Q2 2023 Great-West Lifeco Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Great West Life Co second quarter 2023 results conference call.
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I would now like to turn the conference over to Mr. Paul Mann, President and CEO of Great West Lifeco. Please go ahead.
Thank you Julien good morning, everyone and welcome to Great West Lifeco second quarter 2023 Conference call. Joining me on today's call is Garry Nicholas Executive Vice President and Chief Financial Officer, together will deliver today's formal presentation also joining us on the call and available to answer your questions are David Harney President.
C O O Europe partial Jamal President and group head strategy investments reinsurance and corporate development.
Jeff Mcgowan, President and COO, Canada, Ed Murphy, President and CEO of empower and Bob Reynolds, President and CEO of Putnam investments before we start I'll draw your attention to our cautionary notes regarding forward looking information and non-GAAP financial measures and ratios on slide two these cautionary note supply to the information we will.
Scuffs during this call.
Please turn to slide four.
The company delivered strong results in the second quarter of 2023 with base earnings per share of 99 cents up two 2% from last year and up 11% from the prior quarter.
This performance reflects disciplined execution of our strategy, which is driving momentum across our businesses.
In each of our operating companies, we continue to make organic investments and take strategic actions that will help us deliver on our value creation objectives.
During the quarter, we initiated several transactions to advance our workplace and wealth growth strategies we.
We announced the sale of Putnam investments to Franklin resources, unlocking shareholder value and reinforcing our focus on the highly attractive U S retirement and personal wealth markets through empower.
In the U K, we announced the sale of our individual protection business, where we did not see a clear path to sustainable scale and leadership and that Irish life, We announced our new joint venture with AIB, Ireland's leading bank diversifying our wealth and insurance distribution reach in Ireland.
In addition to these actions we continue to successfully integrate acquisitions at empower including a faster realization of synergies from Prudential than originally forecast.
Net earnings per share were 53 cents in the quarter, which included losses of <unk> 30 per share related to two categories.
Of course that will position <unk> for continued growth and stability.
First were 17 cents per share of transaction costs related to recent strategic transactions, including the announced sales of Putnam investments and the U K individual protection business.
Second was a 13 cents per share impact of realized OCI losses.
From a surplus asset rebalancing in the UK.
This action shortens the asset duration to capitalize on higher short term rates improves our like that ratio and reduces future like that sensitivity <unk>.
Excluding these items net EPS would've been <unk> 83 per share, reflecting more typical non base earnings items, such as market impacts and ongoing integration costs and finally, our like that ratio remains strong at 126%.
Please turn to slide five.
In Canada, we delivered strong results in our workplace solutions business in group life and health, we've grown premiums by $1 billion over the last year and this does not include the federal health plan, which will be reported in the third quarter.
On July one we went live providing benefits under this plan known as the public service health care plan.
While we were a success, while we successfully enrolled over 85% of plan members before the states we experienced some transition issues with paper based enrollments for retirees, we worked with the government to address these challenges and are seeing the situation improve.
Overall, the implementation has been success with hundreds of thousands of claims already paid.
We were also recently awarded a public service dental care plan, representing approximately $550 million of annual paid claims.
This is a great win as we will be serving the same plan member base for benefits and dental, allowing for service enhancements and better plant economics.
Our individual wealth business experienced somewhat weaker flows.
Not inconsistent with the overall market, we are taking action to reposition our Canadian wealth business for stronger growth and performance.
More specifically the investment planning council and value partners acquisitions will enhance our offerings and position us as one of the largest nonbank wealth firms in Canada.
Both acquisitions remain on track for regulatory approval by the end of this year.
And finally, we saw a C S M and Canada declined year over year, largely due to actuarial basis changes reported last year.
Given our focus in Canada on workplace and wealth, including participating insurance solutions, we approach Nonparticipating insurance with a focus on customer value and pricing discipline and we do not emphasize non par CSM is a growth metric.
Generation from our in force business is an important consideration and we're looking to further develop measures for this in coming quarters.
Please turn to slide six.
Our UK and European businesses continued to demonstrate resiliency, despite the high impacts of inflation.
Our workplace businesses experienced strong sales and organic growth driving a 12% increase in group life and health book premium.
We also achieved steady growth across our retirements and wealth businesses, both of which experienced positive net flows in the quarter.
This is in part driven by the successful execution of our wealth strategy and Ireland under the <unk> brand.
And as I mentioned earlier, we officially launched our new joint venture with air B to diversify our wealth and insurance distribution capabilities in Ireland.
With insurance and risk solutions, we continue to see increased demand for individual payout annuities in the U K given higher interest rates and this is supporting our growing CSM in Europe .
We also saw an active pipeline of bulk annuity opportunities, although we did not see significant sales in the quarter.
Please turn to slide seven.
And empower we saw another quarter of strong growth as we continue to execute on our strategies and workplace retirement and personal wealth.
This includes the continued delivery of acquisition benefits through disciplined execution of integration programs.
And workplace solutions, we achieved strong organic growth with D. C plan participants up 4% year over year in D C assets under administration up 13%.
Empower personal wealth continued to see strong momentum.
<unk> was up 30% over the period.
Over the prior year with two thirds of that growth coming from new sales.
Rollover rates for empowers D. C business are increasing with improved sales effectiveness supported by enhanced hybrid digital advice.
Finally, I would note that with the announced sale of Putnam investments to Franklin resources. The results of Putnam have been classified as discontinued operations.
Please turn to slide eight.
Our capital and risk solutions business or Crs continued to play an important role in diversifying our portfolio and supporting our continued growth.
<unk> strong new business and margin growth this quarter, which is appearing in our shorter duration and fee based businesses.
Growth was largely in structured businesses with several transactions in core markets as well as expansion into new markets, including Italy.
Note. This business is accounted for on a PAA basis, which does not involve CSM.
Sales in other areas, such as longevity and asset intensive reinsurance, we're relatively softer this quarter, reflecting the nature of this business, which is largely bespoke transactions that don't have regular frequency.
The absence of these larger long term transactions. This quarter resulted in a small decline in our CSM balance from the prior quarter. Although the balance was up from last year, given longevity related actuarial basis changes in 2022.
With that I'll now turn the call over to Gary to review the financial results Gary. Thank you Paul Please turn to slide 10.
Q2 marks just our second quarter under Ias 17. The teams have successfully continued our RFS 17 implementation journey with most processes being transitioned to a business as usual state.
We appreciate there's a lot of change and adjustment to adapt to the new regime.
Over time, though we believe stakeholders will have greater visibility into the strengths underlying economics and diversification of life gross portfolio.
As part of that journey, we've introduced several enhancements to our disclosures this quarter based on internal reviews and external feedback. These changes were made to provide a clearer articulation of our business performance and to better align with the emerging emerging industry practices.
The drivers of earnings or D. O display has been enhanced in a couple of areas.
First on short term insurance business, we have separated the expected earnings versus experience gains and losses. So that users can better understand the expected earnings growth versus period to period fluctuations and experience for those insurance businesses.
You'll see in year over year results, even in a diversified business such as ours, there can be noticeable swings and experience period to period.
Another change that.
It was combining the reporting of our fee and spread business with the associated expenses. This provides for a clearer articulation of the performance of this business, particularly for our empower business, which is the dominant driver of this line item within the D O.
It also brings our presentation more in line with industry peers.
The contractual service margin or CSM roll forwards have been improved to provide more granularity and differentiate what we call organic CSM movements, which are conceptually the C. S M equivalent of base earnings from other movements, such as actuarial assumption changes.
So organic movements would include regular items like new business, CSM interest accretion and amortization and the insurance experience such as longevity that does not go through the P&L.
And lastly, we restated the results for Putnam and they are included in discontinued operations, reflecting the announced sale of Putnam.
The other important context for this quarter's results is in the excluded items the difference between base and net earnings base earnings were strong this quarter and did not include many notable or unusual items either up or down.
Net earnings on the other hand included a couple of notable items and I would look at as I look at it I look at these excluded items and a couple of different categories. One category is items that you would expect to see most quarters, such as the impact of market movements ongoing integration costs and the amortization of <unk>.
Acquisition intangible.
The other categories of items that you wouldn't regularly see as Paul noted earlier due to such items within the quarter. The first this transaction costs related to divestiture actions, including the sale of Putnam the sale of the UK protection business and a provision for indemnities on the sale of U S individual markets business.
To protective of a number of years ago.
The second was the realization of other comprehensive income losses that through net earnings as we shorten the duration of our UK surplus portfolio. This has no impact to book value as the OCI impacts are already recognized on the balance sheet and it should lead to a modest pick up a future.
Earnings as we capitalize on higher shorter duration rates, given the inverted yield curve.
The shorter duration reduces our leichhardt requirements, improving the ratio and reduces like cat ratio sensitivity to interest rates going forward.
This action.
Did change the geography of our losses moving them from other comprehensive income into the reported net earnings.
Within the market movement component for non fixed income it's important to remember this is not an absolute gain or loss experience. It is an amount relative to long term expectations that are included in base earnings.
So within this quarter, we experienced approximately breakeven U K real estate returns and positive returns in our Canadian public equity and real estate portfolio, but the returns were lower than expected.
They're all largely offsetting interest rate impacts as negative impacts in Canada from the further yield curve inversion were offset by gains from higher overall rates within the U K.
As noted at our Q1 earnings call. We expected some increased net earnings volatility due to de linking of asset and liabilities under Ias 17, and combined with our asset liability management accounting policy choices, although these impacts should oscillate around zero overtime.
Overall, we continue to maintain excellent financial strength and a stable balance sheet. Despite the macroeconomic volatility that has been experienced.
Turning to slide 11.
Base EPS of <unk> 99, tenths was up 2% from Q2 2022, notwithstanding the strong comparative results in the prior year, which had been driven by favorable insurance experience gains.
And the drivers of earnings the change to a differentiate between expected versus experience on short term business allows this impact to be seen more clearly and the D. O highlights that in Q2, 2022 had very favorable experience gains of $91 million, which you'll see when we get to slide 13.
Quarter over quarter base earnings were up 11% driven by strong business growth and improved insurance experience recall Q1 saw a heavy mortality and a number of segments and this did not repeat this quarter.
The strong base earnings results were broad based with all four segments showing growth over the prior quarter, although the larger increases were in the U S and capital risk solutions segments.
Net EPS of <unk> 53 cents is down 40% from last year as the higher base earnings were more than offset by the year over year change in items excluded from base that I described earlier.
In Canada.
They're looking at Canada, specifically base earnings were 283 million down 17%, primarily due to favorable very favorable insurance experience in Q2, 2022, primarily lower health claims in group life, and health, which returned to more normal levels this quarter.
In the U S based earnings of $2 65 billion were up $101 million or 62%, primarily due to strong organic growth at empower.
This is the first quarter, where the impact of Prudential is included in the prior year comparison. So the improvement reflects how the combined business is performing.
While the D O display shows the total just the totals in net fee income and spread business. We've continued to show the breakdown of revenue sources and expenses for empower defined contribution and empower personal wealth business in the supplemental information package on the revenue side, we saw growth in asset based fee income.
I'm from higher markets growth and spread income from higher interest rates and increases in other participant in transaction based fee income from growth in volume.
Empower base earnings also benefited from continued expense synergies, where we have fully realized expense synergies on the mass mutual business and delivered additional prudential synergies this quarter.
We remain on track to deliver the targeted $180 million of annualized synergies on the Prudential business on a run rate basis by the end of Q1 2024.
In Europe base earnings were down 14% from last year and similar to Canada. This is primarily due to the non recurrence of strong morbidity and health gains in Q2, 2022, which you can again see in the updated disclosures.
The capital and risk solutions segment, which is primarily the reinsurance business unit recorded higher base earnings as well.
<unk> business growth, particularly in the structured reinsurance portfolio can be seen in the growth of expected earnings are shorter term insurance contracts. This was partly offset by higher mortality claims on U S. Traditional life business than in Q2 2022. However, the mortality experience has improved from Q1.
Turning to slide 12.
This table shows the reconciliation for base to net earnings most of which have already covered.
Net earnings of 498 million or <unk> 53, a share were down 46 cents a share from base. The main difference from base earnings is 30 <unk> from the combination of those acquisition and divestiture costs given all the activity in Q2 and the realization of OCI losses described earlier.
He was also the negative market cut.
Relative to expectation that over time as say, we would expect to.
To average out around zero.
The remaining items are predominantly related to integration costs, which will continue for a few more quarters and the amortization of acquisition related finite life intangibles, which will continue over a longer period.
Turning to slide 13.
Rivers' of earnings and as noted earlier, our enhancements to the deal we view of earnings aligns us with our peers and provides a clear description of our results.
This is useful as we look at the insurance service result.
And the top row of the table expected insurance earnings of 739 million were up six 5% year over year from a combination of business growth, particularly in the shorter term insurance contracts or P. A a contract or they are accounted for and some currency tailwind.
Whereas the overall result of 711 million was down 9% year over year. The dominant drivers noted earlier was a very favorable insurance gain of $91 million in Q2 2022 against some modest experience loss this period.
The net investment result of 279 million was up 441% year over year. This is mainly due to higher earnings on surplus driven largely by increases in interest rates.
Net fee and spread income relate.
Related to our non insurance business. This was up 56% year over year I'm. Most of this result was driven by the growth at empower as.
As noted earlier on the call we benefited from improvements across all revenue streams from this business. While also recording lower expenses, mainly due to the realization of acquisition related synergies.
The effective tax rate this quarter was just under 16% on base shareholder earnings and that reflected the jurisdictional mix of earnings, including a growing U S contribution in the absence of notable onetime items that we've often seen in the past.
Overall, it was a very strong quarter with solid base earnings across the segments.
Turning to slide 14.
The book value like Cat ratio return on equity and financial leverage numbers on this page are shown and I for a 17 basis unless stated otherwise.
Q2, 2023 book value per share of $23 and <unk> was up 5% year over year, driven by growth and retained earnings over the past four quarters, plus currency translation gains and other comprehensive income.
In quarter. In addition to the impact of the divestiture costs on the AR on the net earnings.
There was a give back of just over 1% from currency translation, which accounts for the modest book value decrease.
So like cat ratio of 126% was comparable to prior year and prior quarter results. The one point decrease from Q1 2023 was partly driven by interest rate movements, but also by increased capital requirements from the strong new business activity in reinsurance, which has led to growth in our expected on rate.
<unk> run rate earnings.
This is a higher <unk> business that tends to return capital quickly.
The base return on equity figure shown on this slide are all night for a 17 basis and so the results for Q4 2022 is shown rather in Q2 2022. Since Q4 is the earliest date that we can show this metric on an Ias 17 basis with four quarters of results.
Base ROE has been stable at around 16% over this period.
Leverage our financial leverage decreased by 2% down to 31% and that's due to the 500 million Euro repayment in April which had been previously refinanced and 150 million U S. Dollar a repayment on the short term debt that was used as part of the Prudential deal financing.
These debt repayments are also what led to the reduction in LIFO cash from one 3 billion last quarter 2.5 billion at the end of the quarter and with that I'll turn the call back to Paul.
Gary will now open the line to questions from analysts.
Thank you.
We'll now begin the analyst question and answer session to join the question queue you May press.
Press Star then one on your telephone keypad, you'll hear at Telemark knowledge and your request if youre using a speakerphone. Please pick up your handset before pressing any teams to withdraw your question. Please press star.
Alright, thank you.
Our first question is from Gary Shane with National Bank Financial. Please go ahead hi.
Good morning commute.
And the experience loss in the CRA portfolio.
Can you quantify that and how much of it was related to the UK.
Ah Thanks, Gabe I'll turn that one to Garry.
Sure.
So first thing I'd point out was that this this was an amount relative to expectations. Yes. So in the UK, we actually had about broken EBIT on the real estate I think it was.
Couple of million.
Total a total impact.
Whereas in Canada, we actually made somebody on their own the real estate portfolio just wasn't as much is built into the base earnings.
So if I then look at okay.
Non fixed income overall relative to expectations I think it was a I think the market move insured lives have done most of this was the non fixed income about $75 million of that and that would be about a.
Two thirds, so just over $50 million would be in the U K real estate, so short of expectations and the other third about was in Canada combination of real estate and public equities.
Okay.
$5 million in F I experienced bath or.
50 of that was in the U K CRE portfolio in the restaurant.
Probably about half and half between real estate and in equity Securities.
The Canadian group business back to pre Covid health claim levels is that that's not a long term disability issue that Jeff.
They don't run of the mill, what kind of benefit utilization I guess I'm wondering did you actually report an experience loss because the claims level or is it just a matter of not as favorable as it was last year, yes.
Thank you talked heard a perfectly good not as we had very favorable results last year, and we sort of view that as a bit of a trail coming out of Covid and now we're kind of back all expected.
And you can bet I think Paul Neil that Gabe, It's we're very pleased with our disability results in quarter and certainly over the last many quarters and as we outlined that the normalization of the health and dental was.
Was that when that was really the big change between year over year.
And it's not a situation where you got it.
We're anticipating having to go through a big round of repricing or anything like that.
Not at all.
We're very it's one year renewable though we have a number of actions always in place. So not at all we're very pleased on our position on where we're at.
Okay and my last question here on the U S very strong quarter, if I look at the one line item though.
Spread and fee income.
You know it was up about 70% year over year can you break that down in terms of.
Just to get a better idea what.
<unk> line.
Are we talking about the <unk>.
Net income primarily and then.
You know some of those sensitivities there to get a better sense of how interest rates.
Benefits that particular business and I guess.
And in the same vein or similar vein I guess the sustainability of that.
How much of the spread I guess, vicki and tied to longer term product lines or is it.
It just inflow temporary in Florida.
Coming out of bank deposits that are into money market funds or something like that.
If there is any competitive dynamics that could watered down.
The tailwind.
Yes.
Thanks, Dave I'll start off at a high level and say that the live youre, referring to is all of empowers fee income. So that takes into account market related fee income interest related fee income and also transactional related fee income.
The one thing I did notice that empower is a very diversified fee income base.
And what you will have seen if you go to the supplemental information as it is kind of diversified in all across all of those categories, where we've seen all of that growth I think you know as we've outlined.
Not only have we seen the benefit of scaling through acquisitions, we're getting kind of the step up growth, but we're also seeing strong organic growth, we referenced the 4% Roseland participants 13% growth.
In.
And all of that volume is driving.
Growth on the revenue side and then the other thing we noted was actually really good expense discipline in importance. So we saw.
Lower.
Expenses due to synergy capture but also just really good expense management. So you are looking at a relative widening of the margin there as we have growth in revenues and good discipline on expenses, Gary do you want to provide a bit more color. Yeah. I think that's the most important was right at the start is that.
Net fee and spread income is the combined result, so it's all of the revenue sources in that net of the associated expenses. So that's one of the changes you've made to bring our reporting in line with the peer. So it's it's not just spread it's a it's really the empower results.
Good reference said it it's in our supplemental deck pages 22, and 23 for the empower defined contribution for personal wealth. So we do show there. They the revenue sources. The first one is called net investment result, that's it that's the spread income and then you've got your asset based fee income and then the other fees and as Paul mentioned, it's well diversified.
And then we show the operating expenses and so there you could see I was just looking at the empower.
Defined contribution.
The revenues were up in all three were up a bit it was fairly balanced they all increased.
Asset based spread based and fees and other fees and the expenses were actually down because of the synergies. So it is it has outperformed so that's why I point for the and we've tried to get this disclosure. So you can see that quite clearly all those pages. So that's why I point you gave.
The other point you made you said is how sustainable is this so the reality is.
This is reflective of the relative strength in equity markets. So it's driven by that.
Given by the current spread.
Favorable with this interest rate environment, and it's also driven though by.
Really strong execution in the business so.
Assuming the markets continue to debate behaved in the manner, it's quite sustainable, but as we know when businesses are sensitive to equity markets or the <unk>.
Fred environment, you can see some either some compression or expansion going forward that is there anything else you would add on that.
I guess the point, you're making there's a lot of drivers here and the net fee income is broken are broken out.
Not 70% and expenses are down but not.
Not not.
It seems to be more of a rate driven.
Revenue.
Hum.
Strength revenue I'm.
I'm wondering if you can help me understand.
I can make a comment I can make a comment Baltimore.
Thanks, Ed.
Yes.
From from Q1 to Q2 interest rates were higher and we don't expect that again.
So as we see.
Raising credits in Q3.
We're likely to see volumes.
Got to down.
So.
The spread income will probably moderate.
So that's what I would say you know you saw you saw interest rates were higher moving from Q1 to Q2, and we just don't expect that again.
And then the crediting rates will move higher so it will be a bit of a catch up with that.
Yes, yes, okay.
Alright.
Yeah.
Steve.
I'd encourage you to go to the supplemental because what you'll see is the diversification there.
Of the fee income. So you got your market related fee income you do up spread related fee income and as you know, we're always will be managing that over time as interest rates adjust and will adjust crediting rates, we're not going to see a dramatic drop in that.
And then when you look at the other non market related fee income.
Diversified book, So that's what's been part of our strategy, we don't Wanna be relying purely on markets. We don't want to be relying purely on interest rates. We wanted a good diversified revenue base and that's really one of the things we've seen this quarter good strong results in all categories.
Yeah.
Yes, but the spread park said I do want to make sure. We've got if you look at those paid youll see that the for the D. C business. The revenue was up about $50 million year over year and does that 10 of it what's the spread based so it was really well balanced across the three the three revenue sources.
It's an important thing Gabe look unpopular 50, you'll see the 10 of it was that spread income. So we're not talking about a dramatic.
Being a dramatic driver of growth I'd say the primary driver you're seeing here is really strong growth in the business.
Okay, Okay, great alright.
The next question is from many Grumman with Scotia Bank. Please go ahead.
Hi, Good morning, just to start off following up on games.
<unk> line of questioning just focusing on empower personal wealth in particular, its not the biggest contributor.
<unk> segment, but I think one that we're all very focused on and obviously a very good growth there looking like its coming from revenue and expenses.
Same kind of question, but just more focused on empower just trying to understand.
The strength is.
It's coming from in that particular business.
How sustainable it is given your view of the market conditions here.
Is there some sort of inflection here that that we should focus on so just curious your thoughts on that business in particular.
So maybe it's a very good question and I'm going to turn it dead, but let me just start out and say we're in the early innings of a long game that we're playing here on the refill side. So I wouldn't refer to this as you know.
Short term when the bottom line is we're very much focused on.
17 million, plus participants and continuing to broaden our revenue base and our what I'd call our advice space and servicing them and this is early days, we've just recently launched more and more advanced power grid.
Personal wealth advice to the participant population and we're seeing early signs of success and traction as we're capturing more of those relationships, but I'll, let ed provide a little bit of a.
Little bit of insight to that because this is actually not about a big shift in markets. This is about an organic growth engine that we're very much focused on building.
In the U S. So as you want to provide some context on that.
Sure. Thanks, Paul Yeah I.
I would just build off of Paul's comments.
You know, it's still very early days for us in terms of building out all of our capabilities, but I'm very pleased with the progress we're saying I mean, if you look on the sales side.
7% higher than prior year were up 5%.
Sequentially Q1 to Q2, and we continue to see a very very strong pipeline I would also say that client and asset retention our wealth business is exceeding.
Exceeding our plan as well so if you look at the quarter, you know really strong favorability.
On.
The general account margin piece of the business. We also saw good flows into our empower cash product.
That exceeded our expectations and just overall volume growth is really strong. So we saw really strong net fee performance.
Across the board so.
Thank you.
Yeah.
Prospects in Q3, Q4 and beyond are very very strong.
Thanks for that and then.
More beyond that going on here.
Yeah.
Thanks, Tony I was referring to those deals. The reality is we've announced those deals. We are in early early days relative to working towards regulatory approvals.
But we're very bullish on the business from the standpoint of the skill and capabilities, where hub with Geoff maybe you want to comment a little bit of success of the you know.
The early work, we're doing to think about those businesses, yes, perhaps to come back to a few principles on why we took this on wheat, we first of all really thought that it could protect and grow our established relationships, which are very large.
But more importantly, we believe it can we can create a top destination for advisors to aspire to particularly in the independent channel and the feedback as Paul touched on a wee bit thus far for both IPC and value partners from advisers in the marketplace has been very very strong.
Im very much looking forward to the growth and the opportunities and creating the place to be for independent wealth advisers. So very bullish on the growth opportunities. Many in this space for us.
Just to underline that Jeff.
It's about as we've got a we've got a large installed base of assets and we believe we will protect them more strongly stronger.
And then we will do two things for us it will protect the existing revenues and will allow us to access more advisors and got <unk>.
More of them on the platform so.
As we roll into 2024, we're really excited about.
The prospects, we have going forward.
Thank you very much.
Thanks Bonnie.
The next question is from Tom Mackinnon with BMO capital markets. Please go ahead.
Yeah, Thanks, very much good morning.
Start off question with respect to the light cat down quarter over quarter, and it's down four points since the start of the year. If you look at on a pro forma basis.
Gary you mentioned increase in capital requirements and C. R. S. You've had two good quarters of growth in the structured portfolio on Crs is this having any kind of drag at all on the like cat.
Our ratio.
What's driving this decrease since yesterday.
Yeah.
Yes, it does actually have haven't impacted the good news as I mentioned earlier, it's a <unk>.
<unk>.
This structure does is.
Certainly part of that and so it does return the capital quite quickly, but that is a that was certainly a big part of the one the one point.
Pull back this quarter.
It would've also featured a bit in Q1 as well I don't think we called it out specifically, but it would have featured in in Q1 as well because we've had good success in Q1 and Q2, a new business.
But as I say is as we look at our our planning forward it returns of capital quite quickly and.
We have noted that we will provide more information on the capital generation is.
As part of our disclosures going forward so.
We will be able to see that a little more clearly as well.
Okay. Thank so some strain there.
Why did the Holdco cash declined from 1.3 to half a million sorry, I missed that.
Yeah that was the the two debt repayments I called out the 500 million Euro repayment April we'd already refinance so the cash was sitting there in Q1, and so when we refined and when we actually.
Paid that off in April that's a 500 million euros and then we also further paid down the some of the short term funding for the Prudential transaction that was 150 million U S. So that basically moves you probably a little more than 800 million, but that's the that's the big moves in cash.
Okay and.
Yes surplus duration shortening.
Says that it decreases the sensitivity and the light cat year N DNA doesn't show any change in the sensitivities of light cat quarter over quarter am I missing something there or is that a.
Or is there any what is the impact on the light cat as a result of that because I can't see it in the sensitivity decrease.
Yes, Gary Yeah sure.
I think that's because of the sensitivities around it I think in the in the sensitivity to a less than one point and it's still less than one point.
So it would have it was probably.
It may be a further somewhere in the order of a 10% reduction in our sensitivities.
What I mean by it used to be called.
David, it's probably 7% or something like that.
I'm I'm using as an example, I don't have the exact number in front of me, but it's on the sensitivities because obviously the move each quarter, but it's just not noticeable ended in the disclosures, but it is an improvement.
And it was probably close to half a point on the ratio.
We would've picked up its a one time.
And what's the pick up and you mentioned is there a pick up in earnings as a result of this.
Yes, there is.
So to.
To say, it's because of the inverted yield curve.
Trading for the higher rates.
It's it's not a huge number but it's probably in that $20 million a year range on an annualized basis. After the after tax so that these five 6 million of court or something of that range.
Great and then lastly, you mentioned favorable trading activity in Europe , and I know that you guys can still do some yield enhancements.
Is there were there any yield enhancements are in the quarter and how much were they.
Yeah. That's a that is what it is it is just the way the using a top down on assets you end up with something that looks like the old yield enhancements and it was around 50 million for.
During the quarter.
Okay.
Okay. Thanks very much.
Thanks, Tom.
The next question is from Doug Young with Desjardin capital markets. Please go ahead.
Hi, Good morning, just wanted to pick up on the realized loss in OCI.
From base, because a few of your peers actually in Cluj realized losses.
On OCI in their core or underlying or what not so.
Can you kind of describe why you decided to exclude this and I guess that it's kind of not something that youre going to do all the time, but you know you're excluding something from.
Is that you're going to.
Captured that pickup in yield through core and so just.
Curious the top process and was there any benefit from that in the quarter.
Gary.
So we wouldn't have had the trades, we're fairly late in the quarter. So you wouldn't have seen any earnings. It is as I noted earlier, while there is a pick up but that was probably about our main driver I mean, it does it doesn't work well a lot of it was around the all the capital that just shortening our duration surpluses lumber benefits, even just liquidity for for dividend ing out of them.
Foreign operators, so there's lots of benefits to the shorter duration and this would mirror the approach in.
In Canada, where we have a shorter duration in our the fixed income portion of our surplus as well for the same reasons.
Historically, we've had a little more hesitation because of solvency too, but with the upcoming changes. It was the timing was right to move in the U K as well.
And then in terms of the the choice on.
As we updated our definitions.
You're right, we wouldn't expect to see this very often I mean, there's there's often a couple of million here or there either positive or negative as you trade.
As you might trade some of the surplus assets, but because of the durations are quite short you wouldn't you don't see a lot of noise there.
And then for a one time.
Unusual items like this it does seem much more of a excluded rather than distorting. Your your base earnings. So I think it is appropriately.
Described.
Okay.
<unk>.
Second question, just the indemnity provision related to the U S individual life and annuity business that was sold in 2019 can you elaborate on what that was you know that tap and in the quarter can you quantify what the impact was in should we expect more adjustments for that block.
Yeah, I'll start off on that one Doug so the reality is.
This is a provision we've set up and the reality is we've reached the point where.
There is no further debate now it will just be for will have those things play out. So this is the provisioning we've set up relative to an expectation and I'll, let Gary provide some context around that scale, yeah, you're right I mean as with these indemnities and these transactions, there's usually a time baked reported these by AR at the end of the time limit.
The particular issues were really around product tax admin and compliance which is a very complex area covers decades of rules implant designs is very similar to exempt life insurance rules in Canada are testing that needs to be done regularly in the rules are on product designs are always changing overtime. So it's.
Not unusual to have these type of items.
Protective raised a number of issues with us and this was our estimated provision for the cost of the remedies.
Most of the balls just.
Rebalancing the death benefits relative to the values and policy. So a little extra death benefits you got to set up reserves for that so it's an estimate but as I say, where we've got the outstanding AR.
I think the estimate in there was 50, just around 50 million $53 million.
And.
Yeah. We think this should this should cover it I mean, obviously, it's an estimate but it does cover all of the outstanding items were aware of it and the time periods overlap. So there should be at and Doug These types of.
Potential charges, you can be on either side of those sometimes we've been on the on the receive.
The claim inside and put it in context $53 million the transaction I think we valued at the time is about a $1 6 billion. So we're talking 2% to 3% I didn't do the math, but call it three ish percent.
So it's a modest amount and it's kind of normal course of these types of transactions, especially especially where we're talking about.
Insurance type capital based businesses, where there's long term promises and guarantees.
So just to kind of a pet friendly. So this is basically the experienced went negative.
For your partner and therefore, they have the ability to come back in and get a true up essentially on that experience.
It's.
Not.
So it's not about experience whether it is about the.
Ill, let Gary provide yeah.
Yeah, it's not it's not the experience on the policies. This is just going back through all of the administration and tax compliance you have to do.
<unk> related tax through all the various rules.
And going through that there were just some areas, where we've got to make adjustments to the plans going forward.
And.
And then at <unk>.
Generally say that remedies generally additional death benefit and so you need to reserve for that and to the extent any have been paid out in the past it might be to just those with some interest. So that's all been factored in so the 3 million of the total amount.
It's all it's all business experience.
<unk> gotten rid of them.
The counterparty protective took over the reserve basis.
So they have a certain amount of capital they have gone through analysis and said we think the reserves are a little bit light and this is the amount that we're provisioning for two to three and this was a specific in depth product tax.
Okay.
Okay, and then just lastly in Canada, and I know that group insurance was still favorable it's just less favorable versus last year, but you did have insurance experienced losses in the P&L I think it was $11 million and then there was a hit to the CSM, which was I think negative 23 million can you just delve into what each of those was related to.
Yeah, I'll, let Gary cover both of those.
Jerry over to you yeah, so actually if you look at the.
The insurance.
Servicers out there show that extreme.
Can't loss.
That was actually primarily expenses that was just we had these are attributable expenses. So we had.
Hi.
Higher expenses than we have expected. This is a locked in our a lot in our service areas in Canada. So there's a lot of shoring up our service really getting our service back on track.
No doubt, there's extra training and bringing extra people on board through the the federal plan, although it's not specifically that but just in general the expenses. So that was the driver of the I think it was $11 million that we saw there and then your second question was on the CSM and that was primarily policyholder behavior.
So it was a it was driving the CSM may be a small amount of some.
Some expenses there, but I think the majority of it was.
So.
Yeah, the majority of it would've been policyholder behavior, a little bit on the expenses there.
And it seemed that slaps then.
Yeah, that's that flaps and whether it's too many or too few and depends on the product but yet.
Okay, great. Thank you.
Thanks, Doug.
The next question is from Paul Holden with CIBC. Please go ahead.
Thank you. Good morning. So first question is related to your commercial real estate exposure and thanks for quantifying the impact on the quarter.
Based on your current expectations and underlying characteristics of that exposure would.
Would you expect similar charges in the near term.
Or do you believe the industry fundamentals are already improving to the extent that maybe there's less charges or shortfalls on returns.
In the near term just trying to get a sense from what your near term items like Israeli.
Yes, so Paul I'll start with Paul I'll start off with.
At the high level, there and say that.
The economic the economy is going to play out as it will play out over the coming quarters.
Don't have a crystal ball on that having said that when I think about our overall real estate exposure at this point, if I was to compare it to following the financial crisis we've.
We've done a lot to diversify and actually to reduce our overall.
Commercial real estate exposure since that period in time.
We've talked in the past vote.
Moving out of.
From street retail into distribution warehouses.
We've tried to diversify and.
Balance away from things like office and the like so we're well positioned in what you might call us a bit more sensitive market environment right now, but I'd say, we're very well positioned right now and I'll, let robin speak to some more specifically some of the auctions in a bit of an outlook from them.
Thank you Paul and thank you Paul for the question So I think the.
Paul here I think we've been actively repositioning the portfolio and the markets will do what the markets do I think David That's Gary noted this quarter real estate in the U K was roughly breakeven. So a lot of the impacts works out last year when rates spiked up so rates spiked up again, we will see but I think a few things help us out here and our starting point today. So one is as Paul mentioned, we have been.
<unk> away from office into multifamily into industrial so if you look at our Ltvs for example on the mortgages, which is in the deck I think it's on page 23, even after the declines were still at 55% LTV. So thats you know it helps to have the diversification there in the rotation away from office, which has been particularly hit.
And then when we do have office exposure it tends to be more urban higher quality buildings. So for example, if you look at our mortgage exposure in the U K nearly all of its on the office side nearly all of its in Central London and high quality buildings. So that's a very different experience than having a.
Secondary asset and the weaker location.
And then maybe the last thing just to put a bit more color on what Paul was saying on the risk reduction we have been selling down our exposure for example in Alberta office over the years, we're down to I think about $200 million.
We've been actively reducing our UK real estate I don't think we've actually purchased that U K real estate property at least five years and tactically selling so so we feel good about our current positioning.
And it'll be a function of what rates do in the subsequent moving properties, but we feel good about where we're starting.
Okay.
Hearing the property exposure is performing there's no issues in terms of impair. It. This was really just to move in and the cap rates that's impacted markets. How you. Some of those stabilize then you should get back to expected returns.
Yeah, assuming markets.
We remain calm.
That's what we'd expect but but having said that we like the way we've diversified away from some of the more sensitive areas.
If we do see stormy seas.
We don't have a broad exposure.
Got it okay.
Quick one in terms of the repositioning of U K fixed income portfolio.
Is any of that repositioning into floating rate debt instruments or have you sort of locked in that 20 million annual benefit.
Robin do you want to speak but yeah, it's primarily fixed.
It's very little floating rate so it'll rollover.
The bonds mature in then we'll reinvest that at prevailing rates.
Duration, yes.
The duration is just under one.
It's.
Next a year from now then.
The reinvestments, but.
It's a it's not this outflow.
Okay helpful. Thank you.
And then last question is kind of broadening out this discretionary have had on the sustainability of earnings on the questions. So far been really focused on the empower results since they were extremely strong, but maybe we're just holistically look at the.
The earnings are generated.
In Q2 is there anything you would identify there is sort of unusual that boosted the earnings in the quarter because when I look at the ROE you're kind of tracking towards plan and so I don't see anything in there I would say that you know Q2 was our normally strong versus what we should be expecting going forward, but.
I'll, let you let you ask your thoughts on that.
Paul I think you captured it when you said nothing unusual that's kind of the reality of the quarter and actually some of the areas where for example in Canada.
Experience gains a year ago as opposed to we move to more normal.
Go to the U K and.
An example in the UK would be we're seeing some some strong results on payout annuity sales, while it's a high higher interest rate environment. Those products have become more attractive. So is that unusual no that's sort of what happens in that sort of market environment. So there's really nowhere across the portfolio, where we've had kind of something unusual.
Been kind of a.
Having said that some quarters will have.
Mortality fall out of favor as we saw last quarter. This quarter, we saw a mortality sort of normal little bit off the mark on traditional life on the reinsurance side, but if you net all of the slight differences.
Or lower than expected, it's kind of everything hit expected. This quarter. So when you think about it you look at the results you say assuming continuing.
No.
Interest rates and market level, but it's not an unusual quarter relative to the.
Kind of the horsepower and the business is the way I'd characterize it.
Great. Thank you.
Yeah.
The next question is from much of this is that with Veritas investment research. Please go ahead.
Thank you good morning, I wanted to touch on.
Investment earnings.
Plus you had a healthy baby.
Rebound in investment earnings.
Pick up in earnings on surplus of just some color there on what the drivers were at this quarter end.
But I think also mentioned yield enhancement the $50 million this quarter wanted to confirm that that $50 million.
Captured expected investment.
Gary.
Yeah.
No.
A couple of questions buried in there so.
When you look at year over year, one comment I will make this you always have to remember that there is this currency move so there is some currency there.
But most of the move.
Especially the respiratory to a couple of areas. One is earnings on surplus Youll see that was the one that went up the most and that's really just much higher short term rates than we would've had in the past because while rates went up.
Around this time last year the portfolio was still turning over so now all eat all the even the shorter ones that are six months in a year of all rolled over so we're getting the higher rates on all that so youre seeing that number.
Really.
Really benefit the.
That.
I'll call yield enhancement like impact that we see is actually picked up in the expected investment items since that's an industry term expected and so it does include the actual yield enhancement.
And that's.
And it will move around a little bit, but that's a.
There's usually some in each of the quarters. So it's not particularly unusual but there that is in there. So that's a that was included so.
It's really those are those items.
The higher our higher interest rates the trading activity that was mentioned and then a little bit in the year over year in the currency.
Okay.
Some more clarity here on earnings and surplus I'm trying to get a sense of.
Yes, the cadence or the pickup going forward quarterly.
I want to reinvest.
Instead of pick up do you anticipate.
Okay.
While air Rolls over at a higher rate is it similar to what we saw quarter over quarter.
Q1 to Q2 core earnings on surplus and then a second question all up on yield enhancements I'm understanding it.
But that's our.
Oh effectively lower because they are recognized over the duration of the assets I just want to confirm that that is the case here in and it does that imply that the seal enhances us would've been even greater.
<unk> four.
Yeah.
Okay, Yeah, a couple of a couple of.
Question. So just on the the on the earnings on surplus certainly you know some.
Some of that pickup, which would just be the rolling over but a lot of those.
Cause we would have picked up there was a it's a short and prescient Curt and I recall at the short end and cat It was up quite.
Quite sharply in the in Q2 over even over Q1. So there was that further inverting if the yield curve.
There would be some of that that was in there and there could be also a little other small movements around seed capital later also in the earnings on surplus so there.
I wouldn't want to read it but.
But again a lot of our portfolio is that what he said at these higher rates. So it's I.
I think we're pretty much where rates ripenesses floating rate and then.
You'd also trying to think theres another yield investment.
Yes, maybe I'll just clarify the question I think Nigel you were asking whether yielding Hudson actually featured.
<unk> for us.
We would've had more of it in Iowa for us for them, we have an eye for 17.
It's because of the <unk> four it would have occurred in our in our European ended our Canadian portfolios, whereas given the accounting choices. We've made are using outlook illiquidity adjustment in cabin instead, because the portfolios are not as well match. It you do need an illiquidity adjustment you don't see the the way the mechanics work you don't see.
That type of impact from trading activity in the Canadian portfolio now.
We do still see it in the U K, it's just a byproduct of a top down loan assets approach in the UK without illiquidity premiums and so that's why you're seeing in at about 50.
$50 million not unusual I think last quarter was it was more in the mid 30, so it's a.
It moves around a bit, but yes, and while we will continue to trade into higher yielding assets in Canada, but it will just flow through it'll be recognized overtime get through the <unk>.
CSM and yet the risks the risk adjustment.
Okay got it that's really helpful, but there's up thank.
Thank you.
Thanks.
Yeah.
The next question is from Jim <unk>.
With credit Suisse. Please go ahead.
Hi, good morning, and thanks for taking my questions.
Wondering what youre seeing in the Crs.
Just in terms of pipeline I know the last quarter, you talked about some near term opportunities perhaps in the.
And then on larger transactions.
Maybe if you could give us an update on what youre seeing there or other areas in that business, where you see opportunities.
So yes for sure I can actually turn that one to actual Jamal who can speak to kind of the two categories of business and Crs in our our outlook on those partial so I think at the last quarterly call. We sort of indicated sort of an unexpected should have about sort of 5% growth in the overall portfolio across all of the lines, including <unk>.
Structured our longevity businesses and our asset intensive businesses with less growth in that traditional reinsurance life reinsurance in the U S. So that continues to be sort of art medium term expectation, but over the very short term over the last six months, we've seen some exceptional growth on the structured side not only in the U S. I didn't certainly in Europe .
And Asian markets. So that's really what's been driving sort of that near term outperformance over the last six months and we still see lots of opportunity both on the longevity side and on the asset intensive side, but we're being very very cautious in this environment very focused on price discipline and those transactions tend to be a little bit lumpy.
Pierre So the medium term expectation is unchanged there's been some short term favorable outperformance in the structured lines, but lots of opportunities, but we want to maintain pricing discipline, particularly in the longevity area and in the asset intensive area, that's sort of the outlook I think the other extra little bit of a tailwind that we've had.
<unk> is on the P&C catastrophe side and some of the other things sort of non life. This is a very very hard reinsurance market in that segment or whatever and our reinsurance company clients are looking for capital solution to support them as they.
And today, our offerings there and so again in the very very short term over the last quarter and in the next couple of quarters, we might see some add ons.
In the P&C lines, but not in catastrophe more in the structured side, helping some of our key reinsurance clients deal with the market opportunity in managing their capital in this kind of environment. So very well diversified Buck performed very very strongly in the last two quarters and very well positioned for the rest of the year and the medium term.
But it's a lot of it is.
Focused on disciplined so we use discipline in these whether it's the structured solutions, it's actually disciplined and expertise we've got a very expert group who's providing.
These capital and risk solutions on the structured side and then we've got strong discipline on the pricing and.
We look at the we look at the annuitant longevity side of the business and there will be opportunity there, but we just wanted to be very disciplined as we think about our profile.
Got it thank you and just a last one for me more more broad sort of outlook.
Question for Europe , and curious if you could give a sense on the.
The outlook for the operating environment. There, we are seeing a bit more sort of negative headlines on the overall sentiment from the region. So curious if you have any broad thoughts on how you how your businesses could perform in Europe , and a potentially slower environment. Thanks.
Very good question, it's one that I will turn to David Harney, but I'll I'll start out by saying we've said in the past.
The products and services, we provide in Europe , we're very need space. So when you think about it we're helping people.
Create retirement income solutions for themselves retirement incomes were focused on pension savings we're focused on benefits.
That's life or disability or <unk>.
Our health benefits and those tend to be things that are sort of needs based tend.
<unk> tend to be more stable markets not as you know not as sensitive to well see income, although we do have a growing wealth business for instance in the.
Yeah, and Irish life, but having said that we've seen real stability, notwithstanding the higher higher inflation environment and some of the instability. So while you'll see the headlines the headlines you know our headlines and then you see our relative performance and we're very sensitive obviously to some of the challenges that you see in Continental Europe .
You know, what's going on in Ukraine, but having said that our businesses are performing quite quite steadily and stably quite resilient.
David maybe you can make a couple of comments on outlook.
Herman.
Yes.
Okay.
Yes.
Okay.
Couldnt quite hear you there David.
One was.
Sorry can you hear me now.
Yes.
Yes.
Thank you.
You just see some information there.
Today's call.
The environment like we're pretty positive about our business in Europe .
You can see the insurance and annuities, there thats growing quarter on quarter, just from the CSI metrics.
The business is call it a call times.
Workplace solutions is largely that's C business in Ireland and the Irish economy is growing very strongly so that would be different.
European economy is at the moment.
And has something would be more employment in Ireland.
But we're seeing strong salary inflation, there, which is driving growth.
And sometimes some of the inflows there would it be more sentiment for the assets.
But even there we're seeing growth in that ballpark so apologize.
Pretty positive.
At the moment.
Thanks, Steve Thank you.
Okay.
The next question is from Darko <unk> with RBC capital markets. Please go ahead.
Yeah.
Alright. Thank you I have a number of technical questions. Gary If you have time later today, just a cat on some of the things that we're seeing in the supplemental that would be very useful and I would appreciate that a lot.
Yeah.
Yeah, that's a good way to have thanks Darko.
I have one question, though.
To get a sneak in here and thank you for taking the time.
One of the things that I'm, finding a little counterintuitive with your results.
Is the expected earnings.
And on investments.
And also the amount that you are excluding from.
Base and May take one as a proportion of the other.
Again, I realize we've only got six observations in <unk> 17.
What I'm noticing is Florence is more volatile than peers and it is a very counterintuitive result, because when I look at your investment portfolio I've seen less alternative assets and less stuff that should be moving around so significantly around what your expectation is.
So my early conclusion.
I realize you can't comment on what our <unk> are doing.
We will see Manulife later right.
My early conclusion is that your investment portfolio is swinging around more than peers.
And or maybe are a little active and that's causing a big swings. Maybe you can just conceptually talk to mcgarry about why we're seeing more volatility in your expected investment earnings versus or.
Or what what has it been all of this volatility in your expected investment earnings. Thank you.
Yeah.
Sure sure.
So I think I mean.
We can go through the numbers you look at and I think that's a good idea to book that that follow up call I would say when we're looking at you are looking at both the expected investment areas, but also be the items excluded from base that I I think your focus there on the market, what we call the market movements of the market impacts.
And I think setting aside the NFIB, which we've covered I think a lot of what you're seeing there is related to interest rates and.
It may or may not recall at Q1, so just conceptually and doesn't say I'm happy to follow up with more details there, but conceptually we flagged at Q1 part of our.
The combination of our policy choices that are laying on strategies was to take more P&L volatility related to interest rates.
And yet but have a more stable like cat result, and so this is what that is what's driving some of what youre seeing I think if you look over the six quarters, you'll see that you know sure. Some of it turned up I didn't perform as well as expected in some of those quarters, but a lot of it is the move in interest rates quite positive last year and you know better.
Wins this.
This year, but a lot of that is intentional to balance out the impacts of light cat. So we were really focused on the.
Interest rates are going to move around.
But if we have some and so some of it was one of the examples that we've quoted this we used amortized cost designation on our UK the commercial mortgage portfolio and so that that will give us interest rate sensitivity because the liabilities are good they're going to the liability is going to be fair values, whereas the amortize cost assets.
But that sensitivity was picked really to help us offset and drive down our sensitivity like has sensitivity to interest rates.
And do you the.
The example, I may have quoted this last quarter, but we would have run before doing all this we probably would have run with about a 5% five like half point sensitivity to 100 basis point parallel change and that's dropped down to a third of that or or a lot. So it's a it's a lot to a lot lower sensitivity.
So that's why in the 50 bps a sensitivity in our published statements youll see its less than a percent so that.
We've really focused on that and that's what's creating.
There is some P&L volatility goes with it but it was intentional so I don't think it's anything there's no great change in our philosophy at our investments or anything like that it's more the.
Getting the the.
Change. So we are we do look at the economics.
The overall economics of our business.
Just take the P&L volatility against like Cat volatility.
When the two measurement system between accounting and like that.
Okay.
Yeah, I can follow up.
It doesn't have a follow up would be really appreciate it. Thank you very much.
Thanks Darko.
TD Securities. Please go ahead.
I'll try to be quick the $180 million in U S and synergies on the proved transaction. It sounds like synergies are emerging faster than anticipated is there any.
Update you might offer could that could you exceed the $180 million or are you seeing opportunities to take that higher.
Mario I would say we saw a bit of we were expecting to see the balance of synergies captured in Q1 2024, and we saw.
An amount I don't recall, the exact amount Gerry and this quarter I want to say I was at $14 million about $14 million. This quarter. So it sort of bringing them forward to this quarter that's annualized.
$14 million annualized so.
Obviously, you pick up a bit a bit at a time each quarter, but.
At this stage, we're not projecting no performance.
Because the reality is there's a fair bit of backend there in the Bakken will be you know.
Cleaning up final systems, you know dealing with staffing levels et cetera, et cetera, and we don't want to sort of get ahead of ourselves. There. What we are though is we're very much on track focused on client retention is very strong.
Achieving the expense synergies on track and maybe a little bit ahead of our expectation right now and then thirdly I'm very much focused on revenue synergies, where we were talking about growth in the in the retail side of the business.
So all of those things on track.
And if we do outperform that'll be something we would share in Q1 as it actually occurs at this stage, we're not projecting that I'd characterize it is increasing our confidence that we'll get to at least 180 is how I got it.
Okay.
I was expecting a little attrition in terms of participant count we're not seeing anything of that nature is there a time period over which we might see the attrition play out or are you over the that period in its growth from here.
Oh, I think well it's.
It's never over until it's over but I'm going to turn that over to Ed to talk about his expectations of client retention and I think we're talking now about the pre book because the match book is frankly better than for the most part and so with all the boats.
Ed do you want to speak to that.
Sure.
The client migrations are backend loaded towards the end of the year.
So we expect to have all of the clients transition to our platform by the end of Q1 'twenty four.
So several of the key.
Migration waves are going to occur in the fourth quarter that being said just to build off of Paul's earlier comments. If you look at where we are in terms of.
Asset retention revenue retention the commitments that we've received from clients at this point.
Well, we're running well ahead of our internal targets and frankly, we're running ahead of where we were at the same time with massmutual. So we're very confident.
And our ability to execute.
But.
Maybe you can provide a bit of.
Context, though we would have some expected client losses that would come in the latter part or can you comment on that yeah, Yeah, we definitely will.
But it's going to occur later this year and into next year as we as we migrate clients over.
But what I was saying is if you look at where we've established in terms of commitments at this point and what we're expecting we're running ahead of our internal targets.
And I'll just add.
One thing is that Ah.
In the background, while while there will be some.
Migration related.
Retention.
Or are people.
People, leaving the flip side is we are growing organically underneath and so part of what you're seeing when we said to you called out participant and 4% year over year. That's after any of the of the transition some of the transition I'm asking I mean, we may see announcements quite some time ago. So some of that shock loss has already been occurring some waits till.
Later on but some is actually already occurred so you'll see there is tends to be a bit back ended because of the January one date, so you'll see some of that but I think our organic growth will actually keep our participant counts.
Relatively stable through this period, because we are still seeing good organic growth.
I agree with that statement in our pipeline right now exceeds two trillion dollars. So we feel really good about the path forward across all the market segments small market middle to large and mega market real strong demand.
Thanks, Ed.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to MS. Janet Chen for any closing remarks.
Thank you Julie I'd like to thank all of you who listened in and participated in today's Q&A to summarize we're pleased with our strong momentum and assuming stable market and rate conditions, we expect to deliver strong future results supported by organic growth and the benefits of integrations and transactions recently announced and we look forward to reconnecting for our third.
Call in November and wish everyone, a pleasant rest of the summer take care.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a question.
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