Good morning, ladies and gentlemen. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q3 2019 Financial Results Conference Call. [Operator Instructions]. The host of the call is Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management. Please go ahead, Ms. Chalmers.

Thank you, Chris, and good morning, everyone. Welcome to Sun Life Financial's earnings Conference call for the third quarter of 2019. Our earnings release shareholders' report 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 financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today's call. Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I will now turn things over to Dean.

Thanks, Leigh, and good morning, everyone. Turning to Slide 4. In Q3, we delivered another quarter of growth with reported net income of $681 million, and underlying net income of $809 million. Reported net income increased by 20% over the prior year. On an underlying net income basis, EPS of $1.37 grew 14% from the prior year. Excluding the resolution of certain tax matters from previous years, EPS grew 3% from the prior year. We generated an underlying ROE of 15.5% for the quarter, reflecting higher underlying net income as well as the equity impact from completion of the BentallGreenOak transaction, as previously announced. Assets under management grew to $1.1 trillion this quarter, an increase of 8% over the prior year. With a strong capital ratio of 146% at SLF Inc. and a financial leverage ratio of 22.8%, we can continue to support organic growth, deliver a strong ROE, maintain the flexibility to support acquisition opportunities across our 4 pillars and return excess capital to our shareholders through buybacks and dividends. Yesterday, we announced a 5% dividend increase, resulting in year-to-date increases of 10%, in line with the upper end of our medium-term objective range for underlying EPS growth. Our asset management pillar delivered strong growth this quarter with gross sales up 41% across MFS and SLC management. Overall, we had net inflows of $3.2 billion, including USD 1.3 billion of net inflows at MFS, driven by a third straight quarter of strong gross and net retail flows. The retail results are consistent with our thesis that, notwithstanding the shift to passive. There will continue to be alpha seeking and alpha believing investors, but that they'll consolidate assets in the hands of fewer active managers, and we think MFS is one of them. MFS assets under management increased over the…

Thanks, Dean, and good morning, everyone. Turning to Slide 6, we take a look at the financial results from the third quarter of 2019. We delivered growth in reported and underlying net income this quarter, and in reported and underlying return on equity. Underlying ROE was 15.5%, above our medium-term objective of 12% to 14%. The net impact from our third quarter actual methods and assumption review was neutral to earnings on an after-tax basis. I will discuss our actual assumption changes in my comments on the sources of earnings. Underlying net income was $809 million, up from $730 million in the prior year, translating into earnings per share of 14%. This quarter's results included favorable impacts from the resolution of tax matters from prior years, including interest related to the resolution as well as an investment income tax allocation update between the participating policyholders' account and shareholders' account. Altogether, these drove a favorable impact of $78 million in the quarter, with $58 million in the corporate segment and $20 million in Canada. Underlying net income was also reflected continued growth in the business, favorable credit experience, a gain from a mortgage investment prepayment in the U.S. and higher AFS gains than prior year. This was offset by unfavorable morbidity in Canada and the U.S. and lower investing activity gains. We continue to maintain a strong capital position with a LICAT ratio of 146% for Sun Life Financial Inc. and 133% for Sun Life Assurance Company of Canada. I'd like to take a minute to discuss our LICAT sensitivities. This quarter, you'll notice our sensitivities for SLA are behaving differently than they have in the past. Generally, the LICAT ratio will decrease with raising interest rates and increase with declining interest rate. However, this quarter's sensitivity shows LICAT reducing in…

Thank you, Kevin. [Operator Instructions]. With that, I will now ask Chris to please pull the participants for questions.

[Operator Instructions]. Your first question comes from Humphrey Lee of Dowling & Partners.

A question really about MFS flows, which definitely were very good this quarter. I was just wondering if you can talk about some of the driving force for the strong retail flows as well as the improvement in institutional flows? And then also, if you can comment on the outlook for flows in the near term?

Humphrey, it's Mike Roberge. What we've seen over the last several quarters is pretty good underlying trends in retail flows, particularly in the U.S. market. If you look across most of our largest distributors, sales are up year-on-year. And I think the backdrop associated with that, U.S. equity mutual funds are in outflows this year and yet we are in net inflows with a fair majority of that being in equities. So it appears that we're gaining shelf space on many of the platforms that we're on. So we feel pretty comfortable with the trends that we're seeing on the retail side, on the institutional side, very lumpy in terms of what we see from an activity perspective, with the equity market making new highs, we do continue to see de-risking happens. So as equities rise and DB plans will derisk and move from equities into fixed income. So to the extent the equity markets continue to stay where they are, we would expect to see more of that. So I think as we think about flows on a go-forward basis, we feel pretty comfortable with what we're seeing on the retail side, and it's really hard to know on the institutional side.

Okay. I appreciate the color. And then shifting gears to Asia sales, again, were very good this quarter. I think this has been a while since you see this level of sales growth, do you think the current pace is sustainable in the near term? Or is there anything that is kind of one-off due to product changes or things like that, that drove the really strong performance in the quarter?

Humphrey, Claude Accum here. The contribution actually came across the board for most of our local markets. And we also saw a nice rebound in international. To give you a flavor of it, maybe I can just give you a sense of what the 3 biggest lifts were. So one of the biggest lifts was in the Hong Kong sales, which were up 100%. And I believe that's a resilient and robust and continues. We had strong sales in both agency and broker. On agency, we had some strong products, a voluntary health insurance scheme, the qualified deferred annuity policy, these are driven by tax incentives by the government in Hong Kong and that continues. In China, we saw sales up as significantly as we built out a relationship with a new online platform, and that garnered 40% of sales. And so as we work with that partner and do these pilots that could continue. And then in international, we saw a 20% growth in sales from prior year, and that was driven by a rebound in UL sales, driven by a short rate dropping that continues as long as premium financing rates are lower, we could book and continue to see strength in those sales. And we also had sales campaigns in international as that will continue through to the end of the year. And so I think there's some durability to that.

Your next question comes from Steve Theriault of Eight Capital.

First question on the reserve changes. It's a second a net neutral, but this is the second quarter we've seen the in-force management business have a significant reserve strengthening. Can we get a bit of a refresh here? And any sort of optimism around a second strengthening? Will that get experience in better shape? Any comments on profitability going forward?

Thanks for the question, Steve. This is Kevin Morrissey. So this year is quite different from last year. I think last year, you're referring to the strengthening in the in-force. That was related to lapse and policyholder behavior. So we took quite a significant strengthening last year. As you will probably have observed, that was quite successful, and our experience has been quite favorable and close to 0 since then. So that's right in line with what we had expected from that reserve strengthening. So that's worked out about as well as you could have expected. So we're not looking at anything further on that front. This year's change was related predominantly to reinsurance. So we looked at strengthening of our risk provisions and reinsurance. One of updates was related to Scottish Re and the receivership with state of Delaware. We also did a more broad review of all our risk provisions of all our existing in-force treaties. I would say that, that review was quite comprehensive, and we're comfortable with where we have landed and are not expecting any further changes on that front.

Okay. And second question, Dean, it's been almost two years since you've had an ROE below the midpoint of your target range. So I guess, at what point do you think about reconsidering that range, especially given the substantial excess capital you have and that we all expect to be to put to use over time.

Thanks, Steve. It's Dean. You're right to call out, I mean, our ROE underlying ROE year-to-date at 14.1% is just to take over-the-top end of the range, the 12% to 14% medium-term objective range that we've put out there. I mean, I'd say that these are medium-term objectives, we do review them from time to time. They're meant to last for some period of time. And I think that's consistent with the way other financial institutions approach them. You don't see them being changed on a yearly basis at all. So it's something we'll keep looking at. I think we feel good about that ROE. We think we're - and you're right to point out that we're generating that with excess capital on the balance sheet at the same time. And it's something that will be coming back to probably next year.

Next year in terms of leading into Q4 or next year a little later in the year? I'm not sure if you've got an Investor Day planned or not next year.

We don't have an Investor Day planned, but we don't need an Investor Day. We can always - we're always looking at the medium-term objectives. We don't need an Investor Day to - if we decide to update them, we don't need to circle that around or center that around at Investor Day.

Your next question comes from Meny Grauman of Cormark Securities.

A question on the Q3 assumption review. One of the details, if I look at investment returns, seeing more than the URR charge more than being offset, I'm just wondering what that offset is being driven by?

Thanks, Meny. This is Kevin Morrissey. You're right, the total investment changes were slightly positive for the year, and we did take that $93 million URR charge largely in Canada. We saw positives related to investment strategy reviews in a number of different geographies. We also had a reduction in some of the risk provisions for reinvestment risks on variable universal life policies in Asia. Putting all those together, we ended up with a small positive in that category.

And then, Mike, appreciate the color you've given, maybe just a little bit more detail on some of the dynamics you're seeing on the retail side in terms of flows? And really, the battle between passive and active. And I think in the past, you've talked about how you laid out a scenario where in a down market, we would have an opportunity to see active outperformed passive. I'm wondering, just given the current market dynamics, what's really going on here on the retail side, if there's a real change in terms of investors' perceptions of active versus passive and value versus momentum?

I think, clearly, we continue to see the trend out of active products and equities into passive products at a rate that's lower than what we saw several years back. And it looks like what's happening in the marketplace is the market's bifurcating on the active side is there are firms, and we're one of those firms that are taking net flows. That's true in both fixed as well as in equities. And then there are other firms that are redeeming at pretty high rates, where I believe some of the platforms have lost some confidence in them. And so as Dean mentioned earlier, our view has always been that - and this all is going to continue to have a place in retail portfolios. And those firms that do have something that a platform like us. Ours is stable and can generate returns through a cycle like we have are going to continue to do fine. And I think we're starting to see that play out in the marketplace now.

And just as a follow-up, I mean, I'm trying to figure out what's changed? Is it just all the good things that you've been talking about doing and suddenly come together? Or is there something specific that you can point to that has changed out there in the market that makes people realize that, that there's real value there in your offering?

Yes, I think it's hard to point to anything specifically. What I would say is investment performance is obviously really strong. That helps a lot. In addition, as Dean mentioned, is our fixed income sales were up over 30% as well. And so it's a combination of both. The platform that we've built, the performance that we have, I think, convincing clients that it's sustainable over a longer period of time. And the uptake in fixed income is helping as well.

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

Just needed that dramatic pause before my question. So the group business, I really want to delve into that because both in Canada and the U.S., we had morbidity issues this quarter, and second quarter in a row for both businesses. Can you explain what's going on with long-term disability in Canada of stop-loss in the U.S.? When did these problems first appear? Where are we in the repricing process? And how long does it take for you to restore margins because it could be an extended headwind?

Gabriel, thank you for your question. This is Jacques. I'll go first, and then Dan can follow-up. You're right, it is unfavorable this quarter, morbidity experience. The key driver is really an increasing volume of long-term visibility cases in Group Benefits business, combined with slower recoveries. And we have taken action, Gabriel. We've done 2 things where we've put in already price increases, and we've increased our workforce or the staff that is dealing with this increasing volume. And if you look at it in terms of the book, the renewals are such they're spread out throughout the year, but the highest volume of renewals are January 1. So in terms of your point on timing, we expect the majority of the impact on earnings to be done in 2020 with some of it in 2021. And what I would say to you, Gabriel, is we're quite confident that between the price increases and the increasing in staff, we'll retire the experience where it's been. I might take the opportunity, if you don't mind to talk a little bit...

I don't mind.

About what we see in the industry. The drivers of the increasing volume of long-term visibility are really mental health. They're growing much faster than the rest. Our account executives, those are managing client relationships are in the market every day. They're talking to clients, they're talking to prospects, they're talking to peers in the industry. Our sense is that this is an industry phenomenon and the fundamental health, in particular. And our view is that, that supports the kind of environment that you should expect price increases. Last comment I'll make and maybe refer to something Dean said, anything we do here at Sun Life is done from the lens of the client for life approach. So our view is that mental health, in particular, has the potential impact to negatively impact on workforce and business results and our clients. And between us, the plan sponsor and the plan member, we have aligned interest in getting people back to work productively as quickly as possible. So Dean mentioned a few things. One, I will single out is pharmacogenomics. It's about using genetic test to ultimately bring to patients a medication that's more appropriate and can act faster. So all in all, I think we're doing a lot of good things, Gabriel. Experience is unfavorable, of course, but we have it and we have already taken action, and we're confident that we'll return it back to expected experience in 2020. Dan?

Thanks, Jacques and thanks, Gabriel, this is Dan Fishbein. Just a few comments on that. First of all, the morbidity experience, negative variance in Q3 in the U.S. was about 1/4 of the total that you see on the company level. And then that was roughly divided equally between the stop-loss business, the group business and our Fullscope business. So when you break it down into those pieces, the dollars are actually relatively small compared to the total results. I'd also note over the last 8 quarters, morbidity has been a net positive contribution to the U.S. overall. And we expect experience would revert to positive or neutral in due course. There's been some attention around the stop-loss morbidity. And I would note that we had a very favorable first quarter in stop-loss experience. And in fact, the stop-loss morbidity is still meaningfully favorable year-to-date. It's natural after that kind of a first quarter result that we would get some quarter-to-quarter volatility to follow-on that. Year-to-date in stop-loss, we continue to exceed our margin targets for pricing in our stop-loss business. So we're comfortable with where the stop-loss business is right now.

Timing, this is not an issue of restoring margins by next year or year after or anything like that?

I'm sorry, could you repeat that? I didn't quite hear that.

No. I'll leave it at that as I don't want to abuse the two question limit here.

Okay. Why don't we move on then, and you can come back and follow-up after even if you want, Gabe.

Your next question comes from the line of David Motemaden from Evercore.

Just a question for Dean on M&A and just specifically in Asia. And just wanted to get a sense of whether you prefer more of an agency business or bancassurance business in that market? And how you're thinking about that? Because there is a trade-off where potentially higher growth in bancassurance versus higher margins in agency.

Yes, David, it's Dean. I'll take that question. I think our strategy in Asia is a strategy around multichannel distribution. We want to have agency in every market in which we operate, and we do. And because, as you know, bancassurance relationships can change over time. So the cornerstone of the business and as you allude, the margins are stronger in agency sales. And it's - so that's kind of a bedrock foundation, a cornerstone of our distribution strategy. At the same time, we also want to have bancassurance distribution for a number of reasons. It attaches to, in some cases, different types of clients or sets of clients. It's able to bring our solutions to a wider range of people in the markets in which we operate. Obviously, helps to cover fixed expenses to a greater extent. And as well, helps, including in that, not just fixed expenses, but fixed expenses around digital innovation as well. So our strategy is, one, not of banca or agency, but banca and agency, but agents starting with agency and building high-quality agency across all seven markets. And I would add a third channel to that, which is, as you know, we're investing in and innovating around alternative distribution channels and telecoms and other forms of distribution. Early days on those, but that's the third leg of the stool.

Got it. Great. And also just a follow-up. Just on the just - the ACMA just all of the changes that were made as well as the URR reduction, is there any go-forward impact or earnings power from the changes?

Thanks for the question, Dave. It's Kevin Morrissey. Overall, across Sun Life, we expect the Q3 ACMA impact to be modestly positive on underlying income going forward. Most of that you'll see coming through either new business or lapse experience.

Got it. And should that be really in Asia, is where most of that will come through?

Yes. So that's where you see it. I noted for, you would have seen in our disclosures around the strengthening of the lapse assumptions in the international block, Universal Life Business. So we feel that we've adequately dealt with that problem. So we don't expect to see that experienced loss persist into the future.

Your next question comes from the line of Sumit Malhotra from Scotiabank.

First question is for Claude and specifically in respect to Hong Kong. You had indicated to us that the international business was likely going to rebound. We certainly saw that this quarter. But it doesn't look like there was any detrimental impact on at least your sales trends as far as Hong Kong is concerned. Obviously, we've all seen the situation over there the last few months. Can you give us any high-level thoughts on how Sun Life is thinking about the business outlook in the interim with respect to Hong Kong? And what that means for your Asian franchise?

Claude Accum here. Thank you, Sumit. It's regarding the situation in Hong Kong, there has been an impact on the insurance sector. And where it shows up is there's a slowdown in mainland Chinese visitors coming to Hong Kong. And when they see the demonstrations on TV, they're reluctant to come to Hong Kong to do their medicals and buy insurance. The impact on our business actually has been quite modest. Our sales have been quite resilient, actually up 115%. And so why is that? In the current configuration, 2/3 of our sales are agency and agencies actually sold 96% to local Hong Kongers who are already there. And they're buying products based on local tax incentives. And so we think that's resilient. If you look at our exposure to out of country visitors in Hong Kong, about 20% of our sales come from out of country visitors, but less than half of that is exposure to China. About 60% of those visitors are still visiting Hong Kong from Taiwan, from Singapore, from the Philippines. And so we think we'll see some short-term slowdown, but we're not seeing any long-term diminution to our growth prospects in Hong Kong.

And to your point, I mean, if anything, aggregate sales, individual insurance sales seem to accelerate in the quarter.

Because we've had some really strong local tax incentives driven by the government to sell voluntary health schemes. They give a tax advantage to people to buy those launched this year. And they also launched a qualified deferred annuity plan with tax incentives. And again, those products came out this year. As you've seen those 2 lifts helping us.

All right. Next question is for Kevin Strain. We usually don't talk very much about the corporate segment because there's more interesting stuff going on most of the time. I just wanted to make sure I understand the numbers here. Ex the tax recovery, your loss in the corporate segment underlying basis would have been around $40 million, which is one of the larger numbers we've seen in that unit. And at least from some of your commentary, your prepared remarks here, it seems to be expenses that are the of the area. And coming off at Investor Day where there was a number of references to bending the cost curve and perhaps having gotten to a more of a run rate level with respect to technology spend. I'm surprised to see cost as the factor pushing earnings in that segment down. Anything you can offer there on that number on the whole? And whether it is, in fact, expenses that are the key factor?

Yes, Sumit, thanks for the question. And you've got the math right. Typically, we see the corporate segment run between $10 million and $20 million positive. And of course, the corporate segment does also include the U.K. and our run-off reinsurance basis - business. But the difference in the quarter largely as expenses, and some of those are sort of more onetime or sort of volatile in nature. We had some additional long-term share-based compensation on the share price going up. And some other compensation costs that came through in the quarter. There was also a slightly higher run rate on some projects. IFRS '17 is an example of a project that's included in the corporate segment. And that drove it to be higher than sort of your typical $10 million to $20 million. If you think longer term, the U.K. is a closed block, and you can expect to see the U.K. underlying earnings gradually decline. And they had a big positive ACA this quarter, and so that would suggest sort of lower underlying earning rates in that segment. But the U.K. does continue to perform really well, being an important provider of earnings, of cash flow, of dividends to us and having an attractive ROE. So the U.K. is performing well. But as a closed block, you'd expect those earnings to sort of slow down over time. So I would say the big delta in the quarter does relate to some onetime expenses around long-term incentive comp and some other compensation items. But there is a slightly higher run rate in some project costs and then a slightly lower run rate in the U.K. income. Yes. Maybe more broadly on expenses, since I've got the share on this one. We are really focused on expense costs. And you saw that the controllable expenses are up 3%, but this is a much lower percentage growth than what you're seeing in our business growth and our sales growth and sort of overall metrics of growth. And I see good expense discipline in corporate and in each of the business groups, and it's something we look at and talk about a lot. And in fact, we're seeing the expense improvements in expense gap and some of those types of things. So I think there's a lot of focus on expenses, and you can expect to see that continue.

And last one, I'll try to keep this one very brief for Dean. The Sun Life has been, in my opinion, the most consistent company that I cover anyway with respect to its capital deployment strategy. Share repurchases have been to the point that your share count, I think, is down something like 3% or 4% year-over-year. Is there a level valuation wise that the company considers when allocating capital to the buyback? Or candidly, are you in such a strong position in excess that you think continuing to buy 3 million to 4 million shares a quarter, irrespective of relative or absolute valuation is just a strategy you want to continue to follow?

Sumit, it's Dean. Thanks for the question. Obviously, we would not comment on the forward view of our plans for the NCIB. Like most firms, we have modeled out intrinsic value of the stock. That's one of the inputs into our thought process on buybacks. It is - I'll just remind everyone, it's just one way to deploy capital. And alongside other things like M&A and reinsurance recapture and so on that we've talked about before. So I'm not going to give you a - probably a very satisfactory answer to your question, but except to say, yes, we do have a view of the intrinsic value of the stock. And it's one of our inputs as we think about how we employ the buybacks.

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

Dan, back to you. Just on the U.S. Group Benefits side, it looks like there was a net loss in that. And maybe for Kevin, was there a reserve charge or something part of ACMA that hit the group business? And I apologize if you mentioned it, but I didn't - I don't recall that, but I just want some clarity on that first.

Yes. Doug, it's Kevin Morrissey. I'll take that one. So there was a charge in the group related to the ACMA this quarter. So we looked at the stop-loss reserving methodology, and we've made some changes that included some strengthening. Going forward, we expect to see as a result of that, the stop-loss morbidity experience to be less volatile than it has been in the past. But that was where some of the impact was that you're seeing.

And, Kevin, I would add that it's more of a timing issue that the way we were recognizing liabilities we historically had recognized them once they started to come in versus once we started to collect premiums. So this really is accelerates the recognition of losses versus changing the amount of the losses.

So does that impact positively impact, I guess, the future earnings power of the company or of the division?

Doug, this is Kevin, again. I would say no. I think, as Dean said, it's really related more to timing, and we would expect to see less volatility, but not an overall change in the experience looking forward.

So this was an issue with pricing and wasn't an issue with underlying experience. This was just, Dean, you said it was just a timing change?

That's right. Yes.

Okay. And then just, Dan, a 43% increase in medical stop-loss just seems outsized. And so is that a function of - or maybe you can just talk a bit about what's driving that? As one of your competitors point out, just for a little bit more detail on that.

Yes, I remind you that the third quarter and the first quarter are our smallest sales quarters of the year. Most of the sales are concentrated in the fourth quarter as we lead up to the 1/1 date. So we don't want to put too much weight on to that. However, what I would say is our stop-loss sales year-to-date and really, over the past 3 years have been terrific and growing at a good pace. And what I would say is we really feel we're executing well. We have the strongest sales organization, really good products, reliable underwriting and excellent partnerships with our broker distributors. And that's bringing more and more of the market to us. We continue to see what we would describe as a rational pricing environment competitively. And in fact, we continue to exceed our pricing targets year-to-date on both new sales and renewals. So we're happy to keep adding market share at those levels.

And is it still fair to say the stop-loss business, the margin is above your 7% target on your group plan business still below and there's going to be a convergence? I know that's something you've kind of talked about in the past. Is that still the case here?

Yes, I think you've got that right. Within that, our stop-loss business is performing really strongly. I would say this quarter, though, the group business made a significantly bigger contribution to the total. So maybe we're seeing some of that convergence. Over time, we would not expect the stop-loss business to be able to always overperform its pricing targets. That's just inevitable. It should come back towards the pricing targets. But at the same time, the group business margins continue to improve. And we are starting to see and should continue to see a better balance between the two.

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

Yes. I want to a talk about the impact of new business in Canada and in Asia. The impact of new business in Canada, just $13 million, certainly a lot lower year-over-year. And you just - sales, I guess, overall, relatively flat, but you just say it's related to interest rates. So are you just going to reprice your products? Or if rates just kind of hang low. You're just going to suffer with lower new business gains? Talk - can you tell us what your actions are here?

Yes, Tom, this is Jacques. Thanks for the question. I'll go first, and maybe you can do Asia after. So it's really the driver this quarter is indeed the individual insurance business. It's economics, as you point out, but it's also, I would say, some of it is lower volumes. You're right to point out the broader sales. We have an increase, for example, in GB sales, but the mix was more in terms of, what we call, our ASO business versus the fully insured business. So those are some of the drivers. In terms of what we might do or repricing, at this stage, this is something I would say we review regularly. We think about it. We look at the competitiveness of our product versus others. And of course, our profitability targets. I won't say at this stage where we might go. But, Tom, this is something that we obviously review on an ongoing basis.

I would assume that like at least half your products will be par. And I wouldn't anticipate that they get significantly impacted in terms of strained by lower interest rates. Is that correct?

That's true. Although when you say it's mostly par, remember that we sell mostly par in our third-party channel. There's a bit more diversified in our own network of Career Sales Advisor.

And then maybe Claude Accum. With respect to Asia, and everybody started talking about these great sales year-over-year and certainly acknowledge that. But the - you actually had - higher strain is even more negative now so - or a negative impact on earnings. So what's happening here? Is this business, is it more costly to put this new business on than it was in the past? Or is there certain issues with respect to some products in various countries? I did notice that the Asia expenses are up significantly year-over-year as well, like they're up some in the area of about 20%. So is there anything else that's driving the fact that you're still getting the same kind of negative impact from strain despite the higher sales?

Thank you, Tom. Claude Accum here. The new business gain picture is actually an amalgam of 8 different countries, right? And so you need to look at where each of those are in their business development. As you point out, new business gains are down at $2 million, so $2 million unfavorable. The strong parts are the mature businesses. So if you look at international, $25 million of sales, up 20%. If you look at our other big driver of high net worth sales in Hong Kong, our high net worth sales are actually double year-over-year. And so where that shows up in new business gain. If you look at Hong Kong, and you look at international, their new business gains are actually up $5 million. They're up 30%. And so you're seeing that driver, that connection that you're looking for that strong sales drives profitability, new sales gains in those 2 mature businesses. Two other businesses are in different cycles. So in China, we're growing our relationship with a new online provider and then build out that relationship. We've gotten very strong sales but that will drive expense gaps. So higher expense gaps in China. And similarly, in India, you've seen amazing sales results in India with the new HDFC bancassurance deal. And as we invest and bring on that capacity, it does create some strain in sales, but it's got a nice future value down the road. And so those businesses are in different cycles. And - but I think the aggregate results as I would expect, when you put together those different pictures.

That's great, Claude. And congrats on your retirement.

Thank you, Tom.

Your next question comes from the line of Mario Mendonca from TD Securities.

Just a very quick question. Back to these tax incentives in Hong Kong. They sound very temporary in nature. Is there an expectation of these go away sometime soon?

Mario, it's Claude here. The voluntary health scheme is a long-term program by the government to try and get people buy more health insurance schemes to self-insure themselves. And so that can only work if they continue that for a while. And they also want to drive people to invest in their own private savings programs, and that's the Q debt. And so we're not seeing those as short-term programs.

So no expectation that either one will be pulled in the near term?

They were just launched this year. And so that we're not even thinking about them being pulled.

Mario, it's Dean. If I could just jump in here. I think this is a great example of one of the drivers of demand that we see for our business around the world is downloading of responsibility, governments can't afford health care in most markets. And they're asking their citizens to step up and pay for it. And there's same with retirement savings, inadequate retirement saving systems in most of the markets in which we operate. And again, they're trying to - through tax incentives, find ways for people to save for retirement because these countries know they've got a serious issue.

So it just sounds like an example of the demographic pressures that you've been - you all have been talking about for some time, playing out in real time.

Exactly.

Your next question comes from the line of Darko Mihelic from RBC Capital Markets.

A question for Kevin. You mentioned the LICAT ratio basically losing now under any interest rate scenario. I'm interested in what happens if - I mean, does it get worse? What if rates do fall by 50 basis points? You have a decrease in the LICAT ratio. What happens then to the scenario, do other scenarios corp up? And is this possibly why LICAT ratios are so high, just because, like, we don't understand the second order effects after another drop. Maybe you can just address that, if you can.

Darko, Thanks for that question. This is Kevin Morrissey. I'll take that one. So this discontinuity that we see in capital for Sun Life, it's about 5 points. This really is a onetime event, although it could go back, but it's not as if there's a series of discontinuity. So after we would see that one point that change from the scenarios switch, we would expect to go back to our normal pattern of seeing an improvement in our LICAT ratio as interest rates would go down further.

Darko, and I want to just add to that. And I think Kevin makes that quite clear that it's - the scenario switch, and then we go back to sort of the more normal rate. But what we're talking about relates to SLA, right? And the potential for sales switch at SLA. If we had seen that same, if we've seen interest rates go down a little bit, where we had had the scenario switch, that would not have applied to SLF, in our case, in this quarter, if that had happened. And so I'd like to also focus on SLF, where we have the $2.8 billion of cash and the - and a really strong LICAT ratio there as well. And that's the sort of true financial strength of the entire company is at the SLF level.

Your next question comes from the line of Nigel D'Souza from Veritas Investment Research.

I wanted to just quickly - just had a few follow-ups regarding the favorable impact you have on the resolution of tax matters from prior years. And apologies if you've already elaborated or answered this, but could you provide some more color on what exactly those tax matters are? Where and if we should expect a favorable impact from those tax-related items in future quarters? And building off that, am I right to assume that your approximately 9% effective tax rate, underlying net income was mainly driven by those items? And an extension of that question, what should we think in terms of the go-forward rate for your effective tax rate underlying net income in future quarters?

Well, thanks for the question, Nigel. And yes, your - we had 2 large tax issues that were resolved in a favorable way in the quarter. They were both related to prior tax years where there were audits or appeals that were still open. And it's not unusual for us to have tax issues from prior years that get resolved in the quarter. And we typically take these as we did in this case through underlying earnings. And we do this whether the issues are positive or negative. So that's - when we look at these, we have other issues that are related to prior years that sort of happened. This time, it just happened to be that there were 2 positive ones that were unusually large that came through. They make up the majority of the $70 million that you saw we talked about. And we would expect that these would have a positive impact on earnings going forward. And the positive impact, you can think roughly in the neighborhood of $0.03 a share kind of thing for the year. So we don't see this changing our range of 15% to 20%, we're still in a - we still see a range of 15% to 20%. It was what - it's certainly what drove us below the range was the resolution of these 2 issues.

And just a clarification question, that 15% to 20%, that's on a go-forward basis, not the expectation for the entire fiscal year of 2019. Is that right? Oh, yes, yes, not for this year. So that's for sort of a go-forward basis on a kind of a run rate basis. These - we would continue to see the same impact of that $78 million on a year-to-date basis by the end of the year.

And there are no further questions at this time. I'd like to turn the call back over to Ms. Chalmers for some closing remarks.

Thank you. And I would like to thank all of our participants today. And if there are any additional questions, we are 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.

This concludes today's call. Thank you for your participation. You may now disconnect.