Sun Life Financial Inc (SLF) 2015 Q1 法說會逐字稿

Please stand by for streaming text

Good afternoon. My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to the Sun Life Financial Q1 2015 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Greg Dilworth, Vice President of Investor Relations, you may begin your conference.

Thank you, Chris, and good afternoon, everyone. Welcome to Sun Life Financial's earnings conference call for the first quarter of 2015. Our earnings release and the slides for today's call are available on the investor relations section of our website at SunLife.com. We will begin today's presentation with an overview of our first-quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Following those remarks, Colm Freyne, Executive Vice President and Chief Financial Officer, will present the first-quarter financial results. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today's call. Turning to slide two, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of this afternoon's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I will now turn things over to Dean.

Thanks, Greg, and good afternoon, everyone. Turning to slide four, the Company reported strong underlying that income of CAD516 million, up 17% from the same period last year and an underlying return on equity of 12.1%. Our expected profit was up 11% with solid growth across a number of our businesses and we grew earnings on surplus by 42%. I am pleased to report that we've announced a CAD0.02 or 6% increase in our quarterly common share dividend bringing our quarterly dividend per share to CAD0.38. Sun Life has delivered a consistent and stable dividend since 2008. This increase reflects confidence in our business momentum and is in line with our target dividend payout range of 40% to 50%. Our capital actions this quarter reinforce our commitment to allocate and deploy capital in ways that support long-term business growth and earnings in ROE improvement. In addition to the quarterly common share dividend increase, we repurchased and canceled approximately 3 million common shares under our normal course issuer bid. We continued to invest in organic growth and just after the close of the quarter, completed the acquisition of New York-based Ryan Labs. We continue to drive strong asset growth with contributions from both wealth and insurance. Our wealth sales in the first quarter of 2015 before including the BCE longevity insurance transaction, increased by 10% from strong mutual fund sales at MFS, Sun Life Global Investments and wealth sales in our Asian operations. Insurance sales were up 3% driven by the strong growth in Asia and our total assets under management reached CAD813 billion, up 20% from a year ago. Turning to slide five, our earnings are well diversified across a number of our businesses by geography as well as by type. We saw strong growth in underlying net income from both wealth and protection with double-digit earnings growth from each over the same period last year. In Canada, we had solid underlying earnings as we continued to invest to organically grow our wealth businesses. In the US, the actions we are taking in the Group business are beginning to have a positive impact and will continue to take action to drive sustainable results. At MFS, the pretax operating profit margin was 40% and assets under management continue to grow. Our Asian operations continue to grow rapidly as we build up the base of in-force premium through strong sales and good customer retention. On slide six, I will discuss a few key items for the quarter across our four pillars of growth. In Canada, we continue to demonstrate our leadership position in protection and wealth. The announcement of our CAD5 billion longevity insurance agreement with DCE, the first of its kind in North America, further established our defined-benefit solutions business as the leader in the Canadian pension derisking market. Our Group Benefits and Group Retirement businesses continue to hold their number one positions. In our individual business, wealth sales were up 4% as strong growth in the sale of mutual funds was offset by reduced demand for fixed income products in this low interest rate environment. Sun Life Global Investments, our Canadian mutual fund business, had gross sales of CAD811 million, an increase of 41% over last year. And retail sales of SLGI funds were the highest since SLGI's inception in 2010. We continued to expand our product shelf with the launch of eight new SLGI funds in the first quarter. And earlier this week we launched a new segregated fund suite of products that leverages our strong brand, manufacturing and distribution capabilities along with our money for life positioning. We look forward to updating you on our progress on this front in the quarters to come. Turning to our asset management pillar, MFS ended the first quarter with assets under management of $441 billion and an operating margin of 40% in line with our communicated range. Fund performance remained strong with 83%, 95% and 97% of fund assets ranked in the top half of their Lipper categories for three-, five, and 10-year performance. Gross flows were strong in the quarter and net outflows of $184 million marked an improvement from net outflows at MFS last quarter. Retail flows continue to be strong with particular strength in non-US retail funds. While institutional flows were softer reflecting the closing of certain fund styles to protect client returns. On April 2, we announced the completion of our acquisition of Ryan Labs. The acquisition builds on our successful launch of Sun Life Investment Management in Canada and extends our footprint on asset management in the United States. Turning to the US, we've made good progress in group benefits and the actions taken by [an Fishbein and his team are having a positive impact on the business. It will take a number of quarters before Group Benefits achieves its full earnings potential and experience will fluctuate from quarter to quarter but it is moving in the right direction. Sales in Group benefits overall were lower by 11% as we repriced this business to balance business growth and profitability. Medical stop loss sales in the US increased by 21% over last year reflecting growth in the number of stop-loss specialists in our market leading position in this business. We continued to develop our distribution networks to assist companies and their employees to meet their needs in response to the Affordable Care Act. We are pleased to announce that during the quarter we were selected to participate starting next January on Mercer Marketplace, one of the largest and fastest-growing private exchange networks in the US. Turning to slide seven, our operations in Asia continue to grow at an impressive trajectory with underlying earnings up 68% to CAD62 million. SLF Asia's earnings have grown steadily over the past several quarters driven primarily by growth in the in-force block that is directly attributable to our sales success in the region. During the first quarter, individual insurance sales increased by 28% with broad-based growth in the Philippines, Hong Kong, Indonesia, China, Vietnam and Malaysia. Health and accident sales increased by 45% over the prior year and accounted now for 12% of our total individual life sales during the first quarter. As Kevin Strain said at our recent Investor Day, health and accident is a key area of focus across the region and we expect to grow this business further in the years to come. In the Philippines, we maintained the number one position in the market for the sixth consecutive year based on new business premiums. We also continue to expand our wealth management footprint across the region and Asian wealth sales were CAD2.2 billion for the quarter driven by strong growth in China and India. So in conclusion, this year we celebrate our sesquicentennial anniversary, 150 years of earning and building the trust of our customers to help them achieve lifetime financial security. We are pleased to start this historic year with strong earnings, robust momentum and a dividend increase. And with that I will now turn the call over to Colm Freyne, who will take us through the financial results.

Thank you, Dean, and good afternoon, everyone. Turning to slide nine, we take a look at some of the financial results from the first quarter of 2015. Our operating net income for the quarter was CAD446 million, down marginally from CAD454 million in the first quarter last year. Underlying net income, which excludes the net impact of market factors and assumption changes, was strong and amounted to CAD516 million driven by solid earnings in SLF Canada, SLF UK and MFS, improved results in our Group business in SLF US and continued momentum in Asia where our earnings increased by 68% over the same period last year. Our underlying return on equity was 12.1% for the quarter. First-quarter adjusted premiums and deposits were CAD34 billion and closing assets under management for the quarter hit another new high reaching CAD813 billion from business growth and the benefit of currency and market movements. We maintained a strong capital position ending the quarter with a minimum continuing capital and surplus requirements ratio for Sun Life Assurance Company of Canada of 216% and a cash level of CAD1.7 billion at the holding company, SLF Inc. We continue to focus on ways to deploy our excess capital to enhance value for our shareholders. A 6% increase in the quarterly common share dividend, strong share repurchase activity during the quarter and the closing of the Ryan Labs transaction demonstrate our commitment to deploy capital and grow our business. Turning to slide 10, the impact of assumption changes and management actions reduced net income by CAD58 million pretax, or CAD48 million after tax while the net impact of market factors reduced earnings in the quarter by another CAD22 after tax. Negative net impact of market factors was primarily due to lower interest rates in SLF Canada, which were offset by gains from equity markets and real estate impacts. We have provided more detail on the impacts of market factors in the appendix to today's slides.Underlying net income of CAD516 million benefited from CAD17 million of notable items that included positive impacts from investing activity as well as favorable mortality, morbidity and credit experience. These items were partially offset by negative lapse in policyholder behavior and expense experience. At the bottom of slide 10, we break down our earnings contribution by business group. Our results this quarter reflect solid earnings in SLF Canada and MFS, improved performance in our Group Benefits business in SLF US and significant growth in SLF Asia. In Canada, underlying results for the first quarter benefited from investing gains. However, we experienced higher cost drug claims in Group Benefits and unfavorable lapse in policy holder behavior experience in individual insurance and wealth. In SLF US, we benefited from improved results in our Group Benefits business reflecting better claims management and actions to increase pricing and reduce expenses. Underlying results at MFS were driven by higher net average assets and the favorable impact of currency. And in Asia, underlying results reflected strong business growth over the past year across a number of markets most notably in the Philippines and Hong Kong. Turning next to slide 11, we provide details on our sources of earnings presentation. Expected profit of CAD639 million increased by CAD61 million from a year ago. The year-over-year increase is attributable to business growth across the enterprise, particularly SLF Asia and positive impacts from movements in exchange rates. Excluding the impact of currency and the results of MFS, expected profit was up 5%. New business strain was CAD50 million for the quarter. This represents an increase of CAD13 million over the same period last year, driven primarily by higher levels of new business strain in SLF US, from lower sales in the international life business, and the impact of currency. We continue to anticipate that new business strain will be in the range of CAD30 million to CAD40 million per quarter. However, we recognize that there will be some volatility from quarter to quarter as the amount of strain is subject to currency, a level of interest rates, changes in the mix of business, and overall sales levels. Experienced losses of CAD49 million in the first quarter reflect the impact of the market factors and other notable items described on the previous slide. Assumption changes and management actions of CAD58 million relate primarily to a revision to insurance contract liabilities for universal life products in the both in-force management and international businesses of SLF US. Earnings on surplus of CAD109 million were higher than in the first quarter of 2014 and benefited from higher investment income, lower financing costs and the impact of mark to market on real estate. Income taxes at CAD104 million are just slightly below our expected range for our effective tax rate of 18% to 22%. On an underlying earnings basis, the tax rate was 22% and in line with our expectations. Slide 12 shows sales results across our insurance and wealth businesses. Sales from insurance increased 3% over the prior year period driven by strong agency sales in a number of markets in Asia. This was offset by lower sales in international insurance as we continued to adhere to our disciplined pricing as well as lower Group sales in SLF Canada and SLF US. Sales from wealth products were up 10% over the prior year. At MFS, sales were up 15% and reflected higher retail mutual fund sales and the benefit of currency. Wealth sales excluding MFS were down 11%. Higher sales of wealth products in SLF Asia and at Sun Life Global Investments and SLF Canada were offset by lower sales in our Group Retirement Services business where market activity was slower than the comparative period one year ago. In addition, as previously noted, we completed the sale of the CAD5.3 billion longevity insurance transaction in our defined benefit solutions business in Canada. Turning next to slide 13, we present a breakdown of the change in our operating expenses over the prior year. Overall operating expenses for the first quarter of 2015 were CAD1.2 billion, up CAD57 million, or 5% over the prior year period. Excluding the impact of currency and MFS, expenses were CAD695 million for a decrease of CAD11 million, or 2%. Volume related expenses which are directly driven by sales and asset levels increased by CAD15 million over the prior year. Inflation, investments and growth net of productivity gains and other year-over-year adjustments reduced operating expenses by CAD26 million relative to one year ago and reflect our commitment to manage expense growth by utilizing productivity improvements to reinvest in the business. Before moving to the Q&A portion of the call, I would like to leave you with a couple of key messages for the quarter. First, we had a strong quarter with broad-based momentum in underlying earnings. Second, we continue to take actions to efficiently manage our capital and our financial position remains strong. Our capital deployment actions for the quarter reinforce the commitments we have been making for some time now namely that we will allocate our capital in ways that support long-term business growth, earnings and ROE improvement, and retaining flexibility for growth opportunities. And with that I will turn it back over to Greg before moving to the Q&A portion of the call.

Thank you, Colm. To help ensure that all of our participants have an opportunity to ask questions on today's call, I would ask each of you to please limit yourself to one or two questions and then to re-queue with any additional questions. With that, I will now ask Chris to please poll the participants for questions.

Thank you. (Operator Instructions). Gabriel Dechaine, Canaccord Genuity.

Good afternoon. Just the capital management story is a pretty good one this quarter, dividend increase, a lot of buyback activity. I am wondering if you could still balance those two priorities as well as some small acquisitions? And in answering the question, if you can remind me what the book value is of our India sub, that would be great.

You are right to put them all together because that's the way we've been talking about them, that's the way we think about them. We think about the deployment of capital to support organic growth. We think about and we've acted on a number of other elements in the past, reducing debt although that is less relevant today, recapturing reinsurance, and we did some important transactions in our US business last year and the year before and we continue to look for those opportunities. And of course, acquisitions and mergers and acquisitions and buybacks and dividend increases are all part of that picture. And as I have said before, we are not going to rank order them but you can see us pulling all of those levers and still as Colm said, retaining a significant amount of flexibility for acquisitions and investing in growth in the business. Colm, you were going to --

Yes, Gabriel you asked about the book value of our investments in India and I suspect you have a question in mind around India. (multiple speakers). We generally don't disclose the investment at the business unit level because we started up that business with our partners in India 15 years ago, the investment represents the capital contributed at the time and of course the business results since that time but I can tell you it is below CAD200 million.

Okay, thank you. Just another question here on the Canadian Group business, you gave a good sense of the turnaround timing in the US and we saw some of that this quarter. How about in Canada? It seems like it's an industry wide issue where morbidity claims are elevated and expect we'll see some similar results this quarter. What is the -- how is the repricing process going for you in Canada? When do you expect to see tangible improvement in that business line and if we could start with that?

Sure, on the LTD side, actually it's a very modest pricing issue. We see it as more claims management issue and doing a lot of work around protocols case loads and case management, protocols and so on and we are starting to see very, very good potential for that. Our expectation is that our Group LTD results will return to normal levels throughout the year and certainly to full levels by the end of the year. So hopefully gives you a sense for it.

Okay. I'll just follow up. Thanks.

Robert Sedran, CIBC.

Colm, I'd like to ask a clarifying question on slide 17, the experience related items. The lapse experience, it does bounce around a bit but more often than not it seems to be on the wrong side of zero. So is this related to one product or a group of issues, or is it a different issue every time?

It's related to a number of different product lines so it is more widely spread and it is an area that we obviously are paying a lot of attention. Perhaps I'll ask Larry Madge to say a few words about how we are approaching that review.

Yes, we have experienced losses from a variety of different products and within those even a variety of different assumptions. So we are really bearing down on reviewing these items but at this point our investigations are not complete. But we are certainly have that work underway and will be conducting it prior to our changes in the third quarter. Of course more broadly we review a large set of assumptions and methods for the third quarter, not just the lapse in policyholder behavior. So it is too early to tell how that may break but in the lapse in policyholder behavior in particular, it is across a number of different products and assumptions.

Is it too simplistic to ask then what kind of duration would be on those products to get a sense for how long this may be an issue? And I guess on a similar note, whether this is an issue of -- the products that are in question are just no longer being sold and so any lapse assumption is being challenged by the fact that there is no replacement regardless of how you might expect people to behave, they can't do anything else because they can't replace the product if they were to lapse it?

There has been some of that although we have strengthened the products that -- where the risk is too low lapse and in particular that gets exaggerated in the low interest rate environment. And we have strengthened those over the years and the current experience isn't so much with that and we are seeing it somewhat in the segregated fund product where there's a whole variety of different policyholder behavior assumptions. Policyholders can choose to risk their product. They can choose to defer income. They can renew it into a new term. And so there is a variety of different assumptions and we have to untangle all the pieces. The segregated funds have a little shorter duration than say a universal life product and we also have some experience on our term portfolio as well and with those, it's when policyholders come up to renewal and then the question is do they renew into second term or not? And in that one it is a trend toward improving mortality that has impacted us because the new products are priced more favorably than old. So it's not always favorable to renew into a second term on your old product. But again, we have strengthened on those products in the years and we are feeling like our position is much better than it had been. But as you said, we are continuing to have some negative experience there.

And will we learn more about this as you complete these reviews in subsequent quarters?

Yes.

Okay. Thank you.

Steve Theriault, Bank of America Merrill Lynch.

Thanks very much. Good afternoon, everyone. A couple of questions. First for Dean or maybe Colm, just wondering how you feel about the sustainability of the CAD0.84 this quarter? I ask in particular this quarter because we saw such a quick swing back in terms of experience. And I have noted currency moving against you a little bit here so far in the second quarter. On the other hand you've got strain maybe [updated]. So just interested in your thoughts to start on the near-term repeatability of CAD0.84 and how you feel on it?

Yes, well I think you have covered a couple of the items I would have mentioned. As we look at the underlying result, that CAD516 million, we do recognize that currency was favorable. We did have a good rebound in US Group in particular. We had good expense experience and you do see that occasionally in the first quarter relative to the fourth quarter, so there is an impact there. But on the other hand, I would say that we have continued to be impacted by a very low interest rates which manifests in a couple of ways including new business strain, which was at an elevated level this quarter. And so when you look at all the moving parts, we don't think this was an unrepresentative quarter, so maybe that's the way I would position it. We think our very diversified business model does give us a lot of support that if one particular area is challenged another area will pick up. We were very pleased with the strength in Asia this quarter and that strength is well on track for our current year sort of view of the earnings power of the Asia business this quarter. The other area I would point at was that the UK results were a little on the higher side if you back out or readjust for the market factors. The result there came in at around CAD36 million if you annualize that, it is around CAD140 million and last year underlying earnings for the UK were CAD130 million. I simply point that out because the UK as a closed block of business is not going to grow from new business sales and activities. But when you look at all the moving parts, Steve, I would say that we think that it is a representative of what the earnings power is capable of.

Just delving into that a little, on Asia in the notes I saw somewhere you mentioned strong AFS gains and I think losses last year. Colm, can you put some numbers around that for us?

Yes, so I would say the delta year-over-year was probably in the CAD12 million range. But I just would caution on the AFS gains that we look at that from a total portfolio perspective, so sometimes they will appear in one business unit, one business group relative to another. The way we think about the AFS gains is at the title Company level and we generally are in the zone of about CAD30 million pretax, CAD23 million, CAD24 million after-tax and sometimes as I say, the gains might be realized in -- they will be realized in different business groups. So one does need to take that into account. But even adjusting for that in the case of Asia, I think Kevin Strain, who is here with us today in person, feels pretty good about that and maybe I'll ask him to say a quick word on Asia.

I think if you look at the underlying growth of Asia, we had very good growth in expected profit, so expected profit was up from CAD52 million to CAD65 million. So a 25% growth in expected profit and the strain levels were -- only grew a little bit despite the strong growth in sales. And if you look at what we have been saying in prior quarters, the B&B in Asia is good and the more we can get sales growth, it also helps to cut down on expense gaps and so the sales growth we've had the last two years, as Dean mentioned, built the in-force business and that is coming through in expected profit and the continued sales growth is helping with expense gaps is adding new profitable business into the in-force which should come into income over the future years. So with good sales growth and good persistency, you are going to see good earnings come out of Asia.

Steve, I should just clarify. My comment about AFS gains in Asia was not CAD12 million in this quarter. I'm expressing the change year-over-year. So last year we had a small impairment in Asia, which took down the results and this year we had a gain and if you normalize for those, the change year-over-year is not quite as dramatic.

The prior year the earnings we had were less than our run rate expectations would be and so if you look at this year, we did get a bit of a currency lift and we had a little bit of AFS but the overall earnings are strong because you are seeing it come through in expected profit from many of the countries, so you get a broad-based sort of growth there.

Okay. I think I understand that CAD12 million delta, Colm, you mentioned. Was that after-tax or pretax?

Think of it as probably as an after-tax.

Okay. Thanks for the time.

Peter Routledge, National Bank Financial.

Question on MFS. Another big negative on net outflows for managed funds. I wonder when will that bleed stop?

As we have talked about in prior quarters, we continue to see good growth in the retail business, particularly outside of the US and as we have transitioned our institutional business, we have closed a number of strategies. We restricted something like 15 strategies in the last two and a half years and we are doing that to protect clients. It's the right thing for the long-term health of the business. The assets will stay in the door. We can make a return on the asset. And so as we pivot two strategies and we have talked about our enhanced index products in fixed income, we are going to be in a period where we are going to need retail flows to offset the negative flows in institutional. We think it is going to take several quarters but we are hopeful and you can see that this quarter that we can continue to offset the headwinds that we are seeing in the institutional business.

We've got a while to go, it sounds like on managed funds?

Yes, I think it's going to take some time for us to do that. If you go back to 2013, 2013 into part of 2014, those strategies in that managed part of the business, institutional business, represented something like 40% of our sales and so we've closed off a significant piece of the business during that period of growth and we are now transitioning that two different products and engaging with our clients on a broader suite of products, which eventually we think diversifies the business.

Now just on the retail side, I didn't want to be all negative, you did have a blowout quarter on retail sales. A, how sustainable is that? And B, redemptions are also a bit higher in the retail side, how sustainable is that?

I would like to temper your enthusiasm about the offshore sales number. That was an unusual quarter where we won some significant platform placements and specific products in our global value in small-cap franchises, which are not likely to be replicated going forward. But with that being said, that is our fastest growing business and we are gaining good traction and investing resources in the markets that we are concentrating in in that region. Our redemtion rates in our global retail platform are slightly below industry average. They are higher than in our institutional book, which are inserted run sort of in the high -- mid to high teens; retails around 19% to 20%, some quarters it ticks up a little bit higher than that. But our redemption rate as a Company in general is slightly lower than most other asset management firms.

All right, thanks.

Humphrey Lee, Dowling & Partners.

Just wanted to follow up on the adverse Group experience in Canada. So you mentioned that it is somewhat related to higher [direct] cost. Just wanted to get a sense of how big is that business in terms of premiums and (inaudible) these challenges in these higher [direct] costs?

It was hard to hear your question entirely, I think you were asking about drug claims. And so what we saw -- what we've seen over the last couple of quarters is in particular the launch of the hep C drug in Canada. It's great news in one way, it's a cure. On the other hand, we didn't get the normal lead time that we would get for drugs coming through the pipeline to be able to price appropriately for it. It impacted us about CAD5 million on the quarter. It is going to take a few quarters for that to settle down before we can work that into pricing. It will be a combination of strategies. Some will be raising prices for some clients, they will probably change their plans and put limits on specific benefits and categories. And for some clients, we will change the pooling level at which our participation in insurance kicks in. So hopefully that gives you a sense for the order of magnitude.

In terms of the CAD5 million impact for this quarter, what is the corresponding size of the premium for the underlying block? Just want to get a sense of the (inaudible) impact.

Oh, I see. Well you would have to look at both our insured health business as well as our ASO business, much of which has a high amount of pooling in it. So I am not sure if that is the right metric to point to but to give you an order of magnitude, about CAD3 billion of our CAD8 billion would probably be health insurance related either ASO or insured.

Okay, got it. That's helpful. And then in terms of the adverse lapse in policyholder behavior experience, my understanding is part of it is related to the set funds that were out of the money and they were near maturity of being rolled into new policies. So now with your new set funds products recently being launched, should we expect a little bit more unfavorable experience to come through as to these more older dates are maturing (inaudible) being rolled over to the new product?

It's hard to know what will happen with existing contracts given that there is sort of a new option available. We expect that advisors and customers will make those comparisons and look at it and the new product is a very, very attractive product. I think the net-net of all the tugs and pulls on it would be such that if the business ran off a little more quickly, it is positive financially for us both in terms of income and capital.

Okay. Got it. Thanks.

Doug Young, Desjardins Securities.

I guess on the US Group Insurance side, just obviously huge rebound relative to Q4 and I don't think this is the quarter that you think is probably the normal run rate. So I'm just trying to get a sense of what would that normal run rate be and what were some of the abnormal benefits that came through this quarter? That being one sense.And then can you talk about some of the changes that you've made in terms of cost reductions and claims management that more immediately are benefiting that business? And then third, just talk about the competitive environment and what you are seeing? Thank you.

This is Dan Fishbein responding to those questions. You are obviously noting that we had a very significant improvement in the Group results this quarter versus the most recent quarter. As we said on the last call, this is a three-year process to get to where we ultimately need to be and think we can be so we are probably not ready yet to say what the anticipated results would be in each quarter. But over the next three years, we certainly think we can get to industry or better than industry level returns. The first quarter was a good quarter; just about everything went right. We saw the impact of our price increases of managing expenses and as you noted, investing in claims management. It was also favorable experience in the quarter, similar to the fact that there was adverse experience in the prior quarter, and that was somewhat of a benefit as well. But we also do believe we saw tangible impacts from the actions that we have taken. As far as your question on claim management investments, throughout last year we added staff, especially in our disability claims management area. Over the past 15 months we've added about 35 new people in claim management, and the primary focus is return to work, getting people back to work sooner and more effectively, and we are certainly seeing impact from that. Then on your last question on the competition, I will make two comments. One is we have certainly seen the market from a pricing perspective hardening over the past six months. That is beneficial since we are taking our price actions at that same time. And then we've also noted that most of our US competitors in their first-quarter results, at least those who have reported so far, have shown some similar favorable experience as we have seen. So both of those factors are creating a favorable environment for us to continue to make the changes that we are making.

Dan, you talked about there have been tangible benefits from the actions you've taken. And you talked a little bit about the claims management side. Can you talk a little bit about the expense management and what some of the benefits that you've seen so far from actions taken there as well?

Yes, we have been working for a number of months to lower our expense base, and we did see across the US our expenses were CAD7 million lower in the first quarter compared to the first quarter of last year. And that's a product of the actions that we've been taking, and that was certainly a contributor to our improved results in the first quarter. As I mentioned, it's a balance. In some areas we are investing, such as in claim management, but in some areas we are being more efficient in the way we deploy our resources.

Okay. Then Kevin obviously had been one of the more skeptical people in Asia, and you proved me very wrong. So wanted to ask just a few questions around Asia, specifically around India. And my question more is, I know there's been a lot of change on the regulatory side, and I think the economics of the India business have changed quite a bit. To the extent that maybe you do increase your ownership position, trying to get a sense of where the economics stands for that business today. Is it profitable? How profitable? And are we moving in the right direction in terms of -- has the regulatory environment settled down such that we should expect to see some further benefits on the economics for that business going forward?

Thanks for the question, Doug. And I think that India is a profitable business for us. It has gone through a lot of change and you've seen the sales dropping for the past five years. And despite the drop in sales it has maintained its -- the profitability has dropped but it has maintained its profitability and I think if you look at the regulatory environment now, a lot of the change has gone through from a negative side and we are even seeing some potential positive. There was a potential law that would open up bank assurance to multiple bank assurance partners which would we think would be a positive for our Indian business. Then the management team there -- there's quite a strong management team and they've been in place for many, many years and they are taking some really solid actions on the agency side to really focus on the quality of the agents, to give them some more sales tools. They have done a lot on the product side. And I think you're going to start to see that turn more positive over the next two years from a sales perspective, which will again start to build back the in-force book and the expected profits that will come out of there. So I like the medium- and long-term potential of India. You've got GDP -- and GDP per capita that is going to begin to grow. You've got 1.25 billion people. It's a business we know really well. We understand it. We have a strong management team. We've got a strong partner. So I think there's potential there. And the fact that it has remained profitable through this downturn cycle I think is also quite positive.So medium to longer term, I am quite bullish on India. And the model in India is -- like we've done in other countries -- Dean referenced we've had double-digit growth in the Philippines, Hong Kong, Indonesia, Malaysia. That builds the in-force and it starts to come out in income and we've put a new strategy in place that we talked it about during the Investor Day around quality of agency and we are calling it most respected agency. We are sharing some of that work with India. They're looking at some of that work. But to give you a perspective on the agency side, in the Philippines we grew 38% this quarter over last year. Hong Kong grew 24%. Indonesia grew 38%. So we seeing broad based growth in agency and when you can get the strategy right, you can start to see those types of growth numbers and we are working closely with the team in India on building the right strategy.

Doug, it's Dean. If I could add one last thing to Kevin's point and it might also come back to Gabriel's question earlier. In addition to the insurance business, we own 49% of the asset management company, as you know, and the asset management company has had terrific performance, very strong investment performance, helped in part by MFS who have contributed time and effort and intellectual capital to peer reviewing the investment decision and risk management processes of the asset management company but also driven in part by the fundamental drivers of demand in India. As Kevin said, we like our partner. The [Aditya Birla] Group is a fine organization and they do value what we bring to both the life company and the asset management company. There is a lot of Sun Life DNA inside those businesses. We would like to own more of the life insurance company but that is subject to finding an agreeable price.

Great. Thank you very much.

Sumit Malhotra, Scotia Capital.

First question is for Colm. Just wanted to make sure I understood the management actions and assumption changes line this quarter. It's mentioned in the press release that it was related to UL in the US. Sorry if I missed it, but could you just spell it for me what exactly was involved there?

Yes, so I will do that or I will perhaps ask Larry Madge to say a few words about that. And just to iterate that while the majority of our assumption changes tend to land in the third quarter each year, they occasionally land in other quarters depending on the nature of the item and the work involved and where we are at in the process. So this one landed in the first quarter. But Larry, perhaps you could say a few words?

Sure. So the nature of the change is that we improve the modeling of our invested assets that are supporting our US in-force management and our international life liabilities. So this change fully resolves that situation. We don't expect any future impacts from this in future quarters. And importantly, it wasn't a change to assumptions such as policyholder behavior or mortality.

That's what I was getting to. So it wasn't related to those. It is investments -- it is the investment side of the equation not the actual policyholder experience?

Yes, that's right and it's a modeling oriented change.

All right. And then just to come back to Dan on the US and the comment at the beginning of the statement that it will take some time to get the US business to a level where you feel the results are sustainable. I get the sense -- and I'm hoping you can correct me if I'm wrong that that relates more to where you want the US business to get to in terms of earnings power and not really a comment on the CAD80 million or so that you had in Q1. Obviously it's a lot better. It's in and around the average that you had on a quarterly basis in 2014 which was quite volatile. So I am hoping you can just tell me. When you look at that CAD80 million number, is the comment about sustainability related to that or more where you think this business can get to?

It's really related to both. I think we will not necessarily have a linear progression here from quarter to quarter. Just like you saw some volatility last year, we will likely see some volatility in the future as well. We definitely had some favorable experience in the first quarter that may or may not repeat itself in subsequent quarters. So I think that's part of the situation is we won't necessarily see everything that just happened repeat itself in the immediate future. And then yes, I was also referring to the long-term future, the potential for this business we are still far from that even with the first quarter results. And we will take the full three years, I believe, to get to where this business can be.

Thanks for your time.

Dan Bergman, UBS.

At the recent Investor Day, I believe you commented that Canada appeared on track to reach your prior 2015 earnings objective of CAD900 million. Given the first quarter result was a little below the implied required run rate, I just wanted to see if there's any change in your outlook for reaching this objective, or if you still expect improving earnings over the course of the year and areas like LTD will get you there. Thanks.

Sure. It is Kevin Dougherty speaking again. We are still highly focused on our goal of CAD900 million and we do think that there are lots of areas where -- this is a business where there are fluctuations and we saw some of that in Q1 and I think the LTD in particular will come back strongly through the year. We think in Q1, for example, there's some seasonality if the pricing gains don't come through at the usual levels because our [career] salesforce in particular is focused on wealth more so than insurance products, which tend to have the pricing gains. We also had a little bit of unfavorable mortality in Group in Q1 of about CAD8 million, which is sort of just a random kind of occurrence. And we don't expect to see that repeat. And also as you know with interest rates they came down quite a bit in Q1. They were down 34 basis points. That impacted demand for things like fixed annuities, payout annuities and in Q2 already, that has come back and we expect there to be more normalized demand through the year. So there are really kind of lots of things at play here. We have lots of levers that we are working hard to pull and we remain focused on that goal.

Got it. Very helpful. Thank you. Maybe just switching gears, US. It looked like stop-loss sales were up pretty nicely year-over-year and I believe a couple of other competitors similarly reported favorable sales in stop-loss this quarter. So I was just hoping you could provide your thoughts on the current competitive environment in the product and any sense of whether your sales growth reflects more market share gains or an overall expanding market, for example, due to the impact of US Healthcare Reform?

This is Dan again. Our growth in stop-loss really reflects both. The market is growing. More employees are choosing self-insurance but we are growing our market share as well. We have been investing in distribution in stop-loss. We've added more salespeople who are specifically dedicated to that business and we are continuing to have above market levels of growth in the business. We have a position in the business. We are the largest independent writer of stop-loss in the US and in a growing market that benefits us as well. So we expect to continue to have good growth momentum in that business.

Great. Thank you.

Mario Mendonca, TD Securities.

First a question about the reserve, the change in assumption, the reserve increase related to UL. What would be helpful to understand is how this plays out in earnings going forward? Now that you have strengthened the reserve, how does it manifest itself? Would it be more lower experience losses, higher expected profit? So first, where does it come through on the line as a source of earnings? And then secondarily, is this just such a long-term business that the effects quarter to quarter would be pretty immaterial?

Mario, it is Larry Madge here. Looking forward I would say it shouldn't impact your outlook for those businesses. Were these modeling changes in place throughout history, you may have seen some slightly lower interest gains over the last few years but since you're probably modeling those based on our sensitivities looking forward, those sensitivities already reflect the current modeling. So you should be fine.

Reserves have gone up, so presumably they are there for a reason. It either means that -- it would suggest to me that earnings are going to be moving higher as a result, or experience losses will be lower. Something has got to be better because you put the reserve today -- am I misinterpreting this?

Yes. I think in this particular situation, I wouldn't think of it as improving our outlook going forward because it really is related to interest experience gains and we have updated the forward-looking sensitivity to interest rates in the notes. So any change that would be impacted is already there.

Okay, so no effect there then? Then going back to the sustainability of the current quarter's results, and Colm, this is perhaps for you. I'm not so much asking that you quantify each of these individually but an idea of how perhaps in aggregate this may have contributed to earnings? And I'm referring to any sales gains connected with the longevity agreement. So first of all, was there like a new business gain? Secondarily, tax benefits and corporate you referred to. And then finally, better earnings in your runoff insurance in the corporate segment; collectively did these three matter in the quarter?

Yes. I think one way you could look at it is if you look at the underlying earnings of CAD516 million and you look at the notable items of CAD17 million, and if you adjusted for all notable items, you would be at around CAD500 million. That's one lens that you could look at. The items that you mentioned, I would say that in aggregate they are not that significant. In terms of the sustainability of the tax rate, we feel very comfortable around that. It's a shade low when you look at it on an operating basis but when you look at it on a more sustainable underlying basis, it is within the range. And there was a new business gain on the -- a modest new business gain on the longevity insurance but again it wouldn't be enough to really move the dial. So I think we feel pretty good about it but a number of items did break in our favor this quarter and so one could take that into account as you think about it.

Okay. But we are not talking about a material number here?

We are not talking about a material number.

Thanks for your help. Appreciate it.

Tom MacKinnon, BMO Capital Markets.

A question for Rob Manning and then a follow-up. Rob, you had talked almost a year ago I think of guidance in terms of net sales of CAD3 billion to CAD5 billion a quarter. How should we be looking at that now?

Well, I was wrong, so that's one way you should look at it. We have talked about this many times but the world has pretty much changed given the fact that we closed capacity in a lot of our strategies and the fact that the market quite frankly has gotten tougher. Passive has become quite a hurdle in other our business as well as everybody else that competes in the active space with us. And so I think given the fact that we have retrenched and closed capacities and have to pivot to other things, it's going to take us time to get back to positive net flows. We do believe that over the long run and when I mean long run I am talking three to five years down the road, that MFS should be able to grow at an organic rate faster than the industry and that number usually runs 100 basis points higher than global GDP. So if we are at 2, MFS should be able to grow at a number higher than that. But as Mike just mentioned earlier, we have some headwinds in our institutional book that are going to take many quarters for us to address and we are working hard. We have lots of meetings on our quantitative blended research products. We are building out a global fixed income platform, hiring people in London, launching new products but you have to have a three-year track record before you can go sell those out in the marketplace. So the way we think about the business is we are generating a very good return for all stakeholders. We are focused on keeping the assets right now that we brought in over the past few years where we were an outlier in the industry. And as we model the business going forward, we don't think you'll ever see the organic growth rate in the next three to five years that we showed you in the last five years but we do think we can outperform the competition. And the business is very well diversified by geography, by platform, by distribution channel, by product and we just need to continue to do that and build out the two areas that I commented on.

Thanks. And I think you had said margins in high 30%s to 40%? Should we be still maybe more in the high 30%s range, or how should we be looking at that?

I think quarter-to-quarter it's going to bounce around. We've had a pretty strong equity market in the past quarter which helped us and bumped the margin back up to 40% again. On a sustainable basis, you ought to be thinking about 37% to 40%, somewhere in that range is a reasonable expectation.

Okay, thanks. And then a question with respect to the US Group. I notice that the business in force actually fell 3% quarter over quarter and I assume that is a function of the action that you are taking. So as you continue to take this action through the next three years, how should we look at this in force, the progression of the business in force and what does that mean in terms of -- I don't know things like expense gaps or expected profit? Maybe just elaborate on the impact of a declining in-force as you implement some pretty tough price actions.

Tom, yes I would agree that you saw a little bit of decline in the overall business size. Now we often see the size of the business go down and the first quarter and then recover in subsequent quarters just because of the pattern of renewals versus new sales. But no question we are seeing some impact from the price increases that we've been putting through both on new sales and on renewals and we will need to go through a full repricing of the block over the full three years. So what I would say is we fully expect to have a more balanced approach between business growth and pricing. So we will see some moderation in growth, particularly in the Group Disability business at least in the short term. At the same time, we are seeing significant growth in the stop-loss business and some of our other newer lines. For example, we are starting to see growth in our worksite business. So in the aggregate as that plays out over the rest of the year and over the next couple of years, we do expect a resumption of overall growth. On your comment on expenses, obviously when we do have lower growth or even some decline in the size of the business, that does create additional expense pressures but as I mentioned earlier, we have already been taking significant action around that and we have started to see the impact of lower expenses even in the first quarter.

Okay. Thanks for the color.

Darko Mihelic, RBC Capital Markets.

Question on slide 13 and I am trying to marry this with the supplemental page 24. So when I look at the lower expenses and then I look at the operating expenses by business group, it looks as though the major drop happened in corporate. So a couple of questions arise from that. The first is, is corporate at a new low? Was there something sort of one-time in that? The second question that arises from that is, I think you were mentioning earlier in your Investor Day that each business unit or each business leader had expense initiatives underway and so should I think about there being further expense opportunities here as we go forward for each of these business units relative to this new run rate of expenses?

So a couple of thoughts around that, Darko. Clearly this was a very good expense experience for the quarter where we saw a significant year-over-year reduction when you adjust for the currency and for MFS. Notwithstanding the increased volumes or productivity improvements definitely playing a part in that and we do believe there is more to come on that front. We have some good ambitious goals in place for harvesting on productivity improvements over the balance of the year. I would caution that the first quarter tends to be a little bit -- can be able to bit of an offset to higher expense quarter in the fourth quarter. We did see a little bit of that in the current quarter. But in terms of the overall corporate support segment itself, you asked about that and is the run rate there a little bit on the low side? I would say that we did benefit clearly from these expense items in the corporate support area and we did have a small amount of invested gains at business within corporate support, our runoff reinsurance business that also benefited us. So the underlying of CAD32 million for corporate support, a little bit on the low side if you think about that maybe you think more in the lines of maybe CAD40 million on a more normal basis. But when I was responding to an earlier question about some of the items that might offset each other, I was taking that into account thinking about it like that.

Okay. That's helpful, Colm. And maybe just one last quick one. With respect to the US, we see the turnaround in the Group Benefits but the other businesses I'm curious about as well, should we think of the other businesses at more or less run rate? And again I am thinking about this on an underlying basis, which is pretty hard to get to because you guys don't actually provide on an underlying basis. But if I think about it from an underlying income point of view, are the other two businesses in the US really performing at normalized "run rate levels"?

Well, it's a great point, Tom, because the US business is also a diversified set of businesses. There are four businesses. We have the Group, we have the stop-loss, the in-force management and international. And Group and stop-loss had a really strong first quarter in we had some challenges in the in-force and international results are -- international sales in the first quarter were a bit on the low side but we see that rebounding as the competitive environment changes. We've been very cautious about our approach in a low interest rate environment and the market is moving back to us. The in-force business, we had a couple of large claims. So as the year goes on, we may see some businesses have better quarters and some not better and we would hope they would all balance out as the year goes on.

Thanks very much.

Asim Imran, Macquarie Capital Markets.

A question for Kevin Strain on Asia. As noted, Sun Life had some very good broad-based growth and individual insurance through its agency network and I believe you may have mentioned the (inaudible) growth has also been quite good. So I was just wondering if you could talk about if Sun Life has seen some margin expansion similar to some of its peers in Asia, or was the growth largely a function of volume growth?

Yes, we are seeing the [VNB] increasing for a couple of reasons. Dean referenced that we are doing more health and accident. It has grown to 12% and a growth in sales of 45% in health and accident and the VNB is quite positive there. We are seeing a good mix of sales in our life business. We are seeing broad growth in our wealth business, which also has good VNB. So I think that it's not necessarily a pricing change in any product, it's more to do with the mix of sales and adding more health and accident, adding more wealth and getting the more profitable life business coming through. And the other element is just the sheer growth towards scale helping with expense gaps, which also helps the VNB so I think there's two factors there.

Okay. And on the geographic basis, would you say that Hong Kong, Philippines, Indonesia would have a higher margin than some of the other footprints in Asia?

It does vary by country. I think that if you -- each country has the potential to have a good VNB story if you get the sales mix right and you get the sales going. Our biggest countries still in terms of sales are the Philippines and Hong Kong and they are the biggest providers of VNB. Indonesia as it continues to grow will put more and more VNB into the system. Malaysia has very good VNB. India has good VNB when we get the sales coming through.So the biggest challenge from a VNB perspective would be the single pay business in China and we are really focused on bringing in more regular pay which should increase the VNB in China. Vietnam is still small and it's still growing and it suffers from some expense gaps but over time should have positive VNB as well. So I think if you can be strategic and manage your mix you can get a good VNB out of all seven markets.

And just one final question on India, with respect to bank assurance, obviously there's a change of spec to Citi Group having an exclusivity agreement with another player. Would any future bank assurance deals be more with local institutions, would you say? Or are there any major foreign banks out there as well?

In India?

In India, yes.

I would say that you are looking primarily at local banks for bank assurance deals in India and there is a proposed law, as I mentioned earlier, which would look at having multiple providers required by the banks and if that happens that would -- because as you know we really don't -- we have a very small footprint at this point in time for bank assurance, so the opportunities for us are significant if that opens up.

Okay, great. Thank you.

Chris, we have time for one more question before we end today's call.

Meny Grauman, Coremark.

Good afternoon. My question is about international business in the US segment. Just wondering about the geography in the sense that is there any talk to moving that business, is there any advantage to housing it for instance in Asia? Would there be any synergies to that? Or is it just -- is this just more of an accounting classification and not really anything that would impact the business itself?

Meny, it is Dean Connor here. There is really no advantage per se in terms of where we house it by market. It really is an international business. If you look at the insurance sales, some 80% or so of the insurance sales are to Asian customers. On the other hand on the wealth sales, it kind of swings the other way to Europe and Latin American, Middle East. So it fits well in the US today because it has been well supported. A lot of the infrastructure is shared and geographically it is handy because there's a lot of folks who work for us on the island and in terms of getting back and forth to Wellesley where some of the back-office support fits, it fits well. So no, there is no magic in moving it from a reporting line perspective to Asia. What I would say though is wherever the business operates, it coordinates well with our local businesses, so we are not bumping into each other and in fact serving different segments of the market.

Thank you very much.

I'd like to thank all of our participants today and if there are any additional questions, we will be available after the call. Should you wish to listen to the broadcast, it will be available on our website later this afternoon. Thank you and have a good day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.