Q3 2024 Great-West Lifeco Inc Earnings Call
and scientific media. And of course, the Human Sex Technologies fund.
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the Great West Life Co. 3rd Quarter 2024 Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded.
Speaker Change: After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad.
Speaker Change: Should you need assistance during the conference call, you may signal an operator by pressing star then zero.
Speaker Change: I would now like to turn the conference over to Mr. Shubha Khan.
Speaker Change: Senior Vice President and Head of Investor Relations at Great West Life Co., please go ahead.
Speaker Change: Thank you, Operator. Hello, everyone, and thank you for joining the call to discuss our third quarter financial results.
Speaker Change: Before we start, please note that a link to our live webcast and materials for this call have been posted on the website at greatwestlifeco.com under the Investor Relations tab. Please turn to slide 2.
Speaker Change: I'd like to draw your attention to cautionary language regarding the use of forward-looking statements, which form part of today's remarks, and please refer to the appendix for a note on the use of non-GAAP financial measures and important notes on adjustments, terms, and definitions used in this presentation.
Please turn to slide three.
Speaker Change: to discuss our results today. Joining us on the call are our President and CEO Paul Mahon,
Speaker Change: Group CFO, Jon Nielsen, David Harney, President and COO, Europe and Capital and Risk Solutions, Abhishek Malharra
Speaker Change: Canada, Ed Murphy, President and CEO Empower, Linda Kerrigan, Senior Vice President and appointed to Actuary.
Speaker Change: Chepoulin, Executive Vice President, Reinsurance, and Raman Shrivastava, Executive Vice President and Chief Investment Officer. We will begin with prepared remarks followed by Q&A. With that, I'll turn the call over to Paul. Thanks, Shubha.
Paul Mahon: Before I turn to our business results, I'd like to recognize the loss of an incredible Canadian leader.
Speaker Change: Murray Sinclair dedicated his life and service to others as the first Indigenous justice in Manitoba, as co-commissioner of the Aboriginal Justice Inquiry, as senator, and perhaps most memorably, as chair of the Truth and Reconciliation Commission of Canada.
Speaker Change: Through his essential and compassionate work in developing the Commission's calls to action, he touched the lives of all Canadians and laid out a path towards a better future. His loss is felt by so many of us. On behalf of Canada Life, I extend our deepest condolences to his family.
Now returning to the business, please turn to slide five.
Speaker Change: I'm happy to report that LifeCo delivered record-based earnings for a fifth consecutive quarter, further building on our track record of growth.
Speaker Change: We have strong underlying momentum across all our segments. This is led by the U.S., which is now our largest segment, and once again achieves strong base earnings growth of 35%, delivering well ahead of the objective we provided in early 2024.
Speaker Change: The post-election outlook for the U.S. market supports continuing positive momentum, which I will speak to later in my comments.
Speaker Change: We continue to meet, and in some cases exceed, our medium-term financial objectives. Base EPS is up 14% year-to-date and is on track to exceed our objective in 2024.
Speaker Change: Base ROE is above the top end of the range, which empowers base ROE alone, increasing nearly 300 basis points in the past year.
Our wealth and retirement business continue to drive growth.
Speaker Change: and we've taken additional steps in this quarter to advance these strategies and strengthen our market positions. In Canada, we signed a strategic agreement with Primerica Life Insurance to drive growth in our wealth business by giving more Canadians in previously underserved markets access to SEG funds.
Speaker Change: In the U.S., Empower acquired Plan Management Corporation, the creator of OptionTracks, a leading digital equity plan administration platform. We believe this acquisition will make Empower's holistic offering even more attractive to existing and future clients.
Speaker Change: Overall our business continues to operate from a position of strength with all segments showing strong capital and cash generation. Robust regulatory capital levels provide stability and give us the flexibility to capitalize on future opportunities as they arise.
Speaker Change: The disciplined approach we take to managing our business continues to support our long-term success.
Speaker Change: Based on preliminary estimates, we do not expect the two recent tragic hurricanes in the U.S. to have a material impact on our reinsurance business.
Speaker Change: Additionally, our regular review of actuarial assumptions on insurance contracts has resulted in a net positive economic impact, which Jon will discuss further in his portion of the presentation.
Please turn to slide 6.
This quarter's results demonstrate great progress against our medium-term objectives.
Speaker Change: Base earnings of over $1 billion and base EPS of $1.14 both increased 12% over the prior year.
Speaker Change: Base ROE increased to 17.3%, up nearly a full percentage point from the prior year. Book value per share also increased by 7%.
Speaker Change: Our regulatory capital position has strengthened, with our LICAT ratio increasing four points over last quarter, and we've maintained a comfortable leverage ratio. Please turn to slide 7.
Speaker Change: Canada had a good quarter as the business remains focused on driving growth and customer value. Our individual wealth business continued to expand its presence in the market, supporting our growth of becoming the preferred home for advisors.
Speaker Change: Recent acquisitions, market performance, and improved net flows have led to significant AUA growth over the past year.
Speaker Change: A key part of our wealth strategy is offering a comprehensive range of products to advisors and their clients. Our new Primerica relationship, which I referred to earlier, reinforces our commitment to make the unique and valuable features of SEG Fund products available to even more Canadians.
Speaker Change: Our results in the group Life and Health demonstrate our focus on strengthening and deepening relationships with BAHAM members.
Speaker Change: Book premiums grew modestly relative to the third quarter of last year, which included the addition of the Public Service Health Care Plan.
Speaker Change: Several factors contributed to the net increase in book premiums, including inflation, employment growth, and net plan sales, which improved over last quarter. As we look forward to the fourth quarter, we're pleased to expand our business relationship with the federal government as we extend our coverage under the Public Service Dental Plan.
Speaker Change: In insurance and annuities, CSM declined largely due to assumption changes, which Jon will discuss in more detail in a bit.
Speaker Change: As I've stated in the past, we don't view CSM as a metric that defines our future Canada value creation potential for a few reasons, but mainly because our highest growth opportunities are in wealth and workplace where there is no CSM.
Speaker Change: Please turn to slide 8. We delivered great performance in Europe across all the value drivers. This is supported by strong fundamentals in our businesses in Ireland, the UK, and Germany.
Speaker Change: In Wealth and Retirement, we're continuing to expand our offerings and scaling to reach and serve more clients.
Speaker Change: Average AUA in these businesses was up 21% year-over-year due to solid market performance and net inflows. There was a large change in net flows this quarter due to a one-time rebalancing of a large institutional mandate.
Speaker Change: In Group Life and Health, we're pleased to report solid sales and organic growth with book premiums up 11% year-over-year, as our businesses in Ireland and the UK benefited from strong employment growth and higher salaries.
Speaker Change: We're also seeing good performance in our insurance and annuities business. This is largely fueled by the demand for bulk annuities in the UK, underscoring the success of our targeted efforts in this market. CSM also benefited from favorable assumption changes and positive currency impacts.
Speaker Change: Please turn to slide 9. Our capital and risk solutions business continues to be a key diversifier for our portfolio and a driver of sustained growth.
Speaker Change: Run rate reinsurance earnings were up slightly over last year, supported by growth in long-term structured business. As a reminder, these results do not include the impact of global minimum tax, and as such better reflect CRS underlying business performance.
Speaker Change: We're pleased to report that given our disciplined approach to participation in the property and casualty reinsurance markets, we don't anticipate impacts from the recent catastrophic events in Florida with Hurricane Helene and Milton.
Speaker Change: Recognizing this is a good business outcome for Lifeco, our thoughts are with the so many people who've been impacted by these tragic events.
Speaker Change: Changes in longevity assumptions this quarter significantly contributed to CSM, which increased 32% year-over-year. As we've highlighted in the past, our prudent approach to reentrance, underwriting and pricing is an important part of our long-term success in this business.
Please turn to slide 10.
Speaker Change: We're very pleased to see another quarter of double-digit growth at Empower.
Speaker Change: In workplace, average AUA was up 16% over last year, primarily driven by sustained strength in U.S. equity markets.
Speaker Change: Rising markets have boosted account balances, which in turn has led to increased withdrawals from plan members as they use this greater wealth to fund retirement, including offsetting higher costs from inflation.
Speaker Change: This has resulted in net outflows this quarter, a trend across the industry. It's important to note that for Empower, the benefits of higher markets on fee income vastly outweigh the impact of these net outflows. Ed will provide more details on this on the next slide.
Speaker Change: Well, we've experienced some volatility in net sales flows at the plan level quarter over quarter.
Speaker Change: We have a strong track record of growing share through strong plan sales and excellent plan retention. Our confidence in Empower's ability to continue to grow share in the U.S. retirement market remains strong, supported by a differentiated, scale-driven value proposition.
Speaker Change: Empower personal wealth delivered an outstanding quarter. Average AUA was up 25% over last year and net flows were positive due to higher sales across distribution channels.
Speaker Change: The business continues to build on its recent success, leveraging scale from the workplace segment to capture rollovers and drive sales from new customers.
Speaker Change: With this strong momentum in Empower Personal Wealth and continuing share gain in workplace retirement, we continue to see a path to solid double-digit growth.
Speaker Change: As mentioned earlier, the post-election outlook for the U.S. economy, including greater regulatory certainty and continued bipartisan support for policies that promote retirement savings, further supports this growth outlook.
Speaker Change: I'd now like to pass it over to Ed to share a bit more color on why we're confident in Empower's growth trajectory. Ed?
Ed Murphy: Great, thanks Paul. Good morning everybody. Please turn to slide 12.
Ed Murphy: This page illustrates why we remain confident in our double-digit growth outlook for Empower, despite industry-wide net outflows driven by current demographic trends.
Ed Murphy: Although the U.S. retirement market has been experiencing net outflows for some time, the overall market has continued to grow at more than 6% a year for the last 10 years, driven by growth in asset values.
Ed Murphy: And we expect it to continue to grow at similar or better rates.
Ed Murphy: driven by market performance supported by a strong U.S. economy as well as policies that promote access to the retirement system to more Americans.
Ed Murphy: More importantly, Empower has built a model that has outperformed this growth, and we are confident in our ability to do so going forward.
Ed Murphy: Looking at the left-hand chart on slide 12, we have grown assets at twice the pace of the industry over the last five years.
Ed Murphy: This is a testament to the strength of our scale-defined contribution platform, which has positioned us as the clear number two player in the market, with more than 18 million participants and nearly $1.7 trillion of assets under administration.
Ed Murphy: Our retirement business has captured three points of market share organically over the past five years.
Ed Murphy: Our retirement business has captured three points of market share organically over the past five years.
Ed Murphy: In other words net planned sales had been a significant contributor to empowers defined contribution asset growth over the years.
Ed Murphy: In other words, net plan sales have been a significant contributor to Empower's defined contribution asset growth over the years.
Speaker Change: As Paul mentioned during his remarks planned flows can be lumpy from one period to the next.
Ed Murphy: As Paul mentioned during his remarks, plan flows can be lumpy from one period to the next. This year, we have seen higher outflows mainly due to one large plan deconversion that we mentioned in our Q1 earnings call.
Ed Murphy: This year, we have seen higher outflows, mainly due to one large plan D conversion that we mentioned in our Q1 earnings call.
Ed Murphy: We have a long track record of positive net planned flows which has driven this share gain and we remain confident in continuing this trend going forward. Despite lumpiness, we will see due to the larger case wins and losses.
Ed Murphy: We have a long track record of positive net plan flows, which has driven this share gain, and we remain confident in continuing this trend going forward, despite lumpiness we will see due to larger case wins and losses.
Ed Murphy: For example in the core segment, which consists of smaller plans, we consistently see higher win rates than our competitors. This is a market segment, where the plant economics are more favorable than the one that is growing the fastest.
Ed Murphy: For example, in the core segment, which consists of smaller plans, we consistently see higher win rates than our competitors. This is a market segment where the plan economics are more favorable and the one that is growing the fastest.
Ed Murphy: Beyond the core segment, we are also consistently winning new business from competitors.
Ed Murphy: Beyond the core segment, we're also consistently winning new business from competitors.
Ed Murphy: With win rates well in excess.
Ed Murphy: with win rates well in excess of 60% for government, large corporate plans, and our Taft-Hartley planned business.
Ed Murphy: Of 60% for government large corporate plans and our Taft Hartley planned business.
Ed Murphy: And equally important is our ability to replant retain plans on our platform. Our client retention rate is currently 97%, which is exceptional in a market like this.
Ed Murphy: And equally important is our ability to retain plans on our platform. Our client retention rate is currently 97%, which is exceptional in a market like this.
Ed Murphy: Putting this all together we are confident that net planned sales should continue to be a significant contributor to organic assets under administration growth in the years ahead.
Ed Murphy: Putting this all together, we are confident that net plan sales should continue to be a significant contributor to organic assets under administration growth in the years ahead.
Ed Murphy: Moving now to the Middle chart on this page as I mentioned at the outset demographic trends have weighed on net participant flows for some time the.
Ed Murphy: Moving now to the middle chart on this page, as I mentioned at the outset, demographic trends have weighed on net participant flows for some time.
Ed Murphy: The number of Americans, reaching retirement age has been increasing steadily and is expected to peak this year with the last of the large baby Boomer cohort, reaching retirement age by 2030.
Ed Murphy: The number of Americans reaching retirement age has been increasing steadily and is expected to peak this year with the last of the large baby boomer cohort reaching retirement age by 2030.
Ed Murphy: As a result withdrawals by retirees will outpace new contributions for the next several years, resulting in continued net participant outflows.
Ed Murphy: As a result, withdrawals by retirees will outpace new contributions for the next several years.
resulting in continued net participant outflows.
Ed Murphy: And as you can see from our expanded Sip disclosure this quarter net participant outflows had been generally less than 1% of total assets under administration, which is largely in line with the industry.
Ed Murphy: And as you can see from our expanded SIP disclosure this quarter, net participant outflows have been generally less than 1% of total assets under administration, which is largely in line with the industry.
Ed Murphy: The recent increase in participant outflows is almost entirely attributable to higher account balances driven by strong equity market returns over the past two years and.
Ed Murphy: The recent increase in participant outflows is almost entirely attributable to higher account balances driven by strong equity market returns over the past two years.
Ed Murphy: In fact, the average account balance for a participant on the empower platform has increased 21% since the beginning of 2023.
Ed Murphy: In fact, the average account balance for a participant on the Empower platform has increased 21% since the beginning of 2023.
Ed Murphy: The number of participants drawing from their account has only increased 3% this year, which is consistent with the overall growth in participants that empower has experienced.
Ed Murphy: The number of participants drawing from their account has only increased 3% this year, which is consistent with the overall growth in participants that Empower has experienced.
Ed Murphy: More importantly, higher participant account balances have a far greater positive impact on assets under administration and earnings power down on participant outflows.
Ed Murphy: More importantly, higher participant account balances have a far greater positive impact on assets under administration and earnings power than on participant outflows.
Ed Murphy: Over the last two years the market impact on our assets under administration has exceeded net participant outflows by a factor of 16.
Ed Murphy: Over the last two years, the market impact on our assets under administration has exceeded net participant outflows by a factor of 16.
Ed Murphy: Turning now to the third chart on the right of the Slide you will see why we are confident in the growth outlook for empower <unk>.
Ed Murphy: Turning now to the third chart on the right of the slide, you will see why we are confident in the growth outlook for Empower.
Ed Murphy: Not only do we expect asset levels to continue rising through positive net plan win rates and normal market performance. There are other factors that will support our double digit earnings growth expectations, notably continued diversification of revenue sources and operating leverage.
Ed Murphy: Not only do we expect asset levels to continue rising through positive net plan win rates and normal market performance, there are other factors that will support our double-digit earnings growth expectations. Notably, continued diversification of revenue sources and operating leverage.
Ed Murphy: The business continues to benefit from economies of scale, including significant cost synergies from acquisitions and operational efficiencies through automation.
Ed Murphy: The business continues to benefit from economies of scale, including significant cost synergies from acquisitions and operational efficiencies through automation.
Ed Murphy: This has been a significant driver of the 16% growth. This year in base earnings for empowers defined contribution and personal wealth businesses with revenue growth outpacing operating expenses by four percentage points. During this period.
Ed Murphy: This has been a significant driver of the 16% growth this year in base earnings from Empower's defined contribution and personal wealth businesses.
Ed Murphy: Going forward, we expect the contribution from revenue diversification to also increase this includes increasing the number of customers that also access.
Ed Murphy: Going forward, we expect the contribution from revenue diversification to also increase.
Ed Murphy: Our suite of implant advice based solutions.
our suite of in-plan advice-based solutions.
Ed Murphy: In addition, we are adding new capabilities that can drive stronger asset inflows and generate incremental fees for.
Ed Murphy: In addition, we are adding new capabilities that can drive stronger asset inflows and generate incremental fees.
Ed Murphy: For example, the acquisition in late September of option tracks has enhanced our ability to both win new retirement plans and attract more personal wealth customers.
Ed Murphy: For example, the acquisition in late September of OptionTracks has enhanced our ability to both win new retirement plans and attract more personal wealth customers.
Ed Murphy: In the near term however, the biggest opportunity remains increasing the capture rate of asset rollovers from defined contribution retirement plans to iras held within our personal wealth platform.
Ed Murphy: In the near term, however, the biggest opportunity remains increasing the capture rate of asset rollovers from defined contribution retirement plans to IRAs held within our personal wealth platform.
Ed Murphy: Given approximately 115 billion of IRA rollovers within our retirement platform each year.
Ed Murphy: Given approximately 115 billion of IRA rollovers within our retirement platform each year, there is significant upside to the net flows within Empowered Personal Wealth, which are approaching $10 billion a year.
Ed Murphy: There is significant upside to the net flows within empower personal wealth.
Ed Murphy: Which are approaching 10 billion a year.
Ed Murphy: Looking ahead, we are confident in this diversified set of growth drivers that empower that far outweigh the modest impact of participant flows driven by demographics.
Ed Murphy: Looking ahead, we are confident in this diversified set of growth drivers that empower, that far outweigh the modest impact of participant flows driven by demographics. Our growth opportunity is significant and our platform remains well positioned to capture it.
Ed Murphy: Our growth opportunity is significant and our platform remains well positioned to capture it.
Ed Murphy: With that I will turn it the call over to John for his remarks.
Speaker Change: With that, I will turn the call over to Jon for his remarks.
Speaker Change: Thank you add please turn to slide 14, we delivered strong financial results. This quarter on the back of strength in global financial markets supported by favorable yield curve movements and strong equity market returns equity market performance contributed to growth in assets under administration.
Thank you, Ed. Please turn to slide 14.
Speaker Change: We delivered strong financial results this quarter on the back of strength in global financial markets supported by favorable yield curve movements and strong equity market returns.
Speaker Change: Equity market performance contributed to growth in assets and administration within our wealth and retirement businesses with average assets up 4% from the second quarter and 17% versus last year.
Speaker Change: Within our wealth and retirement businesses with average assets up 4% from the second quarter and 17% versus last year.
Speaker Change: Rising markets and asset levels have driven higher account balances for our wealth and retirement customers in all markets, while supporting growth in fee and investment income across our businesses.
Speaker Change: Rising markets and asset levels have driven higher account balances for our wealth and retirement customers in all markets while supporting growth and fee and investment income across our businesses.
Speaker Change: Interest rates decreased in the third quarter as both the U S Federal reserve and the bank of Canada lowered rates by 50 basis points in the quarter with the ladder cutting its policy rate by another 50 basis points in October against this backdrop, we continue to ensure that our fixed income.
Speaker Change: Interest rates decreased in the third quarter, as both the U.S. Federal Reserve and the Bank of Canada lowered rates by 50 basis points in the quarter, with the latter cutting its policy rate by another 50 basis points in October.
Speaker Change: Against this backdrop, we continue to ensure that our fixed income holdings remain optimized for any changes in rates.
Speaker Change: Holdings remain optimized for any changes in rates.
Speaker Change: Currency movements also provided a tailwind this quarter with the U S dollar.
Speaker Change: Currency movements also provided a tailwind this quarter, with the U.S. dollar, euro, and British pound all appreciating against the Canadian dollar year-over-year. This alone drove year-over-year growth of 2% in LIFECO base earnings.
Speaker Change: Euro and British pound, all appreciating against the Canadian dollar year over year. This alone drove year over year growth up 2% and light coat base earnings.
Speaker Change: Turning to slide 15, we delivered another quarter of record base earnings of $1.1 billion base earnings increased 12% year over year and 10% in constant currency driven by strong underlying growth in all segments, excluding tax impacts base earn.
Speaker Change: Turning to slide 15, we delivered another quarter of record-based earnings of 1.1 billion dollars.
Speaker Change: base earnings increased 12% year-over-year and 10% in constant currency driven by strong underlying growth in all segments
Speaker Change: Excluding tax impacts, base earnings grew 14% year-over-year in constant currency.
Speaker Change: Earnings grew 14% year over year in constant currency.
Speaker Change: The effective tax rate on base earnings of 16% included a three percentage point impact related to global minimum tax these.
Speaker Change: The effective tax rate on base earnings of 16% included a 3 percentage point impact related to global minimum tax.
Speaker Change: The effective tax rate also reflected a nonrecurring tax benefit in the U S segment.
Speaker Change: We continue to expect an overall effective tax rate for life co to be in the high teens similar to the year to date figure.
Speaker Change: We continue to expect an overall effective tax rate for LifeCo to be in the high teens.
similar to the year-to-date figure.
Speaker Change: Our base return on equity of 17, 3% continues to be at the upper end.
Speaker Change: Our base return on equity of 17.3% continues to be at the upper end of our medium-term objective of 16 to 17%.
Speaker Change: Of our medium term objective of 16% to 17%.
Speaker Change: This reflects strong growth in base earnings and a continued focus on growing our capital light business.
Speaker Change: This reflects strong growth in base earnings and a continued focus on growing our capital light business.
Speaker Change: Turning to slide 16.
Turning to slide 16.
Speaker Change: All segments delivered strong underlying earnings growth.
Speaker Change: All segments delivered strong underlying earnings growth. In Canada, base earnings grew 7% with higher fee income driven by markets and the acquisitions of IPC and value partners, as well as strong investment results.
Speaker Change: In Canada base earnings grew 7% with higher fee income driven by markets and the acquisitions of IPC and valued partners as well as strong investment results.
Speaker Change: Insurance words adults were solid despite lower CSM recognized due to the impact of assumption changes and lower experience gains than the previous quarter.
Speaker Change: Insurance results were solid despite lower CSM recognized due to the impact of assumption changes and lower experience gains than the previous quarter.
Speaker Change: In the U S. Empower maintained strong momentum with base earnings up 36% year over year in constant currency.
Speaker Change: In the U.S., Empower maintains strong momentum with base earnings up 36% year-over-year in constant currency.
Speaker Change: These results reflected higher fee income driven by markets the benefit of acquisition related synergies and cost reduction initiatives and our workplace business as well as growth in personal well.
Speaker Change: These results reflected higher fee income driven by markets, the benefit of acquisition-related synergies, and cost reduction initiatives in our workplace business, as well as growth in personal wealth.
Speaker Change: On a pre tax basis, excluding the favorable tax item in the quarter base earnings growth was still very healthy at 31%.
The End
Speaker Change: On a pre-tax basis, excluding the favorable tax item in the quarter, base earnings growth was still very healthy at 31 percent.
Speaker Change: The return on equity for the U S business.
The return on equity for the U.S. business.
Speaker Change: It has increased by nearly 300 basis points to 14, 5% over the past year.
Speaker Change: has increased by nearly 300 basis points to 14.5% over the past year.
Speaker Change: In Europe base earnings decreased 7% year over year in constant currency, primarily reflecting the release of a tax provision in Germany during the prior year and the impact of global minimum tax on a pretax basis.
Speaker Change: In Europe, base earnings decreased 7% year-over-year in constant currency, primarily reflecting the release of a tax provision in Germany during the prior year and the impact of global minimum tax.
Speaker Change: On a pre-tax basis, Europe's base earnings were up 10% despite being dampened by unfavorable group mortality experience in the UK.
Speaker Change: Europe's base earnings were up 10%, despite being dampened by unfavorable group mortality experience in the U K.
Speaker Change: Within capital and risk solutions results were adversely impacted by the global minimum tax on a pre tax basis base earnings increased 20%.
Speaker Change: Within capital and risk solutions, results were adversely impacted by the global minimum tax. On a pre-tax basis, base earnings increased 20 percent.
Speaker Change: Year over year in constant currency, driven by continued growth in structured business and the impact of assumption changes it's.
Speaker Change: year-over-year in constant currency driven by continued growth and structured business and the impact of assumption changes.
Speaker Change: Paul mentioned, we did not incur any losses in our P&C catastrophe business related to Hurricane Helane.
Speaker Change: And we do not currently anticipate any losses for Hurricane mill.
Speaker Change: This reflects an active reduction in P&C catastrophe risk over the past two years with our focus firmly on continuing to generate attractive risk adjusted returns. We expect these events to continue to support constructive pricing in this segment of our capital and risk solutions business.
Speaker Change: Turning to slide 17, <unk> service results were down year over year, reflecting lower experience gains in Canada and unfavorable group mortality experience in the U K, partially offset by higher expected insurance earnings from growth in our group businesses across all markets and <unk>.
Speaker Change: Proved U S mortality experience in the Crs segment.
Speaker Change: The net investment result was up significantly year over year, driven by higher earnings on surplus. The addition of the Franklin Templeton dividend and higher trading gains in Europe.
Speaker Change: Turning to slide 18, net fee and spread income was up meaningfully year over year, primarily due to growth at empower reflecting higher equity markets and the Prudential expense synergies and business growth in Canada and Europe.
Speaker Change: Non directory non directly attributable expenses at $322 million were modestly higher year over year and largely in line with the expected quarterly run rate, we compete and communicated previously.
Speaker Change: Okay.
Speaker Change: Turning to slide 19 within the quarter net earnings were lower than base earnings due to the impact from our annual review of actuarial assumptions. However, actuarial assumption changes also drove an increase in C. HSM as I will discuss in further detail on the next slide.
Speaker Change: Favorable market experience of $41 million was driven primarily by interest rate movements as well as strong publicly.
Speaker Change: <unk> equity returns, partially offset by lower than expected returns in our property portfolios the.
Speaker Change: The impact of interest rate movements arose from the yield curve, becoming less and burn it in Canada during the quarter, which is a positive for net earnings and capital.
Speaker Change: Turning to slide 20.
Speaker Change: As I mentioned on the previous slide assumption changes had a positive net economic impact overall with the unfavorable impact on net earnings more than offset by an increase in CSM.
Speaker Change: Updated assumptions to reflect longevity experience had a favorable impact on our Europe, and Crs segments and were partially offset by the updated assumptions for policy renewal trends in our term life insurance business in Canada.
Speaker Change: Given the resulting movement in CSM, the assumption changes will positively impact run rate base earnings through improved insurance experience gains and losses.
Speaker Change: And over time through the amount of CSM recognized each quarter.
Speaker Change: This quarter's earnings already reflect this impact as <unk> 17 required recognition of these changes from the beginning of the quarter.
Speaker Change: The assumption changes also had a positive impact of two points on the light cat ratio principally through a reduction in required capital on our insurance risks.
Speaker Change: Turning to slide 21.
Speaker Change: We continued to maintain a strong balance sheet to ensure we are resilient through market cycles and can deploy capital as opportunities emerge.
Speaker Change: In the quarter, our light cat ratio increased to 134% up four points from the prior quarter with half coming from organic capital generation and half from the assumption changes our leverage ratio of 29%, it's two points lower than a year ago and remains on a downward trajectory.
Speaker Change: Given strong earnings growth.
Speaker Change: Our cash balances continued to grow on strong earnings and capital generation within our businesses.
Speaker Change: Looking ahead to the fourth quarter, given strong capital levels, well above regulatory minimums and reflecting the strong capital. We have generated we expect to end the year at a light cat ratio around 130%.
Speaker Change: As we plan to increase the dividend to <unk>.
Speaker Change: This will enhance our financial flexibility to deploy capital for the right opportunity with that I will turn the call back over to you Paul Thanks, John Please turn to slide 23.
Paul Mahon: As we close I would summarize that our business is strong and exceptionally well positioned for the future. We're pleased with the growth we've achieved including surpassing three trillion dollars in assets under administration for the first time, which is a significant milestone and we're seeing strong momentum across all parts of our business, which is supported double digit base earnings growth.
Speaker Change: For <unk> overall.
Speaker Change: This strong foundation enables us to invest confidently in our long term strategies and take further actions to solidify our market leadership positions.
Speaker Change: Looking ahead, we feel well prepared to meet or even exceed our medium term objectives.
Speaker Change: With a strong track record of growth, we're anticipating a successful close to 24 and look forward to achieving further milestones in the years ahead.
Speaker Change: And with that I'll turn it over to <unk> to start the Q&A portion of the call Trouba.
Paul Mahon: Thank you Paul.
Speaker Change: In order to give everyone a chance to participate in the Q&A. We would ask that you read yourselves to two questions per person and you can certainly re queue for follow ups and we will do our best to accommodate if there's time at the end operator, we are ready to take questions now.
Speaker Change: We will now begin the analyst question and answer session.
Speaker Change: To join the question queue you May Press Star then one on your telephone keypad.
Speaker Change: You will hear Tom acknowledges that request.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing any Keith.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: We will pause for a moment as callers join the queue.
Speaker Change: And our first question will come from many Grumman of Scotiabank. Please go ahead.
Speaker Change: Hi, Good morning, Paul you kick the call off by talking about how great is exceeding.
Speaker Change: Its financial objectives.
Speaker Change: Quite consistently.
Speaker Change: Question is just.
Speaker Change: What has changed since you.
Speaker Change: You said that those dates case expectations, how do we understand this.
Speaker Change: It's a good news here and in the follow up question is how sustainable it is.
Speaker Change: Is it a year ago.
Speaker Change: So it was good question menu, so I would characterize that we've set out.
Speaker Change: Objectives that was fundamental to the prevailing market conditions at the time and one of the underlying drivers of growth obviously would be the strong market performance we've seen.
Speaker Change: But I wouldn't sort of tie all of the extra growth on that I think part of it is also execution. If you think about the acquisitions we did.
Speaker Change: At empower and you think about the goals we had set for ourselves in terms of client retention. We saw out performance. There when you think about it.
Speaker Change: The growth, we're seeing in our personal wealth business, where we're getting us a strong sense of momentum and outperformance. There. So I would say, it's the combination of strong.
Speaker Change: Strong market and that's and we like that I mean, as you know many we've got a very diversified business we have.
Speaker Change: Good exposure to equity markets, we've got insurance businesses that are strong in contributing like our Crs and we've also got our group benefits and retirement businesses that have diversified earnings beyond our fee income and if you think about that the combination of diversification market performance and then what I would say is strategic out.
Speaker Change: Performance are the drivers of growth.
Speaker Change: I I remain confident in us continuing to be able to drive growth.
Speaker Change: In that medium term financial objective range, and obviously continuing markets. If markets continued at this level. We would we could continue to be at the top end of that range.
Speaker Change: Maybe just another question on when pilots.
Speaker Change: Well, thank you highlighted greater regulatory uncertainty is a positive.
Speaker Change: Just hoping you could go into more detail on that in terms of.
Speaker Change: How that will impact empower.
Speaker Change: If you could explain that in some more detail.
Speaker Change: Yes, just to clarify so that my comment was greater regulatory certainty.
Speaker Change: Because what you've got obviously when you've got a bit of a grid lock in in a government, it's hard to get things moving and one of the points that I talked about was theres. Good bipartisan support for a regulation around retirement and I think you know.
Ed Murphy: That is a positive for us, but I'll, let ed add add a little bit more color on that Ed.
Ed Murphy: Sure. Thank you Paul Yeah, I agree with Paul's comments.
Ed Murphy: I would say that.
Speaker Change: From a regulatory policy standpoint, and just public policy.
Speaker Change: I think I think the election results will be very constructive for for our industry.
Speaker Change: And as Paul noted there historically has been very strong bipartisan support. This is one of the few issues in the United States, where.
Speaker Change: Democrats and Republicans tend to to agree on in terms of advancing the the private retirement system in the United States. So.
Speaker Change: I'm very confident that.
Speaker Change: The Trump administration will continue.
Speaker Change: To advance.
Speaker Change: Some of the public policy agenda is that that support growth in the industry tax incentives tax credits for small businesses to set up a retirement plans.
Speaker Change: <unk> to maintain the tax favorable status of contributions to retire plans I think all of those remain very very positive. So.
Speaker Change: I think I think from our standpoint, it's a very positive development.
Speaker Change: Is that something we're likely to see in the flow numbers in terms of plan membership or.
Speaker Change: Would we be able to.
Speaker Change: To see that play out.
Speaker Change: And part of the World, obviously, it will take time, but.
Speaker Change: Where would we see that.
Speaker Change: Yeah.
Speaker Change: Yeah, you'd see it in flows I think I may have noted on a on a prior call that it.
Speaker Change: It took the industry over 40 years to have 700000.
Speaker Change: Private.
Speaker Change: Voluntary retirement plans in the country and we expect that to grow by over 300000.
Speaker Change: By 2028, 2029, so youre going to see a lot more in the way of new plan formation in the public policy.
Speaker Change: That both the Biden administration and now the Trump administration has taken supports that in terms of offering fiduciary relief offering tax credits to small businesses to set these plans up so you'll see it play out in terms of.
Speaker Change: Net new participants and then the contributions associated with those with those individuals as they are as a.
Speaker Change: Pursue payroll deduction.
Speaker Change: Well, thank you very much.
Speaker Change: Mhm.
Speaker Change: The next question comes from Paul Holden of CIBC. Please come up. Please go ahead.
Paul Holden: Thanks, Good morning.
Speaker Change: Paul you made a comment at the end of your remarks regarding the flow of dividends.
Speaker Change: To the to the holding company to a life co as you call it.
Speaker Change: And looking at potential deployment opportunities, maybe you can flag sort of what top priorities might look like for for credit loss in terms of deployment opportunities.
Speaker Change: Opportunities. Thank you.
Paul Mahon: Thanks, Paul so.
Speaker Change: I'm going to say priority order, but I'm going to you know everything is relative because as good opportunities come along you know you can often be a little bit flexible, but I would say first and foremost we're always focused on maintaining a strong balance sheet, a strong balance sheet gives us the strength and flexibility obviously to take advantage of opportunities you know next in line.
Speaker Change: Would obviously be investing in both organic and inorganic growth. So we continue to invest in the business.
Speaker Change: Making sure that we have market, leading franchises in terms of our ability to ability to serve customers, but at the same time inorganic growth.
Speaker Change: Think about it in this quarter the option tracks transaction that we announced while small in relative scale.
Speaker Change: Offers a provides a new opportunity and when you think about that that's kind of a unique capability that will allow us to both strengthen the existing in force book and the potential economics, there, but also win new customers and then we also continue to look at growth opportunities on a broader scale from the standpoint of further consol.
Speaker Change: Sedation of the retirement market in the U S growing out that wealth platform you saw us grow in our wealth platform in Canada. So obviously M&A will continue to feature and as always we will continue to focus on growing our dividends in line with our with our medium term objectives, and we always have the option as well.
Speaker Change: To repurchase shares from.
Speaker Change: From our perspective, if we are seeing an opportunity that could be a little bit further in the offing well, we will consider repurchase of shares.
Speaker Change: Also as a tool so those would be the tools we have.
Speaker Change: That's great. Thank you.
Speaker Change: Second question is with respect to T capital and risk solutions business I guess, it's kind of two questions in one if you will.
Speaker Change: You commented no no expected losses on a recent hurricanes, which is good and you've decreased year.
Speaker Change: The amount of risk outstanding I guess on a P. O S P&C retro session, but recognizing better rate conditions now does your risk appetite change at all in P&C Retro session. And then also just wondering with respect to.
Speaker Change: Appetite on.
Speaker Change: Mortality reinsurance heard one of your competitors earlier today updated its assumptions for reinsurance mortality risk, which could be a benefit for GW. So she.
Speaker Change: If you could comment on those two please.
Speaker Change: Yeah, maybe I'll start off and I'm going to hand, it over to Jeff who learned to provide a bit more color.
Speaker Change: In the context of our overall business I think you actually just kind of outlined we really like the diversification of the business I would say our strength has been expertise being able to find.
Speaker Change: Really strong risk adjusted returns so we'll call it ex expertise with an overlay of a really strong disciplined. So if you take that as a starting point and then say, it's a diversified business as well. So we participate in structured we participate in P&C and we also participate in mortality and longevity, we like that diversification.
Speaker Change: I would say generally speaking when we see a bit of a hardening of markets, where there's opportunities. We don't always say, we want to grow share sometimes what we wanted to do is we want to use the capital that we have in place to really strengthen our confidence in the long term returns, but I'll, let Jeff speak to a little bit to that in his views on the on mortality reinsurance yes.
Jeff: Thanks, Paul.
Jeff: Yes, I mean, you've said it.
Jeff: <unk>.
Speaker Change: And I think John addressed it at the last call. We said that if we were to look at our portfolio today, we've gone away from the risk and if he ever happen again, we wouldn't have a loss and I think this quarter Melton happen and it's very very similar to yen really bad path that hits, both Tampa Bay in Orlando.
Speaker Change: And we don't believe we're going to have a loss from this so so we have managed the portfolio and recalibrated the portfolio to be in a really good position I think these two storms are going to mean for us that the conditions are going to remain really good I think the market's going to be affected by them. So we expect to see very good condition.
Jeff: As far as risk appetite is concerned I think we're going to keep it at the same level. So I think what we're expecting to have.
Jeff: Similar results next year, and and work towards making the portfolio even safer if we can.
Jeff: Your second question was related to mortality reinsurance it's been difficult.
Jeff: It's been a difficult market for us.
Jeff: We've adjusted our.
Jeff: Our reserve assumption dish this quarter I think we feel better about.
Jeff: The way the earnings should look on that book of business going forward, but it's remained a difficult market.
Jeff: We're mostly in the U S and in the U S more and more they want guaranteed rate. The underwriting has been automated and makes the results less predictable and so were going to continue to look at that market, but it's been a difficult market for us to compete in and.
Jeff: Well wait until you until we see the right rates for us to continue to work on that having said that I think the rest of our business looks really good.
Jeff: Fourth quarter for Us is always a busy quarter in this this year is no exception.
Jeff: We think quarter.
Jeff: We're looking at a lot of a good transactions good pipeline on the structured side so.
Jeff: So we feel confident we're going to have.
Jeff: A good outlook for next year.
Jeff: So I think this is this is where we are in reinsurance.
Speaker Change: Okay perfect. Thanks for that.
Speaker Change: Yeah.
Speaker Change: Thanks, Paul.
Speaker Change: The next question comes from Alex Scott of Barclays. Please go ahead.
Alex Scott: Hi, first question I had is on empower.
Alex Scott: And the margins there look like they got a lot better quarter over quarter. When you consider the one time fee that I think was.
Speaker Change: Part of it all last quarter.
Alex Scott: But I just wanted to understand how sustainable sort of at that new level of margin is I hear you on the operating leverage and you guys have driven that for a long time, but you know this was a much more material step up and I'm just interested in the sustainability of it as I think through.
Speaker Change: The next several quarters.
Speaker Change: Okay, Alex I'm going to turn that one over to Ed Ed.
Ed Murphy: Oh, sorry, I was on mute.
Ed Murphy: Yeah, I would say that we feel really.
Ed Murphy: Positive about our ability to continue to drive operating leverage, particularly in the workplace business. If you look at our ability to bend the cost curve.
Speaker Change: Our cost per participant we expect to continue to make meaningful inroads there as we continue to modernize the business leverage automation continue to expand our offshoring capabilities.
Speaker Change: Obviously, the personal wealth business will continue to be an investment business for us we're investing in distribution, we're investing in technology, we're investing in product.
Speaker Change: And we're seeing really good results there.
Speaker Change: But from a cost management cost discipline standpoint, youre going to see the <unk>.
Speaker Change: The synergy benefits that we had in Q3 continue to carry forward.
Speaker Change: Into Q4 and into next year.
Speaker Change: But more importantly is the is the emphasis that we continue to place on driving unit cost lower so the short answer to your question is it is sustainable I feel very confident about our ability to execute there.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Great Great response, and the other the other point that I saw.
Speaker Change: Spoke about earlier, Alex was the fact that we have really strong revenue diversification. So when you combine that with that ability to manage costs and drive efficiency, we really like the profile of the business diversification of revenues and then that opportunity to leverage your cost position.
Speaker Change: That's really helpful as a follow up.
Speaker Change: I wanted to ask about interest rate sensitivity, particularly to the shorter end of the curve are you know with the U S fed funds coming down a bit I mean can you talk about your exposure to that whether it's in wealth management.
Speaker Change: So the.
Speaker Change: Income you collect there or or elsewhere in your business.
Speaker Change: That is a question for John John you want to take that yes. So just to give you a sense and following up I think a similar question last quarter, it's about.
John John: $1 million per basis point on the short end of the curve for annual net earnings impact.
Speaker Change: Obviously, that's in addition to the non based impact that we disclose of $175 million.
Speaker Change: From <unk>.
Speaker Change: Parallel shift in the curve half of that impact would come through the earnings on surplus as the assets rollover and their duration in our duration of surplus.
Speaker Change: Ranges, but principally shorter in the Canadian segment.
Speaker Change: The other half would come through other various lines.
Speaker Change: First in terms of insurance service results.
Speaker Change: There is some impact on our group disability business.
Speaker Change: You mentioned.
Speaker Change: Fee and spread income obviously.
Speaker Change: Lower rates.
Speaker Change: Some some element of a positive on our assets under administration fair value and so forth for some offset there in terms of the fee income impacts and then obviously.
Speaker Change: The residual and the spread smaller part of our revenues in our retirement market trends, which is spread based so we feel really good about our position for the interest rate market and I would also call out.
Speaker Change: Obviously as you see those impacts we're also accumulating surplus.
Speaker Change: That we earned.
Speaker Change: Spreads on so there's some offsetting impact.
Speaker Change: As our surplus has thrown off our back book.
Speaker Change: Thank you.
Alex Scott: Thanks, Alex.
Speaker Change: The next question comes from Gabriel <unk> of National Bank Financial. Please go ahead.
Speaker Change: Good morning, a couple of questions here, you talked about the dividend to the holding company is at about $1 billion based on where you expect the like out to end up.
Speaker Change: And could you remind me of the RBC ratio and how much excess capital you have in the U S sub.
Speaker Change: And then throw in the M&A question here I mean it is.
Speaker Change: We defaulted as I say, we I default to thinking that are you know that.
Speaker Change: Empower type businesses, what you're targeting but is there anything in Europe that are.
Speaker Change: Some some gaps that you didn't know you might want to fill or are you busy with the kind of turnaround or that platform at the moment.
Speaker Change: I'll start off with the M&A, one and then I'll turn it over to John to speak to the dividend and capital ratios. So we are looking for value, creating opportunities and I referenced the U S market because of the consolidation opportunity there because of our belief that you know we're in the early innings of building out the wealth business.
Speaker Change: So that's an obvious place, but if you look back you saw us doing transactions in Canada last year that were centered on.
Speaker Change: Growing our stake in the wealth market, where we think we've got a lot of growth opportunity and then it's kind of quiet and tends to be on a smaller scale, but we've done multiple transactions in Ireland. As an example building out the wealth platform and I would never say that our appetite is limited to a single geography, we're looking for value creating.
Speaker Change: Transactions, but you know if you look sort of clear and present the opportunities that appear more likely would be in the U S. But we would never turn our our mind away from opportunities, where we really think theres good value creation that is really centered on.
Speaker Change: Creating leadership.
Speaker Change: Leadership strengths for us in the markets, where we operate.
Speaker Change: So just you.
Speaker Change: You will see us, but where we don't have blinders on to other opportunities.
Speaker Change: Over to you on the dividends on the Lake Yeah, So Gabe, we'd anticipate being around $2 billion of cash at <unk> at the end of the year and this is part of the enhanced spin around.
Speaker Change: The transparency and the strong capital generation that our businesses have.
Speaker Change: We've obviously given you.
Speaker Change: More detailed disclosures continue to.
Speaker Change: See that trend increasing as we look forward, we have a very strong.
Speaker Change: Business mix that generates substantial excess capital across the portfolio I just want to highlight a couple of things in transparency for you typically our capital deployment is higher in the fourth and first quarter. There is some seasonality principally in the reinsurance business.
Speaker Change: That is driven by that.
Speaker Change: The shape of how the capital.
Speaker Change: Renewal of a policy happens that comes back quite quickly, but you can think of fourth and first quarter haven't seen seasonality in the reinsurance business.
Speaker Change: So just to.
Speaker Change: To remind you of that.
Speaker Change: In terms of capital generation.
Speaker Change: Really pleased also that the U S is now a very strong capital.
Speaker Change: General Greater for US I think this is maybe a bit underappreciated.
Speaker Change: How much that business changes the profile of our caching and capital composition.
Speaker Change: In terms of the RBC and we are still very strong in the U S at 500% and we look forward to seeing.
Speaker Change: The U S, becoming a much more meaningful cash contributor over time as earnings grow.
Speaker Change: From that business, it's a very high.
Speaker Change: Capital generation as a percentage of base earnings type of business and we look forward to sharing more about that success.
Speaker Change: Over the upcoming calls and at our Investor Day in April.
Speaker Change: Alright, great have a good day.
Scott: Thanks Scott.
Speaker Change: The next question comes from Tom Mackinnon of BMO capital markets. Please go ahead.
Tom Mackinnon: Yes, thanks very much good morning.
Tom Mackinnon: Just a couple of questions. The first is just a.
Speaker Change: A clarification of the tax benefit that you did get that was primarily and that was in the U S and and that empower right is that correct.
Speaker Change: That's correct and I would look at the tax rate for empower on a year to date basis and that gives you a sense of looking forward and as I shared Tom the year to date for the group also gives you.
Speaker Change: A good sense of where we expect the group to be.
Speaker Change: Despite some of the noise coming in from last year and also the implementation of global minimum tax I think you'll see more stability in that line as we move forward.
Speaker Change: Okay.
Speaker Change: Second with if we have a higher interest rate environment.
Speaker Change: You've had some.
Speaker Change: Lower spread income that empower them.
Speaker Change: Higher crediting rates and.
Speaker Change: Maybe you can just talk about the outlook there. It looks like you still had some lower spread income than anticipated at empower but I'm sure we'd be concerned.
Speaker Change: John Yes, so generally for our business higher rate environment and a more.
Speaker Change: Less inverted yield curve should be positive that's an industry wide phenomenon nothing.
Speaker Change: No nothing.
Speaker Change: We're not similar in terms of the overall perspective.
Speaker Change: So higher rates generally will be positive for the group, obviously that means higher reinvestment yields across the portfolio.
Speaker Change: And we did raise make another small.
Speaker Change: Crediting rate adjustment in the U S J.
Speaker Change: July one we don't anticipate in the current environment or prospective environment as we see it today to have any crediting rate increases in the fourth quarter or even into the new year. So other than contractual ones that are tied to the actual yield. So we feel really good about how that business is positioned and coming back.
Speaker Change: Tom you know remember the diversity of revenues.
Speaker Change: 50% is really a AUM based.
Speaker Change: The residual split.
Speaker Change: Kind of equally between spread based income and other fee based income which includes fee per participant transactional fee.
Speaker Change: Feeds the earnings that we get on.
Speaker Change: The timing of cash flows and the other thing that add share. It is obviously the focus on growing in plan.
Speaker Change: Advisory based.
Speaker Change: Type of relationships with our in plan customers.
Speaker Change: And then obviously the capture rates is obviously, a big focus for the team as we grow that.
Speaker Change: Personal wealth platform, so very comfortable with the interest rate outlook.
Speaker Change: In terms of where it sits in and.
Speaker Change: And in line kind of with the industry in terms of.
Speaker Change: How the yield curve should impact our overall business.
Speaker Change: Okay, and then final one just with respect to the U K and Ireland, just maybe the outlook with respect to bulk annuity sales as you know the interest rate environment has remained relatively buoyant.
Speaker Change: And.
Speaker Change: Well as any impact on the equity release mortgage.
Speaker Change: Sales.
Speaker Change: Where I think there's been some slowdown thanks.
Speaker Change: Yeah, Thanks, Tom I'm going to refer that one over to David Harney, David Yes, so like interest rates are positive.
David Harney: Individual annuity Americas, not so much the ball because there is just strong demand from pension schemes to de risk and that tends to be independent of interest rates plus overall.
Speaker Change: Overall, the market has been very good as far as far as.
Speaker Change: This year.
Speaker Change: We've taken a lot of action in the U K and so that capital actions just to support the annuity business. So that helps the capital generation of the business, but it also means the retiree squeeze costs out of the new seats that we've written this year have been very good and that's always true CSI to time the base earnings split you're seeing very strong growth in CSM in Europe not to flow through into <unk>.
Speaker Change: The higher interest rates mean less demand for equity release.
Speaker Change: So that market as well.
Speaker Change: Really we wouldn't be comfortable sort of rising too much business in a higher interest rates environment in that market. So that's not an area, we're targeting truck relative to <unk>.
Speaker Change: I think well be demand in the future may be as interest rates come back time, but for now it's not charter market forests.
Speaker Change: I think the other area, we've performed well this year with that as well and it's the last marketed Ireland. So we have made investments there as Paul has mentioned that's driving the strong growth.
Speaker Change: Base earnings year on year that 10% growth that John mentioned, that's all come through on the West side in Ireland. So that's performing very well for us so yes.
Speaker Change: Yes, it's interesting.
Speaker Change: David just wanted underlying Tom.
Speaker Change: It really speaks to diversification, we often think of the Canadian book as being really diversified and as it is the European business in and of itself is diversified across all those different pools of liabilities and risks and value drivers and one of the features we actually like about the U K business is having that two sided biz.
Speaker Change: <unk> of the payout annuity and the equity release mortgage because in a in a low interest rate environment, those equity release mortgages become far more attractive and favorable.
Speaker Change: The interest rate environment, the payout annuities are more attractive and at the end of the day, what we're trying to do is help clients manage their retirement income security and that's why having that broader array of products is really powerful for us in terms of it being an important business.
Speaker Change: And there was some release in longevity and that's why the CSM kind of went up and in Europe. So.
Speaker Change: Yeah is that yes, there is two factors.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: And how is that impacting the pricing in the market to that.
Speaker Change: Or was that at all and that individual maybe ask the question was that in bulk suffer an individual.
Speaker Change: Assumption changes are across thoughts out there for bulk and individual so debilitated CSI is coming from two things. So there are the assumption changes that squadrons assets asset treatment CSN, but every quarter, you're seeing growth in Rcs and just from the contribution of new business. So that's been a constant for us this year. So that's the assumption.
Speaker Change: Changes are one off that sparked a bus you will continue to see growth tend to CSM in Europe from the annuity business, that's where rising every quarter.
Speaker Change: And as you know Tom we.
Speaker Change: Turn to a more conservative posture as we think about.
Speaker Change: Setting up the right reserve basis and strength of our business. So we took a long hard look at the longevity. We've taken this action now, but we remain confident with the strength in our and our underlying our balance sheet and what we've set up for the future.
Speaker Change: Okay. Thanks.
Speaker Change: The next question comes from Doug Young.
Speaker Change: Jordan <unk> capital markets. Please go ahead.
Speaker Change: Good morning, I'll try to keep this relatively quick.
Speaker Change: How much of capital do you want to retain at the Holdco.
Speaker Change: You remind me.
Speaker Change: Yeah, John Yeah. So.
John John: Usually 500 millions a fairly comfortable level for us to maintain.
John John: <unk> flexibility at the Holdco.
John John: It's not unusual for us to go above that level as we accumulate capital and look at opportunities to deploy it.
John John: So you may see that.
John John: In absence of an M&A transaction.
Speaker Change: Increase temporarily obviously, Paul went through our capital allocation priorities.
Speaker Change: Those include Dino.
Speaker Change: Ensure that we look at our cost of capital in and.
Speaker Change: Find the best use of that capital, although with different options.
Speaker Change: Okay, and then on that longevity assumption updates.
Speaker Change: <unk> can you just kind of very high level what drove that.
Speaker Change: Over to you.
Speaker Change: Linda.
Speaker Change: Sorry.
Speaker Change: I think with all our assumption review.
Speaker Change: You all are making rate assumptions every year and we're looking as both our own and validates and experience industry experience an emerging trend.
Speaker Change: And so this is maybe that being a medium to long term trends and longevity in Europe on both our Crs and Ah Hey, European flexibility is really what we're seeing is sustained and.
Speaker Change: Move in those trends in terms of long term mortality improvements.
Speaker Change: The long term trends and medium to long term trend.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: So the.
Speaker Change: The expectation is people living shorter is that gen.
Speaker Change: Generally what I'm thinking here.
Speaker Change: Yes, that's right and it's very much reflecting the experience we've seen over the last meeting over the last 15 years and in Euro and leading us.
Speaker Change: Leaning into post pandemic experience that you still have it they just don't really nothing of trends that meeting.
Speaker Change: And managing by trade that she's asking tax Linda I might.
Speaker Change: Clarify that said people living shorter we're not viewing people would live shorter we're reviewing that the rate of mortality improvement will not stay at the level at which it has been over that period of time. So it's not shorter living it's just we saw quite significant improvements and.
Speaker Change: You know mortality and longevity and its just view this as a slowdown in our rate that had existed for quite a while in Europe, Yes, I think that's further clarification, so I really think it.
Speaker Change: Liability the land for future mortality improvement and now for our feature medical advancements and new treatments.
Speaker Change: Treatment.
Speaker Change: Anything is based on the trends that we're seeing very jazzed and pulling that back a little bit, but still we had a material.
Speaker Change: Uhm.
Speaker Change: Yeah.
Speaker Change: Oh, Okay, and then just lastly, maybe add and you can tell me if this doesn't make sense, but that $14 billion of net outflows on the retirement side do you have any split of what that would be for between those that are retired.
Speaker Change: I'm, just trying to get a sense that segmentation.
Speaker Change: Based upon what's driving the net flows and looking at it maybe different differently by segment.
Speaker Change: Maybe John can start with that.
Speaker Change: Okay.
Speaker Change: Oh yeah.
Speaker Change: You start John and then you can turn it over to Yep Yep.
Speaker Change: Yeah. It is principally in people in the retirement age in terms of the outflows.
Speaker Change: Looked at it across all age segments, we haven't seen a material change in the outflows by age segment obviously.
Speaker Change: We are also looking at hardship and other withdrawals in response to the economic environment in the U S and while there have been small movements nothing of materiality. That's why we kind of gave you a sense that.
Speaker Change: It really is growing in line with the number of participants we see and.
Speaker Change: Principally largely driven by the average account balance.
Speaker Change: Going up 21% over the last two years.
Speaker Change: And people hitting that point.
Speaker Change: When they retire when they move to an advisor and our opportunity really is to be to capture a greater share of that into our personal wealth business.
Speaker Change: Ed.
Ed Murphy: Anything you'd like to add.
Ed Murphy: Well you referenced 14 billion.
Speaker Change: 2 billion of that is is obviously on the plan side and if you look at.
Speaker Change: Net plant activity has been positive for the last three years, we expect it to be positive going forward. So that's how I, that's how I would characterize the plan side of it and then on the individual side.
Speaker Change: The preponderance of the of the distributions are coming from those that are age over six over the age of 60.
Speaker Change: So yes in many instances it has to do with someone that's.
Speaker Change: Either changing jobs and terminating or they are retiring.
Speaker Change: So maybe I'll just ask it differently as for as the net the net flows for those under the age 60 is that positive.
Speaker Change: Yes, yes, it would be in.
Speaker Change: Yeah.
Speaker Change: Yeah, It would be and just to give you a sense as you think forward.
Speaker Change: The contributions from the plans.
Speaker Change: The contribution levels are growing at a rate of around 7% per annum.
Speaker Change: So in terms of.
Speaker Change: As you move forward our contributions are growing.
Speaker Change: At that level, obviously, you have the market impacts.
Speaker Change: And then in a normalized year.
Speaker Change: The outsized positive equity markets. We've had the last couple of years would be a similar level.
Speaker Change: So to the extent that equity markets.
Speaker Change: Grow faster than that 7%.
Speaker Change: By definition, you end up with higher withdrawals and that's what we've tried to get across in this call by providing you with this expanded disclosure on the <unk> and the Zip.
Speaker Change: Yes.
Speaker Change: Underlying interest.
Speaker Change: Yes go ahead.
Speaker Change: I was just going to add that.
Speaker Change: We have over 1 million participants that are using our advice based solutions in plan advice based solutions that continues to grow.
Speaker Change: We're the second largest player in that space and if you look at the savings rates for those individuals.
Speaker Change: They tend to be 15% to 20% higher than those that are not part of that plan. So we see good we've seen particularly when the economy strong we see good steady payroll deductions in contribution rates.
Speaker Change: Among those that are not.
Speaker Change: Not within the advice based solutions, but but it's particularly pronounced and much higher when they're part of the advice based solutions, which is something that is a real focus for us.
Speaker Change: It's an important element of our value proposition.
Speaker Change: Given the fact that one of the challenges that we have in the United States is and in some instances people just aren't saving enough for retirement, so we're actually pretty optimistic about our ability to move the needle sort of speak on getting people to save more and helping them save more through some of the services that we're offering.
Speaker Change: Yes.
Speaker Change: Just add a little more color just a reminder, and I think I had this in his comments.
Speaker Change: This is a demographic trend we see.
Speaker Change: Its elevated a bit because of the equity markets, but the context that had provided was that.
Speaker Change: Over the last two years the market impact of that lift in any way the positive impact for us for our for our for our fee income was the factor of 16 to the impact of those flows. So we're focused on growing this business and one of the dynamics in you know Ed could speak to this more eloquently than me, but the dynamic of the business is.
Speaker Change: Because it is a market that is relatively mature, we'll say because of this boomer dynamic. It is a market. Therefore that has consolidated and we will continue to consolidate and it is a market where those who have scale and who can automate and who can get at this rollover and this wealth management opportunity have very very strong.
Speaker Change: Hands relative to the future and those that are sub scale those that can't invest to achieve what we're achieving are going to be challenged and that's why we like the business. That's why we've been able to do what we've done over the last.
Speaker Change: Well frankly, since 2014, but to a large extent over the last five years because of the conditions that we're seeing today and we actually think these conditions are ones that we will continue to lean in and lean into and take advantage of that's why this is a growth engine for us.
Speaker Change: Just add one more in terms of the type of plan.
Speaker Change: You know the size of the plan in the industry that the plan is also has.
Speaker Change: Ah procure your.
Speaker Change: Determined it upon whether it's in inflows or outflows so particular.
Speaker Change: Strengths there are smaller obviously smaller plants, where we have agreed with strong market position in the core market you see employment royalty of plan formation.
Speaker Change: And you have a younger employment base with relatively higher contribution levels.
Speaker Change: So it also depends on the size of the plan of where where what industry they're in.
Speaker Change: In terms of the overall flows and some of those plans may have outflows had a planned levels, but there is still attractive for us to bring into our platform and add to the scale of our overall portfolio.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: This concludes the question and answer session I would like to turn the conference back over to Mr. Cohen for any closing remarks.
Mr. Cohen: Thanks, everyone for joining us today following the call a telephone replay will be available for one month.
Speaker Change: The cost will be archived on our website for one year 2020 for fourth quarter results.
Speaker Change: Scheduled to be released after market close on Wednesday February 5th with the earnings call starting at <unk> am Eastern time, the following day.
Speaker Change: Would like we would also like to announce the date of our next Investor Day, which will take place on April 2nd in Toronto, where.
Speaker Change: Further details will be.
Speaker Change: Due course, we very much look forward to providing a comprehensive review of all of our businesses. This event. Thank.
Speaker Change: Thank you again and this concludes our call for today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Hum.