... testing, testing. Yeah. Good morning, everyone, and welcome to day two of Scotiabank's 26th Annual Financials Summit. I'd like to introduce our first guest for today, Kevin Strain, President and Chief Executive Officer of Sun Life Financial. Welcome, Kevin. Thank you. Nice to see you. Which one? We can probably sit here. Okay. How's everybody this morning? Good. Maybe too early, but yeah, I thought maybe the best place to start is just high level on your very high ROE target. Yeah. Very impressive. And to the extent that you can manage to get there, would put you in a very elite category of financial services companies globally, for that matter, not just in Canada. Any thoughts on... You know, so maybe just to remind investors the pathway of getting there, and then- Yeah ... where you might have a bit of work to do to sort of- I wouldn't define it as a high ROE target, actually. I think for us, it's you have to remember, if you stand back and look at Sun Life, we've been constructed with low-capital businesses, and half of our business is, well, just over 40%, but trending towards half, will be asset management. So between MFS, SLC, we have asset management in Canada, we have asset management in Asia, we see a chance to really grow the asset management. Nobody would say 20% was a high ROE for MFS, right? So you have to remember that we've got this. And then on the insurance side, we've really geared to low-capital, repriceable businesses, group benefits. So the combination of those. And again, 20% is a very reasonable ROE in that space. And the other lift we have is that as we build scale in Asia, that's gonna lift our ROE in Asia. So the combination of asset management growing, and we have big expectations for SLC, DentaQuest, which I know we'll get to, returning to the more normal sort of margins and profitability levels, and then also Asia growing gets us to the 20%. So I don't, I don't view it as a... I view it as a very reasonable target for the mix of business we have. Yeah, I do think it's impressive in the context of who you get compared to. Yeah, yeah. Other Canadian lifecos, Canadian banks, other large financial services companies- Yeah ... that are diversified- Yeah ... like Sun Life is. Far be it from me not to say thank you for a compliment. Yeah. I do think it's Yeah ... you know, we think it's a good ROE, but it really comes out of that mix of business that we've built over a long period of time. That shift that we started right after the global financial crisis, to focus on the group businesses and to focus on asset management and the work. I know Steve Peacher is here over the next today as well. The shifting from. In 2014, we were an insurance company, and we owned MFS. Today, we view ourself very much as an asset management and an insurance company. That shift in ROE comes out of that mix of business that we've very purposely developed and very purposely taken actions towards, which we think will work much better through multiple different economic scenarios than others. That low capital, low guarantees. Even when you think about Asia, Asia is a much shorter duration life insurance business than some of the business in the U.S. and some of the business in Canada. So us stopping our U.S. life business, us exiting variable annuities, us not being in long-term care in the U.S., were all really important pieces of delivering the type of ROE we're delivering today. Got it. Thanks for the insight- Yeah ... and very humble as always, Kevin. Thanks. Maybe to touch on the different business lines, and probably best to start with the U.S. Yeah. Obviously, a few questions on the U.S. across your businesses. Starting with the dental business, obviously, it's been a little bit noisy for investors lately, with the target coming off for 2025 and just some of the headwinds that you've seen in that business. Just maybe as a, as- Yeah ... a quick reminder, you know, what went wrong, and how do you sort of right the ship? Yeah, yeah. And I know this is on everybody's mind. And if you think about the U.S., I just mentioned that we pivoted towards group in the U.S. because it's low capital, it's repriceable, but you need it to be at scale. So we did the Assurant acquisition. I think that was back in 2000 and well, about 10 years ago. So we did the Assurant acquisition. We integrated that with our employee benefits business. And we looked. We still weren't where we wanted to be from a scale perspective in the broader group benefits business, and we looked at a lot of acquisitions, and that would be even bigger than the DentaQuest acquisition. They were across the disability and the employee benefit space, and we couldn't make any of the financials work, so those acquisitions went to other companies. When we saw DentaQuest coming to market, we were undersized in the dental business in the U.S. We saw it adding scale to our overall group benefits business. We saw it adding new capabilities. We were not doing any Medicare, Medicaid, and we saw that being a big player in the dental, second most sought after benefit in the employee benefit space would help us with voluntary, would help us get new employee benefits on the disability side and life side and health side, and would also help us grow the dental and tangentially the vision business. So we saw this acquisition as creating new capabilities and giving us that scale. Now we're in that position of scale in the group benefits space. We always knew that the public health emergency would give dental higher profits because people weren't using the benefits on the dental side. The public health emergency went longer than we would have expected. That created this bigger backlog of people who weren't exiting Medicaid in particular. And what happened when the public health emergency ended, states started to exit people, were allowed to exit people off of the Medicaid program. As that started to happen, I think if you think about it, it's just logically, right? Like, if you are a member in Medicaid, you don't know whether you'll be exited or not, or you know you're coming up to your exit, you use your benefit. We see that all the time, like, people aren't gonna leave a dental benefit sort of sitting there. And dental is different than a health benefit. You can choose when you do your teeth, you can choose even a bunch of procedures around your teeth. So we saw the claims shooting up. What happened at the same time, though, and we knew that would happen, but what happened at the same time, this extended, but at the same time, we've now hit a place where the federal government is going through changes, and they're putting pressure on Medicaid, and we've all seen that pressure coming on Medicaid. And so states that would typically be repricing more quickly to the changes in claims experience are sitting back and going, "Wow, we don't know what our funding's gonna look like yet. We think it's gonna be fine for this group," but they're resisting a little bit some of the changes that we would expect to see, and that's causing this added sort of negative claims experience on the dental side. We still believe that over time, the Medicaid space in the U.S. is massive, and it's massive in terms of votes and those types of things. It's going to settle itself in a place that is gonna be quite acceptable to us from a business perspective. But until it does sort of settle, we think it's gonna take a little bit of time to get through the repricing, and that's why we changed our guidance. So we still think long-term, that this meets all the objectives we set out when we did the acquisition, but we're going through this combination of longer public health emergency, and now this uncertainty at the federal level of funding. And again, members are seeing that uncertainty. They're going, "I'm not sure if I'm still gonna be in the Medicaid program," so you go get your teeth cleaned, you go get that cavity filled, you go do some of those procedures that maybe you would've waited a little bit to do. And so we're seeing that abnormally high level of claims experience. And again, we think we'll work through this over time. This is the public space in the U.S. system is a massive part of how the U.S. healthcare system works, and we still think it's going to be a good space for us, especially the dental side. It's still a big benefit. You see we're big players on the dental in Canada, and I think over time you're gonna see this correct itself, but it is gonna take a little while. Okay. Okay, fair enough, and maybe switching over to U.S. stop-loss. It looks like it's picked up a little bit. Maybe talk about some of the drivers. Where are you seeing improvement, and how do you see it playing out in the near term to medium term? Yeah, we're a big player in the U.S. stop-loss. I talked to other CEOs in the U.S. space, and they're envious of our stop-loss business. We have more data, we have more capabilities. We've wrapped stop-loss with... For example, we purchased a company called PinnacleCare, and they were designed to help some of the wealthiest people in the U.S. manage the U.S. healthcare space. And what we use them for is, if we see a large claim coming, we assign a PinnacleCare person to them, and they help them manage that benefit. And it's great for the member because they're getting benefits that the very wealthy people would get. It's great for the sponsor because a lot of times, they don't know the right hospital to go to, they don't know the right treatment to get, they're not getting a second opinion of the treatment. With PinnacleCare, it actually helps control the cost and give a better experience. So we've created a model where we have a lot of data, we understand the business very well, we do not price aggressively, so we can be patient because we have scale and data, and we've created a better member experience. And so, you know, we had... But we are seeing inflation there, we're seeing more claims. Part of that's coming out of COVID, where people weren't going in to do regular things, and now, you know, cancers and different things are becoming a more difficult treatment, and so a more expensive treatment. So that we reprice on an annual basis for that. We talked about a pricing increase of 14% last year. As we saw the experience in December, we added 2%. We said we thought we should have probably had a 16% price increase. We added 2% into the reserves, and what we're seeing so far. It's early, but what we're seeing so far is largely our claims experience was largely consistent with that, so there's nothing that we're seeing that's worrying us in terms of this year. There is inflation in healthcare costs. There has been roughly single digits, middle single digits to high single digits in the U.S. for years now, and we expect that to continue, and that's why you see price increases like 14%-16%, because the cost of healthcare in the U.S. has been increasing significantly over time. And so, you know, I think that we know how to run that business. We've had great experience, we have a great members' experience, and over time, you're gonna see that continue. It's really, really good ROE and has been a great supporter of our profitability, and we expect that to continue. There is, I would say, that last year was indicative of coming out of COVID at higher medical costs, and we're well prepared for that. Right. So as medical costs rise, like, you get that delta- Pricing, yeah, pricing rises. The pricing's got to rise double because the actual amount you cover is about two times that. The 14% is a combination of higher experience, which is coming out of... Part of that's out of COVID, and then the higher medical costs. So it's a combination of both. That's how you get to the 14%. And we've been very good at repricing for that. And you've seen that our volume was down a little because we've played disciplined to pricing. And if you look at some of our competitors' quarterly calls, they're seeing much worse claims experience, not aligned with the pricing that they had done. So they won some business from us-... but they're gonna regret winning that business, and over time, we'll see that pricing sort of come back. So it's an important business for us. It adds earnings, ROE, and we're very good at it. And I hear that from other CEOs. They wish they had the capabilities that we have in the stop-loss. Got it. And how does it connect with other parts of your business in the U.S.? It's obviously a big part of- Our whole U.S. business is really a benefits business, right? So we have employee benefits, which is disability, life, health, voluntary. The stop-loss plays the other part of the benefits where we don't play, which is in the medical side, which is where you're seeing even more noise if you're actually in the medical business. And then, of course, the dental is part... I would say it's just a big section of the employee- Mm ... benefit side, and that's where we've geared our entire U.S. business, is to group benefits that's repriceable, one-year to three-year basis. It's, it's low capital, no guarantees, right? The repriceable. So that's where we've geared our U.S. business. We're really excited about... Dan's done a great job of managing that business. Of course, he's a medical doctor by background. But David Healy's been with us for 20-plus years, and he had, at different times, run operations and IT. He ran the employee benefits business. He took that employee benefits business through the Assurant acquisition, through a place where we were breaking even, roughly, to a place that it's significantly profitable, and I think he can do the same thing, bringing more technology and more operations experience. He's been running dental, and that's an important piece of that. So, you know, we feel pretty good about being in the space we're in in the U.S. We think that's the right space. No, no long-term care, no variable annuity, not running new life business- Yeah ... repriceable. It's been a more difficult time through COVID and some of the things we talked about on the dental side, but, you know, we're gonna work through that. Okay. Thanks for that color. Can you talk a bit about the technology side? Yeah ... and how that benefits those two businesses in the U.S. in particular? I think technology's becoming everything, right? Like, if you think about how you help a member understand their benefits, how they help a member process claims, bringing additional services to clients. So we will help clients manage their diabetes, we'll help clients with other medical conditions that they can do on our applications. We have a Health 360 app that helps them understand what they're going through. So, you know, the technology side in terms of benefiting the client is huge. I also think there's a lot of efficiencies to be driven through the technology side, and we've seen that with employee benefits. When you get to RFP processes, where you're going through a competitive bid process, having the strongest technology is a big part of winning business without having to be the most price competitive, 'cause the sponsors value that technology support. So, that's huge for us, and I think the transition to David is significant for that. Okay, maybe jumping over to asset management. Obviously- Yeah ... you talked about how important that is for SLF, and it distinguishes you from some of your peers, and sticking with the U.S., starting with MFS- Yeah ... some investors have been more lately concerned about the margin coming down a little bit. Hasn't really been expanding. You've got a massive AUM base, CAD 860-some odd billion, I believe. Yeah, in Canadian, that would be $660-$650. Pretty substantial. And then the dynamic of, you know, 70-ish% of your costs are variable. I guess that interplay between moving the needle and, you know, continuing to grow your asset base should give you the benefits of scale- Yeah ... over time. How, how do you sort of see that developing? Like, can the margin go meaningfully higher over, say, a two-to-three-year period if you really try? A couple of things. One, clearly, and you guys are all in that business. Asset managers that are in the public equity and the public fixed income space, public equity in particular, when equity markets are up, we tend to do better because the AUM is higher and the fees are higher. And so you've seen that great tailwind for probably since the end of the global financial crisis, where equity markets have been in a long, long bull run. We think that a setback, right? We didn't wanna be an insurance company that were MFS. We wanna be an asset management and insurance company. We think MFS is a key part of that in the public equity and the public fixed income space. I think they're doing good things. Active ETFs in the U.S., there's tax advantages for the client, and so they've been building out their active ETFs, and we think that's a really good thing, and they're starting to get recognized on that side. They've been building out their public fixed income. They've had great performance in public fixed income. The issue with public fixed income is the difference between great and not so great is relatively small. So we're expecting, over time, that we'll start to get more flows there. They're very close to their clients, and their clients understand how they manage money, but they're subject to all those trends that happened in public equities and public fixed income, where you've seen changes going more passive, institutional investors having different priorities, some going into the alt space. But they continue to perform well for their clients against their objectives and how they define their asset management approach, and their clients understand that and buy into that. That's how they've stayed strong in the U.S. retail space and in the global institutional space. And so while they've been in outflows, those outflows are roughly consistent with what you would see in the broader industry, and in fact, over time, they've been better. And we think that having a strong public equity, public fixed income, asset management business that's global is important to us. We can find ways to position MFS through our wealth businesses. We're doing that in Asia and in Canada and help MFS grow, but they are that piece of our asset management platform. Alongside of that, we saw many years ago, and Steve will talk about this more probably, that there was a switch coming into the alt space, and that clients were becoming very interested in the alt space. We systematically built, over time, one of the strongest alternative businesses in Canada, and our goal is to compete with the strongest alternative businesses in the world. So we've built a platform that has CAD 250 billion of third-party assets in the asset management space, going across real estate, infrastructure, private credit, and we took our private fixed income space business out. That gives us a balance across public equity, public fixed income, into the alternatives, and we think that that's really good to manage through different cycles, different interest rate environments, different equity market environments, different economic environments. And it's important for us as an asset manager to see across those. Everybody understands what their role is and how they add value to the firm. You know, we will see different cycles in each of those, and being across the asset management platform is important to us. We are increasingly looking into ways to add value. As a major player in the retirement space in Canada, our GRS business is looking for ways to bring more of alts to our client base. Our wealth business are looking at ways to bring more of alts to our client base, but also to bring more of MFS. So we have about CAD 25 billion of MFS globally that we run through our wealth businesses, and we think we can increase that quite significantly. We think we can increase in the alt space, what we do through our wealth businesses, and creating that, we call it a bit of a flywheel from our wealth businesses and our asset management businesses. You know, we're unique. We have 1.5 trillion in assets under management, and only CAD 200 billion of that is our general account. 1.3 trillion of our assets are with third parties or through our wealth business. And so we get this incredible opportunity to think about ourself as an asset manager with the capabilities we have on the insurance side to provide some flows into the asset management space. And when we step back and look at other alts businesses, they're buying insurance. We don't need to buy insurance. We have insurance that we like. Again, it's low capital, low guarantees. We're not worried about the insurance, things that could happen from buying those books, and that insurance business helps to fund how we think about the alts business. Okay, thank you. You sort of dovetailed into my next question. Yeah on SLC. Yeah. But just going back to MFS, so it sounds like it's more of a margin stability story that. Well, so yeah, when you look at the margins, You know, as you said, you know, two-thirds, 70% of their costs are variable, and so you get some of that. They actually have. Their fixed cost for the size of AUM they have is actually relatively low by industry standards, and it has to do with how they manage and how they manage globally. I think that you're seeing some natural sort of changes in the margin as things change, but a lot of it's gonna relate to the size of the AUM. And if you think about MFS, we get a billion-plus earnings in from MFS. 90% of that comes to us in cash. So if people are assessing MFS, they should also look at what we earn on that 90% that comes back to us in cash. If you wanna do an easy way, just you could assume that that was buybacks, right? 'Cause we're. But it also provides potential for M&A and those types of things. So that cash flow to us, I've said this before, that cash flow to us from MFS has funded the growth that we've had over the last 10 years in M&A, but also in buybacks. Like, it's a very important source of cash for the company. Okay. Can you maybe talk a bit more about that flywheel, like that connectivity? Yeah. SLC, obviously, MFS. Yeah. Seems like it should have a very good story on that interlink. Yeah, we've clients. I think there's huge potential here, right? And if you look at us as a global business, we have connections on the wealth side in Asia and in Canada in particular, and I think the opportunity in Asia long term is really significant. We've run a little bit too siloed, and we need to find some ways to look at bringing some value back into these businesses, particularly today, where we know a lot of investors want to increase their ownership of alts, right? And we've got these great alts capabilities. We've seen this with you guys. We have a partnership with you, where we're bringing alts to your client base, and that's working phenomenally well. We can do more with our own wealth businesses to bring some of those capabilities back to our clients. So the interest in the alts from investors is, as you would know, significant today, and I think we have some opportunities to really help with that. We can help with that in other ways, right? Helping to introduce Steve's business. We deal with 25 banks in Asia, helping to introduce Steve's business to those 25 banks and finding ways that we can bring some capabilities to those. So I think thinking more about growth and using our capabilities, whether they be in the wealth businesses or whether they be in partnerships we have, to drive more flows will be an important part of creating this flywheel. And is the space getting a bit more competitive? I imagine. It seems like everyone seems to want to go into that alternative space. It's. I think it almost. There's a lot of. Couldn't be more competitive. It's very competitive. Okay. Okay. Because you've got some really massive players globally. I mean, Blackstone, Apollo, KKR. But it's not impacting your ability to We think there's room for us because we were very good at it. I think it would be hard today to rebuild this. There's not many insurance companies. If we look globally at insurance companies, and you mentioned this earlier, we have, we think, arguably the best asset management platform of any insurance company around the world, and we wanna make sure we're taking our insurance and wealth capabilities to that asset management to help drive it. So as a insurance company, we think there's a lot of opportunity that way. If you looked at us like an asset management company, you said you're 50% asset management and you're also an insurance company, I would say we have the best insurance business of all the asset managers around the world. So our job now is to leverage the two, is to create value between those two, and we are doing a lot of that, but I think we can do even more. Okay, that's helpful. We only have a few more minutes. Definitely two areas I'd love to touch base on. Definitely Asia. Obviously, you're excited about Asia- Yeah ... the high net worth story, Yeah ... the mega trends in Asia- Yeah ... insurance, demand, all that good stuff. Maybe just high level, like, what excites you about Asia, other than the obvious? Yeah. You know, I think there's tons of growth. I mean, Asia, there's four billion people. There's, we're primarily in developing economies. We see long-term growth across Asia. Manjit's doing a great job. He's re-energized that, that business there, and we're starting to see good growth come out of a number of our businesses. You know, if you saw our Investor Day, Manjit talked about at-scale businesses and to achieve scale businesses. He's got this great balance of driving value and growth through our at-scale businesses and investing in growing our not at scale businesses. He's. Well, many of you probably know Manjit. He's a disciplined guy. We're very aligned in terms of what that growth pattern is, and we've now built out distribution strength across all of our markets. So in every market, we're an agency. In every market, we're in bank insurance. In markets where brokerage is significant, we have brokerage business, and we have something digital in all of the markets. So we have the right distribution platform. You're seeing us grow fast in Hong Kong, in high net worth, in India, and I think there's opportunities to see. Philippines has done quite well, and start to see the not yet at scale markets start to deliver towards adding value there, so China, Indonesia, Vietnam. So we're in the right countries. I think there's significant opportunity. We talked about 15% growth, and we're committed to seeing that growth of 15%, which is part of that ROE story where you're gonna see that growth. So in Asia, as you know, I spent five years there. We went from CAD 100 million in income when I was there to, well, with Manjit now today, if you're looking, we've been running around CAD 200 million a quarter, so figure that as CAD 800 million. So from CAD 100 million a year to CAD 800 million a year between 2012 and now. We're hitting that 15%, and we think we can continue to do that. I know one of our competitors is up. He might be here now talking about Asia later. We're as passionate as Phil is about Asia, and they do a great job there. We think we do a great job there as well, and I think if you look at the top five companies in Asia, we're with them, one of the top five, and I think we see tons of opportunity to continue to grow and be stronger in Asia, and it's a good market. There's also a developing high net worth business there. You know, we're very committed to that 15% growth, and that will grow the ROE alongside of it. Okay, great. And then on capital, definitely wanna cover capital. You're sitting on a very, very strong, LICAT ratio. Yeah. A lot of cash at the HoldC o level. Yeah. So it obviously lends the question to M&A. What do you... Are you seeing that the market is conducive to M&A right now? And then maybe, compare that to the buyback option. I think you're at- Yeah ...% NCIB, which obviously you could do more if you wanted to. Maybe just talk about your priorities between those two. Yeah, yeah. I don't wanna take away too much time, so I'll try to go fast. You know, we do M&A where we see a need for scale or capabilities, where we see we can hit our financial objectives and where we believe we can execute, and that's when we do M&A. We're at a place right now that... You'll hear Steve talk about it, but he's going through the buyout of BGO and Crescent, our two biggest alts asset managers. You know, we may do some bolt-ons there, but we think we have the right set of capabilities, and he is quite involved in that transition for BGO and Crescent. So I don't - I'm not seeing M&A there. Asia, Manjit's going through a bunch of bank insurance deals, and we think we can grow without significant deployment of M&A there. Canada, there's not much happening, and in the U.S., Dan and David are heavily in the dental sort of fix. So we're at a great capital position. I'm not saying we wouldn't do any M&A, but if we did M&A, I see smaller sort of bolt-on things, 'cause we need to know that we can execute on the integration. That's gonna be the most important thing, and so having conviction on that is gonna be important before we do something. So that means that our buyback becomes more important because we do have a lot of capital, and sitting at the top of the house with too much capital is not what we wanna do either, and at 151% and a 20.4% leverage ratio. Right So I would say that, I'm not saying we would never do an M&A, but it has to meet those three criteria, and it's at this point in time, the business group would have to prove to me that they could execute on the integration. I think it's a tall order to prove that when there's so much going on. So this gives us the flexibility. We do think, in these times, having a strong capital position, not a bad thing, but at 151, I think we're on the high side. Okay, fair enough. And then any final key messages to investors? You know, we're feeling good about our medium-term objectives, and we're feeling good about achieving our medium-term objectives. And, you know, there's a lot of resiliency in our business. We've got a great executive team, and we're committed to delivering on those objectives, and so I think we're in a good position to do that. It's a more difficult environment. We all know that today is more challenging than it was in 2012, for sure, when I first went to Asia. If I think about that environment, we had a great run for a number of years in terms of the economy, and now things are- Mm ... are more challenging. But we think we're built to grow through that, and I think the diversity of our business across geographies, 28 countries, and the diversity of our business where we've got this asset management and wealth platform getting close to equal size to our protection business, gives us a lot of resiliency, and our ability to be low capital is really important to that. So thanks, Mike. Thanks for the- Thank you very much for opportunity to see everybody. Joining us today, and Yeah ... thanks for the insights, as always. Great. Uh, thanks. Always, always a great conference, right? It kicks the year off in a good way, so thanks. Back to school for all of us. Pleasure to have you. Thank you. Thank you, Kevin. Thanks, Mike. Thanks. Have a good day.