Good morning, and welcome to the Sun Life Financial Q1 2024 Conference Call. My name is Galeen, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. The host of the call is David Garg, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Mr. Garg.

Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the first quarter of 2024. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As is noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin.

Thanks, David, and good morning to everybody on the call. Turning to Slide 4, we continue to deliver on our Client Impact strategy during the first quarter as we build a leading asset management and insurance company. Underlying earnings results were mixed. Strong results in Asia and steady results in Canada and at MFS were offset by weaker performance in the US and at SLC. In Asia, individual protection underlying earnings grew 30%. Results were driven by strong sales in Hong Kong and International, and a strong overall result in India. In the US, we underperformed this quarter as morbidity gains moderated towards pre-COVID levels in our Health and Risk Solutions business driven by rising US healthcare utilization rates. Our US dental business continued to experience negative impacts from the end of the Public Health Emergency driven by Medicaid member disenrollment and higher claims ratios on the remaining members. We are working with states to reprice our Medicaid business, with 25% repriced during the quarter at levels consistent with our profitability goals and most of the remaining 75% to be repriced by the end of this year. We expect dental results will return to levels of profitability more consistent with our pricing targets and expect income levels for dental to be approximately $100 million for 2025. SLC management underlying earnings were impacted by seed mark-to-market losses. Overall, the alternatives business faces headwinds from higher interest rates, but we remain on track to achieve 2025 underlying earnings of $235 million. We experienced strong growth in insurance sales, CSM and assets under management during the quarter. Individual protection sales were up nearly 50% year-over-year, largely driven by growth in Asia with strong individual protection sales in Hong Kong. Asia was also a leading driver of Sun Life's new business, CSM, which reached $347 million for the quarter, up 50% year-over-year and contributed to total company CSM surpassing $12 billion at the end of the quarter. We continue to see growth in our asset management businesses, with total company AUM reaching an all-time high of $1.47 trillion this quarter, up 8% year-over-year, reflecting the continued strength of our asset management capabilities and market appreciation. We ended the quarter in a strong capital position with a LICAT ratio of 148%. We also announced a 4% increase to our common share dividend, and we'll continue our share buyback program in the second quarter, demonstrating our commitment to deploying capital efficiently. Overall, we continue to benefit from our diversified mix of businesses, taking advantage of macro trends like the emergence of the middle class and growing GDP in Asia, the increased demand for health products in Canada and the US, and the importance of having a broad set of global asset management capabilities from public equities and fixed income to alternatives to help meet client needs in a rapidly changing environment. Turning to Slide 5. This quarter, we delivered on key business initiatives to drive our Client Impact strategy forward. In Canada, we made progress on several important initiatives. We've seen strong demand for the Canadian dental care plan with 1.7 million Canadians signing up by the end of April, and we are now successfully processing claims. This program allows us to play a critical role in improving oral health outcomes for Canadians, which we know impacts people's overall health. We also launched the diabetes care program as part of our online Lumino Health pharmacy app. This innovative signature solution helps plan members reach their diabetes goals and where possible, reduce blood sugar levels and reduce medications. Our aim is to improve health outcomes for our clients and enhance the claims experience for our business. In the US, we are differentiating with the large employer group benefits market by offering health navigator powered by PinnacleCare. This personal healthcare navigation and advisory service helps members get the medical diagnosis and access the right care for their specific needs. This service also improves health and productivity outcomes for employers. We're also leveraging our expertise on leads, absence management and return to work services to offer family leave insurance in Alabama, Arkansas, Florida, Tennessee and Texas. We are the first major group benefits provider to offer family leave insurance in these states, broadening members' access to paid leaves for care of loved ones and giving employers the option to provide a valuable benefit to their employees more easily. Our growth in Hong Kong reflects the strength of our quality distribution channels. Hong Kong delivered strong individual protection sales this quarter driven by our broker relationships, our bancassurance partnership with Dah Sing Bank and the momentum with our agency teams. We're also realizing value from our strategic investments. India continues to be an important growth market for Sun Life Asia. We have a thriving life and asset management business as part of our joint venture with Aditya Birla Group. This quarter, we sold 6.3% of our ownership interest in our asset management joint venture, unlocking a $98 million pretax gain and helping meet the 25% public ownership requirement of listed companies in India. Since the initial IPO in 2021, Sun Life has generated pretax gains of over $450 million, while still retaining 30.2% ownership of the listed entity. In the US, our Health and Risk Solutions business is finding that Generative AI can securely summarize and organize lengthy and complex medical records for PinnacleCare clients. This solution is expected to reduce turnaround time from 14 days to one day, unlocking greater capacity to serve more clients. In our Sun Life Global Investments business, we're using a Generative AI chatbot to create a better client experience by providing faster responses to client questions regarding segregated fund topics. We're embracing our responsibility to create a more sustainable and brighter future. Sustainability is critical to our purpose, and we are focused on increasing financial security, fostering healthier lives and advancing sustainable investing. SLC management continues to invest in assets that generate a stable and attractive yield and generate a positive environmental impact. This quarter, BGO completed Ontario's first all-electric net-zero carbon industrial building owned by Sun Life, a milestone in our efforts to achieve net-zero greenhouse gas emissions in investments and operations by 2050. BGO was also awarded the 2024 ENERGY STAR Partner of the Year Sustained Excellence Award for the 14th consecutive year. Also, InfraRed Capital Partners, our infrastructure investment manager continues to invest in assets that are helping to build a sustainable future. InfraRed acquired a portfolio of two operating utility-scale renewable energy assets in the US. In closing, we're confident in the resilience of our strategy driven by our diversified business mix, our people and culture, and our sustained commitment to delivering on our purpose—to help clients achieve lifetime financial security and live healthier lives. Now I'd like to welcome our new CFO, Tim Deacon, to his first earnings call. Tim joined Sun Life in April and brings extensive experience in asset management, wealth, insurance, real estate, and sustainability—all areas that are critical to Sun Life. He's a great addition to our Sun Life executive team and has fit in so seamlessly that in many ways, it feels like he's been here for years. And with that, I'll turn the call over to Tim to detail our first quarter financials.

Thank you for that warm welcome, Kevin. Before I begin, I want to thank my Sun Life colleagues for all the support I've received over the last month since joining. I look forward to actively contributing to Sun Life's strategy, continued growth and value creation for our clients, employees, communities, and investors. With that, let's begin on Slide 7, which provides an overview of our first quarter results. We delivered mixed results this quarter as underlying net income of $875 million and underlying earnings per share of $1.50 were modestly lower year-over-year by 2% and 1%, respectively, and relatively in line with the prior year when accounting for the sale of our UK business in the second quarter of last year. Underlying return on equity was 16%. We remain confident in our ability to meet our medium-term ROE objective, supported by our attractive and diverse mix of businesses. Turning to our business performance. Wealth and asset management comprised 42% of Q1 underlying earnings and was down 1% from the prior year, as higher asset management-related fee earnings were offset by higher compensation-related expenses and mark-to-market losses on seed investments in SLC. Group Health & Protection businesses comprised 29% of underlying earnings and were down 8% year-over-year. Results reflect business growth that was more than offset by less favorable morbidity experience and lower dental results. Individual Protection earnings comprised 29% of underlying earnings and were down 4% last year, primarily driven by the sale of Sun Life UK. New business CSM of $347 million was up 50% from the prior year, reflecting continued strong sales in Hong Kong. Reported net income for the quarter was $818 million. The $57 million difference between underlying and reported net income was driven by unfavorable market-related impacts and amortization of intangibles, partially offset by acquisition-related and other items. Market-related impacts were driven primarily by unfavorable real estate experience, partially offset by favorable interest and equity market impacts. Real estate experience reflects modestly negative total returns driven by holdings in the industrial sector and, to a lesser extent, office in the current quarter versus our long-term expectations of approximately 2% per quarter. While we continue to be cautious on real estate returns in the near term, we are long-term investors in real estate, and on a 10-year basis, our actual returns have exceeded our long-term expectations. We continue to view real estate as a key component of our diversified investment portfolio. Our balance sheet and capital positions remain strong, with SLF LICAT ratio of 148%, which was lower by 1 percentage point from the prior quarter, primarily driven by strong organic capital generation that was more than offset by deployments, including our common share dividend and continued share buybacks and market impacts. Book value per share increased 2.5% quarter-over-quarter. Holdco cash remained strong at $1.5 billion, and we remained active on our share buyback program, repurchasing 2.4 million shares this quarter. Our leverage ratio remains low at 21.1%. Now let's turn to our business group performance, starting on Slide 9 with MFS. MFS underlying net income of $189 million was in line with the prior year, as higher fee income from average net asset growth was offset by higher compensation-related expenses, primarily related to the increase in the fair value of MFS shares. Reported net income of $180 million was down 10% year-over-year, driven by the fair value change in shares owned by MFS management. Pretax net operating margin of 37% was in line with the prior year. AUM of $630 billion was up $31 billion from the prior quarter, driven by market appreciation, partially offset by net outflows of $8.6 billion. MFS long-term investment performance remains good, with 97% of fund assets ranked in the top half of their respective Morningstar categories for 10-year performance. Turning to Slide 10. Our SLC management generated underlying net income of $28 million, flat compared to the prior year as fee-related earnings growth was offset by mark-to-market losses on seed investments. Fee-related earnings of $69 million was up 1% year-over-year on continued growth in fee-earning AUM. Reported net income of $42 million benefited from a gain on the early termination of a distribution agreement. Capital raising of $3.5 billion, primarily at BGO and Crescent, remained resilient and was up $1.3 billion or 52% year-on-year. Total AUM of $226 billion was up $8 billion from the prior year; this includes $21 billion that is not yet earning fees. Once invested, these assets are expected to generate an annualized fee revenue of more than $188 million. Turning to Slide 11. Canada, underlying net income of $310 million was modestly lower year-over-year as strong insurance business growth was more than offset by lower net investment results. Reported net income of $290 million included unfavorable market-related impacts. Wealth and asset management underlying earnings were down 4% year-over-year, driven by lower earnings on surplus. Group Health & Protection underlying earnings increased 20% year-over-year, reflecting business growth and improved disability experience. Individual Protection earnings were down 19% year-over-year, which included unfavorable mortality experience. It is worth noting that there is a mostly offsetting benefit to the CSM from this negative mortality that is not reflected in earnings. Group Health & Protection sales were up 114% year-over-year on higher large case sales, while Individual Protection sales were lower by 4% due to lower par life sales. Turning to Slide 12. US underlying net income of $141 million, down 20% from the prior year, driven by less favorable morbidity experience and dental results. Reported net income of $71 million includes market-related impacts. In Group Health & Protection, our Group Benefits business benefited from strong revenue growth. This was more than offset by less favorable morbidity experience from a higher loss ratio in Health and Risk Solutions, which is now normalizing closer to pre-pandemic levels compared to the prior year. Lower dental results were driven by the continued impacts of the Medicaid redetermination process following the end of the Public Health Emergency in the US last May, which decreased the number of planned members. This contributed to an increase in the loss ratio as those leaving the plan generally had lower utilization than those remaining in the plan. US group sales of $142 million were down 43% year-over-year, driven by large case dental sales in the prior year. Individual protection results reflected credit losses in the quarter. Slide 13 outlines Asia's results for the quarter. Underlying net income of $177 million was up 27% year-on-year on a constant currency basis. Results benefited from strong business growth as well as favorable protection experience and higher earnings and surplus. Reported net income of $235 million included a gain related to the partial sale of our India asset management joint venture. We continue to see strong sales momentum, particularly in Hong Kong. The strong sales results also drove new business CSM of $230 million in Asia, up 128% from the prior year. Over the past year, Asia has added almost $1 billion of CSM. Overall, while our Q1 results were mixed, we're pleased by the strong momentum in our Asia business, solid growth in expected insurance earnings across all business groups and the steady increase to total company CSM, which is a store of future profits. We expect to generate earnings growth in line with our medium-term financial objectives underpinned by our strong fundamentals, capital position and continued focus on execution. Finally, turning to Slide 14. We're pleased to announce that we are hosting an Investor Day on November 13, 2024, at our 1 York Street office in Toronto. This will be an opportunity to update investors on our strategic priorities and our progress against our strategic pillars. We look forward to seeing you at this event.

Thank you, Tim. To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourself to one or two questions and then requeue with any additional questions. I will now ask the operator to poll the participants.

Our first question is from Meny Grauman with Scotiabank. Your line is open.

Hi, good morning. Wanted to talk about the policyholder experience that came in unfavorable, especially relative to expectations and impacted Canada and then in the US. Tim, you talked about some of the dynamics around the dental business, but I know it's also impacting stop-loss. I guess the real question is just, how temporary do you expect these pressures to be both in Canada and in the US, if you could address those both separately?

Hi, Meny, it's Kevin Morrissey. Thanks for that question. Maybe I'll start off with the experience and policyholder behavior at the total company level. We had a small loss, as you would have observed in the quarter, that was coming out of Asia. It was quite small. It was across a variety of countries there. We didn't have any losses in Canada or the US on policyholder behavior in the quarter.

Sorry, Meny. This is Jacques. Do you want me to address the insurance experience in Canada?

Yeah, please.

Okay. Thank you. So the insurance experience is unfavorable this quarter. You might recall, by the way, that it was quite strong in Q2, Q3 and Q4 last year, and this was driven by visibility experience in Sun Life Health. I want to point out that the disability experience is still quite positive. But what we're noticing this quarter is mortality losses in individual insurance, resulting from the larger number of claims and larger amounts of claims. But as Tim pointed out in his remarks, this is offset by the release of reserves in the CSM, so we don't see mortality being outside of what I would call the normal volatility parameters. So not a trend. The other item that's coming up this quarter is the higher level of claims in the non-visibility part of Sun Life Health. These are the paramedical claims. They are seasonal. So Q4 and Q1 are typically elevated. The other thing I would point out is that they are built in maximum in terms of coverage for these claims. So again, we don't see that as a trend going forward.

Got it. Thank you.

Good morning, Meny. It's Dan Fishbein. Just some quick comments on the US insurance experience. As I'm sure you've noticed, the experience has been favorable in recent quarters, and that was primarily driven by better-than-expected results in the stop-loss business. As we've described, there has been lower utilization really throughout the pandemic and lingering for a long time afterwards because of shortages in the provider capacity. Those shortages appear to have largely resolved and stop-loss experience, while still quite favorable, has returned closer to pre-COVID levels. So the favorable experience we had been getting above expectations in stop-loss has certainly largely moderated. And then, of course, in addition, there was unfavorable experience in the dental business this quarter. On the other hand, there was quite favorable experience in the group business. So when you add the three together, we have a small negative experience item in the US.

Just to follow-up in the US, it sounds like on the stop-loss side, it's just sort of normalizing back to pre-COVID levels. But in terms of dental, and you addressed this last quarter as well, but just wondering what the timeline is there in terms of improving? Like, could it actually get worse before it gets better on the experience side?

Well, as we've been saying for quite a while, this is about a four-quarter problem. And of course, the background on that is there were no disenrollments from the Medicaid program at all, medical or dental or otherwise, for more than three years as a result of the COVID Public Health Emergency. That ended in April of last year, and the states were able to start disenrolling people as of that time. Hence, we have seen declining enrollment in the third and fourth quarters last year and the first quarter of this year. That's a 14-month process by regulation that will be complete by the end of June. So there likely are some additional membership declines still in progress and still ahead of us. The primary result of that, that's affecting our results is not just the membership itself, but the fact that those who were no longer eligible for coverage were utilizing care at a meaningfully lower rate than those who remained in the programs. That means the average experience of the people who remain is higher than the experience of the program as a whole when the disenrollments began. The key will be the states adjusting the rates, which is mostly an annual process as those rates renew. About 83% now actually of our contracts will renew this year with revised rates. Through the end of the first quarter, about 25% of the contracts have already had new rates established. So getting the right rates is key to this, as are other initiatives that we have in progress, including additional claim management initiatives as well as expense management. So with continued membership losses, we would not necessarily expect things to improve materially in the second quarter. But in the second half of the year, the results should start to reflect both the higher rates and those initiatives. And certainly, and as Kevin mentioned in the introduction, we expect much better results when we get to 2025.

That’s great. Thanks.

Yeah, thanks very much. Just a question with respect to SLC. I think if Steve Peacher is there, you talked about a $50 million kind of run rate for underlying earnings for that. And it's $28 million in the quarter. I think there's talk of some mark-to-market losses on some seed capital there. So just some color with respect to SLC and the outlook there, please? Thanks.

Yeah. Thanks, Tom. It's Steve. Yeah, a few comments on the quarter relative to our run rate, which is really your question, given that the $28 million is lower than the run rate that I had indicated on the last quarter earnings call. And there were two things that impacted us. I'll say that we think our run rate hasn't changed, our core run rate. Two things pushed us lower this quarter than our normal that we view as our quarterly run rate. One was, as you mentioned, the mark-to-market on seed assets. So let me give some color on that. That mark-to-market related primarily to a portfolio of industrial properties at BGO that we seeded. The impact on this quarter's results from that was about $10 million after tax. There were a few other items in there, but the primary driver was that the mark-to-market on that portfolio. That is a very strong portfolio of industrial properties across the US. And in fact, that portfolio was marked up in the second half of last year because of meaningfully strong performance in the underlying properties. That was actually one of the factors that helped us in the fourth quarter. This quarter, we gave up a portion of those gains, and you saw valuations across industrial properties, not just in this portfolio, but kind of across the industry, fall in the first quarter as valuations reflected higher cap rates and, I think, in appraisers' view, more modest assumptions for lease rate increases going forward. But net-net, that portfolio has had a positive mark-to-market over the last 12 months. It's just that in the first quarter, we gave back some of the positive mark in the second half of last year. The other thing that impacted us versus our run rate this year is that we have some seasonality in compensation in the first quarter. Like many firms, we pay bonuses in the first quarter. We accrued for those bonuses throughout the year. In Q1, we paid out bonuses that were slightly higher than our accrual for the year. So that impacted us. But the bigger impact was that those bonus payments trigger related payments, such as contributions to benefit plans, and that impacts Q1 proportionately. So if you adjust our results for that mark-to-market versus what we'd normally expect for seed on kind of a run rate basis and you reflect the seasonality, it gets us back to a run rate of almost that $50 million figure that I mentioned last quarter.

Okay. Thanks for that. And as a follow-up, MFS, there seem to be some higher expenses in the quarter too. Is there any seasonality associated with them? Are they kind of related to any extra compensation at MFS that can be volatile and may have happened in the first quarter? Thanks.

Hi, Tom, it's Tim...

Go ahead, Tim.

Thanks for that question. There were two pieces really on the compensation cost for this quarter. There is some seasonality in the first quarter. We have shares that vest that are issued to MFS employees. And when they become retirement eligible, they immediately vest, and that always happens in the first quarter of the year. So we do get a bit of noise coming through that. But that relates to the second piece, which was the more material part in the quarter; it was really the mark-to-market gain on the appreciation of these shares that flows through as compensation expense. And you'll recall, there's two pieces to that. One that's in our underlying earnings, and you can think of that as a long-term incentive plan. And those shares are mark-to-market based on the fair value of MFS as an enterprise value. And we saw gains in the overall increase in the MFS share. So that's flowed through its compensation costs. And then on the reported net income side, we have a component that relates to vested shares. So these are shares that have already been awarded and fully vested. We have to set up a liability for that and that gets mark-to-market through income, and that flows through on the reported income side. So it's really the two pieces. We had a share appreciation, which caused compensation costs, both in underlying net income and reported net income plus the seasonality.

One of the components you mentioned, possibly the second one, relates to the margin you provided. I believe you are presenting a US GAAP margin, but this might not correspond to a US GAAP item; it could be an IFRS item. Is that correct?

Yeah. So the comments that I just made around the compensation, that's all IFRS accounting. And so the margin guidance that we give is on a US GAAP basis. And so those vested shares, as an example, flow through equity. Those don't hit the P&L under US GAAP.

Thanks, good morning. Most of the questions have been taken, but one more on US group. Lots of references to run rate earnings in dental of $100 million a year. Are you able to give us what it was for the quarter? Just to give us a sense of upside from here.

Well, in dental in the quarter, it was $6 million for the quarter, and that's in our materials. And just an additional comment on the $100 million that we've mentioned several times, that's really what we're saying is our thinking for 2025. But as Kevin just said, longer term, we think it's obviously higher than that. It's still equal to or greater than what we anticipated when we announced the transaction. The growth trajectory of the business is very good. This temporary redetermination issue notwithstanding. And in fact, we're winning new contracts. So we're winning major new contracts. We're winning contracts from competitors. We also have significant opportunity to grow, not just in the Medicaid business, but in Medicare Advantage and in commercial. The commercial business has had a really good growth trajectory in the past year. And as of January 1, we added our largest Medicare Advantage contract ever. So there's a lot of future potential here to continue growing this business.

Good morning. My first question is about the commercial real estate situation, specifically regarding the investment experience at SLC. I noticed that the negative investment experience in commercial real estate this quarter was mainly related to industrials. Additionally, are there any seed capital losses or a lack of gains in the industrial sector? Is that correct?

Hi, Gabriel, it's Randy Brown. So thank you for the question. Yeah, the losses that we saw in CRE this quarter, I'll talk about the overall level. And then if Steve wants to comment on SLC. So we were down about 1% total rate of return. So despite the headlines and everything we read about the disaster in real estate, the portfolio is actually faring quite well, really benefiting from the restructuring that I talked about in the past. The valuation drop was mostly industrial, but also office. On industrial specifically, the valuation changes, Steve touched on it, were really based on a couple of factors. For us, for the general accounting, it was primarily in the Inland Empire, inland from LA, so it's services support. We had seen outsized gains there in prior quarters. This quarter, we had a cap rate and yield decompression, which we expect, but also a drop in the achievable rents. So there had been very strong development completions and extensive growth in that specific area throughout the pandemic, which led to an oversupply bubble that's putting downward pressure on rents. So it's not only cap rates decompressed; you saw forward rent growth expectations drop. Now that oversupply, we expect to be temporary as industrial completions dropped to the lowest level in 14 years there. Overall, that being said, our portfolio there is 100% occupied, strong tenants, extended lease terms. So doing quite well. Office continues to experience negative valuation changes, again as the market seeks a floor. But we've seen the pace of those drops slowing down.

We certainly expected the redeterminations to happen. And there was some uncertainty if you go back to when the transaction was announced as to when that would occur. And the Biden Administration decided to extend the Public Health Emergency longer and longer until the spring of last year. So membership had excess membership had certainly accumulated. We certainly expected that there would be some impact on the loss ratio because those who were being disenrolled were more likely to already have other coverage from getting a job or so forth. So we knew there would be that effect. The size of that impact, though, I think, has surprised everyone, including us and including the state. So I think this was anticipated, but the size of the impact was greater than we anticipated.

Good morning. Thank you for taking the question. I wanted to first follow-up and clarify on last favorable US morbidity experience for stop-loss. I just want to confirm if I understand it correctly, the utilization rates that normalized pre-pandemic levels, I think I heard you say that was driven by a resolution of capacity issues. Just want to confirm if that's correct. And, of course, the implication there is that we're now at, I guess, the normal run rate for morbidity experience for that business. Is that the right way to think about it?

Well, the first part of what you said is what we said, absolutely. We've seen provider capacity. And that's largely been a staffing issue recover to pre-pandemic levels, or at least very close to pre-pandemic levels. And we've seen utilization move in concert with that. It seems to be stabilizing, and this is based on external data. The way I would think about that for our business is we've seen the morbidity, which had been favorable beyond our expectations, return back close to where we would expect them to be, not quite where we'd expect them to be, but close to that level. So we still are generating favorable margins and favorable to our pricing, but certainly not as favorable as in the past. Whether — I'm not sure we can predict precisely what the morbidity will be each quarter. Remember, there is some volatility in this as well. But certainly, we're close to the pre-pandemic levels at this point.

Like all of our businesses, and especially if you think about Health and Risk Solutions, the stop-loss business in the US, given the investments we've made, we expect that business to grow top line and bottom line alongside it. So as Dan talks about the margins coming back in, we still expect growth in that business overall for the long-term because we really have a unique position there versus our competitors.

Thanks, good morning. Most of the questions have been taken, but one more on US group. Lots of references to run rate earnings in dental of $100 million a year. Are you able to give us what it was for the quarter? Just to give us a sense of upside from here.

Well, in dental in the quarter, it was $6 million for the quarter, and that's in our materials. And just an additional comment on the $100 million that we've mentioned several times, that's really what we're saying is our thinking for 2025. But as Kevin just said, longer term, we think it's obviously higher than that. It's still equal to or greater than what we anticipated when we announced the transaction. The growth trajectory of the business is very good. This temporary redetermination issue notwithstanding. And in fact, we're winning new contracts. So we're winning major new contracts. We're winning contracts from competitors. We also have significant opportunity to grow, not just in the Medicaid business, but in Medicare Advantage and in commercial. The commercial business has had a really good growth trajectory in the past year. And as of January 1, we added our largest Medicare Advantage contract ever. So there's a lot of future potential here to continue growing this business.

Thank you, Tim. To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourself to one or two questions and then requeue with any additional questions. I will now ask the operator to poll the participants.

Our next question is from Meny Grauman with Scotiabank. Your line is open.

Hi, good morning. Wanted to talk about the policyholder experience that came in unfavorable, especially relative to expectations and impacted Canada and then in the US. Tim, you talked about some of the dynamics around the dental business, but I know it's also impacting stop-loss. I guess the real question is just, how temporary do you expect these pressures to be both in Canada and in the US, if you could address those both separately?

Hi, Meny, it's Kevin Morrissey. Thanks for that question. Maybe I'll start off with the experience and policyholder behavior at the total company level. We had a small loss, as you would have observed in the quarter, that was coming out of Asia. It was quite small. It was across a variety of countries there. We didn't have any losses in Canada or the US on policyholder behavior in the quarter.

Sorry, Meny. This is Jacques. Do you want me to address the insurance experience in Canada?

Yeah, please.

Okay. Thank you. So the insurance experience is unfavorable this quarter. You might recall, by the way, that it was quite strong in Q2, Q3 and Q4 last year, and this was driven by visibility experience in Sun Life Health. I want to point out that the disability experience is still quite positive. But what we're noticing this quarter is mortality losses in individual insurance, resulting from the larger number of claims and larger amounts of claims. But as Tim pointed out in his remarks, this is offset by the release of reserves in the CSM, so we don't see mortality being outside of what I would call the normal volatility parameters. So not a trend. The other item that's coming up this quarter is the higher level of claims in the non-visibility part of Sun Life Health. These are the paramedical claims. They are seasonal. So Q4 and Q1 are typically elevated. The other thing I would point out is that they are built in maximum in terms of coverage for these claims. So again, we don't see that as a trend going forward.

Got it. Thank you.

Good morning, Meny. It's Dan Fishbein. Just some quick comments on the US insurance experience. As I'm sure you've noticed, the experience has been favorable in recent quarters, and that was primarily driven by better-than-expected results in the stop-loss business. As we've described, there has been lower utilization really throughout the pandemic and lingering for a long time afterwards because of shortages in the provider capacity. Those shortages appear to have largely resolved and stop-loss experience, while still quite favorable, has returned closer to pre-COVID levels. So the favorable experience we had been getting above expectations in stop-loss has certainly largely moderated. And then, of course, in addition, there was unfavorable experience in the dental business this quarter. On the other hand, there was quite favorable experience in the group business. So when you add the three together, we have a small negative experience item in the US.

Just to follow-up in the US, it sounds like on the stop-loss side, it's just sort of normalizing back to pre-COVID levels. But in terms of dental, and you addressed this last quarter as well, but just wondering what the timeline is there in terms of improving? Like, could it actually get worse before it gets better on the experience side?

Well, as we've been saying for quite a while, this is about a four-quarter problem. And of course, the background on that is there were no disenrollments from the Medicaid program at all, medical or dental or otherwise, for more than three years as a result of the COVID Public Health Emergency. That ended in April of last year, and the states were able to start disenrolling people as of that time. Hence, we have seen declining enrollment in the third and fourth quarters last year and the first quarter of this year. That's a 14-month process by regulation that will be complete by the end of June. So there likely are some additional membership declines still in progress and still ahead of us. The primary result of that, that's affecting our results is not just the membership itself, but the fact that those who were no longer eligible for coverage were utilizing care at a meaningfully lower rate than those who remained in the programs. That means the average experience of the people who remain is higher than the experience of the program as a whole when the disenrollments began. The key will be the states adjusting the rates, which is mostly an annual process as those rates renew. About 83% now actually of our contracts will renew this year with revised rates. Through the end of the first quarter, about 25% of the contracts have already had new rates established. So getting the right rates is key to this, as are other initiatives that we have in progress, including additional claim management initiatives as well as expense management. So with continued membership losses, we would not necessarily expect things to improve materially in the second quarter. But in the second half of the year, the results should start to reflect both the higher rates and those initiatives. And certainly, and as Kevin mentioned in the introduction, we expect much better results when we get to 2025.

That’s great. Thanks.

Yeah, thanks very much. Just a question with respect to SLC. I think if Steve Peacher is there, you talked about a $50 million kind of run rate for underlying earnings for that. And it's $28 million in the quarter. I think there's talk of some mark-to-market losses on some seed capital there. So just some color with respect to SLC and the outlook there, please? Thanks.

Yeah. Thanks, Tom. It's Steve. Yeah, a few comments on the quarter relative to our run rate, which is really your question, given that the $28 million is lower than the run rate that I had indicated on the last quarter earnings call. And there were two things that impacted us. I'll say that we think our run rate hasn't changed, our core run rate. Two things pushed us lower this quarter than our normal that we view as our quarterly run rate. One was, as you mentioned, the mark-to-market on seed assets. So let me give some color on that. That mark-to-market related primarily to a portfolio of industrial properties at BGO that we seeded. The impact on this quarter's results from that was about $10 million after tax. There were a few other items in there, but the primary driver was that the mark-to-market on that portfolio. That is a very strong portfolio of industrial properties across the US. And in fact, that portfolio was marked up in the second half of last year because of meaningfully strong performance in the underlying properties. That was actually one of the factors that helped us in the fourth quarter. This quarter, we gave up a portion of those gains, and you saw valuations across industrial properties, not just in this portfolio, but kind of across the industry, fall in the first quarter as valuations reflected higher cap rates and, I think, in appraisers' view, more modest assumptions for lease rate increases going forward. But net-net, that portfolio has had a positive mark-to-market over the last 12 months. It's just that in the first quarter, we gave back some of the positive mark in the second half of last year. The other thing that impacted us versus our run rate this year is that we have some seasonality in compensation in the first quarter. Like many firms, we pay bonuses in the first quarter. We accrued for those bonuses throughout the year. In Q1, we paid out bonuses that were slightly higher than our accrual for the year. So that impacted us. But the bigger impact was that those bonus payments trigger related payments, such as contributions to benefit plans, and that impacts Q1 proportionately. So if you adjust our results for that mark-to-market versus what we'd normally expect for seed on kind of a run rate basis and you reflect the seasonality, it gets us back to a run rate of almost that $50 million figure that I mentioned last quarter.

Okay. Thanks for that. And as a follow-up, MFS, there seems to be some higher expenses in the quarter too. Is there any seasonality associated with them? Are they kind of related to any extra compensation at MFS that can be volatile and may have happened in the first quarter? Thanks.

Hi, Tom, it's Tim...

Go ahead, Tim.

Thanks for that question. There were two pieces really on the compensation cost for this quarter. There is some seasonality in the first quarter. We have shares that vest that are issued to MFS employees. And when they become retirement eligible, they immediately vest, and that always happens in the first quarter of the year. So we do get a bit of noise coming through that. But that relates to the second piece, which was the more material part in the quarter; it was really the mark-to-market gain on the appreciation of these shares that flows through as compensation expense. And you'll recall, there's two pieces to that. One that's in our underlying earnings, and you can think of that as a long-term incentive plan. And those shares are mark-to-market based on the fair value of MFS as an enterprise value. And we saw gains in the overall increase in the MFS share. So that's flowed through its compensation costs. And then on the reported net income side, we have a component that relates to vested shares. So these are shares that have already been awarded and fully vested. We have to set up a liability for that and that gets mark-to-market through income, and that flows through on the reported income side. So it's really the two pieces. We had a share appreciation, which caused compensation costs, both in underlying net income and reported net income plus the seasonality.

And one of those components you mentioned is part of the margin you provided. I believe you shared a US GAAP margin, but this might not be a US GAAP item; it might be an IFRS item. Is that correct?

Yeah. So the comments that I just made around the compensation, that's all IFRS accounting. And so the margin guidance that we give is on a US GAAP basis. And so those vested shares, as an example, flow through equity. Those don't hit the P&L under US GAAP.

Good morning. My first question is about the commercial real estate situation, both in investment experience and at SLC. I understand that the negative investment experience in commercial real estate this quarter was primarily related to industrials. Additionally, are there any seed capital losses or no gains associated with the industrial segment? Is that accurate?

Hi, Gabriel, it's Randy Brown. So thank you for the question. Yeah, the losses that we saw in CRE this quarter, I'll talk about the overall level. And then if Steve wants to comment on SLC. So we were down about 1% total rate of return. So despite the headlines and everything we read about the disaster in real estate, the portfolio is actually faring quite well, really benefiting from the restructuring that I talked about in the past. The valuation drop was mostly industrial, but also office. On industrial specifically, the valuation changes, Steve touched on it, were really based on a couple of factors. For us, for the general accounting, it was primarily in the Inland Empire, inland from LA, so it's services support. We had seen outsized gains there in prior quarters. This quarter, we had a cap rate and yield decompression, which we expect, but also a drop in the achievable rents. So there had been very strong development completions and extensive growth in that specific area throughout the pandemic, which led to an oversupply bubble that's putting downward pressure on rents. So it's not only cap rates decompressed; you saw forward rent growth expectations drop. Now that oversupply, we expect to be temporary as industrial completions dropped to the lowest level in 14 years there. Overall, that being said, our portfolio there is 100% occupied, strong tenants, extended lease terms. So doing quite well. Office continues to experience negative valuation changes, again as the market seeks a floor. But we've seen the pace of those drops slowing down.

We certainly expected the redeterminations to happen. And there was some uncertainty if you go back to when the transaction was announced as to when that would occur. And the Biden Administration decided to extend the Public Health Emergency longer and longer until the spring of last year. So membership had excess membership had certainly accumulated. We certainly expected that there would be some impact on the loss ratio because those who were being disenrolled were more likely to already have other coverage from getting a job or so forth. So we knew there would be that effect. The size of that impact, though, I think, has surprised everyone, including us and including the state. So I think this was anticipated, but the size of the impact was greater than we anticipated.

Thank you, Tim. To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourself to one or two questions and then requeue with any additional questions. I will now ask the operator to poll the participants.

Our next question is from Meny Grauman with Scotiabank. Your line is open.

Hi, good morning. Wanted to talk about the policyholder experience that came in unfavorable, especially relative to expectations and impacted Canada and then in the US. Tim, you talked about some of the dynamics around the dental business, but I know it's also impacting stop-loss. I guess the real question is just, how temporary do you expect these pressures to be both in Canada and in the US, if you could address those both separately?

Hi, Meny, it's Kevin Morrissey. Thanks for that question. Maybe I'll start off with the experience and policyholder behavior at the total company level. We had a small loss, as you would have observed in the quarter, that was coming out of Asia. It was quite small. It was across a variety of countries there. We didn't have any losses in Canada or the US on policyholder behavior in the quarter.

Sorry, Meny. This is Jacques. Do you want me to address the insurance experience in Canada?

Yeah, please.

Okay. Thank you. So the insurance experience is unfavorable this quarter. You might recall, by the way, that it was quite strong in Q2, Q3 and Q4 last year, and this was driven by visibility experience in Sun Life Health. I want to point out that the disability experience is still quite positive. But what we're noticing this quarter is mortality losses in individual insurance, resulting from the larger number of claims and larger amounts of claims. But as Tim pointed out in his remarks, this is offset by the release of reserves in the CSM, so we don't see mortality being outside of what I would call the normal volatility parameters. So not a trend. The other item that's coming up this quarter is the higher level of claims in the non-visibility part of Sun Life Health. These are the paramedical claims. They are seasonal. So Q4 and Q1 are typically elevated. The other thing I would point out is that they are built in maximum in terms of coverage for these claims. So again, we don't see that as a trend going forward.

Got it. Thank you.