Q1 2024 Sun Life Financial Inc Earnings Call
Operator: Good morning and welcome to the Sun Life Financial Q1 2020 What's For conference call. My name is Gaylene, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad.
Good morning, and welcome to the Sun Life Financial Q1, 'twenty 'twenty, what for a conference call. My name is scaling and I will be conference operator today.
Scaling: All lines have been placed on mute to prevent any background noise and the conference is being recorded.
Scaling: After the presentation, there will be an opportunity to ask questions.
Speaker Change: She joined the question queue you May Press Star then one on your telephone keypad.
David Garg: The host of the call is David Garg, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Mr. Garg. Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the first quarter of 2024. Our earnings release and the slides for today's call are available in the investor relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question and answer portion of the call.
Speaker Change: The host of the call is David Clark Senior Vice President Capital Management and Investor Relations. Please go ahead Mr. Garg.
David Clark: Thank you and good morning, everyone.
David Clark: Welcome to Sun Life's earnings call for the first quarter of 2024, our earnings release and the slides for today's call are available on the Investor Relations section of our website at Sun life Dot Com will.
David Garg: Other members of management are also available to answer your questions this morning. 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. Thanks, David.
David Clark: We will begin today's call with opening remarks from Kevin strain, President and Chief Executive Officer, Paul and Kevan, Tim Deakin Executive Vice President and Chief Financial Officer will present, the financial results for the quarter.
David Clark: After the prepared remarks, we will move to the question and answer portion of the call.
David Clark: Other members of management are also available to answer your questions. This morning.
David Clark: Turning to slide two I draw your attention to the cautionary language regarding the use of forward looking statements and non <unk> financial measures, which form part of today's remarks.
David Clark: As noted in the slides forward looking statements may be rendered inaccurate by subsequent events.
David Clark: And with that I'll, now turn things over to Kevin.
Kevin David Strain: And good morning to everybody on the call. Turning to slide four, we continue to deliver on our client impact strategy during the first quarter as we build a leading asset management and insurance company. Underlying earnings results were mixed. Strong results in Asia and steady results in Canada and at MFS were offset by weaker performance in the U.S. and at SLC. In Asia, individual protection underlying earnings grew 30%. Results were driven by strong sales in Hong Kong and international and a strong overall result in India.
Kevin David Strain: Thanks, David and good morning to everybody on the call turning to slide four we continued to deliver on our client impact strategy. During the first quarter as we build a leading asset management and insurance company.
Kevin David Strain: Underlying earning results were mixed strong results in Asia and steady results in Canada and at MFS were offset by weaker performance in the U S and you'll see.
Kevin David Strain: In Asia individual protection underlying earnings grew 30%. The results were driven by strong sales in Hong Kong and international and a strong overall result in India.
Kevin David Strain: In the U.S., we underperformed this quarter as morbidity gains moderated towards pre-COVID levels in our health and risk solutions business, driven by rising U.S. health care utilization rates. Our U.S. dental business continues to experience negative impacts from the end of the public health emergency driven by Medicaid member disenrollment and higher claims ratios on the remaining members. We are working with states to reprice our Medicaid business, with 25% repriced during the quarter at levels consistent with our profitability goals, and most of the remaining 75% to be repriced by the end of this year.
Kevin David Strain: In the U S. We underperformed this quarter as morbidity gains moderated towards pre COVID-19 levels in our health and risk solutions business, driven by rising U S health care utilization rates, our U S. Dental business continued to experience negative impacts from the end of the public health emergency driven by Medicaid member just enrollment and higher claims rates.
Kevin David Strain: <unk> on the remaining members, we're working with states to reprice, our Medicaid business with 25 per cent repriced during the quarter at levels consistent with our profitability goals and most of the remaining 75% to be repriced by the end of this year.
Kevin David Strain: We expect dental results will return to levels of profitability more consistent with our pricing targets and expect income levels for dental to be approximately $100 million U.S. for 2025. SLC management's underlying earnings were impacted by the seed mark-to-market loss.
Kevin David Strain: We expect dental results will return to levels of profitability more consistent with our pricing targets and expect income levels for dental to be approximately $100 million U S for 2025.
Kevin David Strain: SLC management underlying earnings were impacted by seed Mark to market losses overall, the alternatives business faces headwinds from higher interest rates, but we remain on track to achieve 2025 underlying earnings of $235 million.
Kevin David Strain: Overall, the alternatives business faces headwinds from higher interest rates, but we remain on track to achieve 2025 underlying earnings of $235 million. We experienced strong growth in insurance sales, CSM, and assets under management during the quarter. Individual protection sales were up nearly 50% year over year, largely driven by growth in Asia, with strong individual protection sales in Hong Kong.
Kevin David Strain: We experienced strong growth in insurance sales C S M and assets under management during the quarter.
Kevin David Strain: Individual protection protection sales were up nearly 50% year over year, largely driven by growth in Asia with strong individual protection sales in Hong Kong.
Kevin David Strain: Asia was also a leading driver of Sun Life's new business CSM, which reached $347 million this quarter, up 50% year over year, and contributed to total company CSM surpassing $12 billion at the end of the quarter. We continue to see growth in our asset management businesses, with total company AUM reaching an all-time high of $1.47 trillion this quarter, up 8% year-over-year, reflecting the continued strength of our asset management capabilities and market appreciation. We ended the quarter in a strong capital position, with a LICAT ratio of 148% at SLF.
Asia was also a leading driver of Sun life, New business, CSM, which reached $347 million this quarter up 50% year over year and contributed to total company CSM, surpassing $12 billion at the end of the quarter.
Kevin David Strain: We continue to see growth in our asset management businesses with total company AUM, reaching an all time high of 1.47 trillion dollars this quarter up 8% year over year, reflecting the continued strength of our asset management capabilities and market appreciation.
Kevin David Strain: We ended the quarter in a strong capital position with a light cat ratio of 148% at S. O F. We also announced a 4% increase to our common share dividend and we'll continue to share buyback continued our share buyback program in the second quarter, demonstrating our commitment to deploying capital efficiently.
Kevin David Strain: We also announced a 4% increase in our common share dividend, and we'll continue our share buyback program in the second quarter, demonstrating our commitment to deploying capital efficiently. Overall, we continue to benefit from our diversified mix of business. Taking advantage of macro trends like the emergence of the middle class and growing GDP in Asia, the increased demand for health products in Canada and the U.S., and the importance of having a broad set of global asset management capabilities from public equities and fixed income to alternatives to help meet client needs in a rapidly changing environment.
Kevin David Strain: Overall, we continued to benefit from our diversified mix of businesses, taking advantage of macro trends like the emergence of the middle class and growing GDP in Asia. The increased demand for health products in Canada, and the U S and the importance of having a broad set of global asset management capabilities from public equities and fixed income to alternatives to help.
Kevin David Strain: Client needs in a rapidly changing environment.
Kevin David Strain: Turning to slide 5, this quarter, we delivered on key business initiatives to drive our client impact strategy forward. In Canada, we made progress on several important initiatives. We've seen strong demand for the Canadian Dental Care Plan, with 1.7 million Canadians signing up by the end of April, and we are now successfully processing claims. This program allows us to play a critical role in improving oral health outcomes for Canadians, which we know impacts people's overall health. We also launched the Diabetes Care Program as part of our online Luminal Health Pharmacy App. This innovative signature solution helps plan members reach their diabetes goals and, where possible, reduce blood sugar levels and reduce medication.
Kevin David Strain: Turning to slide five this quarter, we delivered on key business initiatives to drive our client impact strategy forward.
Kevin David Strain: In Canada, we made progress on several important initiatives.
Kevin David Strain: We've seen strong demand for the Canadian dental care plan with $1 7 million Canadians signing up by the end of April and we are now successfully protesting claims. This program allows us to play a critical role in improving oral health outcomes for Canadians, which we know impacts People's overall health.
Kevin David Strain: We also launched the diabetes care program as part of our online Luminal health Pharmacy App. This innovated signature solutions helps plan members reached their liability diabetes schools, and where possible reduced blood sugar levels and reduced medications.
Kevin David Strain: Our aim is to improve health outcomes for our clients and enhance the claims experience for our business. In the US, we're differentiating in the large employer group benefits market by offering Health Navigator, powered by Pinnacle Care. This personal health care navigation and advisory service helps members get the medical diagnosis and access the right care for their specific needs.
Kevin David Strain: Our aim is to improve health outcomes for our clients and enhance the claims experience for our business.
Kevin David Strain: In the U S. We're differentiating with the large employer group benefits market by offering health navigator powered by Pinnacle cure This personal health care navigation and advisory service helps members get the medical diagnosis and access the right care for their specific needs.
Kevin David Strain: This service also improves health and productivity outcomes for employers. We're also leveraging our expertise in leave, absence management, and return to work services to offer family leave insurance in Alabama, Arkansas, Florida, Tennessee, and Texas. We are the first major group benefits provider to offer family leave insurance in these states, broadening members' access to paid leave for Paid Leave to Care for Loved Ones and giving employers the option to provide a valuable benefit to their employees more easily.
Kevin David Strain: This service also improves health and productivity outcomes for employers.
Kevin David Strain: We're also leveraging our expertise on leave of absence management and returned to work services to offer family leave insurance in Alabama, Arkansas, Florida, Tennessee, and Texas, where.
Kevin David Strain: We were the first major group benefits provider to offer family leave insurance in these states broadening members access to paid leave to prefer paid leave for care for loved ones and giving employers the option to provide a valuable benefit to their employees more easily.
Kevin David Strain: Our growth in Hong Kong reflects the strength of our quality distribution channels. Hong Kong delivered strong individual protection sales this quarter, driven by our broker relationships, our bank insurance partnership with Dassing Bank, and the momentum with our agency team. We're also realizing value from our strategic investment. India continues to be an important growth market for Sun Life Asia.
Kevin David Strain: Our growth in Hong Kong reflects the strength of our quality distribution channels, Hong Kong delivered strong individual protection sales this quarter driven by our broker relationships, our bancassurance partnership with tossing bank and my mom.
Kevin David Strain: Mentum with our agency teams.
We're also realizing value from our strategic investments India continues to be an important growth market for Sun life Asia, we have thriving life and asset management business, a part of our joint venture with the deed of Birla group. This.
Kevin David Strain: We have thriving life and asset management businesses as part of our joint venture with the Adida Birla Group. This quarter, we sold 6.3% of our ownership interest in our asset management JV, unlocking a $98 million pre-tax gain and helping meet the 25% public ownership requirement of listed companies in Asia and India. Since the initial IPO in 2021, Sun Life has generated pre-tax gains of over $450 million while still retaining 30.2% ownership of the listed entity. In the US, our health and risk solutions business is finding that generative AI can securely summarize and organize lengthy and complex medical records for pinnacle care clients.
Kevin David Strain: This quarter, we sold six 3% of our ownership interest in our asset management JV unlocking of $98 million pre tax gain in helping meet the 25% public ownership requirement of listed companies in Asia and India. Since the initial IPO in 2021 Sun life has generated pre tax gains of over $450 million.
While still retaining 32% ownership of the listed entity.
Kevin David Strain: This solution is expected to reduce turnaround time from 14 days to one day, unlocking greater capacity to serve more clients. In our Sun Life Global Investments business, we're using a generative AI chatbot that creates a better client experience by providing faster responses to clients on questions for segregated fund topics. We're embracing our responsibility to create a more sustainable and brighter future. Sustainability is critical to our purpose.
Kevin David Strain: In the U S. Our health and risk solutions business is finding that generative AI can securely summarized in an organized lengthy and complex medical records for Pinnacle care clients. This solution is expected to reduce turnaround time from 14 days to one day unlocking greater capacity to serve more clients.
Kevin David Strain: Sun life Global investments business, we're using a generative AI chatbot that creates better client experience by providing faster responses to clients on questions for segregated fund topics.
Kevin David Strain: Yeah.
We're embracing our responsibility to create a more sustainable and brighter future sustainability is critical to our purpose and we are focused on increasing financial security fostering healthier lives and advancing sustainable investing.
Kevin David Strain: And we're focused on increasing financial security, fostering healthier life, and advancing sustainable investing. SLC Management continues to invest in assets that generate a stable and attractive yield and have a positive environmental impact. This quarter, BGO completed Ontario's first all-electric, net-zero carbon industrial building owned by Sun Life, a milestone in our efforts to achieve net-zero greenhouse gas emissions in investments and operations by 2050. BGO was also awarded the 2024 Energy Star Partner of the Year Sustained Excellence Award for the 14th consecutive year.
Kevin David Strain: SLC management continues to invest in assets that generate a stable and attractive yield and generate a positive environmental impact.
Kevin David Strain: This quarter Biggio completed Ontario's first all electric net zero carbon industrial building owned by Sun life, a milestone in our efforts to achieve net zero greenhouse gas emissions in investments and operations by 2050 P.
Kevin David Strain: <unk> was also awarded the 'twenty 'twenty four energy Star partner of the year sustained Excellence award for the 14th consecutive year.
Kevin David Strain: Also, Infrared Capital Partners, our infrastructure investment manager, continues to invest in assets that are helping to build a sustainable future. Infrared acquired a portfolio of two operating utility-scale renewable energy assets in the U.S. In closing, we're confident in the resilience of our strategy, given by our diversified business mix, our people and culture, and our sustained commitment to living by our purpose to help clients achieve a lifetime sense of security and live healthier lives.
Kevin David Strain: Also infrared capital partners, our infrastructure investment manager continues to invest in assets that are helping to build a sustainable future.
Kevin David Strain: Infrared acquired a portfolio of two operating utility scale renewable energy assets in the U S.
Kevin David Strain: In closing, we're competence and the resilience of our strategy driven by our diversified business mix, our people and culture and our sustained commitment to delivering on our purpose to help clients achieve lifetime financial security and live healthier lives.
Kevin David Strain: And now I'd like to welcome our new CFO, Tim Deacon, to his first earnings call. Tim joined Sun Life in April and brings extensive experience in asset management, wealth, insurance, real estate, and sustainability, all areas that are critical to Sun Life. He's a great addition to our Sun Life executive team and has fit in so seamlessly that, in many ways, it feels like he's been here for years.
Kevin David Strain: And now I'd like to welcome our new CFO, Tim <unk> to his first earnings call him joined Sun life in April and brings extensive experience in asset management wealth insurance real estate and sustainability all areas that are critical to sunlight. He's a great addition to our sunlight executive team and its fit in so seamlessly that in many ways. It feels.
He's been here for years and with that I'll turn the call over to Tim to detail, our first quarter financials.
Tim Deacon: With that, I'll turn the call over to Tim to detail our first quarter financial results. Thank you for that warm welcome, Kevin. Before I begin, I want to thank my Sun Life colleagues for all the support I've received over the last month since joining. I look forward to actively contributing to Sun Life's strategy, continued growth, and value creation for our clients, employees, communities, and investors. With that, let's begin with slide seven, which provides an overview of our first quarter results.
Tim Deakin: Thank you for that warm welcome Kevin before I begin I want to thank my Sun life colleagues for all the support I've received over the last month since joining I look forward to actively contributing to Sun life strategy continued growth and value creation for our clients employees communities and investors.
Tim Deakin: With that let's begin on slide seven which provides an overview of our first quarter results.
Tim Deacon: We delivered mixed results this quarter as underlying net income of $875 million and underlying earnings per share of $1.50 were modestly lower year over year by 2% and 1%, respectively, and relatively in line with the prior year when accounting for the sale of our UK business in the second quarter of last year. However, underlying Return on Equity was 16%. We remain confident in our ability to meet our medium-term ROE objective, supported by our attractive and diverse mix of businesses.
Tim Deakin: We delivered mixed results this quarter as underlying net income of $875 million and underlying earnings per share of $1 50, or modestly lower year over year by 2% and 1%, respectively and relatively in line with the prior year when accounting for the sale of our U K business in the second quarter of last year.
Tim Deakin: Underlying return on equity was 16%.
Tim Deakin: We remain confident in our ability to meet our medium term ROE objective supported by our attractive and diverse mix of businesses.
Tim Deacon: Turning to our business performance, wealth and asset management comprised 42% of Q1 underlying earnings and was down 1% from the prior year, as higher asset management related fee earnings were offset by higher compensation-related expenses and mark-to-market losses on seed investments in SLC. Group Health and Protection businesses comprised 29% of underlying earnings and were down 8% year over year.
Turning to our business performance wealth and asset management comprised 42% of Q1 underlying earnings and was down 1% from the prior year as higher asset management related fee earnings was offset by higher compensation related expenses and mark to market losses on seed investments in our S. L C.
Tim Deakin: Group Health and protection businesses comprised 29% of underlying earnings and were down 8% year over year results reflect business growth that was more than offset by less favorable morbidity experience and lower dental results.
Tim Deacon: Results reflect business growth that was more than offset by less favorable morbidity experience and lower dental results. Individual protection earnings comprise 29% of underlying earnings and were down 4% last year, primarily driven by the sale of Sun Life UK. New business CSM of $347 million was up 50% from the prior year, reflecting continued strong sales in Hong Kong. Reported net income for the quarter was $818 million.
Tim Deakin: Individual protection earnings comprised 29% of underlying earnings and was down 4% last year, primarily driven by the sale of Sun life U K.
Tim Deakin: New business C. S. N of 347 million was up 50% from the prior year, reflecting continued strong sales in Hong Kong.
Tim Deakin: <unk> net income for the quarter was $818 million.
Tim Deacon: The $57 million difference between underlying and reported net income was driven by unfavorable market-related impacts and amortization of intangibles, partially offset by acquisition-related and other items. Market-related impacts were driven primarily by unfavorable real estate experience, partially offset by favorable interest and equity market impact. The real estate experience reflects modestly negative total returns driven by holdings in the industrial sector and to a lesser extent in office in the current quarter versus our long-term expectations of approximately 2% per quarter.
Tim Deakin: $57 million difference between underlying and reported net income was driven by unfavorable market related impacts and amortization of intangibles, partially offset by acquisition related and other items.
Tim Deakin: Market related impacts were driven primarily by unfavorable real estate experience, partially offset by favorable interest and equity market impacts.
Tim Deakin: Real estate experience reflects modestly negative total returns driven by holdings in the industrial sector and to a lesser extent office in the current quarter versus our long term expectations of approximately 2% per quarter, while we continue to be cautious on real estate returns in the near term. We are long term investors in real estate and on a 10 year basis, our actual returns of X.
Tim Deacon: While we continue to be cautious on real estate returns in the near term, we are long-term investors in real estate, and on a 10-year basis, our actual returns have exceeded our long-term expectations. We continue to view real estate as a key component of our diversified investment portfolio. Our balance sheet and capital positions remain strong, with an SLF-LICAT ratio of 148%, which was lower by one percentage point from the prior quarter, primarily driven by strong organic capital generation that was more than offset by deployments, including our common share dividend and continued share buybacks and market impact.
Tim Deakin: Seeded our long term expectations, we continue to view real estate as a key component of our diversified investment portfolio.
Tim Deakin: Our balance sheet and capital position remains strong with a S. L F White cat ratio of 148%, which was lower by one percentage point from the prior quarter, primarily driven by strong organic capital generation that was more than offset by deployments, including our common share dividend and continued share buybacks and market impacts.
Tim Deacon: Book value per share increased 2.5% quarter over quarter. Holdquote Cash remains strong at $1.5 billion, and we've remained active in our share buyback program, purchasing 2.4 million shares this quarter. Our leverage ratio remains low at 21.1%.
Tim Deakin: Value per share increased two 5% quarter over quarter.
Tim Deakin: Holdco cash remains strong at $1 5 billion and we remained active on our share buyback program repurchasing two 4 million shares this quarter or.
Tim Deakin: Our leverage ratio remains low at 21, 1%.
Tim Deacon: Now let's turn to our business group performance, starting on slide 9 with MFX. MFS's underlying net income of $189 million U.S. was in line with the prior year, as higher fee income from average net asset growth was offset by higher compensation-related expense primarily related to the increase in the fair value of MFS shares. Reported net income of $180 million U.S. was down 10% year-over-year driven by the fair value change in shares owned by MFS management. However, pre-tax net operating margin of 37% was in line with prior year. A U.M.
Tim Deakin: Now, let's turn to our business group performance, starting on slide nine with MFS M.
Tim Deakin: MFS underlying net income of 109 hundred $89 million U S was in line with the prior year as higher fee income from average net asset growth was offset by higher compensation related expense primarily related to the increase in the fair value of MFS shares reported net income of 180 million U S was down 10% year over year, driven by the fair value change.
Tim Deakin: And shares owned by MFS management pre.
Tim Deakin: Pretax net operating margin of 37% was in line with prior year.
Tim Deacon: of $630 billion U.S. was up $31 billion from the prior quarter, driven by market appreciation, partially offset by net outflows of $8.6 billion. MFS long-term investment performance remains good, with 97% of funds assets ranked in the top half of their respective Morningstar categories for 10-year performance. Turning to slide 10, self-fee management generated underlying net income of $28 million, flat compared to the prior year, as fee-related earnings growth was offset by mark-to-market losses on seed investment. Fee-related earnings of $69 million were up 1% year-over-year on continued growth in fee-earning AUMs.
Tim Deakin: AUM of 630 billion U S was up 31 billion from the prior quarter driven by market appreciation, partially offset by net outflows of $8 6 billion.
Tim Deakin: MFS long term investment performance remains good with 97% of funds assets ranked in the top half of their respective Morningstar categories for 10 year performance.
Tim Deakin: Turning to slide 10, our cell C management generated underlying net income of $28 million flat compared to prior year as fee related earnings growth was offset by mark to market losses on seed investments fee related earnings of $69 million was up 1% year over year on continued growth in fee, earning AUM.
Tim Deacon: Reported net income of $42 million benefited from a gain on the early termination of a distribution agreement. Capital raising of $3.5 billion, primarily at BGO and Crescent, remained resilient and was up $1.3 billion or 52% year on year. Total AUM of $226 billion was up $8 billion from the prior year.
Tim Deakin: Reported net income of 42 million benefited from a gain on the early termination of a distribution agreement.
Tim Deakin: Capital raising of $3 5 billion, primarily at B G O and Crescent remained resilient and was up $1 3 billion or 52% year on year totally AUM of 226 billion was up $8 billion from the prior year. This includes 21 billion that is not yet earning fees. Once invested these assets are expected to generate annualized fee revenue of <unk>.
Tim Deacon: This includes $21 billion that is not yet earning fees. Once invested, these assets are expected to generate annualized fee revenue of more than $188 million. Turning to slide 11, Canada's underlying net income of $310 million was modestly lower year over year as strong insurance business growth was more than offset by lower net investment results. Reported net income of $290 million included an unfavorable market-related impact. Wealth and Asset Management's underlying earnings were down 4% year-over-year driven by lower earnings on surplus.
Tim Deakin: More than $188 million.
Tim Deakin: Turning to slide 11, Canada underlying net income of $310 million was modestly lower year over year, a strong insurance business growth was more than offset by lower net investment results reported net income of $290 million included unfavorable market related impacts.
Tim Deakin: Asset management underlying earnings were down 4% year over year, driven by lower earnings on surplus.
Tim Deacon: Group health and protection underlying earnings increased 20% year over year, reflecting business growth and improved disability experience. Individual protection earnings were down 19% year-over-year, which included unfavorable mortality. It is worth noting that there is a mostly offsetting benefit to the CSM from this negative mortality that is not reflected in earnings. Group health and protection sales were up 114% year over year on large, higher large case sales, while individual protection sales were lowered by 4% due to lower par life sales. Turning to slide 12, U.S. underlying net income of $141 million, down 20% from the prior year, driven by less favorable morbidity experience and dental results. The reported net income of $71 million U.S. includes market-related impact.
Tim Deakin: Group Health and protection underlying earnings increased 20% year over year, reflecting business growth and improved disability experience.
Tim Deakin: Individual protection earnings were down 19% year over year, which included unfavorable mortality experience. It is worth noting that there is a mostly offsetting benefit to the CSM from this negative mortality that is not reflected in earnings.
Tim Deakin: Group Health and protection sales were up 114% year over year on large higher large case sales while individual protection sales were lower by 4% due to lower power life sales.
Turning to slide 12 U S underlying net income of 141 million U S down 20% from the prior year driven by less favorable morbidity experience and Dunhill results.
Ported net income of 71 million U S includes market related impacts and group health and protection our group benefits business benefited from strong revenue growth. This was more than offset by less favorable morbidity experience from a higher loss ratio in health and risk solutions, which is now normalizing closer to pre pandemic levels compared to prior year.
Tim Deacon: In group health and protection, our group benefits business benefited from strong revenue growth. However, this was more than offset by less favorable morbidity experience from a higher loss ratio in health and risk solutions, which is now normalizing closer to pre-pandemic levels compared to the prior year. Lower dental results were driven by the continued impacts of the Medicaid redetermination process following the end of the public health emergency in the U.S. last May, which decreased the number of planned members.
Tim Deakin: Lower dental results were driven by the continued impacts of the Medicaid with termination Redetermination process. Following the end of the public health emergency and the U S last may which decreased the number of plan members.
Tim Deacon: This contributed to an increase in the loss ratio, as those leaving the plan generally had lower utilization than those remaining in the plan. U.S. group sales of 142 million US dollars were down 43% year-over-year driven by large case dental sales in the prior year. Individual protection results reflected credit losses in the quarter.
Tim Deakin: <unk> to an increase in the loss ratio as those are leaving the plan generally had lower utilization than those remaining in the plan.
Tim Deakin: U S group sales of 142 million U S were down 43% year over year, driven by large case dental sales in the prior year individual.
Tim Deakin: Individual protection results reflected credit losses in the quarter.
Tim Deacon: Slide 13 outlines Asia's results for the quarter. Underlying net income of $177 million was up 27% year-on-year on a constant currency basis. Results benefited from strong business growth as well as favorable protection experience and higher earnings in surplus. Reported net income of $235 million included a gain related to the partial sale of our India Asset Management Joint Venture. We continue to see strong sales momentum, particularly in Hong Kong. Strong's sales results also drove new business CSM of $230 million in Asia, up 128% from the prior year.
Tim Deakin: Slide 13 outlines agents the results for the quarter underlying net income of $177 million was up 27% year on year on a constant currency basis results benefited from strong business growth as well as favorable protection experience and higher earnings and surplus.
Tim Deakin: Reported net income of 235 million included a gain related to the partial sale of our India asset management joint venture.
Tim Deakin: We continued to see strong sales momentum, particularly in Hong Kong. The strong sales results also drove new business CSM of $230 million in Asia up 128% from the prior year over the past year Asia has added almost $1 billion of C. S M.
Tim Deacon: Over the past year, Asia has added almost $1 billion of CSM. Overall, while our Q1 results were mixed, we're pleased by the strong momentum in our Asia business, solid growth in expected insurance earnings across all business groups, and the steady increase to total company CSM, which is a store of future profit. We expect to generate earnings growth in line with our medium-term financial objectives underpinned by our strong fundamentals, capital position, and continued focus on execution.
Tim Deakin: Overall, while our Q1 results were mixed we are pleased by the strong momentum in our Asia business solid growth in expected insurance earnings across all business groups and the steady increase to total company CSM, which is the store of future profits we expect to.
Tim Deakin: <unk> earnings growth in line with our medium term financial objectives underpinned by our strong fundamentals capital position and continued focus on execution.
Tim Deacon: Finally, turning to slide 14, we're pleased to announce that we are hosting an Investor Day on November 13, 2024, at our One York Street office in Toronto. This will be an opportunity to update investors on our strategic priorities and our progress against our strategic pillars. We look forward to seeing you at this event. With that, I will now turn the call over to David for Q&A. Thank you, Tim.
Tim Deakin: Finally, turning to slide 14, we're pleased to announce that we are hosting an investor day on November 13th 2024 at a one New York Street office in Toronto, This will be an opportunity to update investors on our strategic priorities and our progress against our strategic pillars. We look forward to seeing you at this event with that I will now turn the call over to David.
David Clark: For Q&A.
David Garg: To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourself to one or two questions and then re-queue with any additional questions. I will now ask the operator to pull the participants. Thank you. To join the question queue, you may press star then one on your telephone keypad.
David Clark: Thank you Tim to help ensure that all of our participants have an opportunity to ask questions. This morning, Please limit yourself to one or two questions and then requeue without with any additional questions I will now ask the operator to poll the participants.
Speaker Change: Thank you.
Operator: You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then two. Our first question is from Mani Grauman with Scotiabank. Your line is open. Hi, good morning. I wanted to talk about the policyholder experience, which came in unfavorable, especially relative to expectations and impacted Canada and the U.S. Tim, you talked about some of the dynamics around the dental business, but I know it's also impacting stop loss. I guess the real question is just how temporary you expect these pressures to be, both in Canada and in the US, if you could address those both separately. Hi Meny, it's Kevin Morrissey.
David Clark: He joined the question Amy and then one on your telephone keypad, well here, telling me acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any key.
David Clark: Sorry. Your question Press Star then two.
Amy Goldman: My first question is from 90 Goldman with Scotiabank. Your line is open.
90 Goldman: Hi, Good morning, I wanted to talk about the policyholder experience came in unfavorable especially relative to expectations and impacted Canada and then in the U S.
90 Goldman: Tim you talked about some of the dynamics are around to the dental business, but I know, it's also impacting stopped plus I guess the real question is just how temporary you expect these pressures to be both in Canada and in the U S. If you could address those both separately.
90 Goldman: Yeah.
Kevin George Morrissey: Thanks for that question. Maybe I'll start off with experience, policyholder behavior at the total company level. We had a small loss, as you would have observed in the quarter, that was coming out of Asia, it was quite small, it was across a variety of countries there. We didn't, we didn't have any losses in Canada or the US on policyholder behavior in the US. Just in terms of... Sorry, my name is Jacques.
90 Goldman: Hi, Manny it's Kevin Morrissey. Thanks for that question, maybe I'll start off with the experienced policyholder behavior to a company level. We had a small loss as you would have observed in the quarter that was that was coming out of Asia. It was quite small and it was across a variety.
90 Goldman: Yes.
90 Goldman: Of countries there, we didnt, we didnt have any losses in Canada or the U S on policyholder behavior in the quarter.
90 Goldman: And just in terms of.
Jacques Goulet: Did you want me to address the insurance experience in Canada? Yes. Okay. Thank you.
Suzanne: Hi, My name is Suzanne did you want me to address the in transit experience in Canada.
Suzanne: Yes. Please.
Jacques Goulet: So the entrance experience is unfavorable this quarter. You might recall, by the way, that it was quite strong in Q2, Q3 and Q4 last year and this was driven by Disability Experience and Sun Life Health. I want to point out that the disability experience is still quite positive, but what we're noticing this quarter are mortality losses in individual insurance. This resulted from the larger number of claims and larger amounts of claims. But, as Tim pointed out in his remarks... This is offset by the release of reserves in the CSM, so we don't see mortality being outside of what I would call the normal volatility parameters. So it is not a trend.
Suzanne: Okay. Thank you so much.
The entrance experiences on favorable this quarter, you might recall and by the way that.
Speaker Change: It was quite strong in Q2, Q3, and Q4 of last year and this was driven by.
Speaker Change: Disability experience in some lifestyle.
Speaker Change: I want to point out that the.
Speaker Change: Disability experience is still quite positive.
But what we are noticing this quarter isn't mortality losses and individual insurance.
Speaker Change: <unk> from the larger number of claims and larger amounts of claim.
Speaker Change: But as Tim pointed out in his remarks.
Jacques Goulet: The other item that's coming up this quarter is the higher level of claims in the non-disability part of Sun Life Health. These are the paramedical claims, and they are seasonal.
Speaker Change: This is offset by the release of reserves in this so we don't see.
Speaker Change: Mortality being outside of what I would call the normal volatility parameters.
Speaker Change: Well the trend.
Speaker Change: The item that's coming up this quarter as the higher level of claims in the non visibility part.
Speaker Change: Sun Life home. These are the payer medical claims.
Jacques Goulet: So Q4 and Q1 are typically elevated. The other thing I would point out is that there are built-in maximums in terms of coverage for these claims. So again, we don't see that as a trend going forward. Good morning, everyone. It's Dan Fishbein.
Speaker Change: They are seasonal Q4, and Q1 are typically elevated.
Speaker Change: I would point out is that there are built in maximum in terms of coverage for these claims.
Speaker Change: We don't see that as a trend going forward.
Speaker Change: Got it thank you.
Daniel Richard Fishbein: Just some quick comments on the U.S. insurance experience. As I'm sure you've noticed, the experience has been favorable in recent quarters, and that was primarily driven by better-than-expected results in the stop-loss business. As we've described, there was lower utilization really throughout the pandemic and lingering for a long time afterwards because of shortages in provider capacity. However, those shortages appear to have largely resolved, and stop-loss experience, while still quite favorable, has returned closer to pre-COVID levels.
Speaker Change: Good morning, Manny, It's Dan Fishbein, just some quick comments on the U S insurance experience as I'm sure you've noticed the experience has been favorable in recent quarters and that was primarily driven by better than expected results in the stop loss business as we've described.
Speaker Change: There has been lower utilization really throughout the pandemic and lingering for a long time afterwards because of shortages in the provider capacity.
Speaker Change: Those shortages appear to have largely resolved in stop loss experience, while still quite favorable has returned closer to pre COVID-19 levels. So the favorable experience we had been getting.
Daniel Richard Fishbein: So, the favorable experience we had been getting above expectations in stop-loss has certainly largely moderated. And then, of course, in addition, there was unfavorable experience in the dental business this quarter. On the other hand, there was quite favorable experience in the group business.
Speaker Change: Above expectations in stop loss has certainly yeah, largely moderated and then of course. In addition, there was unfavorable experience in the dental business.
Speaker Change: Quarter on the other hand, there was quite favorable experience in the group business. So when you add the three together we had a small negative experience item in the U S.
Daniel Richard Fishbein: So, when you add the three together, we had a small negative experience item in the U.S. Just to follow up on the US, it sounds like on the stop loss side, it's just a sort of normalizing back to pre-COVID levels. But in terms of dental, and you addressed this last quarter as well, but just wondering what the timeline is there in terms of improving it? Could it actually get worse before it gets better on the experience side?
Speaker Change: And just to follow up in the U S. So it sounds like I'm on the stop loss side, it's just a sort of normalizing back to pre COVID-19 levels, but in terms of dental.
Speaker Change: And you addressed this last quarter as well, but I'm just wondering what the timeline is there an end in terms of improving like could it actually get worse before it gets better in an.
Speaker Change: On the experience side.
Daniel Richard Fishbein: Well, you know, as we've been saying for quite some time, this is about a four-quarter problem. And of course, the background on that is that there were no disenrollments from the Medicaid program at all, medical or dental or otherwise, for more than three years as a result of the COVID public health emergency. That ended in April of last year, and the states were able to start disenrolling people as of that time.
Speaker Change: Well as we've been saying for quite a while this is about a four quarter problem and of course the background on that is there were no just enrollments from the Medicaid program at all medical or dental or otherwise.
Speaker Change: For more than three years as a result of the Covid public health emergency that ended in April of last year and the states, we're able to start dis enrolling people as of that time, hence we have seen declining enrollment in the third and fourth quarters of last year in the first quarter of this year that's all.
Daniel Richard Fishbein: Hence, we, you know, have seen declining enrollment in the third and fourth quarters of last year and the first quarter of this year. That's a 14 month process by regulation that will be complete by the end of June. So there likely are some additional membership declines, you know, still in progress and still ahead of us. The primary result of that that's affecting our results is not just the membership itself but the fact that those who were no longer eligible for coverage were utilizing care at a meaningfully lower rate than those who remained in the programs.
Speaker Change: A 14 month process by regulation that will be complete by the end of June so they're likely or some additional membership declines.
Speaker Change: Still in progress and still ahead of us.
Speaker Change: The primary result of that that's affecting our results is not just the membership itself, but the fact that those who were no longer eligible for coverage, we're utilizing care at a meaningfully lower rate than those who remained in the programs that means the average experience of the people who remain.
Daniel Richard Fishbein: That means the average experience of the people who remain is higher than the experience of the program as a whole when the disenrollments began. The key will be the states adjusting the rates, which is mostly an annual process as those rates renew. About 83% now actually of our contracts will renew this year with revised rates. Through the end of the first quarter, about 25% of the contracts have already had new rates established.
Speaker Change: It's higher than the experience.
Speaker Change: Out of the program as a whole when the dis enrollment began the key will be the state's adjusting the rates, which is mostly an annual process as those rates renew about 83% now actually of our contracts will renew this year with revised rates.
Speaker Change: Through the end of the first quarter about 25% of the contracts that already had new rates established so getting the right rates is key.
Daniel Richard Fishbein: Getting the right rates is key to this, as are other initiatives that we have in progress, including additional claim management initiatives, as well as expense management. So with continued membership losses, we would not necessarily expect things to improve materially in the second quarter, but in the second half of the year, the results should start to reflect both the higher rates and those initiatives. And certainly, and as Kevin mentioned in the introduction, we expect much better results when we get to 2025. That's great, thanks. The next question is from Tom MacKinnon with BMO Capital Markets. Please go ahead.
Speaker Change: To this as our other initiatives that we have in progress, including an additional claim management initiatives as well as expense management.
Speaker Change: So with continued membership losses, we would not necessarily expect things to improve materially in the second quarter, but in the second half of the year.
Speaker Change: The results should start to reflect both the higher rates and those initiatives and certainly and as Kevin mentioned in the introduction, we expect much better results when we get to 2025.
That's great. Thanks.
Speaker Change: Yeah.
Tom MacKinnon: Yeah, thanks very much. Just a question with respect to SLC. I think Steve Peacher there talked about a 50 million kind of run rate for underlying, and I think there's talk of some mark-to-mark losses on some seed capital there, so just some color with respect to SLC and the outlook there, please.
Speaker Change: The next question is from Tom Mackinnon with BMO capital markets. Please go ahead.
Tom MacKinnon: Yeah. Thanks, very much just a question with respect to S. L. C. A I think if he's feature there he talked about a 50 million kind of run rate for underlying earnings are.
Tom MacKinnon: For that and it's 28 in a quarter I think there there's talk of some mark to Mark.
Tom MacKinnon: Losses on our seed capital there. So just some color with respect to a S. L C and the outlook there. Please thanks.
Stephen Clarkson Peacher: Yeah, a few comments on the quarter relative to our run rate, which is really your question. Given that the $28 million is lower than our run rate, there are a lot of new things that have come out of the last quarter's earnings call, and there were two things that impacted us. I'll say that we think our run rate hasn't changed, our core run rate.
Tom MacKinnon: Yeah, Thanks, Tom It's Steve Yes.
Steve: Now a few comments on the quarter relative to our run rate, which is really your question.
Steve: Given that the $28 million is lower than the run rate that I indicated on last the last quarter.
Speaker Change: Our earnings call and there were two things that <unk>.
Speaker Change: Pack it up I guess I'll start I'll say that we think where our run rate hasnt changed our core run rate two things pushed us lower this quarter than our normal we view as our quarterly run rate. One was as you mentioned the mark to market on seed assets. So let me give some color on that.
Stephen Clarkson Peacher: Two things pushed us lower this quarter than usual, than what we view as our quarterly run rate. One was, as you mentioned, the mark-to-market on seed assets. So, let me give some color on that. That mark-to-market is related primarily to a portfolio of industrial properties at BGO that we've seeded. The impact on this quarter's results from that was about $10 million after tax. There were a few other items in there, but the primary driver was the mark-to-market on that portfolio.
Speaker Change: That mark to market related primarily to a portfolio of industrial properties at biggio that we've seeded the.
Speaker Change: <unk> impact on currently on this quarter's results from that was about $10 million. After tax that there were a few other items in there, but the primary driver was that the mark to market on that portfolio that has a very strong portfolio of industrial properties across the U S and in fact that portfolio was marked up in the second half of last year because.
Stephen Clarkson Peacher: That is a very strong portfolio of industrial properties across the U.S., and, in fact, that portfolio was marked up in the second half of last year because of meaningfully strong performance in the underlying properties. That was actually one of the factors that helped us in the fourth quarter.
Speaker Change: Meaningfully.
Speaker Change: Strong performance in the underlying properties that was actually one of the factors that helped us in the fourth quarter.
Stephen Clarkson Peacher: This quarter, we gave up a portion of those gains, and you saw valuations across industrial properties, not just in this portfolio, but kind of across the industry, fall in the first quarter as valuations reflected higher cap rates and, I think, in appraisers' view, more modest assumptions for lease rate increases going forward. The other thing that impacted us first was our run rate this year and seasonality and compensation in the first quarter. Like many firms, we pay bonuses in the first quarter. We accrue for those bonuses throughout the year.
Speaker Change: This quarter, we gave up a portion of those gains and.
Speaker Change: You saw valuations across industrial properties.
Speaker Change: And this portfolio, but kind of across the industry.
Paul in the first quarter as valuations reflected higher cap rates and I think in appraisers view more modest assumptions for a lease rate increases going forward.
Speaker Change: But net net that portfolio has had a positive mark to market over the last 12 months. It's just that in the first quarter. We gave back some of the positive mark in the second half of last year.
Stephen Clarkson Peacher: In Q1, we paid out bonuses that were slightly higher than our accrual for the year, so that impacted us. But the bigger impact was that those bonus payments trigger related payments, such as contributions to benefit plans, and that impacts Q1 proportionately. So if you adjust our results for that mark-to-market versus what we'd normally expect per seed on a kind of run rate basis and you reflect the seasonality, it gets us back to a run rate of almost $50 million. Okay, thanks for that.
Speaker Change: Other things that impacted us versus our run rate. This year is that we have some seasonality in compensation.
Speaker Change: In the first quarter like many firms we pay bonuses in the first quarter, we accrued for those bonuses throughout the year in crude in Q1, we paid out bonuses that were slightly higher than our accrual for the year, so that impacted us, but the bigger impact was that those bonus payments trigger related payments.
Speaker Change: Such as contributions to benefit plans and that impacts Q1.
Speaker Change: A portion of <unk>. So if you adjust our results for that mark to market versus what we'd normally expect proceed on that.
Speaker Change: Run rate basis, and you reflect it reflect the seasonality it gets us back to a run rate of almost $50 million figure that I mentioned last quarter.
Speaker Change: Okay, Thanks for that and as a follow up.
Tom MacKinnon: And as a follow-up. MFS, there seems to be some higher expenses in the quarter too. Is there any seasonality associated with them?
Speaker Change: M F as it seems to be some higher <unk>.
M F: Expenses in the quarter two is there any seasonality associated with them or are they kind of related to any.
Tim Deacon: Are they somehow related to any extra compensation at MFS that can be volatile and may have happened in the first quarter? Hi, Tom. It's Tim.
M F: Extra compensation at MFS that AR and that can be volatile and may have happened in the first quarter.
Tim Deacon: Thanks for that question. There were two pieces really to the compensation costs for this quarter. There is some seasonality in the first quarter. We have shares that vest that are issued to MFS employees. And when they become retirement eligible, they immediately vest.
M F: Hi, Tom It's Tim Good morning, Tom.
M F: Yes.
Speaker Change: Thanks for that question.
Speaker Change: Yeah.
Tim Deakin: There were two pieces really on the compensation costs for this quarter. There is some seasonality in the first quarter. We have shares that vest that are issued to MF its employees and when they become retirement eligible they immediately vest and that always happens in the first part of the year. So we do get a bit of noise coming through that but that relates to the second.
Tim Deacon: And that always happens in the first quarter of the year. So we do get a bit of noise coming through that. But that relates to the second. [inaudible] And you'll recall, there are two pieces to that. One that's in our underlying earnings, and you can think of that as a long-term incentive plan. And those shares are marked to market based on the fair value of MFS as an enterprise value. And we saw gains in the overall increase in MFS shares, so that flew through as compensation costs.
Tim Deakin: Piece, which was the more material part in the quarter, what's really the mark to market gain on the appreciation of these shares that flows through as compensation expense.
Tim Deakin: And Youll recall, there's two pieces to that one one that's in our underlying earnings and you can think of that as a long term incentive plan and those shares are mark to market based on the fair value of MFS has an enterprise value.
Tim Deakin: And we saw gains in the overall increase in MFS share. So that's flowed through his compensation and costs and then on the reported net income side, we have a component that relates divested shares. So these are shares that have already been awarded and fully vested we have to set up a liability for that and that gets mark to market through.
Tim Deacon: And then on the reported net income side, we have a component that relates to vested shares. So these are shares that have already been awarded and fully vested. We have to set up a liability for that, and that gets marked to market through income, and that flows through on the reported income side. So it's really the two pieces.
Tim Deakin: Through income and that flows through on the reported income side. So it's really the two pieces, we had share appreciation, which caused compensation costs. Both in underlying net income and reported net income plus the seasonality.
Tim Deacon: We had a share appreciation, which caused compensation costs, both in underlying net income and reported net income, plus seasonality. And one of those components... and the second one you mentioned, is that part of that margin? You give, I think you give a U.S. GAAP margin as opposed to a U.S. U.S. U.S. U.S. U.S. U.S. This might not be a U.S. GAAP item, but it might be an IFRS item. Do I have that right?
Speaker Change: And one of those components, maybe just the second one you mentioned is that part of that margin that you gave I think you'd get a U S. GAAP margin as opposed to and this might not be a U S. GAAP item, but it might be and I have for S item do I have that right.
Tim Deacon: Yeah, so the comments that I just made around the competition, that's all IFRS accounting. And so the margin guidance that we give is on a US GAAP basis. And so those vested shares, as an example, those flow through equity; those don't hit the P&L under US GAAP.
Speaker Change: Yeah. So the comments that I just made around the competition Thats all ive for S. Accounting and also the margin guidance that we gave is on the U S GAAP basis, and so those vested shares and as an example, those flow through equity, though those don't hit the P&L under U S. GAAP.
Tim Deacon: Okay, it would be helpful if we could have something that wasn't US GAAP related, at least an IFRS 17 margin. Look at that thing on an IFRS basis. And I would add, thanks, Kim, for that. This is Mike Roberge.
Okay.
Speaker Change: It'd be helpful. If we could have a something that wasn't U S. GAAP related at least and I for a 17 margin just so we can have a.
Speaker Change: Look at that thing on AR I have for S basis going forward.
Speaker Change: And I would add thanks, Tim This is Mike Roberge, Tom I wish I would just add to that is obviously, we run the business and think about the business year over year U S. GAAP revenues were up 5% expenses were up four and pre tax income was up 7%. So if you think about those things that are controllable here and then long.
Michael William Roberge: Tom, I would just add to that, it's obviously as we run the business and think about the business. Year-over-year U.S. revenue gap, revenues were up 5%, expenses were up 4%, and pre-tax income was up 7%. So if you think about those things that are controllable here, and then long-term compensation just runs through. And so when you're in a period where the stock price is going up because, year-over-year, the business is driving better results, that's going to flow through earnings.
Term compensation just runs through and so when you're in a period, where stock prices going up because year over year. The business is driving better results that's going to flow through earnings that goes the other way when the stock's going down it's a benefit to us, but that clearly is and how we're thinking about running the business quarterly.
Michael William Roberge: That goes the other way; when the stock's going down, it's a benefit to us. But that clearly isn't how we're thinking about running a business. Okay, so there seem to be more accounting nuances than anything fundamental with respect to MFS. Is that the way I should be thinking about that? Yes, from an MFS perspective. And Tim, I'll let you answer from yours.
Okay. So it seems to be more accounting nuances than anything fundamental with respect to MFS is that the way I shouldn't be thinking about that.
Speaker Change: Yes from an MFS perspective, and Tim I'll, let you answer from yours.
Tim Deacon: Yeah, no, I think that's exactly right. Okay, appreciate that. Thanks. The question is from Mario Mendonca with TD Securities. Please go ahead.
Tim Deakin: Yeah, No I think that's exactly right.
Speaker Change: Okay appreciate that thanks.
Speaker Change: The next question is from Mario Mendonca with TD Securities. Please go ahead.
Mario Mendonca: Good morning. Can we start first in Asia? So the Sun Life Hong Kong sales were very strong, and I understand that Hong Kong, or rather Sun Life is, strong on the broker channel in Hong Kong. So what would be helpful, perhaps from Manjit, is what you saw in the broker channel? Was there any sort of behavioral change in the broker channel in response to the regulatory investigation? And then how did Sun Life do it?
Mario Mendonca: Can we start first in Asia, So the Sun life's.
Mario Mendonca: Hong Kong sales were very strong and I understand that Hong Kong is a.
Mario Mendonca: Brother, some life is strong in the broker channel and Hong Kong.
So it would be helpful. Like perhaps from a mandate is what did you see in the broker channel was there any sort of behavioral changes in the broker channel in response to the regulatory investigation.
Mario Mendonca: And then how did something like do it because the the message we're getting from the domestic players and the players like I'm, saying folks the domestic players in Hong Kong is that this is having an effect on the broker channel. So perhaps you could speak to these.
Mario Mendonca: These these investigations and what it might mean to somebody.
Manjit Singh: Because the message we're getting from the domestic players and the play, like I'm saying, folks, the domestic players in Hong Kong, is that this is having an effect on the broker channel. So perhaps you could speak to these investigations and what they might mean to Sun. Good morning, Mario, it's Manjit. So, as you noted, we have a strong, we had very strong results in Hong Kong this quarter. And, you know, part of those sales results are driven by sales that we do through brokers. There are a number of different businesses that we do have that we use brokers for.
Speaker Change: Good morning, Mario expanded them. So as you noted we have a strong we had very strong results in Hong Kong this quarter and part of those sales results were driven by sales that we do through brokers. There are a number of different businesses that we do have that we use brokers for so about a third of the sales are real.
Manjit Singh: So about a third of the sales are related to MCI client business. About half of that is for high net worth clients, where we work with brokers who have established relationships with global private banks. And the remainder is for local Hong Kong and Pan Asian clients.
Speaker Change: Mci client business about half of that is for high net worth clients, where we work with brokers, who have established relationships with global private banks and the remainder is for local Hong Kong and Pan Asian clients I think the issue that you're talking about it really relates to the first portion which is the Mci clients, which I said is that it's a smaller part of our overall business.
Manjit Singh: I think the issue that you're talking about really relates to the first portion, which is the MCI clients, which I said was a smaller part of our overall. And, you know, one of the things that are driving our growth is also that we were underweight in that business prior to the pandemic, and we've made some investments over the last few years to grow that business. And so that includes establishing strong relationships with quality brokers, you know, also looking at our product lineup and revamping our product lineup, enhancing the services and interactions that we provide to our clients, including opening up our new client center in the TST, enhanced digital capabilities, more Mandarin speaking staff, and improved after-sales client service.
Speaker Change: And one of the things that we are driving our growth is also we were underweight in that business prior to the pandemic and we've made some investments over the last few years to group to grow that business and so that includes establishing strong relationships with quality brokers.
Speaker Change: So looking at our product lineup in revamping our product lineup enhancing the services and interactions that we provide to our clients, including opening up our new client center and the T. S. T enhanced digital capabilities more Mandarin speaking staff and improved after sales client service and we've also made significant investments in our brand which is also paying dividends.
Manjit Singh: And we've also made significant investments in our brand, which is also paying dividends. So the other thing I would note, Mario, is that our overall business that we are riding continues to have very good margins and, more importantly, strong, www.sunlifefinancialinc.com. So, Manjit, do you expect any effect from the controversy in the broker channel in subsequent quarters? Well, so far, Mario, as you know, that was just something that the HIA conducted last month.
Speaker Change: The other thing I would note Mario is that our overall business that we are writing continues to have very good margins and more importantly, strong persistency, which suggests the quality of business that we're writing is quite high. So overall, we're very very pleased with the problem with the momentum in our Hong Kong business.
Mario Mendonca: So do you expect any effect from the controversy in the broker channel.
Mario Mendonca: So far as you know that that was just something that the HIA conducted last last month to date, we have not seen any impacts to our business.
Manjit Singh: To date, we have not seen any impacts on our... Okay. A much broader question now, probably for Kevin, maybe for Tim, when a company like Sun Life's Caliber reports a quarter like this, like a meaningful miss relative to what the street was looking for. It can either go one of two ways, either way management. You know, confidently declares that this quarter was an anomaly and earnings power is not meaningfully affected or the messages. Estimates are just too high for the company, not just for the quarter, but going forward. It'd be helpful to hear, probably from Kevin first, if he could let me know which of those two is this.
Mario Mendonca: Okay.
Speaker Change: Hmm mm.
Speaker Change: Broader question now probably for Kevin maybe for Tim.
Speaker Change: When a company of Sun life's caliber.
Speaker Change: It's a quarter like this it's like a meaningful miss relative to what the street was looking for.
Speaker Change: It can either it can go one of two ways either management.
Speaker Change: You know confidently declares that this quarter was the anomaly and.
Speaker Change: <unk> earnings power is not meaningfully affected or the messages.
Speaker Change: The notes are just too high for the company not just for the quarter, but on a go forward basis.
Speaker Change: It would be helpful to hear probably from Kevin first if I can let me know, which which of those two is it is this.
Kevin: A message that our numbers need to come down or is this the anomalous quarter.
Kevin David Strain: Is this a message that our numbers need to come down, or is this an anomalous quarter? Thanks for the question, Marius, and Kevin. Outside of the U.S., and more specifically, Dentequest, the negative items that hit us this quarter were largely normal volatility and were unique to the quarter. So for Canada, MFS, and SLC, we'd expect results to normalize. And as you noted, Asia showed good momentum, in particular in Hong Kong and internationally.
Kevin: Thanks for the question Mario its Kevin outside.
Kevin: Outside of the U S and more specifically dental quest the negative items that hit us this quarter were largely normal volatility and were unique to the quarter. So for Canada, MFS and SLC, we'd expect results to normalize and as you noted Asia showed good momentum in particular in Hong Kong and International I think you heard from from Jacques and.
Kevin: Mike and Steve on that and as I already discussed in my opening remarks SLC.
Kevin David Strain: I think you heard from Jacques and Mike and Steve on that. And as I already discussed in my opening remarks, SLC, we should see it building nicely the rest of the year towards the $235 million target from their investor date for 2025. So that sort of puts those pieces in context.
Kevin: We should see building nicely the rest of the year towards the 200 and $235 million target from their Investor day for 2025, so that sort of put those pieces in context. The U S. Outside of Denver Quest is in a similar situation to the other businesses in fact in the quarter as Dan mentioned group benefits business maintained.
Kevin David Strain: The U.S. outside of DentiQuest is in a similar situation to the other businesses. In fact, in the quarter, as Dan mentioned, the group benefits business maintained very strong margins. It is going to take some time, and we expect it will take the rest of the year for the repricing to work its way through, and claims experience, by the way, in dental continues to be high in April.
Kevin: Very strong margins.
Kevin: Quest is going to take some time and we expect <unk> will take the rest of the year for the re pricing to work its way through and claims experienced in <unk>.
Kevin: James experienced by the way in dental continues to be high in April so in <unk>.
Kevin David Strain: So in 2025, we're looking at getting closer to US $100 million for DentiQuest, but this year, I think there will still be some headwinds in terms of the DentiQuest piece. I would also point out that the global minimum tax is expected to begin as early as next quarter and will impact us by 1% to 2%, which we previously signaled. So I think the answer to your question is probably specific to the business groups, and the one piece that I think continues to have a bit of that headwind is DentiQuest, and it's to do with the repricing that Dan talked about, but also the continued sort of higher claims experience. That was a very precise answer.
Kevin: 2025.
Kevin: We're looking at getting closer to the U S $100 million for dental quest, but this year I think there is still be some some headwinds in terms of the <unk> piece I would also point out that the global minimum tax is expected to begin as early as next quarter and will impact us by 1% to 2%, which we previously signaled so I think the the answer.
Kevin David Strain: So if I could paraphrase that, if DentalQuest is the one area that may take more time to get back to normal, and everything else feels like it should normalize relatively quickly, then what I'm hearing is that it is a very modest part of Sun Life, because let's be clear, we're talking about $30 million at the best of quarters in terms of earnings from dental against a much, much bigger company than that. It sounds to me, then, that for the most part, this was an anomalous quarter, with that modest exception of Denver.
Kevin: To your question is probably specific into the the business groups and the one piece that I think continues to have a bit of that headwind is dental question. It has to do with the repricing.
That Dan talked about but also the continued sort of higher claims experience.
Kevin: That was a very precise answer so if I if I could paraphrase then if delta quest is the one area that may take more time to get back to normal and everything else feels like it should normalize relatively quickly.
Kevin: What I'm hearing then is that a very modest part of Sun life, because let's be clear, we're talking about $30 million of the best quarters in terms of earnings from dental against a much much bigger companies in that it sounds to me then.
Kevin: But for the most part this was the anomaly this quarter.
Kevin: With that modest with exception of dental.
Kevin: Marrow here your math is as accurate as always and I think that's a good interpretation of what we're seeing.
Speaker Change: Got it thank you.
Okay.
Kevin David Strain: I think, Meryl, your math is accurate, as always, and I think that's a good interpretation of what we're seeing. Got it. Thank you. The next question is from Doug Young with Desjardins. Your line is open. Hi, good morning.
Speaker Change: The next question is from Doug Young with Desjardin. Your line is open.
Doug Young: Maybe back to Dan and, you know, you talk about, or Kevin, you talk about repricing the Dentequest business. And so I assume, you know, before you were thinking of growing earnings and revenues in 24 versus 23, I assume that's off the table, but you can kind of correct me if I'm wrong. But what I'm more curious about is how hard it is to push through price increases by state in Dentequest. I mean, can they just say no?
Doug Young: Hi, good morning, maybe back to Dan in Utah.
Doug Young: You're talking about or Kevin you talked about repricing the tent to quest business in and so I assume you know before you were thinking of growing earnings and revenues and 24 versus 23, I assume that's off the table, but.
Doug Young: Correct me, if I'm wrong, but what I'm more curious is how hard is it to push through price increases by state.
Doug Young: <unk> intent to quest.
Doug Young: Can they just say no like can you talk a bit about that obviously when you had when you and Paul.
Daniel Richard Fishbein: Like, can you talk a bit about that? Obviously, when you involve trying to push through pricing in states for certain categories of the population, it can get difficult. So just curious.
Doug Young: Paul trying to push through pricing and.
Doug Young: And states for certain categories of the population it can get difficult. So I'm just curious.
Daniel Richard Fishbein: Yeah, thanks, Doug. Just, you know, a quick comment on revenue. DentiQuest continues to win business, and, in fact, more so than competitors and from competitors in some situations.
Speaker Change: Yeah. Thanks, Doug just a quick comment on the revenue denser quest continues to win business and in fact, more so than our competitors and from competitors in some situations. So we've actually we're actually anticipating from a revenue perspective being largely back to <unk>.
Daniel Richard Fishbein: So we're actually anticipating, from a revenue perspective, being largely back to where we were. There's a little bit of a range there, but we're approximately or will be approximately in the pre-COVID range. And then expect to continue growing from there. Medicaid historically has a 6% compound annual growth rate just in the program itself. And then we continue to win contracts. So, in the longer term, we think that the business is very well positioned from a growth perspective. Obviously, this is a once in a century pandemic that we're dealing with very unique after effects.
Doug Young: Where are we where theres a little bit of a range there, but were approximately or will be approximately in the pre COVID-19 range and then expect to continue growing from their Medicaid historically has a 6% compound annual growth rate just in the program itself and then we continue to win contracts. So in the longer term, we think that the.
Doug Young: Business is very well positioned from a growth.
Doug Young: Respective obviously this is a once in a century pandemic that we're dealing with with very unique after effects are in.
Daniel Richard Fishbein: In this case, in particular, the government is saying that the normal disenrollment from Medicaid, which is substantial annually, was frozen in place for more than three years. So this has to correct. In terms of the price changes, now these really aren't a typical negotiation. The state governments set the rates.
Doug Young: In this case in particular, the government, saying that the normal dis enrollment for Medicaid, which is substantial it annually was frozen in place for more than three years. So this this has to correct.
Doug Young: In terms of the price changes now these really arent.
Doug Young: A typical negotiation with state government set their rates now they certainly listen to the input of the contractors and there are many contractors not just dental but medical as well we're not the only dental contractor, we certainly provide input and data where we can but ultimately the states set those rates now.
Daniel Richard Fishbein: Now they certainly listen to the input of the contractors. And there are many contractors, not just dental, but medical as well. And we're not the only dental contractor.
Daniel Richard Fishbein: We certainly provide input and data where we can, but ultimately, the states set those rates. Now, the reason we're confident that they will reset the rates to the appropriate level is that there is a more than 20-year history here of the state setting the rates very fairly and within a very narrow range of what's needed. This is obviously a shock event that's never happened before.
Doug Young: The reason, we're confident that they will reset the rates to the appropriate level is there something more than 20 years of history here.
Doug Young: All of the states setting the rates very fairly and within a very narrow range of what's needed. This is obviously a shock event that's never happened before the states really even though I think they anticipated some of this impact did not anticipate this big of an impact on the average utilization in the loss rate.
Daniel Richard Fishbein: The states really, even though I think they anticipated some of this impact, did not anticipate this big of an impact on the average utilization and the loss ratio as they disenrolled the non-utilizers or the lower utilizers. So the states have the programs properly funded, that's a long history, and we fully expect that they'll put the rates back at acceptable and appropriate levels. But they do that as per their natural schedule.
Doug Young: So as they distant enrolled the non utilized our resorted the lower utilize.
Doug Young: Utilized areas.
Doug Young: The states have the programs properly funded.
Doug Young: That's a long history, and we fully expect that they'll put the rates back at acceptable and appropriate levels.
Doug Young: But they do that as per their natural schedule. So that's why we talk about there's actually.
Daniel Richard Fishbein: So that's why we talk about, there are actually 18 major contracts that constitute 83% of the business that should be fully repriced by November. And so far, we've gone through eight of those contracts, and seven of them have repriced at or better than the rates that we think are needed, based on the emerging experience. So, so far, so good, but we have a ways to go as well. Okay, perfect. And then just Kevin, I know, I think I've asked you this before.
Doug Young: 18 major contracts that constitute the 83% of the business that should be fully repriced by November.
Doug Young: And so far we've gone through eight of those contracts and seven of them have repriced at or better than the rates that we think are needed based on the emerging experience. So so far so good but we have a ways to go as well.
Doug Young: But I'll throw it out here. Again, you know, you have this enforced management business from time to time. It gives you a little volatility this quarter, I think it was on the credit side. And I get the argument about not needing the capital and generating that nice earnings. And so are we, but you know, again, it puts up volatility from time to time. At what point do you pull the trigger and reinsure that business? And, you know, what would be the driver to do that?
Speaker Change: Okay, Perfect and then just Kevin I know I think I've asked you this before.
Speaker Change: I'll throw it out here again, you have this in forest management business from time to time. It gives you a little volatility this quarter I think it was on the credit side and I guess the argument about not needing the capital generating that ice earnings.
Speaker Change: And our ROE, but.
Speaker Change: Again, it puts up volatility from time to time.
Speaker Change: At what point do you pull the trigger and reinsure that business and what.
Speaker Change: Now what would be the driver to do that.
Kevin George Morrissey: So there's a number of things. That business continues to hit our hurdle rates for our OE and how we think about it. It's also a good provider of cash flow back into SLC. If you think about a lot of SLC's competitors in the US, they're buying closed blocks of business because they like the cash flow. So those would both be parts of us factoring into our thinking.
Speaker Change: So theres a number of things that that business continues to hit our hurdle rates for ROE and how we think about it. It's also a good provider of cash flow back into <unk>. If you think about a lot of <unk> competitors in the U S. They are buying close blocks of business because they like the cash flow so that those would both be.
Speaker Change: Parts of us factoring into our thinking we're always looking for different solutions to make it more capital efficient. So we would time to time see different things and assessed them, but at this point the combination of of the results and also the cash flow and as we'll see we think is important Kevin wants to add a comment.
Kevin George Morrissey: We're always looking for different solutions to make it more capital efficient, so we would from time to time see different things and assess them. But at this point, the combination of the results and also the cash flow into SLC is important. Kevin wanted to add a comment. Doug, it's Kevin Morrissey.
Kevin George Morrissey: The only thing I wanted to add is on the credit side, what you're seeing in that credit line is the losses that we experienced in the quarter, and the release of the provisions is in the expected investment earnings. So, on a net basis, we actually had a net gain. So if you look at credit writ large from an overall perspective on that block, it was a net positive contributor to underlying earnings.
Speaker Change: Doug It's Kevin Morrissey the only thing I wanted to add there is on the credit side, what youre seeing in that credit line is the losses that we experienced in the quarter in the releases of provisions and the expected investment earnings. So on a net basis, we actually had a net gain so if you look at credit.
Speaker Change: Large from an overall perspective on that block it was a net positive contributor to underlying earnings.
Kevin George Morrissey: Look, Kevin, and I understand, but can you tell us, maybe at the consolidated level, what is the typical annual release of the credit provision? And then, in the credit line, like, typically, what would you expect? Like, would you expect the net between the two to kind of be break even? Like, can you kind of talk a bit about that? Sure, I can give you a kind of high level.
Speaker Change: Kevin.
Kevin George Morrissey: Understand but can you tell us maybe at the consolidated level what is the typical annual release of the credit provision and then in the credit line like typically what would you expect like would you expect between the net between the two to kind of be breakeven like can you kind of talk a bit about that.
Kevin George Morrissey: We see a release in the expected investment earnings of about $35 million per quarter. And so you can see that that's a net positive. Longer term, that's our expectation, right? So we would expect to see kind of that largely neutral that has an expected component and a risk margin. So maybe over time, we'd expect to see a slight positive from that in terms of net release of those risk margins. But that gives you a sense of kind of what we would expect longer term. I appreciate the color.
Speaker Change: Sure I can give you a kind of a high level, we see a release in the expected investment earnings of about $35 million per quarter, and so you can see that that's a net positive.
Speaker Change: Longer term, that's our expectation right. So we would expect to see kind of that.
Speaker Change: Largely neutral that has an expected component and a risk margin. So maybe over time, we'd expect to see a slight positive from that in terms of net release of those risk margins does that gives you a sense for kind of what we would expect longer term.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: Yeah.
Gabriel Dechaine: Thank you. The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.
Speaker Change: Our next question is from gasoline out of the chain with National Bank Financial. Please go ahead.
Gabriel Dechaine: Yeah, good morning. First question just on the CRE stuff, both in the, you know, the investment experience, and it sounds like an SLC. I heard that the negative investment experience in CRE mostly was tied to industrial this quarter. And then, in addition to that, there was seed capital losses or no gains, whatever, in an industrial fund. Is that what I'm hearing? Hi, Gabriel. It's Randy Brown.
Yes. Good morning first question just on the.
Gasoline: CRE stuff both in.
Gasoline: You know the investment experience so it sounds like a S. L. C. I heard you know the the negative investment experience in theory, mostly was tied to industrials. This quarter and then in addition to the seed capital losses or no games, whatever and in a in an industrials funded.
Gasoline: Is that the the but what I'm hearing.
Randolph Brill Brown: So thank you for the question. Yeah, the losses that we saw in CRE this quarter, I'll talk about at the overall level, and then Steve wants to comment on SLC.
Gasoline: Hi, Gabriel its it's Randy Brown. So thank you for the question.
Gasoline: Yes.
Randolph Brill Brown: Losses that we saw in CRE. This.
Randolph Brill Brown: The quarter I'll talk about the overall level and it is Steve.
Randolph Brill Brown: On.
Randolph Brill Brown: So we went down about 1% total rate of return so despite the headlines and everything.
Randolph Brill Brown: That disaster and real estate portfolio is actually thing quite well.
Randolph Brill Brown: Really benefiting from the restructuring that I talked about in the past.
Randolph Brill Brown: The valuation dropped was mostly industrial but also office.
On industrial specifically.
Randolph Brill Brown: Evaluation changes, Steve touched on it but really based on a couple of factors for us for the general color was primarily in the inland Empire inland from La So it services support we had seen outsized gains there in prior quarters. This quarter, we had a cap rate and yield.
Randolph Brill Brown: So we were down about 1% in total rate of return. So despite the headlines and everything we read about the disaster in real estate, the portfolio is actually faring quite well, really benefiting from the restructuring that I've talked about in the past. The valuation drops were mostly industrial, but also office on industrial specifically. The valuation changes, Steve touched on it, were really based on a couple of factors. For us, for the general account, it was primarily in the Inland Empire, in inland from LA, so it services the ports.
Randolph Brill Brown: We had seen outsized gains there in prior quarters. This quarter we had cap rate and yield decompression, which we expected, but also a drop in the achievable rent. So there have been very strong development completions and extensive growth in that specific area throughout the pandemic, which has led to an oversupply bubble that's putting downward pressure on rents. So it's not only cap rates decompressing; you saw forward rent growth expectation drop. Now that the oversupply is expected to be temporary. Industrial completions dropped to the lowest level in 14 years there.
Randolph Brill Brown: Compression, which we expect.
Randolph Brill Brown: But also dropping the achievable rents.
Randolph Brill Brown: There had been very strong development completions and extensive growth.
Randolph Brill Brown: That specific area throughout the pandemic.
Randolph Brill Brown: Led to an oversupply bubble, that's putting downward pressure on rents. So it's not all cap rates compressing yourself forward rent growth expectation drop now that oversupply, we expect to be temporary.
Randolph Brill Brown: Yes.
Randolph Brill Brown: Just real completions dropped to the lowest level in 14 years there.
Randolph Brill Brown: Overall, that being said, our portfolio, they're 100% occupied strong tenant, Unknown Attendee, Unknown Shareholder, Unknown Shareholder, Unknown Shareholder, Unknown Shareholder, Unknown Shareholder, But we've seen the pace of those drops slow. Yes, it sounds like a temporary supply issue, not a secular type thing we're seeing in office. Yeah, can we play it?
Randolph Brill Brown: Overall that being said our portfolio, they're 100% occupied strong tenants.
Randolph Brill Brown: Handed lease terms, so doing quite well.
Randolph Brill Brown: Office continues to experience negative valuation changes again, it's the market seeks a floor.
Randolph Brill Brown: But we've seen the pace of those drops slowing down yes.
Randolph Brill Brown: So it sounds like a temporary supply issue not a secular type thing where thing in office.
Randolph Brill Brown: Completely.
Gabriel Dechaine: Okay, and moving on to this DentaQuest stuff, I, you know, this is a really silly question, but were you caught off guard by this, you know, the redetermination impact and then the kind of claim dynamic where, you know, the coverage that was trimmed or purged had lower utilization? Because, I mean, it certainly caught me off guard. And because this is a year where we're expecting to hit that, you know, $100 million of USDA earnings contribution, and that I guess is getting pushed back to next year, right?
Randolph Brill Brown: Okay.
Randolph Brill Brown: Moving onto this Gunther credit stuff.
Speaker Change: Great question.
Speaker Change: Silly, one, but where you caught off guard by this oh, the Redetermination impact and then the kind of the claims dynamic where you know the coverage that was trimmed are purged had lower utilization rates because.
Speaker Change: It certainly caught me off guard.
Speaker Change: And because this is a year, where we were expecting to hit the $100 million of.
Speaker Change: U S D anyway earnings contribution or not I guess, it was getting pushed back the next year right.
Gabriel Dechaine: Yeah, so, you know, we certainly expected the redeterminations to happen. And, you know, there was some uncertainty if you go back to when the transaction was announced as to when that would occur. And the Biden administration decided to extend the public health emergency longer and longer until the spring of last year.
Speaker Change: Yeah. So you.
Speaker Change: We certainly expected the redetermination to happen and there was some uncertainty if you go back to when the transaction was announced as to when that would occur.
Speaker Change: And the the biking administration decided to extend the public health emergency longer and longer until the spring of last year. So membership had excess membership has certainly accumulated we certainly expected that there would be some impact on the loss ratio because those who were being just enrolled we're more likely to <unk>.
Daniel Richard Fishbein: So membership had, you know, excess membership had certainly accumulated. We certainly expected that there would be some impact on the loss ratio because those who were being disenrolled were more likely to already have other coverage from getting a job or so forth. So we knew there would be that effect.
Speaker Change: Already have other coverage from getting a job or so forth. So.
Speaker Change: We knew there would be that in fact, the size of that impact, though I think has surprised everyone including us.
Daniel Richard Fishbein: The size of that impact, though, has surprised everyone, including us and including the state. So I think this was anticipated, but the size of the impact was greater than we anticipated. I guess another way to look at it is maybe the redeterminant, as you alluded to, the... You know, the redeterminations were pushed out, so.
Speaker Change: And including the state. So I think this was anticipated, but the size of the impact was greater than we anticipated.
Speaker Change: I guess another way to look at it as maybe the Redetermination alluded to the other.
Speaker Change: Yeah.
Speaker Change: The redetermination that were pushed out so.
Daniel Richard Fishbein: Maybe there's stuff that you would have expected to happen in, you know, late 2022 into 2023 and you'd be back on track in 24. It's more of a kind of byproduct of the extension of a pandemic relief program, right? Yeah, I think exactly that.
Speaker Change: Maybe the stuff that you would've expected to have happened in late 2022 into 'twenty three I think it would be back on track in 44, it's more of a.
Sort of a byproduct of our extension of our of our pandemic relief program right.
Daniel Richard Fishbein: And in fact, you know, during the pandemic, our earnings were quite favorable and grew and grew at a stable rate, which is kind of remarkable with all of the impacts that we were having. So we were benefiting in the Sun Life US business from a uniquely diversified set of businesses. Of course, there was a very big negative impact on our group life business.
Speaker Change: Yes, I think exactly and in fact, we.
Speaker Change: During the pandemic.
Speaker Change: Our earnings were quite.
Speaker Change: Favorable end grew and grew at a stable rate, which is kind of remarkable with all of the impacts that we were having so we were benefiting in the Sun life U S business from a uniquely diversified set of businesses of course, there was a very big negative impact on our group life business and then there were positive impacts on the stock.
Speaker Change: Lost business from lower health care utilization, then in the dental business from the inflated Medicaid membership.
Daniel Richard Fishbein: And then there were positive impacts on the stop loss business from lower health care utilization and in the dental business from the inflated Medicaid membership. Thankfully, the mortality impact in group life wound down about a year ago, whereas these two, you know, more positive tailwind effects on stop loss and dental are winding down now. Had they all wound down in synchrony at the same time, we hardly would have noticed this.
Speaker Change: Thankfully the mortality impact on group life wound down about a year ago, whereas the two more positive tailwind effects in stop loss and dental are winding down now have they all wound down and synchrony at the same time, we hardly would've noticed us.
Daniel Richard Fishbein: Okay, and if I could sneak one more in there, apologies to the IR team, but Kevin had mentioned in his opening remarks that the morbidity experience and group is now in line with pre-COVID levels, something along those lines. There's been a lot of more positive quarters in that morbidity bucket over the past couple of years, and it's back to normal. Is there a run rate, due price for an expectation of morbidity gains? And if so, what kind of range should we be anticipating?
Speaker Change: Okay, and then if I could sneak one more in there and I apologize to the IR team, but the.
Speaker Change: Kevin had mentioned in his opening remarks that the morbidity experience in group is now in line with pre Covid levels something along those lines, there's been a lot of more positive quarters and that the morbidity bucket over the past couple of years and back to normal as there were a run rate do you price for an expectation of morbidity.
James and if.
James: So what kind of.
James: <unk>, we should be anticipating because like last quarter was really high didn't view that as sustainable and maybe this quarter is more normal I I just want to get a better sense of that please.
Daniel Richard Fishbein: Because last quarter was really high, I didn't view that as sustainable. Maybe this quarter is more normal. I just want to get a better sense of that, please. Yeah, and what that is specifically referring to is stop loss, the stop loss portion of the group. Throughout the pandemic, we were experiencing, you know, exceptional morbidity.
James: Yeah, and what that is specifically referring to is stop loss the stop loss portion of group.
James: Throughout this pandemic we were experiencing.
James: Exceptional morbidity well the loss ratio was well below what we price for and we've been saying throughout that period that it would gradually returned to what we price where it has to do and in the first quarter.
Daniel Richard Fishbein: Well, you know, the loss ratio was well below what we priced for, and we've been saying throughout that period that it would gradually return to what we priced it for. It has to. And in the first quarter, the loss ratio is now fairly close to our pricing loss ratio. We priced to about a 72.5% loss ratio, and we're approaching that number. That still generates very favorable margins. And, in fact, we're still somewhat favorable.
Loss ratio is now fairly close to our pricing loss ratio.
James: We price to about a 72, 5% loss ratio and we're approaching that number.
James: That still generates very favorable margins and in fact, we're still somewhat favorable so I think the way of thinking about it is stop loss is still performing well generating higher than its.
Daniel Richard Fishbein: So I think the way of thinking about it is stop loss is still performing well, generating higher than its, you know, strong margins, but just not as favorable as it was during the pandemic and after effects of the pandemic. Hey, Kevin, I might add two things to that.
James: Strong margins, but just not as favorable as it was during the pandemic and after effects of the pandemic.
Kevin David Strain: First, we're a leading provider in the stop loss business in the US, and we have been for years. So we have really strong capabilities. And we've been adding things like pinnacle care, which makes those pricing ratios even more sustainable. And as Dan was saying, you were seeing earlier on higher mortality through COVID and better morbidity, you're seeing both of these have a very strong margin. The combined group benefits were over 9% in the quarter.
Speaker Change: Hey, Kevin I might add two things to that first we're a leading provider in the in the stop loss business in the U S and we have been for years. So we have really strong capabilities and we've been adding things like clinical cure, which makes that those pricing ratios, even more sustainable and as Dan was saying you were seeing earlier on.
Higher mortality through Covid and better morbidity, you're seeing both of these have a very strong margin the combined.
Speaker Change: Group benefits was over 9% in the quarter, so you've seen that that business to do well and you know our expectation is we would continue to do well given our position and our investments in our investments into digital and the other thing I would say is on the dent to quest because I know there's a lot of question. The modem to quest, we still think it's a very good acquisition. It added capabilities, we didn't have it at.
Kevin David Strain: So you're seeing that that business does well. And you know, our expectation is that we would continue to do well, given our position and our investments and our investments into digital. The other thing I would say is on DentaQuest, because I know there are a lot of questions about DentaQuest. We still think it's a very good acquisition, it added capabilities we didn't have, it added scale. We are pushed back probably approximately a year or a little bit if you think about that US dollar 100 million in 2025.
Speaker Change: At scale, we are pushed back probably approximately a year a little bit. If you think about that U S dollar $100 million in 2025, but we're still a big believer in this business and the acquisition. We did in that it's going to meet the long term objectives, we had for the business and I think you've heard that from Dan as he talked about what what's happened it's not been.
Kevin David Strain: But we're still a big believer in this business and the acquisition we did and that it's going to meet the long-term objectives we had for the business. And I think you've heard that from Dan as he talked about what happened. It's not been a straight line, you can see that. But, you know, we think we still have the thesis that we started with and the capabilities and the scale that it built. Okay, have a good weekend.
Speaker Change: Straight line you can you can see that but we think we are we still have the thesis that we started with them the capabilities and the scale that it built.
Speaker Change: Okay I have a good weekend.
Speaker Change: Okay.
Speaker Change: Okay.
Paul David Holden: The next question is from Paul Holden with CIBC. Your line is open. Thanks, good morning. Most of the questions have been taken, but I have one more on the US group. Lots of references to run rate earnings and dental of US $100 million a year. Are you able to give us what it was for the quarter? Just to give us a sense of upside from here. Well, in dental for the quarter, it was $6 million for the quarter, and that's in our materials.
Speaker Change: The next question is from Paul Holden with CIBC. Your line is open.
Paul David Holden: Thanks. Good morning, most of my questions have been taken but one more on U S crew lots of references to run rate earnings in dental of U S $100 million a year.
Paul David Holden: Are you able to give us what it was for the quarter.
Paul David Holden: Just to give us a sense of upside from here.
Speaker Change: Well yeah.
Speaker Change: Dental in the quarter. It was 6 million for the quarter and that's in our materials and it's just an additional comment on the $100 million that we've mentioned several times, that's really what we're saying is our thinking for 2025, but as Kevin just said longer term, we think it's obviously higher than that but still equal.
Paul David Holden: And just an additional comment on the $100 million that we've mentioned several times, that's really what we're saying is, you know, our thinking for 2025. But as Kevin just said, longer term, we think it's obviously higher than that, still equal to or greater than what we anticipated when we announced the transaction. The growth trajectory of the business is very good.
Speaker Change: Two were greater than what we anticipated when we announced the transaction, but the growth trajectory of the business is very good. This this temporary redetermination issue notwithstanding and in fact, we are winning new contracts. We are winning major new contracts, we're bringing contracts from competitors. We also have significant.
Daniel Richard Fishbein: This temporary redetermination issue notwithstanding, and in fact, we're winning new contracts, we're winning major new contracts, we're winning contracts from competitors. We also have a significant opportunity to grow not just in the Medicaid business but in Medicare Advantage and in commercial. The commercial business has had a really good growth trajectory over the past year. And as of January 1, we added our largest Medicare Advantage contract ever.
<unk> to grow not just in the Medicaid business, but in Medicare advantage and in commercial the commercial business has had a really good growth trajectory of the past year and as of January 1st we added our largest Medicare advantage contract ever so theres a lot of future potential here.
Daniel Richard Fishbein: So there's a lot of future potential here to continue growing this business. And then I want to go back to the discussion quickly on MFS and the expenses there. I mean, if I just look at the average asset growth versus the earnings growth, there's a pretty big difference there. So I guess that some of it was.
Speaker Change: To continue growing this business.
Speaker Change: Got it okay.
Speaker Change: And then I want to go back to the discussion quickly on NFS and expenses. There I mean, if I just look at the average asset growth versus the versus.
Speaker Change: Versus the earnings growth it was a pretty big difference there. So I guess that some of it was.
Attributable to the to the additional compensation expense, but I'm, assuming like that's not normally what we would expect over time. So again was was there any kind of true up or top up maybe it's related to time of year on that.
Speaker Change: And if we thought about sort of the 8% type average earnings asset growth over time, what kind of earnings growth should we attribute to that.
Michael William Roberge: As I said before, if you think about it, the U.S. gap is that we had revenues 5% year-over-year in the quarter, we had expenses up 4%, and we had pre-tax earnings up 7% in the quarter. And then there's deferred comp and the stock price, which comes through the P&L for an IFRS perspective. And so from a U.S. gap in terms of the model that we managed to, the business performed as you'd expect, with revenues up as ANA was up, and some operating leverage relative to that.
Speaker Change: Yeah, I mean, maybe this is Mike maybe I'll piggyback, whereas I said before as well.
Speaker Change: If you think about it in U S. GAAP is we had revenues 5% year over year in the quarter. We had expenses up four got earning pretax earnings up 7% in the quarter.
Speaker Change: And then there's deferred comp and the stock price, which comes through the P&L for an I O F.
Speaker Change: <unk> perspective, and so you know from a U S. GAAP in terms of the model that we manage to the business performed as you'd expect with revenues up as D&A was up some operating leverage relative to that.
Michael William Roberge: And the things that run through the P&L from a deferred comp true-up on the stock price side are issues that impact longer-term compensation, and they'll come in, and they'll come out of the profitability of the quarter. Okay, so again, really, it's just IFRS noise. Okay. One more. I want to sneak in, if you don't mind.
And are the things that run through the P&L from a deferred comp true up on the stock price side or.
Speaker Change: Issues that impact longer term compensation and they'll come in and they'll come out of the profitability of the quarter, but we think U S. GAAP is a better representation from our perspective of how the business is being managed.
Speaker Change: Okay took out it really is just.
Speaker Change: Noise okay.
Speaker Change: One more.
Speaker Change: So you can if at all if you don't mind just on SLC wondering if can find us an update on the capital fundraising outlook for the year. Thank you.
Paul David Holden: Just on SLC, wondering if you can provide us with an update on the capital fundraising outlook for the year. Thank you. Yeah, thanks, Paul. It's Steve.
Stephen Clarkson Peacher: You know, you saw in the quarter that we raised, and garnered new commitments of about three and a half billion dollars. We were a positive net flow, which also takes into account our ability to put money to work for about two of about 2.9 billion into fee-earning AUM. And we would expect fundraising to increase over the year for a couple of reasons. One, and that's largely related to some big funds that we have, we're initiating fundraising on. So in particular, we have two large Crescent funds, one that is on its fourth series, and one that is on its ninth. We should be seeing first closes for both of those funds this year.
Speaker Change: Yes, Thanks, Paul it's Steve.
Steve: Saw in the quarter that we.
Steve: <unk> raised.
Steve: Garnering new commitments of about three five.
Steve: We were a positive net flow, which also takes into account.
Steve: To put money to work for about two of about $2 9 billion into fee, earning AUM and we would expect fundraising to increase over the year for a couple of reasons, one and that's largely related to some big funds that we have we're initiating fundraising on so in particular, we have two large question funds.
One is that is on its fourth series one status on its night series, we should be seeing first closes this year for both of those funds. So that will have an impact.
One thing I would say, though in general, especially on the real estate side is that with interest rates over the last couple of years, having gone from effectively zero to slightly above 5%.
Stephen Clarkson Peacher: So that will have an impact. One thing I would say, though, in general, especially on the real estate side, is that with interest rates over the last couple years having gone from effectively zero to slightly above 5%, you know, on the real estate side, that is a headwind for fundraising. So we think fundraising will increase given the different funds we have in the market, which are very specific: industrial fund, cold storage fund, an Asia fund that's, you know, done very well.
Steve: On the real estate side that is a headwind for fundraising. So we think fundraising will increase given the different funds. We have in the market, which are very specific industrial fund cold storage Fund an Asia fund it.
Stephen Clarkson Peacher: We are facing a headwind, especially in real estate, in terms of interest rates. And obviously, there was a projection in the market going back a few months that we would see the Fed cutting rates and interest rates going down. That would obviously help us.
Steve: It's done very well, we are facing a headwind, especially in real estate in terms of interest rates and obviously there was a protection in the market going back a few months that we would see the fed cutting rates and interest rates going down and that would obviously help us I think those expectations have been tempered.
Stephen Clarkson Peacher: I think those expectations have been tempered, you know, and so we have to deal with that reality in the market. But we do have some big funds coming online, which will help us over the course of the year. All right, that's it for me. The next question is from Lemar Persaud with Cormark.
Steve: And so we have to deal with that reality in the marketplace, but we do have some big funds coming online, which will help us over the course of this year and into next.
Speaker Change: Alright, that's it for me thank you.
Speaker Change: The next question is from Lamar Prasad with Carmike. Please go ahead.
Lemar Persaud: Please go ahead. Yeah, thanks for taking my question. So I'll start off on SLC. I wonder if you could talk about what gives you the confidence in this $235 million by 2025 in the context of higher for longer rates? Like, is there a real risk that we could be talking about more mark to market losses in this business kind of weighing down earnings, or is the rate outlook not a material consideration and getting to this $235? Well, thanks, Lamar, for the question. I would say a couple things.
Lamar Prasad: Yeah. Thanks for taking my question. So I'll start off on the S. L. C. I Wonder if you can talk about.
What gives you the confidence in this.
Lamar Prasad: $235 million by 2025 in the context of higher for longer rates like is there a real risk that we could be talking about more mark to market losses in this business kind of waned.
Weighing down earnings or is the rate outlook not a material consideration in getting to this $235 million.
Lamar Prasad: Well.
Speaker Change: Thanks Omar for the question I would say a couple of things one is the.
Lemar Persaud: One is, you know, the rate environment is a significant market environment that comes into play, and it has some puts and takes for us. But I would say net net higher rates are a negative for us, like they are for most investors. On the negative side, it's tougher to raise real estate funds when rates are higher. Rates impact the ability to deploy money because of the dislocation, especially in real estate, between buyers and sellers.
Speaker Change: The rate the rate environment is.
Speaker Change: A significant.
Speaker Change: Market environment that comes into play in it. It has some puts and takes for us, but I would say net net higher rates or a negative for us like they are for most investment businesses on the negative side. It makes it's tougher to raise real estate funds when rates are higher.
Speaker Change: Rates impact the ability to deploy money because of the dislocation, especially in real estate between buyers and sellers and deploying money is important to us because we have a big 20 ish million dollars of committed but uninvested capital and would you only get paid fees when we invest that capital.
Stephen Clarkson Peacher: And deploying money is important to us because we have a big $20-ish billion of committed but yet uninvested capital, and we generally get paid fees when we invest that capital. It can have an impact, obviously, on valuations in real estate and in fixed income. And our fees are paid based on valuations, so that can be a headwind.
Speaker Change: It can have an impact obviously on valuations in real estate and in fixed income and our fees are paid on valuations so that can be a headwind.
Stephen Clarkson Peacher: It can help us, though. So it makes fixed income assets, in general, more attractive on a relative value basis. So we've seen good demand for our fixed income capabilities. And the other thing is that our private credit capabilities, those tend to be floating rates. So you can earn 10-plus percent on a private credit portfolio today, and that's attractive for investors on a relative value basis.
Speaker Change: It can help us so it makes fixed income assets in general more attractive on a relative value basis. So we've seen good demand for our fixed income capabilities and the other thing is on our private credit capabilities those tend to be floating rate. So you can earn 10 plus percent on our private credit portfolio today, and that's attractive for investors on a relative.
Stephen Clarkson Peacher: But that's certainly a headwind that we have to face. I think there are a couple of things that give me confidence as we go into next year. So our asset classes go from investment grade fixed income, both on the public and private side, below investment grade, both public and private and in fixed income, real estate equity, but also real estate debt, which is an important area for us. And that's particularly, it's particularly attractive to be a real estate lender in this market. We've got the infrastructure, of course.
Speaker Change: Value basis, but that's certainly a headwind that we have to face I think what gives US a couple of things that give me confidence as we go into next year. One is that we have but I think this was intentional as we built a cell C. We have a very diversified platform.
Speaker Change: Our asset classes go from investment grade fixed income both on the public and private side below investment grade, both public and private and in fixed income real estate equity, but also real estate debt, which is an important area for us and thats, particularly it's particularly attractive to give real estate lender in this market. We've got infrastructure of course, so I think you.
Stephen Clarkson Peacher: So I think you see the diversity of that of SLC when you look at how our fundraising changes. And I think that gives us confidence that while we have to deal, we're always going to have to deal with some headwinds and tailwinds in the market, that it should allow us to do that. The other thing that I'll say is that we've intentionally really managed what we call the affiliates, so BGO, Crescent, and Infrared, separately during this interim period between our initial investment and the back end of those deals.
Speaker Change: See the diversity.
Speaker Change: Of that Oh, that's all see when you look at how our fundraising changes quarter to quarter and I think that gives us confidence that while we have to deal we're always going to have to deal with some headwinds some tailwind in the market.
Speaker Change: But it should allow us to do that the other thing that I'll say is that we've intentionally really managed what we call. The affiliate so pgi Crescent infrared separately. During this interim period between our initial investment in the back into those deals we're approaching the back into those deals we call them internally refer to them as to put calls.
Stephen Clarkson Peacher: We're approaching the back end of those deals; we call them, we internally refer to them as the put calls. As we do that, as we start to announce leadership that will transcend the put call, I think we're going to start to think increasingly about, you know, what are synergies across the platform? What are dots we can connect across the platform?
Speaker Change: As we do that as we start to announce leadership that will transcend the put call I think we're going to start to think increasingly about.
Speaker Change: What are the synergies across the platform what are das we can connect across the platform and I think the.
Speaker Change: We're going to be especially prevalent on the distribution side and so I think that's going to help us.
Stephen Clarkson Peacher: And I think those are going to be especially prevalent on the distribution side. And so I think that's going to help us turbocharge growth at the platform level. So I'll give you, you know, one quick stat.
Speaker Change: Turbocharge growth at the platform level, So I'll give you one.
Speaker Change: A quick stat I think across the platform, we've got something like 3500 institutional clients.
Stephen Clarkson Peacher: I think across the platform, we've got something like 1300 institutional clients. Only about 50 of those clients invest with us in more than one area across our platform. That number should be much higher.
Speaker Change: Only about 50 of those clients invest with us in more than one area across our platform that number should be much higher and I think as we start to really try to connect those dots working that's going out we're going to see that helped us as well.
Stephen Clarkson Peacher: And I think as we start to really try to connect those dots, we're going to see that help. The bottom line, you feel like you can still deliver on this, even if we don't even if rates don't really move into 2025, just given the puts and takes of that kind of bottom line. Yeah, I'll say it another way. I don't think our ability to achieve that, to hit that target, is dependent upon rates falling. I hope they will do so.
So bottom line you feel like you can you can still deliver on this even if for even if rates don't really move into to enter 2025, just given the puts and takes of that kind of the bottom line.
Stephen Clarkson Peacher: It'll make things easier for us, but I think we can work through it if they don't. If they don't, I appreciate it. And then my second question is just on the expectation for dental earnings in 2024. So $6 million this quarter and a week in Q2, so say somewhat in line with that. But then what happens in the back half of the year?
Speaker Change: Yeah, I'll say it a different way I don't think our ability to achieve that to hit that target is dependent upon rates falling I hope they do.
Speaker Change: It will make things easier for us.
Speaker Change: But I think we can work through it if they don't.
Speaker Change: Don't fall from there.
Speaker Change: Okay I appreciate it and then my second question just on.
Speaker Change: The expectation for dental earnings in 2024, so $6 million this quarter and a weak Q2, so say somewhat in line with that but then what happens in the back half of the year or is it just a gradual build to get into that kind of $25 million a quarter in 2025, I'm just trying to figure out how to model. This for the remainder of the year just given all the moving parts are.
Lemar Persaud: Is it just a gradual build to get into that kind of $25 million a quarter in 2025? I'm just trying to figure out how to model this for the remainder of the year, just given all the moving parts, the redeterminations, the repricing on DentaQuest, and premiums from 2023 sales coming online. So any help there would be helpful.
Speaker Change: Redetermination, the repricing them down to quest and premiums from 2023 sales coming online. So any help there would be helpful.
Daniel Richard Fishbein: Yeah, I don't think we can, you know, give specifics quarter by quarter, but generally, we would expect the results to start getting significantly better in the third and especially the fourth quarters. And that relates to the timing of the rate increases. So we have three very large contracts yet to have their rates reset. One is on 7-1, one is on 9-1, and one is on 10-1.
Speaker Change: Yeah, I don't think we can you know give specifics quarter by quarter, but generally we would expect the results to start getting significantly better in the third and especially the fourth quarters and that relates to the timing of the rate increases. So we have three very large contracts.
Speaker Change: Debt to have their rates reset one is on 711 is on nine one and one is on 10 one.
Daniel Richard Fishbein: So that affects, you know, the way we think about it. In addition, we have other initiatives, expense initiatives, and claim management initiatives that are coming into play as well. Many of those will play out in May and June.
Speaker Change: That affects the way we think about it. In addition, we have other initiatives expense initiatives claim management initiatives that are coming into play as well.
Many of those are playing out in May and June so that would actually start to help us in the third quarter.
Daniel Richard Fishbein: So that would actually start to help us in the third quarter. But we would expect, you know, meaningful improvement in the third and especially the fourth quarter. Thanks for that, guys. The next question is from Nigel D'Souza with Veritas Investment Research. Your line is open.
We would expect meaningful improvement in the third and especially the fourth quarter.
Speaker Change: Okay. Thanks for that guys.
Speaker Change: The next question is from Nigel D'souza with Veritas investment Research your line is open.
Nigel D'Souza: Good morning. Good morning. Thank you for taking my question. I wanted to first follow up and clarify on the last favorable U.S. morbidity experience for stop loss. Just want to confirm if I understand it correctly the utilization rate, the normalized pre-pandemic levels.
Nigel D'Souza: Good morning. Good morning. Thank you for taking my question I wanted to first.
Nigel D'Souza: Just follow up in <unk>.
Nigel D'Souza: Clarify on.
Nigel D'Souza: Less favorable U S morbidity experienced staff loss just wanted to confirm if I understand it correctly that utilization rate.
Nigel D'Souza: The normalized pre pandemic levels.
Daniel Richard Fishbein: I think I heard you say that was driven by a resolution of capacity issues. Just want to confirm if that's correct. And, of course, the implication there is that we're now at, I guess, the normal run rate for morbidity experience for that business. Is that the way you would think about it?
Nigel D'Souza: Or would you say that was driven by progressive boosting our capacity issues just want to confirm if that's correct and of course the implication there is that we're now.
Nigel D'Souza: The normal run rate for morbidity experience for that business, because that's the way to think about it.
Daniel Richard Fishbein: Well, the first part of what you said is, you know, what we said, absolutely. We've seen provider capacity, and that's largely been a staffing issue, recovered to pre-pandemic levels, or at least very close to pre-pandemic levels. And we've seen utilization move in concert with that. It seems to be stabilizing. And this is based on external data.
Nigel D'Souza: Well.
Nigel D'Souza: The first part of what you said is you know is what we said, yes, absolutely we've seen provider capacity and that's largely been a staffing issue recover to pre pandemic levels or at least very close to pre pandemic levels.
Nigel D'Souza: And we've seen utilization move in concert with that it seems to be stabilizing and this is based on external data.
Nigel D'Souza: I would think about that for our business as we've seen the morbidity which had been.
Daniel Richard Fishbein: The way I would think about that for our business is we've seen the morbidity, which had been, you know, favorable beyond our expectations, return back close to where we would expect it to be, not quite where we'd expect it to be, but close to that level. So, you know, we still are generating favorable margins and favorable to our pricing, but certainly not as favorable as in the past. I'm not sure we can predict precisely what the morbidity will be each quarter. Remember, there is some volatility in this as well. But you know, certainly we're close to pre-pandemic levels at this point. Sorry, Nigel. Sorry, sorry, it's Kevin.
Nigel D'Souza: Favorable beyond our expectations returned back close to where we would expect them to be not quite where we'd expect them to be but close to that level.
Nigel D'Souza: So we still are generating favorable margins and favorable to our pricing.
Nigel D'Souza: But certainly not as favorable as in the past.
Nigel D'Souza: Weather.
Nigel D'Souza: Not sure we can predict precisely what the morbidity will be each quarter remember there is some volatility in this as well.
Nigel D'Souza: But.
Nigel D'Souza: Certainly we're close to the pre pandemic levels at this point.
Kevin David Strain: You know, like all of our businesses, and especially if you think about health and risk solutions, the stop loss business in the US, given the investments we've made, we expect that business to grow both top line and bottom line alongside of it. So as Dan talks about the margins coming back in, we still expect growth in that business overall, for the long term, because we really have a unique position there versus our competitors. I got it.
Speaker Change: Great and then I guess.
Speaker Change: Sorry, Nigel sorry, sorry, it's Kevin.
Kevin: Like all of our businesses and especially if you think about.
Kevin: Health and risk solutions, the stop loss business in the U S. Given the investments we've made we expect that business to grow topline and Bottomline alongside of it. So is the Dan talks about the margins coming back in we still expect growth in that business overall.
Kevin: For the long term, because we really have a unique position there versus our competitors.
Kevin: Okay.
Nigel D'Souza: That makes sense. And I think where we're going with this is, you know, when you look at your experience gain last year, it was about 300 million favorable, and trying to think through what makes up for that shortfall if, you know, we assume the experience is more neutral this year. I think you could point to growth in Asia, higher CSM energization, you know, Sun Life Asset Management delivering, Unknown Attendee, Unknown Shareholder, Doug Young, Gabriel Dechaine, Daniel Fishbein, Hi, Nigel. It's Tim.
Speaker Change: That makes sense and I think where we're going with this is you know when you look at your experience gains last year it was about $300 million.
Speaker Change: Verbal and trying to think through what makes up for that shortfall. If you know assuming experiences more neutral this year.
Speaker Change: You could point to growth in Asia high Fcs and amortization.
Speaker Change: Somebody that Sun life asset management delivery.
Speaker Change: Higher underlying income as well, but I was wondering if you could touch on another component the investment earnings and earnings on surplus.
Speaker Change: Look for that this year.
Speaker Change: This quarter was.
Speaker Change: Also we saw despite pretty.
Speaker Change: Pretty constructive financial market conditions to start the year, so any color there would be helpful.
Tim Deacon: I can take the question on earnings on surplus. You'll see in our disclosures, we break that into three components. We have what we call core investment income, and that's really from the portfolio that's backing our surplus. And that's predominantly in fixed income, like securities. And so you see a nice uptick from year over year and even quarter over quarter. And that's really because of the higher yields that we're generating in that portfolio, given the current environment.
Speaker Change: Hi, Nigel it's Tim I can take the question on the earnings on surplus so.
Tim Deakin: You'll see in our disclosures, we break that into three components. We have what we call core investment income and that is really from the portfolio. That's backing our surplus and that's predominantly in fixed income securities and so you see a nice uptick from year over year, and even quarter over quarter, and that's really because of the higher yields that we're generating on that portfolio given the current environment.
Tim Deacon: But there are a couple other pieces that are a little bit more variable, the second one being the realized gains on losses that are realized on the fair value of OCI securities. Last year, we had strong gains, particularly in Canada, on that portfolio. We had modest gains this quarter, and we had slight losses last quarter, so that bounces around a little bit. And that's really dependent on the rate environment in terms of what's the accumulated unrealized gain or loss balance in that portfolio.
Tim Deakin: But there's a couple of other pieces that are a little bit more variable in the second one being the realized gains and losses that are realized on the fair value through OCI securities and in last year, we had strong gains, particularly in Canada on that portfolio.
Tim Deakin: We had modest gains this quarter, we had a slight losses last last quarter, so that bounces around a little bit and that's really dependent on rate environment in terms of what's the accumulated unrealized gain realized balance in that portfolio and then finally the loss.
Tim Deacon: And then finally, the last item, which we described as other really has mark to market components from derivatives and other hedging activities, and that bounces around a little bit, but it's not in the material.
Tim Deakin: Item, which we described as other really has mark to market components from derivatives and other hedging activities and that that bounces around a little bit, but it's not as material. So overall you've seen.
Tim Deacon: So overall, you've seen,,,,,,,,,,,,, Anything on investment? Yeah. Yeah. Hi Nigel. It's Randy.
Tim Deakin: Healthy earnings on surplus and.
Tim Deakin: Offsetting all of that we have interest on debt and that's come down a bit just because we've had some repayments of some of our financing so healthy portfolio, mostly fixed income will be rate dependent.
Tim Deakin: Okay.
Speaker Change: Anything on that investment.
Randolph Brill Brown: I'll address, I think what you're getting at here is credit. I think Kevin Morrissey covered in a sense that overall credit experience was overall positive for the quarter, the actual experience being less than what's used in the assumptions for liability. We did, however, see three impairments that I would say are not systemic but rather specific liquidity issues that all three began during COVID and then just manifested over time. So having, you know, literally thousands of credits, it is not unexpected to have a couple hit issues at any given time. Net migrations were flat, and ECL was lower than in prior quarters.
Speaker Change: Yeah, Hi, Nigel it's Randy.
Randolph Brill Brown: I'll address.
Randolph Brill Brown: I think what you're getting at here is its credit I think Kevin Morrissey covered in a sense overall credit experience with.
Randolph Brill Brown: Overall was positive for the quarter, the actual experience being less than what's assumed in the assumption what's used in the assumption for liability.
Randolph Brill Brown: We did however see three.
Randolph Brill Brown: Impairment did I would say or not.
Randolph Brill Brown: Systemic, but rather specific liquidity issues.
Randolph Brill Brown: All three began during Covid and then just manifested over time so having.
Literally thousands of credits not unexpected to have a couple.
Randolph Brill Brown: Two issues at any given time.
Randolph Brill Brown: Net migrations were flat ECL was lower than in prior quarters. So.
Randolph Brill Brown: You know, you did see lumpiness by business group, but we manage on a global basis, and globally, the diversified portfolio is performing as expected. Okay, that's all for today. We have a follow-up question from Meny Grauman with Scotiabank. Your line is open.
Randolph Brill Brown: You did see Lumpiness by business group, but we manage on a global basis and globally.
Randolph Brill Brown: <unk> portfolio is performing as expected.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Yeah.
Meny Grauman: Hi, thanks for taking the follow-up. Just wanted to follow up on Mario's question, just ask: is there any reason to believe that you won't be able to hit an 18% ROE for the remainder of the year? It sounds like dental redemptions are too small to push you off track on that, but just wanted to get your thoughts on that connecting it to the ROE. Well, our ROE is 18% as a median.
Unknown Attendee: We have a follow up question from many Grumman with Scotiabank. Your line is open.
Unknown Attendee: Hi, Thanks for taking the follow up just wanted to follow up on Mario's question. Just ask is there any reason to believe that you won't be able to hit an 18% Roe.
Unknown Attendee: For the remainder of the area. It sounds like dental redemptions are too small to push you off track on that but just wanted to get your thoughts on that connecting it to the army.
Unknown Attendee: Well, our ROE present at the meeting.
Meny Grauman: Sorry, there's feedback there. But it is a medium-term objective, and we still feel confident that we'll deliver on that. I think I addressed the earnings, and you can figure out the ROE from the earnings comments. As we said earlier, we think Dentequest will have a more difficult year and will grow more slowly, but the other pieces were sort of more negative volatility that we would normally see and were specific to the quarter.
Unknown Attendee: Sorry, there's feedback there is a medium term objective and we still feel confident that that will deliver on that the the I think I addressed the earnings and you can figure out the <unk> from the from the earnings sort of comments.
Unknown Attendee: As we said earlier, we think dataquest will will have a more difficult year than we will grow more slowly but the other pieces were sort of more negative activity Nick negative volatility that we would normally see and were specific to the quarter.
Speaker Change: Thanks, Kevin.
Speaker Change: Okay.
David Garg: Thanks, Kevin. We have no further questions at this time, and I will turn those things back over to Mr. Garg.
Speaker Change: We have no further questions at this time and.
Speaker Change: And I will turn it over.
Speaker Change: Back over to Mr. <unk>.
Operator: Thank you, operator. This concludes today's call. A replay of the call will be available in the investor relations section of our website. Thank you, everybody, and have a great day. This brings to an end today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. The Ultimate Parody Site! [inaudible]
Speaker Change: Thank you operator. This concludes today's call a replay of the call will be available on the Investor Relations section of our website. Thank you everybody and have a great day.
Speaker Change: Thanks, Joe and end today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: Yeah.
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Hum.
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