Q2 2021 Sun Life Financial Inc Earnings Call
[music].
Yeah.
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.
Of the Speakers' remarks, there'll be a question and answer session. The.
The host of the call is you need Witten, Vice President head of Investor Relations and capital markets. Mr. Burton. Please go ahead.
Thank you Sarah and good afternoon, everyone welcome.
Welcome to the Sun Life's 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 sunlight Dot com.
We will begin today's remarks with the message from Dean Connor, our Chief Executive Officer.
He will then turn it to Kevin strain President and incoming CEO for highlights from the second quarter.
Following Kevin's remarks manifesting.
Second of 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, <unk> 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 of lifetime to lead Sun life for the past nearly 10 years. This is such a great business. We have of noble purpose, helping clients achieve lifetime financial security and live healthier lives.
You've put clients in the center of everything we do and that plus our purpose has created a magnetic pull 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 the talent and culture that has allowed us to execute effectively on our 4 pillar strategy.
<unk>.
I do want to thank our investors, who have supported the 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.
Follow the Sun life, 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 Dana has built a strong foundation for Sun life underpinned by our 4 pillar strategy and our focus on clients, while nurturing of strong culture, where our people can thrive the newest 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 Deane, you're retiring from Sun life on the high note and I know you will continue to follow the company closely and will be cheering us on.
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 in our people and technology as we continue to emerge from pandemic conditions.
We also generated a strong underlying return on equity of 16% in the second quarter.
With the <unk> ratio of 147% of Sof, 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 live healthier lives, we continue to invest in ways to make it easier for clients to do business with us in June we announced the clients in Canada between the ages of 18 to 40 can now qualify for up to $5 million in life insurance coverage without the need for lab exams. This means that approximately 75% of clients may not require of.
<unk> exams going forward, we are transforming our underwriting processes through data and analytics using predictive models to replace previously required health test.
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.
In Asia, we have made substantial investments in our technology tools and products for example in Hong Kong, our mandatory Provident fund offering continues to outperform the market. We are now ranked first in net inflows and third in assets under management based on second quarter results.
We're adding new and innovative capabilities to our group businesses in the U S. On July 1 we completed our acquisition of clinical care, a leading U S health care navigation and medical intelligence provider, which is now part of our U S stop Watson health business.
<unk> life, and Pinnacle care create a new dynamic that will improve care outcomes and costs for our clients.
<unk> Care's health advisors help members navigate the complex U S healthcare landscape to identify the best possible treatment options for the 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 in the SLC management joined the net zero asset manager Alliance.
In Q2, we also made several investments across our private fixed income portfolio that aligned to our sustainable investing goals and more importantly demonstrate the positive impact. We can have on society. These include sustainability linked financing to our North American shipping company that is reducing the carbon intensity of its fleet annually, while keeping in line.
With the ambitious quantifiable decarbonization targets. We also invested in green bonds, where proceeds will be used to improve the efficiency of certain buildings. These are examples of how we continue to incorporate sustainability into our investment decisions.
In the second quarter wealth sales in 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% of 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 prospectively.
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 life in Canada, our digital coach Ella continues to connect with our clients, helping them save for their future and ensure protection of their loved ones in the first half of the year <unk>.
This drove nearly $500 million of wealth deposits and the sale of over $650 million in life insurance coverage for our clients.
In 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 in Asia in 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 in 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.
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 of work.
This includes supporting flexible work styles revolving around our client and business needs.
Of our offices, we're committed to providing safe and healthy working environment that are designed to spark collaboration productivity and creativity.
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 in our office spaces to enable this.
And whether employees are working from home or in the office, we're committed to providing them with the 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 in the world.
On a personal note I'm looking forward of taking on my new role as CEO I'm committed to building on sunlight success and keeping our clients of 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.
Foster a diverse eckerle, an inclusive workplace and above all nurturing our strong carrying optimistic sunlight culture, where employees can develop and thrive.
With that I will now turn the call over to a manager who will take us through our financial results.
Thank you Kevin and good afternoon, everyone. I also wanted to take a moment to recognize Dean's tremendous contributions during his tenure as CEO and wish him all of 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 of 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 are 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 the underlying return on equity was 16%.
Assets under management climbed to nearly 1.4 trillion, reflecting market value growth and strong net flows of SLC management.
For the first half of 2021, our wealth and asset management businesses generated $14 billion of net inflows compared to $8 billion in 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 in other comprehensive income book value per share increased 10% over the prior year.
Our balance sheet position remains strong.
Q2 lockout ratios of 147% of SLS and of 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 of SL life was the issuance of $1 billion of limited recourse capital notes, which added approximately 5 percentage points of light cash.
The issuance also increase holding company cash of $3.2 billion and the financial leverage ratio ended the quarter of 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 of declined by approximately 3 percentage points and the financial leverage ratio of declined 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 in constant currency on this slide.
Canada's reported net income of $404 million in 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 in insurance and wealth management as well as favorable credit experience.
This was partially offset by a lower contribution from the 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 morbidity and credit experience as well as higher investing activity gains.
This was partially offset by unfavorable expense experience from higher incentive compensation costs, reflecting strong results in the first half of 2021.
The U S group benefits business achieved an after tax margin of 8.5% on a trailing 12 month basis up from 7.5% in the prior year.
Asset management reported net income was $221 million down $2 million from the prior year.
This reflects fair value adjustments on MFS share based awards and the impact of the UK tax rate change in 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 pre tax 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.
In 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% in constant currency driven by business growth and favorable credit experience.
This was partially offset by higher compensation costs and unfavorable mortality experience in the India joint venture.
Corporate reported net loss of 25 million improved from the prior year driven by higher net tax recoveries in 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 ex.
Excluding the asset management pillar and the impact of currency expected profit was up 7% driven by business growth in Canada and Asia.
New business gains increased by $21 million for the prior year, reflecting strong sales growth in Asia, along with robust sales growth in the individual insurance in Canada.
Experience 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 of insurance and wealth sales on a constant currency basis.
Individual insurance sales were up 52% driven by higher participating policy sales in Canada, and an increase in sales across most markets in Asia.
While sales in Asia have improved we are seeing renewed lockdowns in some countries as a result of new variants we.
We are working closely with our local teams to monitor the situation.
The slight decline in group benefits sales was driven by lower stops the stop loss sales from the U S and flat sales growth in Canada. As you continue to see fewer large cases coming to market in the current environment.
While sales increased 63% on a constant currency basis compared to the prior year income.
In Canada sales increased 47%, reflecting higher individual wealth and group retirement services sales.
Asia sales increased by 81% reflecting growth in mutual fund sales in India money market sales in the Philippines, and the Hong Kong pension business, where we are now the market leader in net inflows.
Asset management gross flows increased 3% year over year, driven by higher gross flows in SLC management, partially offset by lower sales in MFS.
MFS ended the quarter with U S $5.6 billion in outflows reflect the continued inflows in retail which were more than offset by institutional outflows.
SLC management had strong net inflows of $7.6 billion, which will generate good fee income in the coming quarters.
Value of new business generated in the second quarter was $284 million up 46% in 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 in our asset management businesses, reflecting strong revenue growth.
Another 8% another 8 percentage points was driven by higher distribution costs in Canada, and Asia, reflecting robust sales growth as well as a higher accrual for our annual incentive compensation plan.
The increase in the annual incentive compensation plan accrual reflects strong business performance in the first half of the year versus weaker year to day performance in the prior year, which included the impact from the onset of the pandemic.
The remaining 1% increase was attributable to continued investment in 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 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.
We're continuing to invest in initiatives to further enhance our client experience digital capabilities of 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 Jay.
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 at the poll the participants.
Thank you.
Ask the question you would need to press Star then 1 on your telephone to lift of all your question. Please press the pound key.
The standby, while we compile the Q&A roster.
Our first question will come from the line of Humphrey Lee with Dowling <unk> partners. Your line is now open.
Good afternoon, and thank you for taking my question before I asked the question of Nike <unk> and congratulate my congratulations to team for you all.
The retirement.
And the pleasure working with you.
My first question is related to the U S group benefits business.
1 of the health insurers in the U S has talked about rising medical costs.
On the earnings call today.
Topic of medical inflation is not new but given the broader inflation concerns how do you see inflation affecting the softball for stop loss business.
Generally what have you.
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 the growth in premiums that we have in the business, but at the same time. There are obviously somewhat unusual effects from the Covid pandemic, what we're seeing in our book of business. So far is 1 of the reasons why we have lower of morbidity in that business. This year is likely.
For some delays in 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.
It's more on the <unk>.
Pent up demand the alltel normalization of the.
<unk>.
Given some of the kind of the the pricing dynamic is going on have you seen any time.
So all of the deviation of medical cost inflation from what you're seeing versus what you have in your pricing assumptions.
Not at this point again actually we're seeing quite the opposite because of.
The lower care or delayed care.
But as far as the overall trend Theres always medical inflation, that's been a part of medical care in 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.
So at this point beyond some of the anomalous impacts related to the pandemic.
Not seeing anything that would suggest for example, the substantial increase in the level of medical inflation.
Understood.
The second question is related to the straw SFC.
I think this is the second quarter and the growth that you have secure large capital commitments the driving higher net.
Since these flows haven't been really funded like how should we think about the lead time.
Getting these inflows 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 the capital raising across the broad platform at SLC. So we're very pleased by that.
And when we raised that capital comes in different forms sometimes and this was the quarter where that was reflected.
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 of new separately managed account that would be funded immediately.
When we get money Thats committed to a closed end of vehicle like an alternative credit fund our new real estate fund there is usually an investment period of.
2 to 3 years to get that money invested in it often gets invested much more quickly than that.
It depends on the type of commitment, we get but it's but.
It's not in the immediate flow, which sometimes it is you can use the expect that that money will be invested in 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 than the norm.
Got it thank you.
Thank you.
Our next question comes from the line of mini ground Man with Scotiabank. Your line is now open.
Hi, good afternoon.
I want to first of Dean wish you best of luck in your new chapter in the.
I hope you get the Gulf of more in terms of the questions.
Just wanted to revisit the subject of return of capital and the.
The first off for from the dividend perspective Youre running.
And the 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.
How fast do you think you want to get there.
And many of its it's Kevin. Thanks for your question of the dividend, we remain committed to paying out the dividend in the 40% to 50% of earnings range that we've talked about in the past and getting to their once the restrictions are lifted as you've noted our intention would be to do like we were before.
For the earnings would grow.
Dividends will grow alongside of earnings and sort of 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 the 40% to 50% range.
So just to understand you correctly, there is it reasonable to assume that youre going to catch up and get.
Moving to that range before growing more in line with with sort of regular earnings growth.
Yes.
That's right. That's how you should think about it we would.
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 once the allowed 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.
You are contemplating at this stage.
In terms of a larger buyback.
And then 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 in the business or or through M&A. When we look at the pipeline and we.
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 in investments, we can make but also.
In terms of M&A.
They are 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 MTO and as we deploy capital we wanted to support all of our MTO that should support earnings growth should support.
Ro.
Targets and it should support cash back so we.
We will deploy capital based on the same discipline that we've had in the past.
All of them.
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 of the my congratulations.
And of Great.
Sun life, but.
For a great career at Mercury as well.
The sort of very rewarding professional life.
And I hope you enjoy all of the best.
Yes.
So.
First question would be for Bob.
Just with respect to stop loss.
The the lowest second quarter, we've seen in the wall.
Come on line.
For the marketplace for price.
For sure.
Any commentary around law on all of the follow up.
Yes. Thanks this is Dan.
We're definitely seeing some increase in competitive pricing in the stop loss business. There is no question about that.
It is our belief that some of this is related to the fact that probably most stop loss carriers are seeing favorable experience maybe not the the degree we are but they are seeing favorable experience right now at least partially due to delays in care and that may be leading to some competitors being more aggressive on pricing, particularly as they are.
Trying to make up for misses on the sales, especially last year.
So we are seeing that that's the major driver for why our sales are down somewhat 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 in the lead amongst independent of stop loss carriers.
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 accept a little bit lower close ratio with necessary rather than sacrificing future margins.
Okay.
A follow up.
With respect to the bump.
4 of them.
Losses from the quarter.
Traditionally Sun life, what's the kind of rule of law for the first 3 quarters of a year.
Not much activity in terms of expense experience.
And then some losses.
Of the catch up.
In the fourth quarter, maybe to reflect the incentive comp in the.
The other spend.
How should we be looking at the.
Cadence going forward of workflow.
The loss that we booked in this quarter the quite a bit of a catch up or should we be pharmacy from like swap prices go up.
Looking for a multitude of our model.
Good afternoon, Tom It's mentioned I'll take that question. So the expense experience you saw was largely related as I mentioned in my remarks too to an accrual we've made on the incentive compensation plan as disclosed in our.
Our proxy circular the key drivers on the plan are really our underlying earnings of 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.
Is that the strength and performance over what timeframe is that just.
The year to date view.
And so you haven't made any adjustments in.
In 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 in.
And 6 months of underlying earnings from Dnb.
We expect the similar kind of.
Expense experience losses.
We have an annual target Tom So we would look at how we're 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.
So just kind of revisit this more on a quarterly basis as opposed to.
Yes, we think thats more appropriate because it really bad matches of the performance in the quarter against the expense in the quarter.
It's Kevin strain.
Note that the 3 big elements of our annual incentive pay our reported earnings underlying earnings and Bnb and you can see that the 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 sort of elements are the fourth 1 of its 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 of day, Jordan <unk> capital markets. Your line is now open.
Hi, Good afternoon, maybe just starting Dan back to yourself on the U S group side.
We've seen a steady improvement in the under and the reported earnings.
<unk> your LTM after tax profit margin is the Eaton.
5% and you talked a bit about things eventually normalizing and how.
For what timeframe should we think about <unk>.
Claims trends starting to normalize in and can you remind us like where does 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 now at 85% so.
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 in 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.
But I have 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 day.
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 you'll recall last year. At this time of dental offices were closed. So there was very little of 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 in care related to COVID-19, but certainly not all of it there is underlying favorability in 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 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.
There are different factors that go in different directions. So for example, we may see lower mortality over the next several quarters as Covid hopefully wanes.
And we should continue to see some favorability in 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 for elevated can you 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 of 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 of 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 the Wristed pension plans you get rebalanced in the asset allocation of their plans and so that's just generally a headwind of market highs.
And then the second as to some of the larger redemptions that we saw in the quarter. It was really moved the passive rebalancing of plans.
Nothing out of the ordinary other than.
A couple of really large plans for the quarter.
Okay, Thanks, and all of the best in retirement theme.
Yeah.
Thank you.
Our next question comes from the line of David <unk> with Evercore ISI. Your line is now open.
Hi, Thanks, good afternoon, and I'd like to Echo.
Dean.
Congrats on the retirement and the stellar career.
So I guess.
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.
As things kind of reopen and maybe just quantify how much of the benefit that was in the quarter.
Yes, David.
We see utilization well after it occurs because 1 of the stop loss claim obviously is a very severe claims. So it takes a while until the person has had that level of care and the severity of illness until that threshold is reached and then ultimately until the claim is filed so.
It is a pretty long delay.
And when we would see that what I can tell you. We've obviously done a lot of the analysis of this.
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 quarters.
Quarters outside of Covid of course, but not completely back to normal and then in our own experience as you see in the second quarter. We've continued to see quite of bit of favorability, which as I said, we think is more than half due to delays in care, but not entirely due to the 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.
But.
And that has continued to be quite favorable.
Would expect inevitably that care 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.
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.
Okay.
Hi, good afternoon, David 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 high net worth of business and then.
Newly Singapore.
What you will have seen it.
Decrease in sales overall in the Hong Kong last quarter.
That is.
Really composed of 2 things first is continued strong sales on the agency side.
As the result of our focus on local markets.
And the continued strong demand locally.
And a decline in sales.
Broker on high net worth space that was offset by a very strong quarter in high net worth sales in international in Bermuda and so the way you should think about this is.
Is really overall and this is really the rationale for us, bringing together international hubs in all of our high net worth business is where the brokers are really dealing with international clients high net.
It's worth of Ultra high net worth clients.
Location is somewhat fungible and.
The brokers will place of business and the most effective location at any given point in time 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, you were facing the weak corn team coming into Hong Kong and only for residents of Hong Kong and some of that.
Made.
The high net worth sales continuing to be quite difficult.
But in contrast, we saw strong demand.
Our offshore business.
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.
The pricing the business based on market conditions and redesigning.
The products and in Q2.
Specifically, we launched a new product in the international and are closing an existing 1.
So given the long nature of the pipeline in in high net worth <unk> got 6 to 12 months.
The sales cycle.
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 in the high net worth.
Less in Hong Kong more in the international going forward.
We do continue to have a restriction in terms of travel into Hong Kong, So that should continue to effect.
The Hong Kong specific business.
We continue to have travel restrictions globally into Singapore, and so on and so we do see continued headwinds, but we also see brokers are working very proactively working on their overall pipelines and there continues to be demand.
Alt of growing well.
And growing need for protection of among high net for clients.
Got it and.
To be to be clear I guess, the Hong Kong.
The high net worth of sales there in Hong Kong are those it sounds like those are mainly offshore sales is that correct there isn't really domestic.
The 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.
On the international as well.
Okay got it you have to rely on people being able to coming to the market.
Yes, it makes sense okay. Thank you.
Thank you. Our next question comes from the line of gave her the Shane with National Bank Financial Your line is now open.
Hi, good afternoon, and the Dean.
Congratulations on the retirement and the.
Great the.
Run at the helm of Sun life and the.
My 2 cents on the farmer trumps the.
The golfing.
My question is about the group business I know, we've had a lot of discretion there already.
Puts and takes of some of the trends that are most of the headwinds lately I'm wondering if we could keep it simple both in Canada and the U S.
Most of the 2022 as the utilization rates start to move higher.
The profit growth can be positive or flat or may be negative.
Some of these markets. If you can just give me a very directional commentary.
Yes.
Both Canada and U S for yes. Please.
Okay.
I'll take the steel.
I'll go first.
Okay, and then I'll pass it onto them.
So the.
<unk>.
We've said this before in the GB market.
In Canada at the moment.
The COVID-19 is impacting the activity, particularly of Gabrielle.
All of the large employer level.
So what we call the national accounts for in fact, if you were at the split of our portfolio.
Duane large medium and small what you'd find.
Is that actually getting pretty good sales.
And medium bus.
Sales there is no active anything you have the larger home.
1 of the reasons for that by the way.
The larger M. Unlike all of the small and medium where you have more standard off the shelf type of plan.
The large employers tend to have complex customized plan.
So what's happening now is that it's more difficult for them. They don't want to create the level of disruption in the middle of Covid I don't.
Have a crystal ball for 2022.
We would expect that that we get past the pandemic.
We'll see we'll start seeing I think that the rise again.
For the earnings.
Net sales.
Yes, well, Okay earnings I would say things are for Canada things are looking for any growth as you can see 1 of the things I'm, particularly pleased about is we've got 13% of expected profit growth across the business.
That's by the way.
Across all 4 of our business Youre seeing expected profit growth.
That speaks to the more fundamental of the business. There was the question for that a bit earlier about pricing 1 of the things in Canada.
We've been very disciplined and trying not to get into.
What I would call a range for the bottom so we've been pretty disciplined on pricing and taking on business with the view.
You know just growing the top line, but growing the bottom line.
In terms of the earnings power.
The continuation of the strong earnings power in Canada.
That is what we expect.
Okay.
And.
And this is Dan 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.
It may be the 2 that are most relevant to health care utilization of our dental and stop loss dental utilization is largely back to normal.
So we would expect that Patrick can you.
And then health care utilization, obviously effects of our stop loss business and Thats, where there is some concern about delays in care.
And both for the well being of our members and then what that could suggest as hopefully those delays go away. So we would expect some increase in utilization.
In the stop loss business, certainly, but it is too 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 in these businesses.
Yes.
You've talked about that the.
Utilization of the.
For diagnostic cancer checkup for stuff like that on the last call and that's the.
The concern is the <unk>.
Something like the pushback of the 2023.
For predicting things, but.
Let's hope there on the horizon right.
As 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, largely for the well being of our members, but ultimately it could be impacting our results in the future.
Alright, Thank you and the rest of the summer everyone.
Yes.
Thank you.
Our next question comes from the line of Paul Holden with CIBC. Your line is now open.
Thanks, Good afternoon sort of.
The continue along the line of questioning the Gabe.
Maybe as we think about the normalization or at least the lower margin for U S group.
I calculate roughly every 50 basis point moving that margin.
To roughly USD 20.
The $20 million of annual earnings of mice doing that math correctly.
Not sure if I can do that math as quickly as you can.
Okay.
Maybe I'll follow up after this call to kind of better sense of that.
Sure.
So the 2 other questions I had I guess, the first 1 related to <unk> asset management in the.
The strong flows there is there any kind of sense you can give us on the pipeline of assume youre active with current fundraisings, who might have some perspective on whether this level of flows can continue or maybe the.
The step 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 fund range is now with firms like <unk> infrared.
They are selling new closed end funds for instance in the second quarter, we had the first closing on.
On Crescent, a mezzanine fund.
And we've got another year and we expect to have 2 to 3 more closings on that front. So that's kind of lead to the numbers do fluctuate quarter to quarter. We do have some new funds launching in the second half.
We've got some sizable separate accounts. So we're talking about so it's hard for me to.
This is a business that will move around but we had day we have.
An aggressive projection 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 could you share that the annual target for flows for the year publicly.
No I don't think we've given that number of.
Fair enough.
And then I just wanted to also ask on the <unk>.
On Asia and sort of following up on some of the comments regarding COVID-19 impact maybe if.
If you don't mind, you can kind of just.
Moving on formation of which jurisdictions.
Seeing ongoing lockdowns of at least as of today.
<unk> are less impacted.
Good afternoon, Paul Thanks, Thanks for your question.
You're right to note that.
There is still quite of bit of movement with Covid in Asia.
Particularly if you look at what happened in Q2, we're seeing a strong surge in the delta variance.
Especially in Southeast Asia.
Which is impacting the region.
And it's actually quite quite broad if you look at Q2.
Really what analysis of startup of Q3 in July.
Obviously, you had the very strong wave in India.
With the 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 in India, but we've seen a surge.
<unk> in the rest of the region. So more recently you've seen Malaysia.
The start going to a peak Phil.
Philippines being kind of of hovering out of constant level for the last year really.
But then youre starting to see Vietnam have cases and quite of bit of an increase in the death rates.
And then in Indonesia is also out of peak.
Of about 2000 deaths per per day, which is now higher than that India. Currently yet. So that's affected broadly felt the CAGR. We've also seen some.
Cases in the.
A few provinces in China.
And so all of the governments are responding with the various lockdown measures from the lease you have seen in the state of emergency for example of.
Now that had been completely open people could traveled across the country.
Now facing movement restrictions curfews and so on.
And then <unk> had.
The escalations and restrictions in the in Indonesia, and the Philippines, and then now in various areas of China.
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 in Hong Kong and Thats really the results of very strong travel restriction into the market. So the economy is running pretty well within Hong Kong, but it's very hard for travel in and out.
So all of that obviously creates some uncertainty for us.
Heading into.
Into Q3.
Although.
We do feel confident about our.
Positioning for recovery as the.
Result of the strong.
The investments we've made in the business in distribution.
And also in digital enabling our advisors 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.
Afternoon, Kevin you are inheriting a company.
Hey.
For the life insurance company, but it's got a 16% Roe.
37% by Cat at the Holdco reasonably low leverage.
I look at this I think of lot of people on this call would recognize that's not normal for a life insurance all day.
So when you look at this.
How do you react to that ROE do you reactions simply while the beans made some good calls over the last 10 years and we're not really of 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> Roe.
Much lower.
How do you look at it is this normal Sun life now.
Thanks, Mario for the question first you're absolutely right the Dean and the executive team under him of left the extremely strong foundation. The de risking that was done early on in 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 have positioned us to be very different than just the reinsurance 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 for asset management businesses, including TRA.
<unk>, which is defined contribution business that in many ways in Canada. It looks like an asset management business and pension risk transfer where almost half of asset management and I can see us continuing to grow our earnings.
Across the 4 pillars 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 fits of leadership position and a strong brand in Canada, I can see Canada growing and we talked about 6% plus.
The U S. You've talked a lot of of the U S. On this call and I think that that growth in the U S group benefits business, we've got a real powerhouse in stop loss and with the additional things like pinnacle care to really extend that and the work the Dan and his team are doing on digital so Mario or focus on.
Reducing use of capital and fee income not just the asset management fee income, but fee income in our insurance businesses around the world.
That focus on.
Disciplined.
On 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 in that discipline.
<unk> been involved with the ever since he took over as the CEO I worked for them in Canada as well.
That discipline 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 is.
We're focused on making our business stronger and better but work we've done on digital the work we've done on which lines of business. The 4 pillars, and we're going to continue to build on that.
Alright, so 16% even higher I guess.
It is not unusual for a company of Sun life.
There is no reason to expect that ROE to true.
And back down the 13%, which is where it was for a much of Sun life time of the public company.
I think our mix.
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.
The next quarter I don't believe you have given us any guidance I don't think of 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 in every life insurance company is there.
Should we be sensitive to the notion of a life insurance companies, including life after.
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 a margin so.
We are reviewing a number of assumptions.
Normally the majority of our assumption reviews will be in Q3 of insured 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 <unk> for this year.
We looked at our what.
What we've had the POS we also look at how the markets are changing and looked at projections for the future as well.
You'll note we did have the significant gain in the real estate this quarter with the great Jesse.
<unk>.
The.
The the short answer to your question, Yes, it's certainly part of our review.
And you'll.
You'll see the list.
The badge and so all of the other changes in the next quarter, but there's nothing that we're calling out of the highlight them for Q3 other than.
The changes that have been announced and approved by the actual standard for.
That's the ultimate reinvestment rate in the ultimate credit spread and we will be most of the moved up from Q3.
Including the estimates in our disclosures on that.
And Dean.
All of the best in the 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.
Team Congrats all of the best.
I have a question I'm looking specifically.
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 the stuff for the first is obviously last year, we know there was disruption.
But whats the biggest driver of the.
The sales of apart from just.
Now sort of being out there and capable of like has there been.
Any pricing changes with respect to these policies that are being sold.
So darko its Kevin I think it's best answered by by pillar. So.
Ill turn maybe Jacques first to answer the the Canada growth in sales and then Leo can talk about Asia.
Yeah.
Darko This is mark thanks for the question.
Pointed out of course, the individual insurance sales were up significantly in Canada.
121 million of 57%.
Remember that in Canada, we have 2 distinct channel we have the.
Sun life financial distributors.
And then the third party, which is high net worth and ultra high net worth.
The high net worth of where the growth is the highest of the moment from Q2.
And this business can be lumpy Darko in particular, if you put yourself back to the previous quarter and 2020.
And the.
Fact that there was a lot of the medical facilities that were closed and so on.
We saw we saw lower sales in part because we.
We announced that we're going to go off the $5 million at all.
The labs when you get the the ultra high net worth these are of very significant allowance. So there was I would say of kind of a bit of the buildup of the.
Pipeline and all of those come through nicely this quarter.
I just want to highlight the fact that those can be lumpy from quarter to quarter.
Neil.
Yes, good afternoon Darko line. Thanks.
The 2 parts of your question. The first 1 is the increase in sales in the second 1 was any pricing changes.
Associated with that was the numbers in the case of Asia of 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 has been.
Creasing capacity with our partnerships with <unk> TP Bank in Vietnam. For example, but also the growth of our agency were up in high single digit rates in terms of agent count over that period.
So strong strong capacity growth, there and strong rebound.
As well with the digital enablement of all of our distribution and then the second factor is that we 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.
Philippines, Indonesia.
Of these yet 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 in sales.
And I guess the question leads to the next obvious 1 which is.
The underwriting changed and ultimately what im 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 the good thing.
In the sense that we're now living with COVID-19, It's your forever and we could end up having higher mortality later on that youre going to pay for it.
So.
As underwriting changed are you asking people if they're vaccinated are you changing pricing because of the vaccination rates. Most actuaries that I talk 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.
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.
Let the I'll, let Kevin Morrissey jump in on this as well Darko, but youre aware, we use the did you say.
Difficult amount of reinsurance in this business as well so we we do.
Work with the reinsurers in terms of how we look at underwriting how we look at risk, how we think about risk curve.
Kevin can talk a little bit more about that but there's a number of factors that you were seeing in the quarter that I just wanted to summarize again right like remember the previous quarter was really the first quarter of of Covid and it was hard for agents to get out and they hadn't yet pivoted to the new tools that were introduced in fact in a lot of the jurisdictions.
Licensing wasn't approved yet for electronics so net.
Licensing I shouldn't say electronic signatures werent, yet approved yet by the by the regulator. So you had you have had a very big shift in in the quarter over quarter right Q2 last year.
The newly in the Covid in Q2, this year starting to come out of Covid in some jurisdictions with.
With improved tools and and also we've been investing in distribution during the pandemic and Leo talked about the addition of ACB and.
And some of those types of things. So I think there's a combination of things, but on the the risk side.
Just again point out you've seen our mortality experience coming through Covid.
We've talked about.
The use of more analytics.
More data different ways of thinking about risk and we've done that in partnership often with reinsurers. So I don't know Kevin Morrissey if you wanted to add anything on mortality risks.
Yes, thanks, Kevin So darko.
The bid to that so we are obtaining are of course very close attention to the pandemic and how it progresses and all of the different geographies.
The close attention to the risks the trends with focus on the underwriting.
All of our pricing will be quite responsive as well, but your question is the 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 really benefit from the geographic diversification. So we sell on the number of different markets and as you can see in the ebbs and flows of the pandemic across the world.
We certainly had that balance out with our global business profile also of the insurance and the diversification for the big writer of payout annuities, which are which have the opposite exposure.
As the results of the pandemic and we've certainly seen that in our results as well that great diversification across the different product types. So I think that the broad diversification across the dimensions help us feel really good about the risk for writing today.
Kevin is it fair to say that for every dollar of mortality risk you put on you are putting on all of the revenue of longevity risk or is it not quite that balance.
It's not quite exactly balanced, but I will tell you we have of longer term strategy to have that risk profile quite well balanced and we're looking at getting that.
Balance across the enterprise, but also across different jurisdictions as well so very much in our minds to have that longer term balance in play.
Great. Thank you.
Thank you. Our next question comes from the line of Nigel D'souza for.
The investment research your line is now open.
Good afternoon, and thank you for taking my question I'll try to keep it.
For essential overtime here I wanted to follow up on.
Individual insurance sales in Asia.
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 the.
Essentially all of the regions, except for the Vietnam and I'm trying to understand how much of that is just quarter no.
Like portable volatility.
And seasonality and how much of that is related to COVID-19, and recent mortality mobility restrictions and Lockdowns Leo mentioned that you haven't seen key accounts ryzen, Hong Kong, but the individual insurance sales also down sequentially, there and I know, it's a bit hard to predict but do you have of census of at least in the third.
<unk>.
For your individual insurance sales in each of our trending in.
Do you think of drift lower in the short term with the.
Mobility restrictions that are being flow.
Yeah.
Nigel it's kind of.
Okay. Go ahead no go ahead Lee of sorry.
Okay.
Nigel It's Leo Thank you for your question.
Regarding the first part of your question around sequential sales.
Youre right that in local markets on the sequential basis.
The markets were down other than for Vietnam.
And again, it's really 2 factors that are at play here is the first 1 is that.
As you know David.
Southeast Asia.
We saw a resurgence in Covid cases, and in particular, the delta of variance and all of that impacted sales across the region and then the other factor that you are seeing is India sales are down and that is the seasonal.
Pattern.
Some of that is also the Covid cases in India. As you know there was the strong wave, but some of that is seasonality in that our India business had the fiscal year ending.
At the end of March and the result, there.
Our Q1 Q4 is the strongest quarter of the year every year. So there is some seasonality in India and then an 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 in time and that we don't quite know.
Where things are going with the.
The handling of the increase in 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.
Those types of situations, you've got countries with very low vaccination rates at this point in times of the governments are seeking some quite strong action in terms of movement of restriction VR for example.
The clothing bank branches, which obviously affects our bank assurance business.
In places like Malaysia, and Vietnam, notably so so we do see.
Some of uncertainty there in terms of the market.
And then offsetting that is.
What I talked about earlier, which is.
The distribution capacity and strong enablement of our advisers for non face to face and the digital sales, which.
Should dampen some of that impact, but nonetheless.
There is material line sensitivity there Nigel.
Okay. Thanks, that's really useful color and if I could just quickly follow up on the other point brought up earlier.
On the mortality versus longevity.
Do you have any color on the.
Geographic breakdown of that mix exposure would it be fair to say that.
Of the longevity offset is more prevalent in north America, and unless 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, maybe I'll take that 1 I think when.
When youre looking at that that mix of business.
Predominantly the the longevity risks that we're writing.
Canada today, we also have quite large business in the UK.
That would be kind of the predominantly where you'd see the longevity of exposures on the books good day.
Okay. That's really helpful. Thank you.
Thank you.
Our last question comes from the line of Scott Chan with Canaccord Genuity.
Line is now open.
Thanks for sneaking me in and Dean Congrats on all of your achievements at Sun life and best of luck in retirement.
I just have 1 follow up question from Mike at MFS, you talked about the redemptions in the quarter, but I think what's more may be concerning is the gross inflows that we see.
I saw total in the quarter.
It was down 20% quarter for quarter, and 25% year over year on what was the very strong Q2 flows globally from what we can tell.
Is it I also noticed your medium term fund performance slipped a little bit by just wanted to see any color on on from the.
Gross flows.
That seem very suppressed this quarter.
Hey, Scott Thanks for the question the Spike I think.
Year over year comparisons are a little tough in the last year was such an outsized year. You know we had sales of 40% last year. There was incredible 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 in the fixed income it sort of was the opposite of last year, we saw money come out of fixed into equity and we were well positioned for that so I think <unk>.
Last years of tough year to comp off of when you look at Q2 versus Q1.
And you look at active fund sales in the U S industry. This year. Our flows were in line with what happened in 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 at highs of people not allocating as market continues to go up interest rates of relatively low I think of people are sitting on their hands. Some.
So our flows look very similar for the U S. Retail flows very similar to what happened in the industry Q2 versus Q1.
Okay. Thank you very much.
Thank you.
We have no further questions at this time and now I will turn thanks for 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 on his successful tenure at Sun life.
We wish you all the best in your retirement.
And have a good day.
This concludes today's conference call. Thank.
Thank you for your participation you may now disconnect.
Okay.
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