Sun Life Financial Inc. Price & Performance (SLF)

After the prepared remarks, we will move to the question and answer portion of the call. Other members of management are also available to answer your questions 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. 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. Thanks, Paul, and good morning, everyone. [indiscernible] Sunlight's Q4 results highlight our continuing commitment to helping our clients achieve life commitments Fourth quarter underlying earnings saw good results in Canada, Asia and Asset Management, Offset By Lower U. S. Results on weaker stop loss morbidity claims The 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. Wealth sales and asset management gross flows were up 33% strong distribution execution at MFS and SoC Sun.

Strong net flows as SoC 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 Sun we continue to have strong momentum in our Canadian and U. S. Group We ended the quarter with a strong capital position with a LICAT ratio of 152% at SLF Sun. Given Sun 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 our purpose our strategy. In Asset Management, fundamentals of our businesses remain strong SoC 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 is were over $14,000,000,000 MFS long term retail Sun 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 balanced mix of distribution channels across Asia, Our 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 Sun 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 Sun launched our expanded partnership with CMB Niaga, with integrated digital capabilities and co branding, In Canada and The U. S, we are showing strength in our core health business 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. S. Dental business with stabilization in membership and improving results driven by repricing and claims expense management actions. On the digital front, driving impact at scale.

Our leading virtual care provider in Canada now offers virtual care services to more than 3,500,000 clients and their families including primary care and mental health This represents over 8,000,000 Canadians approximately 20% of the Canadian population, Our services are delivered through partnerships with nearly 50,000 employers insurance companies and various organizations nationwide. In The Philippines, launched Advisor Buddy, to help approximately 5,000 new advisors to speed up their onboarding journey. The new generative AI tool provides fast and accurate answers to what new advisors do to start serving clients more effectively. These digital highlights demonstrate our commitment to meaningful client impact efficiency, innovation Sun 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 a welcoming environment where our people thrive and are empowered to deliver on our purpose. Turning to Slide six, we ended 2024 with solid [indiscernible] Underlying net income increased 3% to $3,900,000,000 dollars Our total assets under management reached a new milestone at 1,540,000,000,000.00 In Canada, we achieved record underlying net income of 1,500,000,000.0 up 6% over the prior year supported by solid results across all businesses, Wealth AUM is up [indiscernible] with defined benefit solutions pension risk transfer business achieving record annual sales of $2,500,000,000 In The U. S, we grew client revenues to U. S. $8,200,000,000 dollars driven by successful execution of our health strategy.

We also saw record underlying earnings Sun employee benefits. In Asia, we saw a strong growth momentum [indiscernible] underlying net income of more than 700000017% year over year.

These are record results driven by strong protection sales. Total eight 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. Thank you, Kevin. Good morning, everyone. Turning to Slide eight. We ended 2024 with results in line with the [indiscernible] 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. Full year underlying net income of $3,900,000,000 and underlying earnings per share of 6.6 We're up 35% year over year respectively. Q4 twenty twenty four and full year underlying return on equity was 1617.2% respectively. Underlying ROE was impacted by lower underlying net income and growth in book values 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.

Overall, our results continue to benefit from Sun Life's resilient businesses diversified business 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 Sun. Group Health and Protection underlying earnings were down 27% year over year driven primarily by unfavorable morbidity experienced in U. S. Medical stop loss, and less favorable morbidity experienced in Canada Sun. These impacts were partially offset by solid business growth in Canada. [indiscernible] 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 Sun reported net income [indiscernible] 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. S. 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 Sun, recognized an impairment charge on the intangible asset related to our bank assurance agreement. This charge reflects updates to our outlook reflecting industry Sun macroeconomic factors in that market. Market related impacts reflected unfavorable net interest rate, equity market impacts and the adverse real estate 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. Driven by underlying net income and new business CSM. Our balance sheet and capital positions remain strong with an SLF like ratio of 152% flat from the prior quarter as organic capital generation was offset by the impact of markets and share buybacks. Old co cash remains robust at $1.1400000000.0 dollars and our leverage ratio improved sequentially and remains low at 20.1% Sun.

Total CSM of $13,400,000,000 which is a 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 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 $216,000,000 was up 13% year over year from higher average net assets, partly offset by expense growth. Reported net income of US216 million dollars was up 18% year over year. Pretax net operating margin of 40% improved by 1.1 percentage points over the prior year driven by higher average net assets Assets under management of $60 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 Sun. This quarter, outflows of US20 billion dollars included several large institutional mandate redemptions and retail outflows. Institutional outflows included portfolio rebounded Retail outflows, while negative, improved over the prior year reflected the continued preference of investors for high growth tech stocks shorter term interest bearing products.

Overall, long term investment performance for MFS remained strong with 95% the fund assets of their respective Morningstar categories for ten year 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 Sun, SLC 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 in [indiscernible] 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 SLC 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 remains solid as we observed sequential quarterly growth in deployments across all affiliates. SLC's fee earning AUM of $193,000,000,000 was up $16,000,000,000 year over year reflecting market growth and net deployments. $66,000,000 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 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.

Group Health and Protection underlying earnings were down 4% year over year as business growth was more than offset by less favorable Norviti experience compared to the prior year. Group sales were down 49% year over year due to higher large case the prior year. Individual protection earnings were up 13% year over year reflecting favorable mortality experience in individual protection sales were down 17% year over year due to lower the third party broker channel. Turning to Slide 13, Sun 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 claim severity, which we're observing across the industry. This impact more than offset strong underlying business results in group and improved dental results. In dental, 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 US830 million were down Sun% Sun dental contracts as fewer opportunities came to market this quarter.

Individual 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 $175,000,000 and was up 20% year over year on Sun 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 assurance agreements in Vietnam and market related impacts. We continue to see strong sales momentum in individual protection in international, India and Hong Kong. And finally, Asia's total CSM grew to 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 on the prepared remarks for this call. Thanks, Tim.

In closing, our commitment to our purpose, Our clients our people Sun 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 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 and for making a positive impact for our clients around the world. I will now turn the call over to the operator for Q and A. First question is from Tom MacKinnon with BMO Capital Markets. Please go ahead.

Yes, thanks Sun good morning. Question really just questions with respect to the stop loss here.

Maybe you can share with us [indiscernible] the loss ratio in the fourth quarter, how that's trending? The outlook Maybe some commentary about price increases you got through Sun in the fourth quarter, price [indiscernible] you expect to get going forward And maybe if elaborate a little bit about what [indiscernible] how complete these claims are. And maybe the paid loss ratio versus the actual loss ratio? Thanks. Okay. Good morning, Tom. It's Dan. So let me take each of those Sun also give a little bit of context Obviously, we had So a variance in the stop loss loss ratio in the fourth quarter There are two aspects to the experience that's emerged for 2024 in stop loss.

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 the comment or a reminder about how stop loss claims emerge. Most of the business is effective and renews each January one 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, 250 or even $300,000 So by the time a claim accumulates, to that level, It does take some time versus when the the case was effective. So it's really during the fourth quarter of the year and even the first quarter of the following year received most of those claims.

We 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've reported in the industry saw in the fourth quarter was those claims were meaningfully more severe than had been the case [indiscernible] Impact in the fourth quarter really affects the entire year as opposed to just events attributable to that quarter. So obviously, we restate the way we think the year is emerging based on the claims as they're coming in.

So you saw a spike in the loss ratio in the fourth quarter, but probably the most important loss ratio number to think about and which I'll share is what that resulted in, in terms of a full year loss ratio. The full year loss ratio for stop loss in 2024 was 74% Sun.

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 or You will see and will significant price increase from the oneonetwenty five actions.

Most of the business renews on oneonetwenty twenty five Sun also they were significant new sales. [indiscernible] on oneone five.

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 on those kinds of actions around the same time.

All last year.

So with that, I Tom, have I answered all your questions or do you have a follow-up?

Well, I think the way things are disclosed, you have the expected amount in the PAA and then the policyholder picks up something that's different than the expected [indiscernible] If you If your expected was a $73,000,000 and the actual was a 74, I guess we have to look at it for the entire year as a But I guess how should we be looking at this going forward. In 2023, look like your loss ratio was And so I assume then if you price then to $73 you would have been able to pick up positive policyholder experience in lots in 2023.

If your pricing to 73 for 2024 Then how should we be thinking about Any adverse policyholder experience Sun 2024 for this line.

Yes. So let's go back a little bit to COVID. During 2020, 2021, 2022, 2023 Sun, we experienced extremely favorable utilization Sun. And there are obvious reasons for that. It persisted quite a bit longer than COVID it and capacity in the system was lower.

So you're correct on the loss ratio in 2023, it was around 67% for that year. So contrast that with 74% in 2024. And we've been saying really since 2023 that the utilization would return ultimately to pre COVID or [indiscernible] and indeed it did. So 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 understanding that we would not be able to maintain [indiscernible] extra favorable results that were coming from the unusually low utilization.

You're right also in thinking about 2024, you have to think about it in the context of the year. Versus the standalone quarter.

Because that really that experience applies to the year. And then moving forward, we've taken additional pricing actions moving into next [indiscernible] Obviously, the some of this increase in severity was not fully expected. So there's likely to still be some pressure as we move into 2025 but there also were pricing actions Sun we will 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.

Sorry, what were the additional pricing actions that you are taking?

So well, first of all, effective oneone, we did a 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 Sun about another 2%, which we are in the process Okay. So what's the outlook then for this line for 2025? Is this we went if we ran 2024 at '74 Yes, I'm not sure we're prepared to give a specific loss ratio pick for 2025 We would say we would [indiscernible] [indiscernible] pressure from severity to persist, don't think this is a short term impact, this may be the new level of severity that we would but we think the order of magnitude of action that we need to take in order to address it is around that that 2% incremental price increase. And just it [indiscernible] Is the way these things are booked, is the fourth quarter when you really do all your catch up here? So is [indiscernible] We should be looking at stop blocks for the year as a Was it just the fourth quarter results, Well, I mean, I wouldn't quite call it catch up, but kind of back to the point I made earlier, we really don't most of the claims until the fourth And then some into the first quarter of the following year.

So while we certainly get some [indiscernible] 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 affect the entire year.

Just to put it into perspective, two thirds of our business is effective on January 1 of each year Sun it takes five quarters for us to get to about 90% actual claims [indiscernible] on that cohort. So right now, what we're really seeing is the results of last January's effective dated business.

Okay. Thanks for that.

The next question is from Gabriel Duchene with National Bank Financial.

Hi, good morning. Just a follow-up on that line of question So two thirds of the book has been repriced as of oneone So that pricing has an impact [indiscernible] This year of 2025. So there should be margin improvement or restoration On that basis alone, correct?

Yes, 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 experienced from 2020 So recall that I said 2023, had a 67% loss ratio, a very favorable year.

Now 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 2024, So we have taken pricing action on more than two thirds of the business but also as I said, we probably do need to take a little more pricing action. Okay.

So ignoring that 2% of additional pricing action required, just what you've done so far, When should we expect that to be fully reflected in your book? Well, being that we do need a a little bit more price, it would obviously through next January for us to be fully through that.

But there should be meaningful impact even from the pricing actions we took effective oneonetwenty five.

Okay. And then you said the claims filter in not filtered, a bilooge 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 2024 claims. [indiscernible] [indiscernible] No, I was just going to say that most of the claims come in, in fourth quarter Sun then also in the first quarter of Sun year. So yes, there could be some pressure that continues into the first quarter from that.

And 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 [indiscernible] Yes, exactly. Sun 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 Sun 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.

Yes. Okay. And then switching over to, yes, Gabe, it's Kevin. If I took a step back, I'd say Sun, this is a business that we've been in a long time Sun 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. It came back faster expected in a way this quarter because of severity.

And so we'll adjust that with pricing, which we can do, but they will take it can take a few quarters for that to play out. But the long term strategy of the business the capabilities are the data that we have, all positions there. Well going forward.

A little complicated if you Sun back and look at it because There was COVID had lots of impacts. So for example, the core group benefits business in some quarters underperformed Sun that's been performing really well. 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 Sun. And you can see that we were less impacted than many of our competitors. So I would look at it from that perspective. Sun if you look at Slide 18, you can see the more busy results and that's the whole company, but The U. S. Is a big part of that where you've got the positives in Q3 and Q4 and then the negative this quarter, you can see it post and pre tax on that slide that gives you some of the indication.

Yes. No, no, I get that. I don't want to make a freak out over this stuff. It's just understanding the mechanics, the timing, everything Sun and just the nuts and bolts, I guess, similar to redetermination stuff for dental, a lot of that stuff there's a bit of a learning curve there. [indiscernible] switching over to Tim, you mentioned the tax exempt income. Can you stronger U. S. Dollar Can you explain how that worked out? You called it a one time item, but you're taking action to mitigate the volatility. So how is it a one time item Sun also something you have to mitigate going forward. Sure. Thanks, Gabe.

Are a few pieces of this, so maybe I'll start with a little bit of background. So under Canadian tax law, a portion of our investments aren't taxable [indiscernible] 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 really since inception. This 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 Sun that's highly unusual for us. As I said, we've always had a tax tax benefit through the program by by design, So the loss you're seeing in reported income is the difference between 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 this tax related FX noise Sun reported income, so that you wouldn't expect that level of FX related volatility going forward.

Okay. Sun then on the earnings last thing, on earnings book So I forget, you've given guidance on since it's [indiscernible] declines or rate If I look at Slide 2020, 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?

Yes, I think that's a fair description. The decline that we see in that core investment income at least 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 security. And we saw 80 basis point decline in that short term yields in that quarter alone. There's a modest lesser extent. We had a slightly lower surplus balance Sun when you look at overall earnings Sun surplus, we of course had lower fair through OCI trading gains this quarter. So in terms of your comment around outlook, going forward, 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, we'll seek to reinvest those assets [indiscernible] And when longer term rates come down, it will also provide some opportunity for fair value through OCI.

Okay. Is that 40% typical? The allocation?

No. In the fourth quarter, we had a lot of repatriations from our operating entities in terms of capital repatriation, as you can see in our strong cash generation and our growing capital. And so that was just parked short term investments temporarily. We wouldn't normally seek to run that that at 40%. Now surplus is a bit of a mix, right? We have cash, we have that to use for for derivative needs. And then we have a long term portion of the holding, but it's more skewed to short term in Sun current environment because of that inflow of cash, but we'll seek to reinvest that as I said, particularly as rates present themselves for opportunities for yield. [indiscernible] The next question Hi, good morning. Think this is for Dan. I'm not sure if you addressed this [indiscernible] It's maybe I missed You've been talking about a target of $100,000,000 underlying Earnings Prudential 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?

For 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% Sun.

And the margin reached above our long term target of of over 6% Sun. So that business is doing very well. It's generating good organic growth. Very good Loss ratio results Gail, and they've got that business has quite a bit of momentum Sun we expect good results to continue in that business as they did in the fourth quarter. Okay. Just another question on SLP. This noticed discussion about capital raising Sun coming from Kredsink and VGO. Kredsink a lot of sense to me just given trends. BGO stood out to me so I just wanted to get a better understanding of what's driving that Sun how you see the outlook for capital raising specifically in the real estate leads of SLC, Again, although counterintuitive, just given the pressures that we've been dealing with On the real estate side for a while now, Yes. This is Steve Petri. Thanks for the question. You're right, we had I think our best fundraising quarter ever at $10,200,000,000 it was really across all the different asset classes. Our 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 Sun.

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 IV, a really successful group. In fact, I think if you were to look at real estate investment performance in Japan are probably at the top results. And so this fund could approach $4,000,000,000 They had a big closing during the quarter. We also want to sizable separately managed account in Canada Sun 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. But I would say 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 Apollo 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 $2,000,000,000 in $23,000,000,000 at BGO. It 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 Sun we see that in demand for our prime Canadian Sun.

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 We're seeing investor demand for real estate The next question is from Doug Young with Desjardins Capital Markets. [indiscernible] Good morning. Just Dan, just a few hopefully quick ones here just on the medical stop just want to Confirming 100% of those renews annually. And can you size out the negative morbidity US50 million dollars in the quarter And [indiscernible] things are rolling through that this should be worst of it? [indiscernible] Virtually 100% of the business does renew and reprice every year. So that is correct. [indiscernible] your guesstimate on the morbidity losses Spot on, very close. [indiscernible] In terms of the worst of it, that's that's a more challenging question. Keep in mind again that the quarter represented our view of the full year results for especially for the oneone 24 cohort.

So we certainly wouldn't expect that kind of an adjustment recur in a single quarter affecting the full year's results. But as I said earlier, there's probably add that additional 2% that I mentioned to all of the pricing.

Is there a way you can smooth this out, so there's an all coming Q4? Is there a better way I don't know if that's a possibility, but Yes.

You're not the first person to ask that question. [indiscernible] 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 [indiscernible] A very good educated estimate of what's happening with each of the cohorts that we're managing and observing the emerging experience on. So there already is a fair amount of reserving involved in the business as it moves forward.

So So to some degree, what you're saying is already in there, but obviously, when things happen, you didn't fully anticipate, you have to make the right reserve call each quarter.

Yes. I just think of property and casualty and the reserve upfront Sun we always look for positive reserve developments Something like that. But kind of where it's going. And then Dan, on The U. S. Dental side, there's a one time payment for ASO for remediation reimbursement Sun.

What that was?

Yes, sure. We took a provision in the fourth quarter one time payments to reimburse that were 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 there was no negative impact to members or providers rather this was isolated and specific to the self funded clients themselves. The provision reflects our best estimate of the amount and we're addressing the issue and don't expect it to recur.

And what does it relate to? Still not clear to me as to why the payment was was made. I guess it doesn't impact the loss ratios or anything like that.

Is that With their [indiscernible] curious as to what it relating 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 claims in certain situations than it turns out we should have So we're correcting that with the clients make sure that we take care of our clients and put the issue behind us.

Okay.

Appreciate the color. Thank you.

The next question is from Nick Liu with Evercore.

Hi, good morning. Thanks for taking the question.

The first one Sun, again, on medical stop losses. Sun wondering what's the level of Medical cost trend you are building in for the rate increase is and not less so on the first dollar, but more so where sunlight comes Sun.

And where do you see that impact your total top line premium for the year?

Okay. So medical trend overall including for core health insurance, and the overall health system is at an elevated level compared to where it's been for the past several years. We are now pegging that rate as 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 [indiscernible] 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 [indiscernible] Sun 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% Sun.

Thank you. And my follow-up is, in The U. S, you also called out some unfavorable in disability Sun. 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?

Yes. So there was a little bit of negative morbidity in 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 quarter to quarter volatility than anything else. And disability experience is really not directly impacted by medical trend or medical experience. We've actually seen a number of years have been disability variance.

Fewer people are ending up filing for disability and more people are going back to work. We also think there's been some impact [indiscernible] remote work, about half of the workforce is capable is in job 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 incidents 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.

Great.

Thank you.

The next question is from Paul Holden with CIBC Sun.

Thanks. Good morning. Sorry, Dan, I'm going to continue with you for the 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 your answer [indiscernible] other underwriting changes you're making beyond price. So if there are some common factors that you can address in terms of how you're underwriting Yes. No, there's a great question Sun we've been doing a tremendous amount in the way of [indiscernible] 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, we do believe that seek routine medical care including screenings that unfortunately that mean we're now seeing several years later, the impact of that with people having been diagnosed later in the course of their illness Sun illnesses as a result are somewhat more severe. Also related to that, there are a number of new [indiscernible] that are very promising, but also very and we have seen some elevation in the use of those drugs The second issue is a pretty significant increase in premature birth 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. S. 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 Sun births and neonatal intensive care as well. So that's that's really the second category. And the third driving factor is hospitals are increasing prices. Now obviously, the core health insurers who are underlying all of this negotiate very hard with hospitals but we are [indiscernible] hospitals being successful recently in raising the cost of inpatient [indiscernible] Some of that is the post COVID impact.

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 also that they've built back to pre COVID capacity has been to raise prices. So those are three factors we think are primarily driving the severity And those factors are likely [indiscernible] Okay.

Me give you a breakdown. I want to ask Tim a question regarding expenses. So earlier in 2024, I think it was $200,000,000 of planned expense savings. What are 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? Hi, Doug.

Thanks for the question. So on our expense efficiency program, we've made great progress on that program overall. And in the fourth quarter, we achieved [indiscernible] target 40% of efficiencies for the full year So it was 82% sorry, dollars 82,000,000 of savings that came through for our full years, let's ahead of where we thought we would be. Part of the challenge as we signaled at the beginning of the program Sun its part of factor of IFRS 17 Sun its difficult to see where expenses come through because they come through a different category. So on your question Sun 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 [indiscernible] And then when you think about from a geography perspective, almost half of that is coming from The U. S. Sun particularly in the dental business, as we've been taking a lot of expense actions there. 20% Sun coming from Canada and the remaining 30% would be in the corporate segment. These actions like we had signaled most of the savings are really coming from those geographies, but a little more Sun 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 Sun that's really what we look ahead at 2025. So we expect another the remainder of savings under the program to hit the full 200 we'll have 80% of that total efficiencies by the end of the year Sun we're on track with that But it'll be difficult to see that through the various lines. So can just report on a regular basis just in terms of where we are in that progress. Okay. And Sun Just [indiscernible] question Sun follow-up to that one Sun.

Will that be a net benefit to earnings or this really more of a story of finding cost savings to reinvest in investments, whether it's technology or growth initiatives, Yes, it's a bit of both. So we are seeing it come through the bottom [indiscernible] And I think the best way to think about this is this is embedded in our growth. Objectives, in our medium term objectives. So we really look at the overall earnings growth rate targets by each one of our business groups. This program is helping to support underpin those growth rates. And we've been pleased with the progress Sun expenses continues to be a focus really we do need to continue to invest in the businesses Sun we want to make sure that we're generating positive operating leverage. Got it. Okay. That's it for me. Thank you.

The next question Good afternoon.

Dan, a question for you, but this is nothing to do with soft launch. It does have to do with Medicaid. There's [indiscernible] themes and theories around what a U. S. Administration will do to reduce expenses and there are certain sacred cows out there like [indiscernible] Medicare, but 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. Yes, Mario, I think so we have about $2,000,000,000 of Medicaid business in round figures. Is obviously a very big part of our dental business Sun a business where market we're very happy to serve Sun have done very well in over a longer period of time, including the Densequest 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 It and this is the first draft of the House reconciliation bill. Not necessarily going to pass Sun in fact probably would change significantly from a first draft, it did propose at least in the aggregate about a 10% cut to Medicaid funding over the next ten years.

Now that however would not affect our business in that way because our business is predominantly kids. 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. Impossible to predict exactly what's going to happen. The impact on our business would likely be small subset of the 10% that is being proposed. Dental and particularly benefits for kids are really viewed as effectively sacred cows as well. I 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. So much. No, not in Sun Life. Sun Life are the only participation we have in Medicaid is is through the dental benefits.

Okay, that's fair. And then if we could go back to Q3, your response to questions around stop loss were a little bit more optimistic commentary around 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 of when Sun Life gets information that a lot of new information arose in the last [indiscernible] Was there no way to have seen this sooner?

Yes, I think so in the third quarter, what we were basing our assumptions on were and we were clear about that was utilization. We were able to see the level 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 you utilization. So we did see utilization return to pre COVID norms back earlier in the year Sun has then generally stabilized Sun then, [indiscernible] was a little surprising Sun obviously you've 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, [indiscernible] was the thing that emerged in the fourth quarter is severity of the claims. So not the number of claims, 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 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. Yes. I've just been quick to dismiss other companies' experience by saying things like, Sun Life is more conservative, Sun Life is better, Sun Life has 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 unlike the quality of some of my book is better?

Well, of course, we think so. But yes, because I think we 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, with the 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. 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 [indiscernible] 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 It's healthcare severity, which is an exogenous factor, but then it's pricing Sun underwriting where I do do agree with you, I think we shine compared to the competition. Okay.

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. To address that volatility, it's been my experience that to address volatility, there is a price to this. Is the price that we might see a marginally higher tax rate effective tax rate at Sun Life. [indiscernible] What is the consequence of reducing the flow through?

Thanks, Mario. I mean, first off, this program that we've been operating for decades, 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 Sun then the remaining assets and swaps are considered tax So to correct this, it's really around how we look at our asset designation strategy.

It was the large movements on 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 pre tax income on these assets. And that will smooth out the volatility. So you wouldn't see these distortion, but 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.

So modestly higher effective tax rate, but nothing that you would [indiscernible] caused us to worry about Correct.

I think that's right, Maher.

Modestly higher, but wouldn't take away from our medium term objectives for earnings growth.

Yes, we're still committed to that.

For sure, I understand. I just wanted I just figured it would be at least The next question is from Lamar Persad with Cormark Securities.

Yes, 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 Sun certainly you guys weren't alone on on that front. Oliver, what I am a little bit comment that you started increasing pricing in mid-twenty twenty four. So [indiscernible] I guess, claims are moving higher So then why is it surprise on the claims front?

And in Q4? I'm just trying to square that up because it sounds like you moved pricing up because it either is going to be an issue here but then we still have the big surprise in Q4.

So why would that have been reserved for earlier? I'm just trying to understand [indiscernible] Makes sense.

Yes, it does. Early in the year, remember, we saw utilization recovery 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 severity. Okay.

Okay. I 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 Sun Assurance in Vietnam. I guess, the performance in the country has been challenged for some time. I think even dating back 2023. So I'm just wondering about the timing of the impairment in 2024. And then could you kind of flush out Sun some detail on what the regulatory changes were Like was this related to changes related to bundling Sun does it feel like there could be more regulatory changes that could impact your business there?

All right. Good morning, Lamar. So let's give a bit of background Sun then get to your questions as well. So as you know, And in Vietnam, we entered into two bank assurance partnerships. The first one with TP Bank in 2020 and then with ACBanc in 2021. They're both 15 year partnerships. And as we said, we've noticed Sun 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 factors Overall, Bank Assurance sales in the market have declined by over 60% over the past two 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 starting to see some signs of reemerging growth. But 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 Sun that's what led to the write down. In terms of your second question, regulation, I mean, I think there is ongoing 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 Okay. Just the last point here on the timing, like why wasn't there [indiscernible] like an impairment even back in 2023 because I think the business was challenging that time as well Sun you guys probably run the impairment test annually or am I wrong in that? Yes, we do run it annually, but there is no bright line test Lamar. As I mentioned earlier, these are fifteen year agreements. We're making long term and we had to kind of let the facts emerge Sun I think that's kind of what's happening the last few Okay. Thank you.

Next question is from Alex Scott with [indiscernible] Please go ahead.

Hi, good morning.

I had one on stop loss, so bear with me here.

Follow-up to Tom's question earlier, the oneonetwenty disclose to us what percentage of of your incurred loss at this point. Is I'm just trying to understand if that's like pretty darn full 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?

Yes, that's a great question. At the end of the fourth quarter, we've 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 That comes in. Got it.

Okay. Sun then for my follow-up question, just wanted to see if you could give us a little more color around flow expectations, the outlook for net flows both in MFS and SLC. Ted, do you want to take MFS first Sun then Steve can take SLC here in the room?

Sure. Good morning, everyone. I think the overarching common I'd make about flow expectations is that on a given quarter or even year, predictability is going to be [indiscernible] Certainly, on a trailing basis and particularly in the quarter, it was not a good quarter for flows On the retail side, a little bit simpler and more historically consistent explanation Sun that We're holding or gaining share in a market that is in outflows. We're confident both in the long term of the market and in our ability to maintain and grow our share and when market dynamics [indiscernible] On the institutional side, which was the delta in the quarter, a number of things came together in the quarter to the negative side that would be that is a rare confluence in terms of number of large losses in our strategies that are underweight to more meaningfully underweight to the Mag Sun We've been working through a lot of these Sun they came together in the quarter. So as we look forward, we're not going to make predictions on flows, but those 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 execute on our various growth strategies.

Hi, it's Steve.

Peter. 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 we'll move around based on when we have fund closings And so this past quarter, we had a number fund closings, which really helped us. Sometimes you don't have those come together in one quarter. But 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 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 band for fixed income, And I think we'll see a pickup for infrastructure. So I don't have an exact number to give you, but we expect fundraising be higher in the coming year than it was Sun '24.

Thank you.

The next question is from Darko Mikshanak with RBC Capital Markets. Please go ahead.

Hi, thank you. Good morning. I can be quick. Dan, I just didn't understand your answer to Meny's question on dental.

Earnings. You guys had committed to U. S. $100,000,000 for 2025. Is that still on the table, is that still what you're committed to earning?

Yes, it is. And we're pleased with the progress we made in the fourth quarter there.

Okay.

And second question real quick, Dan, also on the stop loss.

You said that you achieved 14% on average increase price increase is all this happening without any plan loss?

And what is your expectation on that front?

I'm sorry, without any what loss?

Any loss of customers or anything like I think Yes. So as of oneone, the bulk of business is about 5% larger than it was oneone of last year. So we've actually grown the book modestly, of course. On the Each year, there's substantial turnover in the business. You remember, it's a one year cycle typically All the business goes out to bid [indiscernible] So we have to sell enough to make up for the cases that move and then 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 response [indiscernible] somewhat surprised in the fall to still aggressive [indiscernible] in the market in light of all of these different factors But we do see that changing now. We think [indiscernible] behavior in 2025 is going to be quite different Sun actually maybe a good opportunity for us. And that 5%, how would that compare to like a typical year for for you in that business? It is 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. Great. Thank you.

We have a follow-up from Yes. Question about the capital generation. $350,000,000 when you add the dividend, that's been around 85% underlying earnings that's an organic number. Do we know what the actual was?

Looks like just when you factor in the infrared purchase that happened in quarter or some of the outflows 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 three to $400,000,000 there Sun then 90% of MFS' 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 Hi, Thomas. Yes, it's Tim. Thanks, Tom.

I think your math is probably correct. Our organic generation after the dividends was $350,000,000 in the quarter. And that's really within the range of our target. We 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 just quarter over quarter, that was just down modestly from the prior quarter. And our dividends are up because of our increase in dividends. Our payout ratio was roughly around So on the components of that, we look at things like our new business CSM, that was strong, but some of our sales were a little bit more capital intensive than prior periods. So that's in part why that's come down. And just ongoing investments in our business. So you referenced a couple examples. So overall, The organic capital generation before dividends was around $8.40 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 there would be volatility quarter to quarter, it's going to be a function of the earnings, the dividends, and then how much the CSM growth. Those are really the largest contributors to that My question was really on that's an organic number Sun it takes out any kind of noise.

Related to market impacts.

But even if I look at So I'm trying to get what's the capital generated not organically, actually, I guess? I'll use that term faster. But if you take in generally at least 90% of the MFS earnings and somewhere in around The movement in the LICAT ratio that you have at [indiscernible] Or maybe just strictly the movement Sun the LICAT ratio at SLF in around 400 Sun or something like that.

Do you actually look at the capital generated actually versus organically and Was it significantly different in Yes. Hi, Tom. It's Kevin Morrissey. I'll take that one Sun.

Your math is right on that. We do look at actual the actual capital generation was positive and it is in the range of $300,000,000 to $400,000,000 Sun share share buyback management actions in the quarter was about minus 1.5% Sun as you know LICAT ratio stayed flat over the quarter. So the actual was positive.

Okay.

So it's interesting despite the fact that the reported number was a lot lower than what were anticipating the actual capital that you would have generated not organically, but actually really not impaired. To any extent. Am I is that a proper take Yes, 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 of Vietnam, dollars neither of those are included in the LICAT ratio, so they had no impact on the capital this quarter.

Okay. Thanks for that. Yes. Tom, it's Kevin. And I might just add to that that that, you're absolutely right that 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 remains strong, right? If you look at Canada, Asia and SoC Sun, we've had good top and bottom line momentum and strong strategies to continue to deliver results. And you see cash flow coming there Sun earnings and capital generation. If you look at MFS, an upscale endgame player. Their earnings and margins were strong And we think they're doing the right things for the future Sun they cash flow really nicely at MFS.

And The U. S. Had a tough quarter, but it's a capital life high growth business Sun it does have a bit more volatility. We have scale there. We have the experience the volatility in claims experience, both solely in stop loss and dental is consistent with what the industry is seeing. So we continue to have confidence in our strategies in The U. S. And our ability to deliver. So you did see a tough quarter. We're not trying to walk that back Sun 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. And your opening comments about given strong capital, we'll continue to execute share buybacks within your NCIB Can you give a little bit more color there?

Yes, we have room on the current NCIB Sun I think you'll see us be a strong buyer back of our shares given the change we saw today.

Okay.

Thanks.

We have no further questions at this time, and I'll turn things back over to Mr. Poon for closing remarks.

A replay of the call will be available on the Investor Relations section on our website. Thank you and have a good day.

This brings to an end today's conference Thank you for participating Sun have a pleasant day.