Sun Life Financial Inc. (SLF) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is Chris and I’ll be your conference operator today. At this time I’d like to welcome everyone to the Sun Life Financial Q1 2015 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there’ll be a question-and-answer session. [Operator Instructions] Thank you. Greg Dilworth, Vice President of Investor Relations, you may begin your conference.

Thank you Chris and good afternoon everyone. Welcome to Sun Life Financial's Earnings Conference Call for the First Quarter of 2015. Our earnings release and the slides for today's call are available on the Investor Relations section of our Web site at sunlife.com. We will begin today's presentation with an overview of our first quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Following those remarks, Colm Freyne, Executive Vice President and Chief Financial Officer will present the first quarter financial results. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today's call. Turning to Slide 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 afternoon'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 afternoon everyone. Turning to Slide 4, the company reported strong underlying net income of $516 million up 17% from the same period last year and an underlying return on equity of 12.1%. Our expected profit was up 11% with solid growth across a number of our businesses and we grew earnings on surplus by 42%. I’m pleased to report that we’ve announced a $0.02 or 6% increase in our quarterly common share dividend bringing our quarterly dividend per share to $0.38. Sun Life has delivered a consistent and stable dividend since 2008. This increase reflects confidence in our business momentum and is in line with our target dividend payout range of 40% to 50%. Our capital actions this quarter reinforced our commitment to allocate and deploy capital in ways that support long-term business growth and earnings and ROE improvement. In addition to the quarter common share dividend increase, we repurchased and cancelled approximately 3 million common shares under our normal course issuer bid. We continued to invest in organic growth and just after the close of the quarter completed the acquisition of New York based Ryan Labs. We continue to drive strong asset growth with contributions from both wealth and insurance. Our wealth sales in the first quarter of 2015 before including the BCE longevity insurance transaction increased by 10% from strong mutual fund sales at MFS, Sun Life Global Investments and wealth sales in our Asian operations. Insurance sales were up 3% driven by the strong growth in Asia and our total assets under management reached 813 billion, up 20% from a year ago. Turning to Slide 5, our earnings are well diversified across a number of our business by geography as well as by type. We saw strong growth in underlying net income from both wealth and protection with double-digit earnings growth from each over the same period last year. In Canada, we had solid underlying earnings as we continued to invest to organically grow our wealth businesses. In the U.S., the actions we’re taking in the group business are beginning to have a positive impact and we will continue to action to drive sustainable results. At MSF, the pretax operating profit margin was 40% and assets under management continued to grow. Our Asian operations continue to grow rapidly as we build up the base of in-force premium from strong sales and good customer retention. On Slide 6, I’ll discuss a few key items for the quarter across our four pillars of growth. In Canada, we continued to demonstrate our leadership position in protection and wealth. The announcement of our 5 billion longevity insurance agreement with BCE, the first of its kind in North America further established our Defined Benefit Solutions business as the leader in the Canadian pension de-risking market. Our Group Benefits and Group Retirement businesses continue to hold their number one position. In our individual business, wealth sales were up 4% a strong growth in the sale of mutual funds was offset by reduced demand for fixed income products in this low interest rate environment. Sun Life Global Investments, our Canadian mutual fund business had gross sales of 811 million an increase of 41% over last year and retail sales of SLGI funds were the highest since SLGI’s inception in 2010. We continued to expand our product shelf with the launch of eight new SLGI funds in the first quarter. And earlier this week, we launched a new segregated fund suite of products that leverages our strong brand, manufacturing and distribution capabilities along with our money for life positioning and we look forward to updating you on our progress on this front in the quarters to come. Turning to our asset management pillar, MFS ended the first quarter with assets under management of U.S. 441 billion and an operating margin of 40% in line with our communicated range. Fund performance remained strong with 83%, 95% and 97% of fund assets ranked in the top-half of their Lipper category for three year, five year and 10 year performance. Gross flows were strong in the quarter and net outflows of U.S. 184 million marked an improvement from net outflows at MFS last quarter. Retail flows continue to be strong with particular strength in non-U.S. retail funds, while institutional flows were softer reflecting the closing of certain funds dialed to protect client return. On April 2nd, we announced the completion of our acquisition of Ryan Labs, the acquisition builds on our successful launch of Sun Life Investment Management in Canada and extends our footprint on asset management in the United States. Turning to the U.S., we’ve made good progress in Group Benefits and the actions taken by Dan Fishbein and his team are having a positive impact on the business. It will take a number of quarters before Group Benefits achieves its full earnings potential and experience will fluctuate from quarter-to-quarter but it is moving in the right direction. Sales and Group Benefits overall were lower by 11% as we re-priced its business to balance business growth and profitability. Medical stop loss sales in the U.S. increased by 21% over last year reflecting growth in the number of stop loss specialists and our market leading position in this business. We continue to develop our distribution networks to assist companies and their employees to meet their needs in response to the Affordable Care Act. We’re pleased to announce that during the quarter, we were selected to participate starting next January on Mercer Marketplace, one of the largest and fastest growing private exchange networks in the U.S. Turning to Slide 7, our operations in Asia continued to grow at an impressive trajectory with underlying earnings up 68% to 62 million. SLF Asia’s earnings have grown steadily over the past several quarters driven primarily by growth in the enforce block that’s directly attributable to our sales success in the region. During the first quarter, individual insurance sales increased by 28% with broad-based growth in the Philippines, Hong Kong, Indonesia, China, Vietnam and Malaysia. Health & Accident sales increased by 45% over the prior year and accounted now for 12% of our total individual life sales during the first quarter. As Kevin Strain said at our recent Investor Day, Health & Accident is a key area of focus across the region and we expect to grow this business further in the years to come. In the Philippines, we maintained the number one position in the market for the sixth consecutive year based on new business premiums. We also continued to expand our wealth management footprint across the region and Asian wealth sales were 2.2 billion for the quarter driven by strong growth in China and India. So in conclusion, this year we celebrate our sesquicentennial anniversary, 150 years of earning and building the trust of our customers to help them achieve lifetime financial security. We’re pleased to start this historic year with strong earnings, robust momentum and a dividend increase. And with that, I’ll now turn the call over to Colm Freyne who will take us through the financial results.

Thank you Dean and good afternoon everyone. Turning to Slide 9, we take a look at some of the financial results from the first quarter of 2015. Our operating net income for the quarter was $446 million, down marginally from $454 million in the first quarter last year. Underlying net income which excludes the net impact of market factors and assumption changes was strong and amounted to 516 million driven by solid earnings in SLF Canada, SLF UK and MFS, improved results in our group business in SLF U.S. and continued momentum in Asia where our earnings increased by 68% over the same period last year. Our underlying return on equity was 12.1% for the quarter. First quarter adjusted premiums on deposits were $34 billion and closing assets under management for the quarter was another new high reaching 813 billion from business growth and the benefit of currency and market movements. We maintained a strong capital position ending the quarter with a minimum continuing capital and surplus requirements ratio for Sun Life Assurance Company of Canada of 216% and a cash level of 1.7 billion of the holding company SLF Inc. We continue to focus on ways to deploy our excess capital to enhance value for our shareholders, a 6% increase in the quarterly common share dividend, strong share repurchase activity during the quarter and the closing of the Ryan Labs transaction demonstrate our commitment to deploy capital and grow our business. Turning to Slide 10, the impact of assumption changes, management actions reduced net income at $58 million pretax, a $48 million after-tax, while the net impact of market factors reduced earnings in the quarter by another $22 million after-tax. Negative net impact of market factors was primarily due to lower interest rates in SLF Canada which were offset by gains from equity markets and real-estate impact. We’ve provided more detail on the impacts of market factors in the appendix to today’s slides. Underlying net income of $516 million benefited from $17 million of notable items that included positive impacts from investing activity as well as favorable mortality, morbidity and credit experience. These items were partially offset by negative lapse and policy holder behavior and expense experience. At the bottom of Slide 10, we breakdown our earnings contribution by business group. Our results this quarter reflect solid earnings in SLF Canada and MFS, improved performance in our Group Benefits business in SLF U.S. and significant growth in SLF Asia. In Canada, underlying results for the first quarter benefited from investing gains. However, we experienced higher cost drug claims in Group Benefits and unfavorable lapse and policy holder behavior experience in individual insurance and wealth. In SLF U.S., we benefited from improved results in our Group Benefits business reflecting better claims management and actions to increase pricing and reduce expenses. Underlying results at MFS were driven by higher net average assets and the favorable impact of currency. And in Asia, underlying results reflected strong business growth over the past year across a number of markets most notably in the Philippines and Hong Kong. Turning next to Slide 11, we provide details on our sources of earnings presentation. Expected profit of $639 million increased by $61 million from a year ago. The year-over-year increase is attributable to business growth across the enterprise particularly SLF Asia and positive impacts from movements in exchange rates. Excluding the impact of currency and the results of MFS, expected profit was up 5%. New business strain was $50 million for the quarter. This represents an increase of $13 million over the same period last year driven primarily by higher levels of new business strain in SLF U.S. from lower sales in the International Life business and the impact of currency. We continue to anticipate that new business strain will be in the range of $30 million per quarter to $40 million per quarter however we recognize that there will be some volatility from quarter-to-quarter as the amount of strain is subject to currency, the level of interest rates, changes in the mix of business and overall sales level. Experience losses of $49 million in the first quarter reflected the impact of the market factors and other notable items described on the previous slide. Assumption changes and management actions up $58 related primarily to a revision to insurance contract liabilities for universal life products in both the enforce management and international businesses of SLF U.S. Earnings on surplus of $109 million were higher than in the first quarter of 2014 and benefited from higher investment income, lower financing cost and the impact of mark-to-market and real-estate. Income taxes at a 104 million, are just slightly below our expected range for our effective tax rate of 18-22%. On an underlying earnings basis the tax rate was 22% and in line with our expectations. Slide 12 shows sales results across our insurance and wealth businesses. Sales from insurance increased 3% over the prior year period driven by strong agency sales and a number of markets in Asia. This was offset by lower sales in international insurance as we continued to adhere to our disciplined pricing as well as lower group sales in SLF Canada and SLF U.S. Sales from wealth products were up 10% over the prior year. At MFS sales were up 15% and reflected higher retail mutual funds sales on the benefit of currency. Wealth sales excluding MFS were down 11%. Higher sales of wealth products in SLF Asia and our Sun Life Global Investments and__in__ SLF Canada were offset by lower sales in ___our group ___of time and services ____________ 0:01:06.3 for market activity was slower than the competitive period one year ago. In addition, as previously noted we completed the sale of the $5.3 billion longevity insurance transaction in our defined benefits solutions business in Canada. Turning next to slide 13 we present a breakdown of the change in our operating expenses over the prior year. Overall operating expenses for the first quarter of 2015 were $1.2 billion up 57 million up 5% over the prior year period. Excluding the impact of currency and MFS. Expenses were $695 million with a decrease of 11 million or 2%. The volume related expenses which are directly driven by sales and asset levels increased by $15 million over the prior year. Inflation investments and growth met ___a productivity games and other year-over-year adjustments reduced operating expenses by $26 million relative to one year ago. And reflect our commitment to manage expense growth by utilizing productivity improvements to reinvest in the business. Before moving to the Q&A portion of the call, I would like to leave you with a couple of key messages for the quarter. First, we had a strong quarter with broad-based momentum and underlying earnings. Second, we continue to take actions to efficiently manage our capital and our financial position remains strong. Our capital deployment actions for the quarter reinforced the commitments we've been making for some time now. Namely, that we will allocate our capital in ways that supports long-term business growth, earnings and ROE improvement and retaining flexibility for growth opportunities. And with that I will turn it back over to Greg before moving to the Q&A portion of the call.

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

Thank you [Operator Instructions] Your first question is from Gabriel Dechaine with Canaccord Genuity. Your line is open.

Good afternoon. Just the capital management of the story is pretty good one this quarter given an increase, a lot of buyback activity. I'm wondering if you could still balance those two priorities as well as some small acquisitions and in answering that question if you could remind me what the book value is of your India Sub, that'd be great.

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

Yes, Gabriel you asked about the put value of our investment in India and I suspect you have a question in mind around India.

Just random.

Yes, just random. We generally don't disclose the investment at the business unit level. Because we started up that business with our partners in India 15 years ago, the investment represents, the capital contributed the time and of course this result since that time, but I can tell you it’s below $200 million.

Just another question here on the Canadian group business. Can you give a good sense of the turnaround timing in the U.S. and we saw some about at this quarter. How about in Canada, it seems like at an industry why the issue or morbidity claims are elevated and expect we’ll see some similar results for this quarter. How the reprising process going for you in Canada, when do you expect to see tangible improvement in that business line and forget start with that?

Gabriel, its Kevin Dougherty speaking. Sure on the LTD side actually it’s a very modest kind of phrasing issue we see that or claims management issue. We’ve been doing a lot of work around caseloads some case management protocols and so on. And we’re starting to see very, very good potential for that. But our expectation is that improved LTD results grow return to normal levels throughout the year and certainly the core levels by the end of the year. So for that gives a sense more.

In our other follow-up. Thanks.

Your next question is from Robert Sedran with CIBC. Your line is open.

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

It’s related to a number of different product line, so it is widely spread. And this an area that we obviously paying a lot of attention to cautionary language regarding to safety words about how we’re approaching that review.

Yes, we have experience losses from a variety of different products and within those even a variety of different assumption. So we’re really paying down on reviewing these items, but at this point our investigations and complete. But we’re certainly have that work underway and we’ll be conducting prior to changes in the third quarter. Of course more broadly we review a large side of assumptions and methods for the third quarter and not just the last and policy hold the behavior. So it’s too early to tell how that may break. But in the last and policyholder behavior and particular it is across the number of different products and assumptions one in particularly.

It’s some [indiscernible] to ask then what kind of duration would beyond those products to get a sense for how long this maybe an issue. And I guess on a similar note whether this is an issue of there is the products that in question or just in longer being sold and so any laps assumption is being challenge by the fact, there is no replacement regardless of how. You might expect people to behave they can’t do anything else, because they can replace the products if they were elapsed?

There has been some of that although, we have strengthen the products that whether risk is to low laps and in particularly that gets in the low interest rate environment. And we have strengthen those over the years and the current experience isn’t so much with that, we’re seeing somewhat in the segregated fund product whether is a whole variety of different policyholder behavior assumptions policyholders can choose to risk their product, they can choose to differ income, they can renewed into new term and services. There is a variety of different assumptions and we have to un-paying a lot of pieces. The segregated funds have a little shorter duration and say universal life product. And we also have some experience on a term portfolio as well. And with those it’s when policyholders come up to renewal and then the question is do they renew into second term or and not. And that one it’s the trend towards improving mortality that has impacted us, because the new product surprised more favorably than all. So it’s not always favorable to renew into second term on your own product. But again we have strengthen on those products over the years and we’re feeling like our position is much better than it have been. But as you said we are continued to have some negative experience there.

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

Yes.

Your next question is from Steve Theriault, Bank of America Merrill Lynch. Your line is open.

Thanks very much. Good afternoon everyone. A couple of questions. First. for Dean or may be Colm. Just wondering how you feel about the sustainability of $0.84 this quarter. I ask in particular this quarter because we saw such a quick swing back in terms of experience and I have noted currency moving against you a little bit here so far and the second quarter. In the other hand you've got start may be elevated. So just interested in your thoughts to start on the near term repeatability of the $0.84 and how you feel on it.

Well, yes, I think you covered a couple of the items I would have mentioned. As we look at the underlying result at $516 million we do recognize that currency was favorable. We did have a good rebound in U.S. group in particular. We had got experience and you do see that occasionally in the first quarter relative to the fourth quarter. So there is an impact there. But on the other hand I would say that we have continued to be impacted by very low interest rates which manifest in a couple of ways including new business strain, which was at an elevated level this quarter and so when you look at all the moving parts we don't think this was a non-representative quarter. So maybe that's the way I position it. We think our way to diversify business model does give us a lot of support that if one particular area is challenged another area will pick up. We were very pleased with the strength in Asia this quarter and that strength is well on track for our current year, sort of view of the earnings power of the Asia business this quarter. The other area I would point out was that the U.K. results were a little on the higher side if you back out or for the market factors. The result player came in at around 36 million to annualize that. It's around a 140 million and last year underlying earnings for the U.K. were 130 million. I simply point that out because the U.K. as a close block of business is not going to grow from new business sales and activities. But when you look at all the moving parts Steve, I would say that we think that it is a representative of what the earnings power is capable of.

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

So I would say the delta year-over-year was probably in the $12 million range. But I just would caution on the AFS gains that -- we look at that from a total portfolio perspective. So sometimes they will appear in one business unit. One business group relative to another, the way we think about the AFS gains is at the total company level. And we generally are in the rep zone of about $30 million pre-tax of 24 million after tax and sometimes as I say the gains might be realized in a different business groups or they will be realized in different business groups. So one does need to take that into account, but even adjusting for that in the case of Asia, I think Kevin Strain, who is here with us today in person feels pretty good about that and maybe I'll ask him to say a quick word on Asia.

Yes, I think if you look at the underlying of Asia we had very good growth in expected profits. So expected profit was up from 52 million to 65 million. So 25% growth and expected profit. And the strain levels were -- it only a little bit despite the strong growth in sales. And if you look at what we’ve been saying in prior quarters. The underlying growth in Asia is good. And the more we can get the sales grow it also helps to cut down on expense gaps and so the sales growth we had the last two years as Dean mentioned both in-force business and that's coming to an expected profit and the continued sales growth is helping with expense gaps is adding new profitable business into the in-force, which should come into income over the twp year. So with good sales growth and good persistency you're going to see good earnings come out of Asia.

But Steve, I should just clarify my comment about the AFS gains in Asia, what not $12 million in this quarter to change year-over-year. So last year we had a small impairment in Asia, which took down the results and then this year we had a gain and if you normalize for those the change year-over-year is not quite as dramatic. At the prior year the earnings we had were less than our sort of run rate expectations would be and so if you look at this year we did get a bit of a currency left then we had a little bit of AFS. But the overall earnings I think are strong because we’re seeing to come through an expected profit of many of the countries, so you get a broad-based sort of growth there.

I think I understand that 12 million, Colm you mentioned that, was that after-tax or pretax?

I think of it as probably an after-tax.

Your next question is from Peter Routledge with National Bank Financial. Your line is open.

Question on MFS, another big negative on net outflows from managed funds. I wonder if, when will that bleed stop?

This is Mike Roberge. Yes as we’ve talked about in prior quarters, we continue to see good growth in the retail business particularly outside of the U.S. And as we’ve transitioned our institutional business, we’ve closed a number of strategies. We restricted something like 15 strategies in the last 2.5 years and we’re doing that to protect clients for the right thing, for the long-term health of the business. The tax we can make a return on the asset and so as we pivot two strategies and we’ve talked about our enhanced index products and fixed income we’re going to be in a period where we’re going to need retail flows to offset negative flows in institutional. We think it’s going to take several quarters, but we’re hopeful and you can see that this quarter that we can continue to offset the headwinds that we’re seeing in institutional business.

So it’s got a while to go, sounds like on managed funds.

Yes I think it’s going to take some time for us to do that. If you go back to 2013 and the part of 14 those strategies in that managed part of the business institutional business represented something like 40% of our sales and so we’ve closed off a significant piece of the business during that period of growth and we’re now transitioning that to different products and engaging with our clients on a broader suite of products, which eventually we think diversifies the business.

And just on the REITs I didn’t want to beyond negative, you did had a broader quarter on retail sales, A, how sustainable is that? And B, redemptions were also a bit higher in the retail side, how sustainable is that?

Yes this is Rob Manning, I would like to taper your enthusiasm about the offshore sales number that was an unusual quarter where we went from significant platform placements and specific products and our global value and small cap franchises which are not likely to be replicated going forward, but with that being said that is our fastest growing business and we’re gaining good traction and investing resources in the markets that we’re concentrating in that region. Our redemption rates in our global retail platform are slightly below industry average. They are higher than in our institutional book, which run sort of in the mid-teens to high-teens retail around 19% to 20% some quarter that ticks up a little bit higher than that, but our redemption rate as a company in general was slightly lower than most of our asset management front.

Your next question is from Humphrey Lee with Dowling & Partners. Your line is open.

Just want to follow up on the adverse group experience in Canada, so you mentioned that is somewhat related to your highest drug cost. Just want to get a sense of how big is that business in terms of premiums exposed [indiscernible] challenges in highest drug cost?

So Humphrey it’s Kevin, broadly speaking sorry I didn’t hear your question entirely I think you were asking about drug claims and so what we saw this -- what we’ve seen over the last couple of quarters is in particular the launch of the hep C drug in Canada it’s great news one way it’s on the other hand we didn’t get the normal lead time that we would get for drugs coming to the pipeline to be able to price appropriately for it. It was -- it impacted us about 5 million on the quarter, it’s going to take a few quarters for that to settle down before we can work that into pricing. It will be a combination of strategies, some will be raising prices for some clients they all probably change their plans and put limits on specific benefits and categories and for some clients we’ll change kind of the pulling level at which sort of our participation insurance kicks in. So, probably it gives you a sense of magnitude.

Okay in terms of the 5 million impacts for this quarter. What is their corresponding size of the premium for the underlying block. I just wanted to have a sense of -- of the impact.

Oh, I see. Well, you have to look at both our insured health business as well as our ASO business. Much of which has sort of a high amount pooling in it. So, I'm not sure if that's right that the right kind of metric to point to, but to give you an order of magnitude about 3 billion of our 8 billion would be -- probably be health insurance related. Either ASO are insured.

Okay, got it. That’s helpful. And then in terms of the policyholder behavior experience I -- my understanding is all of it is related to the [indiscernible] owed money and they were near maturity for new policies. So now with your new set funds products recently being launched should we expect a little more experience to come through and start these more older dates maturing second relevant roll over to new products.

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

Your next question is from Doug Young with Desjardins. Your line is open.

Good afternoon. Just I guess on the U.S. group insurance. Just obviously huge rebound relative to Q4 and I don’t think this is the quarter that you think is probably the normal run rate. So, I'm just trying to get a sense of what would that normal run rate be and what were some of the abnormal benefits that came to this quarter. That in one sense and then can you talk about some of the changes that you've made in terms of cost reductions and claims management that more immediately are benefitting that business and then, third you just talked about the competitive environment and what you're seeing. Thank you.

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

And then environment for us to continue to make the changes that we’re making. I mean Dan just you talked about there have been tangible benefits from the actions you’ve taken. Can you talk a little bit about the claims management side? Can you talk a little bit about the expense management and what some of the benefits that you’ve seen so far from actions taken there well?

We have been working for a number of months to lower our expense base. And we did see across the U.S., our expenses were 7 million lower in the first quarter compared to the first quarter of last year. And that’s a product of the actions that we’ve been taking and that was certainly a contributor to our improved results in the first quarter. As I mentioned it’s a balance and some areas we’re investing such as in claim management, but in some areas we’re being more efficient in the way we deploy our resources.

And then just Kevin obviously as been one of the more technical people in Asian and you proved me very wrong. So one it does just a few questions around Asia, specifically around India. And my question more is, I know there has been a lot of change on the regulatory side and I think the economic that the India business has changed quite a bit. And to the extent that maybe you do increase your position. Trying to get a sense of where the economic stand for that business today. Is it profitable, how profitable and is are we moving in the right direction in terms of change, how is the regulatory environment settle down so that we should expect to see some further benefit from the economics of that business going forward?

Thanks for the question Doug. And I think that India is a profitable business for us. Its gone through a lot of change and you’ve seen the sales dropping for the past five years and despite the dropping sales it’s maintain is a properly drop, but it’s maintain it’s profitability. And I think if you look at the regulatory environment now a lot of the change has gone through from a negative side and what you’ve been seeing some potential positive there was a potential law that with open-up bank insurance to multiple bank insurance partners which we think would be a positive for our Indian business. The management team there is quite strong management team and they’ve been in place for many, many years. And they’re taking some really solid actions on the agency side to really focus on the quality of the agents to give some more sales tools, they’ve done a lot on the product side. And I think you’re going to start to see that turn more positive over the next few years from a sales perspective, which will again start to build back the enforce book and expected profits that will come out of there. So I like the medium and long-term potential in India, you’ve got GDP, that’s and GDP that’s going to begin to grow, you’ve got 1.25 billion people, it’s a business we know really well, we understand as we have a strong management team, we’ve got strong partner. So I think there is potential there and the fact that has been possible through this downturn cycle I think is also quite positive. So medium to longer term I’m quite bullish on India and the modern India like we’ve done in the other country. So you’ve deemed reference, we’ve had double-digit growth and the several teams Hong Kong, Indonesia, Malaysia that builds the enforce and it come out an income. And we put a new strategy in place, we talked about during investor day around call the agency and we’re calling at most expected agency. We’re sharing some of that work with India, they’re looking at some of that work, but to give you perspective on the agency side. And the Philippines, we grew 38% this quarter over last year. Hong Kong grew 24%, Indonesia grew 38%. So we’re seeing broad based growth and agency and when you can get the strategy right you can start to see those types of growth numbers and we’re working closely with the team in India on building the right strategy.

Doug, its Dean if I could just add one last thing to Kevin’s point and I’d like also comeback to Gabriel’s question earlier. In addition to the insurance business, we own 49% of the asset management company as you know and the asset management company has had terrific performance, very strong investment performance. Helped in part by MFS to have contributed time and effort in intellectual capital to pre-reviewing investment decision and risk management processes of the asset management company. But also driven in part by the fundamental drivers of demand in India. As Kevin said, we like our partner the Aditya Birla Group to find organization and they do value what we being to both the life company and the asset management company is a lot of Sun Life D&A inside those businesses. We would like to own more of the life insurance company, but that is subject defining and agreeable price.

Your next question is from Sumit Malhotra with Scotia Capital. Your line is open.

First question is for Colm. Just wanted to make sure I understood the management actions and assumption changes why in this quarter to mentioned in the press release that it was related to, in the U.S.. Sorry if I missed it, but could you just spell it for me what exactly was out there?

So I will do that out drops, say few words about and just to reiterate that while the majority of our assumption changes tend to land in the third quarter each year, the occasionally than and other quarters depending on the niche of the item and the work involved and where we have the process. So at this point manage in the first quarter but Larry has to get say few words.

Sure. So the nature of the changes that we improved the modeling of our invested assets that are supporting our U.S. in force management and international liabilities. So this change clearly results that situation, we don’t expect any future impacts from this in the future quarters. And importantly it wasn’t changed to assumption such as policyholder behavior and mortality.

That’s [indiscernible] so was it related to those its investment side of the equation not the show policyholder experience?

That’s right and it’s a modeling oriented change.

And then just to comeback to Dan on the U.S. and it, the comment at the beginning of the statement that it will take some time to get the U.S. business to the level where you feel the results or sustainable. I get the sense and I’m hoping you correct me if I’m wrong that relates more to where you want the U.S. business to get to in terms of earnings power and not really a comment on the 80 million or so that you had in Q1. Obviously it’s a lot better, it’s in an around the average that you had on a quarter basis from 2014, which is quite volatile. So I’m hoping you can just tell me when you look at that $80 million number. Is a common about sustainability related to that or more where you think this business can get too?

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

Your next question is from Dan Bergman with UBS. Your line is open.

At the recent Investor Day, I believe you comment that the Canada period on track to reach prior 2015 a objective of 900 million. Given the first quarter results was a little below the implied required run rate. I just wanted if there is any change in your outlook for reach those objective or you still expect kind of improving earnings over the course of the year and areas like LTD we’ll got to there? Thanks.

Sure, it’s Kevin Dougherty speaking again. We’re still highly focused on goal of 900 million and that we think that there are lots of areas where, this is a business whether our fluctuations and we saw some of that Q1 and I think the LTD and particular will comeback strongly through the year. I think in Q1 for example there is some seasonality with the pricing gains still come through at the usual levels, because clear sales force particular is focused on well more sell insurance products, which tend to have the pricing gains. We also had a little bit of unfavorable mortality and ground in Q1 of about 8 million which was sort of just a random kind of occurrence and we don’t expect to see that repeat. And also as you know with interest rates that came down quite a bit in Q1, they were down 34 basis points that impacted demand for things like fixed annuities, paired annuities and in Q2 already that’s come back and we expect there to be more normalized demand through the year, so there are really kind of lots of things to play here. We have lots of levers that we’re working hard to pull and remain focused on that goal.

Maybe just switching gears U.S. look like stop loss sales were up pretty nice year-over-year and I believe a couple of other competitors similarly reported favorable sales on the stop loss this quarter, so I was just hoping you could provide your thoughts on the current competitive environment in the product and any sense to whether your sales growth reflect more market share gains or an overall expanding market for example due to the impact of U.S. healthcare reform?

This is Dan again, our growth in stop loss really reflects both. The market is growing, more employers are choosing self-insurance, but we are growing our market share as well. We’ve been investing in distribution and stop loss, we’ve added more sales people who are specifically dedicated to that business and we are continuing to have above market levels of growth in the business. We’ve a leading position in the business, we are the largest independent writer of stop loss in the U.S. and in a growing market that benefits us as well, so we expect to continue to have good growth momentum in that business.

Your next question is from Mario Mendonca with TD Securities. Your line is open.

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

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

The reserves have gone up, so presumably they’re there for a reason either means that like I would suggest to me that earnings are going to be moving higher as a result or experienced losses will be lower, something’s got to be better because you put the reserve today. Am I misinterpreting this?

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

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

Yes I think one way you could look at it is now if you look at the underlying earnings of $516 million you look at these notable items of $17 million and if you adjust it for all notable items you’d be at around $500 million. That’s one lens that you could look at. The items that you mentioned I would say that in aggregate they’re not that significant in terms of the sustainability of the tax rate we feel very comfortable around that it’s a shade low when you look at it on an operating basis but when you look at it on an operating basis, but when you look at on a more sustainable underlying basis it is within the range. And the revenue business gain on the modest new business gain on the longevity insurance. But again it wouldn’t be enough reach with the dial. So I think, we feel pretty good about it, but a number of items did break and favor this quarter. And so one could take that into account because you think about it.

Okay. But it’s now we’re not talking about the material number.

We’re talking about the material number.

Your next question is from Tom MacKinnon of BMO Capital Markets. Your line is open.

Thanks. The question for Rob Manning and then follow-up them. Rob you talk almost a year ago, I think has guidance in terms of net sales of 3 billion to 5 billion a quarter. How should we be looking at that now?

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

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

No, I think quarter-to-quarter it’s going to balance around, we’ve had a pretty strong equity market in the past quarter, which helped us in month of margin backup to 40 again. On a sustainable, you have to thinking about 37% to 40% somewhere in that ranges is a reasonable expectation.

And then question with respect to the U.S. group. Notice that the business reports actually fell 3% quarter-over-quarter and I assume that’s a function of the action that you’re taking. So as you continue to take this action through the next three years. How should we look at this in-force the progression of the business in-force? And what does that mean in terms of I don’t think like expense GAAP or expected profit. Maybe collaborate on with the impact of the declining in-force as you implement some pretty tough price action?

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

Your next question is from Darko Mihelic with RBC Capital Markets. Your line is open.

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

Yes so a couple of thoughts around that Darko. I mean clearly this was a very good expense experience for the quarter where we saw a significant year-over-year reduction, when you adjust for the currency and for MFS notwithstanding the increased volume, so productivity improvement definitely playing a part in that. And we do believe there’s more to come on that front. We have some good ambitious goals in place for harvesting on productivity improvements over the balance of the year. I would caution that the first quarter tends to be a little bit can be a bit of an offset to higher expense quarter in the fourth quarter. We did see a little bit of that in the current quarter, but in terms of the overall corporate support segment itself you asked about that and is the run-rate there a little bit on the low side, I would say that we did benefited clearly from these expense items in the corporate support area and we did have a small amount of investing gains business within corporate support run-off, reinsurance business that also benefited us. So the underlying of 32 million for corporate support little bit on the low side if you think about that maybe think more in the lines of maybe $40 million on a more normal basis. But when I was responding to an earlier question about some of the items that might offset each other, I was taking that into account thinking about it like that.

Maybe just one last quick one. With respect to the U.S. when we see the turnaround in the group benefits, but the other businesses I’m curious about as well. Should we think of the other businesses at more or less run-rate? Or -- and again I’m thinking about this on an underlying basis which is pretty hard to get to because you guys don’t actually provide on an underlying basis, but if I think about it from an underlying income point of view, are the other two businesses in the U.S. really performing at normalized quarter on quarter run-rate levels?

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

Your next question is from Asim Imran with Macquarie Capital Markets. Your line is open.

A question for Kevin Strain on Asia. I’ve noted Sun Life had some very good broad-based growth in individual insurance through its agency network and I believe you may have mentioned [indiscernible] growth has also been quite good, so I was just wondering if you could talk about on licensing some margin expansion similar to some of the tiers in Asia or was the gross largely a function of volume growth?

Yeah, we’re seeing, thanks for the question. We’re seeing the B&B increasing for a couple of reasons. Dean reference that we’re doing health and accident it’s growing to 12% and a growth in sales of 45% the health and accident. The B&B is quite positive there, we’re seeing a good mix of sales like business we’re seeing broad growth in our wealth business which also has good B&B. So I think that it’s not necessarily a pricing changing any product, it’s more to do with the mix of sales and adding more health and accident, adding more wealth and getting the more profitable like business coming through. And the other element is just the share growth towards scale helping with expense gaps, which also helps the B&B. So I think there is two factors there.

And on the geographic basis, would you say that Hong Kong, Philippines, Indonesia would have a higher margin and sounds the other footprint in Asia.

It does very year country. I think that if you each country has the potential to have a good B&B story, if you get the sales mix right and you get the sales going. Our biggest country still in terms of the sales of the Philippines to Hong Kong and there is a biggest providers of B&B. Indonesia as continues to grow, we’ll put more and more B&B into the system Malaysia has very good B&B, India has good B&B when we get the sales coming through. So the biggest challenge from B&B perspective would be the single pay business in China and we’re focused on bringing in more regular pay, which should increase the B&B in China, Vietnam still small and still growing and it suffers from some expense gaps, but overtime should have positive B&B as well. So I think if you can be strategic and manage or mix, you can get good B&B at of all seven markets.

And just one final question on India. With respect to back insurance obviously there was a change expect to city group having an exclusively [indiscernible] with other player. Would any future back insurance deals be more at local institutions what you say? Or other any major foreign banks out there as well?

In India?

In India, yes.

I would say that you’re looking primarily at local banks, for bank insurance build in India. And there is a propose law. As I mentioned earlier which will look at having multiple providers required by the bank. And if that happen that with as you know, we really don’t, we have a very small footprint at this point in time for bank insurance. So the opportunities for us, our significant federal conduct.

Chris, its great deal with you. We have time for one more question before we end today’s call.

Certainly your final question is from Meny Grauman with Cormark. Your line is open.

My question is about international business in the U.S. segment. Just wondering about the geography in the sense. Is there any talk to moving that business any average to housing it for instance in Asia with there at any synergies to that or is it just more sort of an accounting classification and not really anything that with impact of the business is strong?

Meny, its Colm hear. There is really no average for say in terms of where we house it by market it really is an international business. If you look at the insurance sales some 80% or self the insurance sales are to Asian customers. Now the other hand of the wealth sales it kind of swing the other way to Europe and Latin America and Middle East. So it fit well in the U.S. today, because it’s been well supported a lot of the infrastructure is shared and geographically it’s handy, because there is a lot of folks who work for us on the Ireland and in terms of getting back in-force to wisely where some of the back office support it fit well. So no, there is no sort of magic and moving from a reporting line perspective to Asia. What I would say though is wherever the business operate to coordinate well with our local businesses. So we’re not bumping into each other and in fact serving different segments of the market.

I’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. Thank you and have a good day.

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