NYSE:SLF Sun Life Financial Q4 2024 Earnings Report $56.40 -0.11 (-0.19%) Closing price 04/17/2025 03:59 PM EasternExtended Trading$56.42 +0.02 (+0.04%) As of 04/17/2025 05:51 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Sun Life Financial EPS ResultsActual EPS$1.20Consensus EPS $0.90Beat/MissBeat by +$0.30One Year Ago EPSN/ASun Life Financial Revenue ResultsActual RevenueN/AExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ASun Life Financial Announcement DetailsQuarterQ4 2024Date2/12/2025TimeAfter Market ClosesConference Call DateThursday, February 13, 2025Conference Call Time10:00AM ETUpcoming EarningsSun Life Financial's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled on Friday, May 9, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress ReleaseAnnual Report (40-F)Annual ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Sun Life Financial Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 13, 2025 ShareLink copied to clipboard.There are 17 speakers on the call. Operator00:00:01Good morning and welcome to the Sun Life Financial Q4 twenty twenty four Conference Call. My name is Gaylene and I will be your The host of the call is Paul Poon, Assistant Vice President, Investor Relations. Please go ahead, Mr. Poon. Speaker 100:00:35Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the fourth quarter of twenty twenty four. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer will present the financial results for the quarter. Speaker 100:00:59After the prepared remarks, we will move to the question and answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide two, I draw your attention to the cautionary language regarding the use of forward looking statements and non IFRS financial measures, which form part of today's remarks. As noted in the slides, forward looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin. Speaker 200:01:24Thanks, Paul, and good morning, everyone. Turning to Slide four, Sunlight's Q4 results highlight our continuing commitment to helping our clients achieve lifetime financial security and live healthier lives. Fourth quarter underlying earnings saw good results in Canada, Asia and asset management, offset by lower U. S. Results on weaker stop loss morbidity experience. Speaker 200:01:43The stop loss claims experience in The U. S. Was driven by higher claims severity, which we have observed across the industry. Reported earnings were down year over year from market driven factors as well as the negative impacts from several one time items that we don't expect to reoccur. Tim will go through these one time items in more detail. Speaker 200:02:01Wealth sales and asset management gross flows were up 33% on strong distribution execution at MFS and SLC. Strong net flows at SLC were more than offset by the negative net flows at MFS, which were consistent with the continued outflows across the industry. Individual protection sales were up, driven by strong sales in Asia. Group protection sales were down, reflecting the lower number of large cases coming to market in the quarter and our pricing discipline. Group sales are lumpy and we continue to have strong momentum in our Canadian and U. Speaker 200:02:34S. Group businesses. We ended the quarter with a strong capital position with a LICAT ratio of 152% at SLF. Given our strong capital position, we will continue to execute on our buybacks under our normal course issuer bid. Moving to Slide five, let's look at the Q4 highlights and our progress against asset management, the fundamentals of our businesses remain strong. Speaker 200:02:57SLC management achieved record capital raising of $10,000,000,000 this quarter, bringing our full year total to $24,000,000,000 and net impulse this quarter were over $14,000,000,000 MFS long term retail funds performance remained strong with 95% of fund assets ranked in the top half of the respective Morningstar categories based on ten year performance. MFS continues to see solid fixed income net inflows with $1,500,000,000 this quarter driven by their distribution strategies and strong fund performance. In December, MFS launched five active ETFs, expanding our diverse range of investment products and saw continued sales momentum with their separate managed accounts. In Asia, we're accelerating our growth momentum. We're realizing value from our high quality, well balanced mix of distribution channels across Asia. Speaker 200:03:47Our agency channel grew with year over year increases in sales and the number of agents, while we continue to strengthen our bank assurance relationships with leading banks across Asia. Individual sales were up, driven by healthy high net worth sales, growth in India Bank Assurance and direct to consumer channels and robust growth in Hong Kong agency and bank assurance. In our India joint venture, our full year underlying earnings for insurance and wealth surpassed the $100,000,000 milestone this year, maintaining our strong growth trajectory there. In Indonesia, we recently launched our expanded partnership with CMB Niagara with integrated digital capabilities and co branding. In Canada and The U. Speaker 200:04:27S, we are showing strength in our core health businesses. In Canada, group benefits revenue was up 11% compared to the same period in the prior year. In The U. S, we see continued momentum in group benefits revenue, up 6% compared to the same period in the prior year. Additionally, our U. Speaker 200:04:43S. Dental business is building momentum with stabilization in membership and improving results driven by repricing and claims expense management actions. On the digital front, we're driving impact at scale. Our leading virtual care provider in Canada, Dialog, now offers virtual care services to more than 3,500,000 clients and their families, including primary care and mental health support. This represents over 8,000,000 Canadians, approximately 20% of the Canadian population. Speaker 200:05:12Our services are delivered through partnerships with nearly 50,000 employers, insurance companies and various organizations nationwide. In The Philippines, we launched Advisor Buddy to help Speaker 300:05:31to Speaker 200:05:39impact, efficiency, innovation and growth through digital leadership. Our exceptional people and culture are reflected in our employee engagement index average score of 88%, which has been above the financial services industry norm for more than five consecutive years. In 2024, Sun Life was certified as a great place to work in all participating markets. This recognition reflects Sun Life's commitment to fostering high performing, future ready and welcoming environment where our people thrive and are empowered to deliver on purpose. Turning to Slide six, we ended 2024 with solid full year results. Speaker 200:06:15Underlying net income increased 3% to $3,900,000,000 Our total assets under management reached a new milestone at $1,540,000,000,000 In Canada, we achieved record underlying net income of $1,500,000,000 up 6% over the prior year supported by solid results across all businesses. Wealth AUM is up 13% with defined benefit solutions, our pension risk transfer business, achieving record annual sales of $2,500,000,000 In The U. S, we grew client revenues to $8,200,000,000 driven by successful execution of our health strategy. We also saw record underlying earnings and employee benefits. In Asia, we saw strong growth momentum and achieved underlying net income of more than $700,000,000 up 17% year over year. Speaker 200:07:00These are record results driven by strong protection sales. Total Asia CSM grew by 30%, reinforcing our growth trajectory. Our results demonstrate the strength and resilience of our business. We will continue to build upon the strength and remain purpose driven as we move into the year ahead. With that, I'll turn the call over to Tim, who will walk us through the fourth quarter financial results in more detail. Speaker 400:07:24Thank you, Kevin. Good morning, everyone. Turning to Slide eight. We ended 2024 with the prior year. Underlying net income of $965,000,000 was modestly down 2% year over year, while underlying earnings per share of $1.68 was flat compared to the prior year. Speaker 400:07:43Full year underlying net income of $3,900,000,000 and underlying earnings per share of $6.66 were up 35% year over year respectively. Q4 twenty twenty four and full year underlying return on equity was sixteen point five percent and seventeen point two percent Underlying ROE was impacted by lower underlying net income and growth in book value driven primarily by currency impacts. The decline in quarterly underlying results over the prior year were primarily driven by adverse morbidity experience in our U. S. Health and risk solutions business due to an increase in claims severity, which has been observed across the industry. Speaker 400:08:23Overall, our results continue to benefit from Sun Life's resilient businesses and diversified model. Wealth and asset management underlying earnings were up 11% over the prior year on higher fee income, primarily from increased asset levels, partially offset by credit experience in Canada. Group health and protection underlying earnings were down 27% year over year, driven primarily by unfavorable morbidity experience in U. S. Medical stop loss and less favorable morbidity experience in Canada. Speaker 400:08:52These impacts were partially offset by solid business growth in Canada. Individual Protection underlying net income was up 19% over the prior year resulting from improved protection experience and higher Asia joint venture contribution. Reported net income for the quarter was $237,000,000 which was $728,000,000 below underlying net income. The variance between underlying and reported net income included market related impacts and several one time items which we do not expect to recur. First, our reported net income was impacted by lower tax exempt income on foreign currency assets from the material strengthening of the U. Speaker 400:09:30S. Dollar compared to the Canadian dollar in the fourth quarter. We are taking actions to mitigate this tax volatility going forward. And second, in Vietnam, we recognized an impairment charge on the intangible asset related to our bank assurance agreements. This charge reflects updates to our outlook reflecting industry and macroeconomic factors in that market. Speaker 400:09:51Market related impacts reflected unfavorable net interest rate, equity market impacts and the adverse experience. Real estate returns were flat in the quarter, but below our long term return assumptions. Organic capital generation remained solid at $350,000,000 this quarter or 36% of underlying net income and new business CSM. Our balance sheet and capital position remains strong with an SLF LICAT ratio of 152% flat from the prior quarter as organic capital generation was offset by the impact of markets and share buybacks. HoldCo cash remains robust at 1,400,000,000 and our leverage ratio improved sequentially and remains low at 20.1%. Speaker 400:10:34Total CSM of $13,400,000,000 which is store of future profits increased by 13% year over year driven by strong organic CSM growth and currency impacts. New business CSM of $3.00 $6,000,000 was down 20% year over year driven by changes in sales mix this quarter. Finally, book value per share increased by 11% over the prior year and 2% quarter over quarter demonstrating our ability to generate strong growth while returning value to our shareholders with 3,000,000 shares repurchased this quarter under our share buyback program. Turning to our business group performance on Slide 10. MFS's underlying net income of US216 million dollars was up 13% year over year from higher average net assets partly offset by expense growth. Speaker 400:11:19Reported net income of US216 million dollars was up 18% year over year. Pretech's net operating margin of 40.5% improved by 1.1 percentage points over the prior year driven by higher average net assets. Assets under management of US306 billion dollars was up 1% over the prior year but down 6% over the prior quarter. The sequential decline in AUM was driven by net outflows and market depreciation. This quarter, outflows of US20 billion dollars included several large institutional mandate redemptions and retail outflows. Speaker 400:11:53Institutional outflows included portfolio rebalancing and fund consolidation. Retail outflows, while negative, improved over the prior year and reflected the continued preference of investors for high growth tech stocks and shorter term interest bearing products. Overall, long term investment performance for MFS remains strong with 95% of fund assets ranked in the top half of their respective Morningstar categories for ten year performance. Fixed income performance was also strong with 98% of fund assets ranked in the top half of Morningstar on a ten year basis. Turning to Slide 11. Speaker 400:12:28SLC management generated underlying net income of $59,000,000 down 16% year over year as higher net seed investment income was more than offset by lower fee related earnings. Fee related earnings of $79,000,000 were down 14% year over year as higher incentive compensation driven by strong fundraising at BAGO was more than offset by higher fee earning AUM. Reported net income of $25,000,000 was down 47% over the prior year, reflecting market related impacts and lower underlying net income. SLC management achieved record capital raising this quarter with $10,200,000,000 raised, up $3,100,000,000 from the prior quarter across all affiliates. Strong capital raising helped drive record net flows of $14,100,000,000 Deployments of $6,300,000,000 was down from the prior year but remained solid as we observed sequential quarterly growth in deployments across all affiliates. Speaker 400:13:21SLC's fee earning AUM of $193,000,000,000 was up $16,000,000,000 year over year reflecting market growth and net deployments. Turning to Slide 12, Canada delivered solid results with underlying net income of $366,000,000 up 5% year over year on higher fee income and strong insurance business growth, partially offset by lower net investment results. Reported income of $253,000,000 included net unfavorable market related impacts. Wealth and asset management underlying earnings were up 10% year over year as business growth and higher fee related earnings were partially offset by negative credit experience. Canada reported record wealth AUM of $189,000,000,000 which was up 13% year over year on market appreciation and positive net flows. Speaker 400:14:06Group Health and Protection underlying earnings were down 4% year over year as business growth was more than offset by less favorable morbidity experience compared to the prior year. Group sales were down 49% year over year due to higher large case sales in the prior year. Individual protection earnings were up 13% year over year reflecting favorable mortality experience. Individual protection sales were down 17% year over year due to lower participating policy sales through the third party broker channel. Turning to Slide 13. Speaker 400:14:38Sun Life U. S. Underlying net income was US115 million dollars down 39% from the prior year. In Group Health and Protection, underlying earnings were lower by 46% year over year driven by unfavorable morbidity experience in medical stop loss from higher claims severity which we're observing across industry. This impact more than offset strong underlying business results in group and improved dental results. Speaker 400:15:02In dental, the business benefited from management actions to secure repricing on Medicaid business, generate sales and deliver efficiencies. We will continue to drive profitability improvements through these levers. U. S. Group Health and Protection sales of USD $830,000,000 were down 11% year over year, driven by lower government dental contracts as fewer opportunities came to market this quarter. Speaker 400:15:25Individual protection underlying earnings were in line with the prior year. Reported net loss of US1 million dollars includes negative market related impacts and a non recurring provision in dental. Turning to Slide 14, Asia's underlying net income was strong at $175,000,000 and was up 20% year over year on a constant currency basis. Results benefited from improved insurance experience, higher contributions from joint ventures and higher fee income. Reported net income of $11,000,000 includes the impairment charge related to an intangible asset for bank insurance agreements in Vietnam and market related impacts. Speaker 400:16:01We continue to see strong sales momentum in individual protection in international India and Hong Kong. And finally, Asia's total CSM grew to $6,000,000,000 up 30% year over year driven by strong organic CSM growth and currency impacts. And with that, I will pass it back to Kevin to conclude in the prepared remarks for this call. Speaker 200:16:21Thanks, Tim. In closing, our commitment to our purpose, our clients, our people and our values remain constant and unwavering. We're focused on helping our clients achieve lifetime financial security and live healthier lives. We're confident that Sun Life's balanced and diversified business strategy as well as our financial strength will position us to deliver on our medium term objectives, which we introduced at our last Investor Day. I want to thank all our employees and advisors around the world for their to Sun Life's purpose and for making a positive impact for our clients around the world. Speaker 200:16:54I will now Operator00:16:56turn the call over to the operator for Q and A. Thank Our first question is from Tom MacKinnon with BMO Capital Markets. Please go ahead. Speaker 500:17:20Yeah, thanks and good morning. Question really just questions with respect to the stop loss here. Dan, maybe you can share with us the loss ratio in the fourth quarter, how that's trending. What's the outlook? Maybe some commentary about price increases you got through in the fourth quarter, price increases you're getting, you expect to get going forward? Speaker 500:17:47And maybe elaborate a little bit about what how complete these claims are, maybe the paid loss ratio versus the actual loss ratio? Thanks. Speaker 600:18:02Okay. Good morning, Tom. It's Dan. So let me take each of those and also give a little bit of context. Obviously, we had a variance in the stop loss loss ratio in the fourth quarter. Speaker 600:18:19There are two aspects to the experience that's emerged for 2024 in stop loss. As we talked about throughout the year, utilization returned to pre COVID norms earlier in the year. And utilization remained at roughly that level throughout the year. What we saw in the fourth quarter was a change in the severity of stop loss claims. So just a comment or reminder about how stop loss claims emerge. Speaker 600:18:46Most of the business is effective and renews each January 1. Stop loss has a fairly high attachment point. These are very severe medical claims. Attachment points or think of it as a deductible are often $150,000 2 hundred and 50 thousand dollars or even $300,000 So by the time a claim accumulates to that level, it does take some time versus when the case was effective. So it's really during the fourth quarter of the year and even the first quarter of the following year when we actually received most of those claims. Speaker 600:19:25We get some insight into those claims throughout the year, but we actually see the details when the claims come in. And what we and others who have reported in the industry saw in the fourth quarter was those claims were meaningfully more severe than had been the case in the past. The Impact in the fourth quarter really affects the entire year as opposed to, you know, just events attributable to that quarter. So obviously we restate the way we think the year is emerging based on the claims loss ratio in the fourth quarter, but probably the most important loss ratio number to think about in which I'll share is what that resulted in a full year loss ratio. The full year loss ratio for stop loss in 2024 was 74%. Speaker 600:20:20You may recall we priced to about 73%, so it was a little bit higher than our pricing target. Now because of the utilization emergence and other factors, we had been raising our prices. We started to move those price increases up actually in the middle of twenty twenty four. You will see and will experience significant price increase from the 11/25 actions. Most of the business renews on '20 on 11/2025 and also there were significant new sales. Speaker 600:20:55We achieved about a 14% pricing increase on 11/25. And we also took underwriting actions in terms of the business we renewed versus didn't renew, which we think actually gave us about a 2% favorable result to where we were on those kinds of actions around the same time last year. So with that, Tom, have I answered all your questions or do you have a follow-up? Speaker 500:21:27Well, I think the way things are disclosed, you have the expected amount in the P. A. And then the policyholder experience, picks up something that's different than they expected. If you're expected was a 73 and the actual was a 74, I guess we have to look at it for the entire year as opposed to just the quarter. But, I guess how should we be looking at this going forward? Speaker 500:21:58In 2023, it looked like your loss ratio was between 6570%. And so I assume then if you price then to 73%, you would have been able to pick up positive policyholder experience in loss in 2023. If you're pricing to 73% for 2024, then how should we be thinking about any adverse policyholder experience for 2024 for this line? Speaker 600:22:31Yes. So let's go back a little bit to COVID. During 2020, '20 '20 '1, '20 '20 '2, '20 '20 '3, we experienced extremely favorable utilization. And there are obvious reasons for that. It persisted quite a bit longer than COVID itself because hospitals were understaffed and capacity in the system was lower. Speaker 600:22:55So you're correct on the loss ratio in 2023 was around 67% for that year. So contrast that with 74% in 2024. And we've been in 2024. And we've been saying really since 2023 that the utilization would return ultimately to pre COVID or normalized levels. And indeed it did. Speaker 600:23:20So we'd certainly been expecting for a while some rebound in the loss ratio. So we've been taking pricing action consistent with that throughout, while understanding that we would not be able to maintain those extra favorable results that were coming from the unusually low utilization. So you're right also in thinking about 2024, you have to think about it in the context of the year versus the stand alone quarter because that really that experience applies to the year. And then moving forward, we've taken additional pricing actions moving into next year. Now obviously, some of this increase in severity was not fully expected. Speaker 600:24:07So there's likely to still be be some pressure as we move into 2025. But there also were pricing actions and we will take additional pricing actions. We believe the additional pricing actions we need to take are modest in the range of about another 2%. You may have seen some of our competitors talking about pricing actions they need to take, which are many, many times that. Speaker 500:24:33Sorry, what were the additional pricing actions that you are taking? Speaker 600:24:37So well, first of all, effective 11, we did achieve 14% average rate increase. We also, took additional underwriting actions, which as I mentioned before, were worth probably about 2%. And then we do think we need to raise our prices about another 2%, which we are in the process of doing. Speaker 500:25:00Okay. So what's the outlook then for this line for 2025? If we ran 2024 at 74. Speaker 600:25:11Yes, I'm not sure we're prepared to give a specific loss ratio pick for 2025. We would say we would expect some pressure from severity to persist. We don't think this is a short term impact. This may be the new level of severity But we think the order of magnitude of action that we need to take in order to address it is around that 2% incremental price increase. Speaker 700:25:42And Speaker 500:25:45Is the way these things are booked, is the fourth quarter when you really do all your catch up here? So is this we should be looking at stop loss for the full year as opposed to just the fourth quarter results? Speaker 600:25:58Well, I mean, I wouldn't quite call it catch up, but kind of back to the point I made earlier, we really don't receive most of the claims until the fourth quarter and then some into the first quarter of the following year. So while we certainly get some indications as to what's happening, we also have arrangements with many of our third party administrator partners to give us claims information about claims that are on their way. Towards hitting a stop loss deductible. We don't see the actual claims until they come in, which is mostly, as I said, in the fourth quarter. So while it's not catch up, the results clearly do the entire year. Speaker 600:26:38Just to put it into perspective, two thirds of our business is effective on January 1 of each year, and it takes five quarters for us to get to about 90% actual claims experience on that cohort. So right now what we're really seeing is the results of last January's effective dated business. Speaker 500:27:00Okay. Thanks for that. Operator00:27:05The next question is from Gabriel De Chien with National Bank Financial. Speaker 800:27:12Just a follow-up on that line of questioning. So two thirds of the book has been re repriced as of oneone. So that pricing has an impact on this year of 2025. So there should be margin improvement or restoration on that basis alone, correct? Speaker 600:27:33Yes. It's a little more complicated than that. So I would add two points to that. Some of the experience that we report on in 2024 was actually experience from 2023. So recall that I said 2023 had a 67% loss ratio, a very favorable year. Speaker 600:27:52Now we no longer have the benefit of the 2023 business. The other adjustment I would make to that is we started adjusting pricing in the middle of twenty twenty four. So we have taken pricing action on more than two thirds of the business. But also as you said, we probably do need to take a little more pricing action. Speaker 800:28:14Okay. So ignoring that 2% of additional pricing required, just what you've done so far, when should we expect that to be fully reflected in your book? Speaker 600:28:27Well, being that we do need a little bit more price, it would take through next January for us to be fully through that. But there should be meaningful impact even from the pricing actions we took effective oneone twenty five. Speaker 800:28:44Okay. And then you said the claims filter in well, not filtered, a deluge rather. It comes in Q4 and a bit in Q1, like what we're in currently. So we could see another blip in Q1 based on twenty twenty four claims. Speaker 600:29:02Yes. I mean, I would just Speaker 800:29:04I guess these are sorry, go ahead. Speaker 900:29:08No, I was just going Speaker 600:29:09to say that most of the claims come in, in fourth quarter and then also in the first quarter of the subsequent year. So yes, there could be some pressure that continues into the first quarter from that. Speaker 800:29:22And the message you're giving us, the 14%, the price increase, the 2%, which is lower than what we've heard from peers, is reflective of the pricing discipline that you exercised in prior years, like the not assuming that the good times are going to last forever type of thing, right? Speaker 600:29:38Yeah, exactly. And we've been pretty open about that. We've been saying for a couple of years that the low utilization from COVID can't be baked into the future and we priced for an assumption, that things would go back to normalized levels, which indeed they have. And yes, you're correct. The loss ratio we're reporting, the degrees of price increases needed are quite modest compared with what some of our competitors are reporting. Speaker 800:30:08Yes. Okay. And then switching over Speaker 200:30:10to Sorry, David, it's Kevin. If I took a step back, I'd say, listen, this is a business that we've been in a long time and we have scale and we understand. And we saw through the COVID period that morbidity performed better from a claims experience. And Dan had been signaling for a while that that would come back. He came back faster than we expected in a way this quarter because of severity. Speaker 200:30:33And so we'll adjust that with pricing, which we we can do. But it can take a few quarters for that to play out. But the long term strategy of the business, the capabilities, our scale, the data that we have, all positions it it well going forward. It's a little complicated if you step back and look at it because COVID had lots of impacts. So for example, the core group benefits business in some quarters underperformed and that's been performing really well. Speaker 200:31:02So I would just say that we're confident in our strategy here. We're confident that we have the right scale. We have the pricing discipline. And you can see that we were less impacted than many of our competitors. So I would look at it from that perspective. Speaker 200:31:14And if you Slide 18, you can see the morbidity results. That's the whole company, but The U. S. Is a big part of that. We've got the positives in Q3 and Q4 and then the negative this quarter. Speaker 200:31:26You can see a post and pretax on that slide that gives you some of the indication. Speaker 800:31:32Yeah, no, no, I get that. I don't want to make a, you know, freak out over this stuff. It's just understanding the mechanics, the timing of everything and just, you know, the nuts and bolts, I guess similar to the redetermination stuff for dental. A lot of that stuff. You know, there's a bit of a learning curve. Speaker 800:31:49But, anyway, switching over to Tim, you mentioned the tax exempt income. Can you the stronger U. S. Dollar, can you explain how that worked out? And you called it a one time item, but you're taking action to mitigate the volatility. Speaker 800:32:06So how is it a one time item and also something you have to mitigate going forward? Speaker 400:32:15Sure. Thanks, Gabe. There are a few pieces to this, so maybe I'll start with a little bit of So under Canadian tax law, a portion of our investments aren't taxable in Canada as they're tax exempt. They support our foreign businesses that we operate through branches of our Canadian entities. And historically, we've had a tax benefit under this program since inception. Speaker 400:32:37This year we had a lower tax investment income on foreign currency assets and related FX swaps. And we really saw that from the material strengthening of the U. S. Dollar compared to the Canadian dollar. And that overall led to a tax loss. Speaker 400:32:51And that's highly unusual for us. As I said, we've always had a tax benefit through the program by design. So the loss you're seeing in reported income is the difference between the expected tax benefit, which we include in underlying net income, and the actual tax loss which we experienced for the year. And so I say we're taking action because we would really seek to mitigate tax related FX noise and reported income so you wouldn't expect that level of FX related volatility going forward. Speaker 800:33:20Okay. And then on the earnings lastly, on earnings on surplus, I forget, you've given guidance on sensitivity to rate declines. If I look at slide 20, core investment income down quite a bit year over year. Is that really all the impact of the rate cuts there? And we should use that in a linear manner for future rate cuts? Speaker 400:33:49Yes, I think that's a fair description. The decline that we see in that core investment income over Q3 is really due to lower yields. I would say at the end of Q4, almost 40% of our surplus holdings were in short term securities. And we saw 80 basis point decline in that short term yields in that quarter alone. You know, there's a modest lesser extent. Speaker 400:34:08We had a slightly lower surplus balance. And when you look at overall earnings and surplus, we, of course, had lower fair value through OCI trading gains this quarter. So in terms of your comment around outlook, you know, going forward, if if short term rates continue to remain low, you can think this as roughly a new run rate for core investment income in the short term. But over time, you know, we'll seek to reinvest those assets into higher yielding products. And when longer term rates come down, it will also provide us an opportunity for fair value through OCI gains. Speaker 800:34:38Okay. Is that 40% typical? The allocation? Speaker 400:34:42No. In the fourth quarter, we had a lot of repatriations from operating entities. In terms of capital repatriation, as you can see in our strong cash generation. So that was just parked in short term investments temporarily. We wouldn't normally seek to run that at 40%. Speaker 400:34:56Now surplus is a bit of a mix. We have cash, have that to use for collateral for derivative needs. And then we have a long term portion of the holding. But it's more skewed to short term in the current environment because of that inflow of cash. But we'll seek to reinvest that, as I said, in particular as rates present themselves opportunities for yield. Speaker 800:35:16Got it. Thanks. Operator00:35:21The next question is from Meny Grauman with Scotiabank. Please go ahead. Speaker 1000:35:27Hi. Good morning. I think this is for Dan. I'm not sure if Speaker 500:35:30you addressed this, but if so, maybe I missed it. You've been talking about a target of $100,000,000 underlying earnings for Dental for '25. Would you be able to give sort of similar guidance to the group benefit line in terms of where you see that for 2025? Speaker 600:35:52For Dental, we've decided to give a specific target because of the very unusual events last year with the impact of the end of the public health emergency. So we generally don't give a specific earnings target by line of business. What I would say is it's worth pointing out that our group benefits business or employee benefits business, as we call it, had the best year it's ever had in 2024. Earnings were up by over 50% and the margin reached above our long term target of over 6%. So that business is doing very well. Speaker 600:36:31It's generating good organic growth, very good loss ratio results, good expense coverage progress as they scale. And they've got that business has quite a bit of momentum and we expect good results to continue in that business as they did in the fourth quarter. Speaker 500:36:53Okay. Just another question on FLC this time. I noticed a discussion about capital raising and coming from Kresien and BGO. Kresien makes a lot of sense to me just given trends. BGO stood out to me. Speaker 500:37:10And so I just wanted to get a better understanding of What's driving that and how you see the outlook for capital raising specifically in the real estate sleeve of SLC. Again, although counterintuitive, just given the pressures that we've been dealing with on the real estate side for a while now, That's the question here. Speaker 1100:37:32Yes. This is Steve Petcher. Thanks for the question. You're right. We had, I think, our best fundraising quarter ever at $10,200,000,000 and it was really across all the different asset classes. Speaker 1100:37:42Our biggest the biggest share of that was in Crescent. A lot of this is due to the timing of fund closing. So at Crescent, we had I believe three fund closings and three key fundraisers at Crescent. So in total, that was just over 5,000,000,000 about half of the 10,000,000,000. But at BGO, we had a big closing in their Asia Fund four, a really successful group. Speaker 1100:38:04In fact, I think if you were to look at real estate investment performance in Japan, our team probably has the top results. And so, this fund could approach $4,000,000,000 They had a big closing during the quarter. We also want a sizable separately managed account in Canada in real estate. And then we also, in addition to that, had over $1,000,000,000 of fixed income wins, and some money coming in for it, too. So it was broad based. Speaker 1100:38:27But I would say in real estate, we're actually starting to see renewed interest. If you look at, the impacts on real estate, obviously, the overhang on the office sector put a pall over real estate in general. The inverted yield curve really had an impact. If you look at our fundraising, for BGO, it was almost $9,000,000,000 in 02/2002. It dropped to $4,200,000,000 in 02/2003 at BGO. Speaker 1100:38:55It was up to almost $8,000,000,000 this year, and we think that's going to continue to trend up. We're seeing more demand for core, real estate, and we see that in demand for our prime Canadian fund. You're seeing demand for specific sectors like industrial and cold storage and data centers. So I think with real estate now starting to come down, with office utilization starting to come back up, we're seeing investor demand for real estate pick back up. Operator00:39:24Great. Thanks for the color. The next question is from Doug Young with Desjardins Capital Markets. Speaker 1200:39:39Just Dan, just a few hopefully quick ones here just on the medical stop loss. Just want to confirm, I think I know the answer, but 100% of those renews annually. And can you size out the negative morbidity experience? Is it fair to say it's about U. S. Speaker 1200:39:54$50,000,000 in the quarter? And assuming things are rolling through, that this should be the worst of it? Speaker 600:40:05Yes. So virtually 100% of the business does renew and reprice every year. So that is correct. And then your guesstimate on the morbidity loss is spot on, very close. And in terms of the worst of us, that's a more challenging question. Speaker 600:40:27Keep in mind again that the quarter represented our view of the full year results for especially for the oneone '20 '4 cohort. So we certainly wouldn't expect that kind of an adjustment to recur in a single quarter affecting the full year's results. Add that additional 2% that I mentioned to all of the pricing. Speaker 1200:40:59Is there a way you can smooth this out? So if there's an outcome in Q4? Is there a better way to smooth it out? I don't know if that's a possibility. Speaker 600:41:09Yeah. You're not the first person to ask that question. You know, in a business where you don't fully see the results really for five quarters, a lot of what we do is based on reserving choices. And we do the best we can each quarter to give the you know, a very good educated estimate of what's happening with each of the cohorts that were managing and observing the emerging experience on so there already is, you know, a fair amount of reserving involved in the business as it moves forward. So you know, to some degree, what you're saying is already in there. Speaker 600:41:49But obviously, when things happen that you didn't fully anticipate, you have to make the right reserve call each quarter. Speaker 1200:41:57Yes. I just think of property and casualty insurance and the reserve upfront, and we always look for positive reserve developments from something like that. But that's kind of where it's going. Speaker 500:42:06And then Dan, on The U. Speaker 1200:42:07S. Dental side, there's a one time payment for ASO for remediation reimbursement. I mean, can you elaborate on Speaker 700:42:17on what that was? Speaker 600:42:18Sure. We took a provision in the fourth quarter for one time payments to reimburse several administrative services only clients for services provided on their behalf during 2024. These were one time payments for services where we're the administrator, so it's not related to claims incurred by us. And therefore there's no impact to dental loss ratios or the insurance experience. There was no negative impact to members or providers rather this was isolated and specific to the self funded clients themselves. Speaker 600:42:53The provision reflects our best estimate of the amount and we're addressing the issue and don't expect it to recur. Speaker 1200:43:02And what does it relate to? Still that clear to me as to why the payment was made? I guess it doesn't impact the loss ratios or anything like that. Is that was there Yeah, I'm just curious as to what it related Speaker 600:43:16to. Yes. Some of our business is administrative services only, where we're acting as the administrator or TPA, where we pay claims on behalf of the sponsor. And we paid some more And we paid some more claims in certain situations than it turns out we should have. So we're correcting that with the clients to make sure that we take care of our clients and put the issue behind us. Speaker 1200:43:42Okay. I appreciate the color. Thank you. Operator00:43:47The next question is from Nick Blue with Evercore. Please go ahead. Speaker 1300:43:53Good morning. Thanks for taking the question. The first one is again on medical where do you see that impact your total top line premium for the year? Thank you. Speaker 600:44:16Okay. So medical trend overall, including for core health insurance and the overall health system is at an elevated level Speaker 800:44:23compared where it's been for the Speaker 600:44:23past several years. We are now pegging that rate is about 8% That's the core rate. However, the way stop loss works because of the high attachment points, there's a leveraging effect. So the effective trend for large claims, it's just the math of it is about typically double the core rate of trend. So that would mean the trend on our business is about 16%. Speaker 600:44:56And that will impact our revenue going forward, obviously, in a positive way. And that includes the additional 2% that I've mentioned a couple of times that we believe we need to add to our pricing in order to get to that 16%. Speaker 1300:45:16Thank you. And my follow-up is, in The U. S, you also called out some unfavorable in disability. So wanted to see if that's related to relative to the favorable recent trends or do you see it back to pre pandemic level? And what do you guys see out there that made you guys decide to take a step back in the employee benefit sales? Speaker 1300:45:39Thank you. Speaker 600:45:41Yes. So the there was a little bit of negative morbidity and disability in the fourth quarter. But if you look at the entire year, the experience was actually very good. So I would view that as more of quarter to quarter volatility than anything else. And disability experience is really not back to work. Speaker 600:46:19We also think there's been some impact from remote work. About half of the workforce is capable is in jobs where remote work is a possibility, and that's enabling people to stay at work in ways that weren't possible before. So we're in a period of time where disability incidence has actually been dropping as well as successful return to work has been increasing. So we're actually in a time of very good and steadily improving disability experience. Speaker 1400:46:52Great. Thank you. Operator00:46:56The next question is from Paul Holden. With CIBC. Please go ahead. Speaker 900:47:01Thanks. Good morning. Sorry, Dan, I'm going to continue with your first question. Just want to understand if there's any common drivers or factors behind those large claims that hit the Q4. And you did mention in your answer some other underwriting changes you're making beyond price. Speaker 900:47:18So wondering if there is some common factors that you can address in terms of how you're underwriting stock loss Speaker 700:47:24beyond price? Speaker 600:47:25Yes. No, that's a great question, and we've been doing a tremendous amount in the way of analytics to understand what the drivers are. And we see three drivers of the increase in severity. One is, unfortunately, more advanced cancer cases. There's a couple of aspects to that one. Speaker 600:47:43We do believe that during Covid as people did not seek routine medical care, including screenings that unfortunately that means we're now seeing several years later the impact of that with people having been diagnosed later in the course of their illness and illnesses as a result are more severe. Also related to that, there are a number of new cancer drugs that are very promising but also very expensive. And we have seen some elevation in the use of those drugs. The second issue is a pretty significant increase in premature births and neonatal care, which obviously can trigger stop loss thresholds. There was, just a report actually published last week that showed that the number of births in The U. Speaker 600:48:35S. Rose four percent last year versus the prior year, so there's actually more births. Also, the age of parents continues to rise. The use of tools like in vitro fertilization continues to rise, and all of those things contribute to more premature births and neonatal intensive care as well. So that's really the second category and the third driving factor is hospitals. Speaker 600:49:04Are increasing prices now. Obviously the core health insurers who are underlying all of this negotiate very hard with hospitals, but we are seeing hospitals being successful recently in raising the cost of inpatient share. Some of that is the post COVID impact. You probably read a lot of hospitals and large hospital systems are suffering financially as the federal government subsidies and supports that existed during COVID have worn off. And so one of the ways that they are addressing that and that they've built back to pre COVID capacity has been to raise prices. Speaker 600:49:46So those are three factors we think are primarily driving the severity, and those factors and those factors are likely, persistent. Speaker 900:49:58Okay. Got it. Thanks for that. All right. Let me give you a break, Dan. Speaker 900:50:04I want to ask Tim a question regarding expenses. So earlier in 2024, announced I think it was $200,000,000 of planned expense savings. Wondering how much of that came through in the quarter, maybe how much has been achieved to date? Where can we see that in the DOE? And how much should additional should be realized in 2025? Speaker 400:50:32Hi, Doug. Thanks for So on our expense efficiency program, we've made great progress on that program overall. And in the fourth quarter, we achieved our target 40% efficiencies for the full year. So it was 82% sorry, $82,000,000 of savings that came through for a full year. So that's just modestly ahead of where we thought we would be. Speaker 400:50:58Part of the challenge as we signal at the beginning of the program, and it's part of factor of IFRS 17 is it's difficult to see where expenses come through because they come through a different category. So on your question of where this is showing up, almost 40% of that is coming through net insurance service results and then the bulk of the rest coming through other expense lines is this non attributable items. And then when you think about from a geography perspective, almost half of that's coming from The U. S. And in particular in the dental business as we've been taking a lot of expense actions there. Speaker 400:51:3020% is coming from Canada and the remaining 30% would be in the corporate segment. These actions like we had signalled, most of the savings are really coming from those geographies, but a little more than half are FTE related. So this is both an FTE reduction that has already been occurred, but also through attrition. And then 20% of savings will then come through automation. And that's really what we look ahead at 2025. Speaker 400:51:55So we expect another the remainder of the savings under the program to hit the full 200. We'll have 80% of that total efficiency by the end of the year, and we're on track with that expectation. But it will be difficult to see that through the various lines. So, we can just report on a regular basis just in terms of where we are in that progress. Speaker 900:52:17Okay. And just last question and follow-up to that one. Will that be a net benefit to earnings? Or is this really more of a story of finding cost savings to reinvest in investments, whether it's technology or growth initiatives or otherwise? Speaker 400:52:37Yeah, it's a bit of both. So we are seeing it come through the bottom line, but we are investing in technology and digital and AI like we covered at our investor day. And I think the best way to think about this is this is embedded in our growth objectives, in our objectives. So we really look at the overall earnings growth rate targets by each one of our business groups and this program is helping to support underpin those growth rates. And we've been pleased with the progress and expenses continues to be a focus, really, because we do need to continue to invest in the businesses, and we want to make sure that we're generating positive operating leverage. Speaker 900:53:11Got it. Okay. That's it for me. Thank you. Operator00:53:17The next question is from Mario Mendonca with TD Securities. Speaker 700:53:24Dan, a question for you, but this has nothing to do with, it does have to do with Medicaid. There's things, themes and theories around what, a U. S. Administration will do to reduce expenses. And there are certain sacred cows out there like Social Security and Medicare. Speaker 700:53:45But Medicaid keeps coming up as one of those areas where this new administration may cut expenses. Can you talk about, Sun Life's overall exposure to Medicaid? What would happen if Medicaid roles really do come under pressure over the next couple of years? Speaker 600:54:03Yes, Mario, I think, so we have about $2,000,000,000 of Medicaid business just in round figures. It is obviously a very big part of our dental business and a business where a market we're very happy to serve and have done very well in over a longer period of time, including the DentaQuest history. I think the best way to think about that is probably to look at the proposal that was loaded in the House of Representatives yesterday. And this is the first draft of the House reconciliation bill, not necessarily going to pass and in fact probably would change significantly from a first draft. But it did propose at least in the aggregate about a 10% cut to Medicaid funding over the next ten years. Speaker 600:54:53Now that, however, would not affect our business in that way because our business is predominantly kids, which is the core of the required Medicaid program under the law. Most cuts if they did occur would likely occur to, to adult coverage, and that's a relatively smaller part of our business. And cuts might very well take the form of work requirements for able-bodied adults. And when you look through the way they would calculate something like that, actually, most people would already meet those requirements. And so that change, for example, would have a fairly de minimis impact on us. Speaker 600:55:35It's impossible to predict exactly what's going to happen. But the impact on our business would likely be some small subset of the 10% cut, that is being proposed. Dental and particularly benefits for kids are really viewed as effectively sacred cows as well. Speaker 700:55:56I see. And dental is not the only that's not what makes up the $2,000,000,000 Presumably there's other Medicaid beyond dental at Sun Life. Speaker 600:56:05No, not in Sun Life. Are the only participation we have in Medicaid is through the dental benefits. Speaker 700:56:14Okay. That's clear. And then if we could go back to Q3, your response to questions around stop loss were a little bit more optimistic commentary on Sun Life's conservative pricing. So I think something clearly surprised you in the last three months. Is it just a matter of the timing on when Sun Life gets information that a lot of new information arose in the last three months? Speaker 700:56:37Was there no way to have seen this sooner? Speaker 600:56:41Yes, I think so in the third quarter, what we were basing our assumptions on were and we were, you know, clear about that was utilization. We were able to see the level of utilization because we do see first of all from claims that come in throughout the year. We get a sense of utilization. In other words, the number of claims and even from that early data we get from some of our TPA partners we can see utilization. So we did see utilization return to pre covid norms back earlier in the year, and it's been generally stabilized. Speaker 600:57:13Since then, What was a little surprising and obviously you've seen it, everybody's had the same impact if you looked at the earnings reports of some of our peers, both in stop loss and more broadly in health insurance. What was the thing that emerged in the fourth quarter is the severity of the claims, so not the number of claims. But the severity of the claims is something a little bit new in the experience. And as I mentioned, we don't see the claims themselves or most of the claims themselves until the fourth quarter of a cohort and even some in the fifth quarter, meaning into the first quarter of the subsequent year. So I think that's what everyone saw in the fourth quarter was the severity. Speaker 700:58:00Yes. But I've just been quick to dismiss other companies' experience by saying things like some life is more conservative, some life better, some life got the expertise, better relationships. I presumably that's still true. It's just that things got particularly bad this quarter. I mean, is it still an appropriate thing to cite, something like the quality of somebody's book is better? Speaker 600:58:21Well, of course, we think so. But, yes, because I think we you know, if you look at our experience and the way we handled it, it is different than what some of the peers are reporting. So I think for us You know, the severity of illnesses is not something we can necessarily control. Obviously, that's something that is occurring market wide. What we can control is pricing and underwriting. Speaker 600:58:47And our pricing was certainly much closer to the pin than that of our competitors. I think some of our competitors have been assuming low utilization from COVID would continue and other things. So you've heard competitors talking about having to put through just epic rate increases to get back to where they need to be versus the kind of numbers we're talking about. So I think it's both. It's health care severity, which is an exogenous factor, but then it's pricing and underwriting where I do agree with you. Speaker 600:59:18I think we shine compared to the competition. Speaker 700:59:21Okay. That's helpful. And then finally, Tim, you made a point about trying to address the volatility, from the tax exempt income that $234,000,000 effect this quarter. It's been my experience that to address volatility, there is a price that there's a price to this is the price that we might see a marginally higher tax rate effective tax rate at Sun Life. What is the consequence of reducing the volatility? Speaker 400:59:53Thanks, Mario. I mean, first off, this program that we've been operating for decades. You know, it's part of the tax code and tax regime and what I would say at the end of each year, we determine what assets are designated to support our Canadian business for tax purposes, and then remaining assets and swaps are considered tax exempt. So to correct this, it's really around how we look at our asset designation strategy, and it was a large movement from the swaps and the assets that really generated that loss. So you'd expect that we would be able to have a tighter match between the tax and pretax income on these assets. Speaker 401:00:28And that will smooth out the volatility. So you wouldn't see this distortion. But it would have the effect of a modest reduction in the overall tax benefit that we've been experiencing over the prior years because we didn't have those losses coming through. Speaker 701:00:43So modestly higher effective tax rate, but nothing that you would really, cause us to worry about? Speaker 201:00:49Correct. That's right, Mario. Modestly higher, but it wouldn't take away from our medium term objectives for earnings growth. Yes, we're still committed to that. Speaker 701:00:58For sure. I understand. I just wanted I just figured it would be at least some effect. Thank you. Appreciate it. Operator01:01:07The next question is from Lamar Persaud with Cormark Securities. Please go ahead. Speaker 1401:01:13Yes, thanks. My first question is for Dan on stop loss here. I hear what you're saying on severity coming in higher than anticipated in Q4 and certainly you guys weren't alone Speaker 501:01:24on that front. However, what I am Speaker 1201:01:26a little bit confused on, Speaker 1401:01:27I'm hoping you can help me think through is the comment that you started increasing pricing in mid twenty twenty four. So presumably you knew that, I guess, claims are moving higher. So then why the surprise on the claims front in Q4? I'm just trying to square that up because it sounds like you moved pricing up because you knew there was going to be an issue here. But then we still have the big surprise in Q4. Speaker 1401:01:49So why would that have been reserved for earlier? I'm just trying to understand Speaker 1201:01:54why the surprise here. Hopefully that makes sense. Speaker 601:01:58Yes, it does. Early in the year, remember, we saw utilization recover fully back to pre COVID norms. So our pricing increases in the middle of the year were related to fully reflecting that utilization level, but not necessarily the increased severity that we saw emerge in the fourth quarter. So that's why there's really two separate issues. We took care of the first one first, and now we have a little bit to do or a little bit more to do to fully take care of Speaker 501:02:30severity. Okay. Speaker 1401:02:32I understand. Then just moving over to a different type of question here, maybe for Manjit. Can you just give some additional details on this impairment charge on bank assurance in Vietnam. I guess the performance in the country has been challenged for some time, I think even dating back to 2023. So I'm just wondering about the timing of the impairment in 2024. Speaker 1401:02:53And then could you kind of flush out some detail on what the regulatory changes were? Like was this related to changes related to bundling? And does it feel like there could be more regulatory changes that could impact your business there? Speaker 301:03:07All right. Good morning, Lamar. So let's give a bit of background and then get to your questions as well. So as you know, bank assurance is an important distribution channel for us and other market players in Asia. And in Vietnam, we entered into two bank assurance partnerships, the first one with TP Bank in 2020 and then with ACB Bank in 2021. Speaker 301:03:26They're both fifteen year partnerships. And as we and other market participants have noted previously, the insurance industry in Vietnam has been experiencing some significant weakness related to some inappropriate selling practices from some of the insurance companies in the market. Overall, BANK ASSURANCE sales in the market have declined by over 60% over the past two years. Now while Sun Life has performed better than that, our sales have also declined as well. So what we see right now is we think that has bottomed and we're starting to see some signs of re emerging growth. Speaker 301:03:58But as we looked at it this quarter and we factored all that stuff in and we have to then take a look at what the value of the intangible is, we reflected the trends I spoke about earlier and that's what led to the write down. In terms of your second question, regulation, I mean, I think there is ongoing discussion with regulators. They are looking at some of the commission structures that banks enjoy as part of these arrangements. So we'll see what comes out of that. Speaker 1401:04:22Okay. Just the last point here on the timing. Like why wasn't there like an impairment even back in 2023? Because I think the business was challenged at that time as well and you guys probably run the impairment test annually or am I wrong on that? Speaker 301:04:37Yeah, we do run it there annually, but there is no bright line test, Lamar. As I mentioned earlier, these are fifteen year agreements. We're making long term assumptions. And we had to kind of let the facts emerge. And I think that's kind of what's been happening in the last few quarters. Speaker 1401:04:51Okay. Thank you. Operator01:04:56The next question is from Alex Scott with Barclays. Please go ahead. Speaker 1501:05:02Hi, good morning. I had one on stop loss, so bear with me here. I had a follow-up to Tom's Speaker 201:05:11the Speaker 1501:05:11oneonetwenty four book, could you disclose to us what percentage of your incurred loss at this point is paid? I'm just trying to understand if that's like pretty darn fully developed at this point or if there's still information that we need to be concerned about coming in over the next quarter or so. Speaker 601:05:31Yes, that's a great question. At the end of the fourth quarter, we got about 70% of the experience on that cohort. And then by the end of the first quarter, I think it gets to around 90%. So it's pretty much done or just about done by the end of the first quarter. But yes, there is some more in the first quarter that comes in. Speaker 1501:05:54Got it. Okay. And then for my follow-up question, I just wanted to Speaker 201:06:00see if you could give us Speaker 1501:06:01a little more color around flow expectations, the outlook for net flows, both in MFS and SLC. Speaker 201:06:12Ted, do you want to take MFS first and then Steve can take SLC here in the room? Speaker 1601:06:17Sure. Good morning, everyone. I think the overarching comment I'd make about flow expectations is that on a given quarter or even year, predictability is going to be difficult. Certainly on a trailing basis and particularly in the quarter, it was it was not a good quarter for flows. On the retail side, a little bit simpler and more historically consistent explanation in that, we're holding or gaining share in a market that is in outflows. Speaker 1601:06:45We're confident both in the long term of the market and in our ability to maintain and grow our share and return to positive flows when market dynamics normalize. On the institutional side, which was the delta in the quarter, a number of a lot of these and they came together in the quarter. So as we look forward, we're not going to make predictions on flows, but particularly those institutional dynamics, we would expect to get better over time and overall, we would expect to return to positive flows over the medium to long term as we Speaker 1501:07:34strategies. Speaker 1101:07:37Yes. Hi, it's Steve Peacher. As it relates to SLC, one point I would make is that, and you saw it this quarter, our quarterly flows will be a function and will move around based on when we have fund closings. And so this past quarter, we had a number of fund closings, which really helped us. Sometimes you don't have those all that come together in one quarter. Speaker 1101:07:59But in general, we think in a lot of these asset classes, the trends are in our favor. Certainly, you're seeing increased demand for private credit. We have a number of funds in the market, so that we think will help us over the course of this year. As I mentioned earlier, you're starting to we're starting to see increased demand from real estate after kind of hitting a trough in 2023. We see steady demand for fixed income, and I think we'll see a pickup for infrastructure. Speaker 1101:08:24So I don't have an exact number to give you, but we would expect fundraising to be higher in Speaker 701:08:27the coming year it was in Speaker 201:08:322024. Operator01:08:35Thank you. The next question is from Darko Mihalik with RBC Capital Markets. Please go ahead. Speaker 1201:08:44Hi, thank you. Good morning. I can be quick. Dan, I just didn't understand your answer to Manny's question on Dental earnings. You guys had committed to U. Speaker 1201:08:53S. One Hundred Million Dollars for 2025. Is that still on the table? Is that still what you're committed to earning? Speaker 601:08:59Yes, it is. And we're pleased with the progress we made in the fourth quarter there. Speaker 1201:09:05Okay. Thank you. And second question real quick, Dan, also on the stop loss. You said that you've achieved 14% on average price increase plus another 2%. Is all this happening without any planned loss? Speaker 1201:09:18And what is your expectation on that front? Speaker 601:09:21I'm sorry, without any what loss? Speaker 1201:09:23Any loss of customers or any like Speaker 601:09:28Yes. So we as of oneone, the book of business is about 5% larger than it was oneone of last year. So we've actually grown the book modestly, of course. Each year there's substantial turnover in the business. Remember, it's a one year cycle. Speaker 601:09:46Typically, all the business goes out to bid annually. So we have to sell enough to make up for the cases that move and get some growth on top of that. But we're actually pleased in the current environment with a 5% level of growth. You've obviously seen some of our competitors report something quite, quite different than that. And that's at the same time that we believe we're taking a responsible approach to pricing. Speaker 601:10:15We're somewhat surprised in the fall to see still aggressive pricing in the market in light of all of these different factors. But we do see that changing now. We think market behavior in 2025 is going to be quite different and actually maybe a good opportunity for us. Speaker 1201:10:35And that 5%, how would that compare to like a typical year for you in that business? It Speaker 601:10:42is smaller. In recent years, we've generally been around the double digit increase, and that's reflective of our more conservative pricing approach than some of our competitors. Speaker 201:10:54Great. Thank you. Operator01:10:59We have a follow-up from Tom MacKinnon with BMO Capital Speaker 501:11:04Markets. Yes. A question about the capital generation. $3.50 when you add the dividend, that's been around 85% of the underlying earnings. That's an organic number. Speaker 501:11:17Do we know what the actual was? It looks like just when you factor in the infrared purchase that happened in the quarter or some of the outflow for infrared buy in in the quarter, and then some of the movements as a result of mark to market stuff. Even on your LICAT, it looks like there would have been at least $300,000,000 to $400,000,000 there and then taken in 90% of MFS's earnings or so. I mean, I can get a number actually higher than on an actual basis, not an organic basis that might be higher than the $3.50. Speaker 401:11:55Any comments? Yes, it's Tim. Tim. I think your math is probably correct. Our organic generation after the dividends was three fifty in the quarter, and that's really within the range of our target. Speaker 401:12:11We communicated we expect to be around 30% to 40%. So that's really right in there. On underlying income perspective, that was down. If we look at quarter over quarter, that was down modestly from the prior quarter. And our dividends are up because of our increase in dividends. Speaker 401:12:29Our payout ratio was roughly around 50% at the top end of our range. So on the organic components of that, we look at our new business, CSM, that was strong, but some of Speaker 1401:12:40our sales were a little Speaker 401:12:41bit more capital intensive than power periods. That's in part why that's come down. And just ongoing investments in our business. You referenced a couple So overall, the organic capital generation before dividends was around $8.40 and then after our dividends came in at the $3.50 and within lines of our expectations. And when we communicated this as a metric, we did say that there would be volatility quarter to quarter. Speaker 401:13:08It's going to be a function of the earnings, the dividends and then how much the CSM growth. Speaker 201:13:12Those are really the largest contributors to that. Speaker 501:13:15My question was really on that's an organic number, and it takes out any kind of noise related to market impacts. But even if I look at, the so I'm trying to get what's the capital generated, not organically, actually, I guess I'll use that term. But if you take in generally at least 90% of the MFS earnings and take in somewhere in around the movement in the LICAT ratio that you have at SLF, or maybe just strictly the movement in the LICAT ratio at SLF, you can probably get a number in around 400 ish or something like that. Do you actually look at the capital generated actually versus organically? And was it significantly different in the quarter? Speaker 1001:14:13Yes. Hi, Tom. It's Kevin Morrissey. I'll take that one. You're math's right on that. Speaker 1001:14:19We do look at actual capital generation was positive, and it is in the range of $300,000,000 to $400,000,000 The sure buyback management actions in the quarter was about minus 1.5. And as you know, the LICAT ratio stayed flat over the quarter. So the actual was positive. Speaker 501:14:36Okay. So it's interesting, despite the fact that the reported number was a lot lower than what people were anticipating, the actual capital that you would have generated, not organically, but actually, was really not impaired to any extent. Is that a proper take place? Speaker 1001:14:53Yes, that is right, Tom. A couple of the large one time items that we had this quarter, were not impact did not impact the capital position at all. Both the tax issues that we talked about as well as the intangible write down in Vietnam, both of those totaled about $400,000,000 dollars Neither of those are included in the LICAT ratio, so they had no impact on the capital this quarter. Speaker 501:15:17Okay. Thanks for that. Speaker 201:15:18Yes, Tom, it's Kevin. And I might just add to that, that you're absolutely right. The capital and the cash generated remains a strong story. We aren't surprised by the questions or even the tone of the questions, but the underlying fundamentals remain strong, right? If you look at Canada, Asia and SoC, we've had good and bottom line momentum and strong strategies to continue to deliver results. Speaker 201:15:39And you see cash flow coming there and earnings and capital generation. If you look at MFS as an at scale endgame player, their earnings and margins were strong. And we think they're doing the right things for the future and they cash flow really nicely at MFS. And The U. S. Speaker 201:15:55Had a tough quarter, but it's a capitalized high growth business and it does have a bit more volatility. We have scale there. We have the experience, the volatility in claims experience, mostly in Stella Plus and Dental is consistent with what the industry is seeing. So we continue to have confidence in our strategies in The U. S. Speaker 201:16:15And our ability to deliver. So you did see a tough quarter and we're not trying to walk that back and I think we answered the questions. But I think you end on a really good point that this capital generation and overall our strategy remains strong and the cash generation remains strong. Speaker 501:16:30And your opening comments about given strong capital, you continue to execute on share buybacks within your NCIB. Can you give a little bit more color there? Speaker 201:16:41Yes, we have room on the current NCIB, and I think you'll see us be a strong buyer back of our shares, given the change we saw today. Operator01:16:52We have no further questions at this time. And I'll turn things back over to Mr. Poon for closing remarks. Speaker 101:17:02Thank you, operator. This concludes today's call. A replay of the call will be available on the Investor Relations section on our website. Thank you and have a good day. Operator01:17:12This brings to an end today's conference call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSun Life Financial Q4 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress ReleaseAnnual report(40-F)Annual report Sun Life Financial Earnings HeadlinesSun Life Financial (SLF) Gets a Buy from RBC CapitalApril 16 at 3:45 AM | markets.businessinsider.comSun Life receives Crystal Award from USA Today for five consecutive years as a Top Place to WorkApril 15 at 4:15 PM | prnewswire.comThe Last Time Stocks Looked Like This, They Didn’t Move For 16 YearsThere is nothing the Federal Reserve can do to stop what's coming next for U.S. stocks. As you've seen yourself with all this recent volatility... The wheels are falling off the United States stock market.April 18, 2025 | Stansberry Research (Ad)Sun Life workers thrive in purpose-driven cultureApril 14, 2025 | usatoday.comSun Life workers thrive in purpose-driven cultureApril 14, 2025 | usatoday.comBarclays Keeps Their Hold Rating on Sun Life Financial (SLF)April 12, 2025 | theglobeandmail.comSee More Sun Life Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Sun Life Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Sun Life Financial and other key companies, straight to your email. Email Address About Sun Life FinancialSun Life Financial (NYSE:SLF), a financial services company, provides savings, retirement, and pension products worldwide. The company operates in five segments: Asset Management, Canada, U.S., Asia, and Corporate. It offers various insurance products, such as term and permanent life; personal health, which includes prescription drugs, dental, and vision care; critical illness; long-term care; and disability, as well as reinsurance. The company also provides advice for financial planning and retirement planning services; investments products, such as mutual funds, segregated funds, and annuities; and asset and investment management products consisting of pooled funds, institutional portfolios, and pension funds. In addition, it offers real estate services; manages equity capital in various private and listed funds, as well as mezzanine debt, middle market direct lending, high-yield bonds, and syndicated loans; and operates as an investment grade fixed income investor, real estate investment management advisor, infrastructure investment manager, and alternative credit investment manager. The company was formerly known as Sun Life Financial Services of Canada Inc. and changed its name to Sun Life Financial Inc. in July 2003. Sun Life Financial Inc. was founded in 1871 and is headquartered in Toronto, Canada.View Sun Life Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles 3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? Why Analysts Boosted United Airlines Stock Ahead of EarningsLamb Weston Stock Rises, Earnings Provide Calm Amidst ChaosIntuitive Machines Gains After Earnings Beat, NASA Missions AheadCintas Delivers Earnings Beat, Signals More Growth Ahead Upcoming Earnings Tesla (4/22/2025)Intuitive Surgical (4/22/2025)Verizon Communications (4/22/2025)Canadian National Railway (4/22/2025)Novartis (4/22/2025)RTX (4/22/2025)3M (4/22/2025)Capital One Financial (4/22/2025)General Electric (4/22/2025)Danaher (4/22/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 17 speakers on the call. Operator00:00:01Good morning and welcome to the Sun Life Financial Q4 twenty twenty four Conference Call. My name is Gaylene and I will be your The host of the call is Paul Poon, Assistant Vice President, Investor Relations. Please go ahead, Mr. Poon. Speaker 100:00:35Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the fourth quarter of twenty twenty four. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer will present the financial results for the quarter. Speaker 100:00:59After the prepared remarks, we will move to the question and answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide two, I draw your attention to the cautionary language regarding the use of forward looking statements and non IFRS financial measures, which form part of today's remarks. As noted in the slides, forward looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin. Speaker 200:01:24Thanks, Paul, and good morning, everyone. Turning to Slide four, Sunlight's Q4 results highlight our continuing commitment to helping our clients achieve lifetime financial security and live healthier lives. Fourth quarter underlying earnings saw good results in Canada, Asia and asset management, offset by lower U. S. Results on weaker stop loss morbidity experience. Speaker 200:01:43The stop loss claims experience in The U. S. Was driven by higher claims severity, which we have observed across the industry. Reported earnings were down year over year from market driven factors as well as the negative impacts from several one time items that we don't expect to reoccur. Tim will go through these one time items in more detail. Speaker 200:02:01Wealth sales and asset management gross flows were up 33% on strong distribution execution at MFS and SLC. Strong net flows at SLC were more than offset by the negative net flows at MFS, which were consistent with the continued outflows across the industry. Individual protection sales were up, driven by strong sales in Asia. Group protection sales were down, reflecting the lower number of large cases coming to market in the quarter and our pricing discipline. Group sales are lumpy and we continue to have strong momentum in our Canadian and U. Speaker 200:02:34S. Group businesses. We ended the quarter with a strong capital position with a LICAT ratio of 152% at SLF. Given our strong capital position, we will continue to execute on our buybacks under our normal course issuer bid. Moving to Slide five, let's look at the Q4 highlights and our progress against asset management, the fundamentals of our businesses remain strong. Speaker 200:02:57SLC management achieved record capital raising of $10,000,000,000 this quarter, bringing our full year total to $24,000,000,000 and net impulse this quarter were over $14,000,000,000 MFS long term retail funds performance remained strong with 95% of fund assets ranked in the top half of the respective Morningstar categories based on ten year performance. MFS continues to see solid fixed income net inflows with $1,500,000,000 this quarter driven by their distribution strategies and strong fund performance. In December, MFS launched five active ETFs, expanding our diverse range of investment products and saw continued sales momentum with their separate managed accounts. In Asia, we're accelerating our growth momentum. We're realizing value from our high quality, well balanced mix of distribution channels across Asia. Speaker 200:03:47Our agency channel grew with year over year increases in sales and the number of agents, while we continue to strengthen our bank assurance relationships with leading banks across Asia. Individual sales were up, driven by healthy high net worth sales, growth in India Bank Assurance and direct to consumer channels and robust growth in Hong Kong agency and bank assurance. In our India joint venture, our full year underlying earnings for insurance and wealth surpassed the $100,000,000 milestone this year, maintaining our strong growth trajectory there. In Indonesia, we recently launched our expanded partnership with CMB Niagara with integrated digital capabilities and co branding. In Canada and The U. Speaker 200:04:27S, we are showing strength in our core health businesses. In Canada, group benefits revenue was up 11% compared to the same period in the prior year. In The U. S, we see continued momentum in group benefits revenue, up 6% compared to the same period in the prior year. Additionally, our U. Speaker 200:04:43S. Dental business is building momentum with stabilization in membership and improving results driven by repricing and claims expense management actions. On the digital front, we're driving impact at scale. Our leading virtual care provider in Canada, Dialog, now offers virtual care services to more than 3,500,000 clients and their families, including primary care and mental health support. This represents over 8,000,000 Canadians, approximately 20% of the Canadian population. Speaker 200:05:12Our services are delivered through partnerships with nearly 50,000 employers, insurance companies and various organizations nationwide. In The Philippines, we launched Advisor Buddy to help Speaker 300:05:31to Speaker 200:05:39impact, efficiency, innovation and growth through digital leadership. Our exceptional people and culture are reflected in our employee engagement index average score of 88%, which has been above the financial services industry norm for more than five consecutive years. In 2024, Sun Life was certified as a great place to work in all participating markets. This recognition reflects Sun Life's commitment to fostering high performing, future ready and welcoming environment where our people thrive and are empowered to deliver on purpose. Turning to Slide six, we ended 2024 with solid full year results. Speaker 200:06:15Underlying net income increased 3% to $3,900,000,000 Our total assets under management reached a new milestone at $1,540,000,000,000 In Canada, we achieved record underlying net income of $1,500,000,000 up 6% over the prior year supported by solid results across all businesses. Wealth AUM is up 13% with defined benefit solutions, our pension risk transfer business, achieving record annual sales of $2,500,000,000 In The U. S, we grew client revenues to $8,200,000,000 driven by successful execution of our health strategy. We also saw record underlying earnings and employee benefits. In Asia, we saw strong growth momentum and achieved underlying net income of more than $700,000,000 up 17% year over year. Speaker 200:07:00These are record results driven by strong protection sales. Total Asia CSM grew by 30%, reinforcing our growth trajectory. Our results demonstrate the strength and resilience of our business. We will continue to build upon the strength and remain purpose driven as we move into the year ahead. With that, I'll turn the call over to Tim, who will walk us through the fourth quarter financial results in more detail. Speaker 400:07:24Thank you, Kevin. Good morning, everyone. Turning to Slide eight. We ended 2024 with the prior year. Underlying net income of $965,000,000 was modestly down 2% year over year, while underlying earnings per share of $1.68 was flat compared to the prior year. Speaker 400:07:43Full year underlying net income of $3,900,000,000 and underlying earnings per share of $6.66 were up 35% year over year respectively. Q4 twenty twenty four and full year underlying return on equity was sixteen point five percent and seventeen point two percent Underlying ROE was impacted by lower underlying net income and growth in book value driven primarily by currency impacts. The decline in quarterly underlying results over the prior year were primarily driven by adverse morbidity experience in our U. S. Health and risk solutions business due to an increase in claims severity, which has been observed across the industry. Speaker 400:08:23Overall, our results continue to benefit from Sun Life's resilient businesses and diversified model. Wealth and asset management underlying earnings were up 11% over the prior year on higher fee income, primarily from increased asset levels, partially offset by credit experience in Canada. Group health and protection underlying earnings were down 27% year over year, driven primarily by unfavorable morbidity experience in U. S. Medical stop loss and less favorable morbidity experience in Canada. Speaker 400:08:52These impacts were partially offset by solid business growth in Canada. Individual Protection underlying net income was up 19% over the prior year resulting from improved protection experience and higher Asia joint venture contribution. Reported net income for the quarter was $237,000,000 which was $728,000,000 below underlying net income. The variance between underlying and reported net income included market related impacts and several one time items which we do not expect to recur. First, our reported net income was impacted by lower tax exempt income on foreign currency assets from the material strengthening of the U. Speaker 400:09:30S. Dollar compared to the Canadian dollar in the fourth quarter. We are taking actions to mitigate this tax volatility going forward. And second, in Vietnam, we recognized an impairment charge on the intangible asset related to our bank assurance agreements. This charge reflects updates to our outlook reflecting industry and macroeconomic factors in that market. Speaker 400:09:51Market related impacts reflected unfavorable net interest rate, equity market impacts and the adverse experience. Real estate returns were flat in the quarter, but below our long term return assumptions. Organic capital generation remained solid at $350,000,000 this quarter or 36% of underlying net income and new business CSM. Our balance sheet and capital position remains strong with an SLF LICAT ratio of 152% flat from the prior quarter as organic capital generation was offset by the impact of markets and share buybacks. HoldCo cash remains robust at 1,400,000,000 and our leverage ratio improved sequentially and remains low at 20.1%. Speaker 400:10:34Total CSM of $13,400,000,000 which is store of future profits increased by 13% year over year driven by strong organic CSM growth and currency impacts. New business CSM of $3.00 $6,000,000 was down 20% year over year driven by changes in sales mix this quarter. Finally, book value per share increased by 11% over the prior year and 2% quarter over quarter demonstrating our ability to generate strong growth while returning value to our shareholders with 3,000,000 shares repurchased this quarter under our share buyback program. Turning to our business group performance on Slide 10. MFS's underlying net income of US216 million dollars was up 13% year over year from higher average net assets partly offset by expense growth. Speaker 400:11:19Reported net income of US216 million dollars was up 18% year over year. Pretech's net operating margin of 40.5% improved by 1.1 percentage points over the prior year driven by higher average net assets. Assets under management of US306 billion dollars was up 1% over the prior year but down 6% over the prior quarter. The sequential decline in AUM was driven by net outflows and market depreciation. This quarter, outflows of US20 billion dollars included several large institutional mandate redemptions and retail outflows. Speaker 400:11:53Institutional outflows included portfolio rebalancing and fund consolidation. Retail outflows, while negative, improved over the prior year and reflected the continued preference of investors for high growth tech stocks and shorter term interest bearing products. Overall, long term investment performance for MFS remains strong with 95% of fund assets ranked in the top half of their respective Morningstar categories for ten year performance. Fixed income performance was also strong with 98% of fund assets ranked in the top half of Morningstar on a ten year basis. Turning to Slide 11. Speaker 400:12:28SLC management generated underlying net income of $59,000,000 down 16% year over year as higher net seed investment income was more than offset by lower fee related earnings. Fee related earnings of $79,000,000 were down 14% year over year as higher incentive compensation driven by strong fundraising at BAGO was more than offset by higher fee earning AUM. Reported net income of $25,000,000 was down 47% over the prior year, reflecting market related impacts and lower underlying net income. SLC management achieved record capital raising this quarter with $10,200,000,000 raised, up $3,100,000,000 from the prior quarter across all affiliates. Strong capital raising helped drive record net flows of $14,100,000,000 Deployments of $6,300,000,000 was down from the prior year but remained solid as we observed sequential quarterly growth in deployments across all affiliates. Speaker 400:13:21SLC's fee earning AUM of $193,000,000,000 was up $16,000,000,000 year over year reflecting market growth and net deployments. Turning to Slide 12, Canada delivered solid results with underlying net income of $366,000,000 up 5% year over year on higher fee income and strong insurance business growth, partially offset by lower net investment results. Reported income of $253,000,000 included net unfavorable market related impacts. Wealth and asset management underlying earnings were up 10% year over year as business growth and higher fee related earnings were partially offset by negative credit experience. Canada reported record wealth AUM of $189,000,000,000 which was up 13% year over year on market appreciation and positive net flows. Speaker 400:14:06Group Health and Protection underlying earnings were down 4% year over year as business growth was more than offset by less favorable morbidity experience compared to the prior year. Group sales were down 49% year over year due to higher large case sales in the prior year. Individual protection earnings were up 13% year over year reflecting favorable mortality experience. Individual protection sales were down 17% year over year due to lower participating policy sales through the third party broker channel. Turning to Slide 13. Speaker 400:14:38Sun Life U. S. Underlying net income was US115 million dollars down 39% from the prior year. In Group Health and Protection, underlying earnings were lower by 46% year over year driven by unfavorable morbidity experience in medical stop loss from higher claims severity which we're observing across industry. This impact more than offset strong underlying business results in group and improved dental results. Speaker 400:15:02In dental, the business benefited from management actions to secure repricing on Medicaid business, generate sales and deliver efficiencies. We will continue to drive profitability improvements through these levers. U. S. Group Health and Protection sales of USD $830,000,000 were down 11% year over year, driven by lower government dental contracts as fewer opportunities came to market this quarter. Speaker 400:15:25Individual protection underlying earnings were in line with the prior year. Reported net loss of US1 million dollars includes negative market related impacts and a non recurring provision in dental. Turning to Slide 14, Asia's underlying net income was strong at $175,000,000 and was up 20% year over year on a constant currency basis. Results benefited from improved insurance experience, higher contributions from joint ventures and higher fee income. Reported net income of $11,000,000 includes the impairment charge related to an intangible asset for bank insurance agreements in Vietnam and market related impacts. Speaker 400:16:01We continue to see strong sales momentum in individual protection in international India and Hong Kong. And finally, Asia's total CSM grew to $6,000,000,000 up 30% year over year driven by strong organic CSM growth and currency impacts. And with that, I will pass it back to Kevin to conclude in the prepared remarks for this call. Speaker 200:16:21Thanks, Tim. In closing, our commitment to our purpose, our clients, our people and our values remain constant and unwavering. We're focused on helping our clients achieve lifetime financial security and live healthier lives. We're confident that Sun Life's balanced and diversified business strategy as well as our financial strength will position us to deliver on our medium term objectives, which we introduced at our last Investor Day. I want to thank all our employees and advisors around the world for their to Sun Life's purpose and for making a positive impact for our clients around the world. Speaker 200:16:54I will now Operator00:16:56turn the call over to the operator for Q and A. Thank Our first question is from Tom MacKinnon with BMO Capital Markets. Please go ahead. Speaker 500:17:20Yeah, thanks and good morning. Question really just questions with respect to the stop loss here. Dan, maybe you can share with us the loss ratio in the fourth quarter, how that's trending. What's the outlook? Maybe some commentary about price increases you got through in the fourth quarter, price increases you're getting, you expect to get going forward? Speaker 500:17:47And maybe elaborate a little bit about what how complete these claims are, maybe the paid loss ratio versus the actual loss ratio? Thanks. Speaker 600:18:02Okay. Good morning, Tom. It's Dan. So let me take each of those and also give a little bit of context. Obviously, we had a variance in the stop loss loss ratio in the fourth quarter. Speaker 600:18:19There are two aspects to the experience that's emerged for 2024 in stop loss. As we talked about throughout the year, utilization returned to pre COVID norms earlier in the year. And utilization remained at roughly that level throughout the year. What we saw in the fourth quarter was a change in the severity of stop loss claims. So just a comment or reminder about how stop loss claims emerge. Speaker 600:18:46Most of the business is effective and renews each January 1. Stop loss has a fairly high attachment point. These are very severe medical claims. Attachment points or think of it as a deductible are often $150,000 2 hundred and 50 thousand dollars or even $300,000 So by the time a claim accumulates to that level, it does take some time versus when the case was effective. So it's really during the fourth quarter of the year and even the first quarter of the following year when we actually received most of those claims. Speaker 600:19:25We get some insight into those claims throughout the year, but we actually see the details when the claims come in. And what we and others who have reported in the industry saw in the fourth quarter was those claims were meaningfully more severe than had been the case in the past. The Impact in the fourth quarter really affects the entire year as opposed to, you know, just events attributable to that quarter. So obviously we restate the way we think the year is emerging based on the claims loss ratio in the fourth quarter, but probably the most important loss ratio number to think about in which I'll share is what that resulted in a full year loss ratio. The full year loss ratio for stop loss in 2024 was 74%. Speaker 600:20:20You may recall we priced to about 73%, so it was a little bit higher than our pricing target. Now because of the utilization emergence and other factors, we had been raising our prices. We started to move those price increases up actually in the middle of twenty twenty four. You will see and will experience significant price increase from the 11/25 actions. Most of the business renews on '20 on 11/2025 and also there were significant new sales. Speaker 600:20:55We achieved about a 14% pricing increase on 11/25. And we also took underwriting actions in terms of the business we renewed versus didn't renew, which we think actually gave us about a 2% favorable result to where we were on those kinds of actions around the same time last year. So with that, Tom, have I answered all your questions or do you have a follow-up? Speaker 500:21:27Well, I think the way things are disclosed, you have the expected amount in the P. A. And then the policyholder experience, picks up something that's different than they expected. If you're expected was a 73 and the actual was a 74, I guess we have to look at it for the entire year as opposed to just the quarter. But, I guess how should we be looking at this going forward? Speaker 500:21:58In 2023, it looked like your loss ratio was between 6570%. And so I assume then if you price then to 73%, you would have been able to pick up positive policyholder experience in loss in 2023. If you're pricing to 73% for 2024, then how should we be thinking about any adverse policyholder experience for 2024 for this line? Speaker 600:22:31Yes. So let's go back a little bit to COVID. During 2020, '20 '20 '1, '20 '20 '2, '20 '20 '3, we experienced extremely favorable utilization. And there are obvious reasons for that. It persisted quite a bit longer than COVID itself because hospitals were understaffed and capacity in the system was lower. Speaker 600:22:55So you're correct on the loss ratio in 2023 was around 67% for that year. So contrast that with 74% in 2024. And we've been in 2024. And we've been saying really since 2023 that the utilization would return ultimately to pre COVID or normalized levels. And indeed it did. Speaker 600:23:20So we'd certainly been expecting for a while some rebound in the loss ratio. So we've been taking pricing action consistent with that throughout, while understanding that we would not be able to maintain those extra favorable results that were coming from the unusually low utilization. So you're right also in thinking about 2024, you have to think about it in the context of the year versus the stand alone quarter because that really that experience applies to the year. And then moving forward, we've taken additional pricing actions moving into next year. Now obviously, some of this increase in severity was not fully expected. Speaker 600:24:07So there's likely to still be be some pressure as we move into 2025. But there also were pricing actions and we will take additional pricing actions. We believe the additional pricing actions we need to take are modest in the range of about another 2%. You may have seen some of our competitors talking about pricing actions they need to take, which are many, many times that. Speaker 500:24:33Sorry, what were the additional pricing actions that you are taking? Speaker 600:24:37So well, first of all, effective 11, we did achieve 14% average rate increase. We also, took additional underwriting actions, which as I mentioned before, were worth probably about 2%. And then we do think we need to raise our prices about another 2%, which we are in the process of doing. Speaker 500:25:00Okay. So what's the outlook then for this line for 2025? If we ran 2024 at 74. Speaker 600:25:11Yes, I'm not sure we're prepared to give a specific loss ratio pick for 2025. We would say we would expect some pressure from severity to persist. We don't think this is a short term impact. This may be the new level of severity But we think the order of magnitude of action that we need to take in order to address it is around that 2% incremental price increase. Speaker 700:25:42And Speaker 500:25:45Is the way these things are booked, is the fourth quarter when you really do all your catch up here? So is this we should be looking at stop loss for the full year as opposed to just the fourth quarter results? Speaker 600:25:58Well, I mean, I wouldn't quite call it catch up, but kind of back to the point I made earlier, we really don't receive most of the claims until the fourth quarter and then some into the first quarter of the following year. So while we certainly get some indications as to what's happening, we also have arrangements with many of our third party administrator partners to give us claims information about claims that are on their way. Towards hitting a stop loss deductible. We don't see the actual claims until they come in, which is mostly, as I said, in the fourth quarter. So while it's not catch up, the results clearly do the entire year. Speaker 600:26:38Just to put it into perspective, two thirds of our business is effective on January 1 of each year, and it takes five quarters for us to get to about 90% actual claims experience on that cohort. So right now what we're really seeing is the results of last January's effective dated business. Speaker 500:27:00Okay. Thanks for that. Operator00:27:05The next question is from Gabriel De Chien with National Bank Financial. Speaker 800:27:12Just a follow-up on that line of questioning. So two thirds of the book has been re repriced as of oneone. So that pricing has an impact on this year of 2025. So there should be margin improvement or restoration on that basis alone, correct? Speaker 600:27:33Yes. It's a little more complicated than that. So I would add two points to that. Some of the experience that we report on in 2024 was actually experience from 2023. So recall that I said 2023 had a 67% loss ratio, a very favorable year. Speaker 600:27:52Now we no longer have the benefit of the 2023 business. The other adjustment I would make to that is we started adjusting pricing in the middle of twenty twenty four. So we have taken pricing action on more than two thirds of the business. But also as you said, we probably do need to take a little more pricing action. Speaker 800:28:14Okay. So ignoring that 2% of additional pricing required, just what you've done so far, when should we expect that to be fully reflected in your book? Speaker 600:28:27Well, being that we do need a little bit more price, it would take through next January for us to be fully through that. But there should be meaningful impact even from the pricing actions we took effective oneone twenty five. Speaker 800:28:44Okay. And then you said the claims filter in well, not filtered, a deluge rather. It comes in Q4 and a bit in Q1, like what we're in currently. So we could see another blip in Q1 based on twenty twenty four claims. Speaker 600:29:02Yes. I mean, I would just Speaker 800:29:04I guess these are sorry, go ahead. Speaker 900:29:08No, I was just going Speaker 600:29:09to say that most of the claims come in, in fourth quarter and then also in the first quarter of the subsequent year. So yes, there could be some pressure that continues into the first quarter from that. Speaker 800:29:22And the message you're giving us, the 14%, the price increase, the 2%, which is lower than what we've heard from peers, is reflective of the pricing discipline that you exercised in prior years, like the not assuming that the good times are going to last forever type of thing, right? Speaker 600:29:38Yeah, exactly. And we've been pretty open about that. We've been saying for a couple of years that the low utilization from COVID can't be baked into the future and we priced for an assumption, that things would go back to normalized levels, which indeed they have. And yes, you're correct. The loss ratio we're reporting, the degrees of price increases needed are quite modest compared with what some of our competitors are reporting. Speaker 800:30:08Yes. Okay. And then switching over Speaker 200:30:10to Sorry, David, it's Kevin. If I took a step back, I'd say, listen, this is a business that we've been in a long time and we have scale and we understand. And we saw through the COVID period that morbidity performed better from a claims experience. And Dan had been signaling for a while that that would come back. He came back faster than we expected in a way this quarter because of severity. Speaker 200:30:33And so we'll adjust that with pricing, which we we can do. But it can take a few quarters for that to play out. But the long term strategy of the business, the capabilities, our scale, the data that we have, all positions it it well going forward. It's a little complicated if you step back and look at it because COVID had lots of impacts. So for example, the core group benefits business in some quarters underperformed and that's been performing really well. Speaker 200:31:02So I would just say that we're confident in our strategy here. We're confident that we have the right scale. We have the pricing discipline. And you can see that we were less impacted than many of our competitors. So I would look at it from that perspective. Speaker 200:31:14And if you Slide 18, you can see the morbidity results. That's the whole company, but The U. S. Is a big part of that. We've got the positives in Q3 and Q4 and then the negative this quarter. Speaker 200:31:26You can see a post and pretax on that slide that gives you some of the indication. Speaker 800:31:32Yeah, no, no, I get that. I don't want to make a, you know, freak out over this stuff. It's just understanding the mechanics, the timing of everything and just, you know, the nuts and bolts, I guess similar to the redetermination stuff for dental. A lot of that stuff. You know, there's a bit of a learning curve. Speaker 800:31:49But, anyway, switching over to Tim, you mentioned the tax exempt income. Can you the stronger U. S. Dollar, can you explain how that worked out? And you called it a one time item, but you're taking action to mitigate the volatility. Speaker 800:32:06So how is it a one time item and also something you have to mitigate going forward? Speaker 400:32:15Sure. Thanks, Gabe. There are a few pieces to this, so maybe I'll start with a little bit of So under Canadian tax law, a portion of our investments aren't taxable in Canada as they're tax exempt. They support our foreign businesses that we operate through branches of our Canadian entities. And historically, we've had a tax benefit under this program since inception. Speaker 400:32:37This year we had a lower tax investment income on foreign currency assets and related FX swaps. And we really saw that from the material strengthening of the U. S. Dollar compared to the Canadian dollar. And that overall led to a tax loss. Speaker 400:32:51And that's highly unusual for us. As I said, we've always had a tax benefit through the program by design. So the loss you're seeing in reported income is the difference between the expected tax benefit, which we include in underlying net income, and the actual tax loss which we experienced for the year. And so I say we're taking action because we would really seek to mitigate tax related FX noise and reported income so you wouldn't expect that level of FX related volatility going forward. Speaker 800:33:20Okay. And then on the earnings lastly, on earnings on surplus, I forget, you've given guidance on sensitivity to rate declines. If I look at slide 20, core investment income down quite a bit year over year. Is that really all the impact of the rate cuts there? And we should use that in a linear manner for future rate cuts? Speaker 400:33:49Yes, I think that's a fair description. The decline that we see in that core investment income over Q3 is really due to lower yields. I would say at the end of Q4, almost 40% of our surplus holdings were in short term securities. And we saw 80 basis point decline in that short term yields in that quarter alone. You know, there's a modest lesser extent. Speaker 400:34:08We had a slightly lower surplus balance. And when you look at overall earnings and surplus, we, of course, had lower fair value through OCI trading gains this quarter. So in terms of your comment around outlook, you know, going forward, if if short term rates continue to remain low, you can think this as roughly a new run rate for core investment income in the short term. But over time, you know, we'll seek to reinvest those assets into higher yielding products. And when longer term rates come down, it will also provide us an opportunity for fair value through OCI gains. Speaker 800:34:38Okay. Is that 40% typical? The allocation? Speaker 400:34:42No. In the fourth quarter, we had a lot of repatriations from operating entities. In terms of capital repatriation, as you can see in our strong cash generation. So that was just parked in short term investments temporarily. We wouldn't normally seek to run that at 40%. Speaker 400:34:56Now surplus is a bit of a mix. We have cash, have that to use for collateral for derivative needs. And then we have a long term portion of the holding. But it's more skewed to short term in the current environment because of that inflow of cash. But we'll seek to reinvest that, as I said, in particular as rates present themselves opportunities for yield. Speaker 800:35:16Got it. Thanks. Operator00:35:21The next question is from Meny Grauman with Scotiabank. Please go ahead. Speaker 1000:35:27Hi. Good morning. I think this is for Dan. I'm not sure if Speaker 500:35:30you addressed this, but if so, maybe I missed it. You've been talking about a target of $100,000,000 underlying earnings for Dental for '25. Would you be able to give sort of similar guidance to the group benefit line in terms of where you see that for 2025? Speaker 600:35:52For Dental, we've decided to give a specific target because of the very unusual events last year with the impact of the end of the public health emergency. So we generally don't give a specific earnings target by line of business. What I would say is it's worth pointing out that our group benefits business or employee benefits business, as we call it, had the best year it's ever had in 2024. Earnings were up by over 50% and the margin reached above our long term target of over 6%. So that business is doing very well. Speaker 600:36:31It's generating good organic growth, very good loss ratio results, good expense coverage progress as they scale. And they've got that business has quite a bit of momentum and we expect good results to continue in that business as they did in the fourth quarter. Speaker 500:36:53Okay. Just another question on FLC this time. I noticed a discussion about capital raising and coming from Kresien and BGO. Kresien makes a lot of sense to me just given trends. BGO stood out to me. Speaker 500:37:10And so I just wanted to get a better understanding of What's driving that and how you see the outlook for capital raising specifically in the real estate sleeve of SLC. Again, although counterintuitive, just given the pressures that we've been dealing with on the real estate side for a while now, That's the question here. Speaker 1100:37:32Yes. This is Steve Petcher. Thanks for the question. You're right. We had, I think, our best fundraising quarter ever at $10,200,000,000 and it was really across all the different asset classes. Speaker 1100:37:42Our biggest the biggest share of that was in Crescent. A lot of this is due to the timing of fund closing. So at Crescent, we had I believe three fund closings and three key fundraisers at Crescent. So in total, that was just over 5,000,000,000 about half of the 10,000,000,000. But at BGO, we had a big closing in their Asia Fund four, a really successful group. Speaker 1100:38:04In fact, I think if you were to look at real estate investment performance in Japan, our team probably has the top results. And so, this fund could approach $4,000,000,000 They had a big closing during the quarter. We also want a sizable separately managed account in Canada in real estate. And then we also, in addition to that, had over $1,000,000,000 of fixed income wins, and some money coming in for it, too. So it was broad based. Speaker 1100:38:27But I would say in real estate, we're actually starting to see renewed interest. If you look at, the impacts on real estate, obviously, the overhang on the office sector put a pall over real estate in general. The inverted yield curve really had an impact. If you look at our fundraising, for BGO, it was almost $9,000,000,000 in 02/2002. It dropped to $4,200,000,000 in 02/2003 at BGO. Speaker 1100:38:55It was up to almost $8,000,000,000 this year, and we think that's going to continue to trend up. We're seeing more demand for core, real estate, and we see that in demand for our prime Canadian fund. You're seeing demand for specific sectors like industrial and cold storage and data centers. So I think with real estate now starting to come down, with office utilization starting to come back up, we're seeing investor demand for real estate pick back up. Operator00:39:24Great. Thanks for the color. The next question is from Doug Young with Desjardins Capital Markets. Speaker 1200:39:39Just Dan, just a few hopefully quick ones here just on the medical stop loss. Just want to confirm, I think I know the answer, but 100% of those renews annually. And can you size out the negative morbidity experience? Is it fair to say it's about U. S. Speaker 1200:39:54$50,000,000 in the quarter? And assuming things are rolling through, that this should be the worst of it? Speaker 600:40:05Yes. So virtually 100% of the business does renew and reprice every year. So that is correct. And then your guesstimate on the morbidity loss is spot on, very close. And in terms of the worst of us, that's a more challenging question. Speaker 600:40:27Keep in mind again that the quarter represented our view of the full year results for especially for the oneone '20 '4 cohort. So we certainly wouldn't expect that kind of an adjustment to recur in a single quarter affecting the full year's results. Add that additional 2% that I mentioned to all of the pricing. Speaker 1200:40:59Is there a way you can smooth this out? So if there's an outcome in Q4? Is there a better way to smooth it out? I don't know if that's a possibility. Speaker 600:41:09Yeah. You're not the first person to ask that question. You know, in a business where you don't fully see the results really for five quarters, a lot of what we do is based on reserving choices. And we do the best we can each quarter to give the you know, a very good educated estimate of what's happening with each of the cohorts that were managing and observing the emerging experience on so there already is, you know, a fair amount of reserving involved in the business as it moves forward. So you know, to some degree, what you're saying is already in there. Speaker 600:41:49But obviously, when things happen that you didn't fully anticipate, you have to make the right reserve call each quarter. Speaker 1200:41:57Yes. I just think of property and casualty insurance and the reserve upfront, and we always look for positive reserve developments from something like that. But that's kind of where it's going. Speaker 500:42:06And then Dan, on The U. Speaker 1200:42:07S. Dental side, there's a one time payment for ASO for remediation reimbursement. I mean, can you elaborate on Speaker 700:42:17on what that was? Speaker 600:42:18Sure. We took a provision in the fourth quarter for one time payments to reimburse several administrative services only clients for services provided on their behalf during 2024. These were one time payments for services where we're the administrator, so it's not related to claims incurred by us. And therefore there's no impact to dental loss ratios or the insurance experience. There was no negative impact to members or providers rather this was isolated and specific to the self funded clients themselves. Speaker 600:42:53The provision reflects our best estimate of the amount and we're addressing the issue and don't expect it to recur. Speaker 1200:43:02And what does it relate to? Still that clear to me as to why the payment was made? I guess it doesn't impact the loss ratios or anything like that. Is that was there Yeah, I'm just curious as to what it related Speaker 600:43:16to. Yes. Some of our business is administrative services only, where we're acting as the administrator or TPA, where we pay claims on behalf of the sponsor. And we paid some more And we paid some more claims in certain situations than it turns out we should have. So we're correcting that with the clients to make sure that we take care of our clients and put the issue behind us. Speaker 1200:43:42Okay. I appreciate the color. Thank you. Operator00:43:47The next question is from Nick Blue with Evercore. Please go ahead. Speaker 1300:43:53Good morning. Thanks for taking the question. The first one is again on medical where do you see that impact your total top line premium for the year? Thank you. Speaker 600:44:16Okay. So medical trend overall, including for core health insurance and the overall health system is at an elevated level Speaker 800:44:23compared where it's been for the Speaker 600:44:23past several years. We are now pegging that rate is about 8% That's the core rate. However, the way stop loss works because of the high attachment points, there's a leveraging effect. So the effective trend for large claims, it's just the math of it is about typically double the core rate of trend. So that would mean the trend on our business is about 16%. Speaker 600:44:56And that will impact our revenue going forward, obviously, in a positive way. And that includes the additional 2% that I've mentioned a couple of times that we believe we need to add to our pricing in order to get to that 16%. Speaker 1300:45:16Thank you. And my follow-up is, in The U. S, you also called out some unfavorable in disability. So wanted to see if that's related to relative to the favorable recent trends or do you see it back to pre pandemic level? And what do you guys see out there that made you guys decide to take a step back in the employee benefit sales? Speaker 1300:45:39Thank you. Speaker 600:45:41Yes. So the there was a little bit of negative morbidity and disability in the fourth quarter. But if you look at the entire year, the experience was actually very good. So I would view that as more of quarter to quarter volatility than anything else. And disability experience is really not back to work. Speaker 600:46:19We also think there's been some impact from remote work. About half of the workforce is capable is in jobs where remote work is a possibility, and that's enabling people to stay at work in ways that weren't possible before. So we're in a period of time where disability incidence has actually been dropping as well as successful return to work has been increasing. So we're actually in a time of very good and steadily improving disability experience. Speaker 1400:46:52Great. Thank you. Operator00:46:56The next question is from Paul Holden. With CIBC. Please go ahead. Speaker 900:47:01Thanks. Good morning. Sorry, Dan, I'm going to continue with your first question. Just want to understand if there's any common drivers or factors behind those large claims that hit the Q4. And you did mention in your answer some other underwriting changes you're making beyond price. Speaker 900:47:18So wondering if there is some common factors that you can address in terms of how you're underwriting stock loss Speaker 700:47:24beyond price? Speaker 600:47:25Yes. No, that's a great question, and we've been doing a tremendous amount in the way of analytics to understand what the drivers are. And we see three drivers of the increase in severity. One is, unfortunately, more advanced cancer cases. There's a couple of aspects to that one. Speaker 600:47:43We do believe that during Covid as people did not seek routine medical care, including screenings that unfortunately that means we're now seeing several years later the impact of that with people having been diagnosed later in the course of their illness and illnesses as a result are more severe. Also related to that, there are a number of new cancer drugs that are very promising but also very expensive. And we have seen some elevation in the use of those drugs. The second issue is a pretty significant increase in premature births and neonatal care, which obviously can trigger stop loss thresholds. There was, just a report actually published last week that showed that the number of births in The U. Speaker 600:48:35S. Rose four percent last year versus the prior year, so there's actually more births. Also, the age of parents continues to rise. The use of tools like in vitro fertilization continues to rise, and all of those things contribute to more premature births and neonatal intensive care as well. So that's really the second category and the third driving factor is hospitals. Speaker 600:49:04Are increasing prices now. Obviously the core health insurers who are underlying all of this negotiate very hard with hospitals, but we are seeing hospitals being successful recently in raising the cost of inpatient share. Some of that is the post COVID impact. You probably read a lot of hospitals and large hospital systems are suffering financially as the federal government subsidies and supports that existed during COVID have worn off. And so one of the ways that they are addressing that and that they've built back to pre COVID capacity has been to raise prices. Speaker 600:49:46So those are three factors we think are primarily driving the severity, and those factors and those factors are likely, persistent. Speaker 900:49:58Okay. Got it. Thanks for that. All right. Let me give you a break, Dan. Speaker 900:50:04I want to ask Tim a question regarding expenses. So earlier in 2024, announced I think it was $200,000,000 of planned expense savings. Wondering how much of that came through in the quarter, maybe how much has been achieved to date? Where can we see that in the DOE? And how much should additional should be realized in 2025? Speaker 400:50:32Hi, Doug. Thanks for So on our expense efficiency program, we've made great progress on that program overall. And in the fourth quarter, we achieved our target 40% efficiencies for the full year. So it was 82% sorry, $82,000,000 of savings that came through for a full year. So that's just modestly ahead of where we thought we would be. Speaker 400:50:58Part of the challenge as we signal at the beginning of the program, and it's part of factor of IFRS 17 is it's difficult to see where expenses come through because they come through a different category. So on your question of where this is showing up, almost 40% of that is coming through net insurance service results and then the bulk of the rest coming through other expense lines is this non attributable items. And then when you think about from a geography perspective, almost half of that's coming from The U. S. And in particular in the dental business as we've been taking a lot of expense actions there. Speaker 400:51:3020% is coming from Canada and the remaining 30% would be in the corporate segment. These actions like we had signalled, most of the savings are really coming from those geographies, but a little more than half are FTE related. So this is both an FTE reduction that has already been occurred, but also through attrition. And then 20% of savings will then come through automation. And that's really what we look ahead at 2025. Speaker 400:51:55So we expect another the remainder of the savings under the program to hit the full 200. We'll have 80% of that total efficiency by the end of the year, and we're on track with that expectation. But it will be difficult to see that through the various lines. So, we can just report on a regular basis just in terms of where we are in that progress. Speaker 900:52:17Okay. And just last question and follow-up to that one. Will that be a net benefit to earnings? Or is this really more of a story of finding cost savings to reinvest in investments, whether it's technology or growth initiatives or otherwise? Speaker 400:52:37Yeah, it's a bit of both. So we are seeing it come through the bottom line, but we are investing in technology and digital and AI like we covered at our investor day. And I think the best way to think about this is this is embedded in our growth objectives, in our objectives. So we really look at the overall earnings growth rate targets by each one of our business groups and this program is helping to support underpin those growth rates. And we've been pleased with the progress and expenses continues to be a focus, really, because we do need to continue to invest in the businesses, and we want to make sure that we're generating positive operating leverage. Speaker 900:53:11Got it. Okay. That's it for me. Thank you. Operator00:53:17The next question is from Mario Mendonca with TD Securities. Speaker 700:53:24Dan, a question for you, but this has nothing to do with, it does have to do with Medicaid. There's things, themes and theories around what, a U. S. Administration will do to reduce expenses. And there are certain sacred cows out there like Social Security and Medicare. Speaker 700:53:45But Medicaid keeps coming up as one of those areas where this new administration may cut expenses. Can you talk about, Sun Life's overall exposure to Medicaid? What would happen if Medicaid roles really do come under pressure over the next couple of years? Speaker 600:54:03Yes, Mario, I think, so we have about $2,000,000,000 of Medicaid business just in round figures. It is obviously a very big part of our dental business and a business where a market we're very happy to serve and have done very well in over a longer period of time, including the DentaQuest history. I think the best way to think about that is probably to look at the proposal that was loaded in the House of Representatives yesterday. And this is the first draft of the House reconciliation bill, not necessarily going to pass and in fact probably would change significantly from a first draft. But it did propose at least in the aggregate about a 10% cut to Medicaid funding over the next ten years. Speaker 600:54:53Now that, however, would not affect our business in that way because our business is predominantly kids, which is the core of the required Medicaid program under the law. Most cuts if they did occur would likely occur to, to adult coverage, and that's a relatively smaller part of our business. And cuts might very well take the form of work requirements for able-bodied adults. And when you look through the way they would calculate something like that, actually, most people would already meet those requirements. And so that change, for example, would have a fairly de minimis impact on us. Speaker 600:55:35It's impossible to predict exactly what's going to happen. But the impact on our business would likely be some small subset of the 10% cut, that is being proposed. Dental and particularly benefits for kids are really viewed as effectively sacred cows as well. Speaker 700:55:56I see. And dental is not the only that's not what makes up the $2,000,000,000 Presumably there's other Medicaid beyond dental at Sun Life. Speaker 600:56:05No, not in Sun Life. Are the only participation we have in Medicaid is through the dental benefits. Speaker 700:56:14Okay. That's clear. And then if we could go back to Q3, your response to questions around stop loss were a little bit more optimistic commentary on Sun Life's conservative pricing. So I think something clearly surprised you in the last three months. Is it just a matter of the timing on when Sun Life gets information that a lot of new information arose in the last three months? Speaker 700:56:37Was there no way to have seen this sooner? Speaker 600:56:41Yes, I think so in the third quarter, what we were basing our assumptions on were and we were, you know, clear about that was utilization. We were able to see the level of utilization because we do see first of all from claims that come in throughout the year. We get a sense of utilization. In other words, the number of claims and even from that early data we get from some of our TPA partners we can see utilization. So we did see utilization return to pre covid norms back earlier in the year, and it's been generally stabilized. Speaker 600:57:13Since then, What was a little surprising and obviously you've seen it, everybody's had the same impact if you looked at the earnings reports of some of our peers, both in stop loss and more broadly in health insurance. What was the thing that emerged in the fourth quarter is the severity of the claims, so not the number of claims. But the severity of the claims is something a little bit new in the experience. And as I mentioned, we don't see the claims themselves or most of the claims themselves until the fourth quarter of a cohort and even some in the fifth quarter, meaning into the first quarter of the subsequent year. So I think that's what everyone saw in the fourth quarter was the severity. Speaker 700:58:00Yes. But I've just been quick to dismiss other companies' experience by saying things like some life is more conservative, some life better, some life got the expertise, better relationships. I presumably that's still true. It's just that things got particularly bad this quarter. I mean, is it still an appropriate thing to cite, something like the quality of somebody's book is better? Speaker 600:58:21Well, of course, we think so. But, yes, because I think we you know, if you look at our experience and the way we handled it, it is different than what some of the peers are reporting. So I think for us You know, the severity of illnesses is not something we can necessarily control. Obviously, that's something that is occurring market wide. What we can control is pricing and underwriting. Speaker 600:58:47And our pricing was certainly much closer to the pin than that of our competitors. I think some of our competitors have been assuming low utilization from COVID would continue and other things. So you've heard competitors talking about having to put through just epic rate increases to get back to where they need to be versus the kind of numbers we're talking about. So I think it's both. It's health care severity, which is an exogenous factor, but then it's pricing and underwriting where I do agree with you. Speaker 600:59:18I think we shine compared to the competition. Speaker 700:59:21Okay. That's helpful. And then finally, Tim, you made a point about trying to address the volatility, from the tax exempt income that $234,000,000 effect this quarter. It's been my experience that to address volatility, there is a price that there's a price to this is the price that we might see a marginally higher tax rate effective tax rate at Sun Life. What is the consequence of reducing the volatility? Speaker 400:59:53Thanks, Mario. I mean, first off, this program that we've been operating for decades. You know, it's part of the tax code and tax regime and what I would say at the end of each year, we determine what assets are designated to support our Canadian business for tax purposes, and then remaining assets and swaps are considered tax exempt. So to correct this, it's really around how we look at our asset designation strategy, and it was a large movement from the swaps and the assets that really generated that loss. So you'd expect that we would be able to have a tighter match between the tax and pretax income on these assets. Speaker 401:00:28And that will smooth out the volatility. So you wouldn't see this distortion. But it would have the effect of a modest reduction in the overall tax benefit that we've been experiencing over the prior years because we didn't have those losses coming through. Speaker 701:00:43So modestly higher effective tax rate, but nothing that you would really, cause us to worry about? Speaker 201:00:49Correct. That's right, Mario. Modestly higher, but it wouldn't take away from our medium term objectives for earnings growth. Yes, we're still committed to that. Speaker 701:00:58For sure. I understand. I just wanted I just figured it would be at least some effect. Thank you. Appreciate it. Operator01:01:07The next question is from Lamar Persaud with Cormark Securities. Please go ahead. Speaker 1401:01:13Yes, thanks. My first question is for Dan on stop loss here. I hear what you're saying on severity coming in higher than anticipated in Q4 and certainly you guys weren't alone Speaker 501:01:24on that front. However, what I am Speaker 1201:01:26a little bit confused on, Speaker 1401:01:27I'm hoping you can help me think through is the comment that you started increasing pricing in mid twenty twenty four. So presumably you knew that, I guess, claims are moving higher. So then why the surprise on the claims front in Q4? I'm just trying to square that up because it sounds like you moved pricing up because you knew there was going to be an issue here. But then we still have the big surprise in Q4. Speaker 1401:01:49So why would that have been reserved for earlier? I'm just trying to understand Speaker 1201:01:54why the surprise here. Hopefully that makes sense. Speaker 601:01:58Yes, it does. Early in the year, remember, we saw utilization recover fully back to pre COVID norms. So our pricing increases in the middle of the year were related to fully reflecting that utilization level, but not necessarily the increased severity that we saw emerge in the fourth quarter. So that's why there's really two separate issues. We took care of the first one first, and now we have a little bit to do or a little bit more to do to fully take care of Speaker 501:02:30severity. Okay. Speaker 1401:02:32I understand. Then just moving over to a different type of question here, maybe for Manjit. Can you just give some additional details on this impairment charge on bank assurance in Vietnam. I guess the performance in the country has been challenged for some time, I think even dating back to 2023. So I'm just wondering about the timing of the impairment in 2024. Speaker 1401:02:53And then could you kind of flush out some detail on what the regulatory changes were? Like was this related to changes related to bundling? And does it feel like there could be more regulatory changes that could impact your business there? Speaker 301:03:07All right. Good morning, Lamar. So let's give a bit of background and then get to your questions as well. So as you know, bank assurance is an important distribution channel for us and other market players in Asia. And in Vietnam, we entered into two bank assurance partnerships, the first one with TP Bank in 2020 and then with ACB Bank in 2021. Speaker 301:03:26They're both fifteen year partnerships. And as we and other market participants have noted previously, the insurance industry in Vietnam has been experiencing some significant weakness related to some inappropriate selling practices from some of the insurance companies in the market. Overall, BANK ASSURANCE sales in the market have declined by over 60% over the past two years. Now while Sun Life has performed better than that, our sales have also declined as well. So what we see right now is we think that has bottomed and we're starting to see some signs of re emerging growth. Speaker 301:03:58But as we looked at it this quarter and we factored all that stuff in and we have to then take a look at what the value of the intangible is, we reflected the trends I spoke about earlier and that's what led to the write down. In terms of your second question, regulation, I mean, I think there is ongoing discussion with regulators. They are looking at some of the commission structures that banks enjoy as part of these arrangements. So we'll see what comes out of that. Speaker 1401:04:22Okay. Just the last point here on the timing. Like why wasn't there like an impairment even back in 2023? Because I think the business was challenged at that time as well and you guys probably run the impairment test annually or am I wrong on that? Speaker 301:04:37Yeah, we do run it there annually, but there is no bright line test, Lamar. As I mentioned earlier, these are fifteen year agreements. We're making long term assumptions. And we had to kind of let the facts emerge. And I think that's kind of what's been happening in the last few quarters. Speaker 1401:04:51Okay. Thank you. Operator01:04:56The next question is from Alex Scott with Barclays. Please go ahead. Speaker 1501:05:02Hi, good morning. I had one on stop loss, so bear with me here. I had a follow-up to Tom's Speaker 201:05:11the Speaker 1501:05:11oneonetwenty four book, could you disclose to us what percentage of your incurred loss at this point is paid? I'm just trying to understand if that's like pretty darn fully developed at this point or if there's still information that we need to be concerned about coming in over the next quarter or so. Speaker 601:05:31Yes, that's a great question. At the end of the fourth quarter, we got about 70% of the experience on that cohort. And then by the end of the first quarter, I think it gets to around 90%. So it's pretty much done or just about done by the end of the first quarter. But yes, there is some more in the first quarter that comes in. Speaker 1501:05:54Got it. Okay. And then for my follow-up question, I just wanted to Speaker 201:06:00see if you could give us Speaker 1501:06:01a little more color around flow expectations, the outlook for net flows, both in MFS and SLC. Speaker 201:06:12Ted, do you want to take MFS first and then Steve can take SLC here in the room? Speaker 1601:06:17Sure. Good morning, everyone. I think the overarching comment I'd make about flow expectations is that on a given quarter or even year, predictability is going to be difficult. Certainly on a trailing basis and particularly in the quarter, it was it was not a good quarter for flows. On the retail side, a little bit simpler and more historically consistent explanation in that, we're holding or gaining share in a market that is in outflows. Speaker 1601:06:45We're confident both in the long term of the market and in our ability to maintain and grow our share and return to positive flows when market dynamics normalize. On the institutional side, which was the delta in the quarter, a number of a lot of these and they came together in the quarter. So as we look forward, we're not going to make predictions on flows, but particularly those institutional dynamics, we would expect to get better over time and overall, we would expect to return to positive flows over the medium to long term as we Speaker 1501:07:34strategies. Speaker 1101:07:37Yes. Hi, it's Steve Peacher. As it relates to SLC, one point I would make is that, and you saw it this quarter, our quarterly flows will be a function and will move around based on when we have fund closings. And so this past quarter, we had a number of fund closings, which really helped us. Sometimes you don't have those all that come together in one quarter. Speaker 1101:07:59But in general, we think in a lot of these asset classes, the trends are in our favor. Certainly, you're seeing increased demand for private credit. We have a number of funds in the market, so that we think will help us over the course of this year. As I mentioned earlier, you're starting to we're starting to see increased demand from real estate after kind of hitting a trough in 2023. We see steady demand for fixed income, and I think we'll see a pickup for infrastructure. Speaker 1101:08:24So I don't have an exact number to give you, but we would expect fundraising to be higher in Speaker 701:08:27the coming year it was in Speaker 201:08:322024. Operator01:08:35Thank you. The next question is from Darko Mihalik with RBC Capital Markets. Please go ahead. Speaker 1201:08:44Hi, thank you. Good morning. I can be quick. Dan, I just didn't understand your answer to Manny's question on Dental earnings. You guys had committed to U. Speaker 1201:08:53S. One Hundred Million Dollars for 2025. Is that still on the table? Is that still what you're committed to earning? Speaker 601:08:59Yes, it is. And we're pleased with the progress we made in the fourth quarter there. Speaker 1201:09:05Okay. Thank you. And second question real quick, Dan, also on the stop loss. You said that you've achieved 14% on average price increase plus another 2%. Is all this happening without any planned loss? Speaker 1201:09:18And what is your expectation on that front? Speaker 601:09:21I'm sorry, without any what loss? Speaker 1201:09:23Any loss of customers or any like Speaker 601:09:28Yes. So we as of oneone, the book of business is about 5% larger than it was oneone of last year. So we've actually grown the book modestly, of course. Each year there's substantial turnover in the business. Remember, it's a one year cycle. Speaker 601:09:46Typically, all the business goes out to bid annually. So we have to sell enough to make up for the cases that move and get some growth on top of that. But we're actually pleased in the current environment with a 5% level of growth. You've obviously seen some of our competitors report something quite, quite different than that. And that's at the same time that we believe we're taking a responsible approach to pricing. Speaker 601:10:15We're somewhat surprised in the fall to see still aggressive pricing in the market in light of all of these different factors. But we do see that changing now. We think market behavior in 2025 is going to be quite different and actually maybe a good opportunity for us. Speaker 1201:10:35And that 5%, how would that compare to like a typical year for you in that business? It Speaker 601:10:42is smaller. In recent years, we've generally been around the double digit increase, and that's reflective of our more conservative pricing approach than some of our competitors. Speaker 201:10:54Great. Thank you. Operator01:10:59We have a follow-up from Tom MacKinnon with BMO Capital Speaker 501:11:04Markets. Yes. A question about the capital generation. $3.50 when you add the dividend, that's been around 85% of the underlying earnings. That's an organic number. Speaker 501:11:17Do we know what the actual was? It looks like just when you factor in the infrared purchase that happened in the quarter or some of the outflow for infrared buy in in the quarter, and then some of the movements as a result of mark to market stuff. Even on your LICAT, it looks like there would have been at least $300,000,000 to $400,000,000 there and then taken in 90% of MFS's earnings or so. I mean, I can get a number actually higher than on an actual basis, not an organic basis that might be higher than the $3.50. Speaker 401:11:55Any comments? Yes, it's Tim. Tim. I think your math is probably correct. Our organic generation after the dividends was three fifty in the quarter, and that's really within the range of our target. Speaker 401:12:11We communicated we expect to be around 30% to 40%. So that's really right in there. On underlying income perspective, that was down. If we look at quarter over quarter, that was down modestly from the prior quarter. And our dividends are up because of our increase in dividends. Speaker 401:12:29Our payout ratio was roughly around 50% at the top end of our range. So on the organic components of that, we look at our new business, CSM, that was strong, but some of Speaker 1401:12:40our sales were a little Speaker 401:12:41bit more capital intensive than power periods. That's in part why that's come down. And just ongoing investments in our business. You referenced a couple So overall, the organic capital generation before dividends was around $8.40 and then after our dividends came in at the $3.50 and within lines of our expectations. And when we communicated this as a metric, we did say that there would be volatility quarter to quarter. Speaker 401:13:08It's going to be a function of the earnings, the dividends and then how much the CSM growth. Speaker 201:13:12Those are really the largest contributors to that. Speaker 501:13:15My question was really on that's an organic number, and it takes out any kind of noise related to market impacts. But even if I look at, the so I'm trying to get what's the capital generated, not organically, actually, I guess I'll use that term. But if you take in generally at least 90% of the MFS earnings and take in somewhere in around the movement in the LICAT ratio that you have at SLF, or maybe just strictly the movement in the LICAT ratio at SLF, you can probably get a number in around 400 ish or something like that. Do you actually look at the capital generated actually versus organically? And was it significantly different in the quarter? Speaker 1001:14:13Yes. Hi, Tom. It's Kevin Morrissey. I'll take that one. You're math's right on that. Speaker 1001:14:19We do look at actual capital generation was positive, and it is in the range of $300,000,000 to $400,000,000 The sure buyback management actions in the quarter was about minus 1.5. And as you know, the LICAT ratio stayed flat over the quarter. So the actual was positive. Speaker 501:14:36Okay. So it's interesting, despite the fact that the reported number was a lot lower than what people were anticipating, the actual capital that you would have generated, not organically, but actually, was really not impaired to any extent. Is that a proper take place? Speaker 1001:14:53Yes, that is right, Tom. A couple of the large one time items that we had this quarter, were not impact did not impact the capital position at all. Both the tax issues that we talked about as well as the intangible write down in Vietnam, both of those totaled about $400,000,000 dollars Neither of those are included in the LICAT ratio, so they had no impact on the capital this quarter. Speaker 501:15:17Okay. Thanks for that. Speaker 201:15:18Yes, Tom, it's Kevin. And I might just add to that, that you're absolutely right. The capital and the cash generated remains a strong story. We aren't surprised by the questions or even the tone of the questions, but the underlying fundamentals remain strong, right? If you look at Canada, Asia and SoC, we've had good and bottom line momentum and strong strategies to continue to deliver results. Speaker 201:15:39And you see cash flow coming there and earnings and capital generation. If you look at MFS as an at scale endgame player, their earnings and margins were strong. And we think they're doing the right things for the future and they cash flow really nicely at MFS. And The U. S. Speaker 201:15:55Had a tough quarter, but it's a capitalized high growth business and it does have a bit more volatility. We have scale there. We have the experience, the volatility in claims experience, mostly in Stella Plus and Dental is consistent with what the industry is seeing. So we continue to have confidence in our strategies in The U. S. Speaker 201:16:15And our ability to deliver. So you did see a tough quarter and we're not trying to walk that back and I think we answered the questions. But I think you end on a really good point that this capital generation and overall our strategy remains strong and the cash generation remains strong. Speaker 501:16:30And your opening comments about given strong capital, you continue to execute on share buybacks within your NCIB. Can you give a little bit more color there? Speaker 201:16:41Yes, we have room on the current NCIB, and I think you'll see us be a strong buyer back of our shares, given the change we saw today. Operator01:16:52We have no further questions at this time. And I'll turn things back over to Mr. Poon for closing remarks. Speaker 101:17:02Thank you, operator. This concludes today's call. A replay of the call will be available on the Investor Relations section on our website. Thank you and have a good day. Operator01:17:12This brings to an end today's conference call.Read morePowered by