Q1 2022 Sun Life Financial Inc Earnings Call
Good morning everyone. My name is latith and I will be your conference operator today.
Speaker 9: Good morning everyone. My name is latith and I will be your conference operator today.
At this time, I would like to welcome everyone to the sunlife financial q-1 2022 financial results conference call.
Speaker 10: At this time, I would like to welcome everyone to the sunlife financial q-1 2022 financial results conference call.
All lines have been placed on mute to prevent new background noise.
Speaker 10: All lines have been placed on mute to prevent new background noise.
After the speaker's remarks, there will be a question-and-answer session.
Speaker 10: After the speaker's remarks, there will be a question-and-answer session.
The Ho spill of this call is Gen bisen, Vice President, Head of Investor Relations and capital markets.
Speaker 10: The Ho spill of this call is Gen bisen, Vice President, Head of Investor Relations and capital markets.
Please go ahead, MR bitten.
Speaker 10: Please go ahead, MR bitten.
Thank you and good morning everyone. Welcome to sunlife's earnings call for the first quarter of 2022. our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife com.
Speaker 11: Thank you and good morning everyone. Welcome to sunlife's earnings call for the first quarter of 2022. our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife com.
We will begin today's call with an overview of our first quarter strategic highlights from Kevin string, President and Chief Executive Officer.
Speaker 12: We will begin today's call with an overview of our first quarter strategic highlights from Kevin string, President and Chief Executive Officer.
Following Kevin's remarks, management ING Executive Vice President and Chief Financial Officer will present the financial results for the quarter.
Speaker 12: Following Kevin's remarks, management ING Executive Vice President and Chief Financial Officer will present the financial results for the quarter.
After the 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 morning.
Speaker 12: After the 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 morning.
Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks.
Speaker 12: Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS 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 Kevin.
Speaker 12: 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 Kevin.
Thanks athan. Good morning to everybody on the call. Today, turnuring to Slide 4, Sunlight delivered a solid start to 2022, driven by our diversified business model, prudent risk management practices and strong capital position. Reported net income of $88.858 billion was down 8% from prior year and underlying net income of eight hundred and forty three million dollars was broadly in line with last year. COVID-19 continue to impact our businesses and, while headwinds from COVID-19 remain, as of March, we serve to see an improvement in U's COVID-19 related deaths, which should drive more favorable mortality experience in the second quarter. We continue to watch the trends closely and in most of our markets we are seeing a transition as COVID-19 becomes less of an impact and populations have increased immunity. This doesn't mean COVID-19 is over, but it does suggest smaller impacts in terms of claims and business interruption going forward. We are also pleased that in most of our markets, our offices are now open and we have people working flexibly both in the office in virtually as their day allows.
Speaker 13: Thanks athan. Good morning to everybody on the call. Today, turnuring to Slide 4, Sunlight delivered a solid start to 2022, driven by our diversified business model, prudent risk management practices and strong capital position. Reported net income of $88.858 billion was down 8% from prior year and underlying net income of eight hundred and forty three million dollars was broadly in line with last year. COVID-19 continue to impact our businesses and, while headwinds from COVID-19 remain, as of March, we serve to see an improvement in U's COVID-19 related deaths, which should drive more favorable mortality experience in the second quarter. We continue to watch the trends closely and in most of our markets we are seeing a transition as COVID-19 becomes less of an impact and populations have increased immunity. This doesn't mean COVID-19 is over, but it does suggest smaller impacts in terms of claims and business interruption going forward. We are also pleased that in most of our markets, our offices are now open and we have people working flexibly both in the office in virtually as their day allows.
With the war in Ukraine impacting economic conditions, supply chains and energy costs. The world is now facing new challenges, with heightened deal political pressures and Central banks raising rates to curb higher than expected inflationthese challenges create uncertainty, but our diversified business mix and strong risk management will enable us to manage through these headwinds. We are expecting pressure on equity markets, credit and expenses due to inflation, but higher interest rates, particularly at the long end of the curve, should help drive profitability, and the ongoing growth in our businesses also supports our medium-term objectives. Our capital position remains strong, with a Li at ratio of 143% at sf. We are also pleased to announce a 4% increase to our common share dividend, demonstrating our commitment to deliver value for our shareholdersturning to Slide 5, we continue to deliver on our purpose and our ambition in the quarter, as we saw continued progress in delivering on our client impact strategy.
Speaker 14: With the war in Ukraine impacting economic conditions, supply chains and energy costs. The world is now facing new challenges, with heightened deal political pressures and Central banks raising rates to curb higher than expected inflationthese challenges create uncertainty, but our diversified business mix and strong risk management will enable us to manage through these headwinds. We are expecting pressure on equity markets, credit and expenses due to inflation, but higher interest rates, particularly at the long end of the curve, should help drive profitability, and the ongoing growth in our businesses also supports our medium-term objectives. Our capital position remains strong, with a Li at ratio of 143% at sf. We are also pleased to announce a 4% increase to our common share dividend, demonstrating our commitment to deliver value for our shareholdersturning to Slide 5, we continue to deliver on our purpose and our ambition in the quarter, as we saw continued progress in delivering on our client impact strategy.
Sustainability is a key component of our strategy and in mar TR released our annual sustainability report, which outlines the areas where sunlife can have the greatest impact, including increasing financial security, fostering healthier life and advancing sustainable investing. The report outlines how being sustainability driven is core to sunlife strategy and how we're making an impact on sustainability for our clients, our employees and advisers, our communities and future generations. In Hong Kong, we announced stellar, the first esst savings plan in the market that actively integrates ESG concepts into its investment strategies. This enables clients to build their wealth in a way that has a positive impact, while also ensuring a legacy for future generations.
Speaker 13: Sustainability is a key component of our strategy and in mar TR released our annual sustainability report, which outlines the areas where sunlife can have the greatest impact, including increasing financial security, fostering healthier life and advancing sustainable investing. The report outlines how being sustainability driven is core to sunlife strategy and how we're making an impact on sustainability for our clients, our employees and advisers, our communities and future generations. In Hong Kong, we announced stellar, the first esst savings plan in the market that actively integrates ESG concepts into its investment strategies. This enables clients to build their wealth in a way that has a positive impact, while also ensuring a legacy for future generations.
Stellar allocates funds to sustainable investments such as renewable energy, sustainable buildings, energy transition and water and waste management, with a particular focus on assets with relatively low carbon intensity.
Speaker 15: Stellar allocates funds to sustainable investments such as renewable energy, sustainable buildings, energy transition and water and waste management, with a particular focus on assets with relatively low carbon intensity.
This is a great example of bring us sustainable solution to market by leveraging the strength of SLC management and our affiliate companies, InfraRed capital partners and bentil Greenoak, as well as our local investments team in Hong Kong.
Speaker 13: This is a great example of bring us sustainable solution to market by leveraging the strength of SLC management and our affiliate companies, InfraRed capital partners and bentil Greenoak, as well as our local investments team in Hong Kong.
Moving to distribution excellence. Last month, we announced the expansion of our partnership with CMB Naga in indonesasia. Cmb is an important regional partner for us in Asia. In fact, CMB Naga was one of our first ever bank assurance partners.
Speaker 13: Moving to distribution excellence. Last month, we announced the expansion of our partnership with CMB Naga in indonesasia. Cmb is an important regional partner for us in Asia. In fact, CMB Naga was one of our first ever bank assurance partners.
Under the new agreement, Sunlight will be the provider of insurance solutions to CMB Naga customers through all channels starting in 2020. -five.
Speaker 13: Under the new agreement, Sunlight will be the provider of insurance solutions to CMB Naga customers through all channels starting in 2020. -five.
Were excited about expanding our relationship with CIMB and Indonesia. Indonesia's the largest economy in Southeast Asia, with a young emerging middle class, one of the world's largest working age populations and low insurance penetration.
Speaker 13: Were excited about expanding our relationship with CIMB and Indonesia. Indonesia's the largest economy in Southeast Asia, with a young emerging middle class, one of the world's largest working age populations and low insurance penetration.
Turning to asset management, we continue to see strong momentum at LC management where, in the first quarter, we raised five point seven billion of capital, reflecting the strength and diversification of our alternative investment capabilities.
Speaker 13: Turning to asset management, we continue to see strong momentum at LC management where, in the first quarter, we raised five point seven billion of capital, reflecting the strength and diversification of our alternative investment capabilities.
Sunlight also recognized for Sunlight was' also recognized for its inclusive culture last month when it was named one of the 2022 best workplaces in Canada by great place to work. I'm proud of this achievement and I want to thank our employees for making this possible. We're also excited that, starting next season, Sunlight will be the official health and wellness partner of the Toronto raptors basketball team. As part of this expanded partnership, our goal together is to find new opportunities to help Canadians live healthier lives.
Speaker 16: Sunlight also recognized for Sunlight was' also recognized for its inclusive culture last month when it was named one of the 2022 best workplaces in Canada by great place to work. I'm proud of this achievement and I want to thank our employees for making this possible. We're also excited that, starting next season, Sunlight will be the official health and wellness partner of the Toronto raptors basketball team. As part of this expanded partnership, our goal together is to find new opportunities to help Canadians live healthier lives.
Slide five and six also provide updates on how we continue to drive digital leadership across the organization.
Speaker 17: Slide five and six also provide updates on how we continue to drive digital leadership across the organization.
In Canada, we ch. We launched prosper by Sunlight, delivering a simple and intuitive client experience. Prosper by Sunlight is a first of its kind hybrid de ICE solution that provides all Canadians a digital tool to identify, track and reach their protection, wealth and health goals all in one place.
Speaker 17: In Canada, we ch. We launched prosper by Sunlight, delivering a simple and intuitive client experience. Prosper by Sunlight is a first of its kind hybrid de ICE solution that provides all Canadians a digital tool to identify, track and reach their protection, wealth and health goals all in one place.
Prosper is linked to a team of salary advisers who can provide recommendations and product solutions to our clients at moments that matter.
Speaker 15: Prosper is linked to a team of salary advisers who can provide recommendations and product solutions to our clients at moments that matter.
In the us, we introduced benefits for.
Speaker 15: In the us, we introduced benefits for.
We know benefits selection can be stressful in confusing for some members, So this tool helps educate and prepare employees for benefits enrollment. The tool provides access to life benefits counselors and direct links to their employers' online enrollment and offers employees a guided path to learn about their benefits through the year. Through the year, So they can choose the right benefits package for their needs.
Speaker 13: We know benefits selection can be stressful in confusing for some members, So this tool helps educate and prepare employees for benefits enrollment. The tool provides access to life benefits counselors and direct links to their employers' online enrollment and offers employees a guided path to learn about their benefits through the year. Through the year, So they can choose the right benefits package for their needs.
And in Asia. Our predictive modeling tool- next best offer- helps our advisers recommend the right products at the right mom to our clients. We've seen terrific results, with over 70% product takeup from the clients we were able to engage with through this tool.
Speaker 15: And in Asia. Our predictive modeling tool- next best offer- helps our advisers recommend the right products at the right mom to our clients. We've seen terrific results, with over 70% product takeup from the clients we were able to engage with through this tool.
These are just a few examples of how sunlife's digital leadership is delivered on our client impact strategy, while also generating business growth.
Speaker 13: These are just a few examples of how sunlife's digital leadership is delivered on our client impact strategy, while also generating business growth.
I also want to provide a quick update on our agreement to acquire denttoquest. We've made good progress obtaining necessary approvals and remain on track for a close in the first half of the year. We're looking forward to dequest arding becoming part of the Sunlight family and welcoming their employees and 33 million members to Sunlight.
Speaker 16: I also want to provide a quick update on our agreement to acquire denttoquest. We've made good progress obtaining necessary approvals and remain on track for a close in the first half of the year. We're looking forward to dequest arding becoming part of the Sunlight family and welcoming their employees and 33 million members to Sunlight.
Before I hand the call over to mjgen, I want to say our hearts and thoughts remained with the people of Ukraine and everyone affected by this senseless invasion in war. Together with the global community, were concerned about the ongoing humanitarian cris in the country and surrounding regions and the threats the global peace and security.
Speaker 16: Before I hand the call over to mjgen, I want to say our hearts and thoughts remained with the people of Ukraine and everyone affected by this senseless invasion in war. Together with the global community, were concerned about the ongoing humanitarian cris in the country and surrounding regions and the threats the global peace and security.
sunlights, its companies and affiliates, including dental, Greenoak and InfraRed partners, along with our employees, have donated more than $1.1 million to various charities that are providing direct humanitarian support in Ukraine.
Speaker 16: sunlights, its companies and affiliates, including dental, Greenoak and InfraRed partners, along with our employees, have donated more than $1.1 million to various charities that are providing direct humanitarian support in Ukraine.
We also know that people are struggling with mental health concerns, which have been exacperated by both the ongoing pandemic, as well as concerns related to world security and peace. As a result, in partnership with dialogue, we are currently providing free access to self-guided online therapy to anyone in Canada struggling with mental health issues.
Speaker 13: We also know that people are struggling with mental health concerns, which have been exacperated by both the ongoing pandemic, as well as concerns related to world security and peace. As a result, in partnership with dialogue, we are currently providing free access to self-guided online therapy to anyone in Canada struggling with mental health issues.
All of this continues to drive home how important our purpose is, and I CAn't remember a time when helping people achieve lifetime financial security and live a healthier Life has been more important.
Speaker 15: All of this continues to drive home how important our purpose is, and I CAn't remember a time when helping people achieve lifetime financial security and live a healthier Life has been more important.
And our mix of asset management insurance businesses are well positioned to deliver on this purpose, but also to manage through these economic headwinds with that, management will now take us through the financial results for the first quarter.
Speaker 13: And our mix of asset management insurance businesses are well positioned to deliver on this purpose, but also to manage through these economic headwinds with that, management will now take us through the financial results for the first quarter.
Thank you Kevin, and good morning everyone. Slide eight provides an overview of our first quarter results. sunlife delivered solid results amid a challenging operating environment, with good momentum across all of our business groups.
Speaker 18: Thank you Kevin, and good morning everyone. Slide eight provides an overview of our first quarter results. sunlife delivered solid results amid a challenging operating environment, with good momentum across all of our business groups.
Reported net income in the quarter was 858 million, down 8%, reflecting less favorable market-related impacts.
Speaker 19: Reported net income in the quarter was 858 million, down 8%, reflecting less favorable market-related impacts.
Underlying net income of 843 million and underlying earnings per share of a dollar 44 were down modestly from the prior year.
Speaker 19: Underlying net income of 843 million and underlying earnings per share of a dollar 44 were down modestly from the prior year.
Earnings for the quarter were supported by strong fundamental business activity, partially offset by cobalt la-related impacts in the U's and Asia.
Speaker 18: Earnings for the quarter were supported by strong fundamental business activity, partially offset by cobalt la-related impacts in the U's and Asia.
Earnings and surplus of 65 million was lower this quarter, primarily driven by higher external debt costs and lower AFS gains.
Speaker 18: Earnings and surplus of 65 million was lower this quarter, primarily driven by higher external debt costs and lower AFS gains.
With rising rates and wider spreads, contribution from AFS gains are expected to moderate. At the same time, these factors can also provide trading opportunities which can generate investment-related gains.
Speaker 18: With rising rates and wider spreads, contribution from AFS gains are expected to moderate. At the same time, these factors can also provide trading opportunities which can generate investment-related gains.
Underlying return on equity was 14% in the quarter.
Speaker 18: Underlying return on equity was 14% in the quarter.
Assets under management were one point three five trillion at the end of Q1.
Speaker 18: Assets under management were one point three five trillion at the end of Q1.
This was down from the end of last quarter, reflecting declines in equity markets and rising interest rates.
Speaker 18: This was down from the end of last quarter, reflecting declines in equity markets and rising interest rates.
Book valleue per share was up 7% over the prior year, excluding impacts on other comprehensive income, which includes foreign currency to translation and changes in available for sale book value per share was up 11% and.
Speaker 20: Book valleue per share was up 7% over the prior year, excluding impacts on other comprehensive income, which includes foreign currency to translation and changes in available for sale book value per share was up 11% and.
Our capital position remains strong, with likeout rises of 143% SLF and 123% at SLA and a financial leverage ratio of 26%.
Speaker 19: Our capital position remains strong, with likeout rises of 143% SLF and 123% at SLA and a financial leverage ratio of 26%.
Let's turn to our business group performance, starting on on Slide 10 with MFS.
Speaker 19: Let's turn to our business group performance, starting on on Slide 10 with MFS.
Ms reported net income of U's 228 million, which is up 23% from the prior year, reflecting lower fair valleue changes on share-based payment awards.
Speaker 18: Ms reported net income of U's 228 million, which is up 23% from the prior year, reflecting lower fair valleue changes on share-based payment awards.
Underlying net income was up 4%, driven by higher average net assets, and MS generated a solid pretax net operating margin of 39%.
Speaker 19: Underlying net income was up 4%, driven by higher average net assets, and MS generated a solid pretax net operating margin of 39%.
Compared to the fourth quarter of 2021, the operating margin declined by four percentage points due to lower average in assets and seasonally higher compensation expense.
Speaker 18: Compared to the fourth quarter of 2021, the operating margin declined by four percentage points due to lower average in assets and seasonally higher compensation expense.
Aum declined 8% during the quarter to six to U's six hundred and thirty-seven billion, largely reflecting a decline in equity markets, and U's $5.4 billion of fund outflowors.
Speaker 18: Aum declined 8% during the quarter to six to U's six hundred and thirty-seven billion, largely reflecting a decline in equity markets, and U's $5.4 billion of fund outflowors.
Mfs continues to deliver strong long-term fund performance for our clients.
Speaker 18: Mfs continues to deliver strong long-term fund performance for our clients.
In the annual bararon's rankings released in February , mhst ranked to the top 10 for the five and 10 -year periods across its U's funds lineup.
Speaker 18: In the annual bararon's rankings released in February , mhst ranked to the top 10 for the five and 10 -year periods across its U's funds lineup.
Turning to Slide. 11 LC management delivered another strong quarter with reported net income of 19 million and underlying net income of thirty-four million.
Speaker 19: Turning to Slide. 11 LC management delivered another strong quarter with reported net income of 19 million and underlying net income of thirty-four million.
We have provided some additional financial metrics to LC management that align with alternative asset management peers.
Speaker 18: We have provided some additional financial metrics to LC management that align with alternative asset management peers.
one of the key metrics is fee-related earnings, which represents the profitability of managing the assets with four items, such as realized performance fees.
Speaker 18: one of the key metrics is fee-related earnings, which represents the profitability of managing the assets with four items, such as realized performance fees.
Fee-related earnings were up 38% year-over-year, reflecting strong capital raising activity and deployment into fee earning AUM over the past 12 months.
Speaker 18: Fee-related earnings were up 38% year-over-year, reflecting strong capital raising activity and deployment into fee earning AUM over the past 12 months.
The fee-related earnings margin 23% - was down modestly due to higher marketing costs for capital raising activities.
Speaker 18: The fee-related earnings margin 23% - was down modestly due to higher marketing costs for capital raising activities.
Operating margin of 24% was up slightly and is on track to meet our target of 30% to 35% by 2020. -five.
Speaker 18: Operating margin of 24% was up slightly and is on track to meet our target of 30% to 35% by 2020. -five.
Strong capital raising of five point seven billion. The quarter reflects the strength and diversification of our investments platform.
Speaker 18: Strong capital raising of five point seven billion. The quarter reflects the strength and diversification of our investments platform.
And we are currently holding 18 billion of AUM not yet earning fees. Once invested, these assets can generate annualized free revenue of more than one hundred and fifty million.
Speaker 18: And we are currently holding 18 billion of AUM not yet earning fees. Once invested, these assets can generate annualized free revenue of more than one hundred and fifty million.
On Slide 12, Canada reported an income of 263 million was down 35% year-over-year, mainly due to market-related impacts.
Speaker 21: On Slide 12, Canada reported an income of 263 million was down 35% year-over-year, mainly due to market-related impacts.
Underlying net income of 298 million was up 5% from the prior year, underlyinned by broad-basase business growth and higher investment gains.
Speaker 19: Underlying net income of 298 million was up 5% from the prior year, underlyinned by broad-basase business growth and higher investment gains.
Momentum in the Canadian business are strong. Expected expected profit growth was 7% total well sales were solid, reflecting higher defined contribution sales and insurance sales are strong driven by new group benefits, mandates and higher nonpart life sales.
Speaker 19: Momentum in the Canadian business are strong. Expected expected profit growth was 7% total well sales were solid, reflecting higher defined contribution sales and insurance sales are strong driven by new group benefits, mandates and higher nonpart life sales.
We are also continuing to invest in capabilities and make it easier for clients to do business with us.
Speaker 18: We are also continuing to invest in capabilities and make it easier for clients to do business with us.
one example is our investment in predictive analytics and our underwriting process.
Speaker 18: one example is our investment in predictive analytics and our underwriting process.
This has allowed us to process over 60% of life policies without lab testing, further improving our overall client' experience.
Speaker 18: This has allowed us to process over 60% of life policies without lab testing, further improving our overall client' experience.
Turning to Slide. 13? U's reported net income of U's 133 million was down 20% from the prior year, reflecting a decline in the underlying net income.
Speaker 19: Turning to Slide. 13? U's reported net income of U's 133 million was down 20% from the prior year, reflecting a decline in the underlying net income.
Underlying net income for the first quarter of U's 93 million includes three million of covert-related impacts, mostly driven by elevated group mortality.
Speaker 19: Underlying net income for the first quarter of U's 93 million includes three million of covert-related impacts, mostly driven by elevated group mortality.
Compared to the prior quarter, earnings were up 37 million, driven by favorable stop loss moability and a 17% decline in working age population desests, partially offset by higher long-term disability claims.
Speaker 19: Compared to the prior quarter, earnings were up 37 million, driven by favorable stop loss moability and a 17% decline in working age population desests, partially offset by higher long-term disability claims.
Looking forward, we expect pandemic-related mortality headwinds to moderate, as uss have continued to decline since early March.
Speaker 18: Looking forward, we expect pandemic-related mortality headwinds to moderate, as uss have continued to decline since early March.
Similarly, we expect there will be some normalization of favorable stop loss morbidity experience as healthcare utilization starts to increase.
Speaker 22: Similarly, we expect there will be some normalization of favorable stop loss morbidity experience as healthcare utilization starts to increase.
More importantly, the core fundamentals of our? U's business remains strong as we continue to generate high persistency, good premium growth and achieves solid pricing margins, all while making investments in our product and digital capabilities.
Speaker 18: More importantly, the core fundamentals of our? U's business remains strong as we continue to generate high persistency, good premium growth and achieves solid pricing margins, all while making investments in our product and digital capabilities.
Slide 14 outlines Asia's results for the quarter.
Speaker 21: Slide 14 outlines Asia's results for the quarter.
Reported net income was 161 million, down 16% from the prior year in constant currency, reflecting market-related impacts.
Speaker 19: Reported net income was 161 million, down 16% from the prior year in constant currency, reflecting market-related impacts.
Underlying net income of 152 million was down 1% on the constant currency basis.
Speaker 19: Underlying net income of 152 million was down 1% on the constant currency basis.
The first quarter results included lower sales in Kong and Hong Kong, driven by heightened corporate-related lockdown measures.
Speaker 18: The first quarter results included lower sales in Kong and Hong Kong, driven by heightened corporate-related lockdown measures.
Mortality experience was elevated in international, driven by a small number of larger claims.
Speaker 18: Mortality experience was elevated in international, driven by a small number of larger claims.
These factors were partially offset by higher investment activity gains and disciplined expense management.
Speaker 18: These factors were partially offset by higher investment activity gains and disciplined expense management.
Excluding Hong Kong, enssururing sales were relatively consistent with prior year, which highlights the benefits of our diversified market and products across Asia.
Speaker 19: Excluding Hong Kong, enssururing sales were relatively consistent with prior year, which highlights the benefits of our diversified market and products across Asia.
Wealth net flows of nearly three million reflect the strength in the Hong Kong N PF market, where we continue to rank second overall for net flows.
Speaker 18: Wealth net flows of nearly three million reflect the strength in the Hong Kong N PF market, where we continue to rank second overall for net flows.
Looking forward. As COVID-19 restrictions are slowly lifted in our Asian markets, we are optimistic that sales activity will pick up.
Speaker 19: Looking forward. As COVID-19 restrictions are slowly lifted in our Asian markets, we are optimistic that sales activity will pick up.
Altogether, our business has delivered solid financial results against a challenging macroeconomic backdrop.
Speaker 21: Altogether, our business has delivered solid financial results against a challenging macroeconomic backdrop.
Although we expect headwinds to continue over the near term, we believe our diversified business model, along with our strong capital position, provide a resilient foundation to manage for the current environment.
Speaker 18: Although we expect headwinds to continue over the near term, we believe our diversified business model, along with our strong capital position, provide a resilient foundation to manage for the current environment.
We will also maintain our focus on executing on key strategic priorities and we will continue to invest in our businesses for future growth.
Speaker 19: We will also maintain our focus on executing on key strategic priorities and we will continue to invest in our businesses for future growth.
Before I close off, I want to remind everyone about our IFRS 17 education session on May. thirty-first overall sununlife is well prepared for the transition to IFR' 17 and we look forward to sharing more information with you at the end of the month.
Speaker 18: Before I close off, I want to remind everyone about our IFRS 17 education session on May. thirty-first overall sununlife is well prepared for the transition to IFR' 17 and we look forward to sharing more information with you at the end of the month.
With that. I'll turn the call back to nee for QA.
Speaker 18: With that. I'll turn the call back to nee for QA.
Thank you, magjit. To help ensure that all of our participants have an opportunity to ask questions this morning, I would ask you to limit yourselves to one or two questions and then Re you with any additional questions. I will now ask our operator to pull the participants.
Speaker 11: Thank you, magjit. To help ensure that all of our participants have an opportunity to ask questions this morning, I would ask you to limit yourselves to one or two questions and then Re you with any additional questions. I will now ask our operator to pull the participants.
Thank you. As a reminder, to ask a question you will need to press star one on your telephone to withdraw your question. Press the pound key. Please stand by while we compile the Q a roster.
Speaker 9: Thank you. As a reminder, to ask a question you will need to press star one on your telephone to withdraw your question. Press the pound key. Please stand by while we compile the Q a roster.
Our first question comes from Min drahman of scotishaibank. The line is open.
Speaker 9: Our first question comes from Min drahman of scotishaibank. The line is open.
Hi Dan, just wanted a little bit more detail on your outlook for mortality in the U's. It was noted that it's improving. When do you expect it to actually normalize? And if we look at the stop loss business as well, when do you expect COVID-19 related impacts to fully normalize there as well?
Speaker 21: Hi Dan, just wanted a little bit more detail on your outlook for mortality in the U's. It was noted that it's improving. When do you expect it to actually normalize? And if we look at the stop loss business as well, when do you expect COVID-19 related impacts to fully normalize there as well?
Good morning. Many at standan fish buying bks for the questions. In terms of mortality, we're certainly seeing significant improvement. As you saw, the first quarter was better sequentially than the fourth quarter. Most of that improvement occurred in the month of March. So if you break it down by the months, we're starting to see steady improvement month over months. I can share that April improve from there and so far and may, we see further improvementif you look at external estimates, there were about 16 thousand total debts in the U's in the first quarter and the external estimates are predicting an average of about three thousand total population debts in the second quarter. So that's a reduction of about 80%. So you should expect to see significant improvement in our mortality, certainly reflecting that. And for your question is: to when will it completely return to normal? Unfortunately we don't think that COVID-19 is going away completely.
Speaker 23: Good morning. Many at standan fish buying bks for the questions. In terms of mortality, we're certainly seeing significant improvement. As you saw, the first quarter was better sequentially than the fourth quarter. Most of that improvement occurred in the month of March. So if you break it down by the months, we're starting to see steady improvement month over months. I can share that April improve from there and so far and may, we see further improvementif you look at external estimates, there were about 16 thousand total debts in the U's in the first quarter and the external estimates are predicting an average of about three thousand total population debts in the second quarter. So that's a reduction of about 80%. So you should expect to see significant improvement in our mortality, certainly reflecting that. And for your question is: to when will it completely return to normal? Unfortunately we don't think that COVID-19 is going away completely.
And we do think there will be elevated mortality for a significant period of timeso. We are building that into our pricing. As we've mentioned before, it does take a full three years to cycle through the entire book of business. We started increasing our pricing at the end of last year but certainly we have a ways to go until that pricing catches up. But that's probably about a mid single digit impact. Our hope, of course, is that that will remain at the current relatively low level, but we're likely to see some peaks and valleys in that going forward. We are at three hundred Twenty five that today, at the moment on a seven day average in the U's, and that compares with numbers in the first quarter that reached us high as Twenty seven hundred a day. So clearly mortality as at a lower level now. On stopck loss, as you noted, we had quite favorable experience in the first quarter. About half of that was due to tailwinds related to COVID-19 delays in care, but about half of that was related to underlying favorable underwriting results. We do think over the next few quarters utilization and hospitals will return close to normal levels, but that will take a few quarters. Our own underlying good results though should persus.
Speaker 23: And we do think there will be elevated mortality for a significant period of timeso. We are building that into our pricing. As we've mentioned before, it does take a full three years to cycle through the entire book of business. We started increasing our pricing at the end of last year but certainly we have a ways to go until that pricing catches up. But that's probably about a mid single digit impact. Our hope, of course, is that that will remain at the current relatively low level, but we're likely to see some peaks and valleys in that going forward. We are at three hundred twenty five that today, at the moment on a seven day average in the U's, and that compares with numbers in the first quarter that reached us high as twenty seven hundred a day. So clearly mortality as at a lower level now. On stopck loss, as you noted, we had quite favorable experience in the first quarter. About half of that was due to tailwinds related to COVID-19 delays in care, but about half of that was related to underlying favorable underwriting results. We do think over the next few quarters utilization and hospitals will return close to normal levels, but that will take a few quarters. Our own underlying good results though should persus.
S for that, and then just maybe just a fll up on the pricing, and we talked about it last quarter, but just from a competitive point of view.
Speaker 24: S for that, and then just maybe just a fll up on the pricing, and we talked about it last quarter, but just from a competitive point of view.
What are you seeing out there in the market is: are most of your competitors viewing it the same way as you in terms of the necessity to raise pricing? COVID-19, it's not going away- or is there basically what's going on in the market now relative to the pricing that you're pushing through?
Speaker 21: What are you seeing out there in the market is: are most of your competitors viewing it the same way as you in terms of the necessity to raise pricing? COVID-19, it's not going away- or is there basically what's going on in the market now relative to the pricing that you're pushing through?
It generally, our sense is at that mid-single-digits range is what the industry is doing. There's always exceptions. It remains a highly competitive market and so, on a case-by-case basis, we still see pretty intense competition, but we believe that our level of increases consistent with the market.
Speaker 23: It generally, our sense is at that mid-single-digits range is what the industry is doing. There's always exceptions. It remains a highly competitive market and so, on a case-by-case basis, we still see pretty intense competition, but we believe that our level of increases consistent with the market.
Thank you.
Speaker 24: Thank you.
Thank you. Our next question comes from David motiven of Evercore IFI. Your line is open.
Speaker 9: Thank you. Our next question comes from David motiven of Evercore IFI. Your line is open.
Thanks good morning.
Speaker 9: Thanks good morning.
Just had a question for msss.
Speaker 25: Just had a question for msss.
So Kevin, could you just talk about the margin outlook there and how you think you can manage through the market volatility? Given some of the inflationary comments you made in your prepared remarks, that may make it more difficult to manage the expense base than in the past.
Speaker 26: So Kevin, could you just talk about the margin outlook there and how you think you can manage through the market volatility? Given some of the inflationary comments you made in your prepared remarks, that may make it more difficult to manage the expense base than in the past.
Thanks David. I'm going to let my answer the question on that.
Speaker 27: Thanks David. I'm going to let my answer the question on that.
Good good morning, David. I mean clearly the, as we.
Speaker 9: Good good morning, David. I mean clearly the, as we.
Made a way through Q1 year over -year. You results were up, pretax up over last year but as a has continued to come down in the second quarter relative to last year, that's going to obviously have an impact on you. The profitability in margin know the guidance we provide over time is in a normal environment. We think you net margin in the 35 to 40 range. We at the higher end of that and well over that it late last year, given the market at all time highs and so what you'll see in the expense side, what naturally comes down as those variable, those things that are tied to profitability compensation asset, bed fees that we pay distributors, and so we're still comfortable with that range. But you should expect that if the market paye it is for the year. Obviously the margins going to be pressured relative for last year.
Speaker 28: Made a way through Q1 year over -year. You results were up, pretax up over last year but as a has continued to come down in the second quarter relative to last year, that's going to obviously have an impact on you. The profitability in margin know the guidance we provide over time is in a normal environment. We think you net margin in the 35 to 40 range. We at the higher end of that and well over that it late last year, given the market at all time highs and so what you'll see in the expense side, what naturally comes down as those variable, those things that are tied to profitability compensation asset, bed fees that we pay distributors, and so we're still comfortable with that range. But you should expect that if the market paye it is for the year. Obviously the margins going to be pressured relative for last year.
You got it. That makes sense.
Speaker 29: You got it. That makes sense.
And then maybe just another question just for Dan just in terms of the non-COVID long-term disability experience could you just talk about what you're seeing what you saw in the quarter or your expectations and if you're repricing the business or how you're repricing the business in response to that.
Speaker 30: And then maybe just another question just for Dan just in terms of the non-COVID long-term disability experience could you just talk about what you're seeing what you saw in the quarter or your expectations and if you're repricing the business or how you're repricing the business in response to that.
Yes we definitely are seeing some elevated morbidity in long term disability. Now, a significant amount of that is COVID-19 related. There is some. We do have some- long COVID-19 cases. The good news is, although this is a little more anecdotal, we are seeing recoveries in long COVID-19. So those disabities don't seem to be, you know, long term persistent, but there is some overall elevation in L T D experience. That's non COVID-19 related as well as it's modest but it's real. We think that's related to some of the second order effects of the pandemic, including the recent moves by some employers to require employees to return to the office. We think, you know, some of that will persist, but maybe not long term. That maybe a few quarters kind of impact as the labor market and employers find their equilibrium of how they want to work in the future. However, like in our group life business, we are raising prices in our disability business as well to reflect these impacts. Coincidentally, it's the same, you know, mid single digits kind of range and we're generally seeing that in the marketplace as well. Same in same fect, though you see case by case, intense competition, but we do believe competitors are raising rates by a similar amount.
Speaker 23: Yes we definitely are seeing some elevated morbidity in long term disability. Now, a significant amount of that is COVID-19 related. There is some. We do have some- long COVID-19 cases. The good news is, although this is a little more anecdotal, we are seeing recoveries in long COVID-19. So those disabities don't seem to be, you know, long term persistent, but there is some overall elevation in L T D experience. That's non COVID-19 related as well as it's modest but it's real. We think that's related to some of the second order effects of the pandemic, including the recent moves by some employers to require employees to return to the office. We think, you know, some of that will persist, but maybe not long term. That maybe a few quarters kind of impact as the labor market and employers find their equilibrium of how they want to work in the future. However, like in our group life business, we are raising prices in our disability business as well to reflect these impacts. Coincidentally, it's the same, you know, mid single digits kind of range and we're generally seeing that in the marketplace as well. Same in same fect, though you see case by case, intense competition, but we do believe competitors are raising rates by a similar amount.
Got it. Thanks for that color.
Speaker 29: Got it. Thanks for that color.
Thank you. Our next question comes from Gabriel, the shaane of National Bank. Your line is open.
Speaker 9: Thank you. Our next question comes from Gabriel, the shaane of National Bank. Your line is open.
Good morning. Just yield enhanman gains big, big up ick this quarter from what we've seen in the prior few quarters.
Speaker 31: Good morning. Just yield enhanman gains big, big up ick this quarter from what we've seen in the prior few quarters.
Over a hundred million can no means what what that number would look like on their I R seventeen.
Speaker 32: Over a hundred million can no means what what that number would look like on their I R seventeen.
Gabriel, it's manages. Good morning. As you know, the overall investment activity gains are larger, driven by a couple of things: the overall market conditions and our available funds that we have to put into the market to invest. And obviously we had some pretty good conditions in the quarter and our investment teams took advantage of that to invest in good quality, higher yielding assets and that's what drove the gain in the quarter. On the IFRS 17 question, we'll handle that on our may thirty-first session that we have upcoming, So we'll give you more details then.
Speaker 14: Gabriel, it's manages. Good morning. As you know, the overall investment activity gains are larger, driven by a couple of things: the overall market conditions and our available funds that we have to put into the market to invest. And obviously we had some pretty good conditions in the quarter and our investment teams took advantage of that to invest in good quality, higher yielding assets and that's what drove the gain in the quarter. On the IFRS 17 question, we'll handle that on our may thirty-first session that we have upcoming, So we'll give you more details then.
Would it be materially lower?
Speaker 33: Would it be materially lower?
I guess that Gabriel will give you more details on May thirty.
Speaker 18: I guess that Gabriel will give you more details on May thirty.
And I guess this quarter- I mean the current accounting- this quarter you're probably see similar spread pickup opportunities.
Speaker 34: And I guess this quarter- I mean the current accounting- this quarter you're probably see similar spread pickup opportunities.
Yes I guess it's. It'll depend on sort of the market availability as well as the funds that we putting into the market. So so far, the market is continue to provide some opportunities.
Speaker 18: Yes I guess it's. It'll depend on sort of the market availability as well as the funds that we putting into the market. So so far, the market is continue to provide some opportunities.
ok thanks.
Speaker 33: ok thanks.
Thank you. Our next question comes from Scot and of cannaccord airline is open.
Speaker 9: Thank you. Our next question comes from Scot and of cannaccord airline is open.
Good morning. Maybe for MIT or Steve on's, we'll C really appreciate the increase, the updated disclosure on that segmention. So specifically on F Re E versus kind of the net income target that you updated this last quarter and maybe maybe going down to the margin, because Don T think you're prepared to do an ree target. The margins were in the low Twenty's for F Re. You talked about a 30 30, five percent operated target by 2025. would it be safe this here, that F Re E margin would be align with that operating target or would there be the wates up or down?
Speaker 35: Good morning. Maybe for MIT or Steve on's, we'll C really appreciate the increase, the updated disclosure on that segmention. So specifically on F Re E versus kind of the net income target that you updated this last quarter and maybe maybe going down to the margin, because Don T think you're prepared to do an ree target. The margins were in the low twenty's for F Re. You talked about a 30 30, five percent operated target by 2025. would it be safe this here, that F Re E margin would be align with that operating target or would there be the wates up or down?
Is the? I can answer that I think over time you're going to see the main difference between FRE fee related earnings and operating income is going to be that under between those two you're going to have performance fees and income from seed investments. That would be the difference between operating income and FRE margin and I think that those over time you're going to see more performance fees. As the business grows I think you're going to see more seed capital investments So you'll see more feed related income. I think it with our margin for the quarter we're on track. We think for the margin partsthat we set out for 2020 -five and some of the fluctuation you'll see in margin quarter-to-quarter or even E RO over -year can related to things like catch-up fees which can impact the margin, or marketing costs. Or we have a big fundraising and you expense marketing costs and a given quarter but you haven't earned the revenue yet because that will play out over time as the money's invested. So you're going to see a bit of fluctuation in that. But we do think we're on target for our our on track for our targets.
Speaker 36: Is the? I can answer that I think over time you're going to see the main difference between FRE fee related earnings and operating income is going to be that under between those two you're going to have performance fees and income from seed investments. That would be the difference between operating income and FRE margin and I think that those over time you're going to see more performance fees. As the business grows I think you're going to see more seed capital investments So you'll see more feed related income. I think it with our margin for the quarter we're on track. We think for the margin partsthat we set out for 2020 -five and some of the fluctuation you'll see in margin quarter-to-quarter or even E RO over -year can related to things like catch-up fees which can impact the margin, or marketing costs. Or we have a big fundraising and you expense marketing costs and a given quarter but you haven't earned the revenue yet because that will play out over time as the money's invested. So you're going to see a bit of fluctuation in that. But we do think we're on target for our our on track for our targets.
greatay and why? I have you seen all seeing what's happening in the public markets, but the private markets are your old platform. Can you maybe describe any market headwinds that you're seeing, or perhaps tailwinds, in the current environment?
Speaker 37: greatay and why? I have you seen all seeing what's happening in the public markets, but the private markets are your old platform. Can you maybe describe any market headwinds that you're seeing, or perhaps tailwinds, in the current environment?
You know I think it's a bit too early to to see what the long term impact is on either the underlying portfolios in our different asset classes or on the fundraising I would say you know the first quarter fundraising we feel really good about. We haven't really seen, you know, examples of investors pulling back from these asset classes yet you know if market volatility picks up you could see that. We haven't seen it yet. I think the market environment actually can cut both ways, you know. I mean with with rates going up and spreads going up, that could have an impact on asset classes like real estate, though I would say our real estate portfoos were strongly during the first quarter but on the on the flip side, with raising, rising rates, we've actually seen money coming back into our fixed income portfolios as pension funds's actually helps the funding funding ratio for pension funds and in some cases they're more willing to now put more money back into fixed income at higher yields. So a little too early to see what the longer term impacts are, but I think it cuts, cuts a couple of different ways.
Speaker 38: You know I think it's a bit too early to to see what the long term impact is on either the underlying portfolios in our different asset classes or on the fundraising I would say you know the first quarter fundraising we feel really good about. We haven't really seen, you know, examples of investors pulling back from these asset classes yet you know if market volatility picks up you could see that. We haven't seen it yet. I think the market environment actually can cut both ways, you know. I mean with with rates going up and spreads going up, that could have an impact on asset classes like real estate, though I would say our real estate portfoos were strongly during the first quarter but on the on the flip side, with raising, rising rates, we've actually seen money coming back into our fixed income portfolios as pension funds's actually helps the funding funding ratio for pension funds and in some cases they're more willing to now put more money back into fixed income at higher yields. So a little too early to see what the longer term impacts are, but I think it cuts, cuts a couple of different ways.
ok Thank you very much.
Speaker 39: ok Thank you very much.
Thank you. Our next question comes from paulholding of CIBC. Your question, Please.
Speaker 9: Thank you. Our next question comes from paulholding of CIBC. Your question, Please.
Thank you good morning. So going back to the U's group and the conversation around the normalization of experience and perhaps mortality staying.
Speaker 40: Thank you good morning. So going back to the U's group and the conversation around the normalization of experience and perhaps mortality staying.
Higher for longer. Is there anything in your mind that's changed your profit margin expectation, excluding the denttoquest acquisition?
Speaker 41: Higher for longer. Is there anything in your mind that's changed your profit margin expectation, excluding the denttoquest acquisition?
The good morning fall it's and fish F? Ing again. There really isn't now. Obviously the fact that we may see somewhat elevated, more tality- although certainly nowhere near what we've been seen in over the past couple of years- in the short term could effect margins. But as we reprice for that we, and we should be able to reprice for that- that would put us back at the same marginsas I mentioned in the last fall. Overall, our group benefits. Business is in the best condition that it's ever been. Sales are strong, persistency has improved. We're getting the pricing that we asked for, that we need. We've had significant gains in expense efficiency, introduced new products, capabilities and digital programs into the marketplace. All of those things position those very well in the previous margin guidance that we've given those 7% or greater is still very much our expectation. Absent COVID-19 effects. But the fundamental of the business remain strong and remain as they were.
Speaker 9: The good morning fall it's and fish F? Ing again. There really isn't now. Obviously the fact that we may see somewhat elevated, more tality- although certainly nowhere near what we've been seen in over the past couple of years- in the short term could effect margins. But as we reprice for that we, and we should be able to reprice for that- that would put us back at the same marginsas I mentioned in the last fall. Overall, our group benefits. Business is in the best condition that it's ever been. Sales are strong, persistency has improved. We're getting the pricing that we asked for, that we need. We've had significant gains in expense efficiency, introduced new products, capabilities and digital programs into the marketplace. All of those things position those very well in the previous margin guidance that we've given those 7% or greater is still very much our expectation. Absent COVID-19 effects. But the fundamental of the business remain strong and remain as they were.
Great thank and then a capital allocation question for iccon you noted the capouital strength of the business which is obvious we're seeing valuations. Drop is this leading to increased potential capital deployment options and.
Speaker 40: Great thank and then a capital allocation question for iccon you noted the capouital strength of the business which is obvious we're seeing valuations. Drop is this leading to increased potential capital deployment options and.
Would you be willing to be opportunistic in this typer of environment with capital deployment?
Speaker 40: Would you be willing to be opportunistic in this typer of environment with capital deployment?
Well thanks, Paul. And as you know and we've talked about in other quarters are our priorities for capital deployment remain largely the same right. We're focused on supporting our organic growth and you know our organic growth target for E pss is eight to 10% and continue on that. We're committed to supporting our our dividend and the dividend growth and we've outlined 40- 50% of underlying earnings and you saw the four and a half percent increase in our dividend this quarter. Of course we've been able to deploy into M a that improves either scale or adding new capabilities, like the dent quest is going to be closing soon and that's going use a big chunk of capital. But we're always looking sort of forward at what the opportunities are across the three of those and we also we always keep buybacks as as an alternative. If we, if we see that the level of capital is is more than what we need, we give it back to shareholders. So at this point in time- you know it's a combination of economic conditions, uses we have for capital and we continue to look at all of the uses.
Speaker 42: Well thanks, Paul. And as you know and we've talked about in other quarters are our priorities for capital deployment remain largely the same right. We're focused on supporting our organic growth and you know our organic growth target for E pss is eight to 10% and continue on that. We're committed to supporting our our dividend and the dividend growth and we've outlined 40- 50% of underlying earnings and you saw the four and a half percent increase in our dividend this quarter. Of course we've been able to deploy into M a that improves either scale or adding new capabilities, like the dent quest is going to be closing soon and that's going use a big chunk of capital. But we're always looking sort of forward at what the opportunities are across the three of those and we also we always keep buybacks as as an alternative. If we, if we see that the level of capital is is more than what we need, we give it back to shareholders. So at this point in time- you know it's a combination of economic conditions, uses we have for capital and we continue to look at all of the uses.
Great Thank you.
Speaker 40: Great Thank you.
Thank you. Our next question comes from dooug young of dej den capital markets.
Speaker 9: Thank you. Our next question comes from dooug young of dej den capital markets.
Your line is open.
Speaker 43: Your line is open.
Good morning. I guess this question is for shock. I think group morbidity experienced in in Canada was adverse once again and I think that's been recurring theme for a while here. just- and I know that you're taking actions, putting through price increases- just wanted to get a better sense of what you're seeing on the ground and what level of price increases are flowing through and when we might see that turn.
Speaker 44: Good morning. I guess this question is for shock. I think group morbidity experienced in in Canada was adverse once again and I think that's been recurring theme for a while here. just- and I know that you're taking actions, putting through price increases- just wanted to get a better sense of what you're seeing on the ground and what level of price increases are flowing through and when we might see that turn.
yesdoug, Thank you for ther question and this is Jack, as you're right on the morbidity experience is unfavorable in the quarter and it is to do with GB disability, as you say.
Speaker 9: yesdoug, Thank you for ther question and this is Jack, as you're right on the morbidity experience is unfavorable in the quarter and it is to do with GB disability, as you say.
I I just remind you that.
Speaker 21: I I just remind you that.
We've got two things we're looking at: long is the volume of cases, which call the incidence, and then how long or the duration of cases before people get back to work.
Speaker 21: We've got two things we're looking at: long is the volume of cases, which call the incidence, and then how long or the duration of cases before people get back to work.
In may 2019 we decided to increase our pricing quite materially and that was to do with the fact that when it comes to incidident.
Speaker 21: In may 2019 we decided to increase our pricing quite materially and that was to do with the fact that when it comes to incidident.
Our view in our models are suggesting that the trend up was what I would call yoururable trend and so we took action and today I can tell you oug that the.
Speaker 21: Our view in our models are suggesting that the trend up was what I would call yoururable trend and so we took action and today I can tell you oug that the.
The incidence is in line with our pricing and our expectations. So the issue is indeed, as you point out, on the duration. Now unlike incidence on duration.
Speaker 21: The incidence is in line with our pricing and our expectations. So the issue is indeed, as you point out, on the duration. Now unlike incidence on duration.
We don't see this for now as a jurable trend.
Speaker 21: We don't see this for now as a jurable trend.
It's taking part of. This is Co had. Access to care has been an issue- people getting surgeries And so on- So our view remains that this is temporary. Of course, if signalsed were to change and suggest that.
Speaker 21: It's taking part of. This is Co had. Access to care has been an issue- people getting surgeries And so on- So our view remains that this is temporary. Of course, if signalsed were to change and suggest that.
That has a more durable pattern to it, we would take action, but at this stage we think that's not the case.
Speaker 21: That has a more durable pattern to it, we would take action, but at this stage we think that's not the case.
ok.
Speaker 9: ok.
And then just a question on the Asia business. There's a large India state brand insurance company in India going public and which is interesting, the topical. I'm just curious what, if any of this has impactwise on your viewpoint in India or your India life insurance business.
Speaker 45: And then just a question on the Asia business. There's a large India state brand insurance company in India going public and which is interesting, the topical. I'm just curious what, if any of this has impactwise on your viewpoint in India or your India life insurance business.
Yeah I can start, and then ingrred's also, it's Kevin ingrred's also on the calls I can letter adds from some color. The L I C we're well aware of is going public. You know the L I C is the largest provider of insurance, the in the country. It's an amalgamation inonethousand 906 950 all the insurance companiesgrou. You know, I think being a public company provides a level of discipline in transparency which is probably long term good for the industry. We really like our partnership with the to beer the grou. We have a strong position in both the insurance company the asset management company. You know, I think that that doesn't change from the L I C going going public at all. They were already a big competitorgrou And so you know it's. We're still. We're still optimistic about India and we think there's very great potential there. I don't know, think if you want to add anything.
Speaker 46: Yeah I can start, and then ingrred's also, it's Kevin ingrred's also on the calls I can letter adds from some color. The L I C we're well aware of is going public. You know the L I C is the largest provider of insurance, the in the country. It's an amalgamation inonethousand 906 950 all the insurance companiesgrou. You know, I think being a public company provides a level of discipline in transparency which is probably long term good for the industry. We really like our partnership with the to beer the grou. We have a strong position in both the insurance company the asset management company. You know, I think that that doesn't change from the L I C going going public at all. They were already a big competitorgrou And so you know it's. We're still. We're still optimistic about India and we think there's very great potential there. I don't know, think if you want to add anything.
No other than you would have seen. You still had relatively strong sales in the quarter and started about the business north of the digitalization that's taking place, and we are well positioned both in life and asset management.
Speaker 47: No other than you would have seen. You still had relatively strong sales in the quarter and started about the business north of the digitalization that's taking place, and we are well positioned both in life and asset management.
For me wouldn't see that the valuations in India are quite high and I would see you wouldn' note that the P multiples are high and that shows you, I think, the long-term value creation opportunity.
Speaker 9: For me wouldn't see that the valuations in India are quite high and I would see you wouldn' note that the P multiples are high and that shows you, I think, the long-term value creation opportunity.
In India.
Speaker 48: In India.
Yeah a great thanks.
Speaker 14: Yeah a great thanks.
Thank you. Our next question comes from Mario and haaca of TD Securities. Your line is open.
Speaker 9: Thank you. Our next question comes from Mario and haaca of TD Securities. Your line is open.
Good morning. If we go back to policyholder expenses or polic holder experience, I noticed that expense experience was positive this quarter.
Speaker 49: Good morning. If we go back to policyholder expenses or polic holder experience, I noticed that expense experience was positive this quarter.
I kind of look back at the model of the seed. The last time that was true, I think I had to go back to Q3 2019. So can you talk a little bit about why it would have flipped signs this quarter? And then, on a related note, the other expen or the other experience was rather negative. I'm referring to the minus 41 million. Is that expense? I mean, should we be looking at those two together as what I'm getting at?
Speaker 50: I kind of look back at the model of the seed. The last time that was true, I think I had to go back to Q3 2019. So can you talk a little bit about why it would have flipped signs this quarter? And then, on a related note, the other expen or the other experience was rather negative. I'm referring to the minus 41 million. Is that expense? I mean, should we be looking at those two together as what I'm getting at?
Morning marott' manage. So on the first item, the sort of credits that you see in expenses this quarter is largely due to some compensation adjustments that happened as part of the year-end process and so that's what was a trueupfor, So that dro, that was a recovery in the quarters. So that's what you saw. On the other other expenses that you mentioned, we do have some investments that we make in in businesses over time that are reflected in that line, and one of those investments obviously that's happening right now as IFRS' 17, So along with some smaller investments, are making the BG group. So that's what's in that line.
Speaker 19: Morning marott' manage. So on the first item, the sort of credits that you see in expenses this quarter is largely due to some compensation adjustments that happened as part of the year-end process and so that's what was a trueupfor, So that dro, that was a recovery in the quarters. So that's what you saw. On the other other expenses that you mentioned, we do have some investments that we make in in businesses over time that are reflected in that line, and one of those investments obviously that's happening right now as IFRS' 17, So along with some smaller investments, are making the BG group. So that's what's in that line.
Now imagagine, I appreciate that you're doing your update, IFRS update in 2000 or SOR later on this month, but given the market's interest in this, is there anything you can offer in terms of what the transition could means? The company's both value today.
Speaker 49: Now imagagine, I appreciate that you're doing your update, IFRS update in 2000 or SOR later on this month, but given the market's interest in this, is there anything you can offer in terms of what the transition could means? The company's both value today.
Again I think in a America that' as you sort of say's, there's a different component to that. I don't think it would really be helpful to give you a short answer to that. I think we want to take the time to walk you through the various elements of that and how they come together. On may thirty-first.
Speaker 51: Again I think in a America that' as you sort of say's, there's a different component to that. I don't think it would really be helpful to give you a short answer to that. I think we want to take the time to walk you through the various elements of that and how they come together. On may thirty-first.
Thank you.
Speaker 52: Thank you.
Thank you. Our next question comes from Tom mckennon, a BMO capital. Your line is open.
Speaker 9: Thank you. Our next question comes from Tom mckennon, a BMO capital. Your line is open.
yesgoodmorningthanks. Taking a question just with respect to an unexpected dividend increase, it kind of just shows there's some reasonably good capital generation here. I don't think we've heard anything about kind of excess capital generation since you gave us an eight million annual figure several years ago. So is there anything you can share with us with respect to excess capital generation at sunlife and then have a follow-up?
Speaker 53: yesgoodmorningthanks. Taking a question just with respect to an unexpected dividend increase, it kind of just shows there's some reasonably good capital generation here. I don't think we've heard anything about kind of excess capital generation since you gave us an eight million annual figure several years ago. So is there anything you can share with us with respect to excess capital generation at sunlife and then have a follow-up?
Good morning Tom, it's manage, I'll take that. So, as you know, we've maintained a strong capital position for many years and and that's really underpinned by our disciplined approach to capital managementand, as you say, an important component of that disciplined approach is generating strong capital from our diversified portfolio of businesses and, as Kevin outlined, we do have a very clear and consistent approach to how we manage our capital. We first invest an organic growth of our businesses, and that consumes about 25 cent to 35% of our overall capital generated from underlying net income.
Speaker 19: Good morning Tom, it's manage, I'll take that. So, as you know, we've maintained a strong capital position for many years and and that's really underpinned by our disciplined approach to capital managementand, as you say, an important component of that disciplined approach is generating strong capital from our diversified portfolio of businesses and, as Kevin outlined, we do have a very clear and consistent approach to how we manage our capital. We first invest an organic growth of our businesses, and that consumes about 25 cent to 35% of our overall capital generated from underlying net income.
Next we focus on growing our dividend and, as we talked about, our payout rangeesis 40 to 50% of underlying income, and so that leaves about 25 to 35% of underlying net income for excess capital generation to deploy before the impacts of market-related items. And if you were to take a look at that for the past year, that would have been about a billion dollars before those market-related items, So a bit higher than the 800 we saw earlier.
Speaker 19: Next we focus on growing our dividend and, as we talked about, our payout rangeesis 40 to 50% of underlying income, and so that leaves about 25 to 35% of underlying net income for excess capital generation to deploy before the impacts of market-related items. And if you were to take a look at that for the past year, that would have been about a billion dollars before those market-related items, So a bit higher than the 800 we saw earlier.
Okay that's great, and just with respect to some of the discussions with on group morbidity, is is a thing that we should be looking at here more, just confirming that it might be more short term related. Is in more COVID-19 related. Should the focus that be more on unemployment? There is some, sometimes any, selection and group morbi, dity. So as long as we stay with relatively good employment levels, would you expect to group morbidity- just the modest uptick that we saw in the quarter to come back in as a result of unemployment being fairly, fairly muted here.
Speaker 54: Okay that's great, and just with respect to some of the discussions with on group morbidity, is is a thing that we should be looking at here more, just confirming that it might be more short term related. Is in more COVID-19 related. Should the focus that be more on unemployment? There is some, sometimes any, selection and group morbi, dity. So as long as we stay with relatively good employment levels, would you expect to group morbidity- just the modest uptick that we saw in the quarter to come back in as a result of unemployment being fairly, fairly muted here.
Tom I think we can let Dan answer that first for the U's and jock answer second for Canada.
Speaker 15: Tom I think we can let Dan answer that first for the U's and jock answer second for Canada.
Sure in the? U's, as you noted, you know, unemployment is almost at a historically low level. In fact there's 11 and a half million open jobs in the's right now. So we don't think unemployment is really a factor here. You know, we think there are other second order effects, as I mentioned, including employers requiring people to come back into the office who might not be fully comfortable doing that. That's likely a transient effac. The marketplace will find its equilibrium as labor and employers decide how they want to work together in the future. So we don't see that as necessarily a persistent impact.
Speaker 23: Sure in the? U's, as you noted, you know, unemployment is almost at a historically low level. In fact there's 11 and a half million open jobs in the's right now. So we don't think unemployment is really a factor here. You know, we think there are other second order effects, as I mentioned, including employers requiring people to come back into the office who might not be fully comfortable doing that. That's likely a transient effac. The marketplace will find its equilibrium as labor and employers decide how they want to work together in the future. So we don't see that as necessarily a persistent impact.
And Tom the eaac similar to dianan. I would saywe don't see employment levels being a material issue at the moment to what we're seeing, it's really about obduration. That I said earlier.
Speaker 9: And Tom the eaac similar to dianan. I would saywe don't see employment levels being a material issue at the moment to what we're seeing, it's really about obduration. That I said earlier.
yesi didn't mention it earlier, but mental health cases tend to be a bit longer than or other cases, So we with the access to care, it's really an isitsue of how quickly we can get people back to work.
Speaker 21: yesi didn't mention it earlier, but mental health cases tend to be a bit longer than or other cases, So we with the access to care, it's really an isitsue of how quickly we can get people back to work.
And at the moment I would say we don't expect that to be durable trend, but we're obviously watching it very closely TER, since it has obviously an impact on our results.
Speaker 21: And at the moment I would say we don't expect that to be durable trend, but we're obviously watching it very closely TER, since it has obviously an impact on our results.
Okay And if I could just squeze one more as an impairment in the quarter, if there's any kind of color you can shed with respect to that and how we should be thinking about credit going forward.
Speaker 55: Okay And if I could just squeze one more as an impairment in the quarter, if there's any kind of color you can shed with respect to that and how we should be thinking about credit going forward.
Tom this is Randy Brown. I'll take that. Yes, the impairments were a couple of credits within our private fixed income portfolio. They were entirely idiossy and credit in nature and so not indicative of any trends either within pfi specifically or in the overall portfolio. I think overall you'll see another positive credit releasaseed this quarter, albeit down from prior quarters. I'm very comfortable what the composition of the portfolio. So we have to see how markets play out as we look forward.
Speaker 56: Tom this is Randy Brown. I'll take that. Yes, the impairments were a couple of credits within our private fixed income portfolio. They were entirely idiossy and credit in nature and so not indicative of any trends either within pfi specifically or in the overall portfolio. I think overall you'll see another positive credit releasaseed this quarter, albeit down from prior quarters. I'm very comfortable what the composition of the portfolio. So we have to see how markets play out as we look forward.
ok thanks.
Speaker 55: ok thanks.
Thank you. Our next question comes from the mar basade of Cormark airline is open.
Speaker 9: Thank you. Our next question comes from the mar basade of Cormark airline is open.
So my question is probably most the for manages and it's around the, I guess the outlook for R surplus and that kind of $1 million range.
Speaker 57: So my question is probably most the for manages and it's around the, I guess the outlook for R surplus and that kind of $1 million range.
I understand's the rough target and made boun trave quarred. But just what you have that, that target in the context of what we've seen over the past two quarters- some of the challenge associated with generating AFS gains and seed investment gains, and you know what's pointing out of the marketts and rate environment- does it feel like that one million target is achievable in this, in this market backdrop? I guess I guess the reason I am asked see, is that you have to really go back like over a decade to find a two quarters string up earnings on surplus this week. That comments would be helpful.
Speaker 58: I understand's the rough target and made boun trave quarred. But just what you have that, that target in the context of what we've seen over the past two quarters- some of the challenge associated with generating AFS gains and seed investment gains, and you know what's pointing out of the marketts and rate environment- does it feel like that one million target is achievable in this, in this market backdrop? I guess I guess the reason I am asked see, is that you have to really go back like over a decade to find a two quarters string up earnings on surplus this week. That comments would be helpful.
Sure good morning the marks' mentioned. So, as you mentioned, you know, our earnings and surplus has kind of been in theone hundred million dollar range and this quarter we saw a 65 million and there were a couple of items that led to the lower result, as we had lower mark-to market seed investment losses and that really reflects the wider credit sps 'are seeing. There were some timing items in our investment income. We also had some higher debt cost reflecting the higher flow rate on unfloing rate det, as well as the debt that we issued to to fund ent, to quest and, as you mentioned, a lower AFS gains. So all together that's what drove that number and, given the current environment that we're in and as, as I mention in my prepared remarks, you'd expect the's gains to be more muted, which would result in a surplus number below $1 million range that we've been seeing previously.
Speaker 19: Sure good morning the marks' mentioned. So, as you mentioned, you know, our earnings and surplus has kind of been in theone hundred million dollar range and this quarter we saw a 65 million and there were a couple of items that led to the lower result, as we had lower mark-to market seed investment losses and that really reflects the wider credit sps 'are seeing. There were some timing items in our investment income. We also had some higher debt cost reflecting the higher flow rate on unfloing rate det, as well as the debt that we issued to to fund ent, to quest and, as you mentioned, a lower AFS gains. So all together that's what drove that number and, given the current environment that we're in and as, as I mention in my prepared remarks, you'd expect the's gains to be more muted, which would result in a surplus number below $1 million range that we've been seeing previously.
But the other thing that I mentioned obviously is also there's other components that also have differentfering impacts on those market-related items, and we talked about it earlier on this call that that could also provide some opportunities on the investment activity gain side.
Speaker 18: But the other thing that I mentioned obviously is also there's other components that also have differentfering impacts on those market-related items, and we talked about it earlier on this call that that could also provide some opportunities on the investment activity gain side.
Okay thanks. And then if I could squeeze another one and maybe just certainircling back to an earlier question around capital allocation for Kevin, this management had the capacity to integrate that to quest. Well, still digesting another acquisition or would E kind of be off the table for a periodious time?
Speaker 59: Okay thanks. And then if I could squeeze another one and maybe just certainircling back to an earlier question around capital allocation for Kevin, this management had the capacity to integrate that to quest. Well, still digesting another acquisition or would E kind of be off the table for a periodious time?
It's. It's a great question thanks, you know. If we look at dentto question, it is the second largest acquisition we've ever made. It's but it's got a great management team. Then team have executed on a large acquisition and, if you remember, it's really bring a larger dental business into smaller dental business alongside of ours and so we're pretty confident that that integration is going to go well. Mentioned, actually mentioned, we've got the, that T cost running through our, our earnings right now, but we don't have the, the benefit of the earnings coming through. So that's one thing that we're looking forward to. But from the overall capital position, it's obviously going to use a big chunk of the four point seven billion we have at the whole Co. we are obviously see that we're in stressed times right now and if you look at the, the economic conditions- but we are, we do have a solid capital position and we continue to assess what the, what the opportunities are. So you know it's it is, it is it is a use of the majority of the capital of the whole Co when the deal closes. But we, we know we continue to have an eye on things that will imvethe business. But you know, we're we- that financial discipline will not change and I think part of the financial discipline is looking at the economic conditions and what you're purchasing.
Speaker 9: It's. It's a great question thanks, you know. If we look at dentto question, it is the second largest acquisition we've ever made. It's but it's got a great management team. Then team have executed on a large acquisition and, if you remember, it's really bring a larger dental business into smaller dental business alongside of ours and so we're pretty confident that that integration is going to go well. Mentioned, actually mentioned, we've got the, that T cost running through our, our earnings right now, but we don't have the, the benefit of the earnings coming through. So that's one thing that we're looking forward to. But from the overall capital position, it's obviously going to use a big chunk of the four point seven billion we have at the whole Co. we are obviously see that we're in stressed times right now and if you look at the, the economic conditions- but we are, we do have a solid capital position and we continue to assess what the, what the opportunities are. So you know it's it is, it is it is a use of the majority of the capital of the whole Co when the deal closes. But we, we know we continue to have an eye on things that will imvethe business. But you know, we're we- that financial discipline will not change and I think part of the financial discipline is looking at the economic conditions and what you're purchasing.
Great thanks.
Speaker 14: Great thanks.
Thank you, and next question comes from Nigel de souza of veritass investment research. Your question, Please.
Speaker 9: Thank you, and next question comes from Nigel de souza of veritass investment research. Your question, Please.
Thank you, good morning had a fall-up for you. First, on SLC, I believe you mentioned 15 million analyzed annualzze fee revenue that could be generated from AUM not yet invested. Wondering if you had a period over which you expect to realize that and what margin do you expect to earn on that revenue.
Speaker 59: Thank you, good morning had a fall-up for you. First, on SLC, I believe you mentioned 15 million analyzed annualzze fee revenue that could be generated from AUM not yet invested. Wondering if you had a period over which you expect to realize that and what margin do you expect to earn on that revenue.
Hin thanks for the question. You know when, when we raise money across our platform, the expected investment periods can vary, but I would say we'd expect to get that money invested over 12 to 24 months generally. You, in some, in some funds, the investment period can be three years. So you that that can be the case. I would say if it goes into the 30 year in a given fund, you know you'veinvested most the assets by that by that time. You know the type of funds that lead to lead to these non fee earning assets are generally higher fee asset classes. So it's real estate, it's alnative credit, it's infrastructure, where you raise in a fund and then you drawit downand as you drawit down and invest money you start Ning to fees. As I said, those are higher fee assets. So I Don' not sure ared to get out a specific margin on that, but I would say that you know, across our platform those are be the higher fee assets that we manage and therefore you know there are some additional costs to go with those assets. But those would generally be our higher margin assets as well.
Speaker 36: Hin thanks for the question. You know when, when we raise money across our platform, the expected investment periods can vary, but I would say we'd expect to get that money invested over 12 to 24 months generally. You, in some, in some funds, the investment period can be three years. So you that that can be the case. I would say if it goes into the 30 year in a given fund, you know you'veinvested most the assets by that by that time. You know the type of funds that lead to lead to these non fee earning assets are generally higher fee asset classes. So it's real estate, it's alnative credit, it's infrastructure, where you raise in a fund and then you drawit downand as you drawit down and invest money you start Ning to fees. As I said, those are higher fee assets. So I Don' not sure ared to get out a specific margin on that, but I would say that you know, across our platform those are be the higher fee assets that we manage and therefore you know there are some additional costs to go with those assets. But those would generally be our higher margin assets as well.
ok So I think it's fair to assume it it's probably about 20%.
Speaker 14: ok So I think it's fair to assume it it's probably about 20%.
Based on you're disclosed on your FE related earnings margin.
Speaker 60: Based on you're disclosed on your FE related earnings margin.
And then the next question that had was on your impact on the vestment activity. It's favorable experience this quarter.
Speaker 61: And then the next question that had was on your impact on the vestment activity. It's favorable experience this quarter.
And I was wondering if you could pride some color. Is that mainly yield enhancement and how sustainable do you think?
Speaker 61: And I was wondering if you could pride some color. Is that mainly yield enhancement and how sustainable do you think?
This quarter's run rate is, given the yield environment that we're seeing today.
Speaker 61: This quarter's run rate is, given the yield environment that we're seeing today.
Hi RO's, Randy Brown, I'll take that. Some of what you heard in prior quarters is that we we had built some dry powder coming into this period with the expectation where the observation that credit spreads were near all time adjusted lows, real rates were at all time lows, equities were all time high, S. So we took some risk off the table and buil dry powder. Some of that dry powder was deployed this quarter, some of that dry this past quarter. Some of that dry powder will be deployed as we see opportunities in Q2 and forward and we are seeing opportunities with the dislocations in the market. So that was. That was a nice piece of. Another piece Ed mentioned was the strong pfi origination, originations and spreads and we are seeing that continue in Q2. It's a matter of deployment on the balance sheet in terms of how they flow, but we are seeing strong, achieving strong spreads there as well.
Speaker 36: Hi RO's, Randy Brown, I'll take that. Some of what you heard in prior quarters is that we we had built some dry powder coming into this period with the expectation where the observation that credit spreads were near all time adjusted lows, real rates were at all time lows, equities were all time high, S. So we took some risk off the table and buil dry powder. Some of that dry powder was deployed this quarter, some of that dry this past quarter. Some of that dry powder will be deployed as we see opportunities in Q2 and forward and we are seeing opportunities with the dislocations in the market. So that was. That was a nice piece of. Another piece Ed mentioned was the strong pfi origination, originations and spreads and we are seeing that continue in Q2. It's a matter of deployment on the balance sheet in terms of how they flow, but we are seeing strong, achieving strong spreads there as well.
That's help. In the last question, ahad for your anthpologlogy, if you ority answered it on the IFRS 17 up later this month. Did you mention that you'd be providing an update on?
Speaker 61: That's help. In the last question, ahad for your anthpologlogy, if you ority answered it on the IFRS 17 up later this month. Did you mention that you'd be providing an update on?
The expected impact underlying earnings, or is that still further out?
Speaker 61: The expected impact underlying earnings, or is that still further out?
Yes I think we're going to cover a range of topics, including our outlook for our medium-term objectives.
Speaker 18: Yes I think we're going to cover a range of topics, including our outlook for our medium-term objectives.
Appreciate it, Thank you.
Speaker 61: Appreciate it, Thank you.
Thank you. We have no further questions at the chin. I will Turning things over to MR bisson for closing remarks.
Speaker 9: Thank you. We have no further questions at the chin. I will Turning things over to MR bisson for closing remarks.
I would like to thank all of our participants today. Should you wish to listen to the rebroadcast, it will be available on our website later this afternoon. Thank you and have a good day.
Speaker 29: I would like to thank all of our participants today. Should you wish to listen to the rebroadcast, it will be available on our website later this afternoon. Thank you and have a good day.
This concludes today's call. Thank you for your participation. You may now disconnect.
Speaker 9: This concludes today's call. Thank you for your participation. You may now disconnect.
The.
Speaker 9: The.