Q2 2021 Sun Life Financial Inc Earnings Call
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Good afternoon, ladies and gentlemen, my name is Sarah and I'll be your conference operator today at this time I would like to welcome everyone to Sun life Financial second quarter 2021 financial results Conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
The host of the call is you need bitten Vice President and head of Investor Relations and capital markets. Mr. Burton. Please go ahead.
Thank you Sarah and good afternoon, everyone and.
Welcome to Sun life earnings call for the second quarter of 2021.
Our earnings release and the slides for today's call are available on the Investor Relations section of our website at Sun life Dot com.
We will begin today's remarks with the message from Dean Connor, Our Chief Executive Officer will then turn it to Kevin strain President and incoming CEO for highlights for the second quarter.
Following Kevin's remarks, mandating executive Vice President and Chief Financial Officer will present, the financial results for the quarter.
After their prepared remarks, we will move to the question and answer portion of the call.
Other members of management will also be available to answer your questions. This afternoon.
Turning to slide 2 I draw your attention to the cautionary language regarding the use of forward looking statements and non <unk> financial measures, which form part of today's remarks as noted in the slides forward looking statements may be rendered inaccurate by subsequent events and with that I'll now turn things over to Dean.
Thanks, and Eva and good afternoon, everyone. As you know this is my last quarterly earnings call and I have just a few comments before turning it over to Kevin.
It has been the privilege of a lifetime to lead Sun life for the past nearly 10 years. This is such a great business. We have a noble purpose, helping clients achieve lifetime financial security and live healthier lives, we've put clients and the center of everything we do and that plus our purpose has created a magnetic pull.
<unk> for talented employees and advisors, who want to have an impact who want to grow their careers and be part of a winning team. It's that talent and culture that has allowed us to execute effectively on our 4 pillar strategy.
I do want to thank our investors, who have supported Sun lifes growth strategy and this management team over time, we have benefited from your many questions and suggestions and we've always imagined that you were in the room alongside us as we made critical decisions around the allocation of your capital.
I also want to thank the many sell side professionals, who have followed sunlight and who have invested the time to understand our story and our future prospects.
The company will be in great hands, with a strong and experienced executive team and with Kevin strain at the helm Kevin's skills character and his experience leading businesses in Canada, and Asia and more recently as our CFO have uniquely equipped him to lead Sun life onwards to future success and with that.
I'll now turn the call over to Kevin.
Thanks, Dean and good afternoon, everyone over the past 10 years Dean has built a strong foundation for Sun life underpinned by our 4 pillar strategy and our focus on clients, while nurturing our strong culture, where our people can thrive Dean is leaving behind a lasting legacy of Sun life under Dean's leadership. The company has made key strategic decisions that drove.
Top quartile returns for our shareholders with annualized total shareholder returns of over 18% during his tenure.
On behalf of our employees advisers and partners around the world I want to thank Dean for his guidance inspiration and leadership over the past 15 years. He has been with Sun life Dean you're returning from Sun life on a high note and I know you will continue to follow the company closely and will be cheering us on.
We wish you the very best.
Turning to slide 5 for the highlights from the second quarter reported net income of $900 million was up $381 million underlying net income and earnings per share increased 19% from the prior year, reflecting strong growth across our businesses driven by investments and our people and technology as we continued to emerge from pandemic conditions.
We also generated a strong underlying return on equity of 16% and the second quarter.
With a <unk> ratio of 147% net Sos, we continue to have a strong capital position, which provides flexibility and the opportunity for capital deployment, while we've been operating and executing in a challenging environment over the past 18 months, we've maintained a relentless focus on our purpose of helping our clients achieve lifetime financial security and low.
Healthier lives, we continue to invest and ways to make it easier for clients to do business with us and June we announced that clients and Canada between the ages of 18 to 40 can now qualify for up to $5 million and life insurance coverage without the need for lab exams. This means that approximately 75% of clients may not require a lab.
Exams going forward, we are transforming our underwriting processes through data and analytics using predictive models to replace previously required health test at.
At a time when health and financial security have never been more important we are making life and health insurance more accessible than ever before for our clients.
And Asia, we have made substantial investments and our technology tools and products for example, and Hong Kong, our mandatory Provident fund offering continues to outperform the market. We are now ranked first and net inflows and third and assets under management based on second quarter results.
We're adding new and innovative capabilities to our group businesses and the U S. On July 1 we completed our acquisition of clinical care, a leading U S health care and navigation and medical intelligence provider, which is now part of our U S stop Watson health business.
Sun life, and political care create a new dynamic that will improve care outcomes and costs for our clients.
Clinical care and health advisors help members navigate the complex U S health care landscape to identify the best possible treatment options for their unique conditions, leading to better client health outcomes.
Sustainability continues to be a strategic priority for Sun life.
Our commitment also includes sustainable investing recently, MFS and infrared capital our infrastructure manager and SLC management joined the net zero asset manager Alliance and Q2. We also made several investments across our private fixed income portfolio that aligned to our sustainable invest and goals and more importantly demonstrate the pause.
The impact we can have on society. These includes sustainability linked financing to our North American shipping company that is reducing the carbon intensity of its fleet annually, while keeping in line with ambitious quantifiable decarbonization targets. We also invested and green bonds, where proceeds will be used to improve the efficiency of certain <unk>.
Buildings. These are examples of how we continue to incorporate sustainability into our investment decisions.
And the second quarter wealth sales and asset management gross flows were up 8% from prior year on a constant currency basis, driven by strong growth sales at SLC management and higher wealth sales in Asia and Canada.
In Q2, 96%, 61% and 93% of Mfs's U S. Retail fund assets ranked in the top half of their Morningstar categories based on 10, 5 and 3 year performance from respectively.
Moving to digital highlights on slide 6 we look at how digital is helping us deliver on our purpose of helping clients achieve lifetime financial security and live healthier lives and Canada, our digital coach Ella continues to connect with our clients, helping them save for their future and ensure protection of their loved ones and the first half of the year <unk>.
This drove nearly $500 million of wealth deposits and the sale of over $650 million and life insurance coverage for our clients.
And the U S. We are helping clients get the coverage they need through new offerings and digital capabilities.
An example of this is the expansion of our online dental health center capabilities, which enable clients to receive dental estimates and access advice virtually from leading dentists. We also continued to advance digital and Asia and the second quarter, 74% of new insurance applications were submitted digitally and increase of 41 percentage points.
Over Q2 last year.
Stepping back we're pleased with the results from life achieved and the first half of the year, we've delivered double digit earnings growth strong Roe.
And maintain a solid balance sheet that provides us with significant flexibility and.
And some parts of the world have slowly started to open up we've received many questions about our future of work status last month, we outlined our guiding principles for our employees for the post pandemic future work.
This includes supporting flexible work styles revolving around our client and business needs and.
And our offices, we're committed to providing safe and healthy working environment that are designed to spark collaboration productivity and creativity.
And we want the office to be a magnet for employees at times when face to face collaboration is more effective and we're making investments and our office spaces to enable this.
And whether employees are working from home or in the office, we're committed to providing them with a great seamless work experience with the tools technology and support they need to do their jobs are.
Our approach to a hybrid working model supports our goal to attract and retain talent and accelerates our ambition to be 1 of the best insurance and asset management companies and the world.
On a personal note I'm looking forward to taking on my new role as CEO I'm committed to building on Sun life success, and keeping our clients at the center of everything we do while remaining focused on our key strategic priorities, including continuing to push and support our digital innovation and transformation.
Making sustainability, a key part of our strategy across insurance and asset management.
Leveraging our asset management strength.
Mastering and a diverse eckerle and inclusive workplace and above all nurturing our strong carrying optimistic sun life culture, where employees can develop and thrive.
With that I will now turn the call over to manage it and who will take us through our financial results. Thank.
Thank you Kevin and good afternoon, everyone. I also wanted to take a moment to recognize dean tremendous contributions during his tenure as CEO and wish him all the very best.
Let's turn to slide 8 for an overview of our second quarter results.
Sun life delivered good results with strong momentum across all our business pillars.
<unk> net income of $900 million was up 73% from the prior year, reflecting a recovery and market related impacts as well as higher underlying net income.
Underlying net income of $883 million was up $144 million or 19% from the prior year, driven by business growth and favorable credit experience and a more normalized effective tax rate for the current quarter.
These factors were partially offset by unfavorable foreign currency translation, lower investing activity gains and higher incentive compensation, reflecting strong year to date performance across all of our businesses.
Q2 underlying earnings per share were $1.50, and an underlying return on equity was 16%.
Assets under management climbed to nearly 1.4 trillion, reflecting market value growth and strong net flows and SLC management.
For the first half of 2021, our wealth and asset management businesses generated $14 billion of net inflows compared to $8 billion and the first half of 2020.
Book value per share was up 2% from the prior year, reflecting strong reported net income growth, mostly offset by foreign currency translation.
Excluding impacts and other comprehensive income book value per share increased 10% over the prior year.
Our balance sheet position remains strong.
Q2 lockout ratios of 147% at SLS and 125% of the SLA, we're up 6 percentage points and 1 percentage points, respectively from the prior quarter.
The main driver of the increase and <unk> was the issuance of $1 billion of limited recourse capital notes, which added approximately 5 percentage points of Leichhardt.
The issuance also increased holding company cash of $3.2 billion and a financial leverage ratio ended the quarter at 24, 7%.
Subject to regulatory approval, our intention is to redeem 2 series of fixed rate preferred shares totaling $725 million at the end of the third quarter.
Upon redemption Selloffs like cat ratio will decline by approximately 3 percentage points and the financial leverage ratio will decline by approximately 2%.
Slide 9 highlights the performance of our business groups.
Given the significant impact of foreign currency translation on a year over year results. We have also provided earnings growth and constant currency on this slide.
Canada has reported net income of $404 million and Q2 was up $287 million over the prior year driven by favorable market related impacts.
Underlying net income of $290 million increased $9 million, reflecting continued business growth and insurance and wealth management as well as favorable credit experience.
This was partially offset by a lower contribution from investment investing activities as the prior year included gains related to investments initiated while credit spreads were more favorable.
The U S reported net income of $157 million was up $39 million versus the prior year, reflecting higher underlying net income.
Underlying net income of $165 million was up $42 million or 51% on a constant currency basis, driven by favorable mortality and morbidity and credit experience as well as higher investing activity gains.
This was partially offset by unfavorable expense experience and higher incentive compensation costs, reflecting strong results and the first half of 2020.1.
The U S group benefits business achieve and after tax margin of 8.5% on a trailing 12 month basis up from 7.5% and the prior year.
Asset management reported net income was $221 million down $2 million from the prior year.
This reflects fair value adjustments and MFS share based awards and the impact of a UK tax rate change and SLC management, largely offset by underlying net income growth.
Underlying net income from for MFS of $286 million was up 41% on a constant currency basis, driven by strong average net asset growth, partially offset by higher variable compensation expenses.
MFS ended the quarter with a pretax net operating margin of 39%.
SLC management generated underlying net income of $25 million, which was down from the prior year due to lower performance fees, partially offset by contributions from the infrared and Crescent acquisitions.
And Asia Q2 reported net income was $143 million up $17 million year over year.
This was driven by improved market related impacts, partially offset by unfavorable foreign currency translation.
Underlying net income of $152 million was up 17% and constant currency driven by business growth and favorable credit experience.
This was partially offset by higher compensation costs and unfavorable mortality experience and the India joint venture.
Corporate reported net loss of 25 million improved from the prior year, driven by higher net tax recoveries and the quarter, partially offset by unfavorable expense experience and lower seed investment gains.
Slide 10 provides an overview of our sources of earnings.
Expected profit increased 9% from the prior year <unk>.
Excluding the asset management pillar and the impact of currency expected profit was up 7% driven by business growth and Canada and Asia.
New business gains increased by 21 million and for the prior year, reflecting strong sales growth and Asia, along with robust sales growth and in individual insurance and Canada.
Experienced gains of $99 million were primarily driven by market related impacts.
Earnings on surplus of $118 million declined $37 million from the prior year, which included higher seed gains.
Turning to slide 11, which outlines insurance and wealth sales on a constant currency basis.
Individual insurance sales were up 52% driven by higher participating policy sales in Canada, and and an increase in sales across most markets in Asia.
While sales in Asia have improved we are seeing renewed lockdowns and some countries as a result of new variants.
We are working closely with our local teams to monitor the situation.
The slight decline and group benefit sales was driven by lower stop stop loss sales and the U S and flat sales growth and Canada. As you continue to see fewer large cases coming to market and the current environment.
While sales increased 63% on a constant currency basis compared to the prior year and.
And Canada sales increased 47%, reflecting higher individual wealth and group retirement services sales.
Asia sales increased by 81%, reflecting growth and mutual fund sales in India money market sales and the Philippines, and Hong Kong pension business, where we are now the market leader and net inflows.
Asset management gross flows increased 3% year over year, driven by higher gross flows and SLC management, partially offset by lower sales and MFS.
MFS ended the quarter with U S $5.6 billion and outflows, reflecting continued inflows and retail which for more than offset by institutional outflows.
SLC management had strong net inflows of $7.6 billion, which will generate good fee income and the coming quarters.
Value of new business generated and the second quarter was $284 million up 46% and constant currency compared to the prior year driven by strong sales in Asia and Canada.
Turning to slide 12, operating expenses were up 15% from the prior year.
Excluding the impact of currency run rate expenses from acquisitions and fair value adjustments expenses were up 17%.
8 percentage points of this increase was driven by higher incentive compensation and sales related costs, and our asset management businesses, reflecting strong revenue growth.
Another 8% another 8 percentage points was driven by higher distribution costs, and Canada, and Asia, reflecting robust sales growth as well as a higher accrual for our annual incentive compensation plan.
The increase and the annual incentive compensation plan accrual reflects strong business performance and the first half of the year versus weaker year to day performance and the prior year, which included the impact from the onset of the pandemic.
The remaining 1% increase was attributable to continued investment and our business, partially offset by savings from our focus on disciplined expense management.
To conclude Q2 was another good quarter, highlighting the strength of Sun life balanced set of businesses, which operated at attractive markets with significant growth opportunities.
While the pandemic has resulted in a challenging operating environment. We are pleased with the resiliency and strength our businesses have demonstrated and.
We're continuing to invest and initiatives to further enhance our client experience digital capabilities and transform the way, we work and business opportunities to drive future growth now.
Now I'll hand, the call back to you need for Q&A.
Thank you manage it.
To help ensure that all of our participants have an opportunity to ask questions. This afternoon, I would ask you to limit yourselves to 1 or 2 questions and then re queue with any additional questions. I will now asks there as opposed to participants.
Thank you.
I ask a question you will need to press Star then 1 on your telephone to withdraw your question. Please press the pound key.
Standby, while we compile the Q&A roster.
Our first question comes from the line of Humphrey Lee with Dowling and partners. Your line is now open.
Good afternoon, and thank you for taking my question before I ask the question and <unk> and I congratulate my congratulations to team for your retirement.
And a pleasure working with you.
My first question is related to the U S group benefits business.
1 of the health insurance and the U S has talked about rising medical costs.
On the earnings call today.
Topic of medical inflation and is not new but given the broader inflation concerns how do you see inflation affecting yourself losses stop loss business.
Generally what have you been.
Your observation so far and have you looked at how to address it.
Good afternoon Humphrey, it's Dan Fishbein, Thanks for the question.
Generally when we look at medical inflation and the stop loss business, we're able to predict that in advance and build that into our rates and actually thats been.
1 of the drivers of growth and premiums that we have and the business, but at the same time. There are obviously somewhat unusual effects from the Covid pandemic, we're seeing and our book of business. So far is 1 of the reasons why we have lower morbidity and that business. This year is likely.
And some delays and treatment due to the pandemic and that plays out in later periods and lower stop loss claims now that's not the only reason we're seeing favorable results. The favorable morbidity is obviously also related to good performance in our underwriting and pricing we.
We do have some concern about delayed treatment, obviously on behalf of our members and that's actually 1 of the ways that we can use our new pinnacle care acquisition to help guide people to the right care at the right time, but we would expect that in subsequent periods, we may see some.
Increased utilization as compared to the.
Depressed level of utilization that we've seen in the past couple of quarters.
Yes.
That's more on the pent up demand or alltel normalization.
And <unk>.
Given some of the kind of and the pricing dynamic is going on have you seen any time.
For instance, the deviation of medical cost inflation from.
And what you're seeing versus what you have and your pricing assumptions.
Not at this point and again actually we're seeing quite the opposite because of.
Lower care or delayed care.
But as far as the overall trend and Theres always medical inflation and that's been a part of medical care and the U S for for a very long time.
And we always have a forecast, which we work with outside actuarial firms to confirm as to what medical inflation will be and build that into our pricing.
And so at this point beyond some of the anomalous impacts related to the pandemic.
Not seeing anything that would suggest for example, a substantial increase in the level of medical inflation.
Understood.
Second question is related to the straw SFC.
I think this is the second quarter and the role that you have to secure large capital commitments, that's driving higher net.
Since these flows haven't been really funded like how should we think about the lead time.
Getting these inc flows versus turning them into fee earnings assets that flow through your earnings.
Humphrey This is Steve peacher, thanks for that question.
Youre right to point out that we've had a couple of strong quarters of flows and I think importantly, it reflects capital raising across the broad platform at SLC. So we're we're very pleased by that and when we raised and that capital comes in different forms sometimes and this was a quarter where that was reflected.
And that money comes into closed end funds where investors commit.
Capital and then we invest that over the coming quarters, sometimes it comes from winning a new separately managed account that would be funded immediately.
When we get money Thats committed to a closed and vehicle like and alternative credit fund our new real estate fund there is usually an investment period of.
2 to 3 years to get that money invested and it often gets invested much more quickly than that so it depends on the type of commitment we get but it's but.
It's not an immediate flow, which sometimes it is you can usually expect that that money will be invested and turn into fee paying AUM over the over the coming year or 2 we do have some funds, where we get paid fees on committed capital even before we invested it but I would say that's more of the exception and the door.
Got it thank you.
Thank you.
Our next question comes from the line of mini Grumman with Scotiabank. Your line is now open.
Hi, good afternoon and.
I wanted to first off Dean wish you best of luck and your new chapter and I Hope you get the Gulf more in terms of questions.
And I just wanted to revisit the subject of return of capital and.
First off from.
And the dividend perspective Youre running.
And a payout ratio below your target range and I'm wondering.
When the Greenlight finally comes from where do you want to be do you want to be at the midpoint and.
How fast do you think you want to get there.
And many it's it's Kevin and thanks for your question and the dividend, we remain committed to paying out dividend and the 40% to 50% of earnings range that we've talked about and in the past and getting to their once the restrictions are lifted as you've noted and our intention would be to do like we were before.
And that earnings would grow dividend.
Dividends will grow alongside of earnings and sort of the 8% to 10%, which gives the investors kind of a sense of what they can expect from the from the dividend. So that it's sustainable and it gives us sort of good growth perspective, So we're still looking at 40% to 50% range.
So just I understand you correctly, there is it reasonable to assume that youre going to catch up and get.
And to that range before growing more in line with sort of regular earnings growth is that yes, yes.
That's right. That's how you should think about it we would.
And we're quickly get into the range and then we would go back to sort of that sustainable 8% to 10% growth.
Alongside earnings.
And then just on the buyback from.
A lot of excess capital there definitely capacity to do buybacks..1 they are allowed and if I look back pre pandemic.
2018, 2019, you were buying back about 2%.
Is it reasonable to assume that you could buy back more than that is that something.
Youre contemplating at this stage.
In terms of a larger buyback.
And what we saw pre pandemic.
It's Kevin again, our priority has always been on deploying capital for growth, whether that be organic growth and investing and the business or or through M&A. When we look at the pipeline and we see that we have excess.
We believe we would need that we make that decision in terms of the buyback. So it's really dependent on where we are.
In terms of organic growth opportunities, we see and investments we can make but also in terms of M&A.
That's there in terms of opportunities I will say that we are disciplined around how we how we use the capital and by disciplined I mean, we look at our <unk> and as we deploy capital we wanted to support all of our MTO that should support earnings growth should support.
And it should.
<unk> and it should support cash back so.
We will deploy capital based on the same discipline that we've had in the past.
1 of them.
Okay.
Thank you.
Our next question comes from the line of Tom Mackinnon.
With BMO capital your line is now open.
Yes, thanks, very much and good afternoon.
1 off and my congratulations.
Not only and a great career.
Sunlight.
For a great career at Merck.
Well and as well.
For very rewarding and professional life and.
I hope you enjoy all of the best outcome.
Welcome.
So.
First question would be for Bob.
With respect to stop loss.
And the lowest second quarter, we've seen and awhile.
And comment on what you're seeing.
And the marketplace for pricing for sure.
And.
Any commentary around law and all the follow up.
Yes.
This is Dan.
We're definitely seeing some increase and competitive pricing in the stop loss business. There is no question about that.
Our belief and at some of this is related to the fact that probably most stop loss carriers are seeing favorable experience maybe non to the degree we are but they are seeing favorable experience right now at least partially due to delays and care and that may be leading to some competitors being more aggressive on pricing, particularly as they're trying.
And to make up for Mrs on sales, especially last year.
So we are seeing that that's the major driver for why our sales are down somewhat and now our sales are still very high we're running in the quarter. We were at about 85% of the prior year quarter, and Thats still puts us well and the lead amongst independent and stop loss carriers well.
Well ahead of anybody else, but we are largely sticking to our guns on pricing and the margins that we build into pricing.
So we will except a little bit lower close ratio if necessary.
Other than sacrificing future margins.
Okay.
And the follow up.
With respect.
For home.
Losses and the quarter.
Traditionally Sun life, what's kind of roll along for the first 3 quarters of the year.
Not much activity in terms of expense experience.
And then some losses.
Sort of a catch up.
And the fourth quarter, and maybe to reflect incentive comp and.
Other spend how should we be looking at.
Cadence going forward as well.
The law and this quarter and quite a bit of a catch up or should we add pharmacy for my stock price go up.
We're looking for a margaritaville model for them.
Good afternoon, Tom expansion and I'll take that question. So the expense experience you saw was largely related as I mentioned in my remarks to 2 and accrual we've made on the incentive compensation plan as disclosed in our and <unk>.
Our proxy circular the key drivers on that plan and are really our underlying earnings and reported earnings Dnb and various client related metrics and we constantly take a look at how we're performing against the targets that were established so as you saw this quarter, we performed extremely well alongside all of those measures and the accrual really reflects the strength and performance.
And it is that the strength and performance over what timeframe is that true.
Year to date view.
And so you haven't made any adjustments and.
And the last 12 months up until this time no.
Year to date fiscal so it would have been for the first 6 months of the year year to date for this call. So yes, we saw similar kind of growth and.
And 6 months of underlying earnings and Dnb would we expect a similar kind of.
Expense experience losses.
We have and annual target Tom So we would look at how we are trending on the annual target and what that payout would suggest relative to what we have accrued year to date and make any adjustments that are required.
Okay and.
And so you're just going to revisit this more on a quarterly basis as opposed to.
Yes, we think thats more appropriate because it really bad matches up for performance in the quarter against the expense and the quarter.
And as Kevin strain and I just.
Note that the 3 big elements of our annual incentive pay our reported earnings underlying earnings and Bnb and you can see that.
Reported earnings.
There's a big jump up this year with the economic conditions and so that starts to come through as do the other elements. So that gives you a sense of what the 3 most important elements are the fourth 1 is client.
Performance and Thats also on an annual basis.
Okay. Thanks, so much.
Thank you.
Our next question comes from the line of Doug Young with day Chardan capital markets. Your line is now open.
Hi, Good afternoon, maybe just starting Dan back to yourself on the U S group side and.
And we've seen a steady improvement and gender and the reported earnings and.
And your LTM after tax profit margin is 18.
5% and you talked a bit about things eventually normalizing and how life.
For what timeframe should we think about <unk>.
Claims trends starting to normalize and and can you remind us like where it is this after tax profit margin likely settle down and if you can kind of maybe address it on the employee benefit and the stop loss side.
Well thanks.
No our target margin is 7% or greater and as you pointed out we're nowadays and 5% so.
And well above that number there are different factors pointing in different directions, which makes it very hard to predict exactly how that will play out over what period of time and the future. So I'll just quickly go through what some of the biggest factors are on mortality, we obviously over the past 16 months.
I've seen significantly elevated group life mortality that did moderate in the second quarter. Although we certainly have some concern about that maybe starting to come back with the Delta variant, we continue to see elevated short term disability claims.
Direct lead related to Covid.
The good news is our long term disability experience. So far has been relatively benign in line with expectations.
Dental claims this quarter were.
In line with normal expectations, but much higher than the same quarter last year, because as Youll recall last year at this time dental offices were closed. So there was very little dental utilization and then of course there is the stop loss component of this as well, which I described a little earlier, but has been very favorable.
We believe the majority of that favorability is due to delays and care related to COVID-19, but certainly not all of it there is underlying favorability and our performance.
That should continue so as to how exactly all of those factors play out over what period of time.
It's not really possible to predict that.
I'd say, we're confident of being able to remain at or above the 7% target, we still still feel good about that target.
Okay. So we should expect the gravitation over whatever timeframe back towards the 7% for this business essentially and that's what I mean, not necessarily exactly those words, but bigger.
There are different factors that go in different directions, and so for example, we may see lower mortality over the next several quarters as Covid, hopefully wanes and.
And we should continue to see some favorability and stop loss. So it's a little bit hard to say exactly where that will settle out.
Sure no totally understand and then just on MFS, obviously, the institutional net flows were elevated and yet maybe breakdown what youre hearing from your clients, what what drove that elevated net outflows.
Is there a specific mandate specific rationale for for money coming out and just hoping to get a little color on that thank you.
Yes, good afternoon.
Mike.
Yes, the majority of the well all of the outflows were institutional but represented by just a few outflows in the quarter and maybe a couple of things and the institutional insurance side. The first is the entire book is almost entirely equity based and so as market makes make all time.
Time highs when you get Derisked and pension plans and rebalance to and asset allocation and other plans and so that is just generally a headwind and market highs and and the second as to some of the larger redemptions that we saw in the quarter. It was really moved to passive rebalancing of plans and <unk>.
Nothing out of the ordinary other than.
Just a couple of really large plans and a quarter.
Okay, Thanks, and all the best in retirement and thanks.
Yeah.
Thank you.
Our next question comes from the line of David motivated with Evercore ISI. Your line is now open.
Hi, Thanks, good afternoon, and I'd like to Echo.
Dean Connor.
Congrats on the retirement and stellar career.
So I guess my.
My first question is for is for Dan just on the stop loss experience and on the lower utilization.
I'm wondering if you could.
If you could just tell us if youre seeing signs of utilization picking up.
And as things kind of reopen and maybe just quantify how much of a benefit that was in the quarter.
Yes, David.
We see utilization well after it occurs because what our stop loss claim obviously is a very severe claims. So it takes a while until a person has had that level of care and severity of illness until that threshold is reached and then ultimately until the claim is filed.
So there's a pretty long delay.
And when we would see that what I can tell you. We've obviously done a lot of analysis of this and.
And we are also looking at external sources, just what's doing in general.
And hospital care has returned close to normal over the past couple of more quarters.
Quarters outside of Covid of course, but not completely back to normal and then and our own experience as you see and the second quarter. We've continued to see quite a bit of favorability, which as I said, we think is more than half due to delays and care, but not entirely due to that either.
So at least through the end of the second quarter, we were continuing to see.
Very favorable morbidity and at least as of that point, we hadn't started to see that wane at all.
Got it and some of the leading indicators that that you're tracking would suggest that that that is the continuing trend is what it sounds like.
Well all I can comment on is what we've seen through the end of the second quarter.
And that has continued to be quite favorable.
And would expect inevitably that care and we will catch up and people will catch up with we are getting care and getting diagnosis, but at least through the end of the quarter, we hadn't really seen that yet.
Okay.
Got it okay. That's helpful. Thanks.
And then maybe just shifting gears.
A question for Leo.
I guess, maybe could you just.
Wanted to just touch on individual insurance sales in Hong Kong.
I think things have started to open up there.
And I'm just wondering if we've started to see the pipeline start to build back up on the on the hub side.
Yeah.
Hi, good afternoon, David here.
And here. Thank you for your question.
So what you'll have seen in Q2 in terms of international hub sales.
Our Hong Kong local business, our Hong Kong High net worth business, and then our Bermuda and networks business and then.
Newly Singapore.
What you'll have seen it.
The decrease.
Decrease in sales overall in Hong Kong.
Last quarter.
That is really composed of 2 things first is continued strong sales on the agency side.
As a result of our focus on local markets.
And continued strong demand locally.
And a day.
A decline in sales.
Broker and high net worth space.
That was offset by a very strong quarter and high net worth sales in international in Bermuda.
And so the way you should think about this is.
It's really overall and.
This is really the rationale for us, bringing together international hubs and all of our high net worth businesses, where the brokers are really dealing with international clients high net worth ultra high net worth clients.
Location, it's somewhat fungible and.
And the brokers will place of business and the most effective location at any given point in time and.
And so what we saw there in Q2 with that.
Travel restrictions continue to actually be quite strong in Hong Kong over the course of Q2 and you were facing 3 week quarantine coming into Hong Kong and only for residents of Hong Kong and.
And so that.
High net worth sales continuing to be quite difficult.
In contrast, we saw strong demand.
Our offshore business.
And in the.
The second quarter.
The other thing that happened for us in international is that.
And we've been doing this across the business we're constantly.
Repricing the business based on market conditions and redesigning.
The products and in Q2.
Typically we launched a new product in international and are closing and existing 1 and.
So given the long nature of the pipeline and in high net worths, you've got 6 to 12 months.
The sales cycle.
And our brokers, who had business that was in the pipeline worked hard to get all of these policies issued before at the end of this product and so that brought forward.
Some of our Q3 and Q4 sales into Q2, so that explains the strong.
International sales in Q2, so overall very strong sales and high net worth.
Les and Hong Kong, more and international going forward.
We do continue to have a restriction in terms of travel into Hong Kong, So that should continue to effect.
And the Hong Kong specific business.
We continue to have travel restrictions globally and to Singapore, and so on and so we do see continued headwinds, but we also see brokers that working very proactively working on their overall pipelines and and there continues to be demand.
Alt of growing wealth.
And growing need for protection and among high net for clients.
Got it and.
To be to be clear I guess, the Hong Kong.
The high net worth sales, there and Hong Kong are those it sounds like those are mainly offshore sales is that correct there isn't really a domestic.
Component there.
There is a domestic cash component to the sales but.
A smaller part of the total so you also have to rely on.
And international as well yes.
Okay got it and rely on people being able to come into the market.
Yeah makes sense okay. Thank you.
Thank you our net.
Question comes from the line of Gabriel just Shane with National Bank Financial Your line is now open.
Hi, good afternoon and Dean.
Congratulations on the retirement and.
Great.
Run at the helm of Sun life and.
And my 2 sense, gentlemen, and farmer trumps.
And our golfing.
But my question is about the group business and always have a lot of discussion there already.
And puts and takes of some of the trends that are mostly headwinds lately I'm wondering if we could keep it simple both in Canada and the U S.
For 2022 as utilization rates start to move higher.
And profit growth can be positive or flat or maybe negative and.
And some of these markets.
And just going to be very directional commentary.
So again, you on both Canada and U S for yes. Please.
Okay.
I'll take the scale.
And I'll go first.
Okay, and then I'll pass it onto them.
So.
And we've said this before and the GB market.
And Canada at the moment.
Covid is impacting the activity, particularly in <unk>.
The large employer and level.
So what we call non national accounts and in fact, if you were to split for our portfolio.
And large medium and small which is fine.
Is that we're actually getting pretty good sales and small and medium and bus.
And the sales and Theres no active anything you have that larger and.
And 1 of the reasons for that by the way.
The larger and unlike other small and medium where you have more standard off the shelf type of plan.
The large employers tend to have complex and customized plans and.
So what's happening now and it's more difficult and they don't want to create the level of disruption and the middle of Covid I.
I don't have a crystal ball for 2020.2.
I would expect stuff and we get past this pandemic.
We'll see we'll start seeing activity wise again.
Earnings, but not net sales.
Yes.
Earnings I would say things are for Canada things are looking for their growth as you can see 1 of the things and I'm, particularly pleased about as well.
We've got 13 for scrap expected profit growth across and business.
That's by the way.
Across all 4 of our business Youre seeing and expected profit growth.
That speaks to the more fundamental of the business. There was a question for Dan a bit earlier about pricing and 1 of the things and Canada and we have.
And then very disciplined and trying not to get into.
And I would call a raise for the bottom so we've been pretty disciplined on pricing and taking on business.
You are just growing that topline, but growing the bottom line.
In terms of the earnings power.
And the continuation of the strong earnings power and Canada.
And what do we expect.
Okay.
And.
And this is Dan and I'll address that for the U S. So as I mentioned earlier healthcare utilization has different effects on different products within our business group.
And maybe the 2 that are most relevant to healthcare utilization and our dental and stop loss.
Dental utilization is largely back to normal.
So and we would expect their tactics and you.
And.
And then health care utilization, obviously affects our stop loss business and Thats, where there is some concern about delays and care and.
And both for the wellbeing of our members and then what that could suggest as and hopefully those delays go away. So we would expect some increase in utilization.
In the stop loss business, certainly, but as to as I mentioned before exactly how that plays out is very difficult to predict.
Similar to what John described also we do price for increased utilization and in fact, it is 1 of the drivers of premium growth and these businesses.
I think you've talked about that.
Utilization.
For diagnostics and cancer checkup and stuff like that on the last call and not the other.
And maybe something like a pushback with 2023.
And things but.
And that's out there on the horizon right.
I've said, it's tough to impossible to predict but we are tracking different diagnoses categories very carefully and we do see some continued delays.
In the health care system in general in cancer diagnosis, So that does concern us again, but largely for the wellbeing of our members, but ultimately it could be impacted and our results and the future.
Alright, Thank you and the rest of your summer everyone.
And.
Thank you.
Our next question comes from the line of Paul Holden with CIBC. Your line is now open.
Thanks, and good afternoon.
Continue along the line of questioning and that gave just.
Maybe as we think about the normalization or at least the lower margin for U S group.
I calculate roughly every 50 basis point move and that margin.
<unk> to roughly.
$20 million and annual earnings and doing that math correctly.
Not sure if I can do that math as quickly as you can.
Okay.
And maybe I'll follow up after this call to and to get a better sense for that.
So the 2 other questions I had I guess the first 1 is related to <unk> asset management and the.
The strong flows there is there any kind of sense you can give us on the pipeline I assume youre active with current Fundraisings, who might have some perspective on whether this level of flows and continue or maybe.
Down to a more normalized rate.
Paul This is Steve. Thanks for the question, we are going to see some volatility quarter to quarter, because if you think of the fundraisers and now with firms like Chris and and infrared.
They are selling new closed end funds for instance in the second quarter, we had our first closing.
On.
On <unk> 8.
Net and each fund.
And we've got another year and we expect to have 2 to 3 more closings on that front. So that's going to lead to the numbers to fluctuate quarter to quarter. We do have some new funds launching and the second half.
Got some sizable separate accounts that we're talking about so it's hard for me to this.
This is a business that will move around but we had day we have.
And aggressive protection for the year and we're on for clothes and are on track for that.
So I guess, that's another way of saying I don't think the first half as an anomaly.
But.
To see the quarterly numbers move around a bit.
I'm sorry can you remind me did you did you share that the annual target for flows for the year publicly.
No I don't think we've given that number out.
Fair enough.
And then I just wanted to also ask on the.
On Asia and sort of following up on some of the comments regarding COVID-19 impact maybe.
And if you don't mind, you can kind of.
A summation of which jurisdictions.
Seeing ongoing lockdowns at least as of today and which are less impacted.
Good afternoon and Paul.
Thanks, Thanks for your question.
You are right to note.
That.
Theres still quite a bit of movement with Covid and Asia Pac.
Particularly if you look at what happened in Q2, we're seeing a strong surge in the Delta variant.
Especially in Southeast Asia.
Which is impacting the region.
And it's actually quite quite broad.
And you look at Q2 really what.
And now and let's start of Q3 and July you, obviously had some very strong wave in India.
And with not just high cases, but also very high mortality at about 4000 deaths per day at its peak.
Those numbers have started to come down and India, but we've seen a surge in that and the rest of the region. So more recently, you've seen and Malaysia.
Start going to a peak.
Philippines has been kind of hovering at a constant level for the last year really.
But then youre starting to see Vietnam have cases, and quite a bit of and increase in the death rate.
And then in Indonesia is also at a peak.
Of about 2000 deaths per per day, which is now higher than that India currently yet.
So that's affected broadly southeast Asia, we've also seen some cash.
Pieces in and a few provinces in China.
And so all the governments are responding with various lockdown measures for Malaysia, aspirin and a state of emergency for example.
Yes, now and that had been completely open and people could traveled across the country.
And is now facing movement restrictions curfews and so on.
And then you've had.
Escalations and restrictions in Indonesia, and the Philippines, and and now in China.
And that are being affected so it's actually fairly broad the only place where we haven't seen a growth in income.
In cases is and Hong Kong and that's really a result of very strong travel restriction into the market. So the economy is running pretty well within Hong Kong, but it's very hard to travel in and out.
And so all of that obviously creates some uncertainty for us.
Heading into.
Into Q3.
Although.
We do feel confident about our.
Positioning for recovery and accurate.
Result of the strong.
The investments, we've made and the business in distribution.
And also in digital and enabling our advisers to engage with clients remotely.
That's great that's very helpful. Thank you.
Thank you.
Our next question comes from the line of Mario Mendonca with TD Securities. Your line is now open.
And Kevin you are inheriting a company.
Hey.
For the life insurance company, but it's got a 16% Roe.
Third and 7% by cat at the Holdco reasonably low leverage.
And I look at this and I think a lot of people on this call would recognize that's not normal for a life insurance company.
So when you look at this.
How do you react to that ROE is their reaction and simply while <unk> made some good calls over the last 10 years and we're not really a life insurance company anymore. So this is normal.
Or do you look at it and say we could your company could absorb a large transaction and maybe temporarily.
<unk> and ROE.
Much Laura.
How do you look at it this normal Sun life now.
Thanks, Mario for the question first you're absolutely right the Dean and the executive team under him have left the extremely strong foundation. The de risking that was done early on and his tenure to exit some of the higher capital use businesses.
And focus on fee businesses and focus on faster growth jurisdictions like Asia and the addition of now SLC and have positioned us to be very different than just an insurance company and our ambition is to be 1 of the world's best insurance and asset management companies and in fact, if you added up our asset management businesses, including GRS.
S, which is defined contribution business that in many ways and Canada looks like and asset management business and pension risk transfer, where almost half asset management and I can see us continuing to grow our earnings.
Across the 4 pillars. So I think we've got great growth potential in Asia, which we've talked about being 15% plus I think we've got great. We've got sort of search and leadership position and a strong brand in Canada and can see Canada growing and we've talked about 6% plus.
The U S. You've talked a lot about the U S. On this call and I think that that growth and the U S group benefits business, we've got a real powerhouse and stop loss and with the additional things like pinnacle care to really extend that and the work that Dan and his team are doing on digital and so Mario or focus on.
And reducing use of capital and fee income not just asset management fee income, but fee income and our insurance businesses around the world.
And that focus on.
Financial discipline.
And earning our targets on how we deploy capital we've deployed capital in a way that tries to build all of our MTO right. We're trying to build earnings growth, we're trying to build ROE we're trying to build.
Cash flow and dividends back to our to our shareholders and that discipline.
I've been involved with dean and ever since he took over as CFO.
And I worked for them and Canada, as well that discipline and I like to think I was part of that as well as CFO. So we're going to maintain that and not just me the entire executive team Dean's comments started with the executive team. So.
There as well.
We're focused on making our business stronger and better but work we've done on digital and the work we've done on which lines of business. The 4 pillars, and we're going to continue to build on that.
So 16% even higher I guess.
It is not unusual that and for a company of Sun life make there's.
There is no reason to expect that ROE to trend back down to 13%, which is where it was for much of Sun life time as a public company I think our mix I think our mix of business. If we continue to grow we should be able to grow the Roe as well.
Okay. Let me go to maybe a more detailed question and it relates to the assumption review that's coming up.
And next quarter I don't believe you have given us any guidance I don't think its sun life practice to give us guidance on your assumption review. So let me ask this commercial real estate, it's an important part of the mix for Sun life and every life insurance company is there.
Should we be sensitive to the notion and life insurance companies, including Sun life after.
At the asset return assumptions around commercial real estate is that a reasonable concern.
So Mario it's Kevin again, I'll, let Kevin Morrissey address that question.
Yeah. Thanks, Thanks for that question Mario This is Kevin Morrissey.
And we are reviewing a number of assumptions.
Normally the majority of our assumption reviews will be and Q3 this year similar to previous years.
Commercial real estate real estate assumptions are definitely part of that review.
We do review that assumption every year.
So this is not something.
The growth for this year.
We looked at our experience what we had to pass we also look at how the markets are changing and looked at projections for the future and as well. So I will note we did have.
And you think gain and real estate this quarter, which was great to see so I.
And I guess the.
And the short answer to your question, Yes, It's certainly part of our review.
And you'll.
You'll see.
And so all the other changes and the next quarter, but there is nothing but we're calling now the highlight them for Q3 other than.
The changes that have been announced and approved by the actual standard for that.
Ultimate reinvestment rate and yield from a credit spread.
And we will be making those updates from Q3.
And we've included estimates and our disclosures on that.
Thank you and Dean.
All the best for your time.
Thank you.
Our next question comes from the line of Darko <unk> with RBC capital markets. Your line is now open.
Hey, Thanks for taking my questions.
Dean Congrats all the best.
I have a question I'm looking specifically at.
At Slide 11, and I am looking at the upper left hand corner of the individual insurance sales up 52% year over year.
Few questions I wanted to poke at.
On this stuff for the first is obviously last year, we know there was disruption.
But whats the biggest driver of this.
Sales apart from just.
Now sort of being out there and capable like has there been.
Any pricing changes with respect to these policies that are being sold.
Darko, it's Kevin and I think it's best answered by by pillar. So I'll turn maybe Jacques first to answer the.
Canada growth and sales and then Lee can talk about Asia.
Darko decision and Eric Thanks for the question.
As you pointed out of course individual life sales are up significantly and Canada.
$121 million up 57%.
Remember that in Canada, we have 2 distinct channel we have.
On life financial distributors and then.
And the third party, which is high net worth and ultra high net worth.
The high net worth and where the growth is the highest of the mall.
And Q2.
And this business can be lumpy barco in particular, if you put yourself back to the previous quarter and 2020.
Yeah.
And that there was a lot of medical facilities that were closed and so on.
We saw we saw low ourselves and parts because.
We announced that we're going to go up to $5 million at all.
Labs, when you get to the ultra high net worth these are very significant allowance. So there was I would say kind of a bit of a buildup of the.
Pipeline and and others come through nicely this quarter.
And I just want to highlight the fact that those can be lumpy from quarter to quarter.
Neil.
And good afternoon, Darko and thanks Jack.
2 parts to your question. The first 1 is the increase in sales and the second 1 was any pricing changes.
Associated with that with the numbers and the case of Asia, What Youre seeing is a strong rebound on Q2, 2020 sales, which were significantly affected by the start of the pandemic.
And so.
<unk> really worked over the last year or 2.
Drive distribution capacity in a COVID-19 environment.
Some of that and.
Increasing capacity, we've got partnerships with ACB TP bank and get down for example, but also the growth of our agency were up and high single digit rates and terms of agent count over that period.
And so strong strong capacity growth, there and strong rebound.
As well with the digital enablement all of our distribution and then the second factor is that we constantly review our product pricing and our product design and Youre right.
Over the past year, we have taken pricing action across multiple parts of our business, notably international would have seen some some price increases Hong Kong.
And the teams Indonesia.
Yes, so quite broad based as well.
Okay.
That's helpful. So pricing has gone up and despite the fact that pricing has gone up.
Seeing significant improvement and sales.
And I guess the question leads to the next obvious 1 which is has underwriting changed and ultimately what I'm interested in knowing and Kevin strain I guess this is the question for you is as you inherit this company how do I know that the $473 million of sales is a good thing.
In the sense that we're now living with COVID-19, and that's your forever.
And we could end up having higher mortality and later on that Youre going to pay for.
So.
And as underwriting changed are you asking people if they're vaccinated are you changing pricing because of vaccination rates. Most actuaries that I talked to tell me. It's too early to know much about COVID-19, but we're plowing ahead with a lot of sales anyway. So.
I guess the ultimately the question is Kevin.
Why are you comfortable with so much life insurance sales being put out there and.
Yet, we don't know enough about COVID-19, and all of its variance and the possible impacts later on could.
Could be very bad for your business.
I'll, let I'll, let Kevin Morrissey jump in on this as well Darko, but youre aware, we use significant amount of reinsurance and this business as well so we we do.
Work with the reinsurers in terms of how we look at underwriting and how we look at risk how we think about risk Kevin can talk a little bit more about that but there's a number of factors that you were seeing and the quarter that I just wanted to summarize again right like remember that previous quarter was really the first quarter of Covid and and it was hard for agents to.
Get out and they hadn't yet pivoted to the new tools that were introduced in fact and a lot of the jurisdictions.
Licensing wasn't approved yet for electronics.
Licensing I shouldn't say electronic signatures weren't yet approved yet by the by the regulator. So you've had you've had a very big shift in in the quarter over quarter right Q2 last year.
The newly into Covid and Q2, this year starting to come out of Covid and some jurisdictions with.
With improved tools and and also we've been investing in distribution and during the pandemic and Leo talked about the addition of ACB and and.
And some of those types of things. So I think there is a.
Combination of things, but on the risk side.
And again point out you've seen our mortality experience coming through Covid.
We've talked about.
The use of more analytics.
And more data and different ways of thinking about risk and we've done that and partnership with.
And with reinsurers, So I don't know Kevin Morrissey, if you wanted to add anything on mortality risks.
Yes.
Kevin So darko I, maybe I'll just add.
Net to that so we're paying very close attention to the pandemic and how it progresses and all of the different geographies.
And close attention to the risks and trends with focus on the underwriting and pricing.
Pricing will be quite responsive as well, but your question and a good 1 about the risk for writing now and I think I would point to.
Really the benefit of diversification across our product portfolios.
We benefit from and geographic diversification, so we sell and a number of different markets and as you can see and the ebbs and flows of the pandemic across the world.
We certainly had that balance out with our global business profile also the insurance and annuity diversification for a big writer of tailed annuity and switch.
And which have the opposite exposure.
As a result from the pandemic and we certainly see that result, as well great diversification across the different product types. So I think that that broad diversification across those dimensions help us feel really good about the risk for writing today.
And Kevin is it fair to say that for every dollar of mortality risk you put on and you are putting on all of the revenue of longevity risk or is it not quite that balance.
It's not quite exactly bounds, but I will tell you we have a longer term strategy to have that risk profile quite well balanced and we're looking at getting that flow.
Our balance across the enterprise, but also cost.
Jurisdictions as well, so it's very much and online.
Have that longer term balance and play.
Great. Thank you.
Thank you.
Next question comes from the line of Nigel D'souza for 10.
And this investment research your line is now open.
Good afternoon, and thank you for taking my question I'll try to keep it for you.
And since we're over time here I wanted to follow up on.
Individual insurance sales in Asia and.
And there's a fair bit of color already provided on this but when I look at it on a sequential basis.
Your individual insurance sales are down across.
Essentially all the regions, except for Vietnam, and I'm trying to understand how much of that is just quarter nor.
Noise like portable volatility.
And seasonality and how much of that is related to COVID-19, and recent mortality and mobility restrictions and Lockdowns Leo mentioned that you haven't seen key accounts rise and Hong Kong, but individual insurance sales also down sequentially.
And I know, it's a bit hard to predict but do you have a sense of at least and the third quarter, how and how your individual insurance sales and these are trending and.
Do you think drift lower in the short term with the <unk>.
Mobility restrictions that are being growth.
And Idaho.
Okay go ahead and look go ahead sorry.
Okay, Alright, and Nitro and Leo.
Thank you for your question.
Regarding the first part of your question around sequential sales.
Youre right that in local markets on a sequential basis.
<unk> were down other than for Vietnam.
And there's really 2 factors that are at play here is the first 1 is.
That as you noted.
Southeast Asia.
We saw a resurgence in and Covid cases, and in particular, the Delta variant and all of that and impacted sales across the region and then the other factor that you are seeing is India sales are down and that is a seasonal.
Pattern.
Some of that is also the Covid cases in India. As you know there was a strong wave, but some of that is seasonality in that our India business at the fiscal year ending.
At the end of March and as a result there.
Our Q1, Q4, and its strongest quarter of the year every year. So there is some seasonality and India, and then and overlay of the impact of the most recent copied weight.
Across the other markets.
In terms of sales going forward. It is a little bit unpredictable at this point and time and that we don't quite know.
And where things are going with.
And the handling of the increase and cases across the region.
As I discussed a little bit earlier, we are currently at.
Peak levels of Covid cases, and Covid deaths.
In in the broad population in markets like Indonesia, and Malaysia.
And in those types of situations and you've got countries with very low vaccination rates at this point and time. The governments are seeking some quite strong action in terms of and movement restriction.
<unk> for example.
Clothing bank branches, which obviously affects our bancassurance business.
And places like Malaysia, and Vietnam, notably so so we do see.
Some uncertainty there in terms of the market and.
And then.
Offsetting that is.
What I talked about earlier, which is increased distribution capacity and strong enablement of our advisers for non face to face and digital sales, which should dampen some of that impact but nonetheless.
There is material and sensitivity there Nigel.
Okay. Thanks, that's really useful color and if I could just quickly follow up on another point brought up earlier.
And mortality versus longevity.
And you have any color on the.
Geographic breakdown mix exposure would it be fair to say that.
And the longevity offset is more prevalent and north America, and and less less prevalent or less substantial and he says that the right way to think about it or how should we think about it.
Nigel It's Kevin Morrissey May Bill I'll take that 1 I think if and.
When youre looking at that that mix of business.
Predominantly the longevity risks that we're writing.
In Canada today, we also have quite a large business in the UK.
That would be kind of the predominantly where you'd see the longevity exposures on the books today.
And that's really helpful. Thank you.
Thank you.
Our last question comes from the line of Scott Chan with Canaccord Genuity.
And is now open.
Thanks for sneaking me in and Dean and congrats on all your achievements at Sun life and best of luck and retirement.
1 follow up question for Mike and MFS, you talked about the redemptions and the quarter, but I think what's more may be concerning is that growth inflows that we see.
And I saw total and the quarter.
It's down 20% quarter for quarter, and 25% year over year on what was a very strong Q2 flows globally from what we can tell.
Is it I also noticed your medium term fund performance slipped a little bit, but just wanted to see any color on.
And from the gross flows.
That seemed very suppressed this quarter.
Hey, Scott Thanks for the question Mike.
I think year over year comparisons are a little tough and that last year was such an outsized year. We had sales up 40% last year, there was incredible and movement in the second quarter sort of the opposite of what I was talking about earlier, where at market highs money comes out of equities and fixed income and sort of was the opposite last year, we saw money come out of fixed into equity and we were well positioned for that.
So I think last year is a tough year to comp off of when you look at Q2 versus Q1.
And you look at active fund sales and the U S industry. This year. Our flows were in line with what happened and the active industry. So the active industry soft flows come down into Q from 2.1 and I think some of that is related to market being and highs and people not allocating as market continues to go up interest rates are relatively low I think people are sitting on their hands. Some.
So our flows look very similar to U S. Retail flows very similar to what happened and the industry Q2 versus Q1.
Okay. Thank you very much.
Thank you.
We have no further questions at this time and I will return and thanks and Mr. Bearden for closing remarks.
I would like to thank all of our participants today and if there are any additional questions. We will be available after the call should.
Should you wish to listen to the rebroadcast it will be available on our website by tomorrow morning.
Before I end the call I would also like to congratulate Dean and his successful tenure at Sun life.
And we wish you all the best and your retirement.
Thank you and have a good day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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