Q2 2025 Great-West Lifeco Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Great West Life Co second quarter 2025 results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Mr. Hu Buckhorn.
When Youre, Vice President and head of Investor Relations at Great West Lifeco. Please go ahead.
Thank you Caitlin and Hello, everyone. Thank you for joining the call to discuss our second quarter financial results.
Before we start please note that a link to our live webcast materials for this call have been posted on our website at great West Lifeco Dot com under the Investor Relations tab.
Turning to slide two I'd like to draw your attention to the cautionary language regarding the use of forward looking statements, which form part of today's remarks and please refer to the index. The appendix for a note on the use of non <unk> financial measures and important notes on adjustments terms and definitions used in this presentation.
Turning to slide three I'd like to introduce today's call participants joining us today are David Harney, our president and CEO.
Don Nielsen our group CFO.
Well this morning.
Oh, Canada.
Ed Murphy, President and CEO empower.
<unk> group CEO Europe.
Jeff. Please go ahead.
CEO reinsurance and Linda Kerrigan, Senior Vice President and appointed Actuary.
We will begin with prepared remarks, followed by Q&A with that I'll turn the call over to David.
Thanks, Bob Please turn to slide five.
I stepped into the role of CEO I want to begin by reaffirming our direction. Our strategy is clear consistent and it's working over the past several years, we've built leading market position delivered solid earnings growth and shifted towards a more capital efficient business.
We remain focused on executing the strategies outlined at our recent investor day to drive growth and deliver lasting value for our stakeholders.
Our teams remain central to our success I'd like to highlight a few recent leadership updates John Nielsen has the sales responsibilities as interim Chief investment Officer. In addition to his role as Chief Financial Officer. This will ensure continuity as we continue to drive value from our global investments, Kansas, Tennessee Linda.
Lindsay rigs grew formerly CEO of Canada Life U K has joined our global leadership team as CEO of Europe, <unk> joined <unk> in September succeeding Lindsey.
July two.
We're making strong progress against our medium term objectives, our businesses are well on track to meet or exceeds total patients. We delivered another record quarter of base earnings supported by broad based organic growth and healthy capital and cash generation.
The U S as being a key growth engine and empower continues to perform strongly we've taken further steps to enhance empower and value proposition expanding their product lineup to Bachelor meet evolving participant needs and sharpened our competitive edge and abacus AD will share more on this shortly.
Our balance sheet remains a core strength, despite ongoing macroeconomic and trade finance is uncertainty we're in a strong financial position. This has enabled us to return capital to shareholders through our normal course issuer bid and raised our full year buyback targets, two 1 billion all while preserving the flexibility to it.
And future growth.
Please turn to slide six.
Looking ahead, we have the strategy priorities and positioning to win by offering our clients simple technology enabled experiences.
Our strategy continues to be guided by the playbook, we introduced at Investor day. It builds on our market leadership expand into adjacent growth areas and emphasizes disciplined capital efficient investment in our brands and capabilities.
Where it makes sense, we will continue to use M&A to accelerate progress and strengthen our competitive position.
To bring this strategy to life and focused on for execution priorities number one our customers are at the heart of everything we do.
We're deepening our understanding of their needs and continuing to deliver solutions that they'll trust on the Tennessee.
Secondly, we will leverage technology to transform how we serve clients make decisions and operate AI and digital innovation will help enable more personalized and intuitive experiences, making us a more human financial services company.
Currently as we mentioned at Investor Day, we are investing significantly over the medium term to strengthen our operating leverage in execution. We're doing this by driving efficiency agenda disciplined simplify processes reduce friction and deliver consistent scalable quality outcomes.
And finally, we continue to invest in leadership culture.
To ensure our teams are empowered to lead an advanced and de lever we have an exceptional team with deep experience and we are an attractive destination for market talent.
Please turn to slide eight as outlined at Investor Day are a strong tailwind supporting growth in our markets. These demographic economic and social trends combined with our strategic playbook and our four execution priorities give us confidence in delivering on our medium term financial objectives of 8% to 10% EPS growth.
With 80% plus capital generation return on equity of over 19% on a dividend payout ratio of 45% to 55%.
Now turning to our results on slide nine.
We are pleased to report a strong second quarter, driven by solid execution across our business.
We delivered double digit base earnings growth with base EPS up 12% year over year on a strong base of ROI, our financial position remains healthy supported by a robust balance sheet as well as strong regulatory capital and leverage ratios. We continue to take a disciplined approach to capital allocation.
So far this year, we've repurchased $432 million in common shares.
We are raising our full year buyback targets to $1 billion, reflecting confidence in our growth outlook and commitment to long term shareholder value.
Please turn to slide 10.
We delivered solid performance across our retirement businesses this quarter, excluding <unk> related impact on a one time fee income adjustments in 2024 based on earnings grew by 12% year over year empower was the key driver supported by a growing asset base a number of participants along with enhanced.
<unk> to its value proposition for sponsors and participants such as I said, Ed will speak to shortly.
Whilst businesses remained strong with <unk> up 15% year over year, driven by fee growth empower delivered exceptional net flows on sustained momentum in personal wealth reinforcing that our strategy to capture money in motion true roll over time crossovers is working.
In Europe, we saw a healthy retail flows while partially offset by onetime institutional withdrawal our focus on serving the mass mass affluent markets continues to gain traction in.
In Canada, our wealth platform continues to advance.
We have enhanced our offering to better meet client needs, including a new partnership with clear as dash to support to stay at planning.
Please turn to slide 11.
Policy results from our insurance businesses this quarter highlights the strength of our diversified portfolio and group benefits based earnings rose, 17% over the prior year, we continue to lead the Canadian markets with steady growth across the business, our disability offering remains a key differentiator delivering results and reinforced.
Our leadership position, we have maintained a disciplined approach to pricing in this business, ensuring long term value for both clients and stakeholders.
Capital and risk solutions continue to grow organically supported by deep expertise and market demand.
Also made a strategic decision to access U S traditional life mortality reinsurance markets.
Slacking, our strategy of focusing on areas, including capital solutions business, where we see clear path to leadership in the UK. We continue to expect to see healthy growth in both individual and bulk annuities on our focus remains on optimizing on growing this portfolio in a disciplined and sustainable way.
I'll now pass it to add to cover the performance awesome power in a bit more detail.
Thank you David and good morning, everyone.
Please turn to slide 13, I'll begin highlighting the strong performance of empower this quarter followed by a deeper dive into a few of our recent product launches that differentiate and power from the competition.
Empower delivered another quarter of strong base earnings growth despite elevated market volatility.
Base earnings increased 13% year over year, excluding the credit related impacts in Q2 of this year and last as well as a favorable onetime fee adjustment in the prior year quarter.
Core operations continue to perform in line with our expectations of sustained double digit growth over the medium term.
Despite a large planned de conversion in the quarter workplace client assets grew 10% to $1 seven trillion U S. While the number of participants we serve increased by 500000 to $18 5 million.
Empower has a track record of winning market share and despite the impacts of the deconversion of the second quarter, we expect to generate at least U S 25 billion in net plan inflows through the remainder of 2025.
Supporting continued growth in client assets.
Empower wealth continued its solid track record of inflows, which increased 83% to $2 $9 billion. This was driven by continued strength in rollover and crossover sales as well as strong customer retention.
Please turn to slide 14.
As empower has continued to deliver strong base earnings growth, we have been working hard to keep strengthening the value proposition for plan sponsors and participants alike.
Want to take this opportunity to highlight some of them powers recent initiatives in April empower announced the first ever zero fee S&P 500 Index fund for our workplace customers.
This product is a significant win for clients with zero management fees trading fees and no hidden account fees, we are setting up clients for their best chance to maximize their investment returns at the same time. It allows plan sponsors to better fulfill their fiduciary responsibilities.
In addition to its public markets offering empowers now at the forefront of democratizing access to private market investments for Americans.
In May we announced the launch of a new program to offer private market investments does the nearly $19 million defined contribution plan participants that we serve.
Enabling access to an asset class previously reserved exclusively for institutional and high net worth investors.
We believe strongly that the attractive risk adjusted returns. These strategies have generated historically offer significant upside the client retirement portfolios.
We are committed to providing responsible access to these solutions, which means they will only be offered when approved by plan sponsors after a thorough due diligence process and only when selected through an advisory relationship with clients and within appropriate exposure limits.
We have partnered with seven top tier global investment managers to bring compelling investment strategies at attractive price points to our growing client base.
The zero fee Index fund in private market announcements build on other inflight initiatives, including the administration of health savings accounts and equity compensation plans.
With almost 19 million participants.
On our platform, we have a tremendous opportunity to increase product penetration.
With our industry leading partner.
We believe health savings accounts represent a significant growth opportunity as we move forward.
With the acquisition of option tracks in September last year. We have also added a leading digital stock plan administration platform to our suite of services.
In aggregate, we have significantly enhanced empowers appeal to plan sponsors as a one stop shop for workplace financial solutions that allow them to better fulfill their fiduciary obligations.
And our expanded product offering serves to enhance the client experience for participants, making us more likely destination for rollover assets.
This gives us significant confidence in the double digit growth outlook for the business over the medium term.
With that I'll turn it to John Nielsen to discuss <unk> results for the quarter Don.
Thanks, Ed and good morning, Please turn to slide 16.
Following a sharp pullback in early April global equity markets quickly reverse course over the remainder of the quarter with many major indices ending near all time highs.
This recovery provided support for solid year over year asset growth and more importantly position us well for the second half of 2025.
Turning to slide 17.
<unk> once again delivered double digit base earnings growth driven by underlying strength in our capital light businesses, especially well and group benefits.
Well based earnings included a benefit from a change in tax estimate it was principally offset by credit related impacts in the quarter.
Based on a row <unk>.
Improved year over year to 17, 4% on higher base earnings and significant share buybacks this quarter.
Net earnings were adversely impacted by market experience.
Additionally, this quarter, we recorded $121 million a business transformation costs that I'll provide additional context in an upcoming slide.
Please turn to slide 18.
Credit related impacts during the quarter were related to bonds issued by water utilities in the United Kingdom.
The government has just completed a review of this sector, which we expect to result in a positive impact for the future.
In the future for our remaining holdings. However, we continue to monitor and work with other senior bondholders on the restructuring of one of the larger water utilities will continue to monitor this situation closely.
During the quarter there were no credit related impacts in our commercial real estate portfolio in the United States.
It is important to put our credit experience in the context.
In context over the longer term looking back over the past decade light coats credit experience has averaged only three basis points of our fixed income investments.
This experience is well ahead of industry benchmark, demonstrating our conservative and disciplined investment approach. There will continue to be an idiosyncratic events from time to time that these are expected to be infrequent and modest impact.
We expect credit related impacts for the remainder of the year to be more in line with what we've seen in recent years further.
Our full year experiences is expected to be well below our long run through the cycle actuarial assumptions.
Turning now to our results by segment, starting with slide 17.
In Canada based earnings were up 4% year over year due to solid performance across our businesses, especially group benefits base earnings growth was up 17% over the first quarter of 2005.
Turning to slide 20.
In Europe base earnings increased 11% year over year, driven by higher fee income in wealth and the appreciation of the pound and euro.
Including the impact of lower earnings on surplus due to higher remittances last year based earnings in constant currency was also up double digit.
Most topline drivers continued to perform well with net flows in our retirement business doubly retail net flows in our wealth business tripling and group benefits sales up 29% year over year.
Bulk annuity sales have moderated in recent quarters, even though the longer term outlook for the industry remains very robust lower bulk annuity sales. This year, primarily reflect deferred demand in anticipation of regulatory changes.
Turning to slide 21 within capital and risk solutions base earnings were up 15% year over year on strong new business volumes and capital solutions and improved risk solutions experience.
Turning to slide 22 life Kos efficiency ratio improved 80 basis points year over year to 56, 7%.
We aim to reduce this ratio to below 50% over time through both business growth and expense discipline.
As we announced at our Investor Day in April we've embarked on a number of transformation initiatives designed to improve productivity over time.
We expect to incur 250 million to 300 million post tax of charges related to these initiatives as I disclosed at the Investor day with the associated benefits to be recognized over the medium term.
As I mentioned this quarter, we reported $121 million of those transformation costs.
And the majority of which related to Canada.
Turning to slide 23.
Our base capital generation continues to exceed 80% of base earnings during the quarter.
This quarter remittances were below our trailing 12 month average of 1 billion, mainly as we retained cash in the United States repay a bond maturing in the third quarter.
Turning to slide 24, <unk> strong balance sheet results and significant financial flexibility.
Our light cat ratio increased two percentage points from the prior quarter to 132% due to strong capital generation outpacing remittances.
Our light cat ratio has a degree of seasonality, which by the fourth quarter will reduce our light cat by around 1% to two points.
Our leverage ratio remains steady quarter over quarter at 28%, but it's 27% on a pro forma basis net of the repayment of an upcoming bond maturity.
Maturity of 500 million U S dollar.
<unk> cash balance of $2 1 billion.
<unk> strong despite significant share repurchases completed in the second quarter.
Through June we have purchased $432 million of the previously announced $500 million of shares our strong financial position and highly cash generative business supports our announcement today of our plan to repurchase an additional $500 million of shares in the second half of 2025.
With that I'll turn it back to David.
For concluding remarks.
Thanks, John Please turn to slide 26, as we entered the second half of the year. We're focused on driving continued growth through a consistent strategy and clear priorities backed by favorable long term trends, but strong and market leadership and a deep bench of talent across the organization. We have the right team in place to deliver our performance.
This quarter, including record base earnings demonstrates the impact of our strategy and strength of our business.
On track to meet or even exceed our medium term financial objectives, all while continuing to deliver lasting value for our stakeholders.
We're focused on the right businesses and the right markets and are well positioned to help clients build lasting financial security at a time, when it's more important than ever and.
Empower continues to lead the way investing in its brands capabilities and product offerings to meet evolving client needs and make financial journey simpler and more accessible.
Our continued financial strength and flexibility are key enablers of this success, allowing us to navigate changing market conditions with confidence while continuing to invest in the future.
Thank you for your continued trust and partnership and I look forward to reconnecting with you all in the fall.
Thank you and with that I'll turn it over tissue, but to start the Q&A portion of the call.
Thank you David in order to give everyone a chance to participate in the Q&A. We would ask that you limit yourselves to two questions per person you can certainly re queue for follow ups and we will do our best to accommodate if there's time at the end.
Daily and we are ready to take questions now.
Thank you.
Well now begin the analyst question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a kiln acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
My first question is from Paul Holden with CIBC. Please go ahead.
Thank you and good morning.
Questions for you with respect to capital allocation. So obviously you indicated you intend to buy back another $500 million of stock through the end of this year and then also looks like you're going through some continued delevering I think most good but just wondering if that has anything to do with what youre seeing on the M&A.
Environment I E lack of opportunity or is this really just a matter of your strong cash flow generation.
And I think it's primarily a reflection of our strong capital position and financial position at the moment just like I think we've been very clear on our capital allocation priorities. So number one is mentioned in some of the very strong balance sheet, which we have at the moment and.
Number two is to give us the flexibility inorganic growth.
Ample resources for that and then it's to pay dividends.
We remain open on M&A and keen on M&A plus I think it is important to say our medium term financial objectives are not in any way it dependent on M&A M&A done.
<unk> will add to those.
Our recent track record I think on M&A points took where we continue to look at our comp <unk> had very successful large scale acquisitions and integrations in the workplace and we've had a number of very successful acquisitions.
The U S on smaller ones in Canada, and Europe, and all of those continue to be areas as well so.
Our priority target area, probably continues to be work place in the U S.
We remain focused on open to opportunities there and I suppose the last thing I would say maybe just on the size of the share back just to put that in context of our of our financial position with $2 1 billion in cash at the moment.
Cash rate was 132 that will decline slightly in the second half, but it won't talk to you will be well above our operating targets and we expect our efforts to reduce further with some payback on that majority sees the page two so 1 billion in the overall context over financial strength is not that much at the moment and gives us plenty of.
Financial resources should the right opportunity arises.
Got it got it Okay second question.
For just looking at that.
Large plan withdrawal and the <unk>.
The retirement business so.
I'd say retention is obviously an important part of the objective of growing to ask industry.
Industry growth. So maybe you can quickly maybe summarize what happened in this situation. It was kind of a history of withdrawals or rich.
Tension rates and if you feel if theres any auctions empower needs to take to minimize future large plan with Charles Thanks.
Sure Yeah. Thanks.
I'd go so fast in a moment.
Maybe just introduced though I'd like to just say it has been a very strong quarter for our empower again and I think that.
The year over year performance I think is the greatest indication of high of fly we continue to expect double digit growth far far empower and net client performance over the full year is going to be very strong that goes a long way to offset to participant clause.
We're seeing good growth continued growth into retirement on dwell. So if you look at the fee income growth in asset based revenue is growing 1% participant fee income bill has grown by over 10%.
We're continuing to increase the rollover risk in the wealth business on Youll see well Inc.
Income is growing by over 20%. So all of those add up to the top teen percent outgrowth that we see year over year foreign power.
The shape of that performance is a good match, what we expect to see from a power going forward. So Ed can talk more specifically just on that at that time performance this year and what's driving that.
Yeah. Thanks, David Thanks for the question, Paul look I feel incredibly confident about our workplace business.
Again, if you net everything out we continue to grow at two times the rate of the market.
Our pipeline is at the highest level, it's ever been 260 billion in pipeline and when you think about that in the context of our win rates you know in our large mega market not for profit we win 42% of the opportunities in the government market, we went and 60% of the opportunities and then the Taft Hartley Union market, we have a 65.
<unk> win rate.
So if you look at our retention and you.
Look at it over the last five years, let's just say, it's consistently been somewhere between 97, five and 98% between 97% to 98% retention.
Which is very very strong and our net promoter scores are exceedingly high too I think the one thing to keep in mind is that.
Particularly in that large mega corporate market. They are typically going out to bid every three to five years.
And despite that our retention rates remain very very high.
And as I've shared with you in the past and we highlighted a bit further today.
We've really expanded our product capabilities call in and effectively built a multi multi dimensional capability.
If we deliver for the client it really becomes more difficult for them to leave in the sense that we have you know more.
More hooks in more tentacles into the client because we're providing a diverse set of services and as we outlined.
Earlier, we fully expect.
Net planned sales.
For the year to beat to be north of $20 billion in terms of net planned sales so as we've shared historically.
We will have some ups and downs you will have some deductions from time to time, but if you look at the overall business and you look at the health of the business and you look at the pipeline and the win rates and the fact that we're growing at two times the rate of the market I feel really good about our position.
Yeah.
Great.
It for me thank you.
Thank you.
The next question is from Doug Young with Desjardin capital markets. Please go ahead.
Hi, Good morning, I guess the question is from Jeff on Crs.
It was announced that.
No longer going to be writing U S traditional life reinsurance.
Can you talk a little bit about why and what you've seen.
This all at all impact the targets that you set out in the Investor Day, and you know it.
Maybe kind of wind down is there any impact on what youre seeing for the rest of the great West life businesses.
Okay straight over to you Jeff.
Yeah. Thanks, Scott Good question, yes.
Obviously this was not an easy decision for us.
<unk>.
We've thought long and hard about it.
But to be honest the last five or six years, we hadn't been very active in the market.
We've stayed very disciplined and just couldnt get the return that we're looking for and that type of business.
And our plans right now is just the runoff of the business. It's been like that for a few years. So I don't.
I don't expect it's going to affect our results.
<unk> going forward it won't affect our results going forward.
Our plan is to focus on.
More capital solution and other risk solutions, where we've been able to achieve better return.
It's a very competitive market in the U S and it's.
Ben it's been difficult to achieve the returns we want and because of that I think we've had to make this decision.
Yeah.
We feel pretty good about it we intend to run off should continue to provide the same great service that we have to our clients I think the block business will take 20 to 30 years to run off.
So we're very much still in the mortality business for a while but but but not from a new business perspective as far as how it's going to affect the.
The rest of our great West businesses, it's hard for me to say I think that.
Okay.
I think maybe February so it's better to handle that but we're not in the mortality business in the U S elsewhere.
And I don't believe Thats going to have a big effect on us anywhere else.
We're still a provider of capital relief on the group side and we do a lot of group mortality business and that's been a good business for us So I don't expect any effect.
From from from this decision really.
Will have minimum impact on expenses, but we intend to redeploy most of our employees and to.
And two other businesses so.
Hopefully that answers your question.
No. It does and then just follow up on Costa.
Go ahead, David sorry.
Yes, I think this was the right decision on the U S market is just not attracting foreign smart-alec <unk> and other markets is already goes on we're doing very well.
To grow without for outlook for Crs absent Thats part obviously is very strong. So this is just a very good example of disciplined as we look at different markets.
And then just a follow up on the Crs I know the insurance experience has been I mean, it's not huge negative but that has been negative for two quarters. In a row is this related to the U S. Traditional reinsurance business or is there anything to be concerned with in terms of what youre seeing from an experience perspective, and the Crs business.
Yeah, I thought our experienced who's on target this quarter or if it is negative it's only slightly negative I think last quarter because of the reserve on the.
The California fire and then our mortality was off but this quarter, we don't have any.
Any any event that has affected it's a really good quarter I think.
It's a clean quarter from our perspective.
15% growth year over year, so we're pretty satisfied with the quarter end.
I don't I'm not sure I see what Youre, saying I think our mortality was about 101% of expected so right on target really.
Okay. That's fine and then just lastly, Ed you talked about net planned sales being over 20 billion. You asked I think thats for this year I just wanted to confirm when I look at this is for the U S retirement business U S. Dollar basis does that include.
Both participant close and plan on going because I believe the 25 billion and you're talking about is just plan on doing but maybe it's not and including plan ongoing participant side just wanted to make sure I understand.
No.
$1 billion.
That's just the plan number.
But it's not the precise number.
Okay.
So on the participants side you have had gradual.
Gradual you've had decent net outflows and I get that you know where that's coming from that before retiring putting their money or do you have line of sight like it seems like you have line of sight on what you've won obviously on the plan side.
Must model at the participant side like when do you start to see that net outflow that natural net outflow on the participant side abating to a greater degree.
Well I mean, if you look at the long term demographics.
I think the guidance that we've given as we expect it to be somewhere between <unk>, 5% and 1% a year.
Just due to the changing demographics and the fact that you have 10000 baby Boomers, turning 65 every day in the U S.
But keep in mind you know we shared with you the results for the quarter. If you look at the success rate and the capture rate that we have and it continues to improve and increase.
We captured $2 9 billion in net flows in our wealth business and most of that is coming from participant flows that are coming off the workplace platform.
So.
There's money, leaving the complex, but there's also a fair amount of money that staying within the complex, particularly.
Our 19 million customers begin to realize the capabilities that we have.
From an empower personal wealth perspective.
So that's the way that's the way I would think about it I think we've.
Our our goal is customers for life right. So they may they may change jobs they may retire.
We believe we have a compelling solution for them.
Despite the fact that they are no longer actively employed.
Hey, just one quick follow up the U S wealth side, what was the capture rate the rollover rate this quarter and can you relative to just trying to get the trend idea like what was it this quarter relative to last year, and where you think you can take it again.
Yeah, what I would say is.
Our efficiency and our effectiveness.
And the strength of our value proposition continues to increase and as such the capture rate. This past quarter was the highest we've experienced now that that too can ebb and flow there are events that oftentimes.
<unk> drive those those rates higher but if you just look at.
You know the momentum that we have there.
I think it underscores again the strength of the value proposition as we continue to build out.
Our capabilities on the personal wealth side of the business and build out the product set.
And if you look at them on a full year basis as I look into the balance of 2025, I think you'll see a dramatic increase in net new assets on our platform.
And the only other point I would make if you look at our performance vis vis the assets that we have under administration.
And you look at that net new asset calculation, it's very very high relative to our competitors I mean, we would be.
Top decile of already in the country in terms of net new assets as a percentage of it anyway and I suspect that's going to continue and improve over time.
I appreciate the color. Thank you.
But yes, maybe just to add to that is like I think the last 12 months or just a great example of the performance of the business like as an industry that is very good.
2% participant I still and Thats to do with Boogie Baby Boomers retiring and we expect that to last for maybe the next five to six years, our net cash inflows net inflows and we reduced that 2% to less than 1% on a rolling book Nobody yes.
As his experience is as good as the US and then what we're also doing is improving the rollover rate. So you can see our wealth fee income is up over 20% year over year. So like all of those factors. There just shows the performance of the business. It might be you expect double digit growth going forward.
Next question.
The next question is from Miriam Mendonca with TD Securities. Please go ahead.
Good morning, maybe a question going back to Ed for a moment here. These initiatives that you outlined on page 14.
They seem.
Not this is not a cheap thing to do is this is going to take some spending. The question is have these initiatives already been <unk>.
Expenses already been incurred or are these still on the way.
So.
Can take them one by one.
With respect to the offering.
Asset investments there.
There's not.
Material investment associated with that.
Obviously theres a.
There's distribution support there is working with our partners.
So I would say for all intents and purposes, the investment there which is.
De Minimis is reflected.
In terms of the.
The opportunity the whole savings account, which I think is significant.
In fact with the with the Big Beautiful tax Bill here in the United States, We expect the penetration to increase by over 20%, So you're going to see a significant amount of Americans adopting health savings accounts as we continue to see the shift to consumer directed health care.
And.
In high deductible health plans, we think that's a tremendous opportunity for us and I would say for all intensive purposes.
<unk> there is largely reflected as well I don't see it's not and it is not an incremental expense we're working through a partnership there.
And then with regards to the equity plan that had been platform that we built that platform, we are investing in that business.
But it's largely it's a function of the integration investment that we set aside.
Two two.
Great that seamless solution for our clients so.
I would submit that the expenses are largely reflected in it.
And the current your plan and what we expect next year.
Quick follow up on it.
Peers that the the fees generated in U S retirement, and I'm just talking about a rudimentary calculation of your fee income to average assets. It seems like it did take a bit of a step down is this is this more of a there's a seasonality issue is it mix is it competition or maybe let me start by saying do you agree with the no.
<unk> that the fee income relative to the assets.
Moderating somewhat.
Yeah. It's a good question that I mean, it's primarily driven by mix.
And the diversification of our revenue stream. So if you think about the growth in the business that we're experiencing.
A lot of it is fixed fee per participant fee.
Particularly in that large mega markets.
It's not asset based fees.
And so.
That's where you're seeing mix play out.
You're not seeing the correlation as you're as you're indicating.
And then as we've said over time, we continue to diversify the revenue stream. So if you go back several years ago, we were probably 60% asset base now we're sub 50% asset base. So that's really what you're seeing play out there in terms of that differential.
Thank you.
You bet.
The next question is from Tom Mackinnon with BMO capital. Please go ahead.
Yeah. Thanks, Good morning, just a question with respect to the credit hit.
If I look in the U S. Empower you got.
He's a Canadian dollar figure, but 80 billion and kind of spread based account pounds is largely gas related to stable stable value product and on that you took Canadian 63 pre tax credit.
From this U K water utility, but in Europe, you've got nearly 50.
Ian and balance sheet assets.
That's probably mostly U K spread based again from U K.
Balkan payout annuity business yet.
Don't have any.
Correct me if I'm wrong, you don't have any exposure to U K water utility.
And you've actually had positive credit experience so.
Maybe just help me understand stand the bit of the disconnect between these two spread based.
Businesses and ER.
Is there any accounting differences.
With respect to how Youre accounting for credit hits at empower versus.
Credit in Europe.
And just confirm that Theres no.
<unk> exposure to the U K water utility in Europe book.
Thanks.
Yeah, Thanks, Thomas I'll hand over to John.
Tom Thanks for pointing pointing that out.
So just to start with in terms of our exposure to the to that particular utility it's around after after that credit.
We've taken it's around $180 million Canadian so less than 1% or one 1% of the overall portfolio.
Fairly small holding.
As we mentioned.
The whole sectors undergone a review by the government. We think that review is overall net positive for the sector.
And.
Terms of the outlook outside of that name it's fairly positive.
We do hold a number of exposures within our U K portfolio for other water utilities.
This one was held the crossed portfolios obviously.
Financial markets are becoming global and we're becoming a more global investor as they globalize. So these issuers are issuing in different currency and we're originating these assets and putting them against liabilities across our balance sheet. So it's not unusual that we hold securities across portfolios.
Where it meets our R. A L M standards.
But in principle principally.
Our balance sheets will be local issuers, but it's not unusual to have them across the portfolios. There is a an accounting nuance.
Between our European and U S balance sheet from a European standpoint.
You would have seen us take credit experience on these holdings over the prior quarters as we mark to market those securities.
Whereas in the U S. It's more of a.
Judgment call as to collection of principal and interest and as a result of the unwind of the private solution. This quarter. We made the judgment in our U S portfolio that the security was not going to be fully collected in terms of principal and interest and we and we wrote it down this.
This quarter.
As we look at this situation we're monitoring it closely we're sitting with the senior other senior bondholders.
There is a.
Level of binary outcome.
In terms of how that works out either.
Our senior creditor solution, which we think could provide some upside and you've seen the security trade upwards since June 30th in anticipation of that probability or.
The downside scenario as it.
Is a.
Special Administration government work out now we think the profitability.
<unk>.
Private solutions more likely.
So we anticipate some resolution of this in the third quarter is that.
That solution and the government.
That makes a call in terms of private solutions. So.
Down to 1% in and you're right to point out a slightly different accounting nuance between the segments.
Yeah, Okay, and just a quick follow up on that so can you confirm there's no exposure to this U K water utility that you took a hit on in empower there's no exposure in Europe book to that.
No as I mentioned there was the exposure we had taken the credit experience is the <unk>.
Is it a credit spread has changed in our European book in prior quarters. So we're now fully mark to market.
At the estimated market value, we've taken all of the experienced to date through June.
And how come you don't use that that's all I have.
For a 17 methodology how come you don't use that methodology for your U S. Business, then why isn't it mark to market with a liability that has a credit spread impact on it.
It is it is there those are investment contracts, so our particular methodology.
Looks at when is the principal and interest recoverable and that was a judgment of the team.
Okay.
And maybe just with the restructuring.
Restructuring that occurred this quarter.
Alright.
And maybe just one thing on Canada wealth.
We've got you.
We have assets kind of up we've got.
He's earnings before tax down.
Both.
The year over year and year to date.
What are you seeing there with respect to CS or margin.
You seem to be down a little bit is there any outlook, you can give us or Canada well. Thanks.
Yes.
Saturday smiling here. Thanks for the question, we're very pleased with the performance of our wealth business in Canada.
I mentioned on the Q1 call there was a one time expense relocation at the beginning of this year.
Or between our wealth business and our other businesses not an increase in expenses just as we as we acquire as we've acquired businesses as well.
These businesses are attracting more overhead.
You need to correct for that you also you will see in our supplemental that are or spread income is down a little bit in wealth management. The sum of these two things with account for about $14 million pre tax I believe.
With more than.
Offset the declines that you see year over year. So if you adjust for these one time items.
We actually see growth year over year again, we're pleased with the performance of our wealth business. Our second fund net flows are improving market.
Uh huh.
We've made an experience on the back of new programs that we have with advisors on the back of partnership like the one we have with primary care and I've talked about in prior calls so we see the fundamentals of our wealth business being very positive.
Okay. Thanks for that.
The next question is from Gabriel just Shane with National Bank Financial. Please go ahead.
Hi, good morning.
Pete or maybe a little bit more detail on a comment you made earlier I believe you were talking about the Oh the whole well.
Mummy, leaving the retirement business in the U S. But the retention did you quantify any retention rates are that are getting reflected in your.
You will U S wealth business inflows, which have been pretty consistent moving higher.
But.
The content.
Thank God.
Yeah, I was just saying that.
Generally we havent we.
We haven't given specific statistics.
Statistics on retention other than to say that.
Hum.
Capture rates continue to increase.
We expect that.
Expect that to continue.
Think what I said was that.
The key metric that we focus on and our personal wealth business is net new assets. So that that that's gross sales.
Minus redemptions and terminations.
Excluding market performance.
Yes.
And on a full year basis, we expect that to be up significantly year over year.
Okay, great well as far as Hum Canadian business goes if I look at the group benefits.
Benefits in particular.
You know look pretty solid this quarter earnings up 19% year over year.
I recall seeing some mention of morbidity gains are you able to.
Quantify those at all.
Yeah look we're very pleased with performance this quarter in Canada group benefits business software base.
Just some color on the experience.
I think thats absolutely right. The performance of our group business is driven by strong morbidity performance. This period as we've seen in past periods.
Yeah.
This performance.
Overtime.
Not necessarily one time in one quarter, we are very disciplined in the way.
We priced this business, we're very disciplined.
You're right this business.
Our track record over a long period of time would show this.
Main focus through cycle on providing a very good clip.
Client and member experience and also disciplined.
No no no I get that.
Uh huh.
But just wondering if there's any.
This was a particularly strong quarter.
Or are there is some seasonality.
One offline.
Well, it's been stronger than other quarters, I wouldn't point to any specific seasonality as it relates to morbidity experience.
<unk> experienced positive experience factor at the moment.
Our visibility.
Okay, and then on the other hand, so the outlook for the business.
Correct me, if I'm wrong, but your merchant the focus historically has been you know mid to smaller case sizes.
So on one hand.
Driving profit growth whats your underwriting.
Capabilities, which.
Demonstrate over time are quite strong, but then on the other hand, the topline is maybe facing a bit more of a challenging outlook because of slower employment.
Growth in Canada, I'm wondering if you know.
That's something that you're factoring into your outlook as you look at the 2026 budgeting or anything along those lines.
I think interesting to hear about.
So we are we're ensuring that you can add volume so we're exposed to the Canadian economy, we're not right.
Right now.
It can headwind at least in our current block.
<unk> continues to grow with the economy, but we continue to watch the economic trends in Canada, we would be exposed to that you may see in our expected profit growth. We're also a discipline in the week, we reflect experience into expected profit.
We tend to be very cautious and conservative as we can.
To this end.
We are.
We're cautious and conservative on our pricing as well. So you will see a slightly slower expected profit group that would reflect these two factors.
We're not seeing them.
Reasons to worry at least in our current results.
Got you to watch the outlook for employment and economic growth in Canada.
Okay.
More broadly has been gone for next year and budgets for next year and I think we're firmly committed to the financial objectives.
So for for Greece in Canada.
<unk> is mid single digit growth to do slightly better than that in Europe, because they are at double digits.
So no change in expectations for money that segment.
Alright, well thank you.
The next question is from Alex Scott with Barclays. Please go ahead.
Hey, Thanks for taking the question I.
I had one for you on empower and just wanted to see what your thoughts are on in plan annuities as an offering them for one case.
Do you see that as something that it ends up building as our allocation is that a product that you'd potentially partner with somebody on or manufacturing yourself.
Interested in your views.
Good afternoon.
Right.
It's an area we're excited about it because it's an area we have a lot of expertise in our different segments and.
As people transpire into retirement, we're going to see increasing demand for gas project in the U S. Others are experimenting with different offerings. So I think thats something we have the expertise.
I think we're probably likely to partner with somebody in the short term as of recent.
So you will start to demand is there for the product and then if there is strong demand we could potentially move into manufacturer.
Yeah, I would just said we have a partner we have a partnership today with Tia.
I would say the demand has been somewhat tepid at this point, but clearly it is a an emerging need.
A lot of the surveys indicate that people want guaranteed income solutions, they want longevity insurance and to David's point, we are looking at it with and empower.
Yeah, we will.
Take the same approach open architecture, but we will likely have our own solution, we will underwrite the offering.
Yeah.
Got it okay.
The other question I had is on empower as well.
The average <unk>.
It will be up a fair amount going into the back half of the year, just because of what the market's done and I appreciate that.
So over half is fee based so not all of it indexes to that but you.
You've got a pretty solid tailwind for topline going into the back half of the year I'm just interested in.
How you view that extra flexibility from an expense standpoint is that something you would take advantage of to invest more back into the business or.
Flow through more in the margin.
Maybe if you want to take that.
Yes.
Yes, I think it gives us some flexibility.
I think.
We want to continue to invest so we can improve the efficiency of the business that I think there is AI digital innovation that can both improve the member experience and improved drilling efficiency and continuing to drive.
So that's a win win and in all of these to invest area for US then I think the other thing we're learning about the business the key to improving the rollover assets retirement is to maximize the member experience through their journey and saving for retirement.
The things we're doing on deposits expansion at that stage with us and our continued investments in the brand assays to that so as we looked upon for next year, we want to try and create room for both of those investments in the business on the top line growth and gives us some flexibility to do that.
Got it okay. Thank you.
We have a follow up question from Mario Mendonca with TD Securities. Please go ahead.
You've taken this other question.
Might be best for John could be.
Over the years.
Recall, a time when great West life was added.
It's focused on reducing leverage and buying back stock.
And when I think about it I think about the holding company just not being regulated insurance company and differences gene great West life and some of the other life goes. So it appears to me that Something's changed so perhaps you could talk a little bit about <unk>.
What you are trying to solve for and taking the leverage ratio down is it is the goal to get it down to 25% and the buybacks. So what's changed that's sort of changed great looks like strategy around capital.
Yeah, well thanks for the question Mario I think we're going to be active in our management of capital going forward I think it was underappreciated when I joined.
Just how capital efficient this company is.
We've put out a lot more disclosures about.
The sources of those cash flows and the uses of those cash flows and also complemented that with the.
Outlook on capital generation being more than 80% of earnings. We think this is top tier in terms of the sector and and we're continuing to push.
Our businesses to become more capital efficient, whether it's strategic decisions around like what you saw this quarter around.
Exiting the life market in Crs or whether it's being disciplined in terms of our product underwriting and generating it just every dollar of cash we can get and making the velocity of that cash is as quick as possible. So we're excited about that outlook.
A lot of work to make sure.
We.
We continue to improve.
Just how much we can generate in terms of uses as I mentioned being more active.
We're just kind of.
Ensuring that we have a strong balance sheet for M&A.
There's nothing imminent in terms of M&A, so you've seen us take action as we roll forward quarter by quarter with buybacks. This quarter, we announced another 500.
You should expect us to continue to be active quarter by quarter and looking at what's the M&A outlook and if there isn't something eminent or if theres not something.
Yeah.
Within a reasonable period of time, we will look to buy back shares on an ongoing basis. So.
So I think it's just becoming more clear about just how strong our position is and using that as a leverage to grow the business over time.
So.
That's what I'd say about that and you should consider this just to <unk> now for for great West in terms of how we operate.
Nothing's changed it's just that you John and David.
Folks out there it looks like because the sites have decided this is a.
More urgent priority or this is now a priority of the company and perhaps.
Previous management teams are focused on something else that is out there.
I wouldn't call. It a change in management philosophy, I would say if you look at the evolution of the company.
No.
The strategic positioning.
Positioning of our U S business has changed materially.
We made disciplined capital allocations to get out of asset management and life insurance and reallocated into a growth business. Our retirement segment that business is now generating substantial cash flow. If you look back to the previous.
Position I wouldn't say it was a strong cash contributor we had nice businesses, but not great businesses from a cash generation at the same time, our other businesses has now grown to scale. Mario If you think back 10 years, where our Crs business was our European business was they werent of any near anywhere.
Near the scale. They are now so I would say it was a benefit of the decision that the management that came before it made strategically that puts us in this position now that we can harness it and really take it forward in a in a really positive way and.
We're still I don't want to give the position that that we're changing our leverage ratio over time.
We have a maturity we're going to pay it down we would still actively look to be around the 30% leverage ratio over time in.
In the event that there was inorganic opportunities.
And given that we have excess cash there is no need to issue in the debt markets right. Now so just active management of the position that the prior generations of management and doubt us too and we're going to be active in managing that very hard.
I think that's exactly its not true the majority of the business like we've repositioned to capitalized that's over 60% of our earnings are forecast to grow to over 70% over the planning period. So you know.
Sorry.
Deployment priorities, just fit perfectly with us.
That's clear thank you.
This concludes our question and answer session I'd like to turn the conference back over to Mr Khan.
Well, thanks, everyone for joining us today following the call a telephone replay will be available for one month and the webcast will be archived on our website for one year or 2025 third quarter results are scheduled to be released after market close on Wednesday November 5th with the earnings call starting at nine a M eastern time.
Okay.
Thank you again and this concludes our call for today.
Okay.
This concludes the <unk>.
Conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Yeah.
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