Sun Life Financial Inc (SLF) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Sun Life Financial Q1 2007 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference call is being recorded on Tuesday, May 1st, 2007 at 11:00 am Eastern Time. I will now turn the conference over to Kevin Strain, VP, Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning everyone. I'd like to start by saying, we have had some intermittent problems with our website this morning, but it's currently up and running if you need to get access to the slides for today's presentation.

Introducing the members of the management team present for today's call. Hosting the call we have Don Stewart, Chief Executive Officer of Sun Life Financial, Rick McKenney, Executive Vice President and Chief Financial Officer, Bob Wilson, Senior Vice President and Chief Actuary, who will present the highlights of our 2006 imbedded value calculations, Nigel Hodges, Senior Vice President of Finance, who will provide an update on changes resulting from the new Canadian investment accounting rules. Also available to answer questions are Bob Salipante, President, Sun Life Financial U.S., Rob Manning, President and CEO of MFS, and Dikran Ohannessian, Senior Vice President and Chief Financial Officer, Sun Life Financial Canada.

As many of you know, while the primary purpose of our call today is to update equity analysts and investors on our results and answer their questions, our audience also includes, media, industry peers, rating agencies, our regulators, our employees, and our distributors. And we welcome all of them to the call. I also want to highlight some changes to our disclosure this quarter. First, we have begun to highlight our operating earnings per call on a fully diluted basis. Second, we have modified the presentation of investment holdings in our financial supplement to better align with the changes required by the new Canadian investment accounting rules. The slides which speakers will be referring to are available on the Sunlight Financial web site. Turning to Slide two, I draw you attention to the cautionary language regarding forward-looking statements, which form part of this morning's remarks. This slide reviews the reasons why forward-looking statements could be rendered inaccurate by subsequent events. And with that, I will now turn things over to Don.

Thank you, Kevin and good morning, everyone. Pleased to begin 2007 by reporting strong results for the first quarter. Fully diluted operating earnings per share of $0.96 were up 14% and operating return on equity was up 30 basis points to 13.5% compared to one year ago. Not only was affected by January 1 changes to Canadian accounting rules, that increase our shareholders equity by approximately $1.00 per share and, correspondingly, reduced ROE by 45 basis points. Nigel Hodges, Senior Vice President of Finance, will provide you with an update on these accounting changes later on.

In addition to strong earnings, we made several strategic announcements during the quarter. We began the quarter with our announcement of the acquisition of Genworth Watts (inaudible) group benefits business. Integration plans continue to progress well, and we expect the transaction to close by the end of this month. We announced the unification of our brand strategy in Canada. The Sun Life brand is widely recognized in Canada, due to our leading position in both individual and group markets and is more strongly recognized by new immigrants. At the same time, our advisers have been seeking more national advertising to aid sales and recruitment and, with an integrated brand, we can more effectively achieve this goal. In conjunction with this change, there will be a significant increase in the visibility of the Sun Life brand in Canada over the next several months.

We announced innovative new products in the United States and Canada, that target baby boomers, as they enter the investment disbursement phase of their lives. This growing market can be most effectively served by the insurance industry, which has a fundamental understanding of longevity, as well as the resources to manage market risks and manufacture the sophisticated products that are needed to help individuals manage their personal financial risks. In the U.S. variable annuity market, we introduced income on demand, the industry's first-ever income storage benefit, which provides retirees with more flexibility in their annuity income. This innovative next generation living benefit combines the availability of annual withdrawals with the flexibility to store income for future use.

Introduced late in the first quarter, the new benefit has been well received by distributors. In Canada, we built on our U.S. available variable annuity expertise and announced, in partnership with CI Financial, the SunWise Elite Plus guaranteed minimum withdrawal benefit rider. This new rider builds on the well established SunWise Elite segregated funds product line. Early indications are that it has been well received by markets. Also in Canada, we continued to build on our Group Retirement Services rollover strategy which targets the retention of departing members of our group savings plan. This is an important window on the overall retirement market and we saw an increase of 35% in retention sales for these members.

We announced our strong rating from Standard and Poor's for enterprise risk management. This rating follows an extensive review of our risk management practices at Sun Life, where Standard and Poor's noted our enterprise risk management is a well established and highly imbedded discipline that touches on all decisions. During the quarter, we continued to deliver on key elements of our enterprise strategy to sustain our earnings growth, diversify our earnings platform, and expand our global distribution.

Moving to our business groups, first Canada, our individual life insurance sales grew an impressive 24% in the quarter, with increases in both our exclusive channel and our wholesale channel. At the same time, we had a solid RRSP season, with individual wealth premiums and deposits hitting a billion dollars for the quarter and with our exclusive sales force representing over 56% of CI Financial's net sales. Group Retirement Services also had a strong quarter, with gross sales of $746 million, up more than 50% from Q1 2006. Both GRS and group benefits continued to leverage their No. 1 positions in the large case group markets to grow in the mid-size market. They ended 2006 with No. 2 market share positions in the latter segment.

In the United States, we continued to gain momentum on our strategy to increase market share in variable annuities, with sales for the second quarter in a row of over $500 million, an increase of 39% compared to Q1 2006. U.S. life insurance sales continue to be strong, with U.S. life sales including (inaudible) up 83% over 2006. We continue to see good growth in sales from the independent channel, including our relationships with AM and NFP. While these life insurance sales came with significant amounts of continuing new business strain, it is important to underline, they had a positive impact on overall value of new business and were prized to meet our huddle rates.

In Asia, sales were up in all countries. Indian joint venture agency sales increased over 65% for the year, with the advisor count now exceeding 45,000 individuals in 116 branches serving 95 cities. Chinese joint venture sales for the quarter were up 90%, following a rapid expansion in 2006. We continue to build on these expansion plans in the first quarter, adding a new sales office in Yiwu, China. This increased the number of Chinese cities where we operate to twelve.

Importantly, our growth was profitable. Value of new business grew 13%, on a rolling 12-month constant currency basis. The value of new business calculation includes the cost of strategic spending on global distribution and increased new business strain, primarily in the United States, which dampened growth in VNB. My congratulations to our team at MFS, who hit a record under $192 billion in assets under management in the quarter and, sequentially, have surpassed the $200 billion mark. This growth was driven by strong market performance and net positive sales from managed funds.

(Inaudible) sales for the quarter $200 million. MFS managed fund assets under management were up over 21% over the past 12 months to exceed $103 billion. We continue to win mandates in this space and were in positive net flows again this past quarter. Fund performance was strong, with 74% of funds in the top half of Lipper data for one-year performance, 82% if funds in the top half for three-year performance, and 75% in the top half for five-year performance. In particular, our international funds had outstanding performance results, as evidenced by 43% of these funds being in the top quartile and 86% being in the top half for three-year performance.

Fully diluted operating earnings per share of $0.96 for the quarter was up 14%, well ahead of our 10% objective. This growth was driven by significant improvements at MFS where pretax margins were 34% up 800 basis points over Q1 2006, due to higher assets under management and cost efficiency. Significantly higher than expected earnings from the United Kingdom were offset by significantly higher new business strain in U.S. individual life. We continue to be focused on long-term profitable growth. The nature of our businesses, coupled with the present value dimension of Canadian accounting rules, generates fluctuations and volatility quarter-by-quarter as evidenced by the U.K. results and U.S. new business strain this quarter.

In summary, we are pleased with our overall earnings growth for Q1 and with the quality of our earnings in particular, as evidenced by the significant growth in expected profit. Our operating return on equity of 13.5% for the quarter was up 30 basis points. This improvement was driven by improved earnings and our share buyback program. Our dividend payout ratio was 33%, well within our target range of 30 to 40%. Since becoming a public company, we have increased our dividend at a compound growth rate of over 20% per annum. Our consistent earnings performance allows us to continue our track record of steadily increasing quarterly dividends to shareholders.

During the quarter, we bought back more than 2.4 million common shares, and outlay of $124 million towards our objective of purchasing 500 million of common shares for the year. I want to end my formal remarks with a comment on the proposed changes to the deductibility of interest for foreign subsidiaries. Like many international businesses in Canada, we are concerned that this proposed change will have a negative impact on Canadian companies' ability to compete abroad. International champions are important to the overall Canadian economy, providing jobs in Canada, building strength in our domestic operations. While almost 50% of our enterprise is in Canada, Sun Life has been an international company virtually from our charter in 1865, moving to Asia in 1892, the U.K. in 1983, and the U.S. in 1895.

As a result, we employ over 14,000 people worldwide, with over half of those employees in Canada. We leverage our international presence through product, technology, and people sharing across countries. For example, our new SunWise Elite Plus GMWB in Canada, as I mentioned, is designed using the expertise of our U.S. VA business, including our approach to the dynamic hedging of the guarantees in the product. Our U.S. group benefits business uses Canadian group benefits technology as its foundation.

My overall point is that Sun Life is one of Canada's international champions today. We need to maintain an internationally competitive tax environment to support the future actions that we and our peers must pursue, in order to remain in the international championship league. With that, it's now a pleasure to hand over to our Chief Financial Officer, Rick McKenney, who will walk you through the quarter results in more detail.

Thank you, Don, and good morning. Taking you to Slide 6, we had a solid quarter for earnings per share in our OE group. Fully diluted operating earnings were up over 14% to $0.96 per share, driven by excellent results at MFS and our Canadian group businesses, good growth in Asia and an unusually strong quarter from the U.K. These increases were somewhat offset by lower earnings in the U.S, mostly because of continued high new business strain in individual life.

Operating ROE for the first quarter was 3.5%, driven by strong earnings and efficient capital deployment. As depicted on the side, operating ROE would have been 14% this occur. It was reduced by 45 basis points as a result of $564 million in opening equity adjustments, required by the changes to Canadian investment accounting rules. This also resulted in an increase to our book value per share by approximately $1. Our sources of earnings this quarter, which are set out on Slide 7, show that expected profit continues to grow nicely at 19%. The majority of this growth is from our asset management businesses. They have benefited from asset growth on strong equity markets and positive flows.

Moving to the impact of new business line, in first quarter we saw a significant increase in new business strain. We continue to experience high levels of strain from U.S. universal life sales. There was a dramatic increase in this line from last year, as well as some increase compared to the fourth quarter. This is driven by the same dynamics as last quarter. And as the mix has moved almost fully to the new product, we are seeing strain increase. We continue to develop different funding solutions to help alleviate this excess strain. I will remind you of a couple of points here that Bob Salipante laid out in first quarter -- or last quarter.

First, actions in this product line take a significant amount of time to come through the results. It can take six months for internal action to result in improved profits because of the underwriting and processing necessary in the high net worth market. Second, strain is a reality in this product line and, even after a funding solution is in place, we will not see all the strain come back into income in the short term. And we will continue to have strain on new sales. Third, funding solutions take time, especially with the complexity of (inaudible) universal life products. We are working with regulators and rating agencies and are looking to 2007 as a goal for implementing a new solution.

Bringing it back to the overall picture, we saw positive experience gains again this quarter, driven by favorable credit experience in the U.S. Management actions and assumption changes were also positive due to increases in the U.K. and a number of other items across several segments. As we have noted on the slide, this line includes the effect of the special charges we took this quarter. And finally, the effective tax rate for the quarter on an operating basis was 17%, slightly below our stated objective of 18 to 22%. Including the charges, 104% of pretax earnings came from expected profit plus earnings on surplus. Adjusting for the charges, the ratio drops to 92%, which still speaks to the ongoing earnings power in the company.

Now let's go from the bottom line to the top line, depicted on Slide 8, we again saw excellent top line growth this quarter across the company, with total premiums and deposits up 27% over the prior year. Life and health premiums grew 7% over the prior year. We saw broad-based growth across the globe. We continue to develop offer and competitive products, as we build out distribution in both our wholesale and retail channels. Deposits also grew strongly and were up 31%. Mutual fund sales continue to progress well, as our performance continues to improve. We also saw good growth in segregated fund sales in Canada and we continue to see progress in U.S. variable annuity sales also in the first quarter.

Turning to Slide 9, as we look at our future earnings streams, our value of new business grew to a solid -- grew a solid 13% for the last 12 months to $790 million. We see value of new business as an indicator of how earnings growth will be achieved in the future. You will see that a significant part of that growth will come from insurance operations around the world. In a moment, Bob Wilson will walk through how this is incorporated into the overall imbedded value of the company. Total company assets under management continue to build, as shown on Slide 10. We have discussed the growth at MFS, but we are also seeing assets grow in each of our geographies. From the combination of strong equity markets, good retention rates and growth from new sales. I would also note that markets valuing our stocks, bonds, and other financial instruments under the new investment accounting rules added $4.2 billion to the quarter.

Turning to our capital position, we ended the quarter with a 223% MCCSR capital ratio for Sun Life Assurance Company of Canada. We still expect our group acquisition to close in the second quarter and, as we mentioned before, the acquisition will reduce this capital ratio by between 10 and 15 percentage points at that time. As part of our program, we will pay a premium to call our cumulative capital securities. As these were costing us slightly over 8.5%, we are still well ahead on a net present value basis.

Looking ahead, the plans have not changed for the year. We still expect to repurchase $500 million of our shares and keep our payout ratio consistent. After these considerations, we would look to end the year with between $1 to $1.5 billion of excess capital, always exploring ways to further efficiently deploy our capital. Let's look more closely at the business group results for the quarter beginning on slide 12. Earnings in Canada grew 7% and ROE grew to a solid 14.3%. Top line growth in the quarter was again impressive on the strength of strategic initiatives to extend our reach.

Initiatives in the quarter included our rebranding of the exclusive sales force to Sun Life, increased penetration in the Canadian individual wholesale channel and extending our industry leading large case group platforms into the mid case market, where we secured a No. 2 position in 2006 for both group benefits and group retirement services. Earnings growth was driven by improved results in the two group businesses, primarily for more efficient management of the (inaudible) somewhat offset by lower earnings from individual insurance and investments.

On the sales front, individual life and health insurance sales are up 16% overall, with increases in both the career sales force where we are seeing improving productivity and in the wholesale channel, where sales were up over 40% as we continue to deliver on our growth strategy. Individual wealth sales were up 13%, as our payout annuity and mutual funds were strong through the RRSP season. Our Sun Life advisors continue to be an important partner for CI, delivering 36% of their net sales and almost 20% of their gross sales during the quarter. We were pleased to announce, in partnership with CI, the launch of our SunWise Elite Plus guaranteed minimum withdrawal benefit rider in mid-April. Initial indications are that this product has been well received by both our exclusive channel and our wholesale channel and is well positioned to compete in this important developing market.

On to sales on Slide 14, Group Retirement Services plan assets under management grew 15% on equity market growth, strong sales and excellent retention rates. We continue to be recognized for our leadership position in this market by customers and market sources. Gross sales grew more than 50% from a year ago, with several large installations, including Prairie Mines and Kraft Canada. Group benefits business in force also grew a solid 9% over 2006. We continue to be recognized for our service and technology leadership in this highly competitive market and have been actively taking this leadership position into the medium-size case market with good success. The most recent Benefits Canada magazine showed that we achieved the highest group premiums and deposits growth as compared to our competitors, with our market share increasing to 21%.

Turning to the U.S., on Slide 15, earnings were down quarter-over-quarter in individual life and annuities. We've already mentioned individual life new business strain, however annuities earnings were stong this quarter on favorable credit experience and good growth in income. On a comparative basis, annuities earnings were lower than a year ago, as we are no longer seeing the benefit of the GMDB reserve releases experience in the first quarter of 2006. Fixed annuity spreads were 223 basis points in the quarter, up significantly from Q4 as we experienced credit recoveries.

Group life and health results were negative, but flat to last year, due to seasonality, as a higher number of disability claims typically come in during Q1. Turning to sales, we saw positive improvements for both variable and fixed annuities. Domestic variable annuity sales in the first quarter of 2007 increased 39% over the first quarter 2006, as we continue to execute on our distribution and product development strategies in this business. This increase in sales cut our net outflows in half as redemptions continue to occur at expected levels. We are also seeing early signs of success with a new income on demand product, which had sales of $37 million U.S. in March or 18% of the total sales in that month.

Overall individual life sales are up 83% on the strength of a large (inaudible) sale made during the quarter. Core insurance sales orders fell 18%, as sales of the new lifetime protector product did not offset lost sales of the discontinued product. Group life and health insurance business was up 18% over last year on growth and net sales, the conversion of the medical group insurance services business and good retention. If I then take you to Slide 18, you will see that MFS had another excellent quarter, with earnings up an impressive 36% to $61 million U.S. Pretax margins for the first quarter improved to 34% from 26% one year ago.

Fund performance also continues to improve with 91% of domestic equity assets ranked in the top half of their Lipper category for three-year performance. On the sales side, managed fund sales of $800 million U.S. resulted in positive net flows in this quarter, as net outflows of retail mutual funds slowed to $600 million. When you combine this with good, continued -- continued good equity markets for both retail and managed funds, we ended the quarter with $192 billion U.S. dollars in assets and, as Don noted, broke through the $200 billion mark in April.

And finally, on Slide 20, we turn to Asia. Earnings in Asia were up 58% over the first quarter of 2006, including the benefits of our Hong Kong acquisition. And in building and futures, sales in Asia were up 31% with increases in India driven by a growth in the sales force of 45,000 agents and the addition of advisors in cities in China, the Philippines, and Indonesia. We continue to develop Asia into a significant long-term revenue and earnings growth operation.

In summary, Sun Life had a solid quarter in Q1. We had several significant, strategic announcements, which better positioned us to grow, including the group acquisition, the re-branding of the Canadian exclusive sales force to Sun Life and new product offerings. We also saw excellent top line growth in premiums and deposits in all geographies. We exceeded our objective for fully diluted operating EPS growth, delivered steady ROE improvement and continued to return capital to our shareholders through dividends and buybacks. This concludes my portion of the presentation. And I'll turn it over to Bob Wilson to present our 2006 imbedded value highlights.

Thanks Rick and good morning, everyone. Turning to slide 22 you will see we delivered significant growth in imbedded value and value of new business in 2006. As some of you will know, embedded value and value of new business measures seek to illustrate the present value of the stream of income over time. Growth in imbedded value and VNB are, therefore, important measures of whether a company is growing profitably. Sunlight Financial's embedded value of $17.2 billion as of December 31st 2006, was up 14% over last year. EV per share of $30.21 was up 18%. Embedded value from operations -- that is to say before changes to the discount rate and the effect of currency and capital transactions, grew to $18.4 billion, up $1.9 billion or 22% from the beginning of 2006.

Value of a new business, which we measure on a constant currency basis, grew by 10% to $823 million. And finally, I will note that Towers Perrin, an independent consulting actuarial firm, has once again confirmed the reasonableness and consistency of our EV methods and assumptions. With that, I will hand over to Nigel Hodges to speak about the changes to Canadian investment accounting rules.

Thank you, Bob. Good morning everyone. Turning to Slide 25, it is my pleasure to be able to give investors, analysts and others on a the call, a brief walk-through of the new Canadian investment accounting rules for the recognition and measurement of financial instruments. These rules came into affect January 1, 2007 and are really the first major step towards aligning Canadian GAAP with international GAAP.

First, it's important to note that there is no change to the underlying economics of our business as a result of these new accounting rules. That is, we have not changed our investment policies or our approach to mix of quality of assets. Second, the bottom line impact mainly relates to invested assets back in capital, as actuarial liabilities are, for the most part, similarly fair value to reflect the changes in the underlying invested assets. What did change was our common shareholder book value, increased to $564 million or about $1.00 per share. This resulted in a corresponding decrease to operating ROE of about 45 basis points.

There was also a small decline in MCCSR from these changes, as a result of the higher required capital on invested assets, due to increases from fair values. Only a small part of this increase in required capital is evidenced in the first quarter results, as there is an eight-quarter transition period. For those of you less familiar with the new accounting rules, let me briefly walk through the highlights, beginning on Slide 26.

First, as a reminder, under the old rules in Canada, equity-type investments were moved to market over time. This means that unrealized gains or losses on these invested assets were gradually recognized in income. As the same time, realized gains and losses on all invested assets were deferred and amortized into income, creating deferred net realized gains or losses on the balance sheet. In Sun Life's case, we had substantial realized and unrealized net gains at the end of December, 2006. These deferred net realized gains were recorded to retained earnings on January 1 for stocks, bonds, and other invested assets.

Invested assets, other than real estate, were then assigned to one of three categories: held for trading, available for sale, or loans and other. We did not use the held to maturity category. Held for trading assets are recorded at fair value on the balance sheet and changes go through earnings. Available for sale assets are recorded at fair value on the balance sheet, with unrealized gains and losses going through other comprehensive income or OCI and only realized gains and losses go through the income statement. Financial instruments, classified as loans and other, are recorded as amortized costs with impairments recognized in net investment income and realized gains and losses also recognized in income. The accounting treatment for real estate did not change.

Turning to Slide 27. For the most part, invested assets backing (inaudible) were classified as held for trading. This effectively resulted in the fair valuing of the reserves to the extent that their corresponding assets were at fair value. Assets backing capital were primarily designated as available for sale, meaning that the unrealized gains or losses on these assets would go to OCI and future realized gains or losses would go through earnings. At the same time, certain private placements, which had formerly been included in bonds, were moved to corporate loans.

Turning to slide 28, the new accounting rules change how ethic quality impairments should be reported. Bonds and other invested assets, which are considered held for trading, will be marked to market each quarter and this change will also include any impairment. Available for sale bonds will continue to have writedowns for other than temporary credit impairment. Accounting for any impairments of mortgages and corporate loans will not change.

Turning to slide 29, the end result of the new investment accounting rules was an increase to common shareholders' retained earnings of $205 million, an increase of $6 million to (inaudible) policy holders, and an increase to OCI of $359 million. Retained earnings were impacted by the write-off of deferred net realized gains on invested assets backing capital of $580 million pretax, offset by reserve strengthening and taxes. Comprehensive income reflects the fair values of available for sale assets and various hedges as shown on slide 30. Changes in the quarter include realized gains on AFS assets reclassified to net income, as well as the changes in unrealized gains and losses on the FS assets and changes to the currency translation account. As a result of these changes, you will see more volatility in net investment income.

In Q1, changes in the fair value of held for trading assets and losses on derivative financial instruments, resulted in $102 million and $99 million respectively, of reductions to net investment income. I also want to point out, that net investment income in the first quarter of 2006 included $158 million of realized -- of amortization on realized and unrealized gains on stocks, bonds, and other invested assets. However, the majority of this amortization would have been offset by similar changes to actuarial liabilities.

Finally, on slide 32, the real tangible impact to earnings came from realized gains on AFS assets of $31 million pretax in the quarter. However, last year our earnings included a comparable amount of amortized gains. These were running at approximately $120 million per annum. The AFS balance of net unrealized gains, with stocks, bonds, and other invested assets in OCI at the end of Q1 were $381 million pretax. And that amount is net of unrealized losses of over $60 million. And with that brief summary, I will now turn the call back to Kevin.

Thanks, Nigel. Before we open the call to questions, I would ask each of our participants to limit him or herself to one or two concise questions and then re-queue with any additional or follow-up questions. We will make every effort to take all your questions before ending the call. With that, I will now ask the operator to please poll the participants for questions.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. Your questions will be polled in the order in they are received. (OPERATOR INSTRUCTIONS) One moment for your first question. Your first question comes from Timothy Lazaris from GMP Securities. Please go ahead.

Hi. My question, actually, I have two questions. The first is the U.K. earnings and the increase in the U.K. earnings. I'm not sure I followed in the presentation what caused that, whether this is due to management's actions. Was there a reserve release of some sort and how sustainable that it was and then I have a follow up question.

Certainly, Tim. This is Rick McKenney. Let me answer that. It was higher than expectations or run rates. It was roughly double what we would normally expect in that line, driven from three non-correlated items are some reserve release and also a change in our deferred tax liability. So there were some unusually high items there and we'd expect it to be about half that level.

All right. And then my second question was relating to this SunWise rider product, the guaranteed minimum withdrawal product with CI in Canada. You comment on your initial reaction to it by the different channels and, clearly, one other Canadian company has had an earlier jump on this product and seen great success. Is there anyway for us to gauge what your view is on how much success you will get in this product and similar to what your competitors have had or is it just too early to talk about any numbers?

Dikran Ohannessian. Let me answer that question. We believe we have an attractive product that will be successful in the marketplace. When you try to compare the results of our product to the others, it would probably be a bit difficult because ours is a rider. And we design it as a rider, which allows us to add it to existing Sun Life Elite policies and could meet the evolving needs of our customers. So when you look at adding to an existing and new sales, an existing addition will not have the impact of new sales. Will it have an impact on our block? Yes, it will and we believe it will be very successful as we roll it out.

And, Timothy, it's Don Stewart. If I could just add a general supplement, with baby boomers moving into retirement, we expect this kind of product to generate a very successful reception in general across the industry. It's just a product that is in tune with future income needs with all the changes that are going on in both governments and defined benefit pensions. So this is against a background will be a very favorable environment over the next 5 to 10 years.

Thank you very much. I'm sure there's other questions.

Your next question is from Steve Cawley from TD Newcrest. Please go ahead with your questions.

Hi, Don. In your opening comments, tou talked about the quality of the and I can appreciate your perspective, with VNB and with embedded value growing nicely. But a skeptic who's looking at earnings might say you're suffering significantly from strain right now and, to compensate, your releasing reserves in the U.K. and management actions were about $160 million, if you exclude the charges. So my first question is can you talk to that? And more importantly for me is, if this strain is going to persist, do you have other pools of reserves that you can use to offset the impact?

Addressing that in order you raise it, Steve, we believe the end result is broadly reflective of the company's earning power in the quarter going forward. And I also mentioned in my opening remarks and, particularly exacerbated by the present volume dimension of the accounting regime, there are moving parts and there's volatility quarter-to-quarter. And indeed it turns out that the particular issues of release in the United Kingdom are roughly of the same order of magnitude as to what was happening in the strain in the United States. And in terms of assumption changes, assumption changes are made up of positives and negatives and come out differently each quarter. So we still come back to the perspective that, when you add the fundamental and inevitable moving parts of a long-term business that's present valued each quarter, that we believe we end up in a position that reflects the ongoing earning power of the enterprise.

And turning specifically to the United States strain, as Bob mentioned -- Bob Salipante mentioned in the last call, we expect the strain to continue, but we expect to have a solution in place during and by the end of calendar 2007. At this stage as you know, we don't make earnings projections. We are in pursuit of our longer term goals, which are well laid out in the MB&A for the year and so I wouldn't comment specifically on the next quarter. But we do expect to have a solution in place by the end of the balance of the year and I believe Rick also mentioned that in his comments.

I just worry that you could talk about embedded value and new business value 'til you're blue in the face, but next quarter if you can't offset the strain somehow and the earnings number falls well short of the 96 you reported today, that the market reaction isn't going to be quite, quite -- very positive. So I'm looking forward to hearing more. I don't think your going to offer much more on the strain issue. It's just unfortunate that it is so significant and it seems -- it's not just the U.S. business. This quarter it seems like it's coming from other areas as well.

We continue to invest in new business and this is one of the points that we've endeavored to highlight. If you look at the global distribution of the corporation, we continue to invest significant amounts of money in pretty much every field where we distribute product and some of the sales increases -- if you think of China being up 90%' Indian agency up 64%, individual life in Canada up 24%, GRS up in the 50% range. These are pretty big numbers and, in and of themselves, speak to a major commitment to growing the business.

I'll stop there before I get the strain reprimand.

The next question comes from Tom MacKinnon from Scotia Capital. Please go ahead.

Yes, two question. One, the first is a quick one and then, the second on is just a strain follow-up question. You also point out in the release, that in Canada there was an increase in tax -- in the corporate segment, there was an increase in tax provisions for withholding taxes on unremitted earnings. I was wondering what that might -- what the impact of that might be and then follow-up with respect to the strain.

Certainly, on the tax in the corporate segment it's really a recognition of taxes as we move capital around. You saw in the quarter, the cumulative capital security redemption and will feel that impact, as we continue to move capital around the company.

So, but that was -- it seems to be in addition to both the premium (inaudible - background noise) on the capital securities and the brand recognition charge.

That's correct.

So you're not going to be able to put a number on that, on that third point? On the increase in tax provisions for withholding tax?

That is about $0.03.

Okay. So, that was -- that (inaudible) to the tune of about $0.03.

Correct.

Okay, thanks. And then just a quick follow-up here. With respect to the strain issue, can you take us through what needs to be done? I think there was a, some -- do you need to issues some more senior unsecured, in terms of putting up a new funding arrangement. Could you just give us some milestones, as to what needs to be achieved between now and the end of the year? Just give us some confidence that -- to not necessarily changing our numbers next year for the strain issue going forward.

Certainly. This is Rick. Let me start on the -- you mentioned the unsecured, which is kind of balance sheet, and then I'll turn it over to Bob to talk more about product and what we need to do on that front. From a senior unsecured perspective, that was for general corporate purposes, those unaware, it was $250 million issuance that we did this quarter. But we do look at that in terms of funding the overall balance sheet. In terms of execution, on what we have to do over the course of this year, I'll turn it to Bob.

Okay, Tom. This is Bob. Addressing this strain situation is obviously our top priority and we're focused on bringing the current level of strain down to more normal levels as soon as we can. Although core universal life sales are down in this quarter, strain is up, mostly from business mix, as the proportion of UL sales from the new LP3 product, which does not have the full benefit of a new funding solution, increases. Let me give you some numbers. Total UL sales in the U.S. decreased in the quarter over the fourth quarter of last year. However, LP3 sales, our new product, increased 40% and accounted for 75% of our total UL -- core UL sales, up from 40% in the fourth quarter. So that's the mix shift.

As I indicated on the last call, funding approaches have evolved and we want to diversify our approach here. This area continues to be very dynamic and we want to be sure that we take the right approach, both for the business and Company as a whole. So we're taking time to consider the alternatives and implement the best one. Even then, funding solutions take a good bit of time to put in place. There are a number of constituents to deal with -- regulators, rating agencies, and of course, there are several other applicants that these organizations have to deal with. We're focused on bringing the current level of strain down to more normal levels, as I indicated, and we'll do that in a number of ways. And accordingly, we have taken pricing actions twice in past four months, once in January on our Survivorship LP3 and again in April on our Single Life LP3 to further strengthen profitability in this product line.

You did? You've done two pricing changes in 2007, is that right? One in January and one in April on LP3.

We did on on the Survivorship and then we came back and did one on the Single Life side, Tom.

Okay. And just a follow-up to Rick. That that $0.03 that you noted, in terms of increases in tax provisions for withholding taxes on remitted earnings, is that in addition to the $43 million and $18 million for the redemption of the accumulative capital securities?

Yes it is.

Okay. Thank you.

Your next question comes from Mario Mendonca from Genuity Capital Markets. Please go ahead.

Good morning. First a detailed question and then a more broad question. Management changes assumptions, and you'll have to forgive me, I was bumped off for about 10 minutes. Problem at my end. Page 7 of the presentation -- $81 million management accents changes and assumptions. That I presume, the $61 million after tax, associated with the 43 and the 18, would reduce that 81. Presumably it's like -- call it, if we tax effect the 61, call it 75, we're really looking at a number like 156 in there. Is that is correct?

That's correct.

So $156 million in management accents changes and assumptions and what would you say would be the biggest portion of that? Are we looking at maybe the stuff in the U.K?

The, the U.K. would be a piece of that. You're really seeing it in a multiple number of smaller items across the board. But the U.K. is certainly in there, some of the excess returns we talked about.

So the, sorry, the excess return? I may have missed that.

Yes, we talked about in an earlier question that the U.K. results were roughly double what we would expect.

Oh yeah, yeah, yeah, I got that. So these -- the U.K. is clearly part of it, the group benefits in Canada, the reinsurance in group, well -- all three of those presumably would be part of that.

That's correct.

Thank you. The, sort of, the other question, maybe a more broad question and maybe Don, you might want to address this one. We loo at your U.S. business, you've got your fixed annuities, which were spread (inaudible), the variable annuities, which didn't -- really didn't make money for a while, when the equity markets were tumbling, group insurance, whenever claims are a little high, you fall into a loss position and now individual life -- strain is a bit high, so you can't make money there either. It tells me that each of those businesses on their own is just too small. Because little things are causing them to fall into loss positions. In aggregate, the U.S. business is big, but the -- individually, they just don't have the scale. When you look at your U.S. businesses, all of these little businesses individually, are you more prone to shut one of them down and say we're not doing well here -- we're not doing well enough? Or are you more prone -- are you more apt to want to buy something to bring them up to the scale necessary?

I think, Mario, that's a fairly diverse question. So let me try to give you a broadly base answer and look at the businesses piece by piece. You've left out an important business that's a very key for us and that is our international offshore business, that runs in tandem with our U.S. business and indeed, generates significant additional platform for us to grow sales going forward. So, that's an important added dimension.

We've acknowledged that we need to grow our United States business. And indeed, in our employee benefits business, we're in the middle, as you well know, of consummating a transaction that will lift the scale of the U.S. group business. But notwithstanding that, the U.S. group business has grown at double digit rates, both top and bottom, for well over a decade.

If you look at last year, despite the seasonality of the first quarter, the business delivered a pretty solid result across the year and it gets back to the fundamental business we're in, which not only is affected by present value, it's also affected by the real fluctuations and morbidity and mortality that are a fact of life. So, if you go business by business and you look at the very strong increase in the VA sales that we've been experiencing. The time you spoke about were very difficult markets, where the industry was in retreat in general for a significant part of that. I would have a much more optimistic outlook for our U.S. business. Having said that, we continue to be in the (inaudible) stream and, as you saw, with the employee benefits group acquisition, we will perhaps come forth with further strengthening of the business. But my perspective on the business, is considerably more favorable than your opening summary of it might lead one to conclude.

Kevin, do I have time to respond or should I just re-queue.

If you could re-queue, that would be great.

I'll do that. Thank you.

Your next question comes from Andre Hardy from RBC Capital Markets. Please go ahead.

Thanks. Sorry to go back to the strain, but there's clearly two things happening. Your sales are up, if we look year-over-year, and your margins have collapsed, because of this funding issue. Do can you disaggregate for us, the difference between the who, so we can get an idea what normal means? And my second question relates to MFS, to focus on something a little more positive, but your margins stayed nice and high, in line with Q4. You had mentioned in the last call, that you intended on investing more in advertising and wholesaling. Is that something that's just going to come through later during the year?

Okay. It's Bob Salipante. I'll take the strain question. The product is priced presuming funding solutions. So when that solution is put in place for our LP3 product, it'll meet our internal rates of return and will deliver growth and expected profit in the future. As I indicated on the last call, as the proportion of our business shifts from the old product to the new product, the proportion of strain increases, and so I'll repeat the numbers that I provided before, but essentially that is what's driving this result.

Maybe a different way to ask it, Bob -- you'll obviously have a big -- sorry, you're hoping to have a big positive change in assumption when you put in a new funding structure. Are you able to hazard a guess as to the magnitude of how much of that strain would come back there?

In terms of the impact of the new funding solution, I think it's too -- a bit too early to say exactly how that will come back. We don't expect that all the strain we're seeing now will come back in the future. The funding structure is not the only driver of strain and it's difficult, as Rick mentioned, that there is some first year strain in these products, but we do expect some of this will come back.

For the second part of your question, Andre, I would ask Rob Manning, who's on the call to respond to the MFS question. We may have lost Rob, in which case --

Rob is here. Could you repeat the question please?

Yes, Rob. You had, once again, really good margins. The comment after Q4 was that you should be cautious, because you wanted to invest more in wholesaling and advertising. So is that something that's been delayed or you, you did other things that helped your margin in the quarter?

Well, the first quarter for us typically is a high margin quarter, because we pay out our bonuses and our -- what we call merit increases or salary increases after the first quarter ends. So we do have that hitting us in the rest of the year. One of the things that is clearly helping us is our average net assets are up significantly above where we had budgeted. So, even though we are going to spend more going forward in promotion advertising, as well as wholesaler, the 32% margin goal that we had for the year looks like it's going to be fairly conservative, if the markets hold up. So with expense controls and the strong market that we've had, it's been a nice wind at our back.

Thanks for the answer.

Your next question comes from Eric Berg from Lehman Brothers. Please go ahead with your question.

It's almost time to say good afternoon, but not just yet, I don't think. So for now, still, good morning to everyone. My question does indeed relate to the strain issue. First can someone remind me -- since I believe this relates heavily to U.S. statutory accountings regulates A triple X, as it relates to the reserving, I guess, for no-lapse guarantees on these types of life insurance policies, why would this be having such a profound effect on your Canadian GAAP results?

Eric, it's Bob and perhaps Bob Wilson can supplement. Essentially, we're accounting for a U.S. actuarial rule under C GAAP. So, when we warehouse the A triple X business, as we're doing, as we put in place a new structure, the Canadian practice to reflect the temporarily higher A triple X funding costs across all future periods, produces for more strain than a U.S. firm would experience in the same situation of warehousing A triple X business in preparation for a funding.

Are you saying -- if I could try to rephrase to make, Bob, I understand your point -- that even though this is technically a U.S. statutory rule, Canadian GAAP is embracing it, basically?

Those reserves are attached to the business, and so, have to be reflected.

Okay. I had a follow-up question, but was there something that the actuary wanted to say or is that pretty much covered?

Eric, it's Bob Wilson. The issue from a Canadian GAAP reporting standpoint, is basically related to the cost of providing letters of credit or other supports to the NAIC reserve levels. And you would have -- if you make the assumption that you're going to have to put letters of credit up for the level of the reserves, then what you end up doing is present valuing the cost of letters of credit for the next 50 years into the Canadian reserves, with no offset from favorable tax advantages, which generally are how people in the States are looking at funding the business. And the alternative is to be getting full tax credit for the excess reserves that are established in the U.Si. which a lot of companies do through a Carolina-based company or a Vermont-based company. And at the present time, because we do not have such a company, we are not getting the tax credits in the U.S. for the excess reserves.

I see. And I follow enough of it, maybe not 100%, but enough of it to get the idea. That you're getting sort of a telescopic or telescoped or accordion affect, an exacerbated effect because of the present value (inaudible) repeatedly referenced. I get that. And that's helpful. My second and final question goes back to the group insurance business. Obviously, many of us are following a number of of group insurers in the United States and I'm not aware of any of them talking about why the business should do particularly less from a profit point of view, in the March quarter than in any other quarter. Hartford has its earnings, Reliant Standard has its earnings and StanCorp has its earnings. What is it about the complexion of Sun Life Financial's references in group insurance that is different, that basically erases the profit in the March quarter?

Eric, Bob. I can't speak to others. What I can say is that we have seen a pattern, that has recurred for the last three years. Where we have this experience.

Uh-huh.

And I can't really comment on the drivers, other than to say we have seen it repeat.

Okay. Maybe Kevin and I can get into this with you when -- maybe a little bit more later.

Thanks very much.

Your next come comes from John Reucassel from BMO Capital Markets. Please go ahead.

Thank you. And I guess I'll go after the individual life a little bit more, Bob. Just, I want to make sure I understand the offshore business. What is the mix of the offshore business and the U.S. business?

The offshore business is smaller. I can't -- in terms of in force premium and in terms of new premium, it is, it is quite a bit smaller.

Is it 10% or 20% of the U.S. business?

I think Kevin can pick it up after. I don't want to --

Okay. Because I assume in the past you've had -- you've talked the ROE and the individual life business of 20%. And I assume, I assume that the offshore business remains as profitable as it has been in the past. Is that correct?

That's correct.

Okay. So it's it's -- all the U.S. business. What's a normal level of strain, Bob? Is that relative to sales you're talking about or is that target of returns or what is a normal level of strain?

Say, perhaps on this product, 10 to 15% of total premium.

New premium?

Total new premium. Target and dump in.

Okay. And is this coming -- the strain coming -- I think you said in the last call, it's mainly in your new distribution channels that you signed up last year. Is that still case?

No, we're selling this product across both our historical brokerage and new brokerage relationships we have. The new relationships represent about a third of our new premium.

Okay. Okay. So the -- given that the offshore is still -- okay, I understand that. So -- and I guess the question, Bob or Don -- or Rick -- I guess when I look at this in 2008, because 2007 looks like it's going to be another tough year, with the strain. What, what -- like, if it's just, you're not getting the right funding solution on the recovery, when do you say that this business we just -- how long is this going to last, if it's still a struggle? What should we be watching here for?

This is Bob. I'll take it. Once we get a funding solution in place, in conjunction with some of these pricing actions we've taken this quarter, we would expect to reestablish our run rate for the business.

Okay. Okay. And last question, Bob, just (inaudible) the fixed annuity spread, the 223. You said it was all recovery, or I think Rick might have said it. If you took out the recovery, what was the spread in the quarter?

I've been giving a forecast. We think, given the current credit environment, that we'd forecast 190 to 200 for the year.

Okay. Thank you.

Your next question comes from Darko Mihelic from CIBC World Markets. Please go ahead.

Hi. Thank you. My question is -- was partly answered there with respect to, I guess, 10 to 15% strain as a percentage of new premiums. And maybe this answer is right in front of me somewhere, but I just can't find it. What is the current strain on that same product?

We're, after tax, reflecting over 40% at this point.

Okay. That's very helpful. Thank you. Maybe just to switch gears a little bit, looking back at Canada. Individual insurance -- $146 million of earnings. If I make a simplifying assumption and just assume that CI brought in about $33 million, it means the underlying earnings at individual insurance ex-CI are somewhere around 113 for the quarter. That would compare to, what' $128 million last year or about a the 12% decline year over year. I wonder if you could maybe just point out, or just guide me to what's causing that decline ex-CI in Canada?

Actually you need to look back to the first quarter of 2006, where we had some unusually favorable investment experience. One -- more of a one-time item.

And if I do it, actually, for the last four quarters, it would show a similar trend of declining earnings. Would that also be representative of the investments gained, is that right?

If you look at it, there has been some movement, but there is some investments. But, I think what you're looking at is, quarter-over-quarter in the business unit, there will be some fluctuation and volatility, but at the strength of the SLF Canada is not only individual, it's group benefits and GRS and both have had good quarters. And so, when you look at it, as of a kind of total perspective, we're up 7% over the previous quarter.

Okay. So there's nothing, I guess, inherently -- okay. I suppose that's an answer. Thank you.

Your next question from Michael Goldberg from Desjardins Securities. Please go ahead.

First I'm looking for a little bit more granularity in the embedded values numbers from Bob Wilson. So of the $823 million VNB for the year, how much came from currency?

I don't have that number at hand. It's not a significant item coming from currency.

Is it about the same proportion as last year?

To be honest. I can't say, Michael. I don't have the numbers available to me. The currency went the opposite direction, compared to the previous years. If you look at the imbedded value, for the first time in five years, you see where currency was a positive to EV, as opposed to a negative. But we do look at the value of new business on a constant currency basis. So the 10% increase that we show in VNB is 10% ex-currency.

Great. And 63 experience variance and changes in assumptions, how much of that is equity experience and how much credit?

With regard to that, I think the first thing we need to do, is actually -- if we're doing a compare between '05 and '06, we need actually to look at the effect of the risk discount rate, as well. Because if you'll notice, we have a minus 240 for risk discount rate. Last year it was plus 300 and change. When you change the risk discount rate, you also change the growth assumption for future growth in the stock market and also in the -- what you earn on bonds. So you really take -- to some degree they're offset, so you should probably combine the two lines, if you're looking at the increase. An awful lot of the change was equities. Some of it was tax. If you look at Canada, the tax changes in Canada, the June tax change on the tax rate and the November tax change with Ontario, harmonizing with regard to IIT deductibility. That's $172 million, all by itself. The effect of equities was, roughly speaking, $400 million and credit is in the order of somewhere between $100 and $200 million.

Okay. And more generally, getting just the impact of the strain issue on VNB, Don, you had said that VNB growth was dampened by the strain. And the comment was made that the product in the U.S. is priced as if there was (inaudible). So, let me put it this way, of the $823 million VNB for 2006, how much of that -- how much was that reduced by the absence of a funding product? And what does that work out to for the trailing 12 months of 790 also?

I think this is, Michael, a little bit on the detailed side. Why don't we get back to you separately on that?

Yes. And I think, given the time, we want to try and get through people's questions. So I would ask that we move on to the next question, Michael.

Okay.

Okay. Thank you.

Your next question comes from Colin Devine from Citigroup. Please go ahead.

Good afternoon. I have a couple questions on the asset management business. First, for MFS in the U.S., some of your largest competitors in Boston seem to be spending a lot of time focusing on the rollout of target funds or life cycle funds. And I was wondering if you can comment on your strategy about that, perhaps also what you're doing with your 401K operations? And then, if we could also talk about what your strategy for the investment management business in Canada, you've still got a couple of different operations. Where are you going with those please?

In general terms, Colin, we're working towards as comprehensive a retirement offering in terms of the individual vehicles as we can, as previously mentioned income storage on demand product, and we have, in Canada, a lifetime fund and we're looking at going in that direction in the U.S. VA space. So, we are reasonably in tune with the market trends and I think we're going to broaden our offering in the annuity space, as we've already demonstrated and also draw on our experience in Canada, which has largely been informed by the Group Retirement Services business. So there's a holistic view being taken, North and South if the border, as witness the SunWise Elite Plus launch here and product innovations down in the U.S. And we will continue to look at what makes more sense for that ongoing wave of baby boomers that gets talked about so much.

If I look at our broader asset management strategy in Canada, what's happening in the marketplace is that there's much more interest in consumers in investments outside the country. So that global and international funds are where much of the new money is going. As you well know, we have a very comprehensive lineup in CI and CI continues its acquisition pass and building out its distribution, as most recently noted by its closing -- or its completion of the Rockwater transaction, where it added a couple of hundred high quality distributors. It added about $4 billion of institutional assets under management and also added a boutique investment bank.

So we're in very close partnership with CI, mostly on the retail front. But also where appropriate on a niche basis on the institutional front. And of course, we've got the ongoing institutional focus of (inaudible) which has been winning mandates outside of Canada, in both the United States and Europe. So I would say that our asset management strategy in Canada continues to build on our existing partnership and the recent quarter's focus on bringing out the SunWise Elite Plus product, I think, speaks to that partnership. The acquisition by CI of the Rockwater business speaks to ongoing organic growth and we pretty much see us building on what we have, but the momentum has been established, as best we can see, will grow and go forward in the future. Particularly as Canadians become more alert to the forces that you've spoken so eloquently about in the United States, where they can now have their personal defined benefit plan that you have noted on numerous occasions, accurately and well.

Don, One follow-up for that. With respect to your new variable annuity feature here and the read I get is it's been tremendously well received. You did this a couple years ago with the enhance death benefit. We saw sales spike up, deposits spike up for a couple quarter, you leapt up the sales charts and then, of course, Sun came right back down as your competitors copied. You get to -- what is the goal this year underlying all this, to really grow the wholesaler force, to develop a sustainable top 10, if that's the goal, presence in the VA business, which increasingly seems to us to be a -- really, a get bigger or get out, sort of, line.

I think, Colin, you should not underestimate, nor do I presume you would, the investment required to build effective distribution, both in individual understanding of the product line and building relationships with the end retail distribution forces. And the effort that Bob Salipante and his team has made, with [Kevin Hart] to build out a highly motivated and well-armed set of wholesalers. So I think I -- they're not terribly far from 100 mark. Not only do we have a sufficient footprint. We also have a very experienced footprint, that has a first-class product to run with, so I would promote and highlight the distribution capabilities that we've got, as a more sustainable aspect of our business than if I went the clock back, when as you point out, product features come and go.

We've also got research and work going on to continue to bring out future product features and therefore, we would see the product line as being capable of a more continuous refreshment than perhaps has been the case in prior times. We talked about lifetime funds earlier and these needs for assurancies that the baby boomers have, to give them more certainty of retirement income. So I think when you combine distribution and product, we see ourselves in much stronger shape today and we think we have critical mass. Being larger always helps and we're always on the lookout for ways to grow the business beyond what we've got in place, but I think we've got a pretty good place, at the present time, particularly when you couple it also with the off-shore market.

Thanks. Don.

Your next question from Jim Bantis from Credit Suisse. Please go ahead.

Just following up on the income on demand product and, if you look at I guess the withdrawal benefits, there's a store it feature that you can store it 'til you need it. I'm wanting to understand the risk management, how you're hedging that buildup of withdrawal benefits.

It's Bob. Really we see this benefit as an extension of the same risk management program we've been doing. We managed VA risk through a robust, dynamic hedging program. The hedge portfolio has managed to offset aggregate liability exposure to market factors in order to cover any benefits in excess of account value. This dynamic model is realigned daily with updated in-force files and updated intraday to reflect market movements. We have a dash board monitoring system in place to monitor changes in policy holder behavior relative to pricing assumptions, so that emerging trends can be detected early and incorporated into our hedging models.

So the income on demand will be hedged dynamically, as part of this overall program. We have stochastically estimated future hedging costs under a number of market stress tests, which indicate that the VA would be profitable after hedge costs, unless market conditions approach those last seen on a sustained basis during the 1930s. And so the 65 dip basis point price we have established on this rider is -- has been established using this stochastic estimate of future hedging costs. We also have the option to increase that cost on new business and increase it on enforced business at point of step-up.

Okay. Thanks very much.

Mr. Strain, there are no further questions at this time. Please continue.

Okay. Thank you very much, operator. And I'd like to thank all of our participants on the call today. If there are any additional questions, we'll be available after the call. And should you wish to listen to our rebroadcast, it will be available from our web site shortly after 1 p.m this afternoon. With all that, I say thank you and good day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.