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 Q4 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 fourth 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 fourth quarter and full 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 fourth quarter financial results. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today’s call. Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures which one 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 underlying earnings of $641 million for the quarter, a strong finish to 2017, where we grew underlying earnings by 9% for the full year, 11% on a constant currency basis. Underlying ROE for the quarter and the year were also strong at 12.7%. Over the year, we increase the dividend by 8%, repurchase 3.5 million shares, reduced leverage and maintained a strong MCCSR ratio, including $2 billon of cash at the holding company. Sales results in the fourth quarter were mixed across our four pillars. Asia Insurance sales were up 3% and Wealth sales were up 21% generating VNB growth of 19% all on a constant currency basis. SLF U.S. sales were very strong. Individual insurance sales in Canada were down relative to a very strong sales in Q4 of 2016 from the lead after tax changes. For the year, Insurance sales across the company were up 12% and Wealth sales were up 7% on a constant currency basis. And we finished the year with $975 billion of assets under management. Our results this quarter and for the year reflects strong execution on the drivers of profitable growth for Sun Life in the coming years. In Canada, we made good progress in building our wealth business. Sun Life Global Investments had positive net flows of approximately $600 million for the quarter, 3/4 of that in retail, and finished the year with over $20 billion in AUM. Following the quarter, completed the acquisition of Excel Funds, a Canadian investment manager specializing in emerging market funds with nearly $800 million in AUM. Group Benefits in Canada also hit a milestone in the fourth quarter, reaching $10 billion of business in-force and extending our market leadership position in 2017. In…

Thank you Dean, and good morning everyone. Turning to Slide 7, we take a look at some of the financial results from the fourth quarter of 2017. Underlying net income was $641 million up from $560 million in the same quarter last year. Underlying results in the quarter reflected strong growth in expected profit as well as favorable morbidity and mortality experience. These strong results were achieved against the backdrop of a strengthening Canadian dollar, which reduced underlying net income by $22 million relative to the same period a year ago. Our reported net income for the quarter was $207 million, down from $728 million in the fourth quarter of 2016. Fourth quarter 2017 reported results were largely impacted by a net charge of $251 million related to U.S. tax reform, the unfavorable impact of interest rate movements and a previously announced restructuring charge of $44 million after tax. We maintained a strong capital position with a Minimum Continuing Capital and Surplus Requirements ratio for Sun Life Assurance Company of Canada of 221%. Our SLA MCCSR ratio declined by 11 points from the third quarter, largely reflecting recapture of the reinsurance treaty and lower reported net income. This was a unique treaty in place in our Canadian group business. This treaty was less effective under LICAT, and given our overall risk profile and the strength of our capital position, we believe we could create greater value to the recapture of this reinsurance arrangement. The MCCSR for the holding company, Sun Life Financial, Inc which also strong at 246%. The higher ratio at the SLF level largely reflects the excess cash of $2 billion by SLF Inc. Our leverage ratio of 23.6%, which includes preferred share capital, remains below our long-term target of 25%. We redeemed $400 million of subordinated debt…

Thanks Kevin. To help ensure that all of our participants have an opportunity to ask questions on today’s call I would ask that each of you please limit yourselves to one or two questions and then to re-queue with any additional questions. With that I’ll now ask Dan to please pole the participants for questions.

[Operator Instructions] Your first question comes from the line of Gabriel Dechaine with National Bank Financial. Please go ahead.

Good morning. I’ve got a quick numbers one and then one related to the U.S. tax reform. On the first one, the reinsurance recaptured, I believe you’ve done this in two phases. When you were originally reinsured that back in 2010, there was an earnings hit. So in recapturing it, you’re getting some earnings back. Is that a decent sized number?

That’s correct. We will have a positive impact on the earnings front after the recapture.

In the amount of?

Roughly a few cents per share or just under a few cents per share.

Okay, nothing major then. Then I guess the more thoughtful question on the tax reform. So what I’ve – I’m reading your discussion on the updated guidance. Are you like the 15 to 20, are you being conservative there that maybe at the higher end of the range you might see some of the benefits dial back with the base erosion stuff? And then what I’m also hearing from U.S. companies, particularly on the group side, is that they are planning on passing on some of these benefits to their customers via lower premiums. I’m just wondering how that could affect the group business in the coming year? Do we eat into some of the re-pricing benefits we are starting to see now?

Okay, maybe I’ll take the first part of the question and Dan will take the second part. The guidance of 15% to 20%, it reflects the positive impact of the tax reform, but the impact will of the overall range depends on the jurisdiction of our – the geography of the income, right? So that will be an impact. And then there will be impact from base erosion measures, limitations of the interest expense reductions, FDII, those types of things will also have an impact on it. So we expect to see inside of that range, and we expect that the benefit of that is roughly the $130 million we talked about, which would put us inside of that range as well.

So did contemplate some of the offset that might be coming in that range then?

So there’ll be some offsets in that range as well, yes.

Okay.

Good morning. This is Dan, I’ll address the issue about competing away the benefit. We don’t really expect to see much of that in the short-term to medium-term. First of all, a lot of the good business is written on three-year rates. So certainly any effect like that would take some time to play out. Also a number of the rates in the group business are filed with state insurance department, so that would also take some time to play out. But probably more importantly, most of the insurers active in the group market today are not yet at their target margin. And we expect that most players will use tax reform as a way to get closer to their target margins in the short to medium term.

Okay, thanks Dan.

Your next question comes from the line of Doug Young with Desjardins Capital. Please go ahead.

Sorry I was on mute there. Sorry, just first question on Canada, underlying earnings were down year-over-year, and then Kevin you alluded to a litigation provision last year. And if I recall, there was $15 million to $20 million. But if I go in and I look at the market impact, if I look at experience, excluding the market impact, it looks like it was slightly positive last year, it looks like it was negative this year. So that maybe that’s expense swaps. I’m just trying to get a sense of why the delta in experience, excluding market impact, last year versus this year, can you kind of delve a little bit into that?

Yes sure. I think then net provision last year, the legal provision was about 28, so that just as a benchmark. If you look at to earnings, expected profit was up really nicely over year and new business came through and very, very solid. In terms of the experience gains, sorry, the actual experience, we saw some incidents push in the disability block. But most of that was offset by good overall health experience.

Was there any lapse items or issues from the experience side?

No.

Okay. And then just may be turning to Asia. Hong Kong insurance sales were down 25% year-over-year. I know you’re doing well in the Mandatory Provident Fund, but just wanted a little color. And I know expected profit was up 5% year-over-year this quarter. But it’s been gravitating down over the last two years, I mean I think one or two years ago was up was growing about 20%. So just trying to get a sense of what’s happening within expected profit growth in Asia and then sales in Hong Kong? But also the ROE, it seems that range bound in the mid-7% range. I thought the goal was to try to move this above 10% over time. So just wanted to get a bit of an update on that as well. Thanks.

Hi, it’s Claude Accum here. With regard to Hong Kong sales, on constant currency, it is down 15%. But you need to tease a part of that business. They actually have three really good engines of growth. Two of them are doing very well. And so agency is up 16%. I believe that’s the second-highest growth rate in the industry. The MPS business is also doing quite well. It ranks number five, moving to four by assets. But our net sales, it ranks number two. So one of the strongest MPF growing platforms in Hong Kong. And the slower spot is the MCV sales are off. And we haven’t replaced that contribution. If you look at the whole contribution across Asia, our thesis is that these seven countries combined, should be able to produce a 15% to 20% growth rate. And so if you look at life sales, which are a bit soft, and combine that with wealth sales, which are very strong, showing 21% growth rates or 50% growth rates on a full year, on a constant currency basis, on a composite basis, we are seeing growth rates in Asia of 17%. And so that’s in the middle of that thesis of 15% to 20% growth rate. So we feel good about the growth trajectory in Asia, notwithstanding where Hong Kong is. If we look at all the other businesses combined, excluding Hong Kong, the other six businesses being Philippines, India, Indonesia, China, Vietnam, Malaysia, they are generating a 22% growth rate. So again, when you look across the whole book, we see some robustness in sales growth rate. If you look at expected profit, you really need to adjust for currency. So on expected profit full year, it looks like it’s up 4%. We’d like to see it grow faster than that, and we tend to manage it on a local currency basis. We don’t hedge the same cap, it’s all in its natural local currency. So if we adjust for FX, it’s another six points of growth. So expected profit is actually up 10 points and we think that’s pretty decent. And if you look at where that’s coming from, the seven businesses, the seven countries, are generating a 13% growth in expected profit. So we feel good about that on a constant currency basis. And then there is a bit of drag coming from the regional office, which takes about three percentage off that growth rate where we have some project expected RO, special projects. If we come to the return on equity, we would normally expect to see the return on equity increase 50 bips per annum or more over a three-year, four-year, five-year period. And we are carrying some extra capital in some of the subsidiaries, we did a capital injection in one of our subsidiaries and so that’s tempered the growth in ROE this year.

And Doug I would add that the ROE is based on 100% equity still in those numbers.

Well that’s right, yes. Very thorough. Thank you very much.

Your next question comes from the line of Nick Stogdill with Credit Suisse. Please go ahead.

Hi, good morning. Just sticking with Asia to elaborate on that, I think earnings for the full year were up 18% so on an FX adjusted basis in last quarter, you did offer growth of maybe low double digits on earnings. Does that feel achievable for 2018? Just because we look at the core numbers throughout the year, they average about $80 million a quarter this year. So we didn’t really see that trend up, I’m just wondering if you feel confident that, that can grow in the double digits in 2018?

Yes when we look at it on a constant currency basis full year is at 17%. Q4 is quite strong, it’s at 38% growth. And so, looking forward, we think Asia still on thesis that we can generate a 15% to 20% growth rate on earnings going forward.

Okay thank you. My second question on MFS, just wanted to get some color on sustainability of the margins this quarter. I know the asset growth has been of importance. Was there anything and I know the receipt gains some items last quarter is in there and maybe just your thoughts on the margins if asset growth is not as robust in 2018?

Yes if you look at the quarter, and I’d say a couple of things. One is you got to look at prior years too, what you’ll see is seasonality in the first half versus the second half. So there are more fee days in the second half. We accelerated some of the best on compensation in Q1 and Q2. So you would expect the first half, you’ve likely seen in prior years to be somewhat lower. But when you get a big ramp in the market like we’ve seen in the last six months, you’re going to see the market expand. That will be harder to sustain if we look into next year. And we would expect the same headwinds, which we’ve talked about on prior calls, which is continued slight fee erosion over time to continue to weigh on results of asset managers.

And would MiFID II have a noticeable impact, I guess, in early 2018?

Yes, we disclosed last quarter, it’s not material. We don’t think it’s material to financial results. It’s clearly going to have some impact this year, but as it rolls up to Sun Life, it’s from our perspective, there’s not material.

Got it. Thank you.

Your next question comes from the line of Meny Grauman from Cormark Securities. Please go ahead.

Hi good morning. So you did recapture the reinsurance agreement to deal with LICAT. I’m wondering if we’re in Q1, but are there any other changes that you expect that are motivated by LICAT in Q1 or further down the field?

Meny it’s Kevin, this was the unique agreement we had in our Group Benefits business in the U.S. so we don’t see other similar types agreements.

Okay.

[Indiscernible] in Canada Group when I was in Canada.

Okay. And then I just want to ask on employee benefits business in the U.S., it was touched on the sort of the impact of tax legislation at the top-of-the-house. But in terms of how you see the business unfolding in the U.S., employee benefits business, can you go into a bit more detail in terms of the impacts of the tax legislation on that business from a demand perspective in particular? And then, how that could impact your outlook in terms of after-tax margins? Does that give you a little bit more upside to the 5% to 6% you’ve been targeting?

Yes. Thanks, Meny. In terms of demand, I think the overall U.S. economy is moving along quite nicely and certainly tax reform is going to be another catalyst for that. So we are starting to see employment growth in the overall market, and we expect to start to see that as a contributor to our growth going forward. We are also starting to see some wage inflation in the U.S. and obviously that means multiples of salary with some of our coverages are based on also will increase. As far as the impact in margins, obviously, there will be an impact in after-tax margins from a lower tax rate. Give or take, we estimate that to be about 75 basis going forward.

Thank you.

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

Good morning, and thank you for taking my question. Looking at your holding company excess cash position, kind of adjusted for the debt repayments, the 1.6. At the same time you have quite a bit of debt capacity of what is the 25% long term target or the 30% kind of upward threshold that you feel comfortable to be on a interim basis hitting there. Like the last – so you kind of looking at maybe like close to $2 billion of capacity. And when I look back the last time you have such flexibility, you went into a little bit of a shopping spree. So as I think about capital management, if you were to do some acquisitions, what would be on your wish list?

Humphrey, it’s Dean here. Thanks for your question. I’ll just say that the approach we’ve taken, which is kind a really balanced thoughtful, disciplined approach to allocating capital continues to apply. So that’s share buybacks supporting, first of all, supporting organic growth and acquisitions and share buybacks. As you know, we have a non-course issuer bid in flight, 11.5 million shares, we’ve bought back 3.5 of that piece, we just announced the next leg of 3.2 million shares. In terms of acquisitions, our – our approach remains the same. We are focused on acquisitions that build strategic capacity in each of our four pillars. So it’s not one or two, but it’s we’re looking for opportunities in all four. Clearly, there are fewer of those in Canada of size, but the acquisition of the Excel business that we closed in January is an example of that. Looking for opportunities in all four pillars, opportunities that either bring us new capabilities or help us grow faster. In other words, we are bringing more than just a checkbook to the story, we are actually able to put businesses together and accelerate growth beyond what would otherwise be possible. We continue to take a very disciplined approach to this. And clearly, a, it has to be on strategy, and b, it has to clear our long-term hurdle rates in terms of ROE, and that’s challenging in this market given there’s a lot capital assuming around. So, what I would say to you is that we are as aggressive as ever and talking with people about those opportunities. And as you know, we are in a very favorable position in terms of the firepower on our balance sheet for when we do find those opportunities.

I understand you have a balanced approach towards the four pillars, but I guess if you have to rank them like – or if you if everything is on the table for your choosing, like what area would you like to invest first if you have the choice?

I don’t think there is any one preferred pillar in that sense. And as a more pragmatic answer, the reality is, it depends on what actually becomes available at prices that make sense economically. So we would like to – so let me just take you around the company and this isn’t in any particular order. But in asset management, Sun Life Investment Management is growing from $0 billion to $60 billion in the last four years. We are on a path to get that to $100 billion organically. We would like to find other opportunities to get SLIM even bigger than that. So that’s one category. In the United States, we’ve through the AVB acquisition, given ourselves terrific additional capability and heft and you see us executing really well on that. There are other capabilities that we are looking at and sizing up in the U.S. market as well, things that will accelerate our ability to grow. And then in Asia, there are so many different places to play. Job one is to get larger in the seven markets in which we already operate. And because those seven markets have something like 90% of the growth in Asia in the next decade. Those seven markets have over three billion people in them. So job one is to get bigger in those markets and that could mean looking at bank assurance opportunities, it could mean looking at wholesales acquisitions about the companies, it could mean buying up larger percentages of businesses we already own that we are in joint venture with and you’ve seen us quite active in that space in the last few years. So I hope that answers your question.

Yes. And then I guess, specifically in Asia, there seems to be quite a bit an activities going on. There is a lot of divestiture by traditional players or from foreign parents. I guess maybe at a high level, how would you think about the valuation of those property? Or the Asia business in general? Do you feel like it’s still a little frothy? Or do you feel like there may be – could be some interesting properties in the market?

Well, I think, the price is – the starting point is that prices for businesses in Asia look expensive on North American standards. But when you overlay the kind of growth you see in most of the markets that we are in Asia, and you overlay the kind of operational execution that we are capable of delivering, we see opportunities to make the economics work, not in every case, but in enough cases to make it interesting. So it is difficult to talk about specifics. But I think there continues to be some really interesting opportunities in Asia. And we are actively in the middle of all those discussions.

Got it. Thank you.

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

Thanks very much. I have a question on MFS, but first on Canada, I know maybe not be a big deal, but I didn’t want to talk about the SecureKey agreement for a couple of minutes, probably for Kevin Doug. Can you talk about which parts of the business will be touched by this? In particular wondering, will this be more facilitation of traditional agent sales like Sun Life agents? Or is this more a function of selling ancillary products to existing customers like through your mobile app? Is this a big enough deal that you could see meaningful productivity gains? Or is this more of incremental, smaller project? Love to get a sense for what you envision with that?

Sure. What the security key technology it will enable very rapid some point kind of instant validation of things like identity and credentials, which will enable more to happen digitally, whether there’s an advisor present or whether we’re doing things through, for example, our mobile app. And so, there is a fair amount of friction in the current processes. And in the digital world, friction means drop-offs. So we think this has tremendous amount of potential for us there. It will take some time to roll out. And SecureKey has an ambitions beyond just identity their application perhaps into areas like health care, maybe eventually things like coordination of benefits, which will speed up a lot of Group Benefits processes. So there’s quite a bit of potential, and we are quite excited about the investment and being involved with them.

And is the roll out, is it first half of this year or first half of next year – sorry, first or second half of this year?

Yes. I think we start to see things happening in the second half of this year.

Okay. Thanks for that. And then on MFS, a couple of things there. I did remember seeing expenses over $550 million. I don’t there is Q4 seasonality. So Mike, can you give us a bit of an insight on Q4 and a bit of an outlook for expenses next year. Are you – did you take advantage of very strong markets and maybe a bump in fees of frontend and some expenses? Anything like that?

There’s nothing abnormal in the quarter from an expense perspective. What flex is, what’s going to flex is with revenue growth, is compensation is going to flex, some of the asset based fees that we pay some of the distributors, commissions that we pay based on sales. So there is nothing in there that’s a bit would be anything abnormal relative being other quarter. With the caution as I mentioned earlier, just think about seasonality that will have in the first quarter’s compensation expenses higher, you can see that if you go back to look at last year.

Okay. And then the last item was, small one again, but the U.S. GAAP net income, which I don’t often notice is normally higher than under IFRS, it’s a lot lower this quarters, any quotes there that you were Kevin…

Yes. Maybe I’ll leave that to Kevin, we focus on the GAAP number, not the IFRS. So Kevin, if you want to maybe just cover the reconciliation?

The only difference in the U.S. tax numbers was the U.S. tax reform and impact on MFS, which was about $75 million.

Okay. So that’s not an adjusted numbers, that’s why, okay.

Right.

Thank you, thanks a lot.

Your next question comes from the line of Tom MacKinnon with BMO Capital. Please go ahead.

Yes. Thanks. Question on Asia and then a quick one on strain in MFS. So Claude, just looking at Asia, the expected profit growth that we’ve seen in 2015 and 2016 were solid double-digit, but in 2017 just 5%, but I think you’re looking at maybe 10% excluding currency, but certainly lower than what we’ve seen in the past. Is this – do you think this is due to extra spends in Hong Kong? And how should we be looking at that number going forward? And what are some of these extra spends you’re having in Hong Kong, what are they trying to achieve?

Yes. So Tom it’s Claude here. If I look at the contribution from the seven businesses, on a constant currency basis, their expected profit is up 13%. So I think that’s the number you’re looking for. And then if I roll in the regional office, it takes about three points off that. And yes, that gets to the 10% that you noted. And so what’s in the regional office are some special projects we’re trying to do things, not just in Hong Kong, but across the whole Asia business group. It tends to a special projects more focused on developing growth in earnings over the long term. And so we think it will generate lift in earnings in the future, but it does cause some drag in the short term.

Would you expect, expected profit to be up, higher than this 10% excluding currency going forward? More consistent with the 13% that you’re getting in all the other offices?

We have some – while carrying these special projects, we have opportunities to generate offsets elsewhere, and so we are seeing some strong growth in earnings on surplus. We are carrying some extra surplus in the businesses. And we have some opportunities in this environment to take some AFS gains. So we think on a blended basis expected profit all these other things looking at underlying earnings together. We think we can drive underlying earnings growth in the 15% to 20% range.

Okay. Thank you. Then with respect to strain, I think the guidance was negative $10 million to $20 million a quarter, I think we’re positive $14 million here. Not lot in terms of this help from DB sales. But it is just to what extent is this driven by higher interest rates – with the higher interest rates allow this trend to continue? And to what extent does this help maybe in each one of the country?

So I’ll answer off time [ph] and then Kevin Morrissey may dive in with some more detail. But the strain, of course, is going to depend on the level of the sales and the mix of the sales that we are seeing and the geographies that it’s coming through, Canada having gains and U.S. and Asia having strain. So this year you saw very good mix of business and good sales results in Canada, which drove the positive side of it. And so that’s kind of the nature you’re looking at is It depends a lot on mix and geography and the overall results.

Tom, it’s Kevin Morrissey here, maybe I’ll just add to that, we do expect to see seasonality right on that, so it’s just go up and down each quarter for 2017 we have reached about minus $5 million strain for the year. So that is still a bit improved versus the outlook that we gave. The other mid key driver though, to add to what Kevin said, is before the assets back into new business. And we did very well with some of the asset placements and got quite strong yield to this year and that helped contribute to the reduced strain.

How should we look at it going forward, you’re going to stick with this guidance despite the fact that you crashed the guidance in 2017?

But at this we’re not going to…

When rates are higher?

Thanks Tom. At this point, we’re still looking at the $10 million to $20 million in strain for quarter. But we will give you an update during the year, next year.

Okay, that’s great. And then the final one is on MFS, if we wanted to look at a tax rate specifically for MFS now in the new regime, how should we be looking at that rate? And finally, the income on the seed capital was generally just breaking even in several years ago and or in the last several years other than 2017, and it seems to be really high now. So how should be looking at that one going forward?

I’ll start in seed capital, Kevin Strain can take tax rate. As to seed capital, what’s really going to drive that, is a couple of things. One is going to be the return that we generate relative to what we’re hedging on that particular seed capital. There are times where with – whatever we’re hedging isn’t naturally a perfect hedge. So you can get some slippage relative to benchmark. But if we perfectly hedged it and we have really strong performance, you’re going to get seed capital gains. And last year was a very good performance year for us, and so there was some gains on seed capital. But that’s certainly is anything I would look to try and project into the future.

Okay. Some gains that maybe not the same size as what we had in 2017?

I mean, I would try not to project gains or losses on that because you’ve got there are hedging issues that can impact that number and then just relative performance as well.

Okay, thanks.

And for the $130 million of tax benefit, Tom that we see in 2018, it should be split roughly two thirds to MFS and most of the rest goes to SLF U.S.

And what is that for the tax rate for MFS?

So I think you can do a quick calculation on that if you take two thirds, but it’s going to put in the mid-20s.

Okay, that’s great. Thanks very much.

Your next question comes from the line of Sumit Malhotra with Scotia Capital. Please go ahead.

Thanks, good morning. First question is likely going to be for Kevin Strain or Kevin Morrissey. Going back to the assumptions review last quarter. First part of it, obviously last quarter, you had move the strength and laps and some of the other policyholder assumptions. Usually you take care of the bulk of that in Q3, but I did note you had a $30 million to $40 million strengthening for lapse again in Q4. Obviously lapse has been an issue across the industry, so just wanted to get some color for you as to what prompted you to have to step up on this one again this quarter? And somewhat I feel like we talk a lot about expense experience in Q4 wasn’t as big as we’ve seen in the past, but it was a negative drag. Does the adjustment you made last quarter, in your view, does this serve to make the negative expense experience less of a recurring issue in 2018?

Hi, Sumit, it’s Kevin Morrissey here. I’ll take the question and then I’ll hand it over to Kevin to talk about the expenses. So you’re right, we do most of our changes in Q3, and that’s where you observed that we had quite bit of strengthening. In Q4, the total assumption method strengthening $34 million, that was in total. We called out the last strengthening. It was a fairly modest piece, it was only about $10 million. We had a number of other smaller items, nothing I would call out. It was related to the segregated fund guarantee products in Canada, and we use that predictive modeling analytics to help inform new assumptions related to withdrawal and partial surrenders. And I would say that this isn’t necessarily addressing something from the past like we saw in Q3, where we were dealing with some negative experience. It’s more of a case of just trying to make sure that our models remain robust and stay tightly aligned for future experience. So it’s something that we do review and monitor each quarter throughout the year and. As I said, this one was a fairly modest change.

And on the expense side, we did see experience that was higher in Q4. And as I said in my opening comments, it was – there is a couple of things happening there. The impact of the annual performance pace cycle and the strong result of the company came through in the quarter. We also see some seasonality on some of our initiative spend in the fourth quarter. So we’ve seen that for a few years now, where some of those projects stepped up in the fourth quarter from a spend perspective. We are very focused on controlling expenses. But at the same time, investing in future growth and our leadership position on the technology front. And so to balancing, the work we’ve done, the restructure charge will have a positive impact, but we will be continue to invest in growth, in growth in the business at the same time.

But more specifically, I think we talked a little bit about this three months ago, thus the adjustment that you’ve made in the – or the assumptions for expenses, does that make the quarter-to-quarter experience drag less of an issue in 2018? Because that’s what I would think the adjustment in that assumption would have done for Sun Life going forward?

Yes, Sumit, it is Kevin Morrissey again. Yes, that’s right. The strengthening we did, it will improve the run rate, going forward, though we do discuss the source of it. Kevin identified, we do expect to see some negative experience going forward, but it will be moderated based on the strengthening, yes.

All right. Thank you for that. Let’s move on to something else. Just on expected profit, and Kevin Strain last quarter you gave us some detail us to maybe some of the behind the scene factors that has held the total company growth rate back and it certainly look to lot better at the top of the house in Q4. Specifically for the U.S. piece, that number on paper anyway still looks flat. Would you be able to tell me in Q4 what the constant currency expected profit growth for the U.S. was. And then maybe more importantly, Sun Life and this might be for Dan, you’ve talked about the repricing that you’ve been able to put forth in the group business. I think you had one round of it of this year, and there might be another round that came through in 2018. Has that started to benefit the expected profit yet? Or is that something that we are going to see in the coming year?

We’ll I’ll take the first part of the question and I’ll let Dan take the second part. So the expected profit on a constant currency basis for the U.S. grew by $2 million in the quarter.

Sorry I missed that, it was.

$2 million.

It was up $2 million year-over-year?

Year-over-year, that’s correct.

Okay.

Yes, and on the repricing in the business, that’s actually phasing in, in three different portions. So we started about 3, 3.5 years ago to reprice the disability business. We’re largely done with that, where more than 90% of the business has been repriced. The group life business began to be repriced more recently, we are probably about halfway done with that. The life and disability businesses are both generally done on three-year contracts. And then our stop-loss business, we began repricing because we saw an underwriting cycle occurring there in the third quarter of 2016. Now that business is almost all annually renewable. So we’ve essentially completed that, that repricing as well. In terms of when you see that in expected profit, that’s an element that we only reset annually. So you would start to see the impact, for example, of the very strong recent stop-loss renewal in new business results when we get into the first quarter of this year.

Alright, that’s helpful. Last one from me. Maybe a bit esoteric, so maybe I can tag in Dean here. You mentioned in your opening comments or you made referenced to some of the market volatility that we’ve experienced in the last couple of weeks. And I think a lot of it at least has been attributed to some of the upward move in bond yields. One of the questions that comes up for life maybe in this case specifically to Sun Life is, we always think of these companies as being very interest rate sensitive, especially at the longer end of the curve. So as analysts or investors, when we see 10-year yields moving 50 basis points since the beginning of the year if we turn it over to you, from a management perspective, how do you view that as in terms of a near-term impact for the company? And we think it’s positive, it doesn’t seem like it is as positive as it used to be based on your disclosures. But from a specific product or line item perspective, where do you think the market should be focused on when the bond yield conversation with the sector comes up?

Yes thanks Sumit, it’s Dean here. There are first order effects and second order effects. The first order effects of higher yields show up in better strain. They show up in as well in terms of stronger earnings on surplus. And to the extent that those also show up in terms of equal spreads, corporate spreads or even wider spreads, in some cases, you might see even some lift in investing gains. But the first two in particular, strain and stronger earnings on investment income, would be features of living on a higher – with a higher yield curve. The second order effects are demand for a number of our products. And the derisking of defined benefit pension plans, which we’ve talked about before, there are a number of employers who have been sitting on the sidelines waiting for two things to happen. One is for their DB plans to get better funded. And the equity markets we’ve just seen have really done a lot to help DB plans to get back on side in terms of their funding levels. And second of all, they’ve been waiting to see higher long-term interest rates. And so we would expect all things being equal to see higher demand for pension buyouts in our Canadian business. We would expect to see higher demand for individual payout annuities in our wealth business in Canada. And possibly even higher demand for some of our fixed interest products, like GICs and accumulation of annuities.

I appreciate your thoughts. Thanks for the time.

Thanks.

And your next question comes from the line of Mario Mendonca with TD Securities. Please go ahead.

Good morning. This question might be best for Dean and Dan as well if you could offer some thoughts. There was a large transactions in U.S. Group Benefits Liberties business was sold. And as I read about it, it sounded frankly it sounded perfect for Sun Life, particularly given your low leverage ratio and how this could, as you said before, Dean, improve your strategic capacity. So maybe without commenting specifically on Liberty, because it might not be appropriate, what is it about the Group Benefits business? Is this still a business that, Dean and Dan, you’re eager to make acquisitions in? Or is there some specific criteria that you are after in that market that would really inform us about your intentions?

Well Mario it’s Dean. I’ll start and then Dan will no doubt want to add. As I said earlier, we have come a long way in U.S. group business and the Assurant acquisition has really helped us both in terms of capabilities and scale. And Dan and the team have done a fine job executing on that. We are not done yet, but it’s gone very well and actually it’s ahead of our expectations. This is a very capital-intensive business. It is very technology intensive business. You see that in our Canadian group business, you see that in the U.S. group business. Major systems, technology. And that bar is just going up. You see in this investment in digital and a plan member interaction and pro activity. So scale does matter in this business. And I think we’re investing in that scale. We think, given our current half, we’re big enough to succeed and compete in the U.S. group market. But nonetheless, there are other capabilities that we would be interested in adding, and maybe I’ll turn it over to Dan and he can talk about some of those in terms of the areas where we want to round out and expand our business.

Yes. Mario, we certainly are interested in adding capabilities and growing scale. We like the business very much. We like the return profiles of it. And we like our position in it. Without commenting on any particular transaction, of course, what we also need is to have the economics work and work well for us. So that would be a key criteria to make sure that there is a price that we can get the right kind of return on. And we are certainly, as Dean said, seeing that on the Assurant transaction. We are very pleased overall with the results there. I would also point you to the announcement we made as part of our overall announcement of our new strategic partnership with Collective Health. We view that the business that we are a part of, the entire employee benefits ecosystem, we already play a significant part in the health space in the U.S. employee benefits world through our stop-loss business. And we have interest, really, in all parts of the benefits ecosystem beyond some of the products that we are in today.

Okay I just – yes please go ahead.

Sorry I was going to add. It’s Dean here. I’ll just add one other comment. What you are seeing, and when you stand back from these recent transactions, is a consolidation of the market, which in the long run is a healthy thing, we think, in terms of competitive behavior.

?:

Yes I mean I won’t really comment on that particular competitor and what they’re saying they’re going to do. Obviously, increasing margins by a significant amount is not something that can happen very quickly. The market is clearly more rational now then it perhaps was a couple of years ago. And obviously, that’s a good thing. But I would also say there’s an opportunity right now in the market with two major transactions and the attendant consolidation and also disruption, we are making significant investments in national accounts, which at least three of those four players are very active in. And we think these transactions will also bring some of that business to market as opportunities for us.

Okay. Thanks for your time.

Your next question comes from Paul Holden from CIBC. Please go ahead.

Thank you. Good morning. Maybe to continue that conversation a bit. If we think about Collective Health and then your agreement with Pareto and we think about them in aggregate, can you give us a sense of how much scale that might add to U.S. group business, whether it’s on the top line or bottom line? What kind of potential should we be thinking about here?

Yes thanks. At this point we are not ready to speculate on what the specific potential for increased business size with Collective Health would be. Pareto, we did get some sales in the fourth quarter. So we’re off to a very good start there. I guess what I would say is, overall, our stop-loss business continues to be an area of great growth potential for us. We had a very strong year in stop-loss sales this past year, actually well above what our expectations were. We are seeing a more rational stop-loss market. We made the price adjustments we needed to make over a year ago. A lot of our competitors are still repricing their books of business right now. And we are seeing somewhat of a flight to quality with brokers bringing business to us and others like us who have scale and capabilities and stability. And then we think Collective Health and Pareto will be additional catalysts for growth, first in our stop-loss business and then more broadly across all of our group product.

Okay. And then as we think about everything you’ve just said and the margins you achieved in U.S. group of 5% for 2017 with a very weak start to the year, like why shouldn’t we think some margins will be somewhere at the top end of your guidance range of 5% to 6% or maybe even a little bit higher? Like is there a scenario where you can imagine a realistic scenario you can imagine where margins don’t expand year-over-year?

Well, we are very pleased that we got to the margin range that we had targeted earlier than we expected. One caution on the way we are describing margins, we are doing that on a trailing 12-month basis. So each quarter, we drop a quarter. So if we drop a weaker quarter, the margin will go up. If we drop a stronger quarter, the margins may temporarily go down. But with that said, we do have a lot of additional tailwind. As I’ve mentioned, stop-loss business had very good fourth quarter in terms of not just new business, but the renewal increases that we we’re able to get. So we should see some lift in the future from that. While we’re over 80% there on our acquisition integration synergies, there is still more room in there, and I can see that will come into play. And then of course, tax reform. So we are optimistic that we will continue to see our margins grow in the group business.

Okay, great. And final question, probably for Kevin Dougherty. In terms of operating expenses in Canada, looks like they were up 8% in 2017, does that pace of growth slow in 2018? And what should we expect for expense growth in Canada in 2018?

Yes I think in Canada one of the things we saw in Q4, in particular, in Canada was incentive compensation accrual, which was in the range of about 20, I think. So that was significant and a couple of other one-off kind of items that are nonrecurring. So you can kind of – should know about that. I would say, through the year, expenses improved, expense growth rate and we are – and in spite of significant investment in digital, and new businesses, and so on. I think it will moderate through 2018. We’ve done some expense work in Q4 and taken a provision for that. But we’ll continue to invest in the business. So I think it will moderate over 2018.

Okay. Sorry, moderate maybe to a level where it’s low single digits or close to zero? Is that a fair assumption?

I think low single digits is the right way to think about it.

Okay. Thank you.

Your next question comes from Darko Mihelic from RBC Capital Markets. Please go ahead.

Hi. Thank you. Good morning. Maybe in the interest of time, I’ll just a one simple question and ask a bunch later of the IR folks. But just a question for Kevin Strain. Life insurance modeling is pretty difficult. And the corporate segment, the underlying it was a loss again. What should we expect from corporate, just if you could give us a hint with our expectations for corporate in 201, that would be a real help.

As you know Darko, there is a few things in the corporate segment, there’s the UK, the runoff there insurance and the Corporate Support. This quarter, the UK had a one-time tax charge as well. There was an autumn budget in the UK that impacted that corporate line by CAD 13 million and there was also some ACMA that came to the UK line. So if you are thinking about sort of this quarter versus prior quarters, you get some impact from that. I’m just looking full year corporate segment this year was a negative 52 on an underlying basis. UK positive and runoff positive and then the corporate cost. I think in with the UK it’s been running at a level around $100 million, maybe a little bit over $100 million. And you can expect that it will continue to be strong in the UK results. And we expect to continue to get lots of cash the UK. The runoff has been a smaller piece. And the corporate segment does bounce around quite a bit.

Okay, I guess that helps Kevin. Thanks very much Kevin.

You got a shot the UK and the runoff, I think the corporate one is the harder to give number would end up.

Yes I know I appreciate that. It’s just from 7 to minus 52, it’s just one more difficult part of the model I was hoping to get some color on. Thanks a lot. I appreciate it.

There are no further questions at this time, I’ll turn the call back over to Greg Dilworth.

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

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