mutual and that's the reminder of the U S. Strain is on investment contracts and represent the business acquisition costs that cannot be deferred on dry for us.
On the flip side, the benefit of future margins, including the margin Street recover those acquisition costs will come through the expected profit line in future periods.
New business strain was lower in Canada due to pricing actions taken in 2020 and lower in Europe as higher sales volumes in Q2. This year covered more fixed expenses that occurred last year.
Experienced gains contributed positively in the quarter and I'll cover these on a later slide.
The earnings on surplus of $21 million is down from a strong result in the prior year, which had been boosted by large seed capital gains on the sharp market recovery in Q2, 2020, as well as realized gains on available for sale assets last year.
The effective tax rate on base shareholder earnings was 9%, reflecting primarily the jurisdictional mix of earnings with the contribution from settling certain outstanding CRA matters as noted earlier.
Turning to slide 16, the <unk>.
Table on this slide is a reconciliation of base to net earnings highlighting the key items that are not included in base earnings in.
In addition to the tax matter noted earlier I would highlight the personal capital transaction costs.
Call an element of the purchase price was the contingent consideration payable in December this year of next year provided certain targets are achieved.
Just on the strong performance of personal capital to date, we've increased the provision for this contingent consideration.
Please turn to slide 17 this.
This table shows the segment and total life go net earnings results from a source of earnings perspective.
It combines the information from the base earnings at the OE with adjustments for the excluded items on the prior slide and it is included for completeness.
The line labeled other is where we record the integration costs and the transaction costs mentioned earlier I'd note again that these are all pre tax numbers.
Please turn to slide 18.
These tables expand on the experience results as well as the management actions and changes in assumptions to highlight various items in the quarter some of which we have touched on already.
As shown on the chart on the left yield enhancement continued to contribute positively, particularly in Canada and the U K, we continue to originate a steady a steady volume of the equity release mortgages in the U K on an improving residential property backdrop.
The market impact on liabilities arises in the U K while.
While property prices have improved the growth rate pick up from last year's downturn was not quite as high as assumed in the actuarial liability calculations, which resulted in a modest impact on future cash flow projections as we true that up this quarter.
I'd also call out there was a gain of positive combined net impact of mortality longevity of morbidity, reflecting the benefits of our diversified book of business.
Expense variances were primarily due to project spend mostly in Europe and credit related impacts for again negligible this quarter, reflecting the quality of the portfolio.
Moving to slide 19.
This slide highlights operating expenses by segment, while expenses are up notably year over year. This is to be expected given the growth in business and expect the profit both organically and through M&A.
Expense growth in Canada can be thought of in roughly 3 equal pieces. The first is more normalized growth aligned with the rebound in sales and operational activity volumes.
The second is increased sub advisory fee expenses following the GLC Mackenzie investments transaction late last year and then the third is just the number of 1 time items.
In the U S. The expense increase is driven by mass vitro on personal capital acquisitions, which added $156 million of expense compared to last year.
In Europe in capital and risk solutions expense growth is in line with business growth plus some additional strategy related costs in Europe.
Please turn to slide 20.
The Q for.
Book value per share of $23.70.
It was up 8% year over year, driven largely by increased retained earnings given the solid results in each of the pants for quarters.
Currency movements had been a headwind with the strengthening Canadian dollar, but this has been largely offset by pension related to other comprehensive income given the increase in interest rates the.
The lie cat ratio of candidate the line remained strong up 3 points from last quarter. The primary impact came from retained earnings at Canada life market movements also helped with the bit of a pullback in interest rates. Following the sharp price in Q1 and continue stock market growth. In addition, as noted in recent quarters. This also includes the.
<unk> phase in of the new most adverse like cat scenario, which impacted the ratio of by 1 point.
And assuming we stay in this like had interest scenario the full impact will continue to be smoothed in over the next 2 quarters at just under 1 point of quarter.
And finally, just as a reminder, lifeco cash of <unk> 9 billion is not included in the light cat ratio.
That concludes my formal remarks back to you Paul.
Thank you Gary.
Please turn to slide 21.
Looking ahead, we will continue to maintain a high level of vigilance around COVID-19, focusing on the safety of our employees and customers while closely monitoring risks in the markets, where we operate but.
But at the same time, we will continue to seek out both organic and inorganic growth opportunities.
Over the last 2 years, we've taken steps to transform great West life <unk> portfolio through disciplined capital deployment to drive both organic and inorganic value creation.
Following the sale of the U S individual markets business in June 2019, we have proceeded to grow our U S retirement business in empower and reinforce our leadership position through a series of strategic and value enhancing transactions at.
At the same time, we've extended our market leading positions in Canada in Europe with several tuck in acquisitions in the wealth and insurance spaces.
We are confident in our ability to meet our medium term EPS and ROE growth objectives supported by the expected benefits of the in flight personal capital and mass mutual integrations.
On the potential benefits of the recently announced Prudential transaction will be incremental to this growth.
As we carry on with the integrations of personal capital and mass mutual and work towards the successful close of the Prudential deal. Our focus remains locked on achieving our integration objectives, including strong customer retention. The successful migration of planned participants and the achievement of synergies thus.
That concludes my formal remarks Ariel so please open the line for questions.
Thank you we will now begin the question and answer session.
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Our first question comes from many Grumman of Scotiabank. Please go ahead.
Hi, Good afternoon, just a first question on.
The commentary you ended up for it on Covid, just wondering if theres any sort of the message and that is that just the general statement of conservative statement or are you seeing anything or watching anything specifically.
As it relates to the evolution of of Covid here.
Just wondering about that first of all.
Thanks, Matthew Paul No Theres, nothing Theres nothing loaded on that.
Just commenting on the fact that we continue to think about our return to work strategies, ensuring that we're looking we're set up as well as we possibly can be the serve our customers. So that's number 1 and to keep our employees safe and clearly and we just need to remain vigilant some vigilant on not sort of lose sight of the fact that.
There is transition and change the continues in this as we.
<unk> into a post COVID-19 environment.
Got it and then just on on putting them.
About our sales of short duration income products slowing due to lower yields I'm just wondering what your outlook is.
In terms of fixed income sales going forward.
And at this point are you, making any changes in product line ups in relation to what youre seeing in terms of debt.
Demand for for fixed income.
Thanks, Manny I'm going to turn the question over to Bob rental spot.
Yeah. Thank you for the question Matt.
There are no changes for the.
Fixed income line up obviously, we do have on.
Altra short duration, we have of short duration bond and we go up the duration of the ladder. So we do provide choice and fixed income we're very comfortable with that we have rolled out in the.
This quarter for actively managed Etfs, but they're all focused on equity too in the sustainable area..1 in large cap growth of 1 on large cap value, but our fixed income line remains the same.
Thanks for that.
Our next question comes from Gabriel the shame of National Bank. Please go ahead.
Hi, Good afternoon, a couple of 1 quick numbers question here, the 52 million U S or from mass mutual does that include financing costs or the metal financing costs I'm just trying to line that up against the you know the.
The 'twenty 'twenty 2 earnings target you have for that business.
Gary thus for him.
Yeah, that's that's after the the.
The financing and the amortization cost.
So on that basis, it's looking like.
All of the.
23 of 2 targets around 220 million in the U S.
And your despite per cent off of either but you know.
I'm using your presentation of information there and converted the Canadian to U S dollars the web.
The.
But the a reasonable number.
Yes.
Uh huh.
Gary I'll, let Jim speak to the it looks like.
Yeah, I think the the wear.
I think about this is obviously the acquisition is off to a good start.
The employees of transition to overwhelm the client retention has been good.
The integration planning Golar on track.
The I break it into a couple of pieces, so on the expenses and synergy side, which would be part of our ultimate.
Mhm.
Your ultimate targets.
We've achieved the on a run rate basis 48 out of the 160 <unk> target.
And we're still targeting the $160 million on the revenues, obviously, we've had a real tailwind for the market, which is good obviously, there's some fluctuate. So we're not really ready to predict what it might mean at the end of integration next year, when we sort of identified the run rate target, but certainly we're off to a good start.
The little bit of a headwind from currency translation, but.
I think the market tailwind has been helpful. So it's really how how you want to translate those current tailwind into the the down the road targets, but we're certainly off to a good start.
And then if I look at empower excluding that spans the label might look like earnings were up.
The double the year over year or anything of markets or is there anything unusual in there.
Okay.
Gary why don't you start with that 1 but then you can maybe pass it onto the edge.
Yes, I would do I just it was really disagreeing there was capable of and it was and then overhead which is that the the markets certainly are driven up the the revenue and we've had good growth as well the over that over that year of just organically. So you've got those are those 2 things coming to bear, but it maybe I'll, let ed add more color.
Yeah. Thanks, Gary.
I would just add that the market certainly has benefited us but we've also seen really strong organic growth, but we're also seeing.
Really solid growth in our managed account the discretionary managed account business, that's up pretty materially year over year, obviously benefits from the market, but if you look at.
The net flows and contributions there of new sales, it's up it's up pretty good.
Pretty well so.
It's a combination of the number of factors.
Okay, and just the last 1.
The other comment I would the other comment I would just make Gabriel is on the expense side.
You know really really strong expense discipline.
While expenses were certainly up.
Morally driven by the growth in the business.
Brian you isolate growth of just and just.
Look at sort of core operating expense.
No year over year was on the <unk> basis it was.
On a pretty benign.
Yeah, Okay I appreciate that and then the last 1 the.
Tax rate base, 9% reported is 12.
I mean, I don't know if the even applies the company besides the great west but of the global minimum tax even on the radar screen.
So the only thoughts.
Gary I'll, let you take that 1.
Sure Yeah, we're certainly watching the developments on the global minimum tax it doesn't affect a lot of our jurisdiction just because of the most of the jurisdiction for in our or at least at that level.
But we are keeping an eye on the developments said, that's 1 Gabriel weighted the the Devil is going to be in the detail as the proposals take shape over time. So some of our jurisdictions more of the reinsurance might be impacted but we'll have to we'll just have to see how that plays out over the next few years frankly.
Okay. So the reinsurance like the Caribbean the area that would be an area of it could be effective.
It it could be depending on how the the final rules come out with it's just way too early for us to know yeah, Okay, but we are the following it for sure.
Okay welcome to all of the rest of your summer.
Thanks, Chris Thanks Gabriel.
Our next.
Question comes from Tom Mackinnon of BMO capital. Please go ahead.
Yes.
Yeah, Thanks, very much good afternoon.
Just a couple of questions here first on the you mentioned the U K U K corporate taxes on the <unk> adjustments, but so how should we be thinking about any change in U K corporate taxes affecting your guidance of low to mid double digit our base earnings tax rate.
Yes ill, let Garry take this of that 1 first Gary.
Yeah I think.
The way I think of that Tom is that that.
Low to low to mid.
Double digit tax rate is on all of life co. So you'd have to look at just the U K piece and I think that day. The rate went from maybe 9 I'm sorry of 19, 2 to 23 of 25. So it's a it's a fairly modest increase on just the just a portion of our earnings so I don't see it changing we've given the range I don't see it.
Really moving the range that materially.
Yes.
Tom I would like to all of that.
From 19% to 23% on a.
On a meaningful but of.
Nowhere near a majority of our earnings so as a result, we would not see it as having a material impact on our our projected growth.
Okay upward pressure on being on line.
Okay.
So just a couple of quick ones with respect to empower if I look at just sort of quarter over quarter. The.
General account.
The U M.
Really in terms of the U S dollars was actually down a little bit yeah. Your spread income that's sort of your premium income plus investment income.
Less the total paid or credit to the policy holders that was up substantially quarter over quarter.
On the U S dollar so.
Was there anything what happened here in the desert.
Maybe while you're out of it you can explain why.
All of the experience of gains on a base for us.
Earnings basis, where in the U S. Maybe was there anything in there related to empower items, because basically out of only 2 of the 59 there was related.
So maybe on the spread income in the on the experience gains and losses in the U S.
Gary I'll, let you start with that 1.
Yeah.
Yeah. So.
On the on the spread income that the the quarter over quarter move.
I'm trying to think of what would drive that off top my head.
On the.
So I'll come back when we might have to ask you follow up with that 1 after something certainly in terms of I know with bringing the mass mutual onboard in the just this year. They the theres a fairly sizeable general accounting. So that's that may have created a bit of that noise, but it shouldn't have created much noise quarter over quarter and then the.
In terms of the experienced gains in the U S. I mean more of that whilst debt did actually drive a.
A fair bit of the overall, although we did have as I think we've.
It had something in the in Canada, and Europe as well.
But the the U S. Once we had some that were are some of those experienced gains where the market related impact on the fees, just obviously market when it had in the period. So some of us in and you expect the profit <unk>.
<unk> gains.
<unk> had some expense in other fee gains in the in the U S.
Both in terms of the existing block and the.
And the.
On the newly acquired debt mass mutual business. So I'm just trying to think if there is anything that would particularly call out there. There's a again a fair bit of <unk>.
Expense discipline debt added noted earlier in the U S relative to what we baked into the expected profit. So that's the geography. So that's why we're seeing when I look at the the charts here most of the U S ones where were related to expenses in fees. That's what was driving him there.
Yeah, it's funny overall expenses and fees were a hit of negative 20 post our net.
I had a negative 22 free tax yet.
I got announced.
And that's the way I mean that would be the key thing if we hadn't necessarily on empower like you have 1 for parting them that'd be helpful.
So and since then.
Follow up if we went up.
The the assets were up 6% every year, but the fee income was up 9 net empower is was there any change in mix or what what what was driving that.
Yes.
Yes.
Gary why don't you start with maybe I can speak to the nature of the factory.
A lot of the excuse of our asset base, but there's also other related fees and that can we can see growth there and.
Ed was making reference to managed accounts as an example.
Yes, I think I think that is it's more of a mixed question posed so maybe it would go straight debt on that is to have that so that's played out.
Yeah, I certainly managed accounts.
The growth year over year of is up dramatically and in managed accounts.
And so that's definitely a contributor to the mix.
But we're seeing the 9% versus 6% on assets.
We can get we can get you more more of a breakdown on that but that was the big contributing factor for sure.
Okay. Thanks, so much.
Thanks, Tom.
Our next question comes from Doug Young of data of <unk> capital markets. Please go ahead.
Hi, good afternoon.
Hello can you hear me debt, where you can hear you Doug.
Okay. There we go okay. So just from the use of capital perspective, I mean, there is lots going on I mean, you've mentioned some of these obviously at the Peru deal Youre buying the arc business for $230 million euros, and you're buying claims securing Canada I'm just trying to understand the.
The latter 2 so the arc and the claims secure is this financed with cash on hand, which I think it is or are you borrowing and should we be thinking about there being an impact on the light cat ratio from up from these transactions.
Well I'll start off by saying that they were financed with.
Cash on hand, but I'll, let garry speak to.
Any impact on line.
Sure Paul Thanks, Yeah, I mean, there's a small impact on line cat. It was in the it was less than a true all it will be once they close it would be it would be less than the point, though in total between the 2 of them.
It's the only quite modest unlike cabinets just.
For any goodwill let a comes on board and then in particular in the case of our clients, we will get a credit for the insurance related the actuarial P pads because there are there that's in your surplus allowance. So there's some offsetting credit there. So it's quite a modest impact on like that and as Paul said, it's funded from cash on hand.
Okay. So this isn't going to be material.
Perfect and then just in the description for the base results for Crs.
Longevity experience was obviously still favorable but it was less favorable just wondering if there's anything in there any trends that you're seeing and then on the same flip side and in Europe than.
Gary I think you said in your prepared remarks costs were inflated by higher strategy costs in Europe, just hoping you can maybe unpack that as well. Thank you.
Well why don't we have.
Well Marshall speak to what we're seeing on the capital on risk side, and then David Harney why don't you speak to the strategy talks that are going on in Europe.
<unk>.
Thank you Paul so turning to the claims experienced in the Crs segment all of last year, we saw elevated levels of life claims in the U S traditional block.
And then offsetting that are largely offsetting that we saw elevated elevated levels of death claims on the longevity box both in the Netherlands, I mean the U.
The U K and that trend sort of peaked in Q1 of this year, we saw particularly elevated level of excess life claims in the U S and also of very high level of excess mortality on the longevity Bucks.
That trend did continue into Q2, but at the lower level. So we were down in terms of excess.
<unk> have any cash benefit as well as life claims in Q1 in Q2 relative to Q1, this year and the great year over year quarterly comparisons where we're the <unk>.
Same as well on some mortality was adverse this quarter less adverse than the traditional block in the same quarter last year and longevity was favorable again this quarter, but less favorable than a year ago, and we're seeing improving trends in all of the markets vaccines kicking in and the death rate.
Start to fall and there are some promising signs in July but as Paul indicated in the early part of the discussion here.
Still have a watching brief on this or whatever and we don't think this is all behind us or whatever but the trends are certainly improving.
And I'll turn it over to EBIT to Axa life Europe part of the question.
Yes, so just on the Europe on the expenses and we have ongoing strategic development costs.
In Ireland, Germany, and the UK cooperatives have someone of costs in this quarter. So those cost of our relay Institute leasing the arc acquisition, which was of the modest enough size for that that I think most people will be aware of cash.
Phoenix had some other of Bulks up for sales.
Taking precedence of the ads because we had some costs associated with the Swiss investigating that all of us up.
Okay, great. Thank you.
Our next question comes from Paul Holden of.
The B C. Please go ahead.
Thank you. Good afternoon, just wanted to ask another question on on empower given your your your answers to prior questions. I mean, my takeaway from the kind of discussion on the earnings growth.
It seems like incremental revenues pretty much dropping dropped to the bottom line is that the correct takeaway and is that also a relevant conclusion going forward.
I'll, perhaps start off there Paul.
I think we are seeing strong leverage on that business.
Saying that all of the incremental revenue as the direct drop might be an overstatement, we're seeing the benefit of markets rising as well, but you know Ed was talking about the strong expense discipline that empowers. So maybe as you can provide a bit of context of the leverage we see on this business.
Yeah, I mean, it's it's clearly has the skill business and we have a I think of very good operating discipline on model.
And.
You know we're also not only we're seeing good cost controls, but we're seeing really strong revenue per participant.
And.
And that's in part.
The contribution for the market, but it's also the fact that customers are aggregating more of their assets with us so existing participants rolling in the outside of assets into their existing defined contribution plan.
For into and I are ready that they might hold with us.
So we're seeing the the leverage sort of on both sides of we're seeing really strong.
Growth in the on the revenue per participant revenue per customer side, but we're also seeing the benefits of the scale that we have and the fixed nature of the business where it is it is delivering the flow through that you referenced.
And we do we do expect that to the contingent.
So I think that go on it if it's sort of existing clients and that sort of the consolidation of assets as you talked about.
But it may not be you know 1 for 1 in terms of revenue the bottom line, but pretty close but if it's a new new corporate customer new client win that you wouldn't get the same exactly the same translation does that is that correct.
Well you have upfront expenses associated with bringing those clients on.
But if you look at the you know our average customer stays with the 16.17 years.
And so while.
While you have the upfront expense.
Those plans on those participants contribute contributed favorably to the bottom line within a relatively short period of time.
On.
Understood.
Last quarter.
There was a reference to.
And client retention.
With mass mutual of tracking higher than planned.
Is that still the case or is it kind of normalized now in line with expectation.
And the question for you for sure.
Yeah, Paul I'd say, it's still really early in the process at this stage, but the short answer is we are running ahead of plan.
But a lot of those customers does the decisions are yet to be made and so that will play out over the next several months is I think we share with you in the past we're going to begin the process of migrating customers on the third quarter of this year and the whole carryover.
Till the third quarter of next year.
But we feel really confident about where things stand at this point the reception that we've received from advisors who are.
Advising on those mass merch mutual plans as well as the customers themselves.
So the team is very confident about where we stand now in terms of our ability to do so.
Except for 1 retaining the client base.
But yes, we are running ahead of our target of at this stage.
Okay, Okay good to hear.
Last question is related to the U S 400 million line of credit repayment you highlighted that took place in July.
Just want to understand the funding for that will that impact.
<unk> cat or is it funded from the Holdco and then the second part of the question is.
With the Prudential transaction, you expected financial leverage on closed to be around 36% did that incorporate the U S 400 million repayment or not.
Gary the questions for you.
Sure Yeah. So first off the the repayment was funded out of our out of the U S. I'm.
So again some of this would have been a cash.
On the U S. A life of the holding company.
And then some of it would have been dividend did the up from great West life annuity the the empower insurance company of the AR.
Great West life annuity that would've been dividends it up in the quarter. So the funding was sort of it didn't have an impact on like that.
It's just the funded from from our U S.
Sources of cash and obviously that business has been performing and it generates a fair bit of cash.
And then sort of the second part of your question.
When we were looking at the Prudential financing, we had actually anticipated not just the 400 per actually we have anticipated that we would pay off the remaining 100 million of that facility.
As part of our overall comment on leverage once the the deals closed so we'd assumed at the full amount would be paid off by the time, the the Prudential transaction closes and certainly we're well on the weight of that.
Got it okay. Thank you.
Yeah.
Our next question comes from Nigel D'souza of Veritas investment Research. Please go ahead.
Thank you good afternoon, I wanted to follow up on the experience gains and losses. This quarter and you mentioned 1 of the doctors being favorable morbidity experience and your.
Canadian segment.
And you know my understanding would be that day.
On until the health things would track higher as restrictions are lifted so.
So could you highlight some of the trends youre seeing on on the claims side and do you expect morbidity experience or when do you expect them of pretty experienced the move towards neutral as the as things open up.
Gary why don't you start with that.
Jeff can provide a bit of insight into.
Our go forward expectations.
Oh sure Yeah. There were there were gains in Canada on the on.
On the morbidity side, the the health and disability side.
Now some of that I think is really have to think about when the quarter started so the the easing up in a in a number of places in Canada, I think he of of Ontario in particular, but some other places the easing up with later in the quarter. So I think you're still getting some of that lockdown impact in the quarter.
So that would certainly that's the 1 thing I would call out before handing over to Geoff on on where Theyre looking at the moment.
Yes, just to pick up there Gary of Nigel.
On the disability side, we continue to see strong management in that area of incidents remain stable.
Through some work we've done on artificial intelligence some of the tools that we've been able to do.
Give to our disability managers is working well with with with our customers. So.
That remains strong on the health and dental I think I think Gary pointed well due to restrictions on me.
Apprehension that has had it has led to some mild the experienced gains in the short term but.
But the lower experience rating may need to lead to some lower margins in the future, but not material.
Okay that makes sense and if I could just end on the question on the components of your experience gains when I look at the breakdown here yield enhancement was by far the largest contributor could you help me understand on the segment basis.
How's the allocated is there a particular segment that would have benefited from that component the more of this quarter or is it evenly distributed.
Gary you should take that 1.
Sure Yeah in terms of the yield enhancement this quarter and as is often the case, but particularly this quarter. It was a it's primarily Canada and in Europe and within Europe. It was mostly the U K.
I don't have the exact split but it would have been.
It may be 60% 2 thirds of Canada and then the rest are in our in the UK or in Europe, primarily the U K. So that gives you a rough idea of and that's you would often see Canada and Europe being the main drivers on yield enhancement.
Okay got it for the U S $59 million isn't really reflective of the yield on Aspen component there is that fair.
Theres I think theres very little in.
The enhanced should they they would've had some some gains I think on some of asset upgrades. It wouldn't be in the yoga enhancement a calm I don't recall, there being much of anything on yield enhancement in the U K sorry in the use of this period and just the nature of the the liabilities there there's not that much of scope for yield enhancement.
Got it okay that makes sense. Thank you.
Okay.
Once again, if you have a question. Please press Star then 1.
Our next question comes from Mario Mendonca of TD Securities. Please go ahead.
Good afternoon, so all of it.
Most of the purpose of free of relates to putting them on how patent fits in to the overall strategy of great West life will be helpful to understand is.
If cotton on is really just the stand alone business within great West life or if it has any direct tie.
<unk> integrated in some way into the strategic.
Imperative across the organization, either let's say empower our personal capital.
How would you characterize platinum standalone are integrated.
I would characterize Putnam as a strong partner with our other businesses around the globe.
Putnam has some very strong performing capabilities and we benefit from those on sell through in our wealth management offerings.
But you wouldn't the position of those proprietary because the separately branded the Putnam competes with the strong offerings.
On to those various channel.
Channel, So empower would benefit from that our European operations on our Canadian operations of some strong button of mandates that are we benefit from the performance on the flows there so I would characterize it as a strong partner.
Okay.
The other related question then from an expense perspective.
The Tottenham.
Absorb some of the expenses of the overall organization.
Well I mean by this is if pattern of more not part of the overall, great West life business with expenses throughout the organization necessarily have the increase.
That is that something you can think you can think about.
Yes.
No.
Anytime.
If it was not part of the I guess, there could always be that sort of an impact, but I don't tend to look at it in that way I look at Putnam has a strong performing.
Asset manager for other clients for Putnam clients I see it as a having some capabilities that we have of sell through opportunities across the group and I also see it as a business the.
The potential to be scaled.
On some organic benefits there, but also a potential to be scale the us.
If we could look at some transactions to scale it up where we can unlock value and that is kind of the that's the strategy of on and we remain on the strategy. So I don't tend to think of it in the terms of that you're outlining.
Okay. Thank you.
Okay.
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 very much Ariel well listen I'd like to thank everyone for attending our Q2 call.
Feel free to reach out for our IR team. If you of any follow up questions and I hope everyone can take some time to enjoy the summer on a safe and the Safeway with your families and we look forward to connecting with you.
In Q3 for our call in November take care.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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