Earnings Call Transcript - SLF Q4 2025

Operator, Operator

Good morning, and welcome to the Sun Life Financial Q4 2025 Conference Call. My name is Rocco, and I'll be your operator today. The host of the call today is Ms. Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.

Natalie Brady, Senior Vice President, Capital Management and Investor Relations

Thank you, and good morning, everyone. Welcome to Sun Life's Earnings Call for the Fourth Quarter of 2025. 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 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.

Kevin Strain, President and Chief Executive Officer

Thanks, Natalie, and good morning, everyone. Turning to Slide 4. We delivered strong fourth quarter results, driven by our disciplined execution, diversified business model, and our continued focus on our clients and our purpose. Underlying net income reached $1.1 billion, contributing to underlying earnings per share growth of 17% over Q4 last year and underlying return on equity of 19.1%. Our diversified strategy continues to prove its strength with strong performances across all business groups. Notably, we saw robust protection growth in Asia, solid wealth sales in Canada, and meaningful progress at SLC Management, which exceeded its Investor Day earnings target. We're also pleased with the earnings and sales growth in our U.S. stop-loss business. We ended the quarter with a LICAT ratio of 157%, demonstrating our strong capital position. Turning to Slide 5. We saw continued strength across our asset management and wealth platforms. At SLC Management, we achieved $242 million in underlying net income in 2025, which exceeds our Investor Day target of $235 million. We also saw solid growth in fee-related earnings. We remain on track for the BGO and Crescent buy-ups taking place in the first half of 2026. We're also introducing a management equity plan for SLC. The management team at SLC will own up to 25% of the company, which is the best practice to motivate, retain, and attract talent in the alternative space. We're pleased with the response we've had to the management equity plan. The vast majority of eligible employees are choosing to participate in the share offering. In Canada, we delivered strong performance in our wealth businesses. Gross sales were up 46% year-over-year, driven by strong results in Group Retirement Services and individual mutual funds. Group Retirement Services sales doubled year-over-year, reflecting strong large case defined benefit solutions and defined contribution sales. Additionally, individual wealth sales were up 10%, driven by adviser productivity improvements and industry-wide momentum. And while there were net outflows at MFS, this is consistent with industry results, and MFS continues to play a strategic role in our overall business mix, consistently delivering strong margins and cash flow to Sun Life, and supporting the growth of our asset management platform. In Q4, we saw net inflows in MFS ETF products and in fixed income. In 2025 institutional gross flows were up 59% over 2024 from continued large mandate wins. Last quarter, we announced the formation of Sun Life Asset Management, which took effect on January 1 of this year. Work is currently underway to formalize our asset management capabilities under one pillar. In Asia, we maintained strong momentum driven by sustained distribution excellence. We delivered 50% year-over-year protection sales growth, including double-digit growth across all channels. Two standout markets for the year are Hong Kong and Indonesia. In Hong Kong, sales more than doubled year-over-year with strong growth in all channels. In Indonesia, sales grew 43% year-over-year, reflecting strong execution of our expanded bancassurance partnership with CIMB Niaga that took effect at the start of 2025. We continue to capture growth and scale advantages in our core health businesses in both Canada and the U.S. In Canada, Sun Life Health showed solid sales growth, and we launched a virtual health offering that helps 10,000 low-income Canadians access the care they need. Our U.S. medical stop-loss business had a strong quarter with robust sales growth of 58%. This quarter's results reflect our underwriting discipline and scale advantages, which allowed us to capitalize on a hardening market. This quarter, Dental made a profit. We see this as a step in the right direction, recognizing this as a multiyear journey. Some of the steps include continuing to work with states to reprice and align the business to the higher claims environment, building out our commercial business, investing in straight-through processing, and actively managing our expenses. These steps, together with our confidence in David's team, position us well to deliver on our priorities. We continue deploying digital solutions to drive meaningful client and business outcomes globally. In Canada, we launched Sun Life Essentials, a fully digital group retirement solution that positions us to gain share in the attractive small to medium business market. This solution leverages automation to seamlessly onboard and serve clients. We are also pleased with the impact and results of our recently reimagined mobile app. We launched new engagement capabilities for wealth in the quarter, which drove 62% more traffic and 81% greater enrollments. We are also digitally transforming our claims and underwriting processes in the U.S. and in Asia to improve client experiences and drive efficiencies, leading to broad-based improvement in processing time for underwriting, onboarding, and claims processing, notably improving client satisfaction across both business groups. Overall, our digital initiatives will help us deliver on our purpose, support growth, and reduce expenses. All of these factors will play an important role in delivering strong earnings growth aligned to our medium-term objectives. Underpinning our performance is a continued commitment to people and culture. We continue to believe our culture is a differentiator, led by our desire to deliver on our purpose and have an impact on our clients' lives. We achieved Great Place to Work recertification in nine countries. And for the sixth consecutive year, SLC Management was named one of the Best Places to Work in Money Management by Pensions & Investments. Turning to Page 6, we have a full year view. In 2025, Sun Life's balanced and diversified growth strategy, prudent risk management capabilities, and strong capital position allowed us to advance on all of our medium-term objectives with underlying EPS growth at 12%, underlying ROE at 18.2%, and a dividend payout ratio of 47%. We closed 2025 with 9% full-year underlying earnings growth, strong sales in asset management, wealth, health and protection, and a 17% increase in new business contractual service margin. We concluded the year with more than $1.6 trillion in overall assets under management. In addition, our asset management platform ended the year with $1.2 trillion of third-party assets under management and administration. We are living during a truly transformative time. This past year pushed us to aim higher, act with intention, highlighting the ambition and perseverance that define who we are. For a company like Sun Life, this environment calls for purpose, clarity, and conviction. And it's our purpose helping clients achieve lifetime financial security and live healthier lives that guides us through uncertainty with confidence and focus. Across our 28 markets around the world, we continue to bring a global mindset while delivering deep local understanding and impact. This approach allows us to remain agile, responsive, and attuned to the unique needs of each community we serve. As the world continues to grow more complex, we remain confident in the strength of our business mix, our disciplined execution of long-term business strategy and our commitment to deliver on our purpose. With that, I'll turn the call over to Tim, who will walk us through the fourth quarter financial results in more detail.

Timothy Deacon, Executive Vice President and Chief Financial Officer

Thank you, Kevin, and good morning, everyone. Turning to Slide 8. We finished 2025 with double-digit earnings growth across all of our business types and strong sales growth in Asia, Canada, and the U.S. Our results this quarter underscore the strength of our balanced and diversified businesses. We reported Q4 underlying net income of $1.1 billion, up 13% year-over-year, with underlying earnings per share of $1.96, up 17% over last year, and 12% for the full year, ahead of our medium-term objective of 10%. Underlying ROE for the quarter reached 19.1%. Asset Management and Wealth underlying earnings of $534 million was up 10% over the prior year. These results were driven by lower credit losses and higher fee income in Canada, and higher fee income from average net asset growth in MFS. Group - Health & Protection underlying earnings of $308 million increased 16% year-over-year, as claims experienced in our U.S. medical stop-loss business stabilized, and we delivered continued growth in our Canadian health businesses. Individual - Protection underlying net income of $362 million was up 17%, driven by business growth and favorable mortality experience in Asia and in the U.S. Corporate underlying net loss increased by $13 million to $110 million, reflecting higher financing costs to support the upcoming buy-ups of BGO and Crescent Capital. Going forward, we expect the corporate segment to generate a loss of approximately $110 million to $120 million a quarter. This will have no impact on our overall medium-term objectives. Total company reported net income of $722 million was 34% lower than underlying net income, driven primarily by market-related impacts, including the impact of risk-free rates, swap and credit spreads, and other timing-related mark-to-market items from rate movements during the quarter. Real estate returns were flat this quarter compared to our expected long-term return assumption of approximately 2% per quarter. Other differences to underlying net income included intangible amortization, acquisition-related expenses, the impact of lower-than-expected tax-exempt investment income, and an ACMA charge. We had an excellent sales quarter in Group - Health & Protection, with sales up 42% over the prior year, driven by the U.S. business with strong medical stop-loss sales, solid large case employee benefit sales, and higher dental sales. Individual - Protection sales were up 38%, driven by continued growth in Hong Kong. Overall, new business CSM of $440 million for the quarter increased 44% compared to last year. The SLF LICAT ratio is now at 157%, up 3 percentage points from Q3, driven by debt issuance and strong organic capital generation, partially offset by shareholder dividends and $400 million of share buybacks executed in the quarter. Turning to our business group performance, starting on Page 10. MFS underlying net income of USD 224 million was up 4% from higher fee income from higher average net assets, partially offset by higher expenses. Assets under management of USD 651 billion were up 8% year-over-year, but down slightly quarter-over-quarter as market appreciation was offset by net outflows of approximately USD 18.2 billion. The net outflows included retail outflows of $9.8 billion and institutional outflows of $8.5 billion. Retail investor preference for passive index strategies and risk-free reinvestments continue to impact the MFS retail flows in the quarter in line with the industry. Institutional net outflows were driven by several large mandate redemptions mostly due to rebalancing. MFS had positive net flows of USD 1.9 billion in fixed income during the quarter and continued to experience net inflows in its ETF products with an additional USD 500 million during Q4. On a full year basis, MFS had over USD 121 billion in gross flows, up $21 billion, or 21% over 2024. Delivered underlying and reported net income of over CAD 1.1 billion, and contributed CAD 1 billion in cash dividends and remittances for the organization. SLC Management's underlying net income was $58 million in Q4, in line with the prior year, as higher fee-related earnings were offset by lower seed investment income. Full year earnings of $242 million exceeded SLC's underlying earnings target of $235 million for 2025 set back in 2021. Fee-related earnings were $99 million in Q4, an increase of 25% compared to the prior year, driven by capital raising and higher property management fees. Pretax fee-related earnings margin was 27.5%, an increase of 450 basis points year-over-year, driven by growth and scale benefits at BGO and SLC fixed income. Reported net income of $16 million was lower than underlying net income due to market-related movements and acquisition-related charges. Capital raising of $6.4 billion in the quarter remains solid, with BGO, Crescent, and SLC fixed income, continuing to see resilient fundraising driven by key fixed income mandate wins and strong sales in Crescent's flagship direct lending funds and BGO's debt and equity real estate funds. Deployments of $10.6 billion in the quarter were strong, driven by continued momentum in Crescent and BGO and fixed income. Fee-earning AUM of $200 billion was up 4% year-over-year driven by net inflows, partially offset by distributions and asset value changes. We expect to complete the BGO and Crescent Capital buy-ups in the first half of 2026, further deepening our ownership in these high-performing businesses and strengthening our alternative asset management platform. The final amounts to be paid along with the impact of the new management equity plan and minority interest will be reflected in our Q1 results. In Q4, Canada delivered underlying net income of $417 million, up 14% over the prior year, driven by lower credit losses, higher fee income, favorable insurance experience, and strong business growth. Underlying ROE this quarter was a record 30.1%. Reported net income was $307 million, an increase of 21% year-over-year, but lower than underlying net income due to market-related impacts. Asset Management and Wealth underlying earnings were up 41% year-over-year on lower credit losses and higher fee income from AUM growth. Gross flows and wealth sales were up 46% year-over-year, driven by strong sales in DBS annuities, DC sponsor sales, rollover, and higher mutual fund sales. Group - Health & Protection earnings were broadly in line with the prior year as business growth and favorable mortality experience from smaller claims and lower claims volumes was offset by less favorable morbidity experience. Individual - Protection earnings were up 7% compared to the prior year, driven by favorable insurance experience. Group sales were up 8% year-over-year, reflecting higher health product sales, while Individual - Protection sales were down 6%, driven by lower participating life sales, partially offset by strong non-par life sales. Sun Life U.S. underlying net income increased 30% over the prior year. In Group - Health & Protection, underlying earnings were up 33%, driven by improved experience in medical stop-loss, partially offset by higher distribution costs from strong fourth quarter sales results, as well as higher operating costs in Dental. Medical stop-loss earnings increased compared to both the prior year and prior quarter, driven by a lower loss ratio on 2025 business. Individual - Protection underlying earnings increased by 24% year-over-year, driven by favorable mortality experienced from lower average claim size. U.S. Group - Health & Protection sales of USD 1.2 billion were up 45% year-over-year, primarily driven by record medical stop-loss sales, large case employee benefit sales, and group benefits, and higher Medicaid sales in Dental. In stop-loss, we achieved record sales growth of 58% year-over-year, meeting our overall pricing objectives with record persistency. In Dental, the Medicaid loss ratio of 88.8%, down from 94.2% in Q3, demonstrated the benefit of our repricing actions in 2025, which helped offset elevated claims. Operational expenses were up compared to the prior year due to higher claims volumes, with actions underway to mitigate in 2026. Reported net income of USD 93 million was up from a loss of USD 1 million in the prior year, mainly driven by a prior year provision in Dental. Asia's Q4 underlying net income of $207 million increased 19% over the prior year on a constant currency basis. Individual - Protection earnings were up 24%, mainly driven by continued sales momentum and in-force business growth, and favorable mortality experience in our high net worth business, partially offset by lower contributions from joint ventures. Asset Management and Wealth earnings were down $3 million from reduced fee income from the transition to the centralized EMPF platform in Hong Kong during the quarter. Reported net income of $131 million was higher year-over-year, driven by the increase in underlying net income and an impairment charge in the prior year, partially offset by unfavorable market-related and ACMA impacts. Asia continues to see strong sales in Individual - Protection, up 50% year-over-year, driven by sales growth across most of our markets and channels, including sales growth of 111% in Hong Kong, with strong sales increases across all channels. Asia's total CSM of $6.7 billion grew 18% year-over-year on a constant currency basis, driven by strong organic CSM growth. New business CSM of $300 million increased 49% year-over-year from higher sales primarily in Hong Kong. In summary, we are pleased with our strong Q4 results. In 2025, we demonstrated solid progress towards our medium-term objectives with 12% year-over-year underlying EPS growth, underlying ROE of 18.2%, and a dividend payout ratio of 47%. We generated $4.2 billion in organic capital and returned $3.7 billion to shareholders through dividends and share buybacks. With our attractive mix of diversified businesses, strong organic capital generation, and an industry-leading LICAT ratio of 157%, we are well positioned to capture growth and opportunities that lie ahead in 2026. With that, I will pass it back to Natalie to begin the Q&A portion of the call.

Natalie Brady, Senior Vice President, Capital Management and Investor Relations

Thank you, Tim. To ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to 1 or 2 questions, and then requeue with any additional questions. I will now ask the operator to pull the participants.

Operator, Operator

Our first question today comes from John Aiken at Jefferies.

John Aiken, Analyst

In terms of the stop-loss experience, I think the word that you used was stabilized. But with the pricing and other actions that are undertaken, are we hoping to see improvements in 2026 again?

David Healy, Senior Vice President

Yes, John, it's David. Thanks for the question. Yes, we're pleased with our improved results and also our strong sales at the end of the year. So in terms of experience, we did see a modest improvement in the loss ratio, the ultimate loss ratio for the 1/1/25 cohort that we had shared in Q3, that was offset a little, but overall, it was neutral, and we're in good shape heading into 2026.

John Aiken, Analyst

We have observed improvements in stop loss and Dental, with sales increasing in Q4. Although there is some seasonality to consider, we are seeing growth compared to last year. Are we beginning to enhance our sales efforts for these products?

David Healy, Senior Vice President

We have maintained our pricing discipline. Starting with stop-loss, we are pleased with our results and have upheld our discipline. As Kevin mentioned at the beginning of the call, we are benefiting from a strengthening market. We achieved the rate increases we aimed for, and we will continue to be disciplined in our pricing approach as we move into 2026. Regarding the Dental business, we experienced a modest year-over-year sales improvement that reflects some seasonality, especially since a lot of our business is written at the beginning of the year for commercial. Additionally, we received one significant Medicaid contract back for 2026.

Kevin Strain, President and Chief Executive Officer

John, it's Kevin. I wanted to reemphasize a few things on the stop-loss business. We've managed an industry-leading stop-loss business for many years now. And in that business, we have the scale, the data, and underwriting advantages that have helped us create a sustainable earnings business there, and we've built out our service model over the past few years to better help members who have serious illnesses manage those illnesses. For example, we bought Pinnacle Care, and that's helping them. And we think that gives us a strategic advantage when it comes to pricing and also to managing the risk here. This is an area that we've had long-term margins that have been ahead of our employee benefits target margin that we've talked about, and we expect that to return over the next little while. And David mentioned this, but it has been a challenging environment where both severity of the claims and the price of the claims has been going up. But in 2025, we achieved a 14% increase in price. And we talked about that should have been maybe 2% higher at 16%, but this year, we achieved a 17% increase in price. And we think that positions us really well. So the sales that we won in the fourth quarter we see them as being priced appropriately. And given our scale and some of the advantages we have, we think that we're well positioned in that business.

Operator, Operator

And our next question comes from Gabriel Dechaine with National Bank.

Gabriel Dechaine, Analyst

Yes. I just want to follow up on the stop loss. Did I hear you right that you increased pricing by 17% on the January 1 block? That should help you return to target margins fairly soon, I assume?

David Healy, Senior Vice President

Yes, Kevin is referring to the 17% average price increase we achieved on our renewal business, and that was aligned with our target margins.

Gabriel Dechaine, Analyst

Okay. No, excess capital. You have 157% LICAT ratio, which is very comfortable, but oddly enough to say with that excess capital for a company giving us a 19% ROE, it is suppressing your returns, right? M&A came up a lot on a previous call. I suspect your M&A appetite might be a bit more limited while you're focused on getting that DentaQuest business back on track. So if we look ahead to Q2, and I believe last year, you did an early renewal of the program, didn't necessarily upsize it, but I'd like to know what you're thinking about capital deployment broadly and then the buyback, more specifically, what your thought process there with regards to the renewal, which is, I guess, in May, right? Program expiry rather in May.

Timothy Deacon, Executive Vice President and Chief Financial Officer

Gabe, this is Tim. Thanks for the question. We continue to take a disciplined approach in our capital deployment. And overall, our priorities have not changed. You referenced our LICAT ratio, where we finished the year with a very strong LICAT ratio and industry-leading, in fact, at 157%. And that's up over the last two quarters because of two debt issuances that we did to complete the purchases of the remaining interest that we have in our private asset affiliates that we plan to do in the first half of this year. On a pro forma basis, if you were to reflect those buy-ups, our LICAT ratio would be around 150%...

Gabriel Dechaine, Analyst

Still high.

Timothy Deacon, Executive Vice President and Chief Financial Officer

We took advantage of the excess leverage capacity that we saw, and we had an opportunity to take advantage of attractive rates and spreads in the market when we did those debt issuances. So then on your second part of your question in terms of the priorities and the uses of capital, our priorities haven't changed. Our first priority is organic. We continue to make investments in our business, scaling Asia and our asset management businesses in particular, and continued growth in our investments in digital and AI. On the organic side, which is our second priority, as I mentioned, our priority for the first half of the year is to complete the purchase of our private asset affiliates. So this is BGO and Crescent. And then beyond that, we wouldn't be looking to make any transformative acquisitions. Rather, we'd look at bolt-on type acquisitions where we could acquire adjacent capabilities to augment our existing platforms, for example, in Asia or in asset management or in wealth. And then finally, pending market conditions, we would expect to resume share buybacks later in the year. And so in light of the deployment priorities I spoke about, we typically don't buy back shares at a rate that is higher than our organic capital generation. And as I said in my prepared remarks, this year, we generated $4.2 billion of organic capital generation. So that's well in excess of our guidance of 30% to 40% of underlying net income. We've returned $3.7 billion of that back to shareholders through share buybacks and common shareholder dividends. And we also did $500 million of M&A in the first quarter of 2025 with the extension of our bancassurance agreement in Indonesia. And all that still maintained a dividend payout ratio at 47%, which is well within our medium-term objectives. So you can see our discipline, and we'll continue to be disciplined going forward.

Gabriel Dechaine, Analyst

All right.

Kevin Strain, President and Chief Executive Officer

Gabe, it's Kevin. I want to point out that you mentioned it might be affecting our returns. A significant portion of our capital position is the CSM, and we're quite proud of how rapidly we've been growing it, as it's a vital part of our capital. However, it doesn't factor into book value, nor does it support our return on equity calculation. It's essential for our capital and future income. The growth in that area reflects our expansion in Asia and Canada as we develop the business. It's important to consider these aspects, but the additional capital position is not significantly affecting the return on equity.

Gabriel Dechaine, Analyst

I recognize that it's an unusual question when you're achieving a 19% return on equity, but it's a matter of mathematics regardless.

Operator, Operator

And our next question today comes from Mike Ward at UBS.

Michael Ward, Analyst

I guess I'm just trying to interpret the strategy at stop-loss. And I guess it certainly seems like a hard market across that space. But some of your peers are either getting out of the business, or shrinking the business, and '25 was another challenging claim year for them, based on what they see. So I'm just trying to sort of compare that to what you guys are seeing where it's a little bit more optimistic and you're potentially growing, which is another strategy, right, to grow into a hard market when there's less capacity, the employers still need that coverage. So you're there to be able to provide that to them. But is it possible that, that growth is a longer-term focus of yours? And maybe we'll see elevated margin volatility as we move through this medical inflation environment with higher severity?

David Healy, Senior Vice President

Mike, it's David. Thanks for the question. As Kevin noted, we have a long track record of success in this business, and we have historically, our loss ratios are among the lowest in the industry, and they have been. We are a leading independent writer. We have a talented team. And as Kevin noted, also many capabilities, including our risk selection approach, our ability to price through many different cycles, our clinical programs and our cost containment program. So we feel really good about this business and the path that we're on. It's something that we have a strong reputation in the market for. And certainly, we've taken into consideration medical trend and leverage trend. And of course, the historical claims experience that we've seen to date.

Kevin Strain, President and Chief Executive Officer

Mike, it's Kevin, can I add to that? If you don't have scale in this business, the individual claims amounts can be punishing to you as well. And so I think it's really important that we have had that scale and that history of the positive experience. So I just wanted to put out that some of those players that you're hearing about don't have the same scale that we have.

Operator, Operator

Got it. Okay. No, that's helpful. And then just on the Dental side. On the corporate side, of the dental market, it seems like that's an area of focus even for the U.S. incumbent. So I'm just wondering if you can comment on your strategy for distribution to really enter that market because it's so competitive?

David Healy, Senior Vice President

Yes. Thanks for that question. So you're really referring to what we call our commercial dental segment within our Dental business. So that's an important part of our focus for growth of the Dental business. We actually grew 7% in premium volume versus 2024. And that segment overall has grown 20% since we acquired the DentaQuest business. We're already in the market actively. We have a strong distribution footprint that is part of our employee benefits business and these products, the dental products specifically are very often bundled with our other employee benefits products. So it's an area of strength for us in terms of our distribution footprint. And over time, we expect to continue to grow it out.

Operator, Operator

And our next question today comes from Alex Scott of Barclays.

Taylor Scott, Analyst

First, I wanted to just ask on the 17% rate you mentioned on stop-loss. Is that sort of what some peers are calling an effective rate? Like does that include the benefit of changes in terms and conditions like attachment points and so forth that you might be doing? Yes, that's my first question.

David Healy, Senior Vice President

Yes. The 17% rate increase on our in-force renewed business reflects both the anticipated rises in medical costs and our claims experience so far. As you know, the medical trend in the U.S. was in the high single digits last year, and we expect it to remain at that level in 2026. However, leverage trends can be significantly higher since they show how increases impact plan designs, including factors like deductibles, attachment points, and coverage layers. As I mentioned, we follow a solid and disciplined pricing strategy, supported by effective risk selection, which is evident in our 17% renewal rate increase.

Taylor Scott, Analyst

Got it. Okay. That's helpful. And then two premium growth questions. One, if you could opine on like how much the stop-loss sales growth will contribute to premium growth? I assume just retention side, too. So I wanted to get a feel there. And then also if you could maybe touch on Asia growth and just kind of coming up on some of these tough comps in Hong Kong, what we should expect?

David Healy, Senior Vice President

So it's David, I'll just start with the U.S. growth. So as you do see the headline numbers in terms of our sales growth in the stop-loss business, and we're pleased with those results. We did also see strong and record persistency in our in-force book as a result of this hardening market that we're experiencing. So when you put the two together, we feel good about our premium flows going into 2026.

Manjit Singh, Senior Vice President, Asia

It's Manjit. On the Asia side, you're right. I think we had a phenomenal year in Hong Kong in 2025. We expect some moderation in the growth rate, but we still expect to continue to deliver good performance in Hong Kong. And then, of course, we have other markets that are coming up too, notably as Kevin had in his remarks, Indonesia. So overall, we're still feeling good about the diversified nature of our business in Asia and continuing to deliver good growth.

Operator, Operator

And our next question today comes from Doug Young at Desjardins Capital Market.

Doug Young, Analyst

I just want to go back to one comment Tim or Kevin made, just about on the buybacks. You buy back essentially the organic capital generation in any particular year. And maybe I'll challenge it, like why not buy back more? By my math, you're sitting on $6 billion of excess capital? And I get the argument about the book value in CSM, but you've got a lot of capital flexibility. You're not looking to do anything transformative acquisition-wise. You're moving to capital-light businesses. Why not be more active than in the buyback side?

Timothy Deacon, Executive Vice President and Chief Financial Officer

Thank you, Doug. This is Tim. As I mentioned earlier, our actions are guided by a disciplined approach. Whenever we engage in our buyback program, we fully leverage it. In the fourth quarter, for instance, we repurchased approximately 4.7 million shares, amounting to nearly $400 million. Over the year, that totaled $1.7 billion or almost 20.8 million shares. This shows our capacity and willingness to utilize a share buyback strategy. However, I also highlighted our near-term priorities, which involve completing the final purchases of private asset affiliates. We currently have a liability of about $2.2 billion on our books, and we are still navigating the buyout process there. We anticipate some final adjustments, likely under $150 million more. I also mentioned potential opportunities beyond that. We will remain active in the buyback program, but we need to focus on these priorities first. Historically, we have avoided overspending relative to our organic capital generation, and this discipline has served us well. Depending on market conditions, we expect to resume share buybacks later in the year.

Doug Young, Analyst

Are you indicating that there are no obstacles to maintaining this excess capital or the leverage ratio needed to achieve your 20% underlying return on equity target? If you reduce the excess capital, doesn't that make the 20% underlying ROE target appear rather conservative? What are your thoughts on this?

Timothy Deacon, Executive Vice President and Chief Financial Officer

Yes. Our capital deployment is, as I outlined, our medium-term objectives aren't dependent on M&A or features like that, that would be all upside and incremental. The flexibility that we have has served us well, and I think that gives us a lot of dry powder and optionality as the opportunities present themselves in '26.

Doug Young, Analyst

Okay. I have a two-part question regarding the asset management side. Tim, with the buy-ups for the SLC minority interest, what impact should we expect on the underlying earnings for SLC? Additionally, as you are consolidating all these businesses under the asset management group, what are your expectations from this consolidation? Are you hoping for closer collaboration between SLC and MFS? Could you elaborate on that?

Stephen Peacher, Senior Vice President, Asset Management

It's Steve Peacher. I want to make a few comments. As we go through the call, there are several factors to consider regarding the impact on income. We will be acquiring the minority interest. Additionally, we are implementing a management equity plan, which was mentioned in Kevin's remarks, providing certain employees the chance to buy equity. We believe this is crucial for our competitiveness in the alternative asset management sector. We expect employee ownership to exceed 20%, and we have received an excellent response to this initiative. This will lead to increased employee participation, which we believe will foster our culture and boost growth. These dynamics will then influence the underlying net income. At the Sun Life Investor Day in 2024, we set medium-term targets of 20% growth in fee-related earnings at UNI, and we are confident in achieving that. Tom might also want to add to this. I’m very excited about the Sun Life Asset Management framework that integrates the various asset management operations of Sun Life. It should create growth opportunities that we couldn't tap into at SLC on our own. This will enhance our growth rate as we leverage the connections and capabilities Sun Life has alongside the investment strengths at SLC. Tom, feel free to share your thoughts.

Thomas Murphy, Senior Vice President, Asset Management

Yes. Thanks, Steve, and good morning. So our focus on growing AUM opportunities is right across the enterprise, and we're specifically focused on the intersection between our global insurance company, our wealth businesses, and our asset management businesses, the so-called flywheel effect. And maybe it's useful to give you some examples. So touching on SLC. SLC and any alternative asset management business really a big part of our future growth trajectory is based on access to seed capital and permanent capital. And we believe, if we look internally into our insurance company balance sheet, we think that there's more room for us to leverage the balance sheet to help Steve grow his alternative asset management business. Specifically, we believe that there's a significant opportunity to collaborate between SLC and our pension risk transfer business. And that was why you saw us move our pension risk transfer business into our asset management pillar, so we get better collaboration and quite frankly, grow both businesses at the same time. And then external partnerships. We've been talking to a number of external or potential external partners who we think can be a good long-term source of seed and permanent capital. If I flip quickly to MFS. MFS already works very closely with our wealth businesses, SLGI, GRS and our MPF business in Hong Kong. We think that MFS can grow on the back of the growth of those wealth businesses. We also think MFS can grow by further penetrating those wealth businesses and managing a greater share of wallet. And then I'll touch on Asia and then I'll pause. But from an Asia perspective, I think we're a #3 player in the MPF market in Hong Kong. We think there's room to grow. We think there's room to grow in Asia in the high net worth market. And India, the most populous market on the planet. India has a very interesting stage in the alternative asset management sector, which is emerging and growing really, really quickly. I think we're the only provider globally who has a really, really strong local partner with Aditya Birla and a really, really strong global alternative franchise with SLC, and the combination of those two can help us grow in that marketplace. So I'm not sure that was too much, but I wanted to give you some tangible examples. It's early days, and we'll share more as we progress through the year.

Kevin Strain, President and Chief Executive Officer

And Doug, it's Kevin. I want to add a quick comment about Steve, who has worked extremely hard over the past 12 years to build our incredible capabilities in the alternatives business, including the mergers between Bentall Kennedy and GreenOak, BGO, Crescent, and InfraRed, as well as expanding our PFI capabilities to third parties. We have consistently seen positive flows at SLC, and as we move into the new phase where we'll own more, we are addressing the put calls. We've aligned the management team with shareholders, as you mentioned, with the 20% equity interest they will have. We have retained our top talent, and we are excited about this new stage for SLC. Steve has done a fantastic job in preparing us for this transition. 2026 will be a pivotal year, but we anticipate achieving the 20% growth in earnings we discussed earlier. Steve indicated that they met their Investor Day targets, and I am confident they will continue to perform well. The creation of SLIM was part of our strategy to create more opportunities in asset management and to approach it more strategically. Under Tom's leadership, I believe we will enhance our capabilities at SLC further. We feel positive about the positioning of our overall asset management pillar and MFS' role in it. This is a significant step for us this year, and it positions us well for the future.

Operator, Operator

And our next question comes from Tom Gallagher with Evercore.

Thomas Gallagher, Analyst

I have a couple of questions regarding stop-loss. When I see over 50% growth in an insurance business, it often raises the question of whether the business has been mispriced or if the market is experiencing disruption, possibly due to competitors withdrawing or increased demand. Could you provide more details on the January renewals? This situation is attracting significant attention, and I believe there are questions regarding the terms and conditions that resulted in this outcome.

David Healy, Senior Vice President

Yes, thank you for the question. It’s David again. Firstly, it is a challenging market. We are observing some changes and disruptions in the U.S. healthcare system that are impacting, particularly, some of our competitors who may lack the scale or capabilities that we possess. I mentioned the 17% renewal rate increase, which is the gross figure, but there is risk selection involved and other factors to consider. We have a strong track record of successfully navigating these cycles in the business. This is not the first time we have encountered such conditions. Additionally, we consistently maintain historically low loss ratios, among the lowest in the industry. We recognize the emergence of this market and started making pricing adjustments well ahead of our competitors. Consequently, the changes we needed to implement are less significant than what others faced, as the gap we needed to address was not as large.

Thomas Gallagher, Analyst

Got you. And then my follow-up is, can you just remind us, I think you were running 2 to 3 points behind on your target margin. Is that what you priced for? Or just given the uncertainty, increased volatility, did you look to restore more than 2 to 3 points in the way you repriced?

David Healy, Senior Vice President

Yes. We aimed for rate increases that accounted for the anticipated rise in medical costs and our current claims experience. These factors are incorporated into our pricing strategies. We will, as always, monitor emerging claims costs in 2026, but they are already taken into consideration in our pricing.

Kevin Strain, President and Chief Executive Officer

Tom, I want to highlight that inherent in David's question is the fact that because of our scale and consistency, we can be somewhat selective in the risks we take on. This is an important aspect, as our deep understanding and capabilities enable us to choose how we approach our client base. We've historically done this, for example, in the pension risk transfer business in Canada. Having that scale and deep knowledge provides us with a significant advantage.

Operator, Operator

And our next question comes from Mario Mendonca with TD Cowen.

Mario Mendonca, Analyst

Kevin, in response to your question, the questions around SLC and the moving parts, and where earnings could fall out in 2026, you used the word transition. It's a transition year, which in this industry is an euphemism for shrinking. Can you be clear with us? Is that what you're telling us that in 2026, that business will generate lower earnings than it did in 2025? Is that a...

Kevin Strain, President and Chief Executive Officer

No, we're not suggesting that it's going to shrink next year, Mario. I'm just saying that it's the year that we're transitioning into the new ownership percentages, and the medium-term objective is the 20%. But Steve may want to add a little bit more detail.

Stephen Peacher, Senior Vice President, Asset Management

Yes, this is Steve Peacher. We have experienced strong growth in assets under management and earnings this year, and we anticipate continuing that trend next year. We will have a mix in terms of ownership percentages as we transition from the current minority interests to buying those up and allowing employees to reinvest. There’s a financial transition happening. More importantly, the opportunity we have is that, to date, our businesses have operated somewhat independently due to the structure from acquisitions. BGO, Crescent, InfraRed, and our fixed income business have been somewhat siloed with only some connections. This was necessary because they haven't been fully owned. Now that all equity interests are consolidated under SLC, we can align efforts to leverage the platform for improved margins and accelerated growth. Aligning ourselves for this is a major focus for us this year, and we can only take full action after the buy-ups. Therefore, when I think about transition, it’s about utilizing the platform's potential in ways we haven't been able to do before.

Mario Mendonca, Analyst

Okay. Another question perhaps for David in stop-loss. I appreciate Sun Life's scale and expertise in the business, and it's certainly been helpful in the past, but that didn't prevent Sun Life from having some sloppy quarters over the last couple of years, like the experienced losses in Q4, Q2, Q3 this year. So where, I guess, I'm going with this first, David, if you could help us understand what's in that $17 million experience loss this quarter? Maybe break that down between Dental and stop-loss or in-force? And then as a follow-up to that, what would be a reasonable level of experience, either gain or loss going forward?

David Healy, Senior Vice President

The majority of the miss is in the stop-loss business due to being off our original plan. We started the year aware of a pricing gap that persisted throughout. In Q3, we had to adjust our loss ratios for previous periods because of new experiences, and this was reflected in that quarter. However, we saw the loss ratio stabilize in Q4 and maintained that stability. We remain focused on understanding our underlying risk, and we feel confident with our current position as the 2025 cohort is now 65% complete and much more credible, with the loss ratio remaining stable. This stability gives us confidence in our direction.

Mario Mendonca, Analyst

For obvious reasons, I understand that it's not really possible to provide an outlook on experience going forward because we don't know yet. So, you're not ready to discuss that just yet?

David Healy, Senior Vice President

That's right. I mean, obviously, we have our own view of it, and we have a great projection for experience, but we don't comment on future experience at this point.

Kevin Strain, President and Chief Executive Officer

Thank you for the question, Mario. If you look at Sun Life today, we're among the top 25 asset managers globally by assets under management. We strongly believe in participating in both public and private markets, and we've previously discussed the build-out of SLC and MFS as our vehicle in the public markets. Engaging in both is crucial for the long-term success of an asset manager. Over the last decade, we've developed these capabilities in SLC, and the creation of Tom's role is significant. Including MFS in our asset management strategy is a strategic decision we believe is right. Market cycles will change, and this has proven to be a challenging period for active asset management. However, we believe that active asset managers provide value to their clients over the long run, which is vital. We see MFS as a leading global player in active asset management. In fact, they pioneered the mutual fund and continue to excel in investment and distribution capabilities. The challenges the industry has faced recently have allowed them to attract new talent, which is essential for MFS's long-term success. Their outflows are consistent with market trends, and we remain confident in their ability to perform. I fully support Ted and the MFS team; we engage with them regularly, and they are focused on doing what's right for clients and the business. As Tom mentioned, we believe developing our wealth businesses in Canada and Asia will benefit MFS and SLC. In Canada, we manage over $200 billion in wealth assets, and Jessica is working on expanding that. Asia is also rapidly growing for us. So, if you analyze MFS, beyond its contribution to earnings and ROE, it's a key part of our asset management business, and we believe they have the right capabilities for success. Our support is critical for the continued success of our asset management pillar.

Operator, Operator

And our next question comes from Paul Holden at CIBC.

Paul Holden, Analyst

There are many questions regarding stop-loss. Instead, let's talk about U.S. Dental. Can you provide an outlook for 2026 regarding any positive movements related to pricing and cost actions that might help align operating expenses with the revenue outlook? Should we anticipate any acceleration in commercial premium growth here? Currently, it's at 7%. Is that sufficient to positively change the mix over time, or should we expect a higher figure?

David Healy, Senior Vice President

Paul, it's David. Thanks for the question. Well, we expect to make modest progress in 2026 in the Dental business. Obviously, if you look back at 2025, higher claim utilization did offset much of the pricing increases that we had achieved coming into the year. But we continue to stay focused on the business, and we expect to make gradual progress as we move forward. We are seeing states that are beginning to reflect the higher utilization in their forward pricing. But at the same time, the Medicaid headwinds will persist. We do have a number of actions underway. Certainly, we continue to focus on repricing and working with states and health plans to do that. We're also looking at changing some of our risk agreements and ASO depending on what the clients might be looking for. And also just overall, working with states and health plans around our cost containment capabilities, and as you mentioned, managing expenses. So we are very focused on continuing to improve this business, but it will be something that we will improve gradually over time.

Paul Holden, Analyst

Okay. And then just again, in terms of a reasonable expectation for growth in the commercial business, is 7% the right bogey? Or would you like to accelerate that to something higher?

David Healy, Senior Vice President

Yes. Sorry. Thanks for that follow-up. We continue to focus on opportunities in the commercial space in terms of both extending our reach into new segments of the market and also adding more products when we sell Dental through our employee benefits distribution as well. So we're not just looking at it as a standalone Dental opportunity, but also how can we accelerate the overall growth of our employee benefits business. So ultimately, yes, we have a strong aspiration, but we have to be careful about the pace in which we build this out as well because it's a competitive market, and we have to do that carefully, which we'll do.

Operator, Operator

And our next question comes from Ted Maloney.

Ted Maloney, Analyst

I'm hoping you can provide some insight into the outlook for MFS. More on that side of the business, what are expectations moving into '26 in terms of revenue generation, particularly with the challenges faced in the active management landscape? Are you expecting stabilization, or are there still headwinds?

Edward Maloney, Senior Vice President, MFS

Thanks for the question. This is Ted. So on the MFS side, while we've certainly faced headwinds over recent quarters, as has the industry as a whole due predominantly to market concentration impacting flows in a more active way, we do believe we've positioned ourselves well entering '26. We expect our capabilities in active management will shine through as we respond to market needs, especially as investors consider diversification into various asset classes. The continued emphasis on long-term performance, and understanding that active management can add value will serve us well in the years ahead. So while there are challenges, we remain optimistic about our ability to adapt to market conditions and our overall strategy’s effectiveness.

Operator, Operator

If there are no further questions, I will turn it back to Kevin Strain for closing remarks.

Kevin Strain, President and Chief Executive Officer

I wanted to end the call with a few thoughts on Tumbler Ridge, BC. We were all heartbroken to hear about the tragedy a few days ago. The first responders and health care workers are the true heroes there. And I've personally been touched by how the community has pulled together and supported each other. Our thoughts and prayers are with everyone affected. Thank you.

Operator, Operator

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.