Q3 2025 Great-West Lifeco Inc Earnings Call
Thank you for standing by, welcome to the Great, West Life, go third quarter, 2025 results conference call. As a reminder, all participants are in a listen-only mode. And the conference is being recorded.
After the presentation, there will be an opportunity for analysts to ask questions.
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I would like to turn the conference over to Mr. Schuba, Khan senior, vice president and head of investor relations at Great Westlife. Co please go ahead.
Thank you, Morgan. Hello everyone. And thank you for joining the call to discuss our third quarter Financial results.
Before we start, please note that a link to our live webcast and materials. For this call have been posted on our website at greatwestlife.com under the investor relations tab.
Turning this slide to I'd like to draw your attention to the cautionary language regarding the use of uh forward-looking statements which form part of today's remarks.
And please refer to the appendix for a note on the use of non IFRS, Financial measures and important notes, on adjustments terms, and definitions used in this presentation.
And turning to slide 3, I'd like to introduce today's call participants.
uh, joining today, joining us today are David Harney our president and CEO John Nielsen our group CFO, Jeff, Pune, CEO reinsurance,
Ed Murphy president and CEO empower. The Bliss Mo president and CEO of Canada.
Lindsay, Rex broom CEO of Europe. Linda carigan, our appointed actor. And John Melvin, our new Chief investment officer.
We'll begin with prepared remarks, followed by Q&A, with that. I'll turn the call over to David.
Thank you, but please turn to slide 5. We had a great third quarter, delivering very strong results and executing, effectively on our strategic priorities base. Earnings reached a new record high. But more importantly, I am very pleased that we saw a good earnings growth in all our 4 segments, including double-digit bass, earnings growth in the US, Europe, and capital, and Risk Solutions, and made single-digit base, earnings growth in our Canadian business. This performance underscores, the strength of our Market positions and the ability of our teams to meet evolving. Customer needs.
This quarter. Also this meeting is being recorded, this meeting, continue to return Capital, to shareholders through. Our normal course, issuer bid giving our robust cash flows and balance sheets, flexibility. We are enhancing our further increase to our targets repurchases for 2025,
Today in addition to remarks from myself and John Nielsen. Jeff pulan will provide more insights on our capital and Risk Solutions business. I strongly performing business and the key contributor to Great West's ongoing success.
Please turn to slide 6.
Report a strong third quarter driven by solid execution across our business. We achieved record based earnings up, 15% year-over-year, and a base return on Equity of 17.7%. Also, at new high for Great West.
Our financial position remains very strong with solid capital and average ratios giving us s significant, financial flexibility to enable future growth.
As at November 5, we had repurchased, just under 1 billion dollars in common shares and given the strength of our business, we are raising our total 2025 Target buyback. By 500 million to 1.5 billion. John Nielson will elaborate on this shortly
Please turn to slide 7.
Our results, reflect successful execution of growth strategies in wealth, Retirement Group, benefits and insurance. We are proud to serve over 40 million customers globally. And we work hard to deepen these relationships.
In the US, our retirement business had a fantastic quarter with netplan inflows of 30 billion dollars US which I'm sure we will discuss later in the Q&A.
Empowers well, business also achieved a very significant Milestone Crossing 100 billion US dollars in client assets, reflecting the continued momentum of the business since its launch in January 2023. In Canada, continued investments in technology and digital capabilities are enhancing customer and advisor experiences improving, operational, efficiency, and positioning us for further growth in group benefits wealth and retirement.
In Europe, we Consolidated Asset Management operations increasing its scale and competitiveness which is an important enabler to our strongly growing wealth, and retirement, businesses in Europe.
And our C CRS business continues to capitalize on global opportunities, delivering tailored Solutions, and attractive returns, Jeff pooland will discuss further in a moment.
And finally, I'd like to welcome John Melvin who joined us on 1st of October as our new Chief investment officer? John's experience and expertise will help shape our Global investment operation and we're delighted to have him on board, the Great West team.
Please turn to slide 8.
I am particularly pleased that the results this quarter reflects the strong Market positions. In each of our 4 segments, we are delivering on our medium-term growth, Ambitions through organic growth,
Our teams are working hard to meet the retirement, wealth, and insurance needs of customers. And our Market leading positions, continue to be, well, placed to benefit from favorable demographic, socioeconomic commercial and public policy Tailwind.
Our part of that to Jeff, to speak to our capital and Risk Solutions business in a bit more detail.
Thank you, David and good morning, everyone.
Please turn to slide 10.
the capital and Risk Solutions experience, a very strong border with base earnings up, 20% year-over-year,
Is primarily fueled by our Capital Solutions business where we closed several deals in the quarter.
The capital we invested on the right. These transactions drove a 36% increase in the Run Rate. Insurance results for a Capital Solutions business.
The pipeline in that business remains strong and we continue to expect new deals in the coming quarters.
Favorable, mortality experience in our us, traditional life portfolio. Also supported strong earnings growth in the quarter.
Learning to slide 11.
In recent years, our business mix as increasingly shifted to Capital Solutions or structured reinsurance as it as it's often called in the industry.
This business helps client to more closely align their Capital to the inherent risk of the underlying business and at a more reasonable cost relative to Alternative Solutions.
Demand for Capital Solutions has increased significantly over time.
In the last 30 years, the reinsurance market has evolved from 1 purely focused on risk. Sharing to 1 where primary insurance carriers are increasingly looking for help with Capital Management.
More recently, Insurance markets around the world have experienced increased inflationary pressures with premium, right premiums rising to offset the increase in claims.
As required capital is sometimes directly proportional to premiums. These pressures have further spurred demand for Capital Solutions.
By contrast our Risk Solutions business which involves more traditional reinsurance transactions has grown at a more measured pace of lead.
Margins, on certain types of business have become less attractive, due to increased supply of traditional risk transfer Solutions.
We have therefore pivoted Capital solution to Capital Solutions in recent years, where market conditions are significantly more favorable.
Burning to slide 12.
I want to take this opportunity to demonstrate how we create value through Capital Solutions, given the particularly strong growth in that business, this quarter.
Each transaction is unique and we look to help clients with their Capital needs by identifying opportunities to more closely match their Capital with the inherent risk of the underlying business.
Traditional financing Solutions, such as raising, debt or Equity, Capital are less efficient.
They improve available Capital at a potentially higher cost of financing than solutions, that more closely aligned Capital to risk.
My contract, by contrast Capital Solutions, involves optimizing required capital.
Which as a more favorable impact on Capital ratios and Returns on a per dollar per dollar basis.
Since insurers, hold a multiple of their required Capital, it is more efficient to reduce the required Capital than to add to available capital.
Overall, this makes our products more attractive to clients than traditional forms of Finance, financing.
CRS is a very experienced team that tailors each transactions to the client's needs. We spend time with clients and use a variety of treaty mechanisms
to transfer risk in a managed way that provide Capital relief and and and attractive price.
The goal is to have structures that transfer the risk to CRS, but allow the client to retain more of the underwriting, economics of the under of, of the business reinsured.
Learning to a slight 13.
CRS is well positioned to capture a meaningful share of the growing demand for Capital Solutions. Thanks to several competitive advantages.
These include.
Support from Lifeco in a strong credit rating, both of which make us a reliable counterparty.
Deep and enduring customers relationships.
Having helped clients manage through Insurance cycles and changing regulatory environments for more than 3 decades.
And an opportunistic and selective approach to new business reflecting, a strong risk management culture.
Combined with the favorable Market Outlook for Capital Solutions. Are competitive strengths may give me confidence that CRS will continue to deliver earnings growth in the mid single digit range or better over the medium term and continue to be significantly a creative to the row of Life. Go overall
With that, I will turn it to John to discuss. Life goes results for the quarter.
Thanks Jeff. Please turn to slide, 15.
Lightico again delivered record, based earnings in the third quarter supported by constructive Global Equity markets, strong, new business volume, Insurance experience Gates and modest credit experience.
Base earnings, grew 15% year-over-year with all lines of business growing double digits.
This helped drive base Roe to 17.7% of 40 basis, points year-over-year.
Earnings quality continues to be high as net earnings were within 5% of Base earnings largely on an account of modest impacts from assumption changes in management actions as well as favorable market experience.
Please turn to slide 16 exceptionally strong.
Insurance experience and modest credit experience bolstered results. This quarter.
Insurance experience. Gains were 112 million million nearly twice the 4 quarter, average of 58 million.
This was primarily driven by mortality gains across all operating segments.
As you recall in the first quarter, we experienced exceptionally weak, mortality experience and we would expect this volatility to continue.
Below are 10 year average of 3 basis points.
Going forward. We expect credit experience as a percentage of non-par. Fixed income assets to be in the range of 4 to 6 basis points post tax on an annual basis based upon long-term industrywide.
Loss experience in normal conditions, we'd expect credit experience to be at the low end of this range. However, we would expect volatility period to period as a result of idiosyncratic events.
turning now to the to our results by segments, starting with slide 17,
Empowers, all double digit growth with base earnings up. 10% year-over-year in constant currency.
This reflected strong organic growth in both the retirement and the wealth business.
The retirement business capitalized on strong markets as well as 30 billion US dollars in plan inflows. This quarter which more than offset participant activity.
We continue to expect plan flows for the second half of 2025 to be largely in line with the 25 billion US dollars that we shared on the second quarter earnings call.
Empower.
Well, delivered base, earnings growth of 39% year-over-year.
By record net inflows of 3.4 billion. US Dollars up 43% over last year reflecting continued strength and rollover sales.
We remain well on track to improve our rollover rate by 30% over the medium-term.
Both the retirement and wealth businesses achieved record, operating margins in the quarter highlighting the scalability of our platforms and reinforcing the double-digit growth outlook for Empower.
Turning to slide 18 base earnings in our Canadian operations increase 4% year-over-year.
Due to continued, momentum in group benefits and retirement.
Group benefits, saw strong organic growth and insurance experience, gains, while Equity markets and improved segregated fund, flows supported retirement and wealth results.
Underlying growth in our Canadian operations was strong with base, earnings up 9% year-over-year. Excluding earnings on Surplus which have been impacted by lower yields over the last 12 months.
And turning to slide, 19.
Base earnings in our Europe segment increased 12% year-over-year on a constant currency basis.
As in Canada, this was driven.
By robust growth of the group benefits enforce book, as well as strong Insurance experience, and higher fee, income and wealth and retirement, due to strong Global Equity markets.
Turning to slide 20.
as we have said, in the past, the organic Capital generation of our businesses is significant, but under appreciated,
For the last 12 months, space Capital generation exceeded, 80% of Base earnings and would have been higher, if not for the very strong, new business growth in CRS this quarter.
We continue to have a high degree of fundability in the capital. We generate, in fact, the cash remitted by the segments, to life, go exceeded 100%, a base earnings for the trailing 12-month period.
We expect remittances in the fourth quarter to be in line with our 4 quarter average.
This is the result of our business mix as well as the contributions from initiatives to optimize our balance sheet that we highlighted at a recent investor day.
Turning to slide 21 live Co strong. Free cash flow gives us.
Tremendous flexibility for continued Capital deployment.
As of today, we have largely completed the previously announced 1 billion of share BuyBacks and have announced Our intention to repurchase an additional 500 million before the end of the year.
Turning to slide 22.
Despite strong new business volume and our reinsurance business, ongoing dividend payments and substantial. Share repurchases. This year, life Coast Financial position has continued to strengthen and remain robust against a backdrop of elevated Market in economic volatility.
% only decreasing 1 percentage point from the prior quarter, primarily due the increased organic reinvestment in CRS. Given the seasonality of the reinsurance business in the fourth quarter. We expect the ratio to decline by 1 to 2 percentage points through the end of the year.
Our leverage ratio, decreased by 1 percentage Point quarter over quarter to 27% reflecting the maturity of a bond life. Co financial position including the cash balance of 2.5 billion positions us for continued. Financial flexibility including for any compelling m&a opportunities that emerge.
With that. I'll turn it back over to David for concluding remarks. Thank you. John, please turn to slide 24. As we close out the third quarter and look to finish the year. Strong. We have high performing teams that are delivering against focused strategies in their markets.
our performance in Q3 including record-based earnings, reflects strong execution, against our strategic priorities,
All 4 of our business. Segments are delivering base earnings growth in line with or ahead of our stated Ambitions. Our continued Financial strength and selection are key. Enablers of our success allowing us to navigate changing market conditions with confidence while continuing to invest in future growth.
Together. We're on track to meet our even exceed our medium-term financial objectives all while continuing to deliver lasting value for our stakeholders.
And finally, I know many from our teams are listening to the call today and I want to thank you all for your continued commitment to Great West.
And with that, I'll
turn over to sue but to start the Q&A portion of the call.
Thank you, David.
In order to give everyone a chance to participate in, uh, the Q&A, we would ask that you limit yourself to 2 questions per person.
And you can certainly reach you for follow-ups and we'll do our best to accommodate. If there's time at the end Morgan we are ready to take questions now.
We will now begin the analyst question and answer session.
To join the question queue. You may press star then the number 1 on your telephone keypad. You will hear a tone acknowledging your request.
If you are using a speakerphone, please pick up your handset before pressing any keys to withdraw. To ask your question, press star, then the number 1 again.
Your first question comes from John Aiken, with Jeffrey's your line is open.
Mr. Aiken, your line is open.
Good morning, sorry about that. Um, wanted to take a look at the US operations, both uh the protection as well as wealth. Uh sorry the uh Empower business as well as the wealth management. Um we saw a strong Topline growth driven by the the growth in the assets. But what I was particularly interested in was the Improvement in the margins that that we saw. Now obviously, I believe this is talking about the scale that you're generating in the businesses but moving forward are we going to need to see incremental uh investments in technology? Can you remind me in terms of what we should expect in terms of expense growth? Moving forward.
Okay, maybe I'll I'll pass over to Ed.
Sure.
Um, thanks for the question, John. Um, you know, I would say on the investment side and technology, we're continuing to invest.
Uh, in efficiency, we have a transformation effort that's underway. That's driven, you know, very low unit cost over the last several years and if if we look out over the next
The next 4 to 5 years. We continue to see lower unit cost in the business. Uh, much of this is being funded by the tech budget that we have. As we continue to redirect more dollars into Ai and automate more of our processes. As you know, we have a pretty substantial presence from a global standpoint um in terms of application development operations and the like so um you know as I look forward I think we're going to continue to see um,
Similar margins.
Um, I think that, you know, they'll they'll definitely be sustainable on an annual basis. Obviously, there's some seasonality variances, it's more acute in the wealth business where we, we tend to upwe the marketing spend in q1. Uh, but I think if markets hold and we don't experience further impairments, we should see continuous improvements in our margins annually, based on the Investments that we're making.
To, uh, improve the customer experience and Drive Unit costs lower.
Okay, so I'd appreciate the call over to you.
Thank you.
Next question comes from Alex Scott with Barclays. Your line is open.
Hey, thanks for taking the question. Um, your first 1 I have for you is, did you see if you could extrapolate on some of the things you're doing from a technology standpoint? I mean, you know, Define contribution in particular, seems like a good, uh, you know, area where maybe you could.
You know really Drive even more operational efficiency with some of the new tools that are out there. So just be interested in. You know what what are some of the things you're working on their
yeah, like like just
sorry, maybe I'll cover on just a particular question. Alex is just on the business overall rather than any particular segment.
Yeah, I'd be interested in the business overall but particularly interested in Empower and and how you can maybe, you know, leverage your ability to consolidate the market but maybe supercharged that with some of the technology Investments that you're making.
Yeah, maybe I'll start overall and then add if you want to add some color on and power, like there's big technology opportunities across all of the business. Um, like we're investing a lot in just the foundation of capabilities in, in each of the business. I think workflow systems and capturing all of our efforts within that are very uh important foundational tools. And as we continue to invest in that, then um, AI is going to be a big opportunity in driving efficiency in in each of the businesses. Um, we're already to
Calling AI a last was in our call centers. Um, it's operating behind the scenes to help agents and improve their productivity, and then in each of the operational areas, um, all of the operation engines behind are are starting to use AI capabilities, uh, to automate and improve productivity there. And that's going to be a continued Journey over the next. I would say 3, uh, to 5 years, uh, and is going to drive down unit costs. Um, so and I don't know if there's anything you want to call out on the Define contribution business.
Yeah, just just in general not just Define contribution but in general Alex I would say that um you know, we've been an early adopter of AI and we have several tangible use cases that are in production right now where we're seeing meaningful benefit. I'll give you an example. If you look at uh, our application development efforts, um, you know, we've taken advantage of of the global capability for a while. Now, we have 20 2700 people in Bangalore across all of our functions, including, um, operations and application development, but but all of the functions. But if you look at what we've done deploying, um, AI with our app Dev team, we're seeing anywhere between 25 to 30% lift in productivity, uh, which is Meaningful. We've been driving a lot more throughput, uh, as it relates to a very aggressive investment agenda that we have for both the wealth business and the workplace business. So we think we'll continue to see further lift their uh, we're also deploying
It in uh, in terms of uh, a customer interaction. So whether it's uh through our client service managers automating. A lot of what they previously done did, which was um, which was either by phone or by paper, um, all those tasks are being automated using Ai and to David's Point, um, we've taken our interactive voice response capabilities to a whole new level and, and leveraging AI there as well. So, represented calls are down dramatically and it's a much better experience for the customer so, um, we we we stood up a, an innovation lab and Empower about 3 years ago. And um, we're driving a lot of these efforts forward. And I think to the earlier question that John asked, I I think this is very cool to our long-term goal of continuing to drive our unit costs lower.
And I agree with your hypothesis. That as we look out over the next few years. Uh, I I'm confident, we can drive those costs lower than, um, than we currently have in our multi-year plan.
Got it. Uh very helpful. Thanks for hearing the uh ask for more detail there. Um,
I guess the second 1 I had to use on the uh, the capital Risk Solutions business. Seems like you're getting a lot of growth. Could you maybe take us into, you know, some of the things that you see is good opportunity out there and and just how you're viewing the competitive environment for those type of products. And and maybe also this quarter too if you could talk at all about, you know, whether PNC and catastrophes being lower at any impact.
Okay, I'll hand over to Jeff.
In Europe, and and even in Asia, for that matter, they're changing requirement or a changing regulatory requirements. There are going to generate, um, more opportunities for us. We've been very, very, um, good at looking at where we think capital is tight where people are are are finding or needing what we're offering for them. And so it's been um, it's been very, uh, good because we've been marketing to the right place. And, uh, we're seeing the fruit that that this quarter, I think we've added, um, 80 million of annualized earnings in the quarter in terms of new business and Capital Solutions. So, it it's been a good quarter. We see that Trend continuing, there is a lot of, um, there's there's a lot of change in regulations. There's a lot of of demand for these products premiums in a lot of the markets have gone up quite a bit as I
Said earlier and that's generating more required Capital. So if you have a book of any business and your premiums grown 20% because um it didn't perform very well, then you need to make it up the next year, you need required. Typically in most countries, 20% more Capital to do that. So we've been, um, we've been helping these companies, we help companies grow and that's what we're focused on. So, um, I feel pretty positive about, uh, the outlook for for our business.
Um, I think your second, uh, part was about the, the current uh, the PNC catastrophe. Um, that uh we feel. Um, sorry for the poor people in Jamaica and our heart goes to them. Uh, it it was uh, as big hurricane, big loss. Um, the early it's it's early for us to tell whether we're going to be impacted or not. But the early estimate of the insured loss for such that, we don't think we're going to have an effect on it. Um, I think over uh the last few years we've been telling you we've been de-risking or or getting your further away from the risk. So we have uh, we have been doing that and um the the result of that is we um we see less claims as a result. I hope that um I didn't miss anything here.
Uh know very helpful. Thank you.
Your next question comes from Paul Holden with c. I b, c. Your line is open.
Thank you, good morning. Um, so again, thank thanks for the all the additional color and commentary on the CRS business. And I do have a follow-up question. Then for Jeff as you know, you just mentioned that you added 80 million of uh, of annual, I think expected earnings for for for for the business.
But and and then you talked about all the opportunities and why Great West is is is well positioned to capture those opportunities, which is clear on the results. So my question really is then like why why the mid single digit uh annualized earnings growth rate. Like why, why why not something higher? And again it's mid single digits plus. But why why not put it? Something higher, at least in the uh at least in the medium term?
Uh, thanks for the question, Paul. I I we obviously want to do better than mid single digit, I mean, that I think that, uh, if if anybody knows me, that's the goal here. But but at the same time,
Uh, and you could look at our our, our historical run rate on the business and and you'll see that we were over-achieved that but but the reality is our strength to come from the fact that we don't have the pressure to write the business. We want to be very disciplined and very
Um, very, uh, choosy, if you will, in terms of making sure that we only write business that, um, is above our Target or always. And, uh, only when we see those opportunities will, we bring them to the group. Um, if if we had much higher targets, I think we would feel compelled sometime to write business that we may not like as much. And so I think that's been the strength of our business. And the reason why we haven't had very many hiccups over the years, uh, and and that we've created a very big Diversified
Portfolio, that's running really, really well. And that's what we want to continue to do.
Okay, we have another way to frame. The question is is, you know, is the growth in Capital Solutions is it being offset sufficiently by, you know, the the the re the, the
Is um versus a Capital Solutions will bring me down amid single digits, but that's that's another thing. Another angle just wanted to explore.
No, that's not how we look at it. I think that that our mortality business has been pretty flat for a long time. Uh, so we've we've grown despite that and I and I think that the PNC business is the same way. Uh, I think the earnings have been relatively flat on that. So as as a result, I'm not sure. I think we're, we're still looking for Risk Solutions, uh, uh, products and Capital Solutions products that are uh, are going to help us grow. And we're just very fortunate. And, and the way we look at it right now, on the risk solution side, we don't see anything attractive and so, we're staying away, uh, but that could change over time. So it it's a matter of, uh, being ready, when the opportunities come.
Okay. Uh, and then second question. Hopefully, it's a quick quick 1. I was just going back and looking at the uh the putham transaction. And and and and noted that um there was a contingent payment of up to 375 million tied to revenue growth targets. So wondering if if anyone has an update on where that stands given market performance, it's clearly being quite strong since then. And I imagine the revenue associated with putham, likely has been strong.
Yeah, John can give an update on.
That. Thanks Paul. I'm really happy with the relationship. As you know, it's a strategic relationship a partnership where we're working with Franklin to benefit. Both parties. We're tremendously happy with that relationship. It continues to grow, um, during the current quarter, our Capital generation doesn't include any benefit from contingent capital.
Um, uh, being reflected from that relationship. And we still see that, uh, uh, relationship generating, um, you know, a level of contingent capital over the medium term, but it's not in our numbers this quarter.
Okay, when I'm sorry, just when, when, when, when could we expect it to flow through? Is this something that could be reoccurring for a period of time? Or is it kind of on a on a set, uh, end date?
I I I call it over the next 2 to 3 years. We should start to see some fruits of that um relationship.
Okay.
All right. That's good for me. Thank you.
Your next question comes from Doug young with dardan's capital markets. Your line is open.
I uh, good morning, I guess a question for Jeff or maybe for, for David,
Um, are you maybe back to the CRS? Like how
Are you willing to let CS become a bigger part of of Great West? And I know there's been, you know, some parameters, you've thought about on that front, um, has your view changed on that and I guess the limitation on that is how fast all your other businesses grow in terms of how much base earnings from CRS can grow to keep it kind of in line. But I just wondering if, like, top level. Are you willing to let CRS become a bigger part of the overall business?
So I I think we like to share that it has at the moment. So it's around 20% of of earnings and and I I think that's a good share to give us a diversified portfolio. Like obviously our capitalized businesses, particularly in the US are growing uh, Stronger overall than our insurance businesses. And we expect that to be to continue to direction of the group, uh, over over the planning period. Like there will be times when CRS is just explained does better than the medium-term Ambitions that we've set out. And we're going through 1 of those, uh, periods at the moment where there's just attractive, um, opportunities as far as in the market, and we expect that to continue into next year as well. But there will be times just over our planning period where opportunities may not be attractive and we like to give the business room to stand back and not be under pressure to grow when we when we enter into those times.
It's time. We expect Cycles like that over the next 5 years.
Yeah, so I just wanted to confirm like the philosophy hasn't changed and that's that's what my question is. Um, no no okay. Yeah, perfect. And then slide 16, I just want to go back to that. Maybe this is for Linda, like, it looks like you're guiding to you know High 50 million dollar like on average positive Insurance experience quarterly. That's kind of like your historical Trend and and I get that you've done well historically on reserving and positive. Yeah, Insurance experience, but why, why should we expect positive Insurance experience and why should we not expect you to adjust? Your actual assumption is to bring this back closer to zero. Um, is it just the philosophy or or am I missing something? Just wanted to kind of explore that.
And and sure. Yes, thank you. Um, so when we're well, first of all, yes, we would definitely be looking at the 4 quarter average. As Sean said earlier, we heart hearts being volatility in the mortality results this year between Q3 and q1. Um, and then when you're looking at that 4 quarter average at reading what we're seeing, there is a continuing strong contribution from our group, more busy line in Canada.
And their experience games, have some interest rate, sensitivity, and they are impacted by the cycle of morbidity. That said Cycles can be long. So over the near term, we're not really seeing any factors that could have a material impact on the good benefits experience relative to the level for CX care.
Okay? So it really is hinging on the group side in Canada, and what you're seeing in terms of outlook on that business, that's giving you confidence in it, going back to normal, but still remaining somewhat positive.
That's correct. Yeah that's fair. Okay. Just 1 quick last 1 on credit, I just everyone seems to do something different and it just kind of want to understand um
On the credit side, the guidance that you're giving John, is that net of your unwind and the Investments line? Or is that gross of that?
That's gross. So the dog can you know we we think you know we think that the industry has had some volatility in its results, you know?
Due to idiosyncratic events. We wanted to give some perspective on what you would have seen over the longer term. Uh, not not reflective of our own underwriting, which has been positive but you just look at the industry-wide losses, over a 50-year period and then uh, look at in normal kind of conditions, um, what? What you might expect and uh, what what what we indicated was that's about 4 to 6 basis points.
Uh, post tax annually. And we would expect kind of in most of those years, a normal conditions it to be at the lower end of the range but quarter to quarter what you've seen in our results is has some variability
Yeah, and then net of the unwind like that would be basically your best estimate. So now the unwind, net net, it would be zero.
Is that the way that it would be? Well, the the, the the unwind would be
More significant than the forward to 6 points because it it is, you know, has inherent accounting uh, Prudence or conservatism and you know. So so it it would be much higher than that. And you can see that in our expected investment earnings,
Yeah, perfect. Appreciate the color, thanks.
Your next question comes from Tom McKinnon with BMO Capital markets, your line is open.
Yeah. Uh, thanks, uh, John just continuing on this credit thing. Uh, it looks to be maybe about, uh, this 4 to 6 might be somewhere in the area of maybe 80 to 120 uh, million dollars annually. Do I have that kind of right? Does that seem to be your 4 to 6 basis point? Uh, after tax that
very close with round 70 to 100 Tom would be we wanted to get basis points because over time the portfolio will change so that you can continue to think of it in that and
Is the number, you can think of it is around 60% um reflective of Empower and the other 40% um and the other portfolios.
Most of that being evenly, split between Canada and Europe.
Okay, that's good. And obviously the 60% that's in amp power has no uh, unwind offset, right?
Well inherently, there is in the spread that we managed to. Um, as you're aware we we earn interest and we credit a spread. So as we price those products, develop those products, inherently in the spread, we managed to a, you know, to a an expectation experience. Okay?
Inherit and your uh um in your pricing spread, is that right? Okay, got it. Yeah but not has no. Uh there's no discount or anything like IFRS 17 stuff would be on that. Okay now yeah because those are ifs 9
Yeah. Okay. Now then uh just a question just with respect to rollover recapture I think is the rollover recapture rate somewhere around? 15% to have that right? Is that what it would be in the quarter or where you're kind of running?
Yeah, we we we don't disclose uh rollover capture rates. Uh they are improving and shared, there are about 15% like the the better metric to track. Uh, just the performance of The Well, businesses is the net inflows. Have they performed a very strongly year-over-year and quarter over quarter. And I think what that's a better measure is it obviously captures the business that's coming out of the retirement business. It it captures business that we're winning as where it captures crossover sales. There's also reflects the retention, uh, within the web business. Um, you know, so I think the key metric to look at in assessing the world business is those net inflows, and we're performing very strongly on that.
And what is the money in motion? I think you've kind of, uh, out of Empower that you'd be able to recapture is that somewhere around 8% of uh, Empire's. Total assets is it would would that be
A correct gauge of looking at that.
And then we'd all to start that, but like, for a mature, sort of DC business, and I think, but all of the, uh, players would see in the US. Like, the sourceman is typically are about 10%. Uh,
Okay.
Um, and or would all of those be potential rollovers or would some of it not be rollovers, Ed can add. And it's like, we, I suppose 1 of the things, we're very proud of in the US is we've we've been open platform, uh, sponsors. Participants have reached, make choice, you know, while they're saving for retirement and then they have full range of options, um, once they come to retirement or vendor movie job. So like we have to work very hard and have a very good offering to capture our share of that. That's what we're doing at the moment. So how do you might want to add some more color?
Are the only item I would say is know that that's not the numerator, it would be less than that due to cash outs and diminished type uh accounts. So it's it's it's it would that's not the numerator, be be less than that.
Would it be more like 6 to 8% Ed?
I think that's a good marker somewhere in that range. Yep, yep. Okay appreciate that. Thank you. Yeah yeah you have you have people that just take cash, right? They're just going to take cash. They're
You know, they've got bills to pay or if they're under 59, they have to pay the penalty, they pay a 10% penalty and they pay ordinary income taxes on it but um so you will get you will get some cash outs for sure.
And the plant participant, outflows are pretty heavy in the quarter. Do you think it's just because the amounts were high or were people like just saying, okay, maybe I'm feeling pressure, taking money out,
No, it's pretty rate-driven. You know, the markets had a good run, as you know, Tom. And so, if we look at the outflows.
Uh, 90% of its rate driven only 10% volume driven. So, we haven't seen a marked increase in volume. It's been more rape.
um, we also had a couple of large institutions in the quarter that had
What I would characterize, as sort of diminish, small account, Cash Out, type efforts that, that contributed to the flows and the quarter, uh, which were 12.8 billion so up from Q3. So there was sort of a 1 time event there, but, but if you look in general, it it's largely driven by the fact that the account balances are much higher.
Due to the increase in the market.
Okay, I appreciate this. Thank you.
Yep.
Your next question comes from Margo manono with TD. Securities, your line is open.
Good morning. Can we go back to tap on Risk Solutions, the the business?
Now, is the duration of the business, because I can appreciate that. The
The new business you've written is driving some pretty strong growth but it really depends on how long this business is on the books. For I I appreciate you can always generate new business and that I think that's the message you're offering us, but the existing business, this, this exists, the business that's put on more recently. What is that duration of that business before you'd have to sort of sort of read um generate even more new business to keep that Trend going?
Thanks for the question. It's a good 1. So when I explain internally all the time so uh, it it is it is shorter term business. We we typically
Look at it, like we lose 10 to 20% of it every year and so we have to replace it every year before we started growing.
That's why you need a big Diversified block of business. And obviously, the risk solution business is better. From a long-term perspective, the Capital Solutions bring much higher returns. Uh, but I, I would say if you use 10 10 to 15%, it's been really the Run rate that we've seen on on how how much we lose every year. So that gives you an idea of what we need to replace to start growing every year.
That that's a it does but it's just longer than I would have expected. Like so you're saying that some of these Capital Solutions could run out for, you know, 5 to ten years then
That is probably iteration would be shorter like say it's maybe 4 or 5 years, might be typical, but then, you know, certain cases will will renew and, and just continue on and then you'll have a percentage that will be yeah, 1 year Deals. They renew. There's there's, you know, um, on average I would say there are 4 or 5 years, you know, since they've said and but but we have clients coming back and renew them so that, uh,
So, so, so some of them tend to last 15, 20 years, I see. So you were quoting more of like an effective duration, including the sort of expected renewals when you offered that Outlook.
That's right. Yeah. Okay if we could go to the US now? Um clearly. Um the Empower business is delivering as you described at your investor day and in previous discussions,
Uh, I'm looking back, though. A few years to Q2 222.
When a a large deal and I forgotten which 1 it was, whether it was mass or whether it was, you know, I've just forgotten back in q222 310 billion dollars of new new assets, brought on and, and I kind of thought that was going to be 1 of the important themes of this business that you'd continue to add. So what I'm getting at is given
This, this more aggressive, pace of BuyBacks. Are you signaling that?
It's organic growth from here in this business or, or is there still opportunities to add 2, 300 million billion, dollars of assets to this business through through acquisitions?
Yeah. So like on our on our investor day Ambitions, they can all be achieved through organic growth. And like we continue to invest in the business to position ourselves very strongly and that's just a great position for us to be in. So we're very confident about the organic growth, um, in the US and the Empower business but but clearly there's opportunities for further add-ons and we will continue to look at that. Like yes, we're doing, uh, share BuyBacks at the moment, but we have a lot of financial flexibility, and and strengths and opportunities come up, and we like them and we're, we're ready to move on them. Um, like, we're very disciplined when it comes to m&a. Um, you know, we we have our, uh, internal return targets. Um, they need to be earnings, uh, create up within a very short period of time. And, uh, we continue to measure and look at opportunities, uh, you know, against against those targets. But certainly, we're in a great position. I think to further add-ons, if we can get, uh,
Opportunities at the right price.
But do you believe David that there are still opportunities in that 2 to 300 billion dollar range in this business or those been Consolidated away?
Military. Still the number of large opportunities. I would say. And lots. Then of smaller opportunities that that you could add of. So, yeah. It's still a very spread our Market, which I think further consolidation to come
Thank you.
Your next question comes from Gabriel Dane with National Bank, your line is open.
Can you can you give me a sense of what cash resources you have, including, uh, you know, excess cash in the US and then whatever, uh, appropriate figure would be from that hold Co cash that, um, you know, you would want to retain I guess.
Yeah, thanks Gabe. Um as as you might expect when it gets to the hold Co. It's very funable, you know from a shareholder Capital allocation perspective, historically. We've usually kept about 500 million for liquidity purposes. That's very a little bit over time. So the the remainder at the hold Co is clearly available in and and, and um, you know, uh, flexible from a capital allocation. I also call out that we have reduced our leverage. Um, you know, first we've, we've repaid, all of the acquisition leverage that we took on and committed to repay. And now we started to buy bite into the ongoing leverage, um, of the group and, and, and our equities growing over time. So there's there's a reasonable amount of uh flexibility. We have from a capital um Capital instrument perspective. And then you rightly point out, we do uh manage uh to generate all this cash flow retaining.
Uh, good healthy, uh regulatory Capital positions, both um in our, you know, liat based in uh uh regulated entities, as well, as our us regulated entities. Um, in terms of the us we like to stay around or just north of 400%, uh, you know, in terms of an RBC ratio and what we're really pleased with. And I share this on the last call is, you know, if you look back 5 years, we had 3 really nice businesses in the US.
They were contributing a level of of capital but nowhere near the the business that we have now. Um, the US, um, has sent back cash this year, we'll send back, you know, nearly in in line with its base earnings. And that's, that's driving, you know, as we shared more than 80% of our our, our earnings turns into Cash. Um, and as, as we also share this quarter, we will, uh remit, um, over a 100% of our earnings in in cash flow to life code this year. So that puts us in a very advantaged position,
Okay. Um, all right. And then, uh, just, uh, the budget that came out, the Canadian budget that came out this week. There was some, uh, a section there on, uh, I forget what they call it tax fairness or something like that. There was a, a component that aimed at, uh, uh, reinsurance transactions, I guess.
Um, and why not? My question is not for CRS. But is there any, uh, what are your early thoughts on? You know, how the feds are looking at, you know, Canadian risks being, uh, reinsured offshore and the earnings that those generate and those offshore and entities? I don't know if there's any, uh,
Anything to note there with regards to your business.
David. It's an excellent question. Um, and there, you know, we can continue to evaluate the federal budget. You know, it's obviously knew we haven't been able to get through, um, you know, the thing and and deep detail. Uh, but so we're evaluating any, uh, Financial impacts from that. But we would note the budget does propose uh to tax any investment income on assets. Um that are held by Foreign Affiliates and back uh Canadian Insurance risk.
Um, if if you assume, you know, and this is early stages, that, that proposals passed as written, uh, we'd expect the impact on our base, earnings to be in material, but but, you know, roughly around 1% or 3, 3 cents per share. Um,
Um, with an increase in about a half a percentage Point, uh, in our effective tax rate on our base earnings, and that would be related to our Canadian operations. So that's what we, um, that's what we know so far. As we evaluate all the provisions of the budget. Um,
You know, that's an early estimate. So we have to go through further work on it, but I appreciate that you asked the question.
Okay great. Uh it doesn't sound like good too. Big of a deal but appreciate that. It's still early. Thanks.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Khan.
Aftermarket clothes on Wednesday, February 11th, with the earnings, call starting at 9:30, a.m. eastern the following day. Thank you again and this concludes our call for today.
This concludes today's call, thank you for attending. You may now disconnect and have a wonderful rest of your day.