Q4 2022 Sun Life Financial Inc Earnings Call

Speaker 2: Good morning and welcome to the Sun Life Financial Q4 2022 conference call. My name is Michelle and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. The host of the call is Denise Bitton, Vice President, Head of Investor Relations and Capital Markets. Please go ahead, Mr. Bitton.

Speaker 3: Thank you, operator, and good morning, everyone. Welcome to Sunlight's earnings call for the fourth quarter of 2022. Our earnings release and the slides for today's call are available on the investor relations section of our website at sunlight.com.

Speaker 4: We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer.

Speaker 5: Following Kevin, Manget Singh, Executive Vice President and Chief Financial Officer will present the financial results.

Speaker 6: After the prepared remarks, we will move to the question and answer portion of the call.

Speaker 7: Other members of the management are also available to answer your questions this morning.

Speaker 8: Turning to slide two, 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 9: Thanks, Genevieve, and good morning to everybody on the call. Turning to slide 4, Sunlight delivered strong performance during the fourth quarter, contributing to solid 2022 full-year results. Our results demonstrate the resilience of our diversified business model and the commitment of our people to deliver strong earnings and continued growth amidst a challenging environment while meeting our commitments to clients.

Speaker 10: and delivering on our purpose. We've made tremendous progress on our business strategy by driving positive client impact for our 85 million clients around the world.

Speaker 11: We achieved strong underlying arrangements this quarter of $990 million Canadian, representing 10% growth over prior year, demonstrating the resilience of our business mix. Our growth was driven by strong results from our protection and health businesses.

Speaker 12: Sunlight US had a strong fourth quarter underlying earnings as a result of solid underwriting performance in health and risk solutions, significant moderation of COVID-related impacts, and contributions from dent to quest.

Speaker 13: In Asia, we saw a breakthrough in earnings profitability in Vietnam driven by the addition of a scale of scale in bank insurance and in agency, and we saw higher margins in our international high net worth business.

Speaker 14: Strong results from our protection and health business were partially offset by lower income and increased outflows from our wealth and asset management businesses, largely reflecting declines in global equity markets.

Speaker 15: Underlying ROE for the quarter of 15.7% continues to trend towards our medium term objective of 15% plus, reflecting our discipline capital management and growing emphasis on capital electrical life businesses.

Speaker 16: And our LIHCCAT ratio at SLF remains solid at 130% for the quarter. Turning to slide 5, our full year 2022 results were driven by similar factors as seen during the fourth quarter. Underlying net income increased 4% to $3.7 billion supported by growth in our health and protection businesses.

Speaker 17: Underlying RLE for the year was 15.1% was also strong.

Speaker 18: Over the past year, we increased our quarterly dividend by 31 percent following the lifting of restrictions in November of 2021.

Speaker 19: Turning to slide 6, this quarter we delivered on several key business initiatives that helped drive forward our client impact strategy.

Speaker 20: The strengthening of our distribution capabilities in growth markets has been a priority to Sun Life in 2022.

Speaker 21: In Sun Life Asia, we remain focused on building quality distribution channels. We realized a step change in our bank insurance distribution over the last 12 months, driven by new marquee relationships and executing on our existing partnerships.

Speaker 22: Last month, we announced our first exclusive Bank Assures partnership in Hong Kong with Dosting Bank. Under the 15-year agreement, Sunlife will be the exclusive provider of life insurance solutions to Dostings retail banking customers with distribution of Sunlife products expected to start this summer.

Speaker 23: This round out our distribution capabilities in Hong Kong and positioned us well to compete.

Speaker 24: With the addition of this bank insurance partnership in Hong Kong, we now have more than 20 quality bank insurance partnerships in seven markets across Asia. Our history of execution in Asia has proven that strong bank insurance distribution, coupled with high quality advisor channels, provides a critical platform for growth.

Speaker 25: One example of this is how we're building our business in Vietnam, executing on transformational bank assurance partnerships with a focus on providing high quality insurance and wealth products and services to fit our client's needs. We are now one of the fastest growing life insurance players in Vietnam. We've improved our market position for insurance sales from 15th position in the full year 2020.

Speaker 26: to six position in 2022.

Speaker 27: At SLC Management, we also recently closed our acquisition of a majority stake in Advisor Asset Management.

Speaker 28: Advisor asset management or AAM adds distribution capabilities in the U.S. high-net worth retail market, one of the fastest growing distribution channels for alternative assets. We're excited to welcome the AMM team to our SLC team.

Speaker 29: We are increasingly delivering positive client impact by elevating our focus on health, helping clients access health care and the coverage they need.

Speaker 30: In the U.S., DentalQuest continues to expand its dental business, advancing our goal to increase access to oral health care in underserved communities. In Q4, DentalQuest expanded its Advantage Dental Plus Care practices with four new offices in Florida. These practices went from start-up to an at-capacity in 90 days.

Speaker 31: which demonstrates the need for these services.

Speaker 32: DentiQuest also had a strong quarter for contracts awarded, including two new dental managed care contracts from a multi-state health plan provider. The two newest contracts expand DentiQuest's partnership with the health plan to 10 states.

That's a question that unique capabilities continue to contribute to our ability to win and retain state business while also driving higher margins.

Additionally, the COVID-19 pandemic has exacerbated the mental health crisis in Canada. We know many people are at a breaking point and we need to offer more resources and more access to tackle this crisis. We know the workplace is an important place to address these concerns and we're doing our part in Canada by providing clients with Canada by providing clients with Canada by providing clients with the support of those are edd you

Canadians with early prevention and with faster recovery.

We continue to make great strides in our digital journey.

Tied to our commitment of increasing financial security, we continue to work hard to build the capabilities such that our clients can access our spectrum advisory options through a frictionless digital experience. Sunlife Canada has created more than 65,000 financial roadmaps for Canadian clients in 2022.

using our Sun Life One Plan digital tool. Sun Life One Plan contributes to our goal for all Canadians to have a financial plan.

Finally, we continue to be recognized for our progress and sustainability and our inclusive culture. Sunlight was recognized by corporate nights as being among the global 100 most sustainable corporations in the world for the 14th consecutive year, and this year we were the top-reg insurance company globally.

Additionally, Sunlife received many employer awards in 2022, including being certified as a great place to work in several of our markets.

This is especially gratifying because it's the result of direct feedback from our employees.

This is recognition of our focus on ensuring we have an environment where diversity is championed in addition to offering resources and flexibility to support mental, physical and professional well-being.

Before I turn to Manjit to detail our Q4 financial results, I'd like to share a few final thoughts.

First, I'm excited to welcome Tom Murphy, our new Chief Risk Officer to the Sun Life Executive Team. Some of you will know Tom from his time with SLC Management, where he headed up our fixed income and institutional business.

Tom brings a global depth of knowledge and experience, particularly in asset management and the pension space, which will be a tremendous benefit for all of us.

I'd also like to recognize Colm Frang. Many of you on the phone will know him from his time as the Sun Life CFO and then as our Chief Risk Officer. Colm will retire on May 1st after an illustrious 20-year career with Sun Life. He has played a significant role in our company's growth over the past two decades. On behalf of everyone at Sun Life, I want to thank Colm for his service to Sun Life.

and wish him well in his retirement. And lastly, I'd like to share a few thoughts on the year ahead.

While we expect the environment to remain challenging, we are optimistic about the outlook. Based on recent direction of travel for inflation in North America, we are seeing most economists forecast a plateau of interest rates in the back half of 2023, with some showing reductions in interest rates in 2024.

We expect some volatility and rates will persist, but this will likely be within a tighter range. While inflation looks to be moderating, we continue to watch the environment, including geopolitical uncertainty, additional shocks to energy supply, the reopening of markets in Asia, and COVID-19.

We continue to feel prepared as a result of a resilient client impact strategy Support it by our diversifying and capital-like business mix

Recent investments across growing spaces in health, asset management, and Asia, and our sustained commitment to delivering on our purpose to help clients achieve lifetime-fence security and live healthier lives will all support us next year. With that, I will now turn the call over to Mangett, who will walk us through the fourth quarter financial results.

Thank you, Kevin, and good morning, everyone. Let's begin on Slide 8, which provides an overview of our Q4 results.

Sunlight had a strong finish to the year, with record underlying earnings in the fourth quarter, reflecting the strength of our businesses and the benefits of our diversified mix.

Underlying that income of $990 million, and underlying earnings for a share of $1.69, we're up 10% from the prior year. Strong results in protection and health businesses were underpinned by business growth, the contribution from the Dentequest acquisition, higher margins in the US and Canada, and moderating COVID-related impacts.

This was partially offset by lower wealth and asset management results, which were impacted by global equity market declines.

Reporting in income for the quarter was 951 million, down 12% from the prior year.

The results for this quarter include market-related impacts and DentiQuest integration expenses.

Our balance sheet and capital position remains strong, as reflected by an underlying return on equity of 15.7% for the quarter, a 5% increase in book value per share over the prior year. A strong capital position with a log cap ratio of 130% at SLF, up 1% from Q3.

and a 130 basis points of improvement in the leverage ratio from 26.4% last quarter to 25.1%. Let's turn to our business group performance, starting on slide 10 with MFS.

MFS underlying net income of US $202 million was down from the prior year, driven by lower average net assets largely reflecting declines in global equity markets. Reported net income of US $223 million was down 5%, reflecting impacts on underlying net income.

partially offset by fair-valid changes on share-based payment awards. MFS generally is strong pre-text net offering margin of 40%.

AUM on US $548 billion was up 8% from Q3, largely reflecting higher equity markets partially offset by net outflows.

Retail net upflows of US $8.3 billion in the quarter were impacted by industry-wide redemptions, as were investors who made cautious in an uncertain macroeconomic environment.

Institutional Net Outflows were US $3.6 billion in the quarter.

Pernodous 5-11, SLC Management delivered underlying the income of 38 million and reported an income of 19 million.

We are pleased with the attractive business fundamentals at SLC Management.

This includes good momentum on capital raising across all asset classes, including 3 billion in the current quarter, as well as 22% growth in fee related earnings reflecting the deployment of capital into fee earning AUM.

Total AUM of 210 billion were 14% year-rear. This includes 21 billion that is not yet earning fees. Once invested, these assets are expected to generate an annualized fee revenue of more than 180 million.

million was up 22% from the prior year driven by strong insurance sales, improved disability performance and sunlight health and higher investment gains.

This was partially upset by lower fee income in wealth management businesses.

Reporting that income of 360 million was upsplightly from the prior year.

Total protection and health sales were up in the quarter, reflecting an increase in large case sales and sunlight health.

On the well side, retail sales were impacted by the market environment.

Group retirement sales increase year over year, reflecting our differentiated products and services, as well as the strength of our client relationships.

Turning to slide 13, US underlying net income of US 177 million was up 121 million from the prior year.

Reporting in the income of US $81 million was up $13 million. The results were driven by strong performance across all businesses, including the contribution of interquest.

Group benefit results were driven by a 16% increase in expected profit and a significant moderation of COVID-related mortality and disability impacts.

Business fundamentals remain strong, including good crime persistency, strong premium and free growth, and solid stop loss underwriting margins.

The group benefits after tax profit margin increased to 8.4%.

Sales in the US were up 11% year-over-year. We saw good momentum in employed benefit sales reflecting our investments in technology partnerships and new digital capabilities.

Stop loss sales are at lower reflecting a more competitive pricing environment. Despite the change in competitive dynamic, our focus remains the same. Provide value to our clients and maintain good pricing discipline.

We're very pleased with the Dentechres results. We are on track with our integration milestones and our confidence that we will achieve our synergy targets.

Dentiquest delivered strong sales for the year, adding approximately 3 million new members in 2022, bringing the total number of members to 36 million.

Slide 14 outlines Asia's results for the quarter.

Underlying that income of 152 million was up 16% year-over-year on a constant currency basis.

The results were given by insurance, business growth, and moderating COVID related experience.

Wealth and fee related earnings were impacted by lower equity markets in Asia.

Reporting net income of 98 million was down for the prior year largely driven by the game from the IPO of our Indian asset management joint venture in October of last year and market-related impacts.

A is a generated double digit insurance sales growth in most markets.

We continue to gain momentum reflecting the benefits of our continued focus on client experience, rollout of new products, and expanded digital capabilities, as well as the easing of pandemic restrictions. Incorporate underlying that loss of $39 million reflects the higher effective tax we compared to the prior year, while reporting that income was in line with the prior year.

Turning to slide 15, we outline the progress on our medium-term financial objectives.

Despite the challenging operating environment in 2022, our resilient set of businesses delivered a 9% underlying EPS growth over the five-year period.

Underlying ROE over the five-year period was 14.7% and 15.1% for 2022, reflecting the shift in our mix to capital light businesses.

And the Payout ratio was in our target range of 40 to 50%.

We continue to maintain a strong balance sheet and capital position which provides support to execute on strategic priorities and the key strengths to manage through an uncertain environment.

Looking ahead to 2023, we remain optimistic about the fundamentals across each of our businesses.

While we expect the operating environment to remain challenging, we are confident that our leading business positions, focused on client outcomes, disciplined capital and expense management and strong talent will help to drive continued growth.

And of course, this will be our final quarter, this will be our final quarter, and the current reporting framework, as you transition to IFRS 17 in Q1, 2023.

As we've noted before, IFRS 17 does not impact our core business strategies or the fundamental economics of our businesses.

It will, however, impact the timing and presentation of our financial results.

Based on our parallel runs for the first three quarters, we have provided some updated disposes as quarter.

First, we updated the estimated earnings impact for the 2022 restated comparative year from a decrease of mid-single digits to a decrease of high single digits.

This is largely driven by higher investment activity gains for the year.

Our investment team has approved and track record of identifying and executing an opportunity to enhance the spread for investment in volatile market environments like we saw for most of 2022.

The present value of the higher spread is recognized immediately into earnings under IFRS 4, but we will be recognized over time as we transition to IFRS 17. While the economics and earnings benefit from the higher yield is the same over time, it results in a higher IFRS 4 versus 17 difference at transition.

The second update is that we expect a high single-digit increase in the LIKAT ratio on transition to IFR-17. This is higher than our estimates than may of last year, reflecting updates to our capital projections under the new LIKAT guidelines, as well as refinements for our estimates as we complete our quarterly IFR-17 parallel reporting.

We are currently in the process of finalizing our dual reporting for the 2022 comparative year and look forward to sharing additional details in May with the reporting of our first quarter results. With that, I'll turn the call back to you for Q&A.

Thank you, Manjit. To help ensure that all our participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then re-cute with any additional questions.

Thank you, Manjit. To help ensure that all our participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then re-queue with any additional questions. I will now ask the operator to poll the participants.

Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. One moment while we pull the Q&A roster.

Our first question comes from Minnie Grauman with Scotiabank. Your line is open.

Hi, good morning. Manjit, you concluded your remarks by talking about expecting the operating environment to remain challenging in 2023. I was hoping you could go into more detail when I look at it. I see some improvement in equity markets to start at the year, the reopening in Asia. So when I look at it, it seems like there's more –

reason to be optimistic for the outlook. So I'm wondering if you could just go into where the causes for concern as you see them in 2023 are?

Thanks for your question, Manny. I think you're right. I think we are seeing some signs of improvement, but I don't think we're ready to declare victory yet in terms of the overall operating environment. We do sort of see some potential for things to move back and forth over time. But more importantly, I think for us, we are very pleased with the diversified set of our businesses.

pressure on fee income which impacts MFS, impacts SLGI, impacts our GRS, and pension business in Asia, but also a lot of our universal life business in Asia is tied to fee income as well. So it's a bit of a headwind, but we are seeing the start of the year look good. I sort of address that in my comments as well. You know, we'll see how the year...

performs, but it's really a factor on the fee income from our equity businesses. Thanks for that Kevin, and if I could just follow up, you gave an interview about a month ago talking about M&A opportunities in Asia and the potential opportunities created by the reopening that may be some

deal competitors potentially would be distracted. So I'm wondering if you could provide a little bit more color on those views in terms of how you see opportunities for M&A in Asia in 23 and maybe more specifically, what specific areas are you looking at in Asia for the point capital in 23? So I'm wondering if you could provide a little bit more color on those views in terms of how you see opportunities for the point capital in 23.

Thanks, Benny. Well, post the interview, we did the bank insurance deal in Hong Kong, and we're quite excited about that. That really rounds out our capabilities in Hong Kong. It gives us bank insurance alongside of our agency distribution. We have brokerage there, and we have the second largest pension business by flows.

So we're quite happy with where we ended in Hong Kong with that Hong Kong bank assurance deal. As you know we've done a bank assurance deal of fairly sizeable one and Vietnam that I talked about with ACB Bank and my remarks and that built on our position with PPE. We we redid our uh we likened our agreement with Grepa which is our CBC Bank in the Philippines. So we were quite active.

for Singapore. So, you know, we're well suited in Asia. I think that that piece of the puzzle of adding bank insurance in Hong Kong was an important step for us. You're right to note that and I think we want to talk with a little bit more that the border is opening and we see that as a good thing for Hong Kong and the Hong Kong economy, which should be a good thing for sales in the Hong Kong business.

That will take a little while. It just opened in January and those fails take a little while to come through and there is still working through, getting the momentum in sort of that travel back and forth across the border. I don't know, Linger if you wanted to add anything. Thank you. I've captured it as well, Kevin. And just additionally in this...

almost 30% in all of our markets except Hong Kong and China. So we are well placed, but clearly with some of the headwinds Kevin described.

Thank you. Our next question comes from Scott Chan with Canacor Genuity. Your line is open.

hel.

So on Denico's second quarter of contribution, and remember when you announced the acquisition, you talked about what bus growth and then kind of cited a 14% revenue taker from 2018 to what was probably near 2021 to 2.7 billion. If I look in the supplemental on your gross premium fund, then door.

it seems to be tracking in line with 2021 in terms of sales growth. Am I reading that right or is it more stable growth that you witnessed within that platform in 2022?

Well, thanks for the question. This is Dan Fishbine.

One thing to point out is that we are reporting commercial dental, which includes the legacy on life, commercial business, and dental question in that segment. So it's important to look at both pieces. So first of all, commenting on the commercial, we've actually had really great sales growth in the past year on commercial dental.

We mentioned, Kevin mentioned in his opening remarks some significant sales in the fourth quarter, and that momentum has actually continued in January . But to specifically answer your question overall, both their sales and revenue growth have been roughly in line with the path trend.

It is, the sales in the government programs business tends to be quite lumpy. You get big sales infrequently. So a seven month period is a little bit hard to establish a trend on, but so far so good.

And when I look forward to looking at growth outside of the revenue center, how do we track Is it more of the industry trend on my government program growth or is it more on dent requests? Maybe take a market share and expanding into certain states like you did in Florida last year. global 2013

Yeah, we, you know, I would suggest you look at our growth specifically, but there's lots of good tailwinds going on there. There's a very robust pipeline that DentiQuest is working on right now. I think it's, you know, we view it as just about the strongest that they've ever had.

There are states continuing to move their programs from regular fee for service to managed care. And we're certainly participating in all of those RFPs. There are health plans, as we noted in the fourth quarter, who continue to outsource.

their dental business in the Medicaid and Medicare programs to us. And we also have quite a bit of momentum on the commercial side. So we're optimistic about the growth trajectory here. The pipeline is very strong.

Okay, thank you. Thank you. Our next question comes from Gabriel Deshane with National Bank Financial. Your line is open.

Hey, good morning. I've got a couple questions. First here, the group results have been, both in Canada and the U.S., really strong. I'm wondering if the claims costs have been inflated at all because of interest rates.

I guess my question is, despite the impact of interest rates, you're still generating any strong results, or has that not been a material thing?

We let Dan maybe start and Jock may want to jump in on the Canadian experience.

Yeah, the group results are strong, I think, as you noted. Improving morbidity and mortality, of course, are the primary reasons for that and kind of overwhelm all of other factors. In the U.S. our mortality moderated significantly, still elevated.

liabilities, but it's relatively small compared to the morbidity and mortality incidents.

but it's relatively small compared to the morbidity and mortality incidence. Go ahead.

Yeah, we had to. In the case of can you hear me in the case of Canada? And then you would know that there's essentially tweeting that we're looking at here. And.

A few years ago we started reprising the business in line with the higher volume of claims that we were seeing in the disability group side.

And that's obviously now contributing nicely to our results.

The other two things that we watch very closely are the volume of claims.

This path order, I would say those were a little bit better than we are expecting, but not materially. And the other area is the duration of the claims. And there we have better experience and expected.

On that one, Gabriella, I would be a little bit careful because as we've said in the past, one of the drivers experience, in duration, is access to care. And it's not clear in my mind that this has changed materially in Canada. We still see some challenges in the healthcare system. So we had a great quarter. We're pleased with that, of course, but as you can imagine.

My next question, sir.

My next question is on the real estate experience losses. I get why it's happening. Just wondering what you know what.

sector is what geographies may have yielded that result.

And two, could we be in another phase like the one we saw in most of 2020 where real estate Experience losses were you know, we had them for like three or four quarters in a row

Hi, Gabriel. It's Randy Brown. Thank you for the question. So let's take a step back for a moment on commercial real estate. We've seen very strong growth in the sector over the last couple of years broadly. Although you did see within that weakness in office and retail, retail because of the whole shift in office because it was exacerbated by the pandemic.

With that said, the total return of our portfolio in Q4 is positive. So what you're seeing them through is the deviation relative to the long-term expectation of what we would earn. Right. So within that though,

The sector is broadly performed in line, so we weren't seeing a major deviation between the various sub-sectors.

So that would be one point. The second point would be as you think about real estate as we go forward. Yes, we do expect some cap rate to be compression given the speed of risk-free rates increasing. And we're seeing that. Now, in some sectors, it's been offset.

by fairly robust rental inflation, think industrial and multifamily, and others weakness in rent growth, think office. With that said, you know, we had talked about a pretty major repositioning of our real estate portfolio over the last number of years, anticipating our energy solving.

A downturn in so to give you an example, our office portfolio went from 39% to 24% over the last, you know, from basically beginning of 2019 to the end of 22, the majority of that coming early in that transition.

at the same time our industrial portfolio more than doubled. So we are positioned well within the real estate portfolio for what we believe may be coming.

And just you praise the quarter of the portfolio quarter, like you don't do it all in one shot, right?

Right, it's a rolling appraisal. So everything gets externally appraised.

periodically and then we will re-appraise using those benchmarks will use internal appraisals on everything every quarter.

All right, thank you.

Cook.

Thank you. Our next question comes from Doug Young with Desjardins. Your line is open.

Good morning. Maybe this is for Dan on DentiQuest. I mean, if I look at the dental operation, and I know it's got the legacy business in there, but there was a loss of 22 million. If we back out the acquisition related costs in the US, which I assume is all related to DentiQuest. I can triangulate back to 33 million of earnings.

And I know there's going to be a little bit in there for, again, the legacy business. Just curious is the math correct?

is going to be a little bit in there for, again, the legacy business. Just curious is the math correct? And then I've got to follow up on the US.

Yeah Doug, I think that is a good way of looking at it. I think you're thinking about that the right way. The integration expense you're seeing there is virtually all, you know, is all related to dental quest. And I can share in the quarter that the legacy commercial sunlight business generated about $3 million in after tax underlying earn.

which was 8.4% but for the quarter it was 10.4%.

I guess my question, Dan, what causes the margin to migrate down to 7% or is there a need to push this 7% target higher? Do you see more comfort in the outlook for that group business over the coming years?

Yeah, it's a great question. Of course, we just, you know, went back over the 7% threshold on a trailing 12 month basis because of the primarily because of the very adverse COVID mortality experience earlier in 2022.

So, you know, we've just gotten above that metric again. We're obviously pleased to be there. And, you know, we don't anticipate right now or return to the COVID mortality that we saw in the fourth quarter of 2021 or the first quarter of 2022. You know, but having just hit the threshold again, I'm not sure we're ready yet to raise.

and stop loss. And I think that's where you're punching about your weight in the margin side. Are you comfortable that the competition isn't getting irrational in that stop loss business? Anything to be concerned there?

Yeah, I think, you know, historically, and we've said this before, stop loss has always been a cyclical business.

You know, margins improve, competitors decide they want to take some share, they get a little less disciplined, a little more aggressive. We've had a history of being a very disciplined underwriter and pricer of the business. And you see that in our experience. We actually anticipated this.

Our sales were down a bit in the fourth quarter versus the prior year quarter, but we actually planned for that. Now, a little bit of that is we had a big block of business that came in in the fourth quarter of 2021 and we knew that that would not recur. So, we actually, our sales for the year were a little bit above.

our expectations, which is good. But we will not break our discipline around our view of trend and pricing in order to acquire market share. There are some competitors who are probably doing that right now, so the market is getting a little bit more competitive.

But we think as you've noted, we can continue to outperform the market on that basis.

It's kept in strain. We're also finding new ways to compete for business by adding things like pinnacle care on top of the stop loss business, which helps to take the conversation away from being fully priced to being ways of.

of adding value and because we're one of the larger players we have unique capabilities to do that sort of thing.

and because we're one of the larger players, we have unique capabilities to do that sort of thing. Appreciate it. Thank you.

Thank you. Our next question comes from Tom McKinnon with BMO. Your line is open.

Yeah, thanks. Good morning. A question with respect to Asia. If I look at the impact of new business, it was positive one in the quarter.

We've seen that similar positive one in the fourth quarter of 2021, but historically this has always been negative.

You know, the sails were up nicely international. Were there flat over here in the international hubs and up?

even about 10 or 11% in the local markets. So just curious after what's driving this in this quarter, is it more profitable new business? Is it a better mix? How sustainable would that be? Granted, there is going to be an accounting change just to how this stuff is going to be booked. So any color there, and then I have a follow-up thanks.

Thanks very much, a singer Johnson here. Exactly right. This quarter we were very pleased with the new business gain, so particularly in Vietnam and international where it's been a focus to improve product economics and margins relating to that. So that we very pleased about.

And then you are seeing also just some changes if we look versus the prior year on just the absence of some of the benefits that we would have had in prior. We had reversal of mortality and some investment related gains.

I think on new business strains specifically, there's a combination of things. Ingrid's approach to selective underwriting for the international high net worth has made that business more profitable. And then as we've added scale, that also helps in terms of business strain. So adding the bank assurance agreements and focusing on building out agency helps with the new business.

straight item that you were talking about and Tom, as you noted, of course goes away under after a 17, but we're happy to see a positive result from the selective underwriting and the addition of scale.

Okay, that's great. And then the follow up here is

Just curious as to what's driving the increase in the Lycat upon transition. You know, if I look back, Aussie has said, you know, the movement, accounting doesn't, this accounting change is not going to drive capital. I think they had said for the industry as a whole, the movement to IFRS 17 would be capital neutral. So,

Just curious as to if you can put your now high single digit, I think it is impact upon transition to your like hat ratio in that context. What is driving your increase and any commentary you can share with what I said about the industry?

would be helpful as well. Thanks. Thanks for that question, Tom. It's Kevin Worsi.

So, yes, we are expecting a favorable high single-digit like at racial increase at January 1st of 2023 as part of the transition to IFRS 17. You're right to point out that OSE did set a target for industry neutrality, you know, recognizing that there will be pluses and minuses.

across the numerator and the denominator, but I think that we can highlight probably the one driving factor that accounts for Sunlight's increase is the change to the scalar. So OSCI scalar on the base solvency buffer reduces from 1.05 to 1.0.

and this accounts for approximately seven point increase at transition for sunlight. Maybe the one final thought I'll leave with your question with regard to color on the industry, I think that one of the challenges around the final calibration off the hat is the changing market conditions.

and the volatility of LIHTCAT under IFRS 17 as it responds to changes in market conditions, especially interest rates. And so I think, you know, with that kind of moving ball throughout the year of 2022, it's, I think, quite difficult to set that exact point. And I think that.

You know, where we landed with interest rates higher, that was probably a bit overall favorable for the industry. Okay, thanks for that color. And your billion dollar, I think it's your capital generation annually after investing in the business and paying your dividend is still...

a billion dollars annually. Is there any color you can share with respect on that?

Yes, Thomas Kevin again. Yes, that's right. We're seeing the IFRS 17 outlook largely the same in terms of capital generation. We're seeing the same in terms of capital generation.

Okay, thanks for that.

Thank you. Our next question comes from Paul Holden with CIBC. Your line is open.

Thank you. I want to continue with the same topic. It's an important one given the change in your like at ratio.

and sort of in the context of given what you were just saying regarding increased volatility under IFS 17, all of the additional.

capital margin become deployable capital or will you have a bias to maintaining more of a like at margin because of that increased volatility under IFRS for F17.

Thanks for the question Paul. It's Ken Morrissey. I'll answer the first part around the volatility and then I'll pass it to Manjit around the deployability of that. So when we're thinking about the LIHTCAT volatility, the comments I made around volatility is largely with regard to interest rates. And I did mention that...

However, one of the things to note that is the sensitivities can change quite a bit with changing market conditions. So for example with interest rates being lower or higher those sensitivities will change more rapidly than they do under IFRS 4. And a lot of that is driven by

the IFRES 17 market-consistent cost of the aunties in the new accounting and actual real basis. That is something that we're aware of, that we're going to be a monitoring and we're ready to manage, but it is something we do expect will create some

inherent increase in underlying volatility. And then just on the second question, Potsman, it overall the higher capital will lead to higher local cash and deployable capital, but I would just sort of note two considerations. The first is that some of the li-cats increase or getting is related to

businesses outside of Canada and for those businesses, they're continue to be subject to their local regulatory requirements. So there can be some timing differences between when that, when we can bring that cash balance back up to just online. And the second factor to consider is obviously as we've talked about in Kevin's remarks and mine, we also look at the overall operating environment.

and kind of base our capital levels in that environment. And so those would be two additional considerations. I'll put it thanks for that.

that base are capital levels enough in that environment. And so those would be two additional considerations. All right, thanks for that. And then second question is with...

to SLC another year of strong sales.

You know, there has been some...

industry news regarding certain alternative managers.

closing funds for redemption, maybe some sales headwinds because of higher rates and concerns regarding valuation in the private asset classes. So I think it would be helpful just to give an update on what is currently being and expecting for SLC.

flows in 2023. Thanks, Paul. Steve, Petrie, I'll comment on that. You know, just quickly looking back at 2022, obviously a volatile market environment, but we felt really good about the capital that we were able to raise in the past year. I think total capital raise was...

was $18 billion for the year. AUM, depending on whether you look at fee earning AUM or total AUM was double digits. Net flows were over 20 billion for the year. So when I look back at 2022, despite a challenging environment for institutional investors,

It was a good capital raising environment for us. We certainly see some pressures in the institutional market looking forward because if you're making decisions at a large pension fund, insurance company, the volatility of the markets makes decision making harder. The other thing is that we have something called the denominator effect and so as public markets have traded off.

more dramatically than private markets, the weighting in a portfolio of private markets increases. So when a cheap investment officer is thinking about allocating their next dollar and they see their alternative weightings are higher, they may be a little bit less prone to allocate there.

And so that created some headwinds in the fourth quarter. You saw that our fundraising was positive in the fourth quarter, but lower than it had been earlier in the year. I think that pressure is going to continue a bit, continuing in the first half of this year. Having said that, it's against the backdrop, both institutionally and now on the retail front of a trend toward alternative asset class.

So you'll have some fluctuation in trends as the economy moves, it's interest rate moves, but the basic trend is toward higher allocations.

And we don't see that stopping and we think it's a multi-ertrent.

Thank you.

Thank you. Our next question comes from Nigel D'Souza with Veritas. Your line is open.

Thank you. Good morning. I wanted to go back to SLC management and when I look at the revenue line item. That's all material quarter over quarter. Looks like that's related to crescent carry interest.

There's a corresponding increase in defense. What was anything that particularly drove a bit more lumpiness this quarter for that item? Because there's a bigger that road just between toll revenue and.

related revenue and how we should think about that going forward.

Thanks for the question, Nigel. The way I would, I really think given our disclosures now, which I think we improved last year and expanded, really if you want to look at the core trends in the business, I think you should look at management fees. You can, I know in the supplement, it's the revenues are on page 87, thinking the supplement.

And management, if you just like management fee revenue for the quarter, it was 234 million up from 204 million last year. And for the full year it was 862 million up from 755 or about a 14 percent increase. And those are core management fees for managing assets that are management and those revenues are up because AUM is up.

If you look at, and then the core earnings measure that we look at it and also you look at across the industry is fee related earnings.

and fee-related earnings for the quarter were 73 million. That was up 22% from the fourth quarter of last year. And for the full year, fee-related earnings were up 20%.

So that's really I think the way to look at the core business. In terms of performance fees, we don't have a lot of performance fees yet coming through. Those actually I think are recorded below underlying income and reported net income. Over the coming years, you will start to see I think more performance fees impact results. Okay, that's helpful. I think it's worth to.

we recognize over the duration of that underlying asset and would you size the expected decrease in the run rate of investment activity would it be 20 30 40% lower on diapress 17?

So Nigel, let's manage it. So yes, so under IFRS 4, when we trade up in our investment portfolio, that access spread, as you know, is present value into our earnings. Under IFRS 4, you get the same access spread, so economically and from an earnings standpoint, over time, the benefits will be the same. But that spread now, instead of being present value into earnings.

previously, that you expect underlying net income on diifer 17 in 2023 to be higher than underlying income on diifer's for in 2022. Is that still the guidance that I'll look to expect of for this year?

Well, I think what you have to do, Nigel, is that we just updated our impact from going from IFS 4 to IFS 17 to be high single digits. And then if you want to take a look at what happens in 2023, then you have to factor in the current operating environment that we're in and take a count of how that would impact of all of our businesses. And I will say, as we said in May, that two-thirds of our businesses are not impacted.

Why, for our 17th of business like MSS, SLC, our group business is, you could kind of just look at what you would normally expect to come out of those businesses in this kind of environment. Okay, I'll leave there. Thank you. Thank you. We have no further questions at this time. I'll return things over to Mr. Strain for close-room marks.

Well, thank you operator and thank you everyone for the great questions. Before we close today's call, I would like to take a moment to thank our employees for their dedication, resilience and persistence over the course of the year. The strength of our people and culture combined with our focus on execution has been instrumental in achieving great progress on our strategy in 2022.

A big thank you from me and the executive team to all of our people. Thanks, operator. Thank you, Kevin. This concludes today's call. A replay of the call will be available on the investor relations section of our website. Thank you and have a good day.

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