Sun Life Financial Inc. (SLF) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Life Financial's Q3 2013 Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, November 7, 2013, at 10:00 AM, Eastern Time. I would now turn the presentation over to Phil Malek, Vice President of Investor Relations. Please go ahead, sir.

Thank you, John, and good morning, everyone. Welcome to Sun Life Financial's Earnings Conference Call for the Third 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 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 third quarter financial results. Following the prepared remarks, we'll 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 part of this morning'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, Phil, and good morning, everyone. Turning to Slide 4, Sun Life had a strong quarter. Operating net income from continuing operations was $422 million and ROE was 12.6%. Expected profit grew 16% year-over-year and new business strain was down 74%, reflecting good growth in our underlying earnings power across all 4 pillars. We continue to grow our top line in the quarter. On a total company basis, sales of life and health products increased 6% and wealth sales were up 25%. Adjusted premiums and deposits grew 21% and assets under management were $590 billion, with organic growth in the quarter fully replacing the AUM that transferred with the sale of our U.S. Annuity business. The value of new business increased by 37% over the same period last year. This increase reflects our improved product profitability and business mix, as well as higher sales volumes. We successfully completed the sale of our U.S. Annuity business during the quarter. This transaction has significantly reduced risk, its made our financials more transparent and it is enabling us to focus our energy and our capital on our 4 pillars of growth. Moving to Slide 5. Yesterday, the company reported operating net income from continuing operations of $422 million or $0.69 per share. Our capital position remains very strong and we ended the third quarter with a minimum continuing capital and surplus requirements ratio of 216% at Sun Life Assurance company, which is well above the regulatory requirements. Slide 6 shows our continued sales momentum, with growth in both insurance and wealth. As I noted, sales from insurance products increased 6%, sales from wealth products were up 25% over the prior-year period. Wealth product sales, excluding MFS, were up 15% from the prior year as we continue to expand our wealth businesses in Canada and in Asia. Year-to-date, sales are up 13% in insurance and 24% in wealth, and VNB is up 48% as our investments in new business, in distribution, in products and in customer service are translating into strong new business growth. Turning to Slide 7. In the third quarter of 2013, we continued to execute on our strategy, focusing on higher growth, higher ROE and lower volatility. I'll give you a brief update on the key milestones achieved in the third quarter on the following slides. On Slide 8, Canada had another strong quarter and continued to make progress toward achieving our goal of becoming the best performing life insurer in Canada. We grew sales and improved profitability in our individual businesses. Individual Insurance sales were up 17%, driven by record results through our wholesale channel. Our Career Sales Force also continued to grow, up 39 advisors over last year, reaching a total sales power of over 3,700. Individual Wealth sales were up 30% due to strong growth of sales of mutual funds, payout annuities and fixed annuities. At Sun Life Global Investments, we increased retail mutual fund sales by 78% over last year, we're very pleased with progress in SLGI, we now have a 3-year track record with excellent performance results, including several funds sub-advised MFS, which just received 4- and 5-star ratings from MorningStar. The investments we've made in wealth wholesaling are starting to bear fruit and we've rolled out new technology and process to make it easier for advisors to place business with SLGI. We retained our #1 positions in the Canadian group market. In Group Benefits, we continue to improve our long-term disability experience and business in force grew to over $8 billion. In Group Retirement Services, assets under administration finished the quarter at over $60 billion, up 14% from a year ago. Pension rollovers sales grew by 19% year-over-year to $352 million in the third quarter. Year-to-date, our sales in Canada are up for all lines of business with Individual Wealth, up 8%, Individual Insurance up 11%, Group Retirement Services up 7% and Group Benefits up 1% on a gross basis, 51% on a net basis. Moving to Slide 9. We continue to hit the key milestones in our U.S. group and voluntary businesses. Total employee benefit group sales for the quarter were up 25% over the prior year with voluntary benefits sales up 47%. Total business in force was up 7%, maintaining the growth rate achieved last quarter. We continue to invest in our enrollment capabilities and in expanding our product suite. In the quarter, we hired over 30 voluntary benefits enrollment and education specialists and launched 2 new voluntary benefit accident plans and a new stop loss product. Earlier this year, we began a major transformation in the Group business sales and service model, which will improve distribution productivity, enhance the customer experience and improve our margins over time. For example, we're moving sales reps closer to the brokers they serve. And we've implemented a new customer and broker support model to make us easier to do business with. The early signs from this transformation are positive and we've been able to make these changes without losing momentum in sales growth. In our international high-net-worth business, we achieved significant increases in sales, with investment products up 31%, and insurance products up over 180%, in part due to the expansion of our distribution footprint. Turning to Slide 10. You can see that we had another exceptional quarter at MFS, with assets under management finishing the quarter at U.S. $386 billion. Gross sales were $25 billion for the quarter, 20% higher than the third quarter of 2012. Net inflows were $9 billion, and represented our second highest quarter ever. MFS continues its excellent performance, with 94% of fund assets ranked in the top half of their Lippert categories based on 3-year performance and all of this is translated into strong financial performance. Turning to Asia on Slide 11. Our results demonstrate strong execution in the region. Overall, individual life insurance sales increased 5% from a year ago, and wealth sales increased by 56%. Insurance sales in the Philippines were up 21% over prior year, solidifying our number 1 position in that market and mutual fund sales increased by 58%. We continue to grow our distribution, and in October, we reached a milestone of 5,000 agents, 2 years earlier than the goal we set for ourselves in 2010. In Hong Kong, we increased our life insurance sales by 47%, with sales through the broker channel more than doubling as we continue to serve a growing number of mainland Chinese who want to do business in Hong Kong. We continue to generate strong growth in our Mandatory Provident Fund business with sales up 56%. In September, we reinforced our brand and our commitment to Hong Kong and Asia more generally, with the installation of prominent signage atop of the World Trade Center, overlooking the Hong Kong Harbor. In Indonesia, sales were up 50% as we continue to expand our agency force, which is now at over 6,700 advisors, up from 5,000 at the start of the year. Over 80% of our agents are now licensed to sell Shariah products, and Shariah sales grew by 60% over the prior year. In China, sales were down as we focused on profitability, and India sales were down as regulatory pressures continue to impact the business. During the quarter, we continued to make progress in our 2 new businesses in Asia. We received regulatory approval for our Universal Life product in Vietnam, and are preparing to launch a new pension product in response to recent regulatory changes that are encouraging the development of a new pension market in Vietnam. In Malaysia, we successfully completed the integration of the acquisition we made earlier this year, and launched several new products with CIMB Bank. I'll now turn the call over to Colm Freyne, who will take us through the financials

Thank you, Dean, and good morning, everyone. Turning to slide 13, we take a look at some of the financial highlights from the third quarter of 2013. As noted, we had a strong quarter, with a solid top and bottom line performance. Our operating net income from continuing operations was $422 million. This includes charges from our annual assumption review of $83 million. We delivered operating net income, excluding market factors, of $337 million, and I will go into more detail on the positive impacts from market factors on the following slide. We also experienced strong growth in the top line, with adjusted premiums and deposits up 21% from a year ago. In the third quarter, we saw good year-over-year improvements in key lines of the sources of earnings with expected profit on in-force business increasing by $73 million over last year, and new business strain improving by $34 million. Effective August 1, we've successfully closed the sale of our U.S. Annuity business. This resulted in a reported net loss for our combined operations of $520 million. Finally, our capital position remains strong. We ended the quarter with a minimum continuing capital of surplus requirements ratio of 216%, and a cash level of $2.1 billion at the holding company, SLF Inc. As you can see on Slide 14, the net impact of market factors on continuing operations contributed $85 million to earnings in the quarter. Operating net income, excluding the impact of market factors, was $337 million. The positive impact for market factors in the quarter was primarily due to higher interest rates and strong equity markets. The net impact from equity markets for the quarter was $21 million and the net impact from interest rates, including swap and credit spread movements was a contribution of $27 million. Actuarial assumption changes driven by capital market movements, added another $28 million to income in the quarter. We have provided more detail on the impacts of market factors in the appendix. We did not experience a decline in the ultimate reinvestment rate this quarter and the expected future impact of declines in the URR remains the same as discussed last quarter. Based on the level of interest rates at the end of the third quarter, we expect a $50 million charge in Q4 of 2013, a $100 million charge in 2014 and a $50 million charge in 2015. Note that changes under consideration by the Actuarial Standards Board are likely to remove some of the future expected impacts. Other notable items reduced earnings by $74 million in the quarter and included positive investment activity in credit experience, more than offset by assumption changes and management actions not related to changes in capital markets, and negative impacts from mortality and morbidity and expenses. Gains from investing activity in the third quarter were $19 million, within our expectation of $10 million to $20 million as a normal run rate. I would note that the level of these gains can vary from quarter to quarter. Moving to slide 15. We provide details on our sources of earnings for continuing operations. Expected profit of $525 million increased by $73 million from a year ago. The year-over-year increase is largely attributable to higher income from assets under management at MFS, as well as business growth in Asia, United States and Canada. New business strain was $12 million, representing a significant improvement over the $46 million reported a year ago. This was mostly due to impacts from actions at SLF Canada, specifically, product repricing and design changes in Individual Insurance & Investments, and through gains from higher sales and better mix of business in the International Life product segment of SLF U.S. While we have noted previously that the normal run rate of strain is in the range of $30 million to $40 million, the fourth quarter may also have a lower level of strain due to the positive seasonal impact of higher sales in Canada. The experienced gains of $66 million reflects the impact of market factors and other notable items described on the previous slide. Assumption changes and management actions resulted in reserve charges of $136 million before taxes. Earnings on surplus of $19 million were higher than the third quarter of 2012 and benefited from increases in the fair value of real estate held in surplus of approximately $10 million, and a partial release of our mortgage general provision of $11 million. Income taxes at $71 million are below our expected range for our effective tax rate of 18% to 22%, due to the recognition of previously unrecognized losses in our U.K. business, and a favorable business mix with higher income and lower tax jurisdictions. After adjusting for market impacts, assumption changes and other notable items, our effective tax rate was 22%, at the high-end of our expected range. Turning to Slide 16 on the results from our Canadian operations. SLF Canada reported operating earnings of $215 million, down slightly from the third quarter of 2012. Earnings in the quarter benefited from higher interest rates and equity markets and from positive morbidity experienced in group benefits, offset by charges related to our actuarial assumption updates. Individual insurance sales were up 17% from last year, due mainly to strong demand for permanent life products. Individual wealth sales increased 30% as higher mutual fund and fixed product sales were offset by lower segregated fund sales following our actions to deemphasize sales of segregated fund products that guarantees minimum withdrawal benefits. The benefit sales decreased 46% compared to the strong quarter a year ago, but on a year-to-date basis, are slightly ahead of the prior year. Group retirement services sales were down slightly due to decreases in the large case markets, but are up 7% on a year-to-date basis versus the prior year. Moving to Slide 17. Our U.S. continuing operations reported operating earnings of $101 million, up 28% from a year ago. This improvement reflected higher interest rates in equity markets and a positive impact of assumption changes, partially offset by negative claims experienced in employee benefits group, and mortality experience in our closed life business. Total EBG sales in the quarter increased 25% compared to a year ago. Within EBG, voluntary benefits sales increased 47% compared to last year. Sales of international investment and life products increased by 26% and 182%, respectively, compared to the third quarter of 2012, driven by expanded distribution. Looking at the performance at MFS on Slide 18. Operating earnings were U.S. $116 million, up 45% from a year ago, driven largely by higher average net assets under management. Margins were very strong at 40% and up from 36% a year ago due to higher average net assets. Total assets under management as of September 30, 2013 amounted to U.S. $386 billion, compared to $323 billion at the end of 2012. The increase was primarily driven by year-to-date gross sales of $73 billion and asset appreciation of $43 billion, partially offset by redemptions of $53 billion. Turning next to Asia, Slide 19 highlights the performance of our Asian business for the third quarter. Operating income was $18 million compared to income of $35 million a year ago. Net income in the third quarter reflected unfavorable impacts from market conditions in the region and assumption changes in management actions, partially offset by overall business growth. Total individual life sales in the quarter increased 5% from the third quarter of last year, as higher sales in the Philippines, Hong Kong and Indonesia were partially offset by lower sales in India and China. Sales benefited from the inclusion of Malaysia this year. Sales in the Philippines grew 21%, with growth across all channels. Sales in Hong Kong increased 47%, driven by strong performance in both broker and agency channels. Sales in Indonesia were up 50% year-over-year due to increases in the sales force and in case sizes and continued positive momentum in the Shariah market. Wealth sales in Asia were up 56%, due primarily to higher sales in the Philippines and mandatory provident fund sales in Hong Kong. On Slide 20, we provide details on the sale of our U.S. Annuity business which closed effective August 1. The sale includes 100% of the shares of Sun Life Assurance Company of Canada and U.S. and represents a complete transfer of risk. The total impact of the sale on net income this quarter is estimated to be a loss of $919 million and the book value loss is estimated at $983 million, both of these loss values are within the estimates we communicated previously. The final closing purchase price adjustments are expected to be completed by the first quarter of 2014. The loss on sale of our business and associated assumption changes in management actions are considered one-time in nature and excluded from our operating net income. Turning to Slide 21. And before we begin the question-and-answer session, I would like to leave you with a few key messages for the quarter. First, Sun Life had another strong quarter. We continue to deliver strong solid top and bottom line growth, as demonstrated by the momentum in both premiums and deposits from sales and by our underlying earnings power. We have grown our businesses and improved product profitability and sales mix. And lastly, we continue to execute well on our strategy. And with that, I will turn it back to Phil for the Q&A.

Thank you, Colm. [Operator Instructions] With that, I'll now ask John to please poll the participants for their questions.

Your first question on the line today will come from Robert Sedran with CIBC.

A couple of quick ones. Now that the Annuities business is sold, I'm wondering if there's any lingering relationship with that business. In other words, if Sun or MFS is still managing any assets for that business?

Yes, Rob, it's Dean Connor here. There continues to be some assets in that business that are advised by MFS, and MFS now has a relationship with the new owner of that business. Just like other third-party managers and just like other variable annuity businesses that MFS serves, so that's the business relationship between MFS and the buyer of that business going forward.

Dean, do you think that's a performance-based relationship or is there's some risk -- in other words, as long as the performance is there, the assets stay there or is there some risk that those assets may be internalized by the acquirer?

I think all of the relationships are performance-based relationships. In other words, to maintain a position on somebody's platform, you have to deliver great performance, so that's a truism across the business. And I think MFS has had a nice track record and they'll continue to do their very, very best to maintain that position on that platform.

But you don't have any visibility into any of that changing in the short term is all I'm asking.

That's right.

Okay. And then just Colm, on the explanation for strain, nothing seemed all that unusual in terms of why there was a lower number this quarter. I know the international life insurance sales, I guess, is one of the issues. But you're still suggesting a higher run rate as you look into next year. Can you perhaps give a little bit more color as to why you think strain might pick up next year?

Yes, so there's quite a number of factors that impact strain in any given quarter and last quarter was a good example of that where we had a low-level of strain and that was largely related to some pricing gains that came through in that particular strain line. And in this quarter, we have, as you mentioned, strong results in the international segment in Bermuda in the U.S. business, which helped us considerably. We think that Q4 benefits typically from the strong result in the Canadian individual insurance line. And as we look out, Rob, we do see the $30 million to $40 million as being something that is reflective of our planning assumptions. We might be maybe at the lower end of that $30 million to $40 million. I think for Q4, we do anticipate another good quarter but the longer term run rate, I think we would still stand by that. But clearly, we will update that as we continue to refine our plans and reflect the benefits of the pricing actions and improve the product design that we have in our business mix.

Your next question will come from Steve Theriault with Bank of America.

A couple for me as well. First, maybe, speaking with you Colm, the net basis charge of $83 million. Can you just tell us, were there any outsized item within that number, say, was there anything over $100 million, anything material?

There were a number of factors that contributed to that. The largest item was with respect to lapses. And perhaps our ask our Chief Actuary, Larry Madge to say a word on what gave rise that lapse experience or that lapse assumption change.

Sure. So, within that lapse category, that category itself was over $100 million. But within it, there was no single item driving the category. We had strengthening in many of our businesses for policy termination and also for premium persistency on our Universal Life products. So by premium persistency, I mean, the assumed amount of future premiums we expect to receive from policyholders that have flexible premium UL policies. So that category was big but there was no single item driving it underneath. On a positive note though, the policyholder behavior has created $44 million of experience losses for us in our continuing operations from the beginning of 2012 'til mid-2013. So the strengthening will address that situation.

Was there any concentration by geography across all the different pockets?

Well, there was -- I guess a couple of geographies had more. Canada had some strengthening and then we also did a thorough review of our run-off Reinsurance business, so the run-off Reinsurance business is in our Corporate segment and we did a model conversion and at the same time as doing the model conversion, we thoroughly reviewed all the assumptions including lapse for that business.

My second question was for Rob Manning. Kind of an obvious question, Rob, but can you address the sustainability of the 40% margin you had this quarter relative to your guidance of the high 30s? Was there anything unusual coming through the P&L or it's just the scalability of the business coming through?

Well, as you know -- it's a good question, but as you know, MFS's assets are heavily weighted towards equities and the market was very, very strong last quarter. So it lifted our assets in a very short period of time, which came from the bottom line, helping the margin. But I think you should expect the margins at this asset level cover a 100 to 200 basis points less than where we are right now. And the reason for that is we have some strategic spend that's going to occur in the next couple of years, really focused around upgrading our trading and compliance systems, as well as some client focus systems as well, around reporting and CRM. With that being said, though, you will see margins above this level in the fourth quarter and that's due to a one-time expense adjustment related to our deferred comp plans and when you see that, we'll walk you through what that's all about. But going forward, 38%, 39%, a little bit less than 40% is what you should expect.

Can you tell the size of expense adjustment now or you'd rather wait?

I couldn't even tell you because we don't know yet.

Okay, and you mentioned expenses. Expenses were elevated somewhat this quarter so should we expect that to continue to ramp somewhat higher?

Go ahead, Colm.

I think maybe that's a question I suspect, you're asking around expenses more broadly as opposed to MFS related expenses, would that be correct?

No, MFS.

Okay, sorry. Go ahead.

Quarter to quarter, the expenses kind of move around and depending upon what we're doing in terms of installing systems or travel across the company of various different items, it will move around. But as you model it forward, depending upon what the market action is, you should expect expenses to grow with revenues over time.

Your next question will come from Tom MacKinnon with BMO.

Colm, I'm going to take that operating expense question, then. If we look at them, they're up in Canada kind of double-digit and pretty solid double-digits in Asia. I'm wondering what's driving those expense spends? What are the plans underlying those expense spends? And then if you could talk at maybe about expense gaps that you would have, are there any and -- in any of those regions? And what kind of sales levels would we kind of need before we would be able to kind of whittle away that expense gap?

So, I think on the expense story, if you think about that at the total company level, we're certainly up considerably year-over-year and the large part of that of course, is related to volume. If we break it down into its component pieces, we've got a currency impact and we've got an MFS share-based compensation impact. So if you back those 2 items up, year-over-year increase is about 14% and volume related attributes or is accountable for 8% of that. But there is clearly growth in the businesses that's giving rise to a significant increase and that amounts to about 5% over the year. And if we break that out between the businesses, we've got increases in the U.S., voluntary and the transformation of the business model for EBG more broadly, we've got increases in Canada, under the wealth and client solutions initiatives, for example and we've got expense growth in Asia. So they all amount to about $39 million or 5% of that year-over-year increase. And then of course, we have the other normal inflation rate basis increased, which would bring us up to the overall 14%. But I think in terms of how we see that playing out, where we see the return on that investment, I'm going to maybe suggest that I turn it over to Kevin and Wes, maybe to say a few words about how they see that playing out.

Sure, Tom. It's Kevin speaking. So in Canada, a big driver of the earlier increase has been growth in volumes of in-force and growth in volumes of sales. And so, as you would've seen, for example, in GRS, ALM's up 10% business in force and group and so on and so forth across the board. And the success we're having in the third-party channels in the individual life space has been a considerable driver, as well as in our wealth sales are up pretty well right across the board. So that's a big piece of it. As Colm said, also we're investing quite deliberately in parts of the business, so investing in our wholesale force and that's part of what's driving sales, especially in third-party. And, as well as our individual wealth platform, as well as client solutions. So those are all the pieces. We're doing it all kind of very, very deliberately to be able to drive income towards our target, at the same time as driving good top line growth that will take us beyond those targets.

And in the U.S., I would also describe the investments we're making is really very focused on the markets and products that we want to grow in. So, as you know, we've made some significant investments in expanding our voluntary capabilities. You're seeing that come through in the way of significant increases in our sales volumes for voluntary, 47%. And as importantly, the increase, consistent increase in underlying business in force in our voluntary business was up about 19% year-to-date. So over prior quarter, I should say prior-year quarter. And Dean mentioned the transformation of our distribution organization, really a lot of focus there on building capabilities to increase our sales effectiveness and productivity, we're seeing that also. So over the last 2 years, we've added a cadre of voluntary sales specialists who have expanded our stop loss sales organization with more specialists there, you see that in the sales volumes. We've been building out a centralized internal sales desk which we believe is the first of its kind in the group space. And we've also been very focused on growing our small business centers. So all of those really related to both top and bottom line growth.

If I could I'd invite Kevin Strain to say just a few words briefly about the investing in growth in Asia. Kevin?

So I'd say it was a couple of things. In the Asia results, we did pick up Malaysia and Vietnam this quarter. We've also had significant sales growth, particularly in the 5 businesses where we operate them and have the bigger pieces. In the Philippines, you see the strong sales growth, Indonesia, Hong Kong, as I spoke earlier, Malaysia and Vietnam. So between the sales growth, the addition of the 2 new countries, and we're investing a significant amount there. So we invested a significant amount in health and accident and strategically, extending into more health and accident business across the region. So I'd say those are the key categories there.

Tom, it's Dean. If I could just finish with one last comment. We're also -- and we haven't talked a lot about this, but we'll do so more next year. We're also -- there's a lot of work underway to improve the productivity of all of our businesses and to consciously reinvest a portion of those savings in growth. You can expect to see that our controllable, i.e., non-volume expense growth, next year will be -- it will still be strong, but it will be in a lower level than you've seen this year because some of these big investments we've made and now, the teams talk about them, we've got them up and running at a level where we'll still be growing expenses, but it won't be the kind of double-digit level that you've seen.

Okay. And is there an expense gap at all or are those expenses going to have to be fully allocated in pricing or do you have to get some more -- I'm thinking more in terms of Asia, is there's some sort of volume that we want to get before we kind of have these additional expense fully allocated?

Well I think I'll start out on this and then maybe Kevin Strain will say a word. But in Asia, of course, we've got 7 different countries that we operate in, so expense gaps will vary country to country. And in some of the larger markets, geographic markets, China, and India for example, the gap issue is a larger issue and countries where we've had a strong track record and has been operating for many years it's quite a different position. So with that backdrop, Kevin did you want to say a few words on the expense gaps?

I think you've answered that but we do have an expense gap that we're running in the region. A large focus on bringing that into line. China and India would be big pieces of that and you can see that their sales for various reasons, and different reasons, changed and dropped during the quarter. So we have to see that turn around. We're focused on helping the joint venture partners do that. And in the rest of the region, you're absolutely right, Tom. Inherently, there's good B&D and growing the sales while holding your expenses is the right way to build value. So I think it does vary country-by-country. We do have an expense gap and the goal is to grow the sales and hold on to expenses as tightly as we can. So in essence, growing the sales faster than we're growing expenses.

Your next question will come from John Aiken with Barclays.

I'm just a little surprised there wasn't even a passing commentary about the objectives that you laid out past quarter. Should we infer anything from this or are the updates or commentary going to become more -- on a more sporadic basis?

Well in terms of objectives, it's only 3 months ago that we laid out the revised 2015 objectives of $1.85 billion. And I think we're not going to update every quarter. I mean, clearly, there are some areas where you can see that the positive momentum falls from a business perspective and in some cases, from a market perspective. Certainly businesses that are fee-based assets under management with strong equity market performance, you can see that a trajectory can be a little bit faster than we would have laid out in the 2015 objectives. But we don't think it will be particularly productive to continue to refine that every quarter and we'll certainly update you as anything more significant or material comes to light.

And just to clarify, you said the cash of the holdco was $2.1 billion?

That correct, yes.

Your next question will come from Mario Mendonca with TD Securities.

Just a quick question first on -- this is probably for Colm, the expense accrual in MFS next quarter. Do you expect to treat that as an item of note or a non-core item or would that be part of the core business?

Well, I think you're talking about the matter that Rob referred too?

Exactly.

Yes. So we'll have full transparency around that in terms of the impact in the quarter. I think we'll consider that to be part of the earnings for MFS for the quarter but we'll certainly make it visible to investors.

Do think it will be, in any way, related to the change in the value of the MFS share awards?

No, it has nothing to do with that.

Now, a more broad question probably for Dean and Colm. With MFS doing as well as it has and using the information you've given us in the past about how much capital is allocated to MFS, the non-MFS business, generates an ROE. The math's pretty simple, it's in the single-digit range, sort of high single-digit range. I figure a lot of that relates to the capital that's either trapped in the business or available. So first, have I characterized it correctly? And secondly, are there some -- is there some low hanging fruit here to get that back up to something like an industry ROE of maybe something along the lines of 12%? How would you characterize that low ROE in the non-MFS business?

Mario, is Dean. Well, first of all, and I've said this before, your math is right and we don't feel the work is finished here on the ROE on the insurance businesses and it's an area of intense focus and there's a lot of work underway across the enterprise, business by business, to identify ways to both reduce the required capital allocated at those businesses and also to increase the net income around them. You asked about the reasons why. Well, it's a variety of things and as interest rates have fallen, they come back a bit of course, but as they've come down significantly from pre-crisis levels, the required capital, particularly in individual wealth and insurance businesses has gone up significantly. And that will unwind over time, but it take some time to unwind. There are some other issues related to goodwill. For example, in Hong Kong, we've got some goodwill in our Asia business from years gone by. And that, given the size of the business right now, over time, as the business grows, that will -- there'd be some leverage effect in terms because the goodwill, obviously, just sits there inert and there will be some leverage effect on ROE improvement we expect as we grow the business going forward. But what I would say to you is that there's a lot of effort underway to -- and I wouldn't describe any of it as low hanging fruit. I would describe it all as $50 million here, $100 million there of reductions in required capital, with project lists and people assigned to them and a lot of hard slogging to go through.

Just going back to the reasons for the lower ROE, lower rates, that's not unique to Sun Life, all the life Co's are coping with low rates and all the life Co's also have a lot of goodwill related to previous acquisitions. So is there anything more specific to Sun Life, like capital trapped in the U.K. or is there anything like that you'd point to or is it a scale game in Asia and the U.S. as you described? I'm just trying to get a better understanding for what's causing it so I can make an assessment as to how that will change over time.

Yes, well it's Colm here, and I think a couple of things. I mean, first of all, I would say that the U.K. is subject to its local capital regime and we do take dividends out of the U.K. and capital repatriation but again, it's according to its regime. But we wouldn't consider that to be trapped capital from an overall efficiency perspective. I think it is important to note that post the sale of Sun Life U.S., we have now, an amount of capital and I mentioned, that cash capital at the holding company level, the $2.1 billion, so that would be an amount that would be in excess of our normal requirements. And if you were to adjust for MFS in the calculation of return on equity, you might also adjust for some amount of excess capital as opposed to attributing all of that back to the insurance businesses. But I think Dean laid it out well, there's just a lot of activities that we've got underway to improve the return on equity and to be the most efficient we can be with the overall capital structure.

And I'll stop here but the $2.1 billion, when do shareholders really see that get deployed or returned? Is there a timeframe?

Well Mario, we said we've laid out our list of targets for the deploying that capital and that obviously includes paying down debt over time and using it to fund growth in our businesses, using it to take more mortality, morbidity, longevity risk onto the balance sheet and potential M&A, potential buybacks in the future and that's -- so we've laid out that list and we've also said that as far as the buybacks go, we continue to watch developments in the capital roadmap area and we're waiting to see greater clarity around that work before we revisit that subject. We've done buybacks in the past, as you know, and we will revisit that again in the future but we're looking for more clarity on the capital roadmap.

Your next question will come from Gabriel Dechaine with Crédit Suisse. Gabriel Dechaine - Crédit Suisse AG, Research Division: Actually, that touched upon one of my questions here. One of the elements that could be helping out your ROE is the reinsurance recapture. I'm just wondering, are there any material or noticeable contracts that you could recapture in the next couple of years? I know a few years ago, you insured a big chunk of your Canadian group business. I was just wondering if there's like a laundry list that you can share with us.

Yes. We have commented on that before and I think we spoke about it on the last call as well. And certainly, the opportunities are available to us around reinsurance but there's nothing specifically that we have in our plans over the next year to take action on that front. We're evaluating a variety of options. Gabriel Dechaine - Crédit Suisse AG, Research Division: Okay. Then on the lapse reserve strengthening, I just want to talk to Larry again on some of the causes there. Is there anything in there related to pricing actions, product redesign that have helped out the strain over the past couple of years that may be generating some unintended consequences on the policyholder behavior front?

No. I think those are separate issues. I mean, the price changes that we've undertaken due to -- mainly due to lower interest rates and higher capital in the seg fund area as an example, those are on new business and much of this strengthening is across businesses that have been in place for longer periods of time and that's -- I wouldn't draw a connection between those 2 things. Gabriel Dechaine - Crédit Suisse AG, Research Division: Okay. And just a clarification for Colm and Dean, if you have any input here as well, I'd appreciate it. I guess to about $120 million annualized, I guess what you're saying for -- what we could term investment initiatives in the business. Dean, you made it sound like some of that's going to be pulled back in the near-term. You always want to invest in the business, but could you give some visibility on when that number starts to shrink, and by how much?

Yes. So I think you've annualized that $40 million or so that I mentioned in terms of the growth related expansion that we saw this quarter year-over-year. And clearly, we're going through our planning process for next year at the moment and we are taking a look at all of the initiatives that we have on the go. Some of which are in-flight and will continue but at a lesser pace. And so, I think the pace, and Dean mentioned this, that the pace of growth in initiatives over the past year has been quite significant. While we continue to invest for the future, we do see -- expect to see a slower rate of increase going forward.

[Operator Instructions] And your next question will come from Joanne Smith with Scotia Capital.

I have a couple of questions. Just in terms of the Canada strength, the strength in the Canadian individual insurance sales, they were up 17% in the quarter and some of your competitors have reported declines in those sales. They attributed those declines to product pricing actions. You discussed some product pricing actions earlier in this call, I'm wondering if some of that 17% was a fire sale ahead of those product pricing changes?

Joanne, it's Kevin speaking. No, there's no pending pricing actions that will be driving the sales growth. It really -- you would attribute it back to -- we've invested quite a lot in our wholesaling force, especially in third-party, also investing in our career sales force in a major way. And we're having great success with current advisors we do business with, doing more and new advisors that we haven't done business with in the past, so new NGAs. I think this is the result of good investment in people, very strong investment in the brand, the Money for Life, all of these things coming through and we really repositioned our whole sales mix. And now that that's happened, we're getting more and more momentum and so that's what you're seeing coming through.

And then for Wes, just on the U.S., I have 2 questions there. One is on the self-insurance market there, or not the self-insurance market but the stop-loss market, and how the ECA has impacted that. I've read a few editorials about the threat of taking away some of the stop-loss measures to make sure that enough healthy people get into the exchanges, and I'm wondering if you've seen any impact on that business at all and if you're looking at potential changes there that could be -- that can have an impact on your future growth?

Joanne, so I think broadly speaking, we do see the opportunities that would be created by the Health Care Reform Act in the U.S. as being more positive to our businesses overall. Particularly, as we continue to invest in voluntary and also, the stop-loss business, generally. I think there are 2 aspects to your question. The first is, we did see a very significant tick up in the request for proposals of new organizations, looking at self-insuring in the spring and summer of this year. That tailed off immediately after the act was delayed to 2014 and so I -- I wanted to say 2015, so I'd expect that we'll see a pickup in activities again as we go into 2014. In terms of any sort of regulatory legislative change around the ability for companies to self-insure, we've seen some activity at the lower end of the market, smaller companies. That is not typically where we play in the stop-loss market, so we wouldn't see that having any significant impact on our business, if that were to play through. But I think there also is just the general view that it would be quite difficult in the U.S. political environment to see more regulatory restrictions apply to businesses as it relates to the broader spectrum of reform that has been taking place. So really, a great deal of uncertainty, but I would say broadly speaking, we see it as much more positive than negative.

Great. And then I guess, just in terms of in voluntary sales, they were quite -- it's been quite strong for some time now and some of your competitors in the U.S. have been complaining that there's been a lack of activity there because of all of the uncertainty tends to be more on the smaller employer side. But I'm wondering what you're seeing that's different than some of the other players in the market?

Yes, we don't see a lack of activity. In fact, I would say that the reason why we are taking market share there and growing, is we've invested in the business in a very focused way and I've shared that over the last 18 months. And those investments are coming through. We have more specialists in the market focused on this business, we've got more capabilities and we're very focused on the employee view in this space. So we think that there's continued growth opportunity and we see it. And the other part of it is we really leveraged the core of our broad footprint, of our employee benefit reps, working very closely with these specialists and adding a really incredible value as they are working with brokers now who are looking to expand their business. So I think it's really the full integration of how we're executing on our strategy that's driving our results versus our competitors.

Okay. And, I'm sorry, one last thing, is there any prospects for you to build your own exchange?

We're not looking at that as an option at this point. I think it's really important to recognize that if you look at the exchange marketplace in general, it's really not about the number of exchanges that one connects to, but more the quality of -- and the market focus that you have. And Sun Life is really positioning itself to focus on those platforms where we can in fact, leverage our strength, the investments that we've been making in voluntary, and leverage the focus that we have in certain segments of the market. The exchange landscape is going to be shifting quite rapidly over the next several years. And I would say that there are really only a handful of technology providers and new exchange startups that will survive over the long term. And as you -- and I think it is also important to recognize there a number of exchanges that are really the back end for organizations that are connecting to them. So it's easy for someone to say that we've connected to 40 exchanges, but really is connected to 1. And a number of brokers and/or consulting firms are using those as their platform. So in effect, you multiply that then by the numbers that are connecting to them. So it's a very dynamic market. We're fully engaged in several partnerships in that front and we actually announced one just a month ago and I think it will evolve rapidly in 2014 and beyond, but we're well-positioned, given our investment in the voluntary market.

And your next question on the line will come from Brad Romain with Desjardins Securities.

I believe this question is for Colm. With regards to the value of new business, the number that's on the bottom of Page 1 of your supplementary information package, can you confirm that the number given there is on a trailing 12-month basis? And if so, are you able to provide any more color commentary I guess, on a quarterly basis? We're looking for information on the sales mix and margins.

Yes. So we do provide the quarterly amount and that is $285 million. That's up significantly year-over-year and there's lot of drivers for that. We've got -- it's a very broad-based, which is very encouraging, it's strong for Canada. Growth, Individual Insurance & Investments, reflecting volumes, mix, pricing, strong growth in the U.S. MFS was obviously contributing and Asia is also contributing. So we feel that we've made very good progress on the value of new business front over the year and the trend is positive.

How would you expect to see this going forward or would you expect to see continued improvement?

Well, I think there is a dynamic around the starting point and as you make certain changes to your mix and to the business, et cetera, there are some benefits that come through more immediately. But we certainly feel good around our momentum and our ability to continue to drive higher value of new business.

And we seem to have no further questions at this time.

Thank you, John. I'd like to thank all our participants today. If there are any additional questions after the call, we will be available. And with that, I'll say thank you and good day.

Ladies and Gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines.