Gregory A. Dilworth - Vice-President of Investor Relations Dean A. Connor - Chief Executive Officer, President and Non-Independent Director Colm Joseph Freyne - Chief Financial Officer and Executive Vice President Michael William Roberge - Chairman of MFS Mclean Budden Limited and Co-Chief Executive Officer of MFS Investment Management Daniel R. Fishbein - President of Sun Life Financial United States Larry Richard Madge - Chief Actuary and Senior Vice-President Kevin D. Strain - President of Sun Life Financial Asia Kevin Patrick Dougherty - President of Sun Life Financial Canada

Stephen Theriault - BofA Merrill Lynch, Research Division Tom MacKinnon - BMO Capital Markets Canada Gabriel Dechaine - Canaccord Genuity, Research Division Meny Grauman - Cormark Securities Inc., Research Division Peter D. Routledge - National Bank Financial, Inc., Research Division Sumit Malhotra - Scotiabank Global Banking and Markets, Research Division Asim Imran - Macquarie Research Mario Mendonca - TD Securities Equity Research Doug Young - Desjardins Securities Inc., Research Division Darko Mihelic - RBC Capital Markets, LLC, Research Division Robert Sedran - CIBC World Markets Inc., Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Sun Life Financial Fourth Quarter 2014 Financial Results Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, Thursday, February 12, 2015, at 10:00 AM Eastern Time. I would now like to turn the meeting over to your host for today's call, Greg Dilworth, Vice President, Investor Relations at Sun Life Financial. Please go ahead.

Thank you, Anastasia, and good morning, everyone. Welcome to Sun Life Financial's Earning Conference Call for the Fourth Quarter of 2014. 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 fourth 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 fourth 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 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'll now turn things over to Dean.

Thanks, Greg, and good morning, everyone. Turning to Slide 4, the company reported fourth quarter operating net income of $511 million and underlying net income of $360 million. While operating net income was strong, reflecting good business growth along with management actions and assumption changes that were communicated last quarter, our underlying net income was below expectations, and I'll speak to that in a minute. The lower underlying result in the fourth quarter capped off what was otherwise a strong year overall in 2014. Operating net income for the full year was $1.9 billion and underlying net income was $1.8 billion, up 15% from the $1.6 billion of underlying net income we reported last year. Expected profit was up 15%, reflecting growth across most of our businesses, and earnings on surplus were up 38% in 2014. Insurance sales in 2014 were $2.1 billion of annualized premium, up 10% over the prior year period, driven by growth in both individual and Group Benefits products. Sales of Wealth products totaled $111 billion, down 3%, driven by lower sales at MFS. Assets under management reached $734 billion, up 15% from a year ago. Our capital position is strong. We remain committed to allocating capital in ways that support long-term business growth and earnings and ROE improvement, while retaining flexibility for growth. During the quarter, we repurchased approximately 1 million shares under our normal course issuer bid and our quarterly common share dividend remains unchanged at $0.36 per share. As you'll recall, during our third quarter earnings call, we said we would revisit our dividend level in 2015. In doing so, we will look at where we are relative to the 40% to 50% dividend payout ratio range we previously communicated. We finished 2014 at the higher end of that range. And as we…

Thank you, Dean, and good morning, everyone. Turning to Slide 11, we take a look at some of the financial results from the fourth quarter of 2014. Our operating net income for the quarter was $511 million, down from $642 million in the fourth quarter last year. The results this quarter include a number of assumption changes and management actions, which we had previously communicated along with our third quarter results. The results a year ago also included a significant impact from assumption changes, making year-over-year comparisons more difficult. Underlying net income, which excludes the net impact of market factors and assumption changes, amounted to $360 million, driven primarily by negative mortality, morbidity and onetime expenses. Fourth quarter adjusted premiums and deposits were $31 billion, and closing assets under management for the quarter reached a new high of $734 billion from business growth and the benefit of currency and market improvements. Moving to Slide 12, you can see key financial metrics for the fourth quarter. Underlying earnings of the $360 million for the quarter were lower than the same period 1 year ago. However, on a full year basis, underlying earnings of $1.8 billion were up $235 million over the prior year. Our capital position remain strong. We ended the quarter with a minimum continuing capital and surplus requirements ratio for Sun Life Assurance Company of Canada of 217% and a cash level of $1.8 billion of the holding company, SLF Inc. As you can see on Slide 13, assumption changes and management actions had a substantial impact on our results and increased earnings by $172 million, while the net impact of market factors reduced earnings in the quarter by $21 million. As outlined in our third quarter disclosure, there were 3 significant assumption changes in management actions being contemplated…

Thank you, Colm. [Operator Instructions] With that, I will now ask Anastasia to please pool the participants for questions.

[Operator Instructions] Your first question comes from Steve Theriault with Bank of America Merrill Lynch.

I think, I heard that Rob Manning is maybe not on the call today, so for Mike Roberge if that's the case. So on the retail front, net sales have been under some pressure for a couple of quarters now. I do see that performance metrics have picked up a little quarter-on-quarter. But my question, I guess, is how worried should we be that we might begin to see some downward pressure on your MorningStar ratings? And maybe for perspective, you could update us on maybe your market share of net flows, what percent of your AUM are currently 4 or 5 star MorningStar-rated, and how that's changed maybe over the last little bit?

Maybe -- this is Mike. Maybe as a follow-up, we can provide. I don't have those numbers directly in front of me. So we can follow up and give you the numbers. What I would say is when you look at longer-term performance, we continue to have favorable long-term performance. That is the primary driver of MorningStar rating, is the longer-term performance numbers. And so we're pretty comfortable that we're in pretty good shape as far as performance goes. In terms of flows, you look at retail flows. Our market share actually went up in the fourth quarter in retail. So where you're seeing a deceleration in retail flows quarter-over-quarter is more a function of the industry. And so in Q4, we saw an increase in market volatility. We saw a significant decline in oil during that period of time and that caused retail investors to pull back. But our market share actually went up in the quarter.

And so even though the 3 to 5-year performance is still good, it's not as good as it was, say, maybe 18 months ago, you don't see that as being a driver on your MorningStar ratings, really?

If you look at 3, 5, 10-year, we're looking at Lipper here, 3, 5, 10 at 81%, 92% and 97%. The vast majority of our strategies are outperforming. So we do not expect a significant change in MorningStar at this point in time.

Okay. And if I can just slip in a follow-up for Colm. The guidance on strain being a little bit higher. There seems like there's a -- you mentioned a number of impacts. Could you give us a bit of a split between currency and rates and sales as to how -- what -- the split of how that's driving the guidance about $10 million higher?

Yes, so Steve, if you think about the change quarter over -- year-over-year, we're down $35 million, so strain higher by $35 million than a year ago. And really that breaks down primarily between Canada and the U.S. And in Canada, it's as a result of higher strain on wealth -- Individual Wealth sales and defined benefit solution sales. Defined benefit solutions sales, of course, can be quite lumpy. So caution around that. On the U.S. side, it's really the International Insurance business. And we have had lower sales there because, as I mentioned in my remarks, we have not moved our crediting rate to a higher level where some competitors sit, and we think that their crediting rates will come down. And we think that we'll see some higher sales there. So when that happens, we'll pick up some gain there. But just on balance, I would say, of that $10 million higher new business strain quarter-to-quarter, think of about half of it being related to currency. But there is definitely, in this kind of an environment, there is a definite impact from economics.

Your next question comes from Tom MacKinnon with BMO Capital Markets.

Just a couple of quick questions for Colm and then a follow-up for Dan here. Colm, I think you had mentioned that there was a reduction in expected profit for group -- related for group insurance. I wonder if you could qualify or quantify that.

I think in -- oh, in respect of the U.S. So expected profits is down in the U.S., and it is in respect of the group loss experience that we've seen. I'd say it's about $8 million, is how I think about maybe year-over-year.

So you've just recalibrated your expectations?

Yes, that's right.

Okay. And then can you quantify what the policyholder experience losses were in the LTD markets in U.S. and in Canada?

So in LTD on the group side, you're talking about policyholder experience?

Yes.

The policyholder experience of $15 million -- of $19 million after-tax really relates to Canada. It's not related to the group side. It's related to individual.

No, I mean you had discussed within those experience gains and losses of policyholder losses related to U.S. Group and LTD, and Canadian LTD, higher incidence, higher notices, things like that.

Yes. Sorry, I misunderstood. So you're really referencing the morbidity experience.

Pardon me, yes.

Yes, so we're definitely seeing the impact there in the United States on the stop loss side. As I mentioned, it was really the fourth quarter where we've had a good year but a poor fourth quarter. And I think you could think of about $10 million being related to that portion. And the group morbidity in the U.S. on the LTD side was also weak, and perhaps I'll ask Dan to say a few words about the experience there, but it was weak. But some of that, we expect to recover fairly quickly. And some of it will take a little bit of time to work through.

And in Canada?

In Canada, the amount I would put against that would be about $10 million. And in the grand scheme of things against the Canadian group business, that's not a large amount, but we do think that we can work through that as well over 2015.

Okay. And then for Dan. I guess you're looking at putting in price increases associated with this book, as January renewals are a big time here. How long do these take to work through your book? Do you have 3-year guarantees, 1-year guarantees? When should we start seeing improvement here? And then, I mean, what happens if you end up just lapsing all these cases here as well, sort of to what extent would you run any kind of expense overruns?

Okay. Sure. Let me take those questions. First, we started to reprice the long-term disability block actually in late 2013. Some initial price increases were put through. There were additional increases in the middle of 2014. And then we essentially redid the pricing for LTD in September of last year. So we've started already to see some impacts from those adjustments. You asked about January 1st business. We are generally satisfied with the increases that we got. Even though the increases are quite substantial, we've achieved or largely achieved the increases on the business that renewed as well as new sales. As you noted, it does take some time for the impact of that pricing to work its way through the block. Indeed, most group business, group disability and group life in the U.S., is sold on 3-year rates. So we have to work through that full cycle. We would expect 40% to 50% of the block to be fully repriced by next January 1st. You also asked about lapses. We are seeing some increase in lapsation, I would call moderate increase beyond where we were. Generally, we're getting the rate increases that we've been looking for. But we've, also studied the quality of the business that we've lapsed versus the business we've kept. And the business lapsing has substantially higher loss ratios than the business we're keeping. So that actually has a positive tailwind impact on our results going forward.

Okay. And Colm had mentioned that you might be able to provide what the morbidity loss was for U.S. Group LTD. He just said it was weak. Do you have a number for that in the quarter?

Yes. So what I've -- Tom, what I was referencing is that we would think about $20 million of the morbidity loss was related to the Group LTD and some of that, as I say, is a bit unusual to the quarter, a bit of a heavier incidence, some of it will take a little bit longer. So that piece should come back relatively quickly but some of it will be -- will take longer to come back.

Your next question comes from Gabriel Dechaine with Canaccord Genuity.

So firstly, on the mortality reserve charge, that's more like longevity, I'm assuming. This is the second big charge you've taken this year. Can you give me some idea of why we're seeing this again? And is it just you're really padding reserves there, your assumption for mortality improvement, is it twice what a pension fund would use? Anything like that you can tell me?

Gabriel, it's Larry Madge here. So we have talked about this on a couple of occasions because we wanted to give warning that we were intending to make a change that was material this year, but we actually didn't put it through until this quarter. So really this is the only mortality improvement charge that we've taken. And yes, it is on our annuity books, where we are ensuring that we've well-provisioned both for our existing in-force business, but also that as new business comes on, that we're confident it's going to meet our profitability target. Comparing to the pension business, it -- there's going to be a variety of process through that industry, but it would be slightly more conservative than what you would see as the standard pension assumption in the market today. And we're going to continue to review our place. But it's not significantly more conservative, but it is slightly more.

So what's the timing of PfaD releases on that. Are we really back-end-loaded? Or do we start to see an uptick in expected profit in the near term?

Well, yes, it will have maybe a small impact on expected profit. But this is long-term business, and so, in addition, I should mention that it would have the opposite impact on new business strain to the extent that you didn't adjust your pricing for it. So as we look forward, we don't really see it having a material impact on next year's earnings.

Okay. And the group -- the U.S. group repricing. So you got 2 factors to consider here: what the competition is doing and low interest rates there. Are low interest rates and a slow investment returns on the investment portfolio, is that pushing people to chase market share more? Or is the focus on underwriting a more powerful factor now that you're seeing in the market?

We're seeing a hardening market, generally. We're seeing a number of our competitors having some similar experience and adjusting pricing in the market. And interest rate is one, interest rate -- low interest rates are one of several drivers that are causing some price increases. So we've actually been pleased with the level of increases that we were able to get this fall for January 1st business.

All right. My last one is on expenses. We've had -- since you started disclosing this every quarter, so 13 quarters of that experience line in the other notable items has been negative. So just wondering, should I hold my breath and hope that at one point, we're going to see that goes to 0 or maybe positive? What's the -- given the environment and maybe the onus on offsetting the impact of lower rates, are there any cost-cutting initiatives going on at Sun Life that might cause that to swing?

Gabriel, it's Colm here. So I think there's a couple of things. I mean, clearly, the fourth quarter expense experience at $58 million is beyond what you would expect to see or we would expect to see. And as I mentioned, there is a number of items that are nonrecurring in that. There is a long-term incentive plan accrual in respect of the Sun Life share performance and that amounts to about $15 million. There is a number of other items within the corporate segment, including the U.K. and some Solvency II costs that we wrote off in the quarter. And then there's the Sun Life Investment Management and some seasonal marketing factors, that's about $10 million. And then we did have in the U.S., we had a commission true-up, which is about $10 million. So that's the $35 million. So you take that off that 58, you're back down in the $20 million zone. We have been investing heavily in ongoing growth initiatives. And some of that does appear in the expense -- experience line. And I'll turn the call over to Larry just to comment on that in a moment. But we believe very firmly that the expense initiatives that we have, the growth initiatives that we have, are going to pay off. They are, we believe, paying off. You see that in some of our sales numbers today, very strong sales, and they will pay off in the future. But of course, we have to manage the expense side very carefully because if the expenses become intractable and they are commensurate with our maintenance costs and required acquisition costs, we do have problems. We don't think we have a problem at this point. We were managing it carefully. But maybe, Larry, you could say a word about reserving.

Yes, I can certainly talk about how expenses show up in the source of earnings. So for the most part, these expenses are not maintenance expenses, and that's why they are not showing up in assumption changes. They're more growth and distribution-related. And if we look at these expenses as being temporary in nature, then we're willing to leave them in the expense gain/loss line, and that's what we've done in terms of the investments in growth. However, if they look like they're going to be more persistent beyond 2 or 3 years, then we'll move them up either to new business gain, if they're to do with life or annuity sales, or we'll move them up to expected profit if they're to do with mutual fund sales. At this point, we're looking at those investments in growth as being not persistent beyond the 2 or 3-year point, and hence, they continue to show in the expense gain/loss line.

And Gabriel, it's Dean. One last comment on expenses. You would see that our year-over-year growth rate in controllable expenses has actually been slowing. And as we look ahead into 2015, we see it continuing to slow, in part because of actions taken by business group leaders, Dan -- I referred in my remarks to actions that Dan has taken in the United States to reduce expenses directly over the past 6 months and more -- and has done more in this first quarter. And as well, a greater share of the growth initiatives that Colm referred to, we are funding through productivity gains. So we -- as Colm said, we felt pretty good about the path we're on, on productivity and expenses.

I mean, that's 2 to 3-year time -- we've seen 2 to 3 years of expense losses, experience losses. It seems, at some point, it's going to go to 0?

Yes, I think, Gabriel, just to further comment. I mean, this is the source of earnings view. And when you benchmark through the source of earnings, through an expected lens, you do have these variances. But recall that we are investing organically, growing organically in a number of our markets. And if you have an acquisition, it's all capitalized. If you grow organically, you have to spend. So the key is to control the spend and to make sure it's in line with business cases and required returns, and we believe we're achieving that.

Your next cushion comes from Meny Grauman with Cormark Securities.

Question really sort of big picture, in Asia, definitely looking strong, particularly on the sales front. I'm wondering from a macroeconomic point of view in terms of the different countries that you're in, we focused a lot on the volatility and we're very focused on North America. I'm wondering if there's any sort of issues in any of your markets that you would highlight in terms of causing you increased stress looking forward in terms of the sales outlook and the performance outlook in Asia?

Meny, it's Kevin Strain. I think there's lots of growth available to us at Asia. We're seeing 5 of our 7 countries where profitable this year. We're seeing lots of momentum, as Dean and Colm had mentioned, in the Philippines, in Hong Kong, Malaysia, some momentum building in China, India, sort of turning the corner. So I think, broadly from a macroeconomic environment, there's still lots of GDP growth in the region. The Philippines is one of the biggest winners out of the lower oil prices. We kind of got a balanced economy here with GDP per capita still growing, middle class still growing and lots of opportunities. So I would say, broadly, we remain confident in the growth. We had a very good fourth quarter, a strong year, and we see that momentum continuing into 2015.

Your next question comes from Peter Routledge with National Bank Financial.

MFS questions. So there's some numbers, I'm on Page 16 of the sup pack, which is the MFS financial statement, and then the source of earnings on Page 23. The first question, you've got, in U.S. dollars, expected profit from MFS of 231, and then, net income before taxes for MFS on the financial statements is 215. Normally, I sort of attribute that difference to the fair value adjustments on share-based payments. But those were 0 this quarter. So I wonder what's the true-up from 215 to 231.

Peter, it's Colm here. I'll have to get back to you on the specifics of that. There are some differences because that's a pretax line item, and I just need to make sure we can track that down for you. But there is nothing unusual there in terms of the quarter.

Okay. And then, you may have to get back to me on this as well, but you've got a noncontrolling interest charge in the sources of earnings of 15 for MFS, and then it's 0 in the statement of operations.

Yes, so we do an adjustment because the sources of earnings view, we restate that to show the noncontrolling interest. But that's not in the statement of operations because that's a non-GAAP measure. It's an adjustment we make because of the long-term share-based compensation plan at MFS.

Okay. Final question, I promise. The liability for share-based comp goes from 878 to 827. So I guess I was wondering why did that go down? I mean, there was no adjustment on fair value -- there is no fair value adjustment on share-based payment, so why did it drop from 878 to 827?

Yes, so you're quite right. There was no change in the fair market value per share in the quarter. But there were share repurchases, and that's a normal part of the movement in the ownership of the management at MFS. Sometimes, they will exercise and rebalance their position.

I guess why I'm asking is we haven't seen that liability go down. So I'm wondering should we be worried that the employees at MFS are putting back shares to Sun Life? Is there something in that, that suggest maybe 2015 outlook isn't great?

Well, I'll answer the first part around the movement in that, and I'm sure Mike will want to speak to the ownership comment. But the reason that you can't really just look at that movement on its own and make an inference from it, is that it's made up of the fair market growth as well as the movement in the ownership position. And the fair market value growth has been substantial in recent periods as a result of the very strong performance of MFS. So that has been lifting that balance. So Mike, I'm sure you might want to comment on ownership.

Yes, we certainly want to ensure that key employees at the firm that would be senior management, key investment employees, have a significant interest in the firm. And we continue to ensure that's true. We continue through the annual compensation composition to hand out our long-term compensation to employees. So we do believe that employees here are properly aligned with the long-term interest of the firm and the long-term interest of our clients as well.

So what I infer from that is you're not seeing unusually high amounts of put-backs this quarter relative to prior quarters. What was causing the -- where -- why that may not have come through? Is it the value of the firm was going up? That's what I heard from Colm.

Yes, that's right. I mean, the value of the firm goes up in periods when earnings are increasing, AUM is increasing and revenues are increasing. And if there's a period when that momentum has slowed, which is the case in the fourth quarter, then the effect of share repurchases by management is amplified. But in terms of the level of repurchases and the amount, as Mike says, that's still reflective of a very strong level of ownership, commitment by the management team at MFS.

And Peter, it's Dean. I'll add one other thing. I think the senior leaders at MFS, I think, have done and continue to do a terrific job recycling their shares to make sure there's enough shares for the younger people coming up through the pipeline. And that's what you saw in part in the fourth quarter as we get ready for this round of stock grants.

Your next question comes from Sumit Malhotra with Deutsche Bank.

My question is around individual insurance in Canada, and specifically the pricing environment. You've obviously had strong sales trend at the high end of the industry for a couple of years now. If I think about your sales performance in Canada and tie that in with the guidance that -- or with the comment that strain is likely to move higher, how much capacity do you feel there is for Sun Life to increase pricing in Canada? And would you be willing to do that, given the detrimental effect that may have on the stronger sales performance?

It's Kevin Dougherty. I'll take that. So in Canada, actually, we have positive strength, we have a gain. And so when that rolls up into the enterprise picture, it sort of reduces the overall strain in the company. And Colm was signaling that there's sort of potentially a little bit less gain in Canada in our pricing in this environment. I think as we look at current pricing, we've got good IRRs coming in on our insurance products and don't have any plans to adjust them, in particular, but we'll continue to monitor the environment. Our sales growth has been related mostly to expansion of distribution, not related to pricing. So you will see, in particular, for sales force, we've had good growth over the last several years. We got now 5 years of growth in the number of advisers, and crossed 3,900 in Q4, en route to 4,000. On the third-party side, we have seen a year-over-year increase in sales of over 30%, and that's really just momentum with our products and our brand and our wholesalers. And so our sort of key in terms of growing sales in the individual insurance part of the business has been really more about distribution and pricing. And we'd rather price towards our target IRRs and grow our sales power.

I hear you there, Kevin, and I hear you on the strain being a positive. If I've got that right, you may see the benefit diminished somewhat, but for now, you're not contemplating any pricing action?

Yes, that's exactly right. And I think Colm mentioned, especially on the wealth side of the business, what we've seen on the payout annuity market, for example, is that some competitors -- it's kind of surprising, only adjust their annuity rates, say, once a month or every 6 weeks and kind of periodically. And so in a kind of rapidly declining rate environment, down sort of 90 basis points last year, and I think, 34 in Q4. Some of them take a while to kind of catch up to what we would perceive as proper pricing. But once markets -- once rates kind of reach a sort of a stable position, they kind of all fall into line, and then our volumes increase and we'll see gains that way. So I think that sort of muted our gains in Q4. And so we'll pay attention to that and work a lot on product mix to try to have as much come through as we can as part of our plans for this year.

Your next question comes from Asim Imran with Macquarie.

Quick question on Asia. Sun Life has obviously achieved strong growth through both its key distribution channels. Could you just give some thoughts on the competitive market for agents in the footprints you're in as well as any comments on potential regulatory and competitive issues when it comes to growing the bancassurance network in Asia?

Okay. That's a broad question. I'll -- it's Kevin again, and I'll try to address it in parts. On the agency side, we've seen very strong growth, in particular, in the Philippines, in Hong Kong over the last year and in Indonesia. And we've hit record sales in all 3 of those markets this year. And in Hong Kong, it was past 2006 was the last time we had hit the levels we did this year. And in Indonesia, it was 2007. We're seeing both the size of the agency and also the productivity of the agency growing. And we've been taking very much a style of trying to become we're calling it the most respected agents. So we're focusing on quality of agents and the productivity of agents, as we build it out. And we see lots of growth potential still in those 3 markets for agency. In India, agency has gone through a lot of change and a lot of regulatory change. And again, the management team there is focusing on quality. We're seeing the number of high-quality agents growing quite rapidly inside of that. And I think we'll see agency turn a corner this year in India. And in Vietnam, we're fairly new on the agency front. And in China, it's a smaller, smaller piece. So I think, in the big 4 markets for agency, we see lots of opportunities for growth, in particular, I think Philippines, Hong Kong and Indonesia will certainly grow. For bancassurance, also lots of opportunity on the bancassurance side. Our Malaysian business that we entered in 2013 has been ahead of our business case, had really strong growth last year and very profitable growth. The bancassurance in China is growing quite strongly. And our bancassurance operations in the Philippines and Indonesia for various reasons were a bit slower in 2014, but we see that picking up in 2015. So I would say that on agency, broadly across the region, we expect to continue to see strong growth in number of productivity and a real focus on quality. And on the bancassurance side, lots of opportunities, lots of focus on things like digital and data analytics and building multiple-level distribution. We distribute to banks in multiple ways from specialists to telemarketing to online. And I think we'll continue to see that grow as well.

I should add for those of you wondering about the background noise, this is Kevin dialing in, I think, at midnight from an airport in Asia. So we apologize for that noise.

Your next question comes from Mario Mendonca with TD Securities.

Larry, could you help me think through the accounting and reserving in group -- U.S. group benefits. So these experience losses came through, and I understand that the reserving and accounting is different from a more traditional insurance business. What I'm getting with this is, is there any mechanism that would allow you to book reserves, increase reserves in that business now to cope with the higher experience losses going forward, or is that not how that business is accounted for?

Yes, generally speaking, in the group insurance business, it's primarily a cash business. So this month's premium covers this month's new claims, expenses and profits. And when that's not true, then we have an opportunity to reprice that at the next renewal. And so as you've mentioned, that means we don't tend to hold reserves for future incidents, because the future premiums will cover those. And if not, then we get into the renewal side. So we do hold reserves of course, but they're for past claims, both reported and unreported. And that's not where our problem has been. So it really hasn't been a reserving problem, it's -- or solution, it's a pricing solution. And Dan talked about how we're going to deal with that going forward. So that's where we're at. We do test to make sure that there isn't a premium deficiency reserve in the sense that we wouldn't need to hold some additional reserve over and above the normal way that we manage the business. But I talked about the way we manage the business, which is more or less on a cash basis for future incidents.

So that would mean that on a -- from a sources of earnings perspective, the claims would be netted against the premiums, and it would -- that would all appear in expected profit?

Yes. And to the extent that you then don't get your expected profit, then that's where you get the morbidity loss.

I understand. Okay. So that makes sense to me. And your second point was an important one. So you don't see any premium deficiency right now?

That's right.

So sort of a different -- a somewhat different question then, and maybe for Dan. How does something like this play out. And what I mean by this is if you just go back 3, maybe 4 years, when Sun Life -- there was an important call where Sun Life made a point of saying where the company is going to grow aggressively in U.S. Group Benefits, and we saw very strong growth in several lines. And now, several years later, we're seeing that, in fact, there may be some issues here. So how does something like this happen? Is it just a case of mispricing or just pushing too aggressively in this market, or did something else change?

Yes, I think, you're hitting it right. There was definitely a push to grow aggressively in the market. And I think now, if you look back with 20/20 hindsight, that there was an aggressive pricing that was supporting that, and probably more aggressive than it should have been. So now we're taking action to adjust for that.

And Dan, is it fair to say that you weren't there for that, like you're new on the scene?

Yes, I got here last March.

Your next question comes from Doug Young with Desjardins Capital Markets.

Yes, sorry, most of my questions have been asked, but just 1 question on MFS going back to, obviously, the institutional flows is where you've been in net redemption. Just wondering if you can quantify, was there any redemption noise or rebalancing that happened in that business this quarter that we should be thinking about? And I know it's mostly a gross sales item. So on that kind of point, when should we expect the initiatives to turn around in institutional flows? Are you around kind of build those new products which you're launching? When should we start seeing rubber hit the road and start seeing sales flow into that?

Yes, this is Mike. Yes, if you look at net flows year-over-year, most of the delta and the reduction in flows was in the institutional business. On the gross sales side, much of that was due to actions that we have taken given the significant growth we had over the last 5 years in our non-U.S. global business. So we've closed a variety of strategies to protect clients from a performance perspective, and that clearly had an impact on gross sales. From a net perspective, there are couple of things that are impacting net, and these are actually industry factors. The first would be de-risking. We continue to see, particularly as equity markets continue to perform well, we see clients around the world, DB clients selling equities and moving into fixed-income as they de-risk. The second factor, I think, playing into the net for the industry which has impacted us as well is 2014 was another tough year for active management relative to passive. Less than 20% of active managers outperformed the benchmarks. So we are seeing clients -- even where we've had good performance, we're seeing clients, generally, at an accelerated rate moving money out of active management into passive. And so those 2 things are impacting the net part of the business. So what are some of the things that we can then do to move the needle on the gross. As you mentioned, the first is we built out a suite of blended -- we call them blended research products, which go at the enhanced index business, which allows us to compete in that passive to quasi-passive space. So that suite of products is out there. We are actively talking to clients. We have been winning business in that suite of products, and we're hopeful that we'll see an acceleration in that suite. The second suite of products which we're building out is our global fixed-income solutions for clients. That one's got a little longer tail on it, in that it is both a build out of team but also a build out of product in terms of globalizing our products set. We're in the works on that. Again, we are engaged with clients on part of that platform. I think we will be -- we're a couple of years away from, I think, where the entire platform's up. And we think that we can go to any client around the world and position any global -- a global product that will work for any of those clients. So one of those were currently talking to clients about, the other one is in transition, will be fully up to speed over the next 18 to 24 months.

Your next question comes from Darko Mihelic with RBC Capital Markets.

Just a question for Colm, and maybe even for Dean, I'm not sure. But on Slide 4, one of the things that interested me was your expected profit. You talked about the annual results of expected profit being up 15%. But when I look at it, the vast majority of that came from MFS. So within the context of low rates, can you speak to what your expectations would be for expected profit growth in 2015. And I understand, you could talk in wide ranges here. But any help on the emergence of the release of PfaD in your insurance businesses rather than MFS would be helpful here, especially in the context again of the low rate -- this low rate environment.

Yes, Darko, I mean, I think, clearly, you're seeing strong growth in expected profit in Asia. And we expect that to continue. And Canada has had good growth in expected profit on the group businesses, both Group Retirement Services and Group Benefits. The fed funds piece has been a bit of a headwind in Canada, so that's countering that. On the U.S. side, we've talked on the call about the impact of the claims exceeding the -- and the claims and the premium challenge that we have, and that's been a headwind for us, and that's brought us down. So when you exclude MFS, which I think is entirely reasonable to do, as we think about expected profit, it is really coming from Asia, Canada. And we think that the U.S., as it turns around, will also at least stabilize and not be a headwind. It's a good topic for our investor calls, which will -- our Investor Day, which we'll be having in early March. And I'm sure, we'll be speaking more about it at that point.

Your next question comes from Robert Sedran with CIBC.

Just a quick follow-up on the mortality experience in the quarter. I think I understand that this has nothing to do with the mortality reserve build, or at least it's not in the same business line as the mortality reserve build. Can you just confirm that it is just a one-off negative experience in the quarter and not part of something more systematic?

Yes, it's Colm here. So absolutely, this is what we would consider to be in the normal fluctuation range. It has absolutely nothing to do with the mortality improvement charge that we took. It's spread across a number of businesses, Canada and the U.S. But within the U.S., it's spread across Group, the in-force business and also a little bit in the international life business. So -- but down to the normal fluctuations you see on mortality.

There are no further questions at this time. I turn the call back over to the presenters.

Thanks, Anastasia. We'd like to thank all of our participants today. And if there are any other 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 this afternoon. Before ending today's call, I would like to remind members of our investment community of our upcoming Investor Day on March 5, 2015, featuring presentations from Dean Connor, President and Chief Executive Officer, and other members of Sun Life Financial's executive team. Thank you and have a good day.

This concludes today's conference call. You may now disconnect.