Welcome to Sun Life Financial's First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, May 9, 2013, at 10:00 a.m. Eastern time. And I would now like to turn the conference over to Mr. Phil Malek, Vice President, Investor Relations. Please go ahead.

Thank you, Luke, and good morning, everyone. Welcome to Sun Life Financial's earning conference call for the first quarter of 2013. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We'll begin today's presentation with an overview of our results and progress on the execution of our strategy 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. Following Colm's remarks, Kevin Strain, President Sun Life Financial Asia, will provide an update on our businesses in Asia. Following all the prepared remarks, we will have a question-and-answer session. Other members of management are also available to answer your questions on today's call. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form a part of this morning's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. With that, I'll now turn things over to Dean.

Thanks, Phil, and good morning, everyone. Turning to Slide 4. Sun Life is off to a strong start to 2013. Operating net income from continuing operations grew to $448 million. Expected profit grew 14% year-over-year. Sales of individual life and health products increased 5% and wealth sales grew 16%, including 14% growth in non-MFS wealth sales. Adjusted premiums and deposits grew 15% and assets under management reached $571 billion. The value of new business increased by 47% over the same period last year, and the majority of that relates to our insurance operations. This increase reflects the many actions we've taken not just to grow sales but to improve the profitability of our product shelf for the low interest rate environment. Moving to Slide 5. Yesterday the company reported operating net income from continuing operations of $448 million or $0.75 a share, up from the $437 million or $0.74 a share reported last year. Our capital position remains strong, as we ended the first quarter with a Minimum Continuing Capital and Surplus Requirements ratio of 214% at Sun Life Assurance Company, well above the regulatory requirements. Turning to Slide 6. You can see that over the past year, we have significantly improved the risk profile of the company through a number of de-risking actions, including the sale of the U.S. annuity business, which is on track to close in the second quarter. Year-over-year, there's been a 50% reduction in the net income impact of 25% decline in equity markets and an approximate 45% reduction in the net income impact of a 100 basis point drop in interest rates, based on our sensitivities disclosed for both periods. Turning to Slide 7. In the first quarter of 2013, we continued to build on the significant progress made throughout 2012 in executing on…

Thank you, Dean, and good morning, everyone. Turning to Slide 13. We take a look at some of the financial highlights from the first quarter of 2013. As Dean said, we are off to a strong start. We reported operating net income for continuing operations of $448 million or $0.75 per share, which is up from the $437 million for the continuing operations in the first quarter of 2012. We delivered operating net income, excluding market factors, of $392 million. And I will go into some more detail on those factors on the following slide. We also experienced strong growth in the top line with adjusted premiums and deposits up by 15%. We continued to see year-over-year improvements in key lines within the source of earnings with expected profits on in-force increasing by $56 million over last year and new business strain improving by $12 million in the quarter. As you can see on Slide 14, the net impact of market factors on continuing operations contributed $56 million to earnings in the quarter. Operating net income, excluding the impact of market factors, was $392 million. We have provided more details on the impacts of market factors in the appendix. The net impact of market factors this quarter is primarily due to favorable equity market experience of $47 million, which includes $20 million from positive basis risk. The impact of interest rates was not a material factor to earnings in the quarter, contributing a $1 million loss. Note that we did not experience decline in the ultimate reinvestment rate, otherwise known as the URR, this quarter. The URR is calculated using moving averages of 5 and 10-year rates. And based on the level of rates in Canada during the quarter, the averages did not decline. If interest rates remain near current…

Thanks, Colm. Turning to Slide 22, you can see our footprint in Asia. As many of you know, in January, we received our license to operate our business in Vietnam, PVI Sun Life. And in April, we completed our acquisition of CIMB in Malaysia -- CIMB Aviva in Malaysia, taking our footprints in 7 markets in Asia. With those 7 markets, we operate a total of 15 companies that include life insurance, asset management, group benefits and pension businesses. We also work with 6 strategic partners in the region: the Birla Group in India, the third largest Indian conglomerate with a gross revenue of USD 40 billion in 2012; China Everbright, a state-owned enterprise, China Everbright Bank alone has over 40 million individual customers and 400,000 corporate customers; PVI Holdings in Vietnam, the #2 general insurer in Vietnam, part of PetroVietnam, the country's largest state-owned enterprise; CIMB in Indonesia and Malaysia, more than 14 million customers across the ASEAN markets, second largest financial services provider in Malaysia; Khazanah, as well in Malaysia, the state-owned strategic investment firm with over USD 40 billion in investments and a significant ownership position in CIMB; and finally, the Yuchengco Group in the Philippines, one of the largest conglomerates in the Philippines and owner of RCBC Bank, the fifth largest bank by assets in the country. Turning to Slide 23. We are seeing good momentum in terms of sales in the region, in particular, in our core wholly-owned businesses in Philippines, Hong Kong and Indonesia. This business has a strong VNB and is a solid part of the VNB growth for the company, positioning us well to become a more significant part of SLF earnings in the future. As you heard from Colm, SLF Asia had a very strong quarter with net income increasing by…

Thanks, Kevin. And before we open the call to questions, I'd just like to leave you with a few key messages. First, Sun Life continues to deliver strong top line growth, as demonstrated by the momentum in both premiums and deposits and sales. MFS is building from strength to strength. And we're very pleased with our insurance operations, not just building sales momentum but significant growth in VNB and reduction in strain, all of which are the precursors to drive further earnings growth. Operating net income has shown steady improvement in recent periods as we've taken steps to improve the profitability of the product shelf and focus on productivity. With the sale of the U.S. annuity business and other de-risking actions, we have significantly reduced our risk profile and the resulting volatility of our earnings. And finally, we continue to execute on our strategy and are achieving key milestones towards meeting our strategic objectives. And with that, I'll turn it back over to Phil for the Q&A.

Thank you, Dean. We would like to ensure that all of our participants have an opportunity to ask questions on today's call. [Operator Instructions] With that, I'll now ask Luke to please poll our participants for their questions.

[Operator Instructions] Your first question today will come from the line of Robert Sedran of CIBC.

A question on the margin that I've asked Rob Manning, I think I asked you a couple of quarters ago about the margin, when it was sitting at 36% and you mentioned there were some seasonal things at play. Is this now just a benefit of scale showing up and that you have higher assets and so your margins going to trend higher? Or is there also something unusual on the expense side this time around?

Robert, if you go back to the Investor Day presentation where I put up a slide and showed as you layer assets on to MFS, what can happen to the margin. That's pretty much played out basis point by basis point. And so at these asset levels that we're at now, we think the margin should stay in the high 30s. One of the things to keep in mind, though, is from an expense point of view, the first quarter was light. We have a big project going on here on client service and so expenses will pick up in the second and third quarter. But we believe that a sustainable margin at these asset levels for MFS is in the high 30s and we wouldn't anticipate it moving significantly higher than that just because we need to continue to invest in the business so that we not only have new products that we can launch, but also build out the service model, which is increasingly important as our sovereign wealth fund business around the world continues to grow.

But it sounds like even notwithstanding some of the expenses that may be coming in the next couple of quarters, you're comfortable at these levels in terms of the margin going forward, as long as the asset...

Yes. I think you can assume that these margin levels are sustainable.

Okay. And Colm, just a quick question on the anticipated loss on the sale once that book -- the annuities book closes. Are we close enough to the end now that we can assume that, that estimate is pretty close to where it's going to be? Or is there still opportunity for some fairly significant variation in that number?

Well, Rob, I would hope it won't be significant but I would caution that it's a complex transaction and there are a number of closing transactions that take place around the business and we've come up with our best estimate. But as we work through the final numbers and the purchase price adjustment mechanism itself, we'll need to be trued up as of the date of sale and we're anticipating that to be within this quarter. So more work to come, but it's a good estimate at this point. But I would caution that it could vary around that level.

Your next question will come from the line of Peter Routledge of National Bank Financial.

A question for Kevin for starters. Great top line growth in Asia. And I'm having trouble seeing it show up in core earnings. So when did those better sales in Asia turn into higher expected profit? I notice over the last 6 to 8 quarters, expected profit in Asia is in the low to mid-40s. It hasn't really moved. When do you start to see that trend up?

We are seeing good growth. And as you note, the sales we're seeing are very strong VNB, particularly from our core markets that we've been managing, the Philippines, Hong Kong, what we're seeing in Indonesia. We'll be bringing online sales from Malaysia and also from Vietnam this quarter and they should also be strong VNB and strong profitability. So over the next few years, you'll start to see those drive up the income. At the same time, we've been refocusing in China on profitability, and shifting from single premium to regular pay. So a larger focus with our partner on bottom line and on VNB growth. And in India, you're seeing changes out of the regulatory environment. And over the next year or 2, we'll be adjusting to that and you'll start to see sales growth that's more positive VNB. So you have almost a tale of 2 different things happening. Our core 5 businesses, Philippines, Hong Kong, Indonesia and now, Malaysia and Vietnam, look for sales growth from them being very strong from VNB perspective and repositioning in India and China.

Say for a minute, like sales momentum stays where it is for the next 2 years. And I don't want to sort of pigeonhole you but do you have like a range of growth in either expected profit or core earnings that would be a reasonable range to think about for Asia, assuming sales stayed at their current level?

I think in the next few months, we're going to be updating our target earnings results. And at the time we do that, we can give you an update on where we expect those sales to be.

Okay. In earnings, right?

Correct.

One other question. Just in your -- and it's probably Dean or Colm, in your earnings report, you had a fairly well-worded opinion on the actuarial standards change with respect to reinvestment assumptions. And it seems like you're posing at least the speed with which they are proposed to be implemented. And I guess the question is why? Isn't it in Sun Life's shareholder interests to get those in as quickly as possible to avoid URR changes in the future?

Well, I think you raised an interesting point. And the URR aspect is relatively straightforward in the set of changes that are being discussed because it's not only around the ultimate reinvestment rate, Peter, it's also around the non-fixed income and certain assumptions and practices in that space, which is complex and does require a seasoned and a reasoned view as to what's to being proposed. The exposure draft itself has not yet been issued. So our view is that rushing to finalize it for the end of the year could in fact be detrimental to shareholders if we haven't fully assessed all the implications and had time to test it and to implement it properly. And we've met with the chair of the Actuarial Standards Board to have a discussion around due process around this. And we hear your point that certain aspects of it may appear relatively straightforward. But as with most things actuarial, there is a fair degree of complexity under the covers.

You'd rather go slower and put the benefits off to a later time?

Well, we'd rather go slower then get it right, enjoy the benefits and perhaps some costs associated with the entire package of changes once we've had a chance to assess it.

Your next question will come from the line of Andre Hardy of RBC Capital Markets.

I'm just curious. What are the implications of the sale of the U.S. annuities business on the unit cost assumptions for the remaining businesses?

In that -- in the sale, of course, we do have some diseconomies of scale and that's part of the calculus as we determine the expected loss on the sale. We've spent a lot of time on getting the cost structure right as we work our way through the transaction. So that involves all areas of the company, the U.S. directly, of course, but also areas that support the U.S. So we're working through that. And we've made terrific progress and it has been factored in as we think about the loss on sale.

So if there is to be a reserve increase related to changing expense assumptions, what you're saying is it's going to be done at the time of the close rather than later [indiscernible]?

Yes. That what we think makes sense and we've taken that into account as we've determined the accounting aspects of the transactions. So at the time of close, we'll have a fairly detailed disclosure for you around all the moving parts, which would include any reserving increases because of diseconomies of scale. And looking to Wes here, he might want to say a few words about -- just on the ground of practicalities of some of these changes?

Before Wes answers, perhaps, Colm, just to be 100% crystal clear, you're saying it's already in the expected loss you've disclosed?

Yes, the amount that we disclosed in December had it. And this update that we've provided was not related to additional work on that.

I would only add -- this is Wes -- that, recall that we removed about $150 million of expenses related to what is the largest proportion of expenses, which is the new business expense when we ceased new business for our individual businesses in the U.S. and that came out during the course of 2012.

Your next question will come from the line of Tom MacKinnon from BMO Capital.

A question for Kevin and then one follow-up. With respect to the transfers, the Mandatory Provident Fund transfers, are those to some extent seasonal, Kevin? Or how do we -- should we be looking at those things going forward? Obviously, a great quarter. But if you can give us any color as to the sustainability of that and any seasonality with respect to that. And then I have a follow-up.

Yes, Tom. Thanks. And it was a good quarter. It moved us to, overall, #7 in assets under management for the MPF fund. And we were close to 17% of the inflows, which was good positioning for us. It's not so much seasonality as the fact that this was the first quarter that you could do the ECA. So I think we got a bit of an uplift. And it's going to take a while to see how that plays out for the year. But I do expect that the first quarter was fairly strong because that was the -- their first opportunity to make those changes.

Okay. And then I guess a follow-up for Dean here. If we're looking at somewhere net of $1 billion in excess capital as a result of the sale of the U.S. annuity and take off about $300 million from that -- from the Malaysian purchase, we're still sitting in with $700 million kind of in your genes as a result of the sale of the U.S. annuity business. And you still got to look to replenish some in the tune of nearly $0.22 in annual earnings. How should we -- what's in the pipe? What are the plans with respect to that? And what are your thoughts in terms of redeployment of that capital?

Well, Tom, I'll answer that in 2 parts. The first part is -- relates to what we're -- kind of got a list of things that we're looking at in terms of ways to deploy that capital. And that's a long list of ideas ranging from are there any reinsurance treaties out there that we could recapture at some point or are there further debt issues that we could redeem at some point and so on. And I won't take you through that full list. But there's a list of ideas that we've got to think about. Of course, beyond that, there's M&A, and we would come back to our standard answer on that, which is we are in the deal flow looking for opportunities that would support our 4-pillar strategy. And I said this before and will continue to say it, our first focus is organic growth. And we think there's a lot of runway to grow the business organically. But at the same time, we feel having that additional firepower on our balance sheet. It's not in my genes, by the way, it's on our balance sheet. It's a great position to be in. So I appreciate that's a very general comment, but I'll just restate it for the record. The one other thing I would add to the mix, and I said this yesterday at our Annual General Meeting, is that then you look at the way we reposition the company and repositioned our product mix, the amount of capital we need this year to support the sales this year is about half the capital we needed to support our sales in 2011. So we -- I appreciate that's not exactly on your question and on your point, but it relates to the balance sheet and the liquidity of the balance sheet and the kind of resources we have to grow -- invest in growing our business.

Now as a follow-up on that, what would be the incremental increase in your MCCSR, just as result of this organic growth, but given the fact that less is deployed into growing the business? Is there any [indiscernible]?

Yes, so Tom, it's Colm here...

4, 5, 6 points a year? I'm just trying to get a handle on that.

Yes, so Tom, it's a good question. And clearly, the business model that we drive for is one that creates earnings that can be used for the dividend, can be used to fund ongoing acquisitions, small type of acquisitions and then also to provide us with the capital required for business growth. And you're asking about fees that can be built up to fund ongoing acquisitions. We will be coming back to this topic as we update the earnings progression to 2015. So we have a little bit of work to do, to do that. But I would say that we're very pleased, as Dean mentioned, that the business model is a far more sustainable model, given the changes we've made around the product mix and design to ensure that the capital requirements, which as you know can vary tremendously between products. And products which have very high capital requirements don't allow for that kind of progression. So we think we've taken the right steps, and we'll have a little bit more to update on that later.

And when would you expect to have this earnings update?

Well, we've got some work to do and -- over the next couple of months. But we're looking to something in the midyear and we'll be communicating with people with the date when we're ready.

Your next question will come from the line of Steve Theriault of Bank of America Merrill Lynch.

I have a two-parter for Wes and then a follow-up question, please. So for Wes, last year, you were kind enough to give us some target sales figures for voluntary. Are you prepared to do that again this year as you continue to ramp the business? I think the target last year was $115 million, if memory serves. And then on the employee benefits business x voluntary, the business in-force has been pretty steady. Is there any reason to anticipate a lift there near term? Or is that really solely dependent on a more robust U.S. recovery?

Okay. So I'll take the first question first. I would say that we're not sharing target sales going forward. As you know, we did put out a number last year and we significantly achieved it -- above it, I should say. And as you can tell from Q1, we're very pleased with the continued growth of that voluntary business, which also comes with a very high VNB. So we're really pleased with the investments that we're making there and see really good growth. In terms of business in-force, we also have experienced because of the growth of our voluntary business and our core business about an 8% lift in our business in-force in Q1 relative to prior years. So I would think that across the industry, that would be considered really exceptional, given the fact that many of our competitors are fairly flat. I would also say that I'm pleased with that growth in bps because it is also reflective of improvements in persistency of our business across the board. So a number of initiatives that we are investing in, distribution and sales and service capabilities, are really taking hold and coming through in those results.

Can you put any numbers around the improvement in persistency?

We don't publish the individual persistency numbers. But we've seen several hundred basis points, about 300 basis point improvement over prior year and that's significant.

And then I just wanted to ask Colm. You're telling us that there's -- $100 million of you are coming over the next couple of quarters relative to Q1 quarter end levels. Rates are a bit lower than that. I just want to make sure I understand how you guys are doing the URR charge, if rates go lower still, maybe another 20 or 30 basis points across the curve from here, would I be correct to say the $100 million doesn't get that much larger? Can you give us any sense of the sensitivity here?

Yes, so on the sensitivity that we've disclosed, it is predicated on rates where they are currently. But we are obviously able to take a forward view around what kind of rate movement would need to occur in order for there to be a further significant charge. Perhaps I'll ask our Chief Actuary, Larry Madge, to comment further about the process.

Right. So these URR movements are in our Canadian business. We're currently reserving at the URR of 3.4%. So as Colm said, we see 2 more movements down over the course of the year. And we're just implementing the -- we haven't moved ahead of the process as some companies have and we're just taking them as they come according to the calculation, which is pretty much prescribed by the CIA standards.

Your next question will come from the line of Gabriel Dechaine of Credit Suisse. Gabriel Dechaine - Crédit Suisse AG, Research Division: First question I have is on expenses. There were a few things you touched upon, the voluntary benefits, investment initiative, sounds like this stuff is going on in MFS as well, the U.K. Solvency II projects. Can you give me a sense more broadly of what the expense trend is going to be at Sun Life? Is it going to be an earnings driver anytime soon where we see some of these expenses start to come down? And maybe more on the voluntary benefits side because I think that one's a longer duration spending.

Yes, Gabriel. You're quite right to point out expenses. And absolutely to the part of your question around are were going to see it translate into earnings, that's exactly the intention. And we have seen a significant growth in expenses year-over-year. It is down from the fourth quarter. The fourth quarter tends to be on the high side, even relative to a growing expense load as we continue to invest. But year-over-year increases around 12%. And if you think about that, where is it happening, a lot of it is in respect of volumes, contractual arrangements and volumes and variable compensation that's driven from higher earnings, for example, at MFS. So that accounts for 6% of the 12% year-over-year increase. And then importantly, there's a portion of the expense growth that relates to expansion. And this is the portion which we are monitoring closely and we have expectations that it will drive a further profitability. Otherwise, we would not be engaging in these initiatives. And these are broad ranging. In Canada, for example, the Sun Life Global Investments build out of that and we're seeing success there already but further success is in the plans. Individual wealth distribution, client solutions, disability management, now, these are all areas where we're focusing. And we're seeing and expect to see further payback. In the U.S., voluntary capabilities is a big area of focus. And in Asia, of course, you've heard about some of the strong results in the Philippines. And that's on the heels of the integration with Grepa, which we undertook. But there are obviously some costs associated with that. And then also there's some costs related to the startup operations in Vietnam that came through in the quarter. And then there are a couple of other onetime -- and those items, by the way, account for some 4%. So out of the 12% I mentioned, 6% on the contractual volume and the variable comp and about 4% on these expansion areas. And then there a few other items that we would consider to be onetime in nature. So we feel pretty good overall that even though there's a big expense growth, it's pretty targeted and the underlying expenses are being managed carefully. And you saw in the negative experience on expenses, it was a much more modest number at $6 million. And that related -- portion of that related to the unfortunately ongoing Solvency II U.K. initiative. That one has dragged out, not just for us but for everybody the industry in the U.K. So with that, I might ask Wes to comment a little bit perhaps on some of the growth in the U.S. and the voluntary piece? Gabriel Dechaine - Crédit Suisse AG, Research Division: It's just that I'm really interested in the timing of when some of those project spending comes down because you can't keep spending and spending forever and...

Yes. So I think what you saw in the quarter was reflective of the fact that a significant portion of our investment and distribution for voluntary in our group business overall occurred in the second half of 2012. So the quarter-over-quarter, year-over-year would reflect obviously a higher number than for Q1 '13. The other aspect of the investments that we're making is a fair amount of that investment is project expense, so it does go away. And we shared at the Investor Day that we saw the majority of expenses coming in 2012 and 2013 and then going down in '14 because we would have by then built the bulk of the capabilities that we felt we needed for that business going forward. So we do expect that component, the project spend component to go down in '14 and beyond. Gabriel Dechaine - Crédit Suisse AG, Research Division: Okay, next question, investment activity. I guess, yield enhancement, you were talking about that being a recurring benefit and if you can expand a bit on that. But also are there any other investment initiatives that you're working on? And Steve Peacher, if he's around, he could comment on that where there's more cash deployment or reducing some investment expenses or a bunch of stuff like that, that could go from being experienced gains to higher expected profits. So we could -- get more of a recurring kind of benefit about these initiatives?

Yes, Gabriel, so you've touched on a couple of important points there. So clearly, on the investing gains, the piece that comes through in the quarter, it is variable. And we look back over a number of quarters, and I'm sure you have as well. And you can see that, while it does vary, it has been positive for us and it reflects capabilities within the investments area. And Steve is here and he'll comment in a moment. So that, we're saying that we'll be recurring amounts coming through there. And then, of course, that's on the insurance side. And then on the surplus side, we have a number of initiatives that will enhance returns there. And Steve can also comment on that.

Yes. Thanks, Colm. This is Steve. Certainly, as Colm mentioned, just to reiterate, we have had uneven but generally successful experience over time on the insurance side in terms of being able to find pockets, especially in the areas of private placements though not exclusively there, where we've been able to find high-quality investments that -- and yields higher than we had built into assumptions and that's led to gains. And we think we've had enough experience for that to think we can do it in the future though as you can imagine, it's hard to make specific projections because it varies with the environment. It certainly varies quarter to quarter. And we are very focused and have been for a number of months and actually going well into 2012 on surplus. As you would've expected, during the crisis, we were highly valuing liquidity and high quality over other attributes of surplus. But as the environment normalizes, we feel that we can also start to focus more on optimizing the asset allocation of surplus. We've had high degrees of liquidity there, which is costly in this environment. So we're looking to redeploy that liquidity into high-quality assets, which give us some liquidity but also give us some yield; increased allocations to things like privates and mortgages within surplus, which gives us maintained quality but give us extra yield. We've thought and talked about at the margin -- increasing credit risks again at the margin, where we see opportunity to increase yield. But I would emphasize that as we think about this, one of the things we don't want to do is have significant increases in credit risk in the portfolio at the wrong time. So I definitely want to emphasize that caveat. Gabriel Dechaine - Crédit Suisse AG, Research Division: Or a duration, I imagine.

Or duration. One thing, as we looked at asset allocation, for surplus, surplus is part of the bigger balance sheet. So one of the roles of surplus is to diversify other exposures you had. And we factor that into the analysis as we look to optimize. And so -- and duration was one of those components. But you're absolutely right, it seems like a bad time to be taking a long duration bet.

Your next question will come from the line of a Doug Young of TD Securities.

Just, I guess, maybe it's a question for Colm or Kevin. In Canada, we just -- we noticed expected profit has been relatively flat. And I'm just wondering how much of that has been dragged because of investment initiatives in things like SLGI, which obviously you're paying upfront commissions to build out that business and is a bit of a strain and I know that -- I believe it goes through expected profit. Just trying to get a sense how much of a drag there is on that and -- or if there's other items that are dragging down the expected profit line in Canada.

Thanks, Doug. Well, in regards to that, there were a bunch of refinements that went through in the quarter around expected profits in Canada. If you kind of look really deep inside it, I think there's good momentum and good value creation there. And as SLGI grows, of course, that will be one of the things you see that emerges over time in the expected profit lines. And in addition to that, I'd point you to a couple of other things, which would be pricing gains. Last year this time, we were at negative 10. We're 8 on this quarter. As Colm said, there's some room for that to expand a bit over the course of the year. So that's an important area of growth for us. Experienced gains as well and reflective of a lot of work that we're doing in the group business around disability claims management, pricing of that block and expanding margins. So, and as Steve signaled, a lot going on on the ALM side and with investment program. So I'd encourage you to look at, really, a complete picture to get a sense for what Canada is doing and where we're going.

So I guess the follow-up would be when did the pricing gains, the experienced gains in the ALM, start to be reflected in expected profits? When does that flow up?

Yes. So I think that's along the lines of the question that was raised earlier around Asia and when we have strong VNB and pricing gains there. We'd like to see that come through in the expected profit. The timing on that does take -- it does take a while. But we are very focused on expected profit and ensuring that we see growth there. As Kevin mentioned, Canada is a big business with a lot of different moving parts. And in any 1 quarter, you can draw conclusions that probably aren't warranted on a line like this but does vary. But suffice it to say that we will and do expect to see increases and expected profit coming through in Canada.

And just quickly, can you describe just quickly the refinement changes, like how material was that and what's that related to? I mean, if it's too complex, I mean, we can do it offline.

Yes, I think that's probably wise, Doug. It's -- that's just, as I said earlier, a number of moving parts and when you drill down, you can have something that was done last year that wasn't repeated this year and vice versa. And it can have a little bit of a distortion but nothing of major significance but enough that you just get a little bit of sense of a flat period, where we would say there is -- good progress has been made.

And, I guess, this second question's for the other Kevin, Kevin Strain. In India, correct me if I'm wrong, did you say that the regulatory body or the individual -- the regulator has changed? And I guess, how does that impact in India the adjustments that are being made in terms of the rules? Does that help? Or does that kind of just delay it further?

As the new Chairman, he's actually the former CEO of the LIC. He's just taken office in the last little while. In India, there's been something like 200 regulatory changes in the past 2 to 3 years. And so it's been going through a lot of change. We're still waiting to see what the differences look from the new regulator. We are seeing some opening of the product guidelines are kind of out now. And you'll see that we brought out 4 new products early in the year. We have some more new products that are coming later in the year. So we're actually taking the time to look at our business model and make sure we align it to the new regulatory regime and driving out profitable growth inside of India.

I think you mentioned you're -- so you're thinking 2 years, that -- there should -- that's when we should start to expect some benefits?

I think there's going to be -- it's going to take sometime to create adjustments. Some of the new products -- the new products coming out will have some more immediate impact. But we do -- it will take some time overall to create -- sort of return that around and create some larger growth there.

Doug, it's Dean. If I could just add one last piece to that. As Kevin said, the new regulator comes from the industry. And I think while it is early days, I do think at the top level, the industry in general, and Birla Sun Life Insurance in particular, have a good feeling about that. And he comes at the industry as -- he's very knowledgeable about the business. He understands the issues -- he understands the challenges with the frequency of change that Kevin described and he listens. And so I think, as Kevin said, it's early days, but we take it net-net as an encouraging change.

Your next question will come from the line of Mario Mendonca from Canaccord Genuity.

Just a point of clarification. The $44 million impact of investment activity and insurance contract liabilities, I want to clarify that, that is not in excess of a benchmark amount but in fact is the entire amount? Is that appropriate?

Yes, that's correct. That's in the classification in the experience. That's the full amount that comes out.

That's the full amount? Now, you made reference to the fact that there could be a recurring amount. One of your peers gave us a bit of a benchmark for themselves. Is that something you could offer as well?

Well, I know that there is a keen interest in what's the sustainable amount. And my comments earlier, Mario, were around -- indicating that, yes, there is an amount that we would feel comfortable. It won't come through necessarily every quarter but over the course of the year. And that range would be, we're thinking, the $10 million to $20 million range per quarter. But as I said, not necessarily repeatable every quarter.

Right. It's just -- if it's something that you feel is recurring, it might be appropriate to give credit for it. The other thing that would be helpful understanding is, this is obviously a very solid quarter for MFS and the risk is that you tend -- that you look at the number like this and annualize it. What would be helpful then would be an indication of, if you would quantify just how low the expenses were this quarter relative to what you would have in a given -- in any other quarter for MFS?

Rob, is that a comment you'd like to respond on?

Well, Mario, expenses are going to take up. But it's not going to move the margin significantly. It's going to temper it. And what really drives the whole business model are assets under management, and you can put your own pencil to what's happened since the end of the quarter to MFS of assets. So I think a high 30s margin is sustainable throughout the course of this year. And quarter by quarter, the expenses are going to move around because of timing. But on an annual basis, I think where we're sitting today is a reasonable assumption.

Your next question will come from the line of Bradley Romain of Desjardins Securities.

Just one quick question. On a continuing earnings basis, what do you consider a reasonable payout ratio for the company in terms of dividend? And what sort of denominator of earnings should this be measured against?

Yes, so Bradley, it's Colm Freyne here. So we've been fairly clear, I think, around the dividend. And we feel that the -- and we've stated this that our dividend is sustained at these levels. And we've mentioned that at the time that we announced the sale of the U.S. annuity business. So nothing has changed there. We're very comfortable with the overall capital position and with the business model that allows us to pay the dividend and retain earnings to continue to grow the business.

And your next question comes from the line of Darko Mihelic of Cormark Securities.

A question on -- a clarification question for Colm. Colm, when you discussed the earnings and surplus of $46 million in the quarter from continuing operations, you said that the run rate would be better -- a better look at last year's run rate of around $56 million. Was that also considering the changes -- the sale of the VA business and all the adjustments thereafter? Or did you intend to say that it would -- on a normal basis, it would've looked like $56 million for this quarter but not to consider $56 million for a run rate hereafter?

Yes, more of the latter, Darko. So we think this quarter was unusually low. There were some gains that were taken in our AFS category that on a pre-tax basis were a bit lower, but on a post tax basis, were in the right zone. And when you normalize for that, that would lift it by some $6 million or so and then a couple of other items that just work their way through. There are some other items that will come as we've mentioned when the transaction -- the sale of the U.S. business closes, which will come through surplus. But, no, I was not taking credit for those at this point.

Ladies and gentlemen, this does conclude the question-and-answer session. Mr. Malek, please continue.

Thank you, Luke. I'd like to thank all the participants on today's call. And if there are any additional questions, we will be available after the call. Should you wish to listen to the rebroadcast, it will be available on our website later today. With that, I'll say thank you and good day.

And thank you. Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and you may now disconnect your lines.