Good morning, my name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q3 2017 Financial Results Conference Call. [Operator Instructions]. Thank you. Greg Dilworth, Vice President of Investor Relations, you may begin your conference.

Thank you, Dan, and good morning, everyone. Welcome to Sun Life Financial's earnings conference call for the third quarter of 2017. 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 third quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Following Dean's remarks, Kevin Strain, Executive Vice President and Chief Financial Officer, will present the third 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 this morning. Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures 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 strong earnings for the quarter, with good results across all 4 pillars of growth. Underlying earnings for the quarter were $643 million, with an underlying ROE of 12.7%. Year-to-date, underlying earnings are up 7% over prior year and the dividend is up 8% over prior year. We were also pleased to announce a 5% increase in the quarterly common share dividend. Sales results were mixed, with some businesses reporting strong growth over prior year and others with declines. Year-to-date, insurance sales are up 15% over prior year, wealth sales are up 9% and VNB, a key to future earnings growth, is up 12%. Capital remains a key strength as we adhere to our disciplined approach to capital allocation, including a strategic investments in our business and share repurchases in the quarter. Investments we've been making in the business over the past several years are showing results. At Sun Life Global Investments in Canada, we now have over 600,000 clients, $19 billion in assets under management, and this year, we crossed over into positive net income. Between SLGI mutual funds and our Sun Life segregated funds, we generated more than $2 billion in net sales in the first 9 months of 2017. And with our recently announced acquisition of Excel Fund's $700 million emerging market mutual fund business in Canada, we'll soon be providing clients and their advisers with even more leading funds to choose from. In Defined Benefit Solutions, we are a market leader and have generated more than $1 billion in group annuity sales in each of the past 3 years and are tracking well to that level this year. These pension risk transfers solve a serous client problem and generate healthy -- excuse me, healthy…

Thank you, Dean, and good morning, everyone. Turning to Slide 6, we take a look at some of the financial results from the third quarter of 2017. Our reported net income for the quarter was $817 million, up from $737 million in the third quarter last year. Underlying net income was $643 million, including a $22 million unfavorable impact from the currency movements when compared to the third quarter of last year. Underlying result in the quarter reflected favorable mortality experience, growth in fee income on our wealth businesses and strong new business gains, which was partially offset by lower gains from investing activity on insurance contract liabilities. Third quarter adjusted premiums and deposits were $42.3 billion, up 3% from the third quarter of 2016. And assets under management at the end of the quarter were $934 billion. We maintain a strong capital position with a Minimum Continuing Capital and Surplus Requirements ratio for Sun Life Assurance Canada of 232%. The MCCSR for the wholly company, Sun Life Financial Inc. was also strong at 252%. The higher ratio at SLF level largely reflects the excess cash of $1.5 billion held by SLF Inc. Our leverage ratio of 22.5% remains below our long-term target of 25%. We are continuing to progress towards the implementation of the new life insurance capital adequacy test, LICAT capital regime, that will be effective on January 1, 2018. We expect the final guidance to be issued this month, and we are confident in our overall capital position as we prepare for the implementation. Turning to Slide 7, we provide details of underlying net income by business group for the quarter. We saw a year-over-year underlying earnings growth in 3 of our 4 pillars, SLF U.S., SLF Asia and asset management and solid results in SLF Canada…

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

[Operator Instructions]. Your first question comes from the line of Nick Stogdill with Credit Suisse.

On the new business gains this quarter, obviously a good result, outperforming your target range I think of $10 million to $20 million of strain per quarter. Maybe you could just address the sustainability of the better strain. I know there is a product in Canada and the DB gains. And do you feel you're in a position to continue delivering ahead of those targets?

The majority of the new business gain did come through Canada and it's coming through our GRS business and in particular our Defined Benefit Solution Business had a very strong quarter. Individual insurance, I'll let Kevin talk a little bit more about that as well, but the individual insurance business reflected changes we've made on mix and pricing and growth there.

Yes, it's Kevin Dougherty, I'll just add a couple of comments. When we relaunched our life insurance product line in January for the tax changes, we -- I went through really a total redesign of the product rather than just tweaking it for the tax changes. And as a result, it's now producing these kinds of new business gains, which related to interest rates as well. But it's a much more profitable product than we had in the market previously.

Okay, so higher run rate in Canada given those changes. My second question, Dean, you had some of the interesting dynamics going on in India, the strong growth, the emerging middle class. Maybe you could just broadly speak about the opportunities there, both organic and inorganic? And on the inorganic side, what are the biggest challenges in this market? Is it valuation? A lack of opportunities? Does the JV structure and ownership restrictions complicate acquisitions?

Thanks, Nick. Well, first of all, the opportunities are significant for organic growth. In the insurance business, the penetration rates are very low in India. And as more and more people move into the middle-class, the opportunity to deliver more to more people is very significant. One of the interesting things about the Indian market in a way it had so far to come from behind that it's in some ways leapfrog the other markets in terms of technology and the process for selling life insurance. So that's -- there's a sort of a productivity aspect to the Indian market that is a positive. So we see a lot of opportunity for further growth on the insurance. On the wealth side, I think of this that the mutual fund assets AUM as a percentage of GDP in the United States are over 90%. Here in Canada, it's 65%. In India, it's 7%. So think, just a tremendous upside potential again as that market grows. So our challenge on the organic growth side, on the insurance side is building distribution capability, both through agency, we got a very strong agency. We've got 409 branches across India. And so growth in agency is important. Bancassurance is an opportunity and, frankly, it's an area where the insurance business is underrepresented. And as we look ahead, we are looking for opportunities. We have some bank arrangements, but we'd like to have more. One of the positive opportunities there is that the government has changed the rules to encourage banks to have more than 1 bank distribution partner. And so companies that are not -- don't have a bank as a partner, and that would be our company, are actively engaged with banks talking about future bank distribution opportunities. On the inorganic side, valuation is a challenge. It's a challenge frankly in all of the markets, not just India, not just Asia, but in all markets. But it's one, I think, we've demonstrated disciplined approach and there are deals to be done, and we are out there talking to people actively looking for them. So I'll leave it at that.

Your next question comes from the line of Gabriel Dechaine with National Bank Financial.

Just a couple of questions here. MFS, the margins were up nicely there. You did talk about some of seed gains there seeded some funds. Can you quantify those? And then I guess now that nitty-gritty but the gross flows on the institutional side, over $7 billion, I haven't seen that in 3 years pretty much. What's going on there? Which mandates are winning some flows for you? And then I got a follow-up on the group business.

It's Mike Roberge. I would say on the margin in Q3, like you've seen in other years, there is some seasonality to the Q3 margins just given that spend comes down during the summer months, so that would be a piece of it. Fee gains and FX gains were about a 0.5 point of margins, of the margin during that. And so there was some seasonal one-time component to the margin. But clearly as a in a has gone up pretty dramatically, but this year as well as year over year. And we've had very good expense controls. We control discretionary spends, you see some of that come through in the margin. That obviously the impact if the margin goes -- if the market goes the other way. But at these asset levels clear leverage in the model relative to how we are operating the expenditure line. In terms of the institutional business, it's pretty broad. A variety of strategies, we've seen some of fixed income, we've seen some broader equity strategies as well, we've had some research wins, so it's pretty broad, it's not anything that's specific to a particular category.

Okay. The group business, I'm going to go both sides of the border here, looks like we've got another good quarter from the U.S. so the repricing is certainly taking hold there in the stop-loss, and I guess the disability line. Is there more upside there? And then in Canada, I mean, it's I guess there's some unfavorable morbidity experience in Group Benefits. Are -- is this a one quarter thing? It's like group a great business and all but it's also kind of a guacamole or every now and then you go through a repricing process. I'm hoping that's not what we are going to have to see in Canada here?

This is Dan Fishbein, I'll take the U.S. side of the border part of that question. Obviously, we had a good quarter in the U.S. for Group Benefits. We're making some significant progress with the initiatives we've outlined previously, pricing, renewals, claim management, expense management. And as you've noted, we saw significant improvement in the stop-loss results. We also saw some improvement in mortality, perhaps a reversion of some adverse experience we had seen earlier in the year and good long-term disability experience. I would say not to focus too much on a stand-alone quarter, more look at the year to date or the last 4 quarters results in thinking about where we are. There are naturally some fluctuations quarter-to-quarter. But overall, the trend is in the right direction, and we feel good about the momentum.

It's Kevin Dougherty speaking. So yes in Q3, we saw a really a spike in new claims, incidents in the disability business. I would say it's the spike was there, but in the normal range. And we saw the spike kind of go the opposite way earlier in the year. And so if you look at sort of new claims, incidence rates in the group business in Canada, year-to-date, they are just right on expected levels. So this really doesn't have anything to do with pricing. We remain externally disciplined on pricing. So it's just I think in the range of normal volatility in claims incidence.

That's good to hear.

I'll just note that overall in Canada, underlying earnings are up 11% year-to-date.

Your next question comes from the line of Humphrey Lee with Dowling & Partners.

Just two follow-up questions for Dan. In U.S. Group Benefits, I hear that there's definitely favorable mortality in the quarter and then LTD and stop-loss were also favorable. But specific on stop-loss, how were the underwriting results compare to the last couple of quarters? And what are you seeing in terms of [indiscernible] 2016 vintages claims? Are they now over now in the third quarter? Or should we still expect there could be some deterioration in the fourth quarter from those 2016 blocks?

So Humphrey, in the third quarter, that's the first quarter of the year where we start to see majority of the claims come from the 2017 benefit year instead of 2016. About 66% of our claims in the third quarter, in fact, were from the current benefit year. And that's estimated to rise to about 85% in the fourth quarter. So part of what we think we're seeing here is the impact of the rate increases that we put through over the past 12 months on that block of business. Now we're starting to see that in the loss ratio resulted that emerged in the third quarter and that would continue in the fourth quarter. I would caution that stop-loss is as a business is a relatively small number of very large claims. So there can be some month-to-month and quarter-to-quarter volatility there. So while we think this is absolutely heading in the right direction, it may not be a perfectly linear path.

And then when you look at the after-tax margin in the quarter, especially on a trailing 12-month basis, I think it's kind of just shy of your 5% to 6% target. Do you think this is kind of a little bit running ahead of your expectation? Or are we just kind of getting closer to your target level at this point?

Well, Humphey, great question. I think we will be disclosing formally our group margin starting with the fourth quarter, but I can give you a little bit of information on that here. The way we think about that is the most indicative of our results is to look at that on a trailing 12 months basis using underlying earnings. So our own overall Group Benefits margin on that basis through the third quarter over the last 4 quarters is now 4.5%. If you look back at the same period last year, that same metric would have been -- that's up about 90 basis points since a year ago. So we're definitely making progress on piece with what we've talked about. You may recall at Investor Day, we talked about, as you're mentioning, getting to 5% to 6%. We think we are very much on a path to get there. But I would look at that trailing 12 months 4.5% as probably most indicative right now.

So just to clarify. So are you suggesting that a lot of the heavy lifting, the repricing, the repositioning are mostly done? So we should expect kind of continuing improvement in getting to the 5% to 6% for 2018?

So our repricing of the different blocks of business that has been happening in different time periods. As you know, over the past few years, we've been repricing the disability business, and we've seen quite significant improvement there. More recently, we made some changes to pricing to the group life business. And then as you know, over the past 12 months, which, for the stop-loss business, we repriced that entire block. That of course, is a business that renews every year. In the stop-loss business, it does take a little while for the impact to fully show up. As I mentioned earlier, we are started seeing it in the third quarter, we'll see more of that in the fourth quarter. We also are seeing current renewals heading into next year also trending quite favorably. On the disability business, we have now repriced over 90% of that business. But again, there is some delay factor there. As you see those results, they'll continue to emerge into next year. So I would say, we're largely done with the biggest of the repricing activity, but there's still some ways to go before you see the full impact of all of those efforts.

So I guess the 4.5% for the trailing 12 months this quarter would maybe just a little bit you have a little bit the your way but overall still on a good trajectory. Is that fair?

Yes, I'd say, the 5% to 6% that we've talked about is still very much our objective and we're confident we'll get there.

Your next question comes from the line of Steve Theriault with Eight Capital.

A couple for me. Just to follow up, Dan, on the Group Benefits line of questioning. And it's hard to tell, is expected profit growing in group benefits? Some about today's I think more in the experience line and the in force is down a little, I think year-on-year in U.S. dollar terms. So it's hard to tell, but can you talk a bit just how profits is trending and how you think that looks going forward?

It's Kevin Strain, I'm going to start with Robert comment on expected profit, including the U.S. business and then maybe let Dan dive a bit deeper on that. But if you look at expected profit on a constant currency basis, we grew 4%, and that was driven by Canada and our wealth and asset management businesses. There was, if you exclude the negative $19 million year-over-year impact in corporate, sort of looking at the growth and overall in our businesses, the expected profit grew 6.5%. For corporate, what we do is we charge planned expenses to expected profit. And this grew as a result of our move to One York and some of our corporate projects. So it's more of sort of a planning number that comes through there. So we also had repricing of our stop-loss business in the U.S. And in 2017, for this year, this repricing is coming through experience gains and would have been approximately $7 million in the quarter if you were thinking about expected profits. So you have a couple of things that are happening, you've got the currency, the repricing that's coming through experience this year that are affecting and then the overall impacted by the corporate cost.

And Kevin, I would just add to that, recall that in the U.S., we do have 2 run off business, so you do see some of the impact of that in there. And as you noted, the stop-loss gets reset annually. We -- in the numbers that you see in front of you, there is an increase in expected profit in the Group Life and Disability business.

Okay. And for Kevin, you mentioned the $7 million, was that $7 million some sort of equivalent experience gain number that would migrate back to profit next year? I missed that, I didn't quite get that.

Yes, that's correct Steve. That would in next year's result that would be showing as expected profit.

Okay. Second item on Asia. Turn to Asia for a second, so for Claude, you have been in the seat now a little bit, I was hoping you could talk a bit to how you see profitability playing out over the next year or 2 versus the ROE in that division has been 7.5% to 8.5% the last couple of years. What do you see in terms of levers there? Should we see ROE heading steadily higher in '18 and '19 as you think ahead?

It's Claude Accum, can you hear me, Steve? I'm calling in from Hong Kong.

Yes.

The way I think about it is I'd first start with and Dean talked about the underpenetrated client base in Asia. We have 16 million clients and our first goal is to grow that at 15% per annum. I think that opportunity we've proven we can do it in the past and it's still available to us. And so we'll grow the client at 15% per annum. If you throw inflation on top of that, that would get you your sales growth rates. So if inflation is on the order of 2% to 3%, we should be able to grow sales on the order of 17% or higher per annum. And then that should translate into an income growth rate that could be north of 17%, you can drive in your expense gap down and getting efficiencies. And then you also need to think about whether you're financing your on growth in Asia, we're doing a lot of financing of our own growth. We're trying to grow agency at 20% per annum in certain businesses, such as in Indonesia, building a new agency in Malaysia, trying to get to 5 million customers and 2.5 million customers in the Philippines and trying to digitize our platforms in 7 countries. And so when you overlay the investment, it will drag that earnings growth rate down from 7% down to probably something in the 10% to 15% range. But I think we have an opportunity, and we are confident that Asia will deliver some nice earnings growth in the future.

Not to be too fussed about the ROE, because there's a lot of allocation there, but would you expect that to translate into either a leveraged or under leveraged ROE that's heading higher or because of the way you're funding it, not necessarily?

When we look at it on the current unlevered basis and we do planning over 5 years, it goes up, it doesn't go up a full point each year, but it goes up for about 0.7% each year. So even on an unlevered basis, that will continue to improve on the path that we are on, financing our own growth. And if we have an opportunity to work with corporate on perhaps moving to a levered basis, it would lift up more than a point that just from that change.

Okay, that's super helpful. Just before one last thing for me, if I could. Just Kevin on that first question, did you flag the 10 to 20 [indiscernible] strain $10 million to $20 million is the right sort of strain number to be thinking about going forward? I was thinking with the DB Solutions being $1 billion plus the last few years and that restructuring of the Canadian product, that might be under revision. But please give us some clarity there?

Yes, Stephen, I should have started with that answer yes, we are expecting to be in the same range and you have to look at, as Claude sales growth in Asia, which has strain offsetting some of those type of things. So we expect to be in that same range of $10 million to $20 million.

Your next question comes from the line Meny Grauman with Cormark Securities.

Question about the assumption review. The investment returns, in particular, benefits, which is also surprising. Wondering if you could just clarify in particular regarding the reduction provision for investments in Canada and what drove that? And if it's related to the coming LICAT changes. That would be helpful.

This is Kevin Morrissey. The investment changes that we had, the plus $62 million in the quarter, that was after absorbing the update, which was a 10 basis point reduction, that was in line with our expectation. The largest source of gain was from a reduction in investment risk piece side in Canadian individual life insurance block of business. This was part of our annual stress testing a verse in this block, and it was a reduction to the investment risk on a closed blocks of policies, where the earnings go to the shareholders. We also had a number of other smaller gains, one in particular I'll call out is related to the annual review of the credit assumptions. So that [indiscernible] credit spreads.

Is there anything here that was driven by planning ahead for LICAT? Or no?

No, nothing was related to LICAT. As you are probably aware, we manage our interest rate risk primarily on an economic basis and we had a history of closely managing our investment rate risk in largely across our both business in all the geographies, so there was no repositioning as a result of LICAT.

Okay. And then if I could just ask a question on MFS, just big picture. You touched upon a little bit, but there's definitely been some talk more recently now about people saying talking about active management and it's coming back. I think the head of the JPMorgan's wealth unit in particular made a point to that. And I'm wondering from where you're sitting, do you see any of that? Do you see a change happening in terms of active versus passive and talking a lot about.

Well, if you look at performance, it has been a better year for active managers relative to the benchmark. So I don't know if they were referring to that necessarily. From a flows perspective, we certainly haven't seen it show up in the distribution channel, which is U.S. retail, which has been the most impacted by that. So performance has improved. Historically, flows follow performance. So we're hopeful as we look to next year as you do see some normalization that big movement of a minor that we've seen in passive.

And your next question comes from the line of Tom MacKinnon with BMO Capital.

Just a question with right respect to MFS. Given the disclosure, we can't duplicate the MFS margin. But what we can do in trying to forecast MFS' earnings is really just to simply forecast revenue, which is fee income and total operating expenses excluding share-based comp. So you made a comment about the leverage in the model. So I was wondering if you might be able to provide us hypothetically if we had average assets go up 6% year-over-year, what would the revenue go up? I assume it would have to be a little bit less than that given that's been the trend? And then what would the total operating expenses go up excluding share-based comp? Just to give us a better handle how to look at the leverage ability in this business model?

Yes, I mean it's a tough question to answer because we do have because some of the distribution expenses are asset-based, so there is a component of the expenditure base which is asset based compensation is impacted as well by an increase in the margin. So I'm going to define what that is, the average fee rate is about 49 basis points on the book of business. And there's some components of the expenditure base that will move as well as the asset rice. But clearly if you control discretionary expenses, you're going to get pretty good operating leverage in the model, and that's what you see come through in this quarter.

Yes, year-over-year if we look at the operating expenses excluding the share-based comp, they were only just up modestly. But if I look at the 2 prior quarters, they were up probably on average about 3%. Is this an anomaly in this quarter? Or should we be probably looking at something in the 3-ish percent range assuming we have reasonably good market?

You've really got to look year-over-year to look at quarters because compensation gets...

Looking year-over-year.

Well, no, but you have to look at the quarters year-over-year. So if you look at the quarters to themselves year-over-year, what you'll see is margins will be a little bit softer, particularly in 2Q you get some leverage because of seasonality and less comp in the third quarter. And I think what I would say about us year-over-year is we've had a significant increase in over that period of time. But what really drove a lot of the leverage year-on-year is we were very careful about controlling discretionary expenditures. So there are some one times in FX and gains we've been very careful the markets gone up to control discretionary expenditures and you've seen some of that come through in margin.

Okay. All right. Well, that's good. So I guess we'll just keep looking at maybe the year-to-date way of looking at it is the best and try to employ that in looking at growth in MFS going forward. Would be that be safe to say?

Again, I mean it's hard for me to give you an answer only because there'll be investments that we have going on in certain times. And so we don't think about it as we are going to spend this percentage of the revenue increase because the challenge with it is very much impacted by the market. And we don't know what the market's going to do. So we've got an expenditure base which we manage, we try to manage relatively well, and the market is going to do what it's going to do. So it's very difficult for us to try and target what we want margin to be.

All right. I remember before there was talk about margins being in the mid to high 30s. Is there anything that you can provide in terms of an update on that guidance?

Yes. I would just say it's very dependent on the market. We've seen a big ramp in the market, it would have been our expectation a year ago given whether it be Brexit or Trump election here in the U.S. that the market would've done as well as it has but it did. And so we've seen a big ramp in the market. We kept our expenditure base pretty well-contained given the negative organic flows that we've seen. And so while we really control the expense base and the market will do what it's going to do and that will impact our revenues. And so the one surprise I would say year-on-year is the market has gone up a lot more than we anticipated, and we controlled the expense base.

And your next question comes from the line of Sumit Malhotra with Scotia Capital.

I have a few questions on expenses and probably should start with Kevin Morrissey and the actuarial review. So when we see a $73 million negative impact on earnings as a result of reviewing expenses, there's a couple of items you listed in your press release that result or that caused that loss to be taken. At least the way I read them, they almost sound more like they're quarterly items that would have impacted the income statement than they do actuarial changes. So I guess my question here is what's the -- what's the factor that causes you to change expenses as part of the actuarial review? And more importantly, when you take the charge in this assumption, does it have an impact on the run rate level of expenses going forward?

This is Kevin Morrissey. So what is related to quarterly items, no. When we're looking at the modifications for the actuarial assumptions related to expenses, we're really looking at forward-looking expectations, so longer-term run rate changes. So the first one that we've called out is related to the close block of International business. This block is in runoff mode. As a result of the block running off, we see a projection of higher unit cost so we've done some strengthening there. In Canada, we did a periodic review of some of the more indirect or overhead expenses. So this is something we do, not every year, but from time to time, we did a bit of a deep dive. And we ascertained that a higher proportion of these expenses should be included in the ongoing cost, included in the actual reserves. Each of those represent about maybe 1/3 of the total change. And then we have a number of other smaller items that added up to the original or to the last third. Your last question about the run rate on the expense experience line. We certainly will see an improvement when we have this type of strengthening. It increases our expectation that's built into reserve, so we should see an improvement in the expense line on a longer-term basis. Obviously, there'll be quarter-to-quarter fluctuations.

Okay. And then maybe now, to the more here and now for Kevin Strain. When we look at, not a business, we look at 2 options, but your corporate segment on an underlying basis had a bigger loss this quarter, that seems to show up once in a while, and at least the way I read it, it seemed like that was driven by a higher level of expenses. Could you help me understand what exactly drove that number to be a bigger loss this quarter?

Yes, corporate expenses were about $20 million higher than we would normally see. And this is a timing thing, I would say, that some of these expenses ended up coming through the third quarter. And you could have seen them coming through other quarters. So it was a bit of a timing thing in terms of how expenses hit us.

And I mean the aforementioned change in the review, does that stabilize this going forward?

I think this was a sort of a one-time thing that we saw coming through the expenses, so it's not really impacted by the review.

This is Kevin Morrissey. That corporate expense increase that we saw in third quarter, that's not part of our ongoing expectation, and it was not part of the review that increased the actuarial assumptions in the quarter.

I would say that we continue to be very focused on controlling expenses, and you would have seen that the controlled expenses grew 2.5% in the quarter, which is less than we've been growing at. And that growth includes investments in our client strategy and digital and data analytics. And we're reinforcing that focus on expands financial discipline and Dean mentioned the restructuring charge in his comments. And so there is a lot of focus on expenses and making sure we control those expenses.

And close which is probably for Dean. So you've told us you're going to take the restructuring charge in Q4 and at least my experience with those across sectors is that the savings that are the run rate savings that are derived from such an exercise can go 1 of 2 ways. Maybe, one, we're going to see a benefit in expected profit from a lower level of run rate cost. Or number two, Dean, you certainly talked a lot in different venues, including your Investor Day, about the investments the company is making. So how should we think about the benefit to shareholders from that restructuring exercise? Is it going to be split between the bottom line and technology initiatives? Or is most of it going to be reinvested back into the business?

Sumit, you should think of it as being reinvested back into the business. The related way to think about it is that the slope of expense growth will be bent and flatten somewhat. Kevin talked about the pace of controllable expense growth in the third quarter. And this restructuring charge gives us the capacity to keep investing in growth and innovation and digital and everything else that we need to invest in, while bending that cost curve down somewhat. So ultimately, the test is, are these expenses generating good VNB and profitable VNB and we are holding ourselves accountable for that. So I think investors should be pleased that we are doing this. This is a positive, it's a way to continue to fund the kind of investment and innovation that we've been driving at Sun Life.

Your next question comes from the line of Paul Holden with CIBC.

So in thinking about Sun Life's within the Canadian comp group but perhaps the biggest beneficiary of potentially U.S. tax reform but of course with what's being proposed, there's also something on excise tax for offshore affiliates. So wondering if there's any kind of risk to Sun Life there, what your exposure may be?

Okay, Paul, it's Kevin Strain. And first, I want to reiterate and stress that the regulations haven't yet been finalized and a number of things could change, especially around the transition rules and even potentially the implementation time line. That said, as currently written and we've been through the over 400 pages in great detail, for every 1% drop in the U.S. tax rate, Sun Life underlying earnings benefit by around $10 million. This relates to both MFS and the U.S. business, and that's before the effects of the proposed excise tax and other base broadening measure. If you look at these that $10 million reduces just slightly. In addition, there would be a one-time charge at the time of enactment related to a number of transition rules, including the tax reserves for life insurance policy. The one-time charge for us under the regulations as currently written would be that for every 1% drop in the U.S. tax rate, we would have a hit that is just less than $10 million. So again, I want to stress that these regulations are subject to change, but that's the impact that you would see at Sun Life.

Okay. So you're not expecting any material offset from any enactment of the excise tax?

I mean, again, the regulations are changing. And I think they go to the senate today, so there's a lot of impacts that can happen there. But what we see in the way they're currently written is that for the transition piece would be the 1% drop would be about $10 million. And then for the overall, as I've mentioned, the excise tax would be a small, small decline in that 1% probably $10 million and the ongoing.

Okay, got it. And then moving back to MFS. So Dean, you made some comments regarding MiFID II, the approach that MFS will take with respect to MiFID. Do you think this is a strategic advantage relative to some of your competitors going forward, i.e., do you see this as a market share opportunity, particularly on the institutional side of the business where I think a lot of institutional clients are going to be asking about the management of research cost going forward?

Short answer is yes, but I'll let Mike Roberge give the detail.

Yes, Dean, I'll take it. Yes, we would say that absolutely we think it's a competitive advantage for a couple of reasons as Dean mentioned. One would be scale, as a larger firm, we can obviously absorb that. In addition to that, related we've made a significant increase in internal capabilities over the last 5-plus years. And so while external research will continue to be an important part of how we serve our clients, we think that the impact here has been going down, will continue to go down as we ramp up what we do internally here. So we think it is going to be a significant competitive advantage for us. And we have been an early-mover to go global on this because we think it's very hard to manage, to have -- to be dealing with Europe differently in the way you're going to deal with clients in jurisdictions outside of Europe. And believe that ultimately, it's a very good alignment with us relative to the client in terms of what we can deliver on their behalf.

And your final question will come from the line of Mario Mendonca with TD Securities.

Probably for Kevin Strain. So with the strengthening of the expense assumption, I've just gone back and looked at the various Q4s, the many Q4s that layer the expense experience was awfully negative as in my Q4 '16 hit a pretty large number. Looking out now, does this mean that the Q4's won't be the big lumpy expense as they've been in the past? Or is that still going to be the case?

I think you still see that there is a lot of expenses that typically in our business and a lot of business come through the fourth quarter as projects ramp up and those type of things. But as I did say, part of the hit this quarter was around timing and timing some of those expenses could have come through in the fourth quarter and other quarters, other years.

So it's possible we'll see less of a hump come through this fourth quarter then?

I think the answer is that we'll still see what's going to happen in the fourth quarter, but this timing piece could have been in the fourth quarter. In other years, it could've been in the fourth quarter.

I understand. So I'm looking at your Asian business, so this might be for Claude, and I see here that the impact of new business remains negative for this company. And I mean, I'd be fair to compare it to another company that we all know. But in the last few quarters, their Asian business generates very substantial new business gains, as in like $150 million positive each quarter. And I get that there are scale differences, mix differences and what have you, but that difference is roughly big. What can you -- what would you point me to in understanding why one company in Asia would generate experience sorry new business losses and the other one substantial gains?

It's Claude, I'll take a piece of that. So you really need to look at the pieces and in particular products they are selling. So in the Philippines, that number would broadly be quite positive. And the pricing margins in the Philippines are quite strong. We have good scale. We have good coverage of our distribution allowances. And it helps when you're selling single premiums, so in the Philippines we have a good mixture of single premiums. So that and that tends to get to a rise to a number in which is either not much strain or if you're doing a lot of single premium is actually a recognition of a gain on sale on that business. And so our Philippines business is capable of showing a strong number there. Similarly, in Hong Kong, when we're very strong in the single premium MCB business, we can also see a strong positive result from that line. As you are aware, in Hong Kong, this year, that style of business went away for us with the account restrictions in China. And so our Hong Kong business has moved more to a strain model on regular premium. And then if you turn to some of our other businesses in Indonesia, Malaysia, Vietnam, they tend to be more regular premium sales. Consequently, there is strain that tend to be subscale businesses, so there's train. That will cure over time as we build those businesses and we're focused on making substantial investments in those businesses to move them to I think most of them by year 5 will move to 0 expense loss model on distribution expenses. And so I think that will improve over time as these businesses scale. And then the other thing that helps is how much wealth business you sell. On some of the wealth of business, you can recognize a gain on sale. And so there's an opportunity to do more wealth business and some a lot more and show different signature on that line.

Okay. So if you think about single premium then, single premium I'm familiar with what you're talking about, these products, do you view these as healthy attractive sales to have because they generate gains? Or do you view it as less so because there isn't as much of a client relationship, not as much is not as enduring from a long-term earnings perspective? So are single premium sales good or bad for you?

Single premium sales are -- we've as a very good -- we view regular premiums as also very good. And it could be the same client one day will do one form with you and the next day might do another. And so particularly on the large policy, they're buying a $10 million face policy, they might do that regular premium, we're making a good margin on that, we'd welcome that. Or might choose premium finance it, the next version of it and do it single pay, and we think that's also good. And we can price both of them to make really good margins over time.

So finally, given the experience that this other company has with very substantial new business gains, do you envision a time, 3 years from now when Sun Life also generates new business gains, substantial new business gains in your Asian business?

I was going to maybe just lift up the conversation and you can talk about the future, but if you look at Asia and our expectation for Asia, the growth in earnings has been significant in the past 5 years. And we still see Asia as being a significant contributor to our medium-term objectives. You would have heard Claude speak earlier around the growth rate, I think he mentioned 12% to 15%, but our expectation is that the earnings growth in Asia will be a significant contributor to us in the 8 to 10. And I think that's the right way to look at it because in Asia we have 7 countries and multiple businesses. We talked earlier about our Indian asset management business for an example, it's performing really, really well. And so I think you should think about Asia not just the lines of source of earnings, but by the overall contribution to the earnings, and we expect that to be at the higher end and closer to the 15%.

It's Kevin Morrissey here. Maybe I'll just add one further comment. When you're starting to look at longer-term views of those pricing gains, you need start thinking about the changes to the international accounting standards, so IFRS 17, that is scheduled to come in January 1, 2021. Under that new structure, there will be no [indiscernible] of profits any longer, so none of the companies will have any pricing gains after that point.

There are no further questions at this time. I would now like to turn the call over to Greg Dilworth for closing remarks.

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

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