Greg Dilworth - Vice President, Investor Relations Dean Connor - President and Chief Executive Officer Steve Peacher - Executive Vice President and Chief Investment Officer and President, SunLife Investment Management Colm Freyne - Executive Vice President and Chief Financial Officer Michael Roberge - Co- Chief Executive Officer & President, Massachusetts Financial Services Co.
Kevin Dougherty - President, Sun Life Financial, Canada Larry Madge - Senior Vice President & Chief Actuary Kevin Strain - President, Sun Life Financial, Asia Rob Manning - Chairman and Chief Executive Officer, MFS Investment Daniel Fishbein - President, U.S. Business.
Robert Sedran - CIBC Steve Theriault - Bank of America Merrill Lynch Humphrey Lee - Dowling & Partners Gabriel Dechaine - Canaccord Genuity Meny Grauman - Cormark Securities Sumit Malhotra - Scotia Capital Peter Routledge - National Bank Financial Doug Young - Desjardins Capital Dan Bergman - UBS Mario Mendonca - TD Securities Tom MacKinnon - BMO Capital.
Good afternoon. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Third Quarter 2015 Financial Results Conference Call. [Operator Instructions] Thank you. Greg Dilworth, Vice President, Investor Relations, you may begin your conference..
Thank you, Melissa and good morning everyone. Welcome to Sun Life Financial’s earnings conference call for the third quarter of 2015. Our earnings release and the slides for today’s call are available on the Investor Relations section of our website at sunlife.com.
We will begin today’s presentation with an overview of our third quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Steve Peacher, Executive Vice President and Chief Investment Officer and President of Sun Life Investment Management will provide an update on Sun Life’s Asset Management pillar.
Following Steve’s remarks, Colm Freyne, Executive Vice President and Chief Financial Officer will present the third quarter financial results. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today’s call.
Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of this morning’s remarks. As noted in the slides, forward-looking statements maybe rendered inaccurate by subsequent events. And with that, I will now turn things over to Dean..
Thanks, Greg and good morning everyone. Turning to Slide 4, the company reported solid results in a quarter of challenging and volatile economic conditions. Underlying net income was $528 million, up from $517 million in the same period last year and our underlying return on equity was 11.6%. Expected profit grew 9%.
Assets under management grew to $846 billion. And our MCCSR ratio for Sun Life Assurance increased to a strong 229%. I am pleased to report that we have announced a $0.01 increase in our quarterly common share dividend bringing our quarterly dividend per share to $0.39.
This, together with the increase announced in the first quarter, represents a total increase of 8% in the dividend this year. This increase reflects our business momentum, our strong capital position and is in line with our target dividend payout range of 40% to 50%. We continued to demonstrate strong execution on our four-pillar strategy.
We announced the acquisition of the U.S. Employee Benefits business of Assurant and completed the acquisitions of Bentall Kennedy and Prime Advisors.
We believe that these acquisitions when combined with strong execution on organic growth across all of our four pillars will help deliver on our medium-term objectives for EPS growth and ROE set out at our March 2015 Investor Day. Turning to Slide 5, our earnings are well diversified across our businesses both by geography and by type.
The benefits of this balanced business model, combined with the considerable de-risking we have done over the past few years, are apparent in our results this quarter, which show resilience in a challenging environment. In Canada, we demonstrated strong top line growth.
However, our underlying earnings reflected lower pricing gains from new business, a function of the low interest environment. In the U.S., we continue to drive forward with our performance improvement plans and group benefits. We are progressing well and we have seen good improvement in our results over the prior year.
At MFS, the pre-tax operating profit margin remained strong at 40% despite equity market declines and net outflows that reduced assets under management. Our Asian operations continued to grow year-over-year as we build up the base of in-force premium and assets through strong sales and client retention.
On Slide 6, we continue to demonstrate strong execution on our four-pillar strategy, one that’s focused on higher ROE and strong capital generation through leading positions in attractive markets globally. In Canada, we delivered very strong top line growth with insurance and wealth sales up 52% and 44% respectively.
In individual insurance, we have recorded our highest ever quarterly insurance sales at $98 million of annual premium driven by growth in all distribution channels and by a number of large case sales.
In individual wealth, Sun Life Global Investments’ retail mutual fund sales grew 45% over the prior year to $288 million and sales of segregated funds grew 54% to $152 million with three quarters of those sales directed to our new Sun Life Guaranteed Investment Funds seg fund products launched in Q2.
GRS sales were up 71% from higher levels of defined contribution sales and group benefit sales were up 72% driven by continued success in the large case market.
During the quarter, we announced the launch of our Digital Benefits Assistant, an innovative technology-based capability being developed to proactively engage group plan members and deliver personalized and timely interactions to them across multiple digital channels.
Digital Benefits Assistant is the newest addition to the long line of innovations such as total benefits and the industry’s first mobile apps. Our leadership in technology helps plan members appreciate the benefits that their employers provide and it helps them get good value from their plans while achieving their financial goals.
Turning to asset management, this quarter we completed the acquisitions of Prime Advisors and Bentall Kennedy and Sun Life Investment Management is now focused on leveraging revenue synergies across these four businesses and with MFS to accelerate growth in asset management.
MFS ended the third quarter with assets under management of $404 billion, down from $440 billion last quarter. Lower asset levels were driven by equity market declines, redemptions and rebalancing activity all of which led to higher levels of net outflows.
In the first month of Q4, we have seen an improvement in equity markets and MFS’ AUM increased to $427 billion as at October 31. Fund performance remains strong with 74%, 86% and 97% of fund assets ranked in the top half of their Lipper categories for 3, 5 and 10-year performance respectively.
Steve Peacher will say more about our asset management pillar and MFS in a few minutes. Turning to the U.S., we took a major step forward this quarter in expanding the scale and capabilities of U.S. group benefits with the announcement of the acquisition of Assurant’s Employee Benefits business.
The transaction is expected to close in the first quarter of 2016 subject to the regulatory approval process, which is well underway.
We have been working closely on planning for integration with Assurant’s leaders in Kansas City and their other locations and we are very impressed with their capabilities and the enthusiasm they have for coming together. And while as a Torontonian, I am disappointed the Blue Jays did not prevail this year.
Our friends in Kansas City have every right to be proud of their World Series champs. Our group benefits business continues to see progress from the actions we have taken to restore profitability and we see that in the improvement in our underlying earnings year-over-year.
Sales in group benefits were higher by 10% over the same quarter last year with strong results in stop-loss, which were up 63% in the quarter and 24% on a year-to-date basis. Business in force remains stable at $2.5 billion of annual premium as we continue to work through the repricing of our group.
In international, sales were lower in both the life and wealth businesses, where we have been taking a disciplined approach to new business in this low interest rate environment. Turning to Asia, our underlying earnings were up 40% to $67 million from growth in our in force base, a favorable business mix and the benefit of currency.
Asian wealth sales were $1.6 billion for the quarter, up from $1.1 billion last year driven by strong fund performance in sales at Birla Sun Life Asset Management in India and higher levels of mandatory provident fund sales in Hong Kong.
On a constant currency basis, individual insurance sales decreased by 5% over the prior year, but are higher by 6% for the first nine months of 2015.
We saw strong growth in health and accident sales this quarter, which were up 27% over the prior year and we continue to see good progress on the execution of our most respected agency initiative in Asia.
Agency sales increased in the Philippines, Indonesia, India, China and Vietnam reflecting greater productivity and increased advisor count in a number of our markets. In the Philippines, we were recently recognized as the Employer of the Year. Sun Life is the first insurance company to be honored with this award since its inception 38 years ago.
And earlier this week, at the Asia Insurance Industry Awards, Sun Life Philippines won Life Insurance Company of the Year for all of Asia. These awards reflect a strong leadership team and employee and advisor base in the Philippines who do a great job for our clients, which in turn has led to our number one market position.
To conclude, I am pleased with the progress that we have made over the first nine months of 2015. Volatility in global markets is an important reminder of the value of the work that our employees, advisors and distributors provide to our clients, giving them some piece of mind and helping them achieve lifetime financial security.
Sun Life faces the challenges of today’s economic environment from a position of strength, from the management and deployment of capital to the resiliency of our business model and to the alignment and ambition of our people. And with that, I will now turn the call over to Steve Peacher to discuss asset management..
Thank you, Dean and good morning everyone. Turning to Slide 8, since early 2014, we have been building out Sun Life Investment Management taking our core investment capabilities and bringing them to institutional clients.
During the third quarter, we closed on the acquisitions of both Bentall Kennedy and Prime Advisors and now through both organic growth and acquisitions we have established Sun Life Investment Management as a third party asset manager with $66 billion of assets under management and over 700 institutional clients.
With the focus on liability driven investing and alternative assets, Sun Life Investment Management broadens our asset management pillar and it’s complementary to MFS. Beginning this quarter, we renamed our MFS segment to SLF Asset Management to reflect the increased growth and diversification of our asset management pillar.
SLF Asset Management includes the results of MFS as well as the operations of Sun Life Investment Management consisting of Bentall Kennedy, Prime Advisors, Ryan Labs Asset Management and Sun Life Investment Management Inc., our new asset manager in Canada.
We are still in the early days of bringing our recent acquisitions on to the Sun Life Investment Management platform, but I am pleased with the progress to-date. All of the acquisitions are tracking in line with our business plans.
In the third quarter the asset managers underlying Sun Life Investment Management had gross inflows of $1.2 billion and net inflows of $612 million. Turning to Slide 9, I will spend a moment on MFS.
The operating environment for asset managers has been challenging, but the third quarter was particularly acute with volatility in equity markets, lower interest rates and declines in emerging markets.
As Dean noted a moment ago, MFS’ fund performance continues to be strong with 97% of MFS fund outperforming their Lipper peer group over a 10-year period. Despite strong investment performance, near-term headwinds in the third quarter resulted in elevated levels of net outflows.
On the retail side, market volatility and the largest quarterly decline in U.S. equity markets since 2011 have softened demand for mutual funds which resulted in net outflows for the industry as a whole. MFS has faired well relative to the industry, but still we experienced modest outflows during the quarter.
The institutional business had net outflows of $8.7 billion. These flows are larger than MFS has experienced in recent quarters and included some large outflows from certain sovereign wealth clients. MFS has also experience outflows from variable and annuity platforms, consistent with industry trends.
And Rob and Mike have highlighted in past calls MFS has closed certain of its most successful products to new sales in order to protect clients returns from capacity constraints. Markets have obviously improved since the beginning of the fourth quarter and so far this quarter net flows have been markedly better than the third quarter.
But of course flows can be lumpy and I will let Rob and Mike expand on their expectations for the fourth quarter during the Q&A. Driven by its strong investment performance and attention the client needs, the value of MFS remains firmly intact.
And in fact we believe that the recent volatility and market declines could be beneficial for firms like MFS who are able to demonstrate the value of active management over long run. With that, I will turn the call over the Colm to offer the financial highlights of the quarter..
Thank you, Steve and good morning everyone. Turning to Slide 11, we take a look at some of the financial results from the third quarter of 2015. Our operating net income for the quarter was $478 million, up from $467 million in the third quarter a year ago.
Underlying net income which excludes the net impact of market factors and assumption changes was up slightly to $528 million. Our underlying return on equity was 11.6% for the quarter.
Third quarter adjusted premiums on deposits were $27.9 billion, assets under management were $846 billion, an increase of 5% from the second quarter, which reflects the benefit of currency and the addition of assets from our Bentall Kennedy and Prime Advisors acquisitions.
We maintained a strong capital position and in the quarter with a minimum continuing capital and surplus requirements ratio for Sun Life Assurance Company of Canada of 229% and the cash level of $1.7 billion at the holding company, SLF Inc.
This level of cash includes $500 million in proceeds from subordinated debt issued during the quarter which will be used to partially fund the Assurant acquisition. Turning to Slide 12, the net impact of market factors reduced earnings in the quarter by $82 million after tax.
Unfavorable market impacts were primarily due to the decline in equity markets. Lower interest rates were more than offset by gains from movements in credit spreads and swap spreads. Further details on the impacts of market factors have been provided in the appendix.
Assumption changes and management actions increased earnings by $32 million after tax in the quarter. I will provide more detail on this in the sources of earnings slide that follows.
Other notable items reduced earnings by a net $4 million after tax as adverse experience in morbidity, mortality and expenses were partially offset by lapse and policy holder behavior, favorable investing activity and positive credit experience.
At the bottom of Slide 12, we breakdown our earnings contribution by business group, in SLF Canada underlying earnings reflect lower gains from new business and group retirement services, unfavorable mortality in our payout annuity blocks and continued investment in growing our wealth business. In SLF U.S.
underlying earnings benefited from gains on the sale of AFS assets and favorable tax adjustments related to prior years. Group Benefits results were impacted by unfavorable morbidity, but are benefiting from the impact of price increases and expense management initiatives.
SLF Asset Management which Steve Peacher discussed a moment ago includes the results of MFS and Sun Life Investment Management. At MFS underlying results primarily reflect lower average net assets. Results from Sun Life Investment Management include one month of Bentall Kennedy.
In Asia underlying earnings results continued to be strong reflecting business growth across a number of markets, most notably in the Philippines and in Hong Kong. Turning next to Slide 13, we provide details on our sources of earnings presentation. Expected profit of $665 million increased by $56 million from the same period a year ago.
Excluding the impact of currency and the results of MFS expected profit was up 1% as business growth in SLF Asia was offset by lower levels of expected profit in Canada and in the U.S. New business strain was $63 million for the quarter, an increase of $36 million over the same period last year.
Higher levels of strain this quarter were driven primarily by a reduction of gains in Canada due to the lower levels of interest rates relative to a year ago as well as higher levels of new business strain in the U.S. due to lower sales in our international business and the impact of currency.
In light of current interest rate levels and its impact on business mix together with the impact of currency, new business strain is expected to be higher than our previously communicated range of $30 million to $40 million. While experience will fluctuate quarterly, we expect a range of $40 million to $50 million under current conditions.
Experience losses of $98 million reflect the unfavorable impact of market factors and other notable items as described on the previous slide. The net impact of our 2015 review of actuarial methods and assumptions was modest contributing $2 million pretax to net income.
This year’s review included the assessment of many assumptions across a large number of products, businesses and geographies. Lapse and policy holder behavior is one area where we conducted an in-depth review this year and we strengthened our assumptions by $555 million after tax.
In Canada, this primarily reflected higher lapses on term life products at renewal and the reduction in lapse rates of longer policy durations for universal life policies. In the U.S.
the main driver of the policy holder behavior strengthening was related to assumed premium patterns in our closed block of in-force policies and lower lapse rates on universal life policies in our international life business.
Another area of strengthening in the quarter was expenses which reflected expense studies completed in both Canada and the U.S. Other areas of our review of actuarial assumptions this year include mortality, morbidity and investment assumptions.
These changes together with management actions and model refinements all contributed positively to net income in the third quarter. Mortality and morbidity updates were broad based across all geographies. Investment assumptions benefited from changes in the provisions for investment risk and investment strategies.
Management actions and model refinements included a variety of items included in the recapture of certain reinsurance arrangements in our U.S. international business and revisions to investment strategies and asset liability mismatch provisions. Additional information on assumption changes by type can be found in the appendix of today’s presentation.
Earnings on surplus of $88 million were $17 million lower than the third quarter a year ago, primarily due to currency translation losses on cross currency swaps and forwards supporting certain U.S. dollar denominated investments.
Income taxes of $76 million represent an effective tax rate of 13% on operating net income, which is below our expected range of 18% to 22%. On a year-to-date basis, the effective tax rate is 20% and at the midpoint of our target range.
The lower rate in the third quarter reflects higher levels of earnings in lower tax jurisdictions and adjustments related to prior years. On an underlying earnings basis and adjusting for the impact of all notable items, the effective tax rate for the quarter was 17% and generally in line with our expectations.
Slide 14 shows sales results across our insurance and wealth businesses. Sales results on a Canadian dollar basis include some notable movements due to currency.
On a constant currency basis, our total insurance sales were up 15% driven by some of the items noted by Dean earlier, including individual and group insurance sales in Canada and stop-loss sales in the United States.
Total wealth sales of $27.9 billion were lower by 7% on a constant currency basis, primarily as a result of lower sales of mutual and managed funds at MFS. Turning next to Slide 15, we present a breakdown of the change in our year-to-date operating expenses over the prior year.
Our overall operating expenses for the nine months ended September 30 were $3.7 billion, up $308 million or 9% over the prior year period. However, excluding the impact of currency in MFS, expenses were $2.2 billion, an increase of $104 million, or 5%.
Total year-to-date volume related expenses, which are directly driven by sales on asset levels increased by $71 million over the prior year. Therefore, the net impact of inflation and investments in growth net of productivity gains increased operating expenses by $33 million, or 2% compared to a year ago.
To wrap up, our results this quarter were achieved in the context of a challenging environment for equity markets and a continued backdrop of low interest rates. And these results once again highlight the benefits of our balanced and diversified business model.
And with that, I will turn the call over to Greg before moving to the Q&A portion of the call..
Thank you, Colm. To help ensure that all of our participants have an opportunity to ask questions on today’s call, I would ask each of you to please limit yourselves to one or two questions and then to re-queue with any additional questions. With that, I will now ask Melissa to please pull the participants for questions..
[Operator Instructions] Your first question comes from Robert Sedran with CIBC. Your line is open..
Hi, good morning. I wanted to ask about Canada and it comes – it was touched on I guess by both Dean and Colm, but I look at year-to-date declines and expected profit, you have touched on strain, but earnings on surplus is down a little bit, while the sales growth and the business growth metrics actually look fairly strong.
I know there is not a direct link between those two.
Can you give a sense as to why most of these metrics are kind of pointed in the wrong direction so far this year?.
Yes, thanks Rob. It’s Kevin Dougherty speaking. So, well, for sure, if you look – if you stop at the first half, we were tracking very well year-to-date. And in Q3, I think you saw earnings that really are not representative of the earnings power in Canada or our business momentum. Pricing gains were lower on lower interest rates.
But also the summer months are slow for things like DB solutions annuities which tend to get crowded into Q4, which is a big quarter for those businesses as well as for our life insurance business. We also saw some mortality fluctuation on our annuity blocks in the quarter in the normal range, but went the wrong way and some noise.
And I would just characterize it as noise in our surplus earnings, which do fluctuate from quarter-to-quarter. So, I don’t think Q3 was really representative of our earnings power. The same way, the Q2 had fluctuations that were really going the other way and probably the average of the two is more representative.
Business momentum, as you said, is very strong across the board and we are bringing that business in at very good pricing levels really across the board.
Insurance sales are up 52%, wealth up 44% and that’s really across the board in our core businesses as well as new strategies like SLGI and seg funds and client solutions where we have been investing a lot and are starting to see a great deal of traction..
And the expense issue that Colm touched on or expense growth I guess that Colm touched on, would that be flowing through expected profit or would that be flowing through experienced items?.
Yes, Rob, its Colm here. So, on the expense side, there was unfavorable in Canada in the expense experience in the quarter and that is continued investments in our wealth funds on the group side, some additional hires in our disability area..
Okay.
And then just a quick one for Larry, one of your competitors yesterday mentioned the CIA study on lapse, was that part of the reason that the policyholder behavior in lapse charge was so large this quarter or is that still something that needs to be digested?.
Yes. That new study from the CIA, we did take that into consideration as we did our reviews this quarter. So that is behind us although that wasn’t the major reason for the assumption changes that we had. Our biggest change in Canada was actually related to the term business and the lapse is that term renewal and then we had some changes in the U.S.
as well..
Okay, thank you..
Your next question comes from Steve Theriault with Bank of America Merrill Lynch. Your line is open..
Thanks very much. If I could start for Colm or for maybe Larry on the actuarial assumption update, most of the items I followed, but could you just take the couple of minutes to walk me through a couple of the items. So, I am looking for a bit of an explanation on the investment risk provision in the PAR account.
Can you describe that a bit in the size? And the other component was investment strategy changes at SLF Canada, can you give us a little bit more detail on I guess that going down the quality curve a little or if you could explain that a little bit? That would be helpful..
Okay. So, starting with the PAR accounts, we do hold provisions for average deviation in the shareholder accounts to address the risk of investment experience being negative in the PAR accounts, because dividends can’t go below zero. So, we reviewed the size of that provision and we were able to reduce it.
And then in the second one, the investment strategy changes, yes, that one is about increasing the net asset yield in that fund. However, the strategy changes were really pretty minor modifications. They just end up having a relatively large impact when you present value them over a long duration..
Does that second component – does that replace the potential for yield enhancement in anyway, I think of it like that?.
When we look forward, we don’t see any change as a result of that in terms of our ability to produce investment gains in the future..
Okay, okay.
And then maybe one more probably for Colm, just a quick question on the impact of the market factors, the equity impact appeared in line to me at any rate, but it looked like on the – when you look at the net impact of the benefit from rates, corporate and swap spreads, the tax rate looked to me like it was well over 50%, please correct me if I am wrong, but could you explain that please?.
Yes. So, I think on the overall changes, you have to look at where the changes are being impacted. And if the changes are coming through in the tax advantaged area, it can have an impact on the after tax numbers. So, I think that’s really all I would say on that. There was nothing unusual from our perspective.
When we look at the overall impact of interest rates, credit spreads, swap spreads, etcetera I think they were fairly much in line. They may on the credit spread side, they maybe in a little out of line with sensitivities, but again sensitivities are based on the broad index of credit.
And the actual portfolio holdings are going to be a little different..
So, may be the – when you say higher impact or higher tax rate geographies, more of the impact maybe in the U.S.
this quarter?.
Well, it’s yet on the credit side, certainly there is an impact in the U.S. But I don’t have that actual number in front of me..
Okay. Thanks very much..
Your next question comes from Humphrey Lee with Dowling & Partners. Your line is open..
Good morning.
Just a question about MFS flows especially in the institutional side, can you give us an update in terms of the turnaround process, in terms of the flows and also maybe comment on the resection and attraction in terms of your new blend of products in MFS?.
Good morning Humphrey, this is Mike Roberge. Third quarter was tough both from a market environment perspective. But when you look at the industry and you look at flows across the industry it was also relatively challenging.
Focused on it two ways, first, on the retail side, the industry did go negative in retail flows in third quarter both in fixed income and equity sales. We were slightly negative, having said that, we did pickup shares. So if you look year-to-date we are picking up share in retail in a more challenging environment.
When you look at the majority of flows being on the institutional side we have talked a lot about our closing of the strategies to protect existing clients, that clearly is having an impact on our ability to sell a piece of our business. The biggest issue in the quarter was what clients decided to do with their money on the redemption side.
And so we saw a number of large redemptions. The vast minority of that was performance related, because if you look at across and you can see the performance numbers, it wasn’t performance related in the quarter.
So there were decisions clients made around moving from active to passive, de-risking and a variety of other client decisions around rebalancing that hit us in the quarter. As we think about repositioning our business when we have talked about it is we are growing on our global fixed income capabilities, that’s going to take some time.
We are building a team. We are launching products. And that’s an ongoing process. On the blended research side, we are seeing a lot of interest in the strategies. We are positioning those in markets with clients. The third quarter again in particular was in a quarter where clients were putting net new money to work.
And so we are in the process of transitioning that business. It’s going to take some time. But what we are hopeful I think from an industry perspective is you do begin to see some of the redemptions come down across the industry..
Well, I think earlier this year at the Investor Day you talked about as you put – continue to put on new products to replace these closed funds, you are hoping to at least stabilized the net flows especially on the institutional side and maybe seeing some turnaround next year, like that’s kind of expectation changed given the more recent developments or how should we think about the flows – the overall flows capacity kind of looking forward?.
Yes. I think you guys think, we – the one thing that we do control when you think the net flows is sales and so we are picking up share particularly in retail. On the institutional side, sales are lower because of the products that we have closed. And then the other part of the equation is redemptions.
What we don’t control is what clients decide to do from an asset allocation perspective with their own. So we are hesitant particularly with what the industry is seeing in the last quarter. We are hesitant to try and predict what clients may do with their money in the next several quarters.
We think we are well positioned to sell into the marketplace with products that we brought. What we don’t know was what clients are going to do on the redemption side..
Okay. Thank you for the color.
And then maybe a question for Kevin Dougherty, so the prescription drug remains a headwind in Canada, but it seems to be improving, what is that your outlook for the blocks performance and where you are in terms of re-pricing for that block?.
Sure. Thanks Humphrey. Well, as you noted specialty drugs continued to be a big factor in Canada. On the Hep C, the Sovaldi and the Harvoni, they are working their way through the target population. And in fact we saw probably about a 30% decrease in claims in Q3 suggesting that they are running their course.
We have introduced pricing changes and pulling level of changes, now we have got new drug review processes, prior authorization all kinds of strategies in place and including throwing agreements with pharmacies and also with manufacturers to get better pricing. So we think we will continue to see this improve over time.
It will take a few more quarters to work its way – all the way through. And I think the industry is kind of moving to another level in terms of how we price for these things. And we expect that this will continue to improve in future quarters..
Can you repeat that kind of improvement in Q3 in terms of claims, what was the percentage?.
About 30% reduction in the total volume of claims that came in that was on life..
Alright. And then your – one of your peers announced recently changing the policies in terms of how they handled the new prescription drugs, do you think the industry as a whole is going to kind of follow the suit and you mentioned you guys you internally changed some of your policies as well.
Do you feel like with the re-pricing and the policies change that should be – what should be kind of over within the next few quarters?.
Yes. I am aware of that – one of our competitors has changed their policy on covering some of these. And when I say we have made some changes it’s more in process – the approval processes, prior authorization and those kinds of things.
What we hear from plan sponsors is that they actually want to cover these things and they are looking for ways and means of doing that different pulling techniques and help in controlling pricing and use.
If you think about for example big public sector plans or big union plans, it’s quite clear that employers like that it’s any of union agreements already and that coverage will continue into the foreseeable future.
And I think even other employers are not wanting to get in the middle of kind of the ethical dilemma of not covering some of these things. So I think they are looking to industry for solutions.
We are working through the pricing and pulling techniques to make these things affordable and just spread them across large numbers of employers and to make it work. So that’s the approach we are taking..
Okay, thank you for the color..
Your next question comes from Gabriel Dechaine with Canaccord Genuity. Your line is open..
Hi, good morning. Just a quick question on the MFS slows and then I got a follow-up. How much of your institutional AUM is in the Middle East, I think it was around $9 billion in the U.S.
at the end of 2014 and where does it stand today?.
We don’t disclose by region. Clients are obviously pretty sensitive to us disclosing region of the world and particular asset types.
What I would say is we look at our overall sovereign wealth business, its under 5% of our business and our assets and so clearly it had an impact in the quarter, but it isn’t significant piece of the business in which we worry too much about..
But is that where you had like a bit of an exaggeration of the redemptions this quarter and do you see that continuing?.
We were hit some in the sovereign wealth space globally. I won’t comment on specific regions..
Great.
So was $9 billion of outflow this quarter, $4 billion was the average over the prior $4 billion, how much of that increase was tied to sovereign redemptions or was it not a big factor?.
No, it was broader than that. I mean we had large allocations away where we performed well on behalf of the client. And the client was diversifying away from an MFS because we have performed so well. So it was really a hodgepodge of a variety of things with performance being the lowest factor in the redemptions in the quarter..
Okay.
And then just on the lapse reserve strengthening, I don’t know Larry if you can put it in this kind of perspective, but if industry studies or the internal studies, primarily industry studies lapse rates are X did you go to Year, meaning much more conservative – a much more conservative assumption than the industry would suggested you?.
It’s hard to make a comment relative to the industry, but I would say that especially on term insurance we did try and get ahead of the trend. More recent product designs have seen a larger and larger premium jump at the renewal point. And when we look back, we can see that the size of the jump co-relates with the size of the lapse rate.
And so well, most of our historical studies are based on older generations of products that didn’t have as big a jump. We did make a modification because of the trend in product designs in order to try and get ahead of the potential trend in lapse rates.
So, I would say we have done a thorough job in reviewing that and we feel good about our assumption, but I wouldn’t necessarily say that it’s intentionally conservative. I would say we have put it where we think is the right spot..
Is this a moving target kind of thing, because lapse has been not just for Sun Life, but a industry-wide reserving issue for a number of years now byproduct with a low rate environment.
We are going to have to expect these types of adjustments every year or what are your thoughts on that?.
Well, we really took a very thorough look at what’s been happening in our book of business right across all of our businesses this year and this quarter.
And on that basis and we made the changes effective at the start of the quarter so that we do see that this quarter’s experience was relative to the new assumptions and we see that we did have a gain. Now, one quarter is not a trend, but it’s the right sign.
So, I would say that we have been reviewing it now for a number of years and we feel good about our assumptions. Having said that, at the long durations there still is experience to play out that we haven’t seen yet.
So, if you look over the full duration of the contract, we may see some variation over time, but if I look out for the next couple of years, I think we have fully reflected the experience we have been seeing and I feel good about where we are at..
Okay. Thank you, Larry..
Your next question comes from Meny Grauman with Cormark Securities. Your line is open..
Hi, good morning.
Just wanted to ask about Asian sales and just any read-through from what was a difficult market environment, you talk about strong mandatory Providence sales in Hong Kong and I am wondering if you put that in context of what the market did and then also if you can comment on wealth sales in China as well?.
Okay. So, I will take – it’s Kevin Strain, I will take sort of a broader step at the insurance sales and Dean mentioned this earlier. They were quite strong in Philippines, Vietnam and Malaysia.
Hong Kong was weaker than expected, but we are seeing some growth in the number of agents and we were seeing growth in the traditional and the agents are also selling pension sales. So, that – overall, I think the agency performed well. The sales of the pension funds were very good in Hong Kong.
We were at top three sales and we are punching above our sort of asset management position. It’s been done on strong performance. And the performance of the funds has been very good and we expect to continue to see those flows on the pension side in Hong Kong.
So, I think overall, Hong Kong insurance sales were a bit weak, but we should see those, start to come back up and the pension sales were good. India were seeing good sales on the agency side, Dean mentioned this earlier. We lost the Citibank relationship with the AIA regional deal and that’s what dragged the sales down in India.
So, we don’t expect to see that year-over-year. We expect to see the sales by growing over time. So, that should happen over the next little while. So, that’s one thing. And then on your question on China, on China, we were seeing a shift in mix to more regular pay and more regular pay sales, which is something that we have been driving towards.
And we think that this is a good step for us in terms of the Chinese sales. And on the wealth side, there has been good momentum in China for our sort of almost individual wealth sales and we are selling those through a couple of distributors, including WeChat and also a website called 163.com..
Thanks for that.
And just a quick question on MFS, you talked about market volatility is maybe raising the profile of active management, are you seeing any signs of that as you speak to clients or any sign that, that changes is happening or is it more sort of looking forward and just thinking it through and hoping that for the best basically?.
Yes, this is Rob Manning. We have quite a marketing campaign literally around the globe where we have sort of tried to segregate active management and the power behind that and we do it not only in traditional media, but also in digital. And you know the bottom line is this business is all about generating alpha.
And if you don’t have alpha, you can create any product you want or any marketing strategy you want, you will not be successful. And so the heart and soul of what we do here is that we very much believe that we can’t add value over a cycle. We have been able to do that.
And quite frankly, Mike and I spend the majority of our time thinking about the investment platform, how to strengthen it and how to position people to add the most amount of value. And that resonates with our clients. And if you look at our unaided awareness in the industry as an active manager, it continues to climb.
So, a lot of the investments that we have made are gaining traction and the disintermediation of passive isn’t something that we have been dealing with our whole careers. I have been dealing with it for over 30 years. It is acutely intense at the moment, because many active managers over the last cycle did not perform well. MFS is an outlier on that.
So, if you look at our performance, we feel comfortable that we are going to continue to be successful. And the flow issues that Mike talked about will resolve themselves over time. We just have to extend that timeline, because we don’t know how uncertain the environment is going to remain..
Thank you very much..
Your next question comes from Sumit Malhotra with Scotia Capital. Your line is open..
Thanks. Good morning. Just to pickup there for Mike or Rob, it was mentioned that the flows have been markedly better thus far in Q4, I know we are only a month in, but obviously markets have been better as well.
Is that in both the mutual fund and the managed side?.
Yes. We have seen – at this point in the quarter we have seen that. Again, we caution a little bit, because we don’t know what clients are going to do as we make our way into the end of the year. We do think that the third quarter, again, if you look across the industry in the third quarter, you saw outflows go up dramatically in the third quarter.
So, clients were doing a lot on the redemption side in the third quarter. For the industry, it looks outsized relative to history. That would be our expectation as we look into the future..
And just more specifically on the managed side, I think we have gotten somewhat accustomed to the outflow level being there over the past year in and around the $4 billion range. Now, you mentioned some of the sovereign wealth fund activity and obviously markets were poor.
Is it your expectation, Rob, that $4 billion level for the managed side is a more reasonable run-rate expectation? And this was a sizable blip in Q3..
Again, what I would say is when you look at the industry, outflows picked up in the industry in the third quarter. If that is in fact the case, then we would expect something more normal on a go-forward basis. What we don’t know is whether the industry is going to have a higher redemption rate over the next couple of quarters.
So, we are being very cautious to give any guidance, because we don’t know what industry flows will look like..
I understand. Thanks. Thanks for that. And then just to go back to Asia, I think this was answered somewhat in the – one of the previous questions, is there was certainly a lot of focus on equity market volatility over the last few months and what that may have done to Asia.
It doesn’t seem like there was any noticeable impact in your business from equities. But is there any comment on economic growth as a whole in Asia, especially starting from China, it certainly seems like there is a view that we have taken a step down.
Do you think it’s reasonable to expect a slowdown in the run-rate on sales that you have had in your core insurance products in the region as a result of slower economic growth?.
So, it’s Kevin again. The equity market slowdown particularly impacted the results in the Philippines and in China. So, it was a bit of negative in the overall earnings and that was offset in ACMA. So, when you look at the underlying earnings, we have taken that out.
But I would say overall the team in China has done a good job of managing that book of business and we were profitable in China again this quarter. So, I think that’s a positive. It does have an impact. We sell a lot of unit-linked product in the Philippines and it has the negative impact there.
We are not seeing the overall economic conditions have a significant impact yet on our insurance sales. I mean, it is a bit of a drag, but I think if you look long-term, we have got a lot of potential to continue to sell health and accident. We saw health and accident grow a lot in the quarter.
We have got a new sales distribution model with Minsheng Bank which is the top 15 bank in China that’s selling regular pay critical illness insurance. So we are pivoting a bit in terms of mix. I think the fundamentals of our distribution are good. Our agency distribution is growing in all the countries where we have agency.
Our bank insurance has done very low in Malaysia and we have added bank insurance in Indonesia with Commonwealth Bank. And we have added bank insurance in China with Minsheng .And we have just added three new telecoms in Malaysia. And I think there are still lots of potential for growth.
So I think it is a bit of a headwind for us, but I think with good distribution execution we can work our way to that – through that headwind. And we are seeing that with the growth we are getting in most of the countries. The biggest impact on sales has been shifting mix for us, which took sales down, but actually increased VNB.
Our VNB in the quarter was up over 40% despite the fact that the sales were down. So it’s been a very focused execution philosophy on distribution to grow the VNB and grow the profitability. So I think we will continue to work through that and continue to see growth in Asia..
And so that’s very helpful. Thanks for the detail..
Sumit, it’s Dean Connor. I just wanted to add one other point there which is when you look across economies in Asia, they may be slowing down a little bit relatively to what they have been growing at in the past.
But in terms of real GDP growth the numbers – they are still posting very strong real GDP growth, if you look at India, Vietnam, Indonesia, Malaysia and so on. And so in terms of places in the world where we want to do business and grow and have growth opportunities, as Kevin said we think we have got great potential there.
And when you look at the growth of those economies they are doing quite well in absolute terms..
I appreciate that Dean. I know there was a lot of focus more so on the equity side of the equation, but I think for your business in particular it really comes back to how those economies are doing and the growth of the middle-class population that you folks have talked about quite often.
I will wrap it up here, just a very quick numbers one for Colm and that’s on the earnings on surplus and the SOE, I apologize if I missed this in your remarks, but it did seem to take down this quarter compared to the run rate you had, anything specific on the investment side that may have impacted this or any color you can provide there would be appreciated?.
Yes. I did comment on it, but just to summarize we had some adverse impacts from currency. We have hedges in place against some foreign currency denominated assets that those are economic hedges and from an accounting perspective it has given rise to a bit of noise.
So in the second quarter and actually bonused earnings on surplus, that’s $10 million, in this quarter that reversed which is – what you would expect if that works economically which it does. So I think the run rate you could think of it as being approximately $10 million higher than what we posted this quarter..
Thanks for that..
Your next question comes from Peter Routledge with National Bank Financial. Your line is open..
Hi. Thanks.
Just a follow-up on MFS, is the – in terms of on fund flows is the Guggenheim impact out of that now, I know after you sold the business there may have been a potential for run off and I wonder if that’s impacting your results at all?.
That business that’s within our variable annuity business we continue to sub-advise those assets. And those assets are performing from a flow perspective like the rest of the industry..
Okay.
So they are not giving rise to any noise?.
No. They are inconsistent outflows. The VA business is in outflows, it’s a category across the industry. But we do continue to sub-advise those assets..
Okay.
And then I noticed in the sub-pack the liability for share-based compensation keeps going down about and I understand probably that’s just based on the devaluation methods you use, but are folks putting their shares back and cashing out?.
Well, we have an active plan at MFS. And I think we have talked about this in the past. Part of people’s comp is equity in MFS, because vessels were 4-year period. And it’s very cyclical in nature and over time people sell, they don’t sell, it just depends on their personal circumstances, what percentage of MFS is the part of their network.
And so quarter-to-quarter it’s pretty volatile and almost impossible to predict. But it’s a pretty fluid plan where we award shares every year and we do get shares back. But we still have strong ownership by employees here and it continues to be a quarter – our culture and our performance based system over time..
And they are settled in cash or are they settled in shares at Sun Life?.
They are settled in cash..
Okay, thanks very much..
Your next question comes from Doug Young with Desjardins Capital. Your line is open..
Hi, good morning.
Just a first question and maybe back to Kevin on Asia, I mean obviously the growth you have seen in Asia has been surprising and I get the FX side of it, I am just wondering because all we see is kind of the high level, can you give a little bit more detail from a regional perspective, is this just you are gaining scale outside of the Philippines into different regions, is that the key driver or can you talk maybe about one or two of the key kind of drivers.
And also can you talk a bit about how important wealth has been to the earnings growth, is this mostly wealth driven or is it mostly insurance?.
Okay. So I think Doug the key factor is that the VNBs in Asia on the products are by and large quite good.
And if you can get the mix right and you can drive your distribution to grow with the right types of mix and keep your persistency good, build the in-force, you are going to drive profits, because the product by and large are fundamentally profitable. So I talked about the amount we grew VNB in the quarter.
We have had significant growth in VNB for the last number of years. We have had significant growth in the in-force business in both insurance and wealth. And so it’s not one or the other, I would say it’s both. We have seen really good growth in our asset management company of India, in the Philippines and China and in the Hong Kong pension business.
And we have seen significant growth in our insurance operations. This quarter six of the seven countries were profitable. Of course the bigger in-force businesses like the Philippines and Hong Kong are driving a big chunk of the profits. But we are seeing Malaysia after acquisition coming on and being quite profitable.
We actually had a substantial dividend paid out of our Malaysian business earlier this year and we are seeing India continued to grow particularly in the asset management side.
So I don’t say its broad based and it nearly relates down to getting distribution right, getting the sales right and then getting the sales in a way that you can have good persistency so good in the in-force. And if you look at our expected profit growth, it has been significant.
And Colm mentioned that in the early numbers that we have been a big provider of that growth and expected profit and that’s something that we will continue to focus on. So it by and large comes down to getting the distribution right..
And where do you think you – like what inning are you in terms of this, it sounds like this is an ongoing process, are you still in the second inning, third inning, are you getting close to kind of getting the right mix of distribution and product?.
It varies by country. I mean we literally basically just entered Vietnam in the past 3 years and we have been in Hong Kong for 123 years, right. By and large there is still a lot of work to do and there is a lot of opportunity. And I think we have grown the business substantially since we set out our Investor Day target.
We have grown the brand substantially. In 2012 Sun Life wasn’t one of the top 1000 brands in Asia, now we are in the top 500 brands. We were the fastest growing insurance brand in Asia. We are now the number sixth insurance brand. So we are getting a lot of traction. But there is still a lot more to do.
We are not at scale in all of the countries and we need to keep driving the sales growth in both insurance and wealth and drive our self towards that scale and sustainable profitability. So in the innings I would say overall for Asia we are still maybe in the second inning or third inning. And there is still a lot of work to do.
But I think we are seeing some good momentum in a number of the businesses..
Okay. And then just on the U.S.
group side, obviously it was poor mortality, morbidity just I wondered if there is some additional color you can provide and is there anything from a new claims development perspective that that concerns you and in the same breath just looking for an update in terms of the percentage of your business that has been re-priced so far in this latest iteration of price increases? Thanks..
Hey, this is Dan Fishbein. Yes, as you noted in the third quarter, we had some unfavorable disability, morbidity. And that was mostly driven by new claims incidents and severity, but this was generally within our range for volatility. On a year-to-date basis, the disability experience is near our expectations and significantly improved over 2014.
And in fact, group benefits earnings in the third quarter were substantially better than the same quarter last year as well as year-to-date. So, overall, we are pleased with that progress.
On the re-pricing of the business as of the end of the third quarter, we have re-priced approximately 40% of the book and that began around this time, actually around September of last year. And we expect to have about 50% of the business re-priced as of January 1..
Great, thank you..
Your next question comes from Dan Bergman with UBS. Your line is open..
Hi, good morning. With the January renewal season around the corner, I just wanted to see if you had any updated thoughts on the stop-loss market in the U.S. and what you are expecting in terms of the upcoming renewals? I know sales were strong in 3Q ‘15, but some peers have recently mentioned some signs of increased competition in those markets.
So, I was just curious to hear your thoughts on the level of competition you are seeing in the U.S. stop-loss market and maybe the outlook for sales and kind of how pricing and returns are holding up? Thanks..
Sure. As you have noted, we have seen better sales this year than last year and last year was a record year for sales in the stop-loss business. So, we are expecting the momentum to continue.
From a competitive standpoint, we are not seeing this year as being more competitive than last year, in fact in some ways maybe even a little less than this time last year.
We are generally getting the renewals that we are seeking to get on an overall basis and expect that overall we should have a strong January 1 both in terms of sales and renewals..
Very helpful. Thanks. Maybe just switching gears then to MFS, in terms of the margin, it looked like it held up quite well in the quarter, I think it was near the upper end of your expected range despite the elevated outflows in the market weakness.
So, I wanted to see if there is any color you can provide on what factors have allowed you to hold the strong margin levels despite the tough market environment and any updated thoughts on whether these current margin levels are sustainable ahead? That would be great. Thanks..
Yes. In terms of the margin, we anticipated actually the environment was going to be tough this year. So, we have been very vigilant around controlling discretionary expenses at the company and really investing in things that are necessary, but not nice as a way to put it.
But some of the projects that we have ongoing at the company are ramping, particularly in our CRM system. So, the sales teams help reinvigorate institutional sales as well as some of the digital spend. And we are also putting in a substantial order entry system and compliance system at the firm that is absolutely necessary for us to do.
So, as we have guided in the past, the spend has not caught up to where its run-rate is going to be. So, going forward, the 40% number is the top end of the range as you accurately describe.
And given asset levels being where they have been throughout the past year which is around $440 billion to $450 billion, we think we can run a margin in the high 30s to 40%, but I just do want to caution you that we are very heavily weighted towards equities.
And if we do go through a difficult market, the operating leverage works the other way as well. So, we will monitor it. It’s easy to model at MFS, because it’s just AUM and average effect of fee.
And if assets go down, you can see what happens from an operating point of view, but you should know that we do anticipate the environment to be difficult and we are spending a lot of time keeping our headcount low and making sure that we are only investing in things that are necessary..
Very helpful. Thank you..
Your next question comes from Mario Mendonca with TD Securities. Your line is open..
Good morning. Colm, just a quick numbers question on the tax rate, in your opening comments you said that reversing all items of note the effective tax rate was 17%. Now, on a basis consistent with the $0.86 in earnings that effective tax rate is different. I am coming up with a materially lower number.
First, have I got this right?.
You are right. If you don’t adjust for the notable items the way it is below the 17% and with tax rates, Mario, we are looking at a variety of numbers here between reported, operating and underlying. And of course, we are looking at quarter, discrete quarter and we are looking at year-to-date.
So, we were trying to give you a few data points to show that. From our perspective, really our key message is that the 18% to 22% is very much our continuing view of the target range. And I would point out that Q3 was on the low side and Q2 was on the high side with an operating tax rate of 25%, which when you adjusted for the various items, was 21%.
So, you get a little bit in one quarter. You give up a little bit in another quarter and we do look at it pretty carefully to say is there anything about the types of items they came through in the quarter that we think of as being a notable item and we didn’t see that this quarter..
So, again, on a basis consistent with the $0.86, it was lower.
Can you say that there were no tax gains that would have caused it to be materially lower?.
No, there was a recovery. We did mention that..
I am sorry, how much was that?.
But that was really in respect of the prior year, but I see that in the normal course. And some years you put up contingencies in respect of prior years, some years you resolved issues in respect of prior years. So, it comes and goes. And as an international company, we have a large number of tax items that we manage..
Forgive me for not catching that, did you disclose the size?.
We didn’t disclose the size, but I am comfortable to let you know that there was about $18 million..
Okay, thanks very much. That’s all I had..
Thanks, Mario..
Your last question comes from Tom MacKinnon with BMO Capital. Your line is open..
Yes, thanks very much. A question for Larry and then one follow-up.
Larry, you mentioned the strengthening the lapse assumption seemed to work in terms of favorable lapse experience in the quarter, but then you released mortality and morbidity reserves and I assume you made those effective at the start of the quarter and then you got a $44 million after tax loss on mortality and morbidity and experienced gains in the quarter.
So, how we are going to look at that and what does that mean going forward?.
Yes, okay. So, a couple of things there. First, mortality does fluctuate quarter-to-quarter. And year-to-date, we have actually mortality gains of $22 million approximately. So, we don’t want to just look at the one quarter..
But one quarter has a different assumption than the other quarters?.
Yes, that’s true..
We run off a different base..
That’s true. The mortality assumption release that we had, a chunk of that was in our international life business where we changed mortality improvement. Last year, we did a big change from mortality improvement, but for the international business, we didn’t have – we weren’t able to complete the study fully.
So, we completed that this year and ended up releasing some from mortality improvement. And that’s about mortality rates well out into the future. So, it wouldn’t really impact the current quarter at all. And then most of that we had a number of other smaller changes across the various business.
The other point I would make is in one quarter we – actually is that the group businesses we don’t hold a liability relative to future premiums. We only hold for waiver reserves are incurred, but not reported. So, to the extent we end up with some group mortality losses. Those aren’t really – they don’t impact the assumption review..
Okay, thanks.
And then question for maybe Kevin Dougherty, I assume a lot of the jump in the individual insurance sales in Canada are attributable to increasing PAR sales, maybe this can confirm that? And I am trying to get a handle as to how that impacts strain and the other one is given that you only get a small portion probably less than 5% of the profits associated with this PAR business, why do you see – what are the benefits of it and what would be the kind of ROE on that business?.
Sure. So, first, I would say, sales were up pretty well across all the different product categories. And in particular, the career sales force had an excellent quarter up 7% year-over-year, big jump on the third-party side and a big portion of that was PAR.
There is a very large contribution from our point of view and lot of value from PAR in including along with these sales often come riders which are very profitable as well as often related sales of term as you put together a full financial plan for these individuals.
And there is tremendous relationship building with the third-party advisors and finally there is a nice contribution to expense coverage and so on. So, there is lots of points of value to this business and both for the customer and for shareholders..
And what’s the impact on strain, I assume there has got to be hardly any strain associated with this business. I am just trying to figure out what’s driving the strain? I guess the reduction in the positive impact of new business that you are getting in Canada? What’s driving that? I wouldn’t anticipate it would be increasing PAR sales, so….
Yes, Tom, it’s Colm here. You are quite right, it’s not related to the PAR sales, it’s really the factors we talked about earlier, which is the lower payout sales and the lumpiness in the defined benefit solutions sales.
So, both of those can impact a quarter or so when we look at year-over-year, that’s really where – it’s the change in business mix related around those areas as opposed to anything to do with the PAR sales..
So it’s really due to expense coverage issues than – rather than interest rate and lower– and the strain associated with those businesses, is that a better of looking at that?.
Tom, I would say the mix is driven by interest rate factors, because payout annuities are more difficult to sell in this type an environment. And on the defined benefit solution sales they just happen to be lumpy in terms of when they get recognized they are complex.
And they can land in a certain quarter, last quarter we had a good result there and this quarter was a lower result. So it’s more of a mix issue, but you have to think again over the year and these are all the factors that we though about as we considered the overall leverage range..
And the strain increased, that’s a quarterly guidance from $30 million to $40 million to $40 million to $50 million?.
Yes..
What jurisdictions were driving that?.
Well it would really be in the case of Canada for some of the reasons we have talked about it. In the case of the U.S. on the international side life sales have been a little bit lower. Again, we have been quite disciplined in our approach there to crediting rates and some other competitors have not moved on the crediting rates quite at the same level.
We think that’s we are still very much in that market, but that can be an impact and that has shown the variance year-over-year. And currency of course when we gave that guidance of $30 million to $40 million per quarter, the Canadian dollar was quite a bit stronger than where it sits right now..
Okay, thanks very much for the color..
Okay. Thanks, Melissa. We are out of time for today’s call. I would like to thank all of our participants today. And if there are any additional questions we will be available after the call. Should you wishing to listen to the rebroadcast, it will be available on our website later this afternoon. Thank you. And have a good day..
Ladies and gentlemen, this concludes today’s conference call. You may now disconnect..