Q3 2025 Sun Life Financial Inc Earnings Call

Speaker #4: Good morning and welcome to the Sun Life Financial Q3 2025 conference call . My name is Gaylene and I will be your conference operator today .

Speaker #4: 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 .

Speaker #4: To join the question queue , you may press star , then one on your telephone keypad . The host of the call is Natalie Brady senior Vice President , Capital Management and Investor Relations .

Speaker #4: Please go ahead . Miss Brady .

Speaker #5: Thank you and good morning , everyone . Welcome to Sun Life's earnings call for the third quarter of 2025 . Our earnings release and the slides for today's call are available on the Investor Relations section of our website at Sun Life Financial .

Speaker #5: We will begin today's call with opening remarks from Kevin Strain President and Chief Executive Officer . Following Kevin , Timothy Deacon , Executive Vice President and Chief Financial Officer will present the financial results for the quarter .

Speaker #5: After the prepared remarks , we will move to the question and answer portion of the call . Other members of management are also available to answer your questions .

Speaker #5: 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 .

Speaker #5: As noted in the slides , forward looking statements may be rendered inaccurate by subsequent events . And with that , I'll now turn things over to Kevin .

Speaker #6: Thanks , Natalie and good morning , everyone . Turning to slide four . We had a good Q3 for top line and for bottom line , demonstrating the benefits and strength of our diversified business model .

Speaker #6: Our underlying EPs was $1 . $0.86 , up 6% year over year . Underlying ROE was 18.3% , progressing well towards our medium term objective and our book value per share grew 3% quarter over quarter .

Speaker #6: Individual protection sales grew 35%. Group health and protection sales grew 12%, and we had almost $3 billion of positive net flows in asset management and wealth.

Speaker #6: We achieved strong underlying earnings in Asia and Canada with solid underlying earnings and asset management . We continue to navigate the industry challenges in our US business , which performed below our expectations this quarter results in our US business were challenged by unfavorable insurance experience across group and dental , reflecting the structural changes occurring in the US .

Speaker #6: Healthcare system , which are driving higher claims frequency and cost . It is important to remember that our US group benefits and dental businesses are replaceable over a 1 to 3 year time and are experience is largely in line with or better than industry trends .

Speaker #6: Our employee benefits business saw higher disability claims in July , but this started to normalize in August and September , and we see this as normal volatility in our medical stop loss business .

Speaker #6: We saw higher frequency of claims over $1 million in the quarter , and we increased our stop loss ratio assumptions to reflect this .

Speaker #6: Accordingly , we are industry leaders in the stop loss business with scale and strong capabilities , and we continue to have industry leading claims ratios .

Speaker #6: We have seen cycles like this in the past where the claims run ahead of pricing , and we continue to be confident in our ability to pick the best risks and manage the pricing in dental .

Speaker #6: We continue to navigate industry wide headwinds from the slower pace of Medicaid contract repricing . We remain focused on improving our US dental business performance through repricing expense actions and growth of our commercial business in Asia .

Speaker #6: We achieved double digit growth , double digit protection , sales growth in six markets with new business CSM growing 20% year over year , and overall , CSM has more than doubled over the past three years , reflecting sustained momentum , momentum across Asia .

Speaker #6: In Canada , we continue to with strong individual protection , sales driven by solid demand for our participating life policies sold through both third party and proprietary channels .

Speaker #6: We are also continuing to see steady growth in our asset management net flows , including strong capital raising and deployments at SLC management and institutional net inflows at MFS .

Speaker #6: We ended the quarter with a Likert ratio of 154% , demonstrating our strong capital position . Announced a four cent increase to our dividend to $0.92 per share , and we repurchased approximately $400 million of shares in the quarter .

Speaker #6: Turning to slide five . We've invested significantly in our asset management business over the past decade and have industry leading capabilities , which span across public equities and public fixed income at MFS Alternative Asset Management at SLC , with 1.6 trillion in assets under management , we are Canada's largest asset manager and one of and are one of the largest asset managers in the world .

Speaker #6: We also have significant wealth management capabilities in Canada and Asia that we can leverage . 1.4 trillion of our AUM is managed by our asset management businesses , of which 1.2 trillion is on behalf of third party investors .

Speaker #6: Our asset management pillar today includes both MFS and SLC , and a few weeks ago we announced Tom Murphy as president , Sunlife Asset Management .

Speaker #6: Tom has a deep asset management background . He previously led investment businesses in Europe and the US before joining SLC management in 2018 , where he was the president of SLC Fixed Income .

Speaker #6: Over the past three years , Tom has been Sunlife Chief Risk Officer . He will assume his new role on January 1st , 2026 .

Speaker #6: It is important to note there will be no change in how MFS or SLC are managed under this structure . MFS is a global leader in public equities and public fixed income , with a strong management team and a focus on the client .

Speaker #6: We support the MFS strategies , including growing public fixed income and active ETFs , and we saw good progress in both this quarter .

Speaker #6: SLC has equally strong management capabilities and is equally focused on clients . We are we are seeing significant interest in partnering with SLC from banks , insurers , reinsurers and others and are focused on unlocking these opportunities .

Speaker #6: We see long term growth potential in Asia , asset management . We currently manage over 140 billion in assets through our general account and wealth businesses .

Speaker #6: In addition , our asset Management JV in India sits at $65 billion in assets under management . Adding further capabilities in Asia will support growth in asset management and investment returns in our insurance and wealth businesses , unlocking the synergies between our asset management business and our insurance and wealth businesses will be an important part of Tom's mandate .

Speaker #6: I'm excited by the opportunity to accelerate the growth of our asset management businesses globally . We have an excellent mix of capabilities across asset management , insurance and wealth .

Speaker #6: Sunlife Asset Management will be an important growth engine for Sunlife going forward . Turning to slide six and staying on asset management and wealth .

Speaker #6: We saw good momentum across our platform this quarter at SLC fee earning assets under management grew 9% year over year , driven by strong capital raising and deployments across all platforms .

Speaker #6: We are on track to achieve our full year underlying earnings target of $235 million at MFS , net outflows of 0.9 billion US were the lowest since 2021 .

Speaker #6: Strong institutional growth sales of 12.9 billion US included large mandate wins and separately managed accounts and collective investment trusts . We also had solid net inflows in public fixed income and active ETFs .

Speaker #6: MFS continues to deliver industry leading pre-tax net operating margins , with a 39.2% margin . This quarter in Canada . Sunlife global investment marked its 15th anniversary of helping Canadians grow and protect their wealth .

Speaker #6: Since launching in 2010 , SLG has grown to over $44 billion in AUM and has become the largest Canadian based provider of target date funds for group retirement plans .

Speaker #6: This quarter . SLG launched its first ETF series in Canada , leveraging the power of our asset management platform , we are providing investors and advisors with more ways to access the deep expertise of MFS , SLC , SLC Fixed Income and Crescent Capital .

Speaker #6: Moving to Asia , we saw robust individual protection sales agency sales were up 25% , bancassurance sales were up 36% and broker sales were up 47% year over year , highlighting the strength of our distribution in Asia across channels , Asia Asset Management , gross flows and sales of 2.2 billion were up 17% , driven by higher fixed income fund sales in India and MPF sales in Hong Kong .

Speaker #6: We are poised for growth in Canada , Asia and asset management and are focused on aligning our US business for growth in the new realities we face in the US health space .

Speaker #6: We have strong capabilities in the US health space and scale in these businesses . They are capital , light and they are replaceable by design .

Speaker #6: I have strong confidence in the US management team and will work closely with David Healy to manage through the repricing and repositioning that needs to be done for growth .

Speaker #6: Overall , we are committed to our medium term objective of 10% underlying earnings growth , 20% ROE and dividend payouts in the range of 40 to 50% of underlying earnings .

Speaker #6: With that , I'll turn the call over to Tim , who will walk us through the Q3 financial results in more detail .

Speaker #7: Thank you , Kevin , and good morning , everyone . Turning to slide eight . Overall , our third quarter results reflect the benefits and strengths of our diversified businesses as strong growth in Asia and Canada and solid results in asset management were partially offset by lower earnings in the US .

Speaker #7: In Q3 , we reported underlying net income of 1.47 billion , up 3% year over year . Underlying earnings per share of $1.86 were up 6% over the same period .

Speaker #7: Asset Management and wealth underlying earnings were up 5% over the prior year . On improved credit , higher fee income in Canada and higher net investment income at SLC .

Speaker #7: Management Group health and protection underlying earnings were down 18% year over year , driven by unfavorable insurance experience across the US , partially offset by business growth and favorable insurance experience in Canada .

Speaker #7: Individual protection underlying net income was up 25% over the prior year on business growth , favorable mortality experience in Asia , joint venture earnings in India , and higher investment earnings in Canada .

Speaker #7: Underlying return on equity was 18.3% , up from the prior year . On higher earnings and the impact of share buybacks reported net income was 1.1 billion , or 6% above underlying net income , driven by a gain from our increased ownership in bow tie , partially offset by amortization of intangibles acquisition related expenses .

Speaker #7: Market related impacts , and the impact of our third quarter review of actuarial assumptions or asthma market related impacts reflect unfavorable real estate experience .

Speaker #7: As modestly positive returns in the quarter were below our long term expectations , we completed the annual review of actuarial assumptions , which resulted in a modest net loss of 13 million and 139 million benefit to total CSM total CSM , which reflects future profits , increased 12% year over year to 14.4 billion , driven by strong organic CSM growth , new business CSM of 446 million increased 16% on strong sales compared to the same period last year .

Speaker #7: Organic capital generation , net of dividends , was strong at 624 million , or 60% of underlying net income , well above our target range of 30 to 40% .

Speaker #7: Our capital position remains strong , with an SLF Licat ratio of 154% , up three points from the prior quarter , driven by a $1 billion debt issuance executed in the quarter and organic capital generation , partially offset by share buybacks .

Speaker #7: Holdco cash was 2.1 billion , and our leverage ratio remains low at 21.6% . Our book value per share increased 2% over the prior year , demonstrating our ability to generate strong growth while returning value to our shareholders .

Speaker #7: With over 19 million shares repurchased in the last 12 months and 4.8 million shares repurchased this quarter . Finally , we announced a 4.5% increase to our common shareholder dividend .

Speaker #7: Turning to our business group performance on slide ten . Mmfs underlying net income of 215 million US was down 1% over the year , primarily reflecting a decrease in net interest income , mostly offset by higher fee income .

Speaker #7: On average , net asset growth . Our pre-tax operating margin of 39.2% decreased 1.3 percentage points from the prior year , primarily from lower interest income assets under management of 659 billion US were up 2% over the prior year and up 4% over the prior quarter .

Speaker #7: The sequential movement in AUM was driven by market appreciation , partially offset by net outflows . Overall net outflows of 871 million US were at the lowest level since 2021 and included retail outflows of 4.7 billion and institutional inflows of 3.8 billion .

Speaker #7: Retail outflows reflected continued investor preference for risk free investments and were in line with industry , institutional , gross and net flows were the highest they've been in ten years and were driven by several large mandate wins over $1 billion in separately managed accounts and new target date product offerings in the defined contribution retirement channel , a key growth segment for Mmfs .

Speaker #7: Mmfs also had positive net flows in public fixed income and active ETFs this quarter . Turning to slide 11 . SLC management generated underlying net income of 54 million , up 15% year over year , which reflected the impact of higher net investment income and higher fee related earnings .

Speaker #7: With year to date underlying net income of 184 million . SLC is well positioned to achieve its underlying earnings target of 235 million for 2025 .

Speaker #7: Fee related earnings of 78 million were up 8% compared to the prior year , primarily from strong capital raising . Reported net income was 23 million , down from the prior year due to a revaluation gain on acquisition related liabilities in the third quarter of 2020 for SLC , management continues to demonstrate strong momentum across the platform , with capital raising of 5.6 billion , primarily in Crescent , BGO and SLC fixed income and deployments of 7.4 billion across all asset classes SLC , fee earning AUM of 199 billion was up 9% year over year , driven by net flows , partially offset by realizations .

Speaker #7: Turning to slide 12 , Canada reported net income of 422 million was up 13% over the prior year on strong business growth , favorable insurance experience and higher fee income .

Speaker #7: Reported net income of 414 million was up 8% over the prior year , driven by underlying net income growth and favorable asthma , partially offset by market related impacts .

Speaker #7: Asset management and wealth . Underlying earnings were up 19% year on year on improved credit experience and higher fee income from AUM growth .

Speaker #7: Asset management and wealth AUM of 213 billion was up 11% with the prior year on market appreciation . Group health and protection earnings were up 15% year over year , reflecting business growth , favorable mortality and morbidity experience from lower claims volumes and shorter durations , and improved credit .

Speaker #7: Group sales were down 21% from last year due to the timing of large case sales . Individual protection earnings were up 3% compared to the prior year on higher investment earnings .

Speaker #7: Individual protection sales were up 16% year over year , driven by solid demand of non-participating life products across both third party and proprietary sales channels .

Speaker #7: Turning to slide 13 . Sunlife UBS's underlying net income was 107 million US , down 34% from the prior year in group health and protection .

Speaker #7: Underlying earnings were down 50% from the prior year , reflecting unfavorable insurance experience in medical stop loss . Higher frequency and dental , and unfavorable disability experience in employee benefits .

Speaker #7: US group health and protection sales of 273 million US were up 25% year over year , driven by higher large case sales and employee benefits and higher government sales in dental and employee benefits .

Speaker #7: We experienced elevated long term disability claims in July , which improved over the remainder of the quarter in medical stop loss . The unfavorable insurance experience this quarter has comprised of residual claims from the pre 2025 business and the impact of existing pricing shortfalls and moderately elevated claims volumes .

Speaker #7: On January 1st , 2025 , business . As a result , in Q3 we increased our loss ratio assumption on the January 1st , 2025 block for the impact of three quarters of expected experience to date , reflecting our disciplined approach in dental , we continue to experience pricing shortfalls and higher claims frequency in our Medicaid business .

Speaker #7: In addition , we're seeing seasonally higher utilization in Q3 as the majority of our Medicaid membership base is comprised of children who typically receive dental services prior to the start of the school year , individual protection , underlying earnings were up 29% year over year .

Speaker #7: On other experience gains , improved credit experience , and higher investment contributions . Reported net income of 72 million US was down 71% compared to Q3 of 2020 .

Speaker #7: Four , reflecting unfavorable asthma and lower underlying net income . Turning to slide 14 . Asia posted record underlying net income of 226 million , up 32% year over year .

Speaker #7: Individual protection earnings were up 38% over the prior year on strong continued sales momentum and In-force growth . Favorable mortality experience and higher earnings in India , asset management and wealth earnings were in line with the prior year .

Speaker #7: Reported net income of 373 million was higher year over year , driven by the gain from our increased ownership in bowtie , favorable asthma and higher underlying net income .

Speaker #7: We continue to see strong sales in individual protection , up 38% year over year , driven by double digit sales growth across most of our markets and channels .

Speaker #7: Asia's total CSM of 6.5 billion grew 17% over the same period last year , driven by strong organic CSM growth , new business CSM of 322 million was up 20% over the prior year from strong sales .

Speaker #7: Overall , our results were underpinned by the growth in Asia and Canada and solid results across asset management . We remain focused on executing the actions to position our US health businesses for growth in the current environment .

Speaker #7: We are confident that our strong fundamentals , diversified business mix and geographies and a robust capital position will enable us to continue to deliver on our medium term objectives .

Speaker #7: With that , I will pass it back to Natalie for Q&A .

Speaker #5: Thank you Tim . To help ensure that all of our participants have an opportunity to ask questions this morning , please limit yourself to 1 or 2 questions and then requeue with any additional questions .

Speaker #5: I will now ask the operator to pull the participants .

Speaker #4: Thank you . To join the question queue , you may press star . Then one on your telephone keypad . You'll hear a tone acknowledging your request .

Speaker #4: If you're using a speakerphone , please pick up your handset before pressing any keys to withdraw your question , press star , then two .

Speaker #4: Our first question is from Paul Holden with CIBC . Please go ahead .

Speaker #8: Thank you . Good morning . Two questions . Both related to us dental as the first would be what kind of expectations do you have for Medicaid repricing to start 2026 , i.e. what are you hearing from the states and what should we expect ?

Speaker #8: And then the second one is maybe talking about growth in US commercial premiums up roughly 6.5% year over year . So it's growing .

Speaker #8: But should we expect sort of reinvigorated efforts to accelerate that growth . So to diversify away from the Medicaid business . Thank you .

Speaker #9: Yes . So thanks for the question , Paul . This is David . So yeah , we're very much focused on pricing in the US business .

Speaker #9: The way to think about it is , you know , we have states and direct relationships with them , which is the majority of our business .

Speaker #9: But we also have a significant relationship with health plans where we're the delegated provider of dental services . And then we also have Aso business , which is a mix of both states and health plans .

Speaker #9: Generally , we're making reasonably good progress with states around 26 , with the exception of one large state . Health plans is going slower .

Speaker #9: We're making less progress and how we're thinking about it is , you know , we're continue to focus with them on pricing and repricing appropriately .

Speaker #9: In some cases , we're making structural changes to plans , including and as appropriate , maybe moving from risk to Aso with some health plans .

Speaker #9: And also including maybe terminating contracts if we can't get the price we need . So we're very much committed to it . We're making progress .

Speaker #9: I would expect it to be gradual in 26 , but we're continuing to stay focused on it . Also on the Aso front , we continue to enhance the value of our services to make sure we're getting paid appropriately for the work we're doing in support of those contracts .

Speaker #9: But it is slow progress . With respect to commercial . Your second question , yes , we're , you know , making progress since the acquisition , premiums have grown more than 30% .

Speaker #9: Membership has grown more than 20% . This is an important opportunity for growth for us into the future . As you know , in the US market , outside of health , commercial dental is the number one sought after benefit after health care .

Speaker #9: And it's a great opportunity for us to package commercial dental with the rest of our group . Benefits products . And we have a really strong employee benefits offering and a great distribution system in which to bring that through .

Speaker #9: So we're very much focused on that . It will take time , of course , it's a competitive landscape , but we expect to continue to make progress over time with commercial dental sales .

Speaker #8: All right . I'll leave it as my two questions . Thank you .

Speaker #4: The next question is from Alex Scott with Barclays . Please go ahead .

Speaker #10: Hey , I wanted to see if you could talk about the asset management flows and can you give us a feel for the institutional progress that's been made there ?

Speaker #10: And to what extent should we view that as more lumpiness ? And , you know , something driven by more of a single mandate as opposed to , you know , the things that you're doing to improve the the more medium to long term trajectory of the flows in the business .

Speaker #11: Sure . This is Ted Maloney . I think lumpiness , the word you use is really important , one to use . And it is a reminder that we we do have lumpiness in both directions .

Speaker #11: And so in the quarter , we got a couple of large inflows that Tim mentioned that we think are indicative of themselves longer term trend .

Speaker #11: But the broad trends both institutionally and retail remained with more headwinds than tailwinds . Some of those headwinds may be lessening on the margin , but the headwinds persist within that .

Speaker #11: We'll continue to have big wins as well as continued losses . And in this quarter , we had those couple of big wins .

Speaker #11: I can give you a little bit more color on them , which might be helpful to think about longer term , which is one was separately managed account within the what we would characterize as institutional .

Speaker #11: That is , in our one of our international strategies . So the world minus the US , which is one of the many areas where we have a really dominant set of franchises and our and are seen as market leaders .

Speaker #11: And so that's been a nice growth tailwind for us for a period of time . And should continue to be . But that was obviously a very big chunk of a tailwind .

Speaker #11: The other is actually smaller , but perhaps more exciting . Tim mentioned this as well . The collective Investment Trust vehicle is the most important vehicle in the retirement space , and there's a unique feature to it , which is that you can't cede it yourself .

Speaker #11: You need a client to be an initial investor. So getting that first investment in a target date city was a huge win on its own, but also allows us to fund sits across all the components of the target date.

Speaker #11: So we think that's another one that will provide long term tailwinds . But again , I do want to reiterate the headwinds across the industry that we've been talking about for a long period of time persist .

Speaker #11: We are executing well . We believe within those headwinds , they may be abating slightly on the margin , but we are not declaring a change to that .

Speaker #11: Our long term strategy very much includes long term net flow , positive growth over time . We think we've got a very clear strategy to execute on that , and we'll continue to do that .

Speaker #11: We'll need some help from those industry headwinds abating .

Speaker #10: That's helpful . Second one I had is on stop loss . I wanted to see if you could provide a little more detail around , you know , how much of it this quarter was unfavorable development from earlier loss picks that were made earlier in the year .

Speaker #10: And maybe further to help us think through how much of the cash claims do you still have to come in? And are we getting late enough in the year that it's, you know, potentially becoming a little too late to reflect what you're learning in the Q1 26 renewals?

Speaker #10: Or do you feel like you are fully getting that ? I'm just trying to get a better sense for what to expect going into next year .

Speaker #10: Thanks .

Speaker #9: Okay , Gabe , thanks for the question . It's David again . Yeah . Let me just break down the unfavorable insurance experience for medical stop loss in in the quarter , there was really three factors involved .

Speaker #9: About 20% of it was related to the pricing shortfall that we've previously discussed on this call that we knew this year , 35% of it was related to late emergence of claims from cohorts prior to one 125 , including one large claim that came through in the quarter and the rest just under half was related to the one 125 cohort itself .

Speaker #9: So we did see a higher number of greater than 1 million claims late in the quarter . So we did update our loss ratio pick for the year .

Speaker #9: It's important to know that as a result of doing that , it reflects really three quarters of updates to reserves . As Tim had mentioned , for Q1 , Q2 , and Q3 premiums , that that came in .

Speaker #9: You'd also asked about pricing , and I think how we're looking at it for 2026 . Well , obviously , US healthcare costs are elevated , medical trend has been rising to 8.5% this year , and we expect that to continue into 2026 .

Speaker #9: And our pricing reflects our view of leverage trend . And it's also considering recent experience . So , you know , we continue to stay focused and disciplined in our pricing approach .

Speaker #9: You'd asked about , you know , how much of it has come through in terms of what we see at this point in the year .

Speaker #9: Obviously , Q3 we had enough credible claims to be able to update our loss ratio pick for the year . We typically see about 30% of our claims by Q3 , and then a further 30% come through in the fourth quarter .

Speaker #9: So it's still early in the cohort of 25 , but we're certainly updating our view on experience as we see it .

Speaker #6: Alex , it's Kevin , I just wanted to maybe sort of reiterate some of what David was saying . We we expected significant increase in price when we went into this year .

Speaker #6: And we we increased prices by 14% . And as we saw the year end experience , we added another 200 basis points to that .

Speaker #6: So we continue to see that trend . And then this quarter we added another 1% approximately , which was for the three quarters sort of experience we were seeing .

Speaker #6: This business is replaceable , but when costs are rising , so rapidly , it's hard to keep up with that repricing . But over time , we will be able to to do that , we have confidence in our ability to do that because we do have scale and we do have good risk selection .

Speaker #6: There . But when , when , when costs and claims are rising . So rapidly , we can lag a little bit . And we've seen that in the past .

Speaker #6: So I think that we're taking the right actions . A chunk of what you saw this quarter was for the year to date , but it all reflects that increasing claims experience that we're seeing at the higher end , which I referenced in my speaking comments .

Speaker #10: That's all helpful . Thank you .

Speaker #4: The next question is from Gabriel Deschene with National Bank financial . Please go ahead .

Speaker #12: Yeah . So so if I understand correctly , your , you know , you're 17% of the total repricing target . And that's the number you'll try to have fully embedded in the book by Jan one , 26 .

Speaker #12: And I guess aside from pricing actions , what other and the timing of the effectiveness , what other considerations are there ? It's one thing to , you know , just increase pricing .

Speaker #12: But you know , market share , impact , you know , there are some , you know , known unknowns , I guess , because we saw that with dental where there's a dynamic with the counterparties that wasn't anticipated .

Speaker #12: And I'm wondering if there's a similar kind of dynamic that we should be aware of when when repricing or seeking repricing when it comes to this , this stop loss business , which is a commercial one .

Speaker #12: Not not not state .

Speaker #6: Gabe it's Kevin . Let me just since I mentioned the the 14 and the two and the one that's for this year right .

Speaker #6: That's what we would have thought . That's what we thought we would have priced out if we had all the full information of how claims were coming through .

Speaker #6: So that , that that's related to this year . And we're going through the repricing for next year right now . So I'm not signaling what we're doing for next year , but maybe David can go into some more detail .

Speaker #9: Yeah . Just to add to that , you know , as Kevin noted , we do have , you know , a typical underwriting cycle in this business .

Speaker #9: And there are times when claims can come out ahead of pricing updates. And we've seen this before. Historically, we've had among the lowest loss ratios in the industry.

Speaker #9: And we continue to do that . There are other things , of course we're doing . We have a very talented team . We're not just only focused on pricing , although it's a specific focus for us .

Speaker #9: We continue to build out our cost containment programs , which are really important . We have expert clinical capabilities . You know , our clients are really seeking out more cost containment support in light of the rising health care costs .

Speaker #9: And then we have care navigation capabilities as well , which we're building to help support employers and their employees as they deal with the escalating costs in the US , health care system .

Speaker #9: So we're confident that we can work through this . We have an industry leading position , and we're certainly , you know , continuing to stay focused on it .

Speaker #4: The next question is from Tom MacKinnon with BMO Capital Markets . Please go ahead .

Speaker #13: Yeah . Thanks very much . Good morning . Maybe you can share with us sort of an outlook for the the Medicaid dental loss ratio going forward .

Speaker #13: How much is that going to be improved as a result of any any pricing benefits and are as we move into 2026 , would you reset your expected your earnings on PA business in the US as a result of perhaps a different expected loss ratio for US Medicaid , dental ?

Speaker #9: Yeah . So I noted that we're very focused on pricing and working through them on a on a state by state and contract by contract basis .

Speaker #9: You know , what we're seeing at the same time is we're seeing rising utilization in the US and that has eaten up some of the pricing gains that we even saw coming through this year .

Speaker #9: We're still seeing a pretty conservative view on forward looking trend in utilization . And so we're certainly trying to influence that in what we're doing .

Speaker #9: And the work we're doing with states and health plans . But it is gradual progress that we're we're seeing and that we're expecting to make .

Speaker #13: So if you were to maintain your best estimate here in terms of your Medicaid , dental loss ratio , is the outlook for continued negative insurance experience with respect to this line , the kind of the same level that you had in the quarter ?

Speaker #13: Or should it improve ?

Speaker #9: So it's important to note that this quarter is a seasonally high quarter . As Tim noted , we you know , we do typically see this the third quarter .

Speaker #9: We insure a lot of children . They go back to school . They use the dentists a lot in this quarter . It's traditionally the highest quarter in the year .

Speaker #9: Q4 . By contrast , is the most favorable quarter . And so we do expect things to improve in in the next quarter .

Speaker #9: And like I said , going into 2026 , we do expect gradual improvement in the loss ratio as we move forward and we're continuing to work through that .

Speaker #9: And .

Speaker #14: Tom Brennan , Kennedy , Thomas Brennan , Kennedy , just on your question about the the reset , the earnings on short term insurance .

Speaker #14: So we do reset that at the beginning of the year . Looking at the premiums in force and the pricing assumptions that are in effect .

Speaker #14: So .

Speaker #6: Tom , it's Kevin , I would say that there's there's a variety of reasons , but I've been following the benefits business a long time .

Speaker #6: And when people think their benefits are going to end because they're going to retire or something's going to happen to it , they tend to use them more .

Speaker #6: And I think that's what we're seeing in the in the US , Medicaid , dental space . There's concern that they'll be losing those benefits .

Speaker #6: And so they're they're utilizing them . There's other factors . But but that's a big one . We do continue to believe that over time the states will reflect that this is an important benefit .

Speaker #6: David talked about this . This is important benefit for people . And they'll they'll the states will reflect that that cost and that need .

Speaker #6: It just will take some time to to come through . So we we still believe that this is going to turn . But as I was saying earlier , when you're in a rapid change in terms of utilization , it can take a little bit of time to get that reflected in the price .

Speaker #6: So it's not it's more of a shorter term issue 1 to 2 years . And over the longer term , we expect that to to come back to more of our pricing levels .

Speaker #6: When we did the deal .

Speaker #13: Great . And then as a follow up , I mean , if I look at the organic capital generated and you add the dividend here , it's over 100% of your underlying earnings .

Speaker #13: And that's been a trend that's that's been we've seen over the last several quarters here . So why not step up on the share buyback .

Speaker #13: I realize you've got some money here to be earmarked for SLC buy ins , but if you're generating , capital at this kind of rate , why shouldn't you step up the share buyback here to offset any kind of pain you might see from some of the the dental ?

Speaker #6: Well , Tom , as you know , we have the remaining purchase for SLC early next year for the BGO and the Crescent transactions .

Speaker #6: And so our current capital position does reflect that . And we're preparing for that transaction , which will be around $2 billion . Historically .

Speaker #6: We've also run the buyback at roughly what we're generating for capital . And we're we're committed to to seeing the current buyback through .

Speaker #6: And we're committed to buybacks on a longer term basis . As one of our tools to manage capital levels . So I think you're going to see us be active on on the buyback that we have in place .

Speaker #6: And you're going to see us be committed to the capital priorities that we've had . One of those being the buyback . And I think that that consistent approach to the buyback is something that we we think is , is important .

Speaker #6: And and valued by our shareholders .

Speaker #13: Okay . Thanks .

Speaker #4: The next question is from Doug Young with Desjardins Capital Markets . Please go ahead .

Speaker #15: Hi . Good morning . Just maybe I apologize back to the US medical stop loss business . I just want to make sure I understand this .

Speaker #15: So based on your description , it seems like you've had a 3% or 2% shortfall . That's been running through . And yet 3% shortfall coming through this quarter .

Speaker #15: But you had a kind of make up for the last few quarters . So when we look forward to Q4 and we think about the experience that should flow through in Q4 , it should be about a 3% loss ratio shortfall .

Speaker #15: Do I have that correct ? Any way you can quantify that and then second part of the question , are there ways you can temper the volatility , you know , such as being a little bit more conservative on the reserve pick early in the year ?

Speaker #15: In these times of uncertainty and higher medical cost inflation , I just thought I'd throw that out there . Thanks .

Speaker #9: Yeah . So in terms of the quantifying it for Q4 , you know , I'd say , like I said , the one 125 cohort we did update our ultimate loss ratio pick for the year because we did that , it reflected reserve updates for the first three quarters .

Speaker #9: So in Q4 , you would expect it to be a third of that . So it would be a smaller amount in the single digits .

Speaker #9: And so that's how you should think about it . It was updated by just over a point from where we had it before .

Speaker #15: Sorry . And then just so single digit US dollar millions is the negative impact for Q4 and the experience is that what you suggested ?

Speaker #9: That's what our current projection is based on . Our , you know , cohort . And how it has evolved so far . Obviously , it could get a little better than that , or it could deteriorate further .

Speaker #9: We've seen about 30% of the claim volume that we expect on that cohort . We'll see another 30% in Q4 . That will be more meaningful .

Speaker #9: View of what the ultimate loss ratio will be for this cohort of business from one 124 .

Speaker #15: And then for David or for Kevin , just in terms of just mitigating the volatility in terms of is there ways you can be a little more conservative than the reserve picks early in the year ?

Speaker #15: And similar to like , property and casualty insurance and reserve developments is the way I think of it . And it's just like I think I've asked this before , but has there been any conversations around that ?

Speaker #14: Hey Doug , it's Brendan Kennedy , so , you know , using our current method , you know , this is the volatility we see .

Speaker #14: We continuously look at ways to refine things that we're doing to to maintain best practice . And this is something that we've had discussions on .

Speaker #14: And we will take away okay .

Speaker #15: And I just second maybe for Manjit Asia underlying earnings 16.2% I think you've hit your target already . Is there anything unusual this quarter , this kind of like the new sustainable run rate in you know , can you talk a little bit about where you think you can take that underlying ROE in Asia .

Speaker #16: Good morning Doug . It's Manjit . So as you noted we've had some pretty strong performance in Asia over the last little while .

Speaker #16: I'm pleased with what we've been able to deliver delivered 17% earnings growth last year and year to date . We've delivered 20% growth .

Speaker #16: And I think there are a number of factors that are driving that growth , Doug . So first of all , we feel we have very good fundamentals where in attractive markets with high growth potential , we have good partnerships across the region .

Speaker #16: We've got strong distribution across the agency and broker , and we've got a talented team . We've also made some pretty good investments over the last little while .

Speaker #16: We've invested in digital to increase our straight through processing . We've invested in delivering better client experiences , which has resulted in record high client satisfaction scores and also in our agent experience .

Speaker #16: We've also invested in our brand , and that's also resulted in record record high brand awareness . And the third thing I'd point out is that we've also increased our focus and capabilities to drive strong execution .

Speaker #16: So I think all of those things are contributing to the strong results that you're seeing in this current quarter . The results did reflect some variability that we had in high net worth mortality , as well as some strong security gains .

Speaker #16: So those will bump around quarter to quarter . You won't necessarily see them in every quarter . Some quarters it might go a little bit the other way .

Speaker #16: So I think fundamentally we've got a very strong business and I expect to expect to see strong performance in Asia going forward .

Speaker #17: Doug , it's Kevin . Oh , sorry . I'm just going to say .

Speaker #6: It's been a long time since we've seen six of our six of our eight markets growing in in double digits . I think management's doing a good job creating momentum across the Asia platform .

Speaker #6: And I think that's really important . And it's all the it's a whole bunch of factors . But but leadership matters . And I think he's doing a great job driving driving that change in the in the Asia outlook .

Speaker #15: Terrific . Appreciate the color . Thanks .

Speaker #4: The next question is from Mario Mendonca with TD securities . Please go ahead .

Speaker #18: Good morning . I want to look beyond 2025 . In the medical stop loss and think about 26 and help me sort of gain this out .

Speaker #18: Assuming the company's sufficiently conservative in building the reserves throughout the year . And again , perhaps in Q4 and you've got it right , assuming everything works out right , would it then be appropriate to assume that the experience gains and losses that we see in the US would relate solely to dental and and solely to experience on the 2026 cohort ?

Speaker #18: Is that the right way to think about it ?

Speaker #9: Hi , Marty . It's David . Yeah , that's a fair assumption .

Speaker #18: And then so help me then go to the next level . So if you've got that right , then growth in this business , then of course there would be a change in the level of experience gains relative to last year .

Speaker #18: That certainly helps . But what's the other big driver ? Would it simply be the net premiums in the business and the extent to which that grows ?

Speaker #18: Or perhaps it shrinks as you push through some significant pricing increases? Is that the way to think of it? That the base from which the short-term insurance earnings emerge could potentially decline during the renewal period?

Hi, thank you. Just to follow up on that line of questioning, I just want to ensure one thing. Are we still talking about...

Um, your targeted return of 7%.

In the stop loss.

10 to 15 points, better than others, that disclose their loss, ratios in the industry. So we're in a good position here and we continue to work through this cycle

Okay, so it's a hardening market.

And your your expectation would be that with the entire Market hardening.

That you should actually gain share in 26. Is that how I should at your targeted?

Profit margin is that.

I just want to make this very clear.

So I'd say a little bit differently. We're we're, we're holding our pricing discipline, and that will, it will a little bit depend on what others are doing, but others are seeing High loss ratios as well. So we expect them would they would also be reflecting that. So, we'll see how that turns out, but we will hold our pricing discipline. But we are very good risk, selectors as well and we've added additional capabilities which support us being uh getting the right, the types of margins that we have been getting. So we still see this as a really good business for us. We see we have a great management team there and I think that uh uh, over time that we'll we'll get back to being in a very strong competitive position. We'll see what others do when it comes to pricing as we go through the the process for next year. But we are not giving up on our pricing discipline. And we, we certainly think that even given that we'll keep our scale.

Okay. Okay, that's helpful. Thank you. Uh, and just to follow up on the for the fourth quarter, in terms of the of of the expectation.

I just wanted to make sure that I understood something you had mentioned that.

The.

Uh, reserving this quarter for the stop loss was based on 30% claims experience.

Um, is that different from the 50% reports that you get by this time of year?

Uh, yes. So this is David again. This is an accumulation product and we hold reserves for 26 months. And so, how you know, how we...

Do assess, our ultimate loss ratio pick. We'll see another 30% of claims come through in, in Q4 and typically another 30 in what would essentially be Q.

How it will play out.

Thanks very much.

The next question is from Gabrielle Deen with National Bank Financial. Please go ahead.

Hey, uh, I guess I got cut off. Um, my line dropped their last time around. My second question, on the dental business and the, the repricing. Uh, um, um, Outlook there there's a couple, uh, I, it's not so straightforward, uh,

you know, if you need 10, 15 20, whatever the number is, uh, percent the price increases,

For your counterparties to accept those. They have to also accept an accelerated or or uh recognition of of loss experience. So I understand it's a 3 year. Look back maybe 1 or 2 year. Good years in the look back that in in there so you want to have them?

You know, emphasize the most recent experience, which isn't it has been as favorable. I'm wondering how you know those discussions are uh, progressing if if, if you can shed some light on on how difficult of a challenge that is, if if it is

Yeah, so it's David, again, thanks for the question. So we uh continue to work through it. As Kevin noted. This is the price of a business, and we ultimately expect our pricing to C catch up with, uh, the experience in Medicaid, the rates are reset annually and by the state, uh, and they typically look back, as you said, through a period of time, uh, can be more or less than, than 1 year either directly with us. Um, where we, we have those direct relationships or through Health Plans, where we're subcontracting to those States? Uh, we can influence the rates. We provide a lot of data and insight and our opinion. Um, and as you noted it does include, uh, historical experience. But it also has to take into consideration a forward. Look for what utilization is going to be in the future. And that's where we're seeing some conservatism in uh, the rate setting process. Some of it is related to the dampening effect of really, the broader, uh, government. Uh, you know, pull back on spending and Healthcare. And so people are taking a more conservative view of, uh, what that

Experiencing is a higher rate of utilization, uh, in the claims experience, from what they're projecting. And actually what we were seeing even pre-pandemic when rates were more normalized. So, we do expect it to catch up and return, but it is taking time and we continue to influence the rate setting process as we educate on what we're seeing through experience coming through.

So there's there's a disconnect. Yep. Sorry go ahead.

Go. I just, I was just going to say, sorry. I thought that going last. Your last question that I'm going to just add to it a little bit.

Uh, dude. What is my last question? Uh, it's not unrelated. So stick with us, stick with the the dental I guess.

Yeah, I well, I was just going to say Gabe that it's, uh, I'm glad you asked this. The question again about the, the dental business and, and we've had a lot of questions about stop-loss, and, you know, they are going through a structural change to some of these things in the US. This is Ari priceable business. Uh, we will, we've got a strong management team and capabilities and scale. Their David comes from an IT and operations background, and he's been in the group best businesses whole career. He's ran our employee benefits and also, our he's ran our Dental business. He's ran it. There I have a lot of confidence that we're going to work our way through these these issues. And I think you heard that on the call, if you look at the quarter, you know, the Diversified nature of our business model and the growth that we saw in Asia and Canada and the strong Asset Management results. You know, we're we're in line with our medium-term objectives, right? We we so

so I I think that, um,

I have a lot of confidence that Asia will or Asia that Asia and and Canada will continue to do well but that the US will turn this around and that you know that's going to be part of our growth story as we go forward. But it's going to be it's a difficult time, but they'll work their way through it and they're doing all the right things to do that. But as a company, uh, if you look at the Diversified nature of our business, we I still am committed even with the us being a little slower to achieve our medium-term objectives and and you saw that in the quarter. So I I think there's a very strong quarter in Asia and Canada under management and Justice leadership. I think we're poised for for for growth and the asset management space and we're going to work through these issues in the us and we're going to work through it together and we're going to work through it with the same type of discipline that we that we provide, but we have good people there and we have good scale and we have good, uh, business capabilities. So, you know, it's, uh, when I step back, I, I see us really positioned quite well through the quarter and

That it was a strong quarter.

No, I don't. I I

Disputing that it's, uh, I think even in, uh, with the challenge, you have an 18% plus, or a week or something like that. So it's just the, you know, we're learning as we go a little bit and trying to get a sense of the, you know, the moving pieces. And, you know, what could, uh,

What sort of timing and um we should expect for stuff to stabilize I suppose. Uh but not not that brings me just to clarify what Tim's comment about the

Q4 stoploss Outlook. I believe. Um you just a dumb it down. You've adjusted your Reserves.

To, you know, uh, accelerate recognition of these uh, you know, that the trends in that 30% of the claims volume. You've seen on the channel cohort, such that if you have the same experience in Q4, as you did in q1, same claims or whatever, you would have a lower experience loss.

But then you would probably have some other item, a line item elsewhere that would...

Be lower. I assume I don't know. Maybe we could take that offline.

Yeah so it's David. I'll just you know quickly comment that. Yeah we we have updated our best estimate loss ratio pick for the entire 11125 cohort and that reflects, you know what, we currently expect in Q4 but it can uh, change based on the claims that show up in the quarter and uh, but at the moment that is how we are viewing it.

All right, well, I will follow up uh, have a good day.

Question is, follow-up from Paul Holden with CIBC, please. Go ahead.

Great. Thanks for taking my follow-up. I guess the question that we're all trying to get at on on us Dental is that uh, us 100 million? Uh, profit Target? Are you, are you confident that that can be achieved in 2026 or too early to know because of the uncertainty? In terms of these utilization rates and uncertainty in, uh, in uh, in in pricing

Work with, uh, but it was going to be slow progress over the course of, uh, 2026. And we do need to see some of the more recent utilization trends being better reflected in our pricing, uh, you know, as we move forward. And that's something that we're working through.

Okay. So 100 million and 26 might be too much to ask at this point.

That's what I'm going to take away. Okay, that's it from me. Thank you.

Have a follow-up from Tom McKinnon with BMO Capital markets. Please go ahead.

Yeah, a question just with respect to other fee income especially in Canada. Um up nicely over the year, end quarter over quarter probably up better than the asset growth rate. Um, is there anything else in that? Uh, number that could be driving that and how sustainable is it going forward?

Yep, high top. This is uh, Jessica. Yeah, no, I think, um, there are 2, 2 pieces, I think 1 is that indeed our SM management and wealth is quite strong. If you look at our core, uh, are those up, 13%. Um, you know, if you look at the underlying growth, both on the insurance Investments are the fee income, uh, its underlying of 7% growth. So, uh, auma grew up by 11%, so that definitely helps a lot. And then I think I'll, um, uh, Group business on the fee site. Has also an increase. So you see how group premiums actually increase by 6%? Uh, so as, uh, Kevin was saying, I think, um, both, uh, no, in Canada, that's strong on the

Line growth and uh, we continue to do well. Yeah.

so, that kind of trend is

Is it should continue, um, assuming asset, assuming the markets behave, but I guess how much of that is really driven by ASO fees, which are probably just more function of net premium growth in group.

Yeah, I think the wealth part we expect to be

Continued to do the momentum. Uh, you see that? Actually, if you take out DBS which small lumpy, uh, and it's a softer Market. This year, we had net inflows uh, in Canada of 1.5 billion. Uh, which is almost twice the net inflows from last year. Uh, so I think you'll continue to see strong growth in our SMS and then wealthy you and if you look at year to date, um, our underlying, net income in Canada is at 8% up, uh, which is, I think well above our medium-term Target of 6%. So, if you're very confident uh of our 6% uh growth

Okay, thanks.

Okay. Thanks John.

This concludes the question and answer session, I'd like to turn the call back over to Natalie. Brady for closing remarks.

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, and have a good day.

This brings to an end today's conference calls, you may disconnect your lines. Thank you for participating and have a pleasant day.