Q2 2021 Manulife Financial Corp Earnings Call
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Please be advised that this conference call is being recorded.
Good morning, and welcome to the Manulife second quarter 2021 financial results Conference call.
Host for today will be Mr. Hong Kong. Please go ahead Mr. Cole.
Thank you and good morning, welcome to my last earnings conference call to discuss second quarter 2021 financial and operating results.
Conducting this call virtually.
The earnings release financial statements and whether the MBNA statistical information package and webcast slides for today's call are available on the Investor Relations section of our website.
Hum.
Turning to slide 4.
We will begin today's presentation with an overview of our second quarter highlights and an update on our strategic priorities by Roy Gori, Our President and Chief Executive Officer.
Well when you watch the remarks, Phil Witherington, our Chief Financial Officer will discuss the company's financial and operating results.
After the prepared remarks, which were recorded in our balance to ensure optimal sound quality, we will move to the live question and answer portion of the call.
We ask each participant to adhere to limit on 2 questions.
There's no question. Please re queue and we will do our best to respond to all questions.
Before we start please refer to slide 2 if we caution on forward looking statements on slide 32, we note on the use of non-GAAP financial measures in this presentation.
Certain material factors or assumptions on quietly making forward looking statements and actual results may differ materially from what you stated.
I'd like to turn the call over to Roy Gori, Our President and Chief Executive Officer.
Right.
Thanks, Tom Good morning, everyone and thank you for joining us today.
Yesterday, we announced our financial results from the second quarter of 2021 and our strong momentum continued from the start of the year with double digit growth across a number of our key operating metrics from paid with the prior year quarter.
Turning to slide 6 we delivered record core earnings of $1.7 billion, an 18% increase from the prior year with double digit growth across our growth engines Asia and global Wang.
And we reported net income of $2.6 billion.
Moving to this value increased 57% with strong contributions across all geographies.
Higher sales volume on more favorable margins.
Our expense efficiency ratio improved by 2.1 percentage points compared with the prior year, demonstrating our continued focus on expense management.
And our global land business, we continue to build scale and benefited from growth in higher margin businesses.
As a result, our core EBITDA margin increased 440 basis points from the prior year.
Our N V. The margin for Asia increased by 3.6 percentage points from the prior year on this represents a tremendous growth from 5 years ago. When the margin was in the low thirty's.
Turning to slide 7 and the progress we've made executing on our 5 priorities.
As we discussed at our Investor Day in June the next phase of our strategy is focused on accelerating growth and becoming the most digital customer centric global company in our industry.
I'm very pleased with our progress in these areas.
Growth in our highest potential businesses outpaced other areas since 2019.
And that continued in the second quarter with both Asia and global way of delivering double digit growth in core earnings.
I'll ask potential businesses accounted for 61 per cent of total company core earnings either day, 2021 and we're on.
On track to achieve our target of 67 per cent of total company core earnings by 2022.
In Asia, we announced a 3 year partnership with Libre, a leading global trade Association for the financial services industry in order to other recruit best in class agents across Asia.
This partnership complements our newly launched Manulife business Academy, a region wide unified learning and development platform for a growing number of agents.
Global wealth manager.
<unk> total more than 1 trillion dollars.
Reflecting on track record of positive net flows and strong investment performance.
We secured an alternative investment fund managers license, so author onshore private market funds in our key European markets.
This is a major milestone in driving the expansion and offering about private market investing in capabilities within Europe.
On the behavioral insurance front, we launched the Manulife vitality healthy mine reward program to help our individual insurance customers improve their mental and emotional well being.
Our ambition is to be a leader in our industry. When it comes to digital capabilities and customer experience and we're executing on our strategy to attract engage and retain customers by delivering an outstanding experience.
There is strong evidence that higher NPS results in increased customer retention high number of pullets, but Tesla increased investment balances and higher of sales leading to lower acquisition costs and agent recruiting costs.
2018, we've invested $750 million and digital enhancements, which have positioned us well to better engage with our customers and has contributed to our NPS of plus 19 as of the second quarter of 2021.
This is an 18 point improvement from our 2017 baseline and we're on track to achieve our M. P. S target of plus 31 by 2022.
During the second quarter, we continued to make progress on our digital journey across all our operating segments to better engage with our customers.
In Asia, we entered into a new digital collaboration with rewards rewards aggregator and management solution to further incentivize customers that are part of our <unk> program to be physically active.
In the U S. We continued to enhance our digital underwriting capabilities by integrating our underwriting decision engine with Oi pipeline, a leading provider of no code low low code content by digital solutions to accelerate the life insurance application process.
This new approach will dramatically reduce the life insurance sales cycle and offer a less intrusive way to collect medical history data with digital signatures.
Now global land business, we launched a new retirement mobile App for all U S plan members.
The new App gives members the ability to enroll in that plan do you account details make changes to their accounts and use additional financial tools that provide them with guidance on their retirement savings strategies and financial priorities.
Turning to slide 8 expense efficiency is deeply embedded in our culture and I'm pleased to see the benefits reflected in our second quarter expense efficiency ratio of $46.8 per se.
The ratio improved by 2.1 percentage points year over year, reflecting pretax core earnings growth of 16 per se, but far outpaced core expense growth of 5 per se.
We've made significant progress towards meeting our goal of consistently achieving a ratio of less than 50 per se.
In the second quarter, we freed up $200 million of capital, primarily driven by out annuity guaranteed minimum withdrawal benefit off the program in the U S.
The G. M. W. D. Also program has reduced the guaranteed value of the U S. P. A business by approximately 7% since it was launched in 2019.
It's a prime example of our organic initiatives to optimize capital and reduce risk.
On accumulative basis, we've freed up $6.1 billion of capital through our portfolio optimization efforts across multiple legacy blocks.
Whilst we've exceeded our target of releasing $5 billion of capital our commitment to optimize menu last legacy portfolio, especially L. T. C. N V. A remains and we continue to seek opportunities to reduce risk and unlock value.
As I announced at Investor Day.
To reduce the core earnings contributions from L. T C and D day to less than 15 per cent of total company core earnings by 2020 thoughts.
And I look forward to providing you with an update on our progress towards all of our 2025 supplemental goals at year end.
Our final priority is around building a high performing team.
I believe the culture will be a sustainable long term competitive advantage and that only a highly engaged high performing team can consistently exceed customer expectations and deliver superior results.
Our target is to achieve top quartile employee engagement compared to global financial services and insurance peers by 2022, and we are proud to have achieved this ranking in 2020.
We continued to deliver against our goals of increasing women in our leadership ranks.
And then on new graduate hiring a black indigenous and people of color talent in 2020 reached 52 per se.
More than doubling our goal.
In addition, we're continuing to develop a high performing team and winning culture through initiatives focused on wellbeing learning and recognition.
Highlights include our second annual global Thank you day for all colleagues as well as they'll be spoke elevate wellbeing program on.
Global initiative to encourage and help our teams focus on there will be.
And we're on the path to building a culture of sustainability to better our planet.
In May we announced that commitment to net zero emissions to support climate goals worldwide recognizing the important role that 37000 employees 119000 agents and over a trillion dollars. They know you and I can play in global climate solutions.
I am proud to share that we're already net zero in our operations due to the carbon removals from our substantial owned and operated force in farmland.
The net zero focuses on 3 key areas through.
Through our operations will substantially reduce emissions to lessen our footprint.
We will actively invest for sustainable future without products and services will develop innovative solutions that contribute to climate change mitigation and resilience.
To conclude we continue to demonstrate great progress against our strategic priorities.
We're executing on the next phase of our strategy with a greater focus on accelerating growth in our highest potential businesses.
Our strong results in the second quarter of 2021 showcased the strength of our Asia and global web businesses and I'm pleased with our progress towards delivering on our goals.
Our commitment to continue to optimize our legacy businesses, especially LTC and VA is as strong as ever.
We continue to invest in our digital capabilities to both improve customer experience and deliver on our efficiency target.
It's a challenging and uneven operating environment continues across many markets globally.
Pleased to see a path to reopening in many of the world's largest economies.
We continue to believe the menu life is uniquely positioned to win as the global economy positions to recovery and are optimistic about the future of our franchise.
Thank you and I'll hand over to Phil Witherington, who will review the highlights of our financial results Phil.
Thank you Roy and good morning, everyone.
Turning to slide 11, and our financial performance for the second quarter of 2021.
As Roy mentioned, our strong momentum continued in the second quarter.
We delivered double digit growth in Asia, and global 1 resulting in record core earnings of $1.7 billion on total company net income of $2.6 billion.
Strong customer demand combined with favorable market sentiment during the quarter contributed to double digit a P E sales and new business value growth across all insurance segments as well as an increase in net flows and average of UMH and our global wine business.
And a light cat ratio of 137% and leverage ratio of 25, 9% provides us with financial flexibility to deliver on our strategic priorities.
We will complete our annual review of actuarial methods and assumptions during the third quarter of 2021 and while this review is not yet complete preliminary indications suggest the impact will be roughly neutral.
Separately in June 2021, the Canadian actuarial standards Board issued new guidance with reductions to the ultimate reinvestment rate and updates to the calibration criteria force to caustic risk free rates.
These updated standards include a reduction of 15 basis points in the U R. A and a corresponding change to the stochastic risk free rate modeling and it will be effective from October 15.2021.
We expect to adopt this standard in the third quarter of 2021 and consistent with our disclosed sensitivities, we estimate that it will reduce net income attributed to shareholders by approximately $550 million post tax.
The impact of this change will be reported in items excluded from core earnings as part of the direct impact of markets.
I will highlight the key drivers of our second quarter performance with reference to the next few slides.
Turning to slide 12.
We generated core earnings of $1.7 billion in the second quarter of 2021 up 18% from the prior year on a constant exchange rate basis. This was driven by higher new business gains across all insurance segments.
Higher net fee income from higher average of UMH and a global 1 business day.
The recognition of core investment gains in the quarter.
And in force business growth in Asia and Canada.
These items were partially offset by modestly unfavorable net policyholder experience compared with net favorable COVID-19 impacts from the prior year quarter, and low and net gains on seed money investments and segregated and mutual funds.
Net income attributed to shareholders was $2.6 billion in the second quarter, reflecting growth in core earnings gains from investment related experience compared with losses in the prior year quarter and larger gains from the direct impact on equity markets and interest rates.
Of note, we delivered investment related experience gains of $839 million in the quarter, reflecting higher than expected returns on older primarily driven by fair value gains on private equity the favorable impact on fixed income reinvestment activities.
And favorable credit experience.
$100 million of these investment related experience gains were reported in core earnings with the remaining $739 million reported outside of core earnings.
The direct impact of markets in the quarter was a gain of $177 million, reflecting strong equity market performance.
The gain of $40 million from the direct impact of interest rates was the result of low risk free rates on flattening of the yield curve, partially offset by a charge from the sale of a S. S bonds.
Our year to date 2021, net income attributed to shareholders of $3.4 billion was above core earnings of $3.3 billion despite market volatility throughout the year. This.
This reflects the transitory nature of market impacts on our income period over period, and our ability to manage market risks effectively over time.
Slide 13 shows our source of earnings analysis.
Expected profit on in force increased by 8% on a constant exchange rate basis, driven by growth in Hong Kong, Japan, Vietnam, and Canada Group insurance.
Favorable product mix and strong sales in Hong Kong as well as Asia other.
And higher sales in Canada retail insurance.
Net policyholder experience in the second quarter was modestly unfavorable primarily driven by adverse claims experienced in U S life, partially offset by favorable claims experience in Canada group insurance.
Long term care policyholder experience was approximately neutral.
Core earnings on surplus decreased compared with the prior year quarter, largely due to the net impact of lower yields on fixed income investments and lower net gains on seed money investments and segregated funds on mutual funds, partially offset by gains on the sale of I S. S equities.
Turning to slide 14, we.
We delivered core earnings growth of 62 per cent and a global 1 business, reflecting growth in net fee income driven by higher average AUR on a from the favorable impacts of markets and net inflows. This 1 is the favorable business mix.
Core earnings in Asia increased by 20% driven by higher new business volumes, reflecting a lessening of the impact of COVID-19 on sales favorable product mix and in force business growth path.
Actually offset by modestly unfavorable policyholder experience and low investment income on allocated capital.
Core earnings in Canada decreased by 7%, primarily driven by a low level of favorable policyholder experience compared with the impact of COVID-19 containment measures on claims in the prior year quarter and lower investment income on allocated capital, partially offset by higher <unk>.
Earnings and higher sales in our retail insurance business.
Core earnings in the U S decreased by 10%, primarily driven by a less favorable impact from COVID-19 on lump sum cash policyholder experience and lower investment income on allocated capital, partially offset by higher new business volumes.
Core losses in corporate and other improved by $114 million, primarily driven by core investment gains partially offset by the net impact of low yields on fixed income investments lower net gains on seed money investments and segregated funds mutual funds games on <unk>.
Sales of S S equities on.
Low interest on allocated capital 2 operating segments.
Slide 15 shows on new business value generation and APE sales.
Our insurance business delivered very strong new business value of $550 million in the second quarter of 2021, an increase of 57% versus the prior year quarter with double digit growth across all insurance segments.
In Asia, and B, the increased 48% from the prior year quarter, driven by higher sales volumes in Asia or other markets favorable interest rates higher sales volumes and product management actions in Hong Kong and expense management actions and favorable product mix in Japan due to a shift away from low.
Sure margin coli products.
In Canada, NPV increased 65% from the prior year quarter due to the impact of higher sales volumes and more favorable margins.
In the U S N b the double the level of the prior year quarter, primarily driven by higher sales volumes and more favorable margins.
In the second quarter of 2021, we delivered a P E sales of $1.4 billion, a 13% increase from the prior year quarter.
While COVID-19 impacts on sales have moderated the pandemic continued to have varying degrees of adverse impacts across the markets in which we operate.
In Asia, a day sales increased by 34%, reflecting double digit growth in both bancassurance and agency channels in Asia, other markets and Hong Kong, which benefited from continued strong domestic demand and emerging demand from mainland Chinese visitors, partially offset by lower <unk>.
<unk> product sales in Japan.
In Canada, a day sales increased by 15%, primarily driven by higher sales of lower risk segregated fund products higher retail insurance sales and highest small and mid sized group insurance sales, partially offset by the non recurrence of a large affinity market sale.
In the prior year and lower large case group insurance sales.
In the U S. A P E sales increased by 40% due to higher customer demand across all product lines.
<unk> sales of products with the John Hancock vitality, plus feature increased by 27% as the feature continues to be a differentiator in the market.
Turning to slide 16.
Our global wealth and asset management business delivered net inflows of $8.6 billion with gross flows of nearly $34 billion. During the second quarter and also benefited from the favorable impact of markets.
In retail net inflows were $7.3 billion compared with net outflows of $1 billion in the prior year quarter.
The increase was driven by double digit growth in gross flows across all geographies and low a mutual fund redemptions in the U S.
Institutional asset management net inflows were $1.9 billion compared.
Compared with net inflows of $6.5 billion in the prior year quarter.
The year over year change was driven by Canada from the non recurrence of a $6.9 billion dollar sale in the prior year and a $1 billion sale to an existing client in the second quarter of 'twenty or 'twenty 1.
In retirement net outflows were <unk> $6 billion compared with net outflows of <unk> $3 billion in the prior year quarter, reflecting higher member withdrawals, partially offset by growth in new plan sales and member contributions.
Overall global ones average of U M 8 increased by 26% compared with the prior year quarter, driven by the favorable impact of markets and higher net inflows.
As part of the expanded disclosures introduced at our recent Investor Day I'm pleased to highlight the net fee income yield metric.
Global <unk> net fee income yield of $44.4 basis points increased by 2.8 basis points from the prior year quarter, reflecting favorable business mix, which benefited from growth in retail net inflows.
And core EBIT margin increased by 440 basis points, driven by a combination of higher net fee income operational benefits from increased scale and disciplined expense management.
The strong growth in average AUM a on core EBIT margin expansion contributed to core earnings growth of 62% over the prior year quarter.
Turning to slide 17, our strategic expense management program is mature and deficiency is embedded in our culture.
We delivered an expense efficiency ratio of 46, 8% in the second quarter of 2021 with an improvement of 2.1 percentage points compared with the prior year quarter.
This improvement was driven by a 16% increase in pretax core earnings, which far outpaced the 5% increase in general expenses included in core earnings.
We remain committed to our goal of consistently achieving a ratio of less than 50 per cent.
As I mentioned at our recent Investor day, we set our sights on achieving positive jaws in 2023 and beyond meaning that we will endeavor to have our top line growth the denominator of our efficiency ratio exceed our core general expenses growth rate.
Turning to slide 18, we continue to maintain a strong balance sheet on capital position we.
We have $23 billion of capital above the supervisory target and on light cat ratio of 137 percentage is strong.
The ratio is in line with the prior quarter as favorable impacts from market movements, mainly from lower risk free rates on older games were offset by the impact of capital redemptions of $2.1 billion.
Our financial leverage decreased 3.6 percentage points from the prior quarter to 25, 9% driven by the redemption of debt and capital instruments of $2.1 billion.
Both in retained earnings and the favorable impact of low interest rates on the value of I S. S debt securities, partially offset by the unfavorable impact from a stronger Canadian dollar.
We remain committed to achieving our 25% medium term leverage target, but would note that the ratio is subject to variation period over period due to the timing of financing activities.
Slide 19 outlines our medium term financial targets and recent performance.
Core ROE on the expense sufficiency ratio met our medium term targets in the second quarter of 2021 and on dividend payout ratio remains within our target range.
We remain confident in delivering 10% to 12% core EPS growth over the medium term.
Of note core EPS growth of 6% in the second quarter of 2021 reflects the impact of currency translation.
On a constant exchange rate basis second quarter, 2021 core EPS grew 17% compared with the prior year quarter.
This concludes our prepared remarks, operator, we will now open the call to questions.
Thank you we will now take questions from the telephone lines. If you have a question and you're using a speaker phone. Please lift your handset before making your selection.
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It makes sense do you have a cancel your question at any time by pressing star too. Please.
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The first question is from Humphrey Lee of Dowling <unk> Partners. Your line is open. Please go ahead.
Good morning, and thank you for taking my questions.
My first question is related to new business gains in Asia.
While its show good year over year growth, but it's a little bit softer compared to the levels, we've seen over the past several quarters.
I believe on the sales mix makes hasn't had an impact on that but I was just wondering if you can elaborate on some of the moving pieces flow new business gains that we see in the quarter and what is your outlook for that coming from from Asia in the coming quarters.
Thanks Humphrey. Thanks for the question. This is oh it felt like you rightly pointed out our growth on.
But new business gain in quarter..2 has been very strong we are very pleased with the debt 51% growth that we've seen year on year on a constant exchange rate basis, and that's on account of a few factors 1.
<unk> been aided on account of the strong new business sales and we illustrated during the Investor day as well that we continue to expand our distribution continue to improve our digital and technology capabilities as well as upscale and upgrade our talent and we have a very well.
<unk> as we entered 2021 started the year strongly and then kind of backed it up with with a strong quarter 2 performance as to that in addition to that we have been taking a number of steps on driving product makes to be have taken a number of repricing actions over the last 12 to 18 months.
Its value as a as you would've heard Phil illustrate been very disciplined around on expenses. So a combination of these factors have resulted into the growth that you're witnessing on the new business gain line the new business growth.
We believe it's quite consistent with our sales volume so as Iraq and it is highly correlated with new business sales and if you look at the correlation is quite consistent.
Or or a part of on and quarter 2 and to your second question in terms of the outlook, if I were to kind of draw your attention.
Around $160. So it seems a little bit lighter than I guess, the the second half of last year, where youre. If he sales were kind of comparable like just how to think about that kind of on that that change.
Yes, I think as I pointed out I think from a euro on your perspective on growth has been pretty solid as as you would've seen.
From our disclosures I guess, you will always have some level of variability depending upon the geography, a geography mix as well as product mix as you highlighted in your question, but as I said the correlation between on new business sales and new business gains.
And in our reckoning has been pretty consistent.
If you do normalize for quarter, 1 seasonality it should kind of give you a good indication of our new business gain an estimate.
I'm pretty sure I'll, just I'll say.
Ill.
You've covered it quite well, but I would just say that seasonality isn't just affecting necessarily out total sales that will also affect the sales by geography and as you highlight Q3 Q4 isn't radically off what you saw in Q2 from.
From a results perspective, but the makeup of our results does vary based on seasonality. It's obviously more pronounced with Q1 in China, but there is a bit of a mix across the different markets and Q2 isn't radically different from Q3 Q4 as you highlighted I wouldn't look at that as a big difference.
And again, it really goes to the floor of the geographic diversity, that's really very helpful. For us on has allowed us to continue to deliver strong results and quite frankly gain market share across many markets in Asia, not only in 2020, but in 'twenty, 1 as well.
Thank you I appreciate that Mike.
My second question is related to global Wham.
You saw very strong retail net flows in the quarter and as you pointed out strong gross sales across geographies and low redemption can you just talk about where you're seeing traction in terms of accounts.
Each geography is getting stronger inflows and then also on what type of ethic clauses are getting D. D D D.
The inflows.
Yeah. Thanks, I'm free it's Paul here and I'll answer the question, Yes. As you mentioned, we had a very strong quarter. This quarter in terms of gross flows on net flows in retail was the primary driver there until mentioned in his opening remarks, we did see double digit growth across all 3 regions and growth flows I think that just speaks to.
The underlying quality of the franchise on the diversification. It's also worth noting that in our U S. It was the fourth consecutive quarter of positive net flows in our U S business. That's also contributing here we've seen continued momentum.
In that business building off the last 3 quarters. The other thing helping US here is in terms of your question on mix. If you look back to maybe the start of 2020, we were selling quite a bit of a fixed income we were seeing a much more balance mixed of.
Sales now, particularly within the retail channel to equity and to balance mandates. So that's also helping.
Drive the overall flows in profile of the business, but also support that net yield that were now disclosing.
The fundamentals of the business are very strong and I would say they are also strong on the other channels as well just not as pronounced as retail where we're we're seeing a big impact.
Got it thank you.
Thank you.
Next question is from Tom Mackinnon of BMO capital markets. Please go ahead.
Yeah, Thanks, very much on good morning.
Wanted to talk a little bit about the policyholder experience losses in the quarter and if we look at overall.
Overall the.
Experience gains and losses on a core basis were <unk> 34.
Seem to be in line with what we were looking for despite probably higher policyholder experience losses. So maybe you can kind of.
Blaine, what other experience gains or losses might've been in there.
I guess to summarize it would just be a little bit more color on the policyholder experience losses by geography, and what were the other core experience gains or losses.
Contributed to the -34 that you reported.
Thanks, Tom It's Steve here I'll be happy to answer that question.
It's still as Phil noted, our overall policy holder experience.
Slightly unfavorable at $15 million loss and the big drivers there that Phil called out U S life claims experience.
1 piece of Colorado, there is that the bulk of what we saw in terms of coming through as a loss occurred at the start of the quarter in April.
I think we're seeing some some COVID-19 trends in those results, but it got better over the course of the quarter.
Those were offset by gains in our Canadian group.
Group insurance business, primarily in our long term disability business, where we saw strong net recoveries and then.
Asia was close to neutral.
Some modest claims gains and some.
Some lapsed losses that were across a number of geographies not concentrated in any 1 area.
And then in terms of what else goes into core experience.
What goes in there as well is our expense related experience and a reminder, that that includes our regional overhead costs in Asia and then what we see is we do see some variability in that line from reinsurance related items, and we had some a number of small positives there.
And in this quarter. So those are the key drivers of what we're seeing in policyholder experience and the core experience line.
Sure.
Okay, and what about did you mentioned long term care, how what was it that was neutral in the quarter AR is there.
And I think you mentioned.
That there's been sort of a COVID-19 impact.
Impact that's been progressing from April and I guess, improving maybe in your U S life.
Maybe you can share how that.
Sort of Covid impact has.
Impacted long term care and.
What you would expect going forward with respect to long term care experience.
Yes.
Sure.
Long term care, what we what we saw on the quarter. It was a small positive result, close to neutral, but small positive and.
For context remind people that the the vaccination effort in the U S for the.
The population over 65, the vaccination program has been very successful with 80% of that population fully vaccinated and 90% with at least 1.
1 dose so.
How that's translating we saw in long term care.
On a reversion back towards more normal trends.
We had reported in the past that we had seen customers suspending care and not seeking care.
And we have provided for that in our in our IP and our what we saw this quarter is that we saw a greater trend to resumption of care, where care had stopped and we saw a trend to more normal initiation of care.
And then in terms of the impact on claim terminations.
We saw that because of those vaccine efforts.
The day rate of claim terminations so deaths.
Of our Insureds on claim that came back down more towards more normal levels as well and while it's difficult to predict exactly how this plays out on the course of the year.
Our expectation is that we will continue to see a trend back to more normal experience.
Yeah.
Okay, and any update on the U S. A variable annuity legacy transaction that you flagged at your Investor Day.
Yeah.
Hi, Tom it's Naveed here.
What I can say is that it's certainly a robust market for VA, there's lots of buyers with interest in variable annuities in the U S.
We are continuing discussions and engaging with prospective buyers and we continue to believe that the deal is possible in 2021.
Okay. Thank you.
Thank you. The next question is from Doug Young of digital day in capital markets. Please go ahead.
Hi, Good morning, I guess, it's back to Neil on on Asia, and specifically on new business value margins, just hoping to get some color on 1 side, we did see a decline of 4.3 points in other Asia and on the flip side, we did see Hong Kong New business.
Emerging 75, 8% I think that's the highest I can recall and so just trying to get a sense is there some unusual items here, what's really kind of flexing. Due you said these 2 margins in different directions.
Yeah.
Thanks for the question and let me start with Hong Kong for so.
The Hong Kong, New business value was driven unaccounted for few reasons 1.
We saw a growth of 7% on sales, but importantly, we have been focusing on driving value across all our geographies on obviously, Hong Kong being our flagship and scale business. It's most evident in terms of the scale as well.
At some on the initiatives that we are driving in our Hong Kong market clearly product mix has been a key driver of it its been aided by some of the repricing actions that we've taken in Hong Kong now for multiple quarters as well as despite the growth that we witnessed in Hong Kong now for multiple years.
We have been exceedingly disciplined about on expenses. So a combination of that has kind of resulted into the strong growth that would be witnessed on the new business value margin.
In Hong Kong with respect to Asia other than again I do want to kind of highlight the fact that Asia. Other continues to perform exceedingly strongly the new business value growth year on year stood at 59% net again that should not surprise us given the constitution of age.
We have markets like China and Singapore.
Indonesia, Vietnam that kind of constitute Asia, either so it not only provides diversification strength to Asia, but also provides diversification strength to the Asia on this segment.
Our new business value margin largely from a year on year basis on a quarter on quarter basis Hasnt.
It hasn't been impacted on account of against some of the market mix of the geography mix.
That'd be a witness that could change from quarter on quarter as well as some of the product mix that could drive that.
New impact on new business value margin.
Suffice to say just kind of give us given the diversity and strength as well as a significant market position in many of our geographies in Asia. Other combined with the under penetration that exist in many of these markets. We believe that we are very well positioned to be able to capture the growth opportunity in the Asia on.
This segment.
And just a follow up on the Hong Kong is that it sounds like you think that 75% is sustainable given I mean, there's going to be seasonality, obviously, but that you feel that sustainable level.
Yeah, we believe as I said.
It's also represented a representation of the fact that Hong Kong is our flagship business is and and and and a scaled operations you have been gaining a mark.
Market share now for multiple quarters in Hong Kong and again part of 1 of this year has been no exception on Hong Kong, However, does tend to be.
Be a little bit sensitive to interest rates so.
That's something that I'll be we'll have to take in account a quarter on quarter, but again I think what we are focused on are the core drivers of what drives and be weak and that is as I said, a higher volume our product mix as well as some of the repricing actions combined with our expense.
Disciplined so.
We feel good about the opportunity in Hong Kong and again, the scale nature of Hong Kong should be able to help us deliver the growth at very healthy margins going forward.
Okay, and just second in Japan, there was a 5% quarter over quarter drop in age and I think you talked a bit about repositioning that business following the shift with choline.
Or is this just part of normal turnover or was there some color.
Calling or was there something a little bit more deliberate in what youre doing in Japan.
Yes, I think we have been emphasizing in Japan in light of some of the changes that we are witnessing in the coli market on emphasis as we have mentioned on previous calls our has been in terms of driving in force as well as expense efficiency and.
The number of initiatives that we have taken on both these accounts have resulted into a positive attribution a bolt on core earnings in Japan that grew at 8% year on year as well as new business value that grew by 13% year on year.
We would.
As I said see some level of fluctuation quarter on quarter from an agent head count growth.
But as I said the market in Japan is in transition and we are adapting to some of these transition by focusing on in force focusing on driving the right product mix as well as driving a much more a higher expense efficiency.
Doug I would just add that 5% of our agent base in Japan is not a really significant number. Unlike in other markets, where we have very significant agent count in Japan, we have a smaller agency force and 5% isn't really a huge number of agents that would be in the normal course of of movement from quarter to quarter, but it's in Ohio.
Lights.
<unk> on agency across Asia has been strong and we've seen significant increases not just over the last few years, but certainly in the quarter on last year as well.
Thank you.
Yeah.
Thank you.
Question is from Gabriel It's Shane of National Bank Financial. Please go ahead.
From a food are 2 questions 1.
The 10 year drop affected the you know transaction activity in the legs.
The legacy book.
Or potential thereof.
2 more importantly.
Can you give us a sense of the duration of the product are selling in Asia, I know, there's going to be some variability there, but I'm trying to get a sense of.
What kind of amortization schedule, we're gonna be facing when these new business gains or are you know transition Daria for 17.
Yeah I'll start this isn't a feed.
In terms of interest rates and potential what transactions, we do stay closely connected to potential buyers investment bankers really have our finger on the pulse of the market.
We're seeing externally that pricing was previously improving as interest rates had gone up and yield opportunities. They caught up and we haven't really seen a big pullback yet. So we do see a lot of activity in the market a lot of capital continuing to chase deals.
And so from our end we're continue.
To regularly test potential opportunistic right knocked evaluate the bid ask spread for every block and you certainly will transact if it generates value.
Alright.
Thank you and gave it it's Steve it's Steve I can touch on your second question.
Well, we don't disclose.
By product the duration.
1 on 1 thing I'd point, you to in our embedded value disclosure.
Do disclose there the emergence of our free surplus generation.
And when we get to <unk> 17, 1 of the disclosures that.
That are required is illustrating how that CSN will amortize over time, so right now in the meantime, I direct you to the embedded value disclosure. We've got products that are shorter term. We've got products that are longer term, but I think the EV disclosure gifts.
Some indication of how it evolves now and then we'll provide that information when we are when we transition to higher price 17.
Very little follow up offline and get them every day.
Summer.
Thank you.
Next question is from menu groman on.
Scotiabank. Please go ahead.
Hi, good morning.
Another question on on new business gains and we're seeing that it's a big driver of our core P. S growth this quarter and for some time and I'm trying to think through what that means on a 9 French 17 world.
Of new business gains.
Our amortize if that impact is more muted in terms of the overall contribution to core EPS.
How what what steps into the breach in terms of the Esso relying too to keep the growth going I'm. Just wondering if you could help me kind of think through that Oh from a growth from our core earnings growth perspective.
Yes.
Hey, Manny this is Phil thanks for the question.
And you're absolutely right.
New business gains on treated differently on the line for a 17 basis. So.
We transition from <unk> for the current basis twice for 17, what Youll see is that the equivalents of the new business gains are deferred.
We're a liability is established in the balance sheet as contractual service margin and so I think that will be a really important metric on movement in the contractual service margin will be a really important metric in terms of measuring growth and while it's too early to be specific about the impact of <unk>.
17 on our financials, and that's really because the guidance and interpretations do continue to evolve.
I can confidently say is that whether you're looking at buying for US 17 earnings on movements in CSM or a combination of the 2 I think the underlying growth power of our insurance businesses will be clear on the Ifr 17.
So in terms of sort of assessing the sort of the earnings growth power is it going to be important to kind of look at both like we're not just going on what to look at.
Core EPS growth, but we'll have to look at that sort of underlying the servicing margin as well is that a.
Kind of what you're suggesting in terms of thinking about that issue I, absolutely I think both earnings and movement in CSN will be really important metrics to look at on the IL 17.
I think you hit the nail on the head many things.
Tim is going to be a key measure through which to assess insurance companies going forward on the ROI for 17, and the growth of CSN will be a good leading indicator for future profitability as it obviously gets amortized so I think youre on the right train as it relates to CSM and looking at growth is a key driver of our value in the future. This is a top.
We're going to have to spend a lot more time discussing with you all so where we're looking forward to that as we are able to provide much more clarity in the coming quarters.
Thanks, Tom.
In Q. So next question is from Lamar per side of Carmax Securities. Please go ahead.
Yeah. Thanks. So my question is on the core EBITDA margin improvement in wealth management.
I think it's possible for the core EBITDA margin to move higher but my question is more so on the sustainability of the rate of improvement. So could you really could you talk to me about what's the outlook for the core EBITDA margin improvement over time like you usually when I think of these businesses and margin improvements I think of it as being a little bit.
Bit more a gradual but were seeing quite a step up so far this year. Thanks.
Yes. Thanks for the question on the bar, it's Paul here, Yeah. As you mentioned in terms of EBITDA margin, we had seen a pretty big pick up over the last year and we're now 4 consecutive quarters being above.
<unk>, which was our previous guidance on trying to get to that Mark which is obviously a.
On new thresholds, we surpassed me I'm feeling quite comfortable where we are what I would say is as we highlight.
A highlight in previous play we try and target expense growth at about half of revenue growth from the AUM business, but you do need to look at this over a longer term timeframe, we will need to invest in the business. You know expenses will move around a little bit quarter to quarter. So it's not going to be.
Great trajectory on the way up we're gonna have to invest in a lot of it is dependent on markets, but we're focused on on what we can control and I think as you look at our franchise on the diversification and frankly, the strategic choices, we have by region, where margins are different particularly in Asia and Canada.
And by channel with just with the strength of our retail franchise again, where we tend to see higher margin. We're feeling really good just about our ability to consistently deliver positive net flows over the long term.
And our ability to drive efficiencies out of the global franchise, 1 of our milestones this quarter as we surpassed <unk> 1 trillion in assets under management and administration for total AUM that gives us tremendous scale for the business. So we do believe we can continue to drive margin improvement as we go forward, but that's going to be dependent on on market levels.
Mix of business investor preferences, et cetera, but overall I would say fundamentals of the business are good.
We feel we can continue to drive this margin higher over the long term.
Laura I would just add as well I would highlight that this was our fourth straight quarter, where our core EBITDA margin was greater than 30% that was a huge milestone for us to continue to demonstrate success in growing our core EBITDA margin and we've consistently done that notwithstanding Paul's comments that we are going to see from variability to be factors that are helping us.
Our global scale, which is really coming to the fall when youre able to defray or.
Leverage our expense base across multiple markets. That's certainly an advantage for us on margin. The second as Paul highlighted is that we have tremendous growth opportunities in geographies, which have very high margins and whilst we may see some competitive pressures on fees in certain geographies. The fact that we're growing in other geographies that are.
Higher margin is certainly a tailwind for us on something that we're very excited about which is why at Investor day, We highlighted that global web was a key opportunity for us as we look forward to not just the next couple of years, but quite frankly for the next decade.
Yeah.
Great. Thank you and then my second question is on unexpected. So so it's maybe more appropriate for Phil. So so far in 2021, the efficiency ratio has been meaningfully below there are less than 50% target, but this seems to suggest to me is 1 of 2 things either we're likely to see the debt target moved down to something lower.
Or a higher nix ratio. So can you talk to me about which of those 2 or more likely in your view and if a higher nix ratio is more likely whats going to drive that thank you.
Hey, Lamar Thanks for the question and.
Your observation is absolutely right, we've been notably below the 50%.
Benchmark the targets that we've set ourselves for 2022 and now it's been below it for a couple of quarters now what I would highlight though is that when we talk about a 50% cost efficiency ratio. We're looking at consistently delivering that over a period of time and there always is some seasonality with expenses and I know.
Yet satisfied that we are consistently delivering.
On efficiency ratio below 50%. So so that's something that I think we need to observe over a number of more quarters. There is a tailwind at the moment and that.
Pre tax core earnings has been growing very strongly in the first half of the year on that is favorable.
For the efficiency ratio, but I want to emphasize from an expense management perspective.
Alrighty here is very much strategic expense management strategic cost management. So it's it's not about belt tightening our program is mature and we're looking to link efficiency with other elements of our strategy in particular, the digital and customer elements of our strategy.
And our ability to deliver scalable growth on this touches on your earlier question to Paul Theres, a real link between our ability to scale the organization under our efficiency program because with enable to grow the business in an efficient manner, which is why both on the insurance side on on the web.
And asset management side, you see that operating leverage emerge.
You touched on the future on 1 of the things that.
I commented on at Investor Day is what happens beyond the beyond consistently delivering a 50% cost efficiency ratio and what we said there is that we really target to deliver positive jaws, which means we expect the the growth in our pre tax pre expenses core earnings.
<unk> to outpace the growth in our in our expenses and I think that does speak to ongoing operating leverage that would take the ratio below 50% beyond 2022.
Alright, thank you.
Thank you. The next question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thank you good morning, I wanted to follow up on U S life experience in this quarter and with the emergence of the Delta there range, we're seeing COVID-19 trends.
Diverge on stay.
By state basis, with some states, having more adverse experience.
Was wondering if you could refreshes on your U S life policyholder mixed geographically are there certain states that you were more concentrated in the U S are less concentrated in and how do you expect that to translate into a claim experience on the life side in the near term.
Thanks, Nigel it seems if I can.
I can start and Marianne can add.
Combat ship, if she would like to as well.
Reminder of.
Some of what we saw during the pandemic last year was we saw a diversity in terms of our mortality and longevity risk. So we saw what we saw losses on our mortality business in U S. Like we saw gains in long term care and those trends.
Deviate a bit quarter to quarter, but the diversification is there.
My expectation is that we.
It's hard to predict how the variance the ball, but if we if we watch the trends right now the the rates of mortality have come down substantially and I mentioned earlier the the protection that the population over 65 has received I think is a positive sign.
So depending how this emerges I would still expect to see offsets I think it's just difficult to predict right now.
You know what the variance might do.
C N N COVID-19 becomes more endemic instead of a pandemic.
Can you explain poke just probably more color on how that fits with you a long term strategy to reduce the L. T. C. N b a exposure wouldn't you want that longevity exposure offset.
To exist or to be substantial if mortality risk was elevated in a an endemic COVID-19 scenario, how do you think about it long term.
Sure I you know what we've seen you know through the the pandemic is that while we've taken some losses on the mortality side relative to a balance sheet position. They have not been that that material. So you know in terms of the overall mortality risk that.
The company has quite comfortable with that and you know the focus that we've got on optimizing legacy. We believe that that is a very desirable prudent approach to take even if we did end up with a little bit less diversification on the mortality side, but.
We don't think that would be material for the company.
I I would just chime in and it had I think Steve answered. The question correctly. The diversification is suddenly helped us when we saw that not just in the last couple of quarters, but quite frankly over the course of 2020, but the gross impacts on both sides of those equations on that significant in the scheme of things and again, we see a lot of value in continuing to focus on reducing on legacy busy.
<unk> and as we mentioned that he missed the day LCC in V. A will come on much greater folks for us on that certainly isn't going to change.
Okay I appreciate the color. Thank you.
Thank you. The next question is from Barco Mihelich of the RV scheduled on the markets. Please go ahead.
Hi, Thank you good morning, I have 3 questions, but I'll adhere to the to question limit. The first question is an easy 1 I think in the U S.
Very good sales and very good new business games.
What I'm interested in knowing is is what was the biggest driver.
The increase in the new business games, and how sustainable do you think this new level is.
Thanks to our call for the question is Marianne certainly in in the first half of 2021, we certainly benefited from higher customer demand really across all of our product line and a new business growth rates continue to be quite strong that the new business game, specifically or a combination of our strong sales as well as favorable margin.
And the margin increase as you can imagine with a strong sales you know we get efficiencies of scale, but it's also as a result of some of our continued discipline that we have in our pricing of our products new product development as well as significant expense management that total was talking about earlier, which are all part of our strategic plan that we had set back in 2080.
And so we've been really working on the profitability of the overall business. So we're quite pleased with where we have landed we also tend to play and the portions of the market that have the highest margins as well and I I do think that makes a difference and I'd. Just a reminder, that our high net worth international business. That's right out of Bermuda is also part of are you on.
Segment as well on the margins on that business are very very high and we do see a competitive advantage with vitality and as we continue to go forward you know all of these factors together, we think the fundamentals are strong and they will be variability similar to let her name was talking about in terms of games, but I think we feel.
Feel good about the future as well.
Okay, Thank you and and so.
So just to further Emphasise you think I mean, obviously, there's variability, but we've hit sort of like a new run right level give or take a few you know give or take 10 or 20 million [laughter].
Yeah, I think that we're feeling pretty good about where we are again based on some very ability I don't want to commit to a new run right. Obviously, the the sales gross there's a significant factor to this but on the margin sigh, we feel good about where the margins are and a lot of the work that we've done in order to get the profitability in a good spot.
Okay. Thank you very much for that and my second question is probably for Steve but May also include you Marianne so.
We were reading today about massive changes in Canada with respect to longterm care, possibly resulting in significantly higher costs to run on longterm care homes in Canada, clearly a different paradigm in the U S. But I know next year, you're going into the the large assumption review so.
The question is.
Is this something that's on your radar screen.
How sensitive and how big on magnitude is there, possibly for a change to expense assumptions in the long term care blocks.
And then in the Denver on to that is how.
How quickly can you adjust premium rates based on significantly higher expenses for for a longterm care I realized that a lot of parts to that question [laughter], but any any kind of insight there would be would be interesting and helpful. Thank you.
Thanks, Darko it Steve I can start and that Marianne may may wish to add you know we're watching closely all the potential locations overtime from from the pandemic and that would include.
The trends are in long term care, you know will there be a shift in care setting you know we're more low more care be delivered at home what might the cost of long term care services B and the short answer is right. Now we don't know you know that I think what we saw on the second quarter as customers are just starting.
To feel comfortable resuming care of some kind, but in terms of the longer term trends. We're gonna have to study that really really closely.
In terms of how you know if we if there were trends that emerged you know the question around adjusting premiums that has been a lever that we have been able to use giving customers options. We disclosed that investor day that we've achieved 9 billion of premium increases Oh.
Her time and continue to make progress against our.
Our filings with the state. So it has been a very effective labor. If there are clear. So clearly defined trends those are things that you know we we can file for rate increases the ones that are very clear trends. We we can and would take action. So Marianne add all passed to you. If you have anything to add.
Yeah, I think I think you've covered it very well state I really don't have anything to add on to that.
This is so just a quick follow up on that Steve. So the suspicion that I have brewing is.
You'll do your work.
And you as a company may decide to get ahead of that expense curve.
And possibly results in.
A large reserve build and then only afterwards once there was clear evidence of an increase in costs can you go back and ask for premium rate increases does that.
Is that a possible low come here.
Or a likely outcome no lettuce no. Let me maybe clear you know on the reserve inside you know given that we're talking about a long term exposure I would not adjusted reserves until there were very very clear trends, that's either positive or negative by the way so.
D E. The reserving my expectation reserving would line up with you know we need to have confidence in the trends before we would change premiums we need confidence in the trends before we change assumptions and then longterm care of there are you know there's a variety of different things going on as I mentioned, you you've talked about the potential for higher.
Cost I don't know if that will occur I I have not settled on that you know the other trends that could be positive would be more homecare, which tends to be less expensive. So I think we need to watch the trends and there won't be any knee jerk reactions.
Okay. That's very helpful. Thank you too.
Thank you. The next question is from Paul Holden of C. I B C. Please go ahead.
Thank you and good morning. So first question is related to premium rate increases and longterm care, while we're on the topic. It seems like we've been waiting for some of those additional rate increases to come through or are there any updates there.
This is a pipe on interviewed here I'll take that question. So we're continuing to make progress achieving rate increases in line with our original expectation we.
We you know we had recent favorable LTC Paul's per experience, but we don't think that'll be detrimental to Ashworth R. V increases you've laid out are based on long term expectations on protecting and our long term expectation haven't changed we actually also haven't seen any material impact on responsiveness on from the states Uncontracted.
Are you permitted rate increases the pace of approvals actually is stable and overall is consistent with the last few years.
We continued to get approvals and Q2, and we're tracking well relative to our plans and what's embedded in a reserve.
On Investor Day, we <unk>, we announced that we received over $1 billion of just you with 1.9 billion embedded in our padded Ah reserves and of the 6 billion that we have actuarial justification for and that will <unk>, we're still pursuing.
The 5 billion still outstanding and that will actively working on and as Steve said overall, that's $9 billion of approval on the program to date, so really a track record of execution.
Okay got it yeah, I would say the reason why I ask if it's a it's a large number so second question I had and coming back to Nevada.
Part of your answer around V. A again was you'll transact if it generates value for shareholders and I think I tried to office on on the last conference call, but again I think it's important to set the table for everyone. In terms of you know what is the crack lens for viewing creation of share.
Hold their value on a V. A transaction just so you know the day a press release comes out everyone can kind of look at it and understand what lands, we should be viewing it in terms of shareholder value creation.
Yeah. So I would say that let me to focus on any potential vs. Drive back then is risk reduction such as the contingent capital risk on V. A.
And as <unk>, it's going on transacting at a price point that's in the best interests of the holders I guess, you're trying to get at how how we determined that I was just a lot of factors I mean, the risks risk reduction is a factor in that we know that earnings on variable annuities are discounted uhm.
<unk> analysts do different some of the parts analysis, and you know value Vivian different way, but we know there's a range there and we look at that range. We look at what the pricing on a V. A transaction would be in terms of the after the release of birth is that that range of multiples and that's sort of how we can.
Determine whether transactions and the best thing with with grilled <unk>, along with off to see the risk reduction in benefits.
And then maybe a follow up on on that 1 is it also fair to assume that you know what you're going to free up some capital obviously with a V. A transaction on there for the potential redeployment of that capital also goes into that value creation equation is that is that a fair assumption.
Yes, that's a fair assumption.
Okay. Thank you.
[noise]. Thank you. The next question is from Microsoft migrant Zenovich of Crazy Suisse. Please go ahead.
<unk>. Good morning question for a Neil wants to go back to the Asia business and I'm just looking at the 20 per cent growth rate that you've talked about a year of your basis, and and you had a pretty big.
Sequential step function up in Q3 of 2020, so it looks like you're coming up against the very tough comp year over year next quarter. So I'm just wondering what is it that changes in the business in the near term that's gonna get you there and keep you on that you know 15.50.
50 per cent plus targeted growth rate because when I do look at the last 4 quarters, you haven't really had much movement, even on a C. R basis in terms of your core are we in U S dollars.
Thanks for the question. So in terms of the baby kind of think about the business is through a lens of hobbies fitting on on drivers and towards that I had to emphasize the fact that'd be continued to expand.
Our our distribution, we now have 117000 agents in Asia I'll be <unk>, an exclusive bank partnerships and applause boat the agency growth as well as penetrating further our bank Bognor base b have significant opportunity to be able to drive and momentum.
On an ongoing bases I also do want to kind of highlight the fact that we have made significant investments and continue to do so and improving our digital experience and specifically when it comes to Ah, how distributor's interact with with our customers and that had a couple of knock on impact 1 it.
<unk> great on expense efficiency, but also it allows us greater productivity and a higher customer experience on account of the day investments that'd be on making on on Digitization..1 of the other points that'd be lost it in the past on drawing alluded to that is that is 1 of the key strengths bidding on Asia a franchise is the.
Diversity of our operations and from time to time, you would have noticed that if we do face I had been in 1 marketed that's kind of them get compensated by a day live in in the other and that is something that V. A good continued to kind of amplify as we kinda think about all are reported segment going fall.
So in the short term b might have some momentum challenges on account of the day, so dense of Covid and that's something that I mentioned earlier as well specifically impacting on South East Asian market like Vietnam, Philippines, Indonesia, Malaysia, They have kind of seen a significant increase in COVID-19, but as I said, we've also got.
<unk> experience with the last 18 months to operate in in <unk> Ah Covid environment. So we were watching that very closely but from a medium to longer term perspective, just a secular trends in Asia, given a significant market positions in many of the geography, that'd be all day and as well as on ongoing investment in drive on momentum and does it.
<unk> B feel pretty good about capturing the go dark growth opportunity in Asia.
Okay. Thanks, and then so you you would expect most of that growth to come into the expected profit line going forward correct.
I would not I would say on board dry beef kind of and I again mention that we have been applying specific emphasis on enforced and you can see the robust growth that'd be have been able to deliver in order to 16 per cent encountered 2 of this year, but you would also have to come back.
Line that that new business gain momentum as well, which as you know is going to be highly correlated to new business sales volumes as I alluded earlier as well and that's been you know on the importance on ensuring that the distribution is kind of line up you know your growth drivers that that that was pretty much an order.
<unk> is <unk> is gonna be yucky emphasis for us. So I guess, it's gonna be both across E. P. I S as well as the new business game.
Okay. Thanks for that and then just 1 quick 1 maybe best for Phil just wanted to ask about the 328 million new business games, which is of course, a net number can you provide any color on how much stream there might be in that number I'm trying to get a sense of what the actual new bill.
Those games were on.
On a gross basis, which would be reduced by any negative straight do you have negative street in some products that you sell and positive in others, what what would what would be the mix more broadly.
Thanks, Mike for the question on this is Phil So 328 million new business games that that is and that number that does include certain products that generate strain I don't have the specifics in front of me of how much strained is embedded within that Steve I don't know whether you have any additional comment to make the.
<unk>.
Thanks, Bill I don't have the.
First and from of me, but as you can imagine we.
You know given that <unk> you, it's a drag on earnings and it.
We do focus on where we see.
<unk> strained coming through we're constantly book a stocking at how we can improve profitability et cetera. So you know where we do have it.
So.
Ask them to drag margin improvement.
So is it fair to assume that it's a it's a small number of the stream Porsche would be a small number to get to that net 328.
It it besides like certainly smaller than.
<unk> go out other than the gross number but I don't want.
Certainly smaller than the gross number but I like I said I don't have that handy, we could we could follow up with you, but I think that's <unk>.
Yeah, maybe we could fall <unk>. Thanks, so much for the color I appreciate it thanks.
Thanks, Mike.
Thank you there are no further questions are registered at this time I would not like to turn everything over to Mister <unk>.
Thank you operator will be available after the call is there any follow up questions have a nice morning, everyone.
Thank you to call on for instance, now ended please disconnect Caroline's at this time and we thank you for your participation.
And by.
Okay.
I think that 1 quite a while I think.
And once again the conference has ended please disconnect your lines at this time and we thank you for your participation.