Good morning, everyone. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q3 2021 Financial Results Conference Call. [Operator Instructions] The host of the call is Yaniv Bitton, Vice President, Head of Investor Relations and Capital Markets. Please go ahead, Mr. Bitton.

Thank you, Suzanne, and good morning, everyone. Welcome to Sun Life's earnings call for the third quarter of 2021. 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 call with an update on our client impact strategy and an overview of our third quarter results by Kevin Strain, President and Chief Executive Officer. Following Kevin's remarks, Manjit Singh, 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 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, 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'll now turn things over to Kevin.

Thank you, Yaniv, and good morning, everybody. Turning to Slide 4. I'd like to start by sharing my thoughts on our strategy. Since becoming CEO, the executive team and I have taken the opportunity to reflect on and discuss our strategy with a focus on our purpose, our clients, our strengths, our priorities and on our outcomes. We professed our client impact strategy, which builds on our strong foundation. Over the past 10 years, Sun Life has been on a strategic course that has delivered exceptional value to our stakeholders. We've built on this foundation and added emphasis on digital leadership, sustainability and client impacts. We've prioritized 4 growth areas, thinking and acting like a digital company, leveraging the strength of our capabilities in both asset management and insurance, deploying capital into M&A that is strategic and at scale or capabilities, and building on our health strategy in Canada, U.S. and Asia. Our purpose to help clients achieve lifetime financial security and live healthier lives and our 4-pillar strategy made up of asset management, Canada, U.S. and Asia, have served us well and will continue to be central to who we are and to what we do. Today, with nearly half of our underlying net income being driven by asset management, we have a balanced business model where both asset management and insurance have strong foundations, with tremendous growth opportunities supported by macro trends and, most importantly, the ability to fuel our future success with the right people and culture supported by a trusted brand. Our strategy keeps our clients at the center of everything we do, whether helping clients navigate health concerns, save and plan for their retirement or provide financial security for their families. Our focus is on the impact we have on their lives. Our strategy focuses…

Thank you, Kevin, and good morning, everyone. Slide 9 provides an overview of our third quarter results. Sun Life delivered record quarterly earnings, reflecting the strength and resilience of our 4-pillar strategy. Reported net income of just over $1 billion was up 36% and driven by market-related gains and higher underlying net income. Underlying net income of $902 million and underlying earnings per share of $1.54 were both up 7% from the prior year driven by good business growth, favorable credit experience and higher tax-exempt investment income. This was partially offset by unfavorable COVID-related morbidity and mortality experience in the U.S. and Asia. Currency movements resulted in a $36 million unfavorable impact to year-over-year earnings. Underlying return on equity was 15.6%, reflecting strong business growth and our lower capital business mix. Assets under management ended the quarter at almost $1.4 trillion, reflecting market value growth and another quarter of strong net inflows at SLC management. Our wealth businesses in Canada and Asia also delivered strong growth as AUM increased $25 billion year-over-year. Book value per share increased 5% over the prior year. Excluding impacts and other comprehensive income, book value per share was up 11%. Our balance sheet position remains strong, with LICAT basis of 143% at SLF and 124% at SLA. The SLF ratio declined 4 percentage points from the prior quarter primarily driven by $725 million in preferred share redemptions we announced last quarter. Cash at the holdco ended the quarter at $2.8 billion, and the financial leverage ratio was 22.2%. Subject to regulatory approval, we intend to redeem an additional $300 million in preferred shares at the end of the fourth quarter. Upon redemption, SLF's LICAT ratio will decrease by approximately 1 percentage point, and the financial leverage ratio will decline by approximately 70 basis points. Slide…

Thank you, Manjit. [Operator Instructions] I will now ask Suzanne to pool the participants.

[Operator Instructions] Your first question comes from the line of Meny Grauman from Scotia Bank.

Just a question on the new ROE target. Your underlying ROE has been tracking above the high end of your previous range of 12% to 14% for some time now. But with rare exceptions, it hasn't been above 16%. So I'm just wondering why you chose 16% plus. And I guess, putting a finer point on it, what do you see that's going to get you there to that kind of a step-up in ROE, even relative to what you've done?

Meny, it's Manjit. So thank you for your question. As we've mentioned, we've been performing well on the ROE for quite some time, above 15%, and we have continued to add to our portfolio of strong businesses. So you've seen us add capabilities in alternative asset management, SLC and, then more recently, with our acquisition of DentaQuest, along with continued growth in all of our existing businesses and all of our pillars. So if we kind of look at that, and this is a medium-term target, we continue to see opportunities for further growth, and that's what supports our view of the 16% plus.

Manjit, I appreciate the medium-term target, but would your expectations be that you could get there in 2022? Would that be reasonable?

I think we don't really comment on sort of one year outlooks, Meny. I think there's -- that will depend on what the environment is next year. But again, we think it's a really good and achievable goal over the medium term.

Next question comes from the line of Gabriel Dechaine from National Bank Financial.

About the experience items in the Group businesses in Canada and the U.S., I guess, it sounds more skewed towards the U.S. Just want a bit of, I guess, confirmation that these are issues tied directly to COVID-19, group mortality, short-term disability and the like, and not an indication that we’re starting to see higher benefit utilization that’s starting to eat into your group margins.

Yes. Gabriel, it’s Dan Fishbein. I’ll start out on that question for the U.S. Yes, I would confirm that the mortality and morbidity results we saw in the Group business this quarter are COVID related. The third quarter was the worst quarter for mortality in the U.S. in the working age population since the pandemic began, and some of that is related to the Delta variant and how that interacted with vaccination rates in the U.S. The population over the age of 65 is now more than 85% fully vaccinated, but the working age population is only about 65% fully vaccinated. So in the third quarter, we saw a big shift in mortality into the working age population. Obviously, had it not been for vaccinations, the Delta variant would have been even much worse than it was, but those who are unvaccinated in the working age population were particularly vulnerable. The CDC reports about 120,000 deaths in the U.S. during the third quarter. And for the first time, more than 40% of those deaths were in the working age population. So that led to the highest rate of deaths in that population. So in our own results, as Manjit noted, we had $50 million after tax of mortality and morbidity that is related to COVID in the Group businesses. About half of that is mortality. About half of that was disability. As you noted, most of that short-term disability, people with COVID often have to be out of work for some time for that reason. And there really are no signs that there are other issues beyond that mortality and morbidity in the Group business.

Sure. And sorry, I missed the answer to the previous question. I apologize if this is rehashing, and you can just tell me if I am. But that ROE target that you gave, the 16%-plus, that is a -- is that an indication that you expect to earn that return in the IFRS 17 world? Or is there a catch there?

Gabriel, it’s Manjit. So as we’ve mentioned before, we’re not providing IFRS updates. At this time, we’ll provide an update closer to the time of the adoption as guidelines get finalized. But what I can tell you is that we’re very pleased with the strength and diversity of the businesses we’ve built. We think they have very strong fundamentals, including good opportunities for future growth. They were priceable over the short term, and they have lower interest rate sensitivity. And then as you know, we’ve added to that a stable of businesses with the addition of SLC and DentaQuest, which are also capital light and generate high cash flows. So overall, we feel very good about the ability of these businesses to generate good returns over the medium term.

All right. It just seems odd that if a year from now we’re changing that number because of an accounting change, it may be odd as I said.

I think – Gabriel, it’s Kevin. We’ve look it at and within well in excess of 12% to 14%, it seemed more odd to me to leave 12% to 14% sitting out there than it did to actually address it and think about how we would think about the results on an IFRS 4 basis.

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

Just to the ACMA discussion, I guess, first, lapse continues to be an issue and not just for yourself across the industry, and I know that there’s unusual items that may have occurred during the pandemic. But I’m more curious, I mean, it was a charge of $174 million in the quarter. I’m curious as to what you’re seeing, how you’ve built that reserve. Are you assuming that the current lapse rates stay consistent? Or are you making the assumption that the lapse rates will revert back to more a pre-pandemic level? Just hoping to get a little bit of color on that.

Yes. Thanks for the question. This is Kevin Morrissey. So as you noted, for the ACMA, the policyholder behavior strengthening, it was really all in the U.S. in-force management block of business. The review this year has a key focus on the universal life funding assumptions to better align with valuation assumptions and recent experience. So the changes we made this quarter fully addressed the recent experience’s losses that we’ve had over the last several quarters. So we did a lot of backcasting and analysis to ensure that our updated assumptions supported the ongoing environment. And the good news, we saw the U.S. Q3 experienced euro for the quarter for lapse and policyholder behavior. So looking forward, the policyholder behavior will be dynamic, and it is sensitive to market dynamic conditions. So we’ll continue to monitor it closely, but we feel good about the changes we’ve made and comfortable with how we expect experience unfold looking forward.

So just to confirm, I mean, that’s experience up to the end of Q2 or up to the end of 2020 that you’ve baked in.

That would have been experience up until the end of last year, but we also looked at the trend into this year as well. So I would say it really reflects the full experience going back prior to this quarter.

Okay. And then just on Asia, obviously, COVID created some challenges, one on the sales side and second on the mortality side. Just hoping to get maybe a little bit of an update as to what you’re seeing so far in Q4. And what type of rebound you would anticipate to see in Asia as reopening starts to take off? So any updates on that front would be helpful.

Doug, it's Kevin on Asia. And you're right, we certainly saw the impacts of COVID during the quarter from both a claims experience and a sales experience side. Although we fought through that in our local markets, right, and we had the Philippines that was up 25% in local currency and 17% in Canadian dollars. But there was sort of widespread lockdowns, which had impacts. What we're seeing is the vaccine rates are going up across the ASEAN countries we're in, and we're seeing the economies opening back up. It's a little bit early to tell whether that will continue because like the U.S., the Delta variant has been quite impactful, but we are seeing those economies open back. I mean, to just give an example of Vietnam, right? You saw our sales were up in Vietnam, but we would have expected them to be up a lot more. The country was in essence in lockdown because they had very low vaccine rates, and the Delta variant had started to spread. And so people weren't going into the bank, and they weren't buying bancassurance products. That's started to reopen now this quarter, and we should see some flows come back. Vaccine rates have gone up significantly, although many people have only got their first vaccine. And so that's just an example, and each market is playing out in its own sort of rate. So we are seeing the economies start back up, and we are seeing more vaccine rates. But it is early to say what will happen because COVID has taken paths that have been unexpected.

And maybe, Kevin, just to kind of finish off with, I guess, what we should be thinking of as more of a gradual -- one of your peers talked about more of a gradual kind of impact as reopening happens. Is that the way you would kind of think of how we should think of Asia over -- through 2020, essentially?

Yes. I do think it’s quite different by market, though, right? Like if you look at China, Hong Kong, they’re focused on opening up the China-Hong Kong border. They’ve really closed that down. Inside of China, it’s been quite open from a kind of movement and flows perspective. So every country is a little different. And the thing to watch, I think, is the vaccine rates and is the economy opening up. But I do expect – I think you’re right, that will be gradual. And then for businesses like our high net worth, which do rely on a bit of travel where the sales are made primarily through Singapore and Hong Kong, that is going to take a while to really open up. There’s still – again, vaccine rates have to be much higher before they’re going to be fully open to travel.

Next question comes from the line of David Motemaden from Evercore ISI.

I just had my first question on the ROE, the 16% ROE. How much of that is driven by a mix shift to capital-light businesses – a continued mix shift to capital-light businesses versus improving the ROE in the segments that require capital? Because if I look at 2018, 2019 ROEs, which are cleaner than the last few years, ROEs in the U.S. and Canada were around 14%, 15% and around 10% in Asia. So just wondering how you’re thinking about the source of getting to that 16% target.

David, it’s Manjit. I mean, I think we’re looking at the portfolio of businesses that we have now and how those businesses will perform looking forward. And I think as we look across all of those businesses, we see opportunities for growth across each one of those businesses. In addition, we see lots of opportunities for those businesses to work more integrated together and kind of leverage the strong capabilities we’ve built across various platforms. So when you put all that together, we feel that the 16%-plus ROE is very achievable.

Okay. And then maybe just switching gears to MFS. I just wanted to just talk a bit about what was driving the outflows overall. I understand the retail flows have been positive for – I think, it was 11 straight quarters. But there, I guess, the – they’re falling in terms of absolute dollars as well as a percentage of the beginning of period AUM. So when I sort of look through it, it looks like the redemptions are actually under control. And it looks like sales have been, I guess, weaker than what I would have expected. So could you just talk about, I guess, the outlook on sales and why sales had been so weak?

David, this is Mike Roberge. Appreciate the question. The same themes that we’ve talked about actually over the last couple of quarters first would be on the institutional side with the virtually entire equity booked in the institutional block of business. We continue – as the market trades at all-time highs, we continue to see rebalancing activity and derisking activity in that book. So that’s what’s driving the institutional flows. On the retail side, I think if you look at it year-over-year, you see a reduction in sales. I think what – it’s probably speaks the call out last year was we had such a massive increase in sales out of 2019. And again, much of that was an allocation back to equities, and we were well positioned for that. When you look at our sales rate now relative to the industry, industry sales and active mutual funds have come down, and our sales rate has come down in line with the industry. So there’s nothing going on in our sales that’s any different than what we’re seeing in the industry. I think there’s hesitancy as the market makes all-time highs in retail to continue to allocate – net new allocations to equities, and we’re seeing that same thing in our books. So it’s the same themes that we’ve talked about over the last couple of quarters.

Got it. And maybe the performance metrics that you provide, it looks like the 3-year numbers have fallen a bit over the last several quarters. But I’m more interested in the percentage of your AUM that’s in the top quartile compared to your peers versus the top half because my understanding is that is what’s really driving new business. So I’m wondering if that has changed to a similar magnitude as the percentage that’s in the top half of the categories.

Well, we’ve seen – we’ve definitely seen the top quartile come down as well, and I think it speaks to a couple of things. One is I think the performance, if you go back, was pretty unsustainably strong, and virtually all of your products were outperforming at a large percentage or in the top quartile. What I would say is the market environment over – certainly the last year and over the last few years, we’ve had a very, very strong backdrop to the market. Our investment style is generally investing in higher quality businesses with high ROEs trading at reasonable valuations. And the market has gone up, and we’ve seen a lot of speculative parts of the market outperform. And so we’re not surprised by the relative performance given what the market has done. We think that clients put us on the platforms because they understand our investment process, they understand when we’ll perform well in their market environments that are more challenged. And what we haven’t seen is that slight decline in performance have any impact on our relative flows.

Next question comes from the line of Tom MacKinnon from BMO Capital.

A question on dividend, share buybacks and then a follow-up. So with respect – assuming we get the green light here later on this afternoon in terms of dividends and share buybacks, that’s been – I assume we would be looking at a fourth quarter ‘21 increase. It’d be like over 2 years since you had last given an increase, and you’ve been running sort of certainly north of the top end of your 8% to 10% underlying EPS growth objective. So how does – does that translate into like a given an increase potentially of at least 20% and perhaps even higher just given the fact that you’re running lower than your target payout ratio? And while you’re thinking that, if you can talk about share buybacks as well because you were active in buying back stock prior to the OSFI restrictions as well.

Tom, it's Kevin. I'm going to take this, and Manjit may jump in. But if you look, we've got our guidance out there of 40% to 50% of our underlying earnings for the dividend, and we've talked about that in the past that, that's what our objective would be. Of course, our dividend needs to be approved by the Board, right? So I'm not going to talk about what we're going to do in advance. But getting back into that 40% to 50% would be our target, and we need OSFI to allow for that. On the buyback, our position hasn't changed, right? We deploy capital into our organic growth, towards the dividend as our first objective into M&A when it's there. And when M& -- A we look at the M&A pipeline and when we can -- we don't have enough in the pipeline for the capital we're generating, then we use the buyback program. And so it would be very specific to the timing of what's going on, what's happening, what's in the M&A pipeline, what's in our organic growth objectives. So we look at all those things when we make that decision, and that's how we think about capital deployment.

Okay. And a question for Dan. Maybe just as we move into the fourth quarter, that seems to be the busy quarter for pricing and then stop-loss and employee benefits. What are you seeing here, especially given the fact that experience hasn't been as good as would have been anticipated as a result of COVID? So can you talk about the outlook for the pricing environment?

Yes. Thanks, Tom. This is Dan. It's a great question because we are, of course, heading into the quarter. We're in the quarter that has most of our sales activity. It's actually a good time to remind that the third quarter is actually not a big sales quarter. Only about 15% of our sales happen in the third quarter. But what we're seeing isn't a competitive marketplace right now, and it's somewhat more competitive probably than it has been over the past couple of years. So we're still selling at very high levels. We're leading the industry by a wide margin in stop-loss sales. Our sales are up year-to-date in our Group business, which is great, but we are sticking to our pricing target. So if we have to make trade-offs, it will be to sacrifice a little bit of volume to maintain our pricing targets and our margins. And we are seeing a somewhat heightened level of competition at the moment.

Next question comes from the line of Paul Holden from CIBC.

So I just noticed that part of your ACMA changes this quarter were for a reduction in the best estimate real estate assumptions. So just wondering if you can tie that back to what you’re seeing at SLC and the real estate funds you run there. And if the continued uncertainty, I guess, particularly in commercial real estate, is impacting demand at all – demand and returns of those products.

I was going to maybe just address the ACMA, and then Steve, I’ll let you talk about the experience in the quarter. So Paul, maybe just a comment. We did strengthen the real estate assumption. And I do want to specify that the fact is that we look at. It’s a very long-term assumption, right? It’s always kind of long term through the cycle. So we look at past performance as well as future expectations, levels of interest rates and risk premium for these types of asset classes. So we did make an assumption change in the quarter to reduce the best estimate, despite the fact that we had really positive experience in the real estate in the quarter. So maybe, Steve, I’ll hand it over to you to talk about the real estate for the quarter.

Yes. Thanks, Kevin. And Paul, certainly, in – through the pandemic, there were certain sectors, retail office that were weaker, but there have been other sectors such as industrial, subsectors such as cold storage, which have been extremely strong. If you look across the BTO, BentallGreenOak, funds there have been overweight sectors like that. So actually, if you look at the kind of a variety of funds in Europe and North America, U.S., Canada, also in Asia, the fund performance has been quite strong. In fact, their U.S. core fund had one of the best quarterly returns it’s ever had. Their Asia funds have delivered recently over 30% returns net. So – and they’ve had a very active year in terms of attracting new capital. So – and I would attribute part of that, maybe I’m trying to connect it back to the ACMA charges. If you look at BentallGreenOak on the SLC side, a lot of those – a lot of their money is in core-plus or value-add real estate, where it’s, in some ways, less about general terms in real estate and more about value buys and then making improvements to properties and then selling them for a total return. So I would say that the interest in real estate, we feel like, continues to persist based on what we’re seeing from our investors, and the returns have continued to be pretty strong.

That’s great. And then I just have one additional question that relates back to the lapse discussion. I just want to verify that sort of these lapse assumption changes we’ve seen over time have really related to legacy product and that newer products being sold is less dependent on lapse assumptions, is that correct on my part?

Paul, that’s right. It’s because more – so the lapse experience that’s been – that we’ve seen over the last few years as well as the strengthening have all been in closed legacy block. It’s not related to the new business we’re seeing, that’s right.

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

I just – I realize that the expense allocation and investment allocation from the par is small, but I just wanted to ask you for a little bit of color on that. And the reason why I ask is, typically, we think – we all know the par is passed through and that really has any sort of ultimate large risk. But I guess you pulled seed money out of it before. And so now I’m wondering, is this sort of an asymmetric risk that sort of, going forward from now on, the only thing that can happen is potentially an allocation like this that could affect the company in the future? And you continue to sell, I understand, a lot of par policies, which will only make this bigger as time goes on. Can you maybe just touch on that just to sort of assure us that, though small, the prospect of possible future reallocations like this really won’t happen in effect affect you?

Darko, this is Kevin. Thanks for that question. So this was not a cost associated with the risk of the par policy of what we’ve seen in the past. This was a onetime prior period par adjustment. And it was really a refinement to pre-2016 allocation of investment income and expenses between par and shareholders. So the structure of this mutualization agreement result in the need to allocate different costs, like investment income and expenses across the 2 accounts. And this – the quarter adjustment resulted in a benefit to the par count this quarter and the cost to the shareholders of $85 million. About half of that was just adjustments to the prior period allocations, and half of that was interest accrued to bring back to the current quarter. And those allocation adjustments happened between 2008 and 2016, so some time ago. It’s quite complicated, and it’s related to the accounting changes back in 2007 and the interaction with the demutualization part account structure. So there is no impact to future earnings, and I’d say this isn’t something that’s likely to occur again. And it really is not related at all to the profile of the products and the pass-through features of the par products that we’re selling there.

Next question comes from the line of Nigel D'Souza from Veritas Investment.

The first question I had was a follow-up on your adverse unfavorable mortality experience in Asia, and I think you highlighted Indonesia, the Philippines and India. I was wondering if you could provide more color on the trends you're seeing for mortality related to COVID-19 in your insured population versus the general population and whether or not you expect that unfavorable mortality experience to -- continuing to persist at least in the short term.

It’s Kevin, Nigel. Yes. We saw heavy COVID death rates in the countries where the vaccine rates were lower that we talked about earlier and where the Delta variant was more prevalent. So you’re right, in particular, Indonesia, the Philippines and India had a higher mortality rates. It’s a difficult time for those markets, and we were certainly proud to be there for our clients when they needed us the most. What we’re looking at is vaccination rates and the improvement in vaccination rates in those countries, and that’s what’s going to really help. They continue to see social distancing and masking across Asia. Vaccine rates going up. I think our experience would be roughly in line with what you were seeing in the country. You were seeing higher mortality rates in India, in Indonesia and in the Philippines. So that’s – it’s really difficult to say, as I answered earlier, what’s going to happen from a claims perspective with new variants. And the fact is that they’re not at the vaccine rates that we are today. So this idea of getting vaccination rates higher, and it’s not an issue of people not wanting to get the vaccine, it’s an issue of the vaccine being available. So that availability is an important step to see happen. So it’s something we watch – we’re watching closely, but it really is around finding ways to get more vaccine into the countries. In fact, we’re helping our employees get vaccines in many of those jurisdictions. Nigel D’Souza : That’s helpful. And does it change the way you look at your insurance risks in Asia? I mean, your longevity exposure sits outside of Asia. So are you changing the way you look at managing that insurance risk? Or is it more so you’re looking towards the vaccination program through rolling out a more equitable vaccine distribution as kind of light at the end of the tunnel for mortality-related risk area?

Yes. I think if you look longer term, Asia is going to end up getting to vaccine rates like you see in other places, and so that's going to certainly help. And we are seeing even a little bit of curbing of the amount of death this quarter. I'm just -- things can change, the variants can change and those types of things, but it's really not changing our commitment and our purpose in those markets.

And if I could end on a broader question on your inflation and interest rate expectations. Are you expecting a persistently low-rate environment or a rising rate environment? And the reason I ask that is, does that impact the way you look at your business mix? So if you have a low rate environment that's more supportive of financial market conditions, is that leading you to have a higher preference for your asset management side? Or if we have a rising rate environment, does it change your preference to have a higher growth in the insurance business? Or do you even think about interest rates and business mix? Could you perhaps elaborate?

I might start and let Randy talk about our – how we’re thinking about inflation. And you’ve got a good look at our sensitivities and our disclosure. We do a very good job on risk management and matching cash flows. We try not to predict where interest rates are going to go. So we’ve worked in a low interest rate environment for a long time now. We’ve really geared our businesses towards that. That’s – adding SLC has been helpful on that front. MFS has obviously benefited from a higher equity market results that also have a relation to lower interest rates. But rising interest rates aren’t a bad thing for the insurance industry as they rise on a sustainable basis. So we think we’re quite well positioned. The diversity of our business, the mix of our business, the fact that we’re lower capital, the way we do risk management, we feel like we’re positioned to different economic conditions, and that’s supported by the diversity. But maybe Randy could talk about our views on inflation and how we’re seeing that.

Sure. Happy to. This is Randy, Nigel. So on inflation, we’ve had the view for several years now that we think that inflation will be less transitory than central banks are trying to portray. So we’re seeing both supply and demand side inflation creeping into the system. And the transitory, we think, is more measured in several years than months, and I think that central banks are coming around to that view. So what you heard from us at Investor Day is that, given the negative nominal and real rate to return available on high-quality fixed income, we have done a moderate but a shift in our portfolio to nonfixed income and, in particular, real estate, as noted, which will do well in a moderately inflationary environment. So we don’t see inflation being run away by any means, but we do think central banks are going to err on the side of letting inflation be a little bit higher for longer to move away from that deflationary edge that they’re so worried about. So thank you.

Next question comes from the line of Lemar Persaud from Cormark Securities.

So there’s some discussion already on the trajectory of the recovery from COVID in Asia. I’m just wondering if it’s going to be the same in the U.S. It sounds like you’re suggesting there’s going to be a more gradual earnings recovery in Asia. Is that how we should be thinking about the U.S.? Or with the simple availability of vaccination suggests a faster recovery in U.S. versus Asia?

Well, thanks. This is Dan. Let me take that for the U.S. portion. I think it’s important to look at the overall statistics and deaths in the U.S. and the Delta variant surge peaked on or about September 23. And in our results, it takes about 30 days for us to get those claims in for people to submit them. So you can imagine, October certainly continued to be a very adverse month for mortality. Now since September 23, deaths have come down on a 7-day average, about 40% in the U.S. We’re certainly hopeful that they’ll continue to come down. But of course, that’s very hard to predict. So we would expect that our own experience will start to moderate, consistent with what’s happening in the broader population.

Got it. That’s helpful. And then I guess, then on Slide 6, you guys showed the business mix and how that’s chipping away from traditional churns to wealth and group and other short-duration insurance in 2012 to 2020. We look forward another 8 years, how do you see this evolving? So more of a big picture question.

It’s – as we deploy capital and see growth, we’re seeing faster growth in the businesses that have less of the sort of traditional insurance, long duration, more guarantees. So I would expect that, over time, that would trend down a little bit, but it’s – it depends on a lot of factors.

Next question comes from the line of Scott Chan from Canaccord Genuity.

Kevin, you talked about, I guess, near-term capital priorities, focus on organic and dividend. And then you mentioned NCIB would depend on your M&A pipeline. So I'm just wondering what the M&A pipeline is now, say, versus pre-pandemic.

Well, thanks, Scott. We’ve always got a good pipeline that we’re looking at. There seems to be things – given our diversity and the number of businesses we’re in, I would point out, we really talked about, and I mentioned it in my strategic objectives, that we have a programmic approach to M&A. And if you look at the last few years through COVID, we’ve done 10 different M&A transactions. And they’ve spanned across all 4 pillars, things like DentaQuest and Pinnacle Care in the U.S., ACB, bancassurance transaction in Vietnam, the Crescent and InfraRed transaction in Steve’s businesses and the addition of Dialogue in Canada. So that gives you a sense of how we’re looking and what we’re thinking about. It’s – we have a broad diverse business. And in each case, we were able to add either scale or capabilities. We had confidence in our ability to execute, and they met our medium-term objectives. So when we look at the pipeline, it is about achieving those things. That changes over time. At this point, we’ve done the DentaQuest acquisition. That was a big one, but there is always something going on around the world, in the Sun Life’s world, and we look for those things. Can we – will it meet our medium-term objectives? Is it on strategy? And can we execute on that?

Got it. And last thing maybe for you, Kevin, as well. You talked about 4 key priorities on Slide 4, and one of them being realizing synergies between Asset Management and Insurance businesses. And maybe these ties into your 16%-plus ROE target. But perhaps, could you elaborate on the synergies? And maybe is it more revenue or cost focused?

Yes. This is one of the reasons we were able to build out SLC so successfully, right? Because we had this Insurance business that provides cash flow on a regular basis, provide asset opportunities, provide seed capital. And SLC was able to step in and provide returns and duration and long-duration assets. This continuing to leverage these synergies between Asset Management and Insurance looking for them, I'll give you another example. We built out the Defined Benefit Solutions business as part of GRS, where we had an expertise in mortality, we have an expertise in longevity with ability to compete from a liability standpoint here, but we needed these long-duration assets to support that, and that's what we were able to build out in SLC. So it's really about looking for and making sure we're uncovering all of the opportunities to drive that efficiency and that synergy between the Asset Management and the Insurance business.

We have no further questions at this time. I would now turn things to Mr. Bitton for closing remarks.

I would like to thank all of our participants today. 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 conference call. Thank you for participating. You may now disconnect.