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Operator
Good morning, ladies and gentlemen. My name is Blue, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q4 2020 Financial Results Conference Call. All lines have been placed on me to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The host of the call is Lee Chalmers, Senior Vice President, Head of Investor Relations and Capital Management. Please go ahead, Ms. Chalmers.
Lee Chalmers
Thank you, Blue, and good morning, everyone. Welcome to Sun Life Financial's earnings conference call for the fourth quarter of 2020. Our earnings release and the slides for today's call are available on the investor relations section of our website at sunlife.com. We will begin today's presentation with an overview of our fourth quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Following Dean's remarks, Kevin Strain, Executive Vice President and Chief Financial Officer of will present the financial results for the quarter. After the prepared remarks, we will move to the question and answer portion of the call. Other members of management will also be available to answer your questions on today's call. Turning to slide two, 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 will turn things over to Dean.
Dean
Thanks, Leigh, and good morning, everyone. 2020 presented a new challenge to the world in the form of COVID-19 and shone a bright light on existing challenges, particularly systemic racism and climate change. At Sun Life, these served as a catalyst to accelerate change. we had already made digital a key focus. The pandemic meant we needed to accelerate our digital program even faster to serve clients virtually when face-to-face became impossible. The horrific murder of George Floyd galvanized action to drive lasting change and eliminate systemic racism. At Sun Life, we started a series of dialogues and training around racism. We set a goal to have 25% of executive roles staffed by underrepresented ethnicities in North America by 2025, including goals for black, indigenous, and people of color, and to achieve gender parity in these executive roles. Climate change is one of the defining issues of our time. In our annual MD&A, we have included our first climate change disclosures under the Financial Stability Board's Task Force on Climate-Related Financial Disclosures, or TCFD. At the end of March, we will publish our 2020 sustainability report that will provide more detail on our objectives and ways where our expertise can have the most positive social and environmental impact. Turning to slide four, reported net income of $744 million grew 3% over the prior year, while underlying net income grew by 9% to $862 million. Underlying earnings per share grew 10% over the same period, and we generated a strong underlying return on equity of 15.4% for the quarter. Our capital and cash positions remain healthy, and along with a low leverage ratio, provide flexibility and opportunity for further capital deployment. MFS ended the year with U.S. $610 billion in assets under management, driven by asset appreciation and positive net flows, demonstrating the continued strength of MFS's performance and brand. SLC, our alternatives asset management business, grew third-party AUM to $106 billion, with strong investment performance and positive net flows. And we reached $33 billion in AUM at Sun Life Global Investments in Canada, with strong investment performance for clients and positive net flows. Insurance sales of $1.4 billion in the quarter were up 2% over last year, with 11% growth in Asia and 4% growth in the U.S. on a constant currency basis. In Vietnam, we entered into a 15-year bank assurance partnership with Asia Commercial Joint Stock Bank, or ACB, which started last month. This partnership complements the exclusive bank of partnership with TP Bank in Vietnam that started a year ago January and in its first year nearly doubled our Vietnam sales compared to 2019. Throughout the year, we also expanded our agency distribution network across Asia, where we now have 138,000 advisors in the region, up 12% over 2019. Turning to slide five, as you know, we are on the journey of accelerating everything digital, driven by our purpose of helping clients achieve lifetime financial security and living healthier lives. We've made big strides using digital data and analytics to change and improve the client experience. And here are just a few examples. In Canada, our digital coach, Ella, helped clients save an additional $700 million in wealth deposits in 2020, up 69% from 2019. Ella also helped clients to close the coverage gap, contributing to $1 billion of face value in insurance sales, up 83% over 2019. We made client interactions more frictionless, digitally processing 90% of Canadian retail insurance applications and 79% of retail wealth transactions. Our artificial intelligence and predictive modeling accelerated and improved the individual insurance application process with 71% of policies underwritten without the need for lab tests, an increase of 26% over prior year. In the U.S., we've just launched a fully integrated disability and absence management technology platform that simplifies the experience for clients. As legislation continues to evolve, absence management is becoming increasingly complicated for employers, particularly those who operate in multiple states. To date, we have onboarded nearly 10,000 employer clients to our new state-of-the-art claim system that will enable us to coordinate absences as a single event across all benefits. In the fourth quarter, we launched a digital non-face-to-face sales platform in Malaysia, and we now have virtual sales experiences in each of our markets across Asia. And finally, this year, we introduced digital enterprise across the company, bringing together the business and IT to help us deliver exceptional digital experiences and client outcomes. Digital enterprise is a new way of working for us. It's how we will ensure our clients can have a distinctive digital experience integrated across life, health, and wealth. Turning to slide six, I'll touch on some highlights from our full year 2020 results. Despite the challenges of the pandemic, we benefited from our chosen business mix and strong execution. And this also came through in the returns we delivered to shareholders, with five-year total shareholder return of 9.6% compounded annually top quartile among 20 global competitors. Reported net income for the year of $2.4 billion was down 8% from 2019, mostly as a result of equity market volatility and fair value of real estate investments. Underlying net income of $3.2 billion grew 5% over 2019, reflecting strong business growth and a 13% increase in expected profit, strong investing activity due to market dislocations early in the pandemic, and favorable morbidity, which includes the impact of lower benefits usage brought about by the pandemic. On the other hand, we also saw elevated mortality experience in the year, mostly related to clients who sadly succumbed to COVID-19. Credit experience in the year was also unfavorable, driven mostly by downgrades in the second quarter. Full-year insurance sales decreased by 1%, primarily reflecting lower large-case sales and lower market activity in Canada's group benefits business, while insurance sales were up for the year in both the U.S. and Asia, including our international high net worth business, which doubled its sales from the prior year. Wealth and asset management sales grew 39% to $221 billion, with strength across all our businesses. We also reached a milestone of $1.25 trillion of AUM. MFS finished the year with four quarters of net inflows, totaling US $13.1 billion for the year. and continued to deliver strong investment performance for clients, with 97%, 95%, and 94% of U.S. retail assets ranked in the top half of their Morningstar categories based on five-, ten-, and three-year performance, respectively. SLC Management, our Alternatives Asset Manager, reached an inflection point, with underlying net income of $94 million, reflecting strong contributions from recently acquired businesses, including Benthall Greenoak, and infrared capital. We also completed our acquisition of a majority stake in Crescent Capital Group on January 5th of this year, broadening the solutions we bring to institutional clients and bringing SLC's third-party AUM to $145 billion on a pro forma basis. On slide 7, you'll see how we were there for our clients in a tough year. We delivered nearly $200 million of claims payments to the families of clients who succumbed to COVID-19. We extended grace periods for our clients to make premium payments, provided credits to employers for the lower benefits usage we saw during the pandemic. We enrolled over a half a million Canadians in a new virtual health care service through Lumino Health and Dialogues. Our client index score measures how our clients rate us on proactive contact, ease of doing business, and problem resolution. Our score increased again this year, increased by three percentage points over last year, with increases across all categories, indicating that our obsession with the client experience is showing up in results for clients. When I stand back from this, I'm incredibly proud of all that we accomplished in 2020. It was a hard year for people, for communities, for countries around the world, yet it was a year that showcased the tremendous determination of Sun Life employees and advisors coming together to stand behind our purpose. Now, we're not out of the woods yet on the pandemic, and yet there's every reason for optimism as vaccines are rolled out around the world. Sun Life is well-positioned for 2021 and beyond. with the strength of our people and culture, diversified and balanced business models, strong capital, and our ambition to be one of the best in the world at what we do. 2021 will also be a year of leadership change for Sun Life. In December, we announced that Kevin Strain will succeed me as the president and CEO when I retire in August. I know that Sun Life will remain in great hands under Kevin's leadership. He's a strong leader with great knowledge and passion for our business, And I'll have more to say about that on the Q2 call in August. And now over to you, Kevin, to take us through the fourth quarter results.
Leigh
Thank you, Dean, and I appreciate the kind words. I'm excited and humbled to become the next president and CEO of Sun Life. The client is at the center of everything we do in every one of our markets with a focus on helping clients achieve lifetime financial security and live healthier lives. And as Dean outlined, our focus on the client has never been more evident and more important than this past year. We've heard countless stories from how Sun Life has been there for our clients during the moments they needed us the most. This is what inspires me and motivates me and Sun Lifers all around the world. I'm looking forward to leading Sun Life and, more importantly, continuing to work with our executive team, board of directors, employees, advisors, and partners to build on Sun Life's success well into the future. With that, let's turn to our Q4 results. Slide 9 provides an overview of the results, which continue to demonstrate strong execution amid the challenging environment caused by COVID-19. Our reported net income for the quarter was $744 million, a 3% increase over the same period last year, driven by strong underlying net income, partially offset by assumption changes in management actions. Reported net income also included higher fair value adjustments on MFS share-based awards, reflecting strong performance in the year. Market-related impacts in the quarter were positive $20 million after tax, mostly driven by equity market growth, which was partially offset by the impact of narrowing credit spreads and changes in the fair value of investment properties. Underlying net income was up 9% at $862 million, driven by business growth across all four pillars, favorable morbidity experience in Canada group benefits and in U.S. stop-loss businesses, partially offset by lower investing activity in Canada as a result of asset repositioning, and an AFS impairment in Asia. Credit experience in the quarter was a positive $18 million, a good result. Underlying EPS for the quarter was $1.47, up 10% compared to the same period a year ago, while underlying ROE increased by 40 basis points to 15.4%, above our medium-term objectives of 12% to 14%. Assets under management increased to $1.25 trillion, an increase of 13% year-over-year driven by positive market movements, strong net inflows throughout the year, and $16 billion of acquired AUM on the closing of infrared in SLC management. Book value per share is up 6% compared to Q4 2019 and slightly lower than Q3 as a result of foreign currency translation and other comprehensive income on a stronger Canadian dollar in the quarter. Our LICAP capital remains strong with ratios of 147% at SLF, and 127% at SLA. The SLF ratio increased by 3% quarter over quarter, largely due to the $750 million subordinated debt offering completed on October 1st. SLA's ratio was in line with Q3 at 127%, and reflects the capital put into SLA from SLF to fund the ACB Bank Assurance Agreement in Vietnam. The debt offering increased our financial leverage ratio to 23.5%, below our target ratio of 25%. We end the quarter with cash at the holding company of $3.1 billion. After the close of Crescent Acquisition in January and our upcoming debt redemption of $350 million later this month, pro forma cash at the holding company is $2.4 billion, and our pro forma leverage ratio will be 22.6%. Slide 10 shows business group performance on both a reported and underlying net income basis. Canada's reported net income was 7% lower versus Q4 2019, driven by a similar reduction in underlying net income, which reflected investing activity losses due to asset repositioning in the quarter and unfavorable expense and mortality experience. This was partially offset by improved morbidity experience and group benefits on lower long-term disability incidents and the impact of repricing, as well as expected profit growth across all businesses. In the U.S., we saw a year-over-year decline of 33% in reported net income, reflecting the ACMA impact of the new reinsurance agreement in our in-force management business. On an underlying basis, net income increased 8% as our stop-loss business continued to see favorable morbidity experience. We also benefited from higher net investment returns on surplus assets and business growth, which was partially offset by less favorable credit experience and unfavorable expense experience. Mortality experience in the U.S. was unfavorable in the fourth quarter, primarily from higher deaths in our group benefits business related to COVID-19. Our asset management businesses saw an increase in both reported and underlying net income compared to the prior year, up 17% and 19%, respectively. Asset management earnings benefited from higher average net assets in MFS, as well as an increase of $19 million in SLC net SLC management underlying net income to $34 million on strong contributions from BGO and infrared. Asia's reported net income was broadly in line with Q4 2019, while underlying net income was down 19%, mostly as a result of $20 million AFS impairment relating to an investment managed by our joint venture in India. This was partially offset by higher new business gains in international hubs and favorable expense experience. In our corporate segment, which includes the UK business, both reported net income and underlying net income increased year over year. The improvement under both bases was driven by higher earnings in our UK and other runoff businesses and lower project spend in corporate support compared to 2019. Slide 11 provides an overview of our sources of earnings. Expected profit grew 16%, driven by growth across all our businesses, In particular, we saw strong growth in Canada and in asset management, which grew by 16% and 22% respectively. U.S. expected profit grew 7%, driven by growth in the business throughout the year. Asian expected profit grew at a more modest 5%, as growth in the business of 9% was partially offset by higher planned regional office expenses. New business gains improved by $14 million over the prior year, mostly driven by higher sales in Hong Kong. Experience losses of $136 million pre-tax in the quarter included market-related impacts from narrowing credit spreads and the impact of the fair value of investment properties, partially offset by higher equity markets. Expense experience was unfavorable in the fourth quarter, reflecting investments in digital and in GB operations in Canada, sales commissions and incentive compensations in the U.S., and initiative spend in corporates. Unfavorable policyholder behavior included small amounts in various products across the company. The fourth quarter experience also included unfavorable mortality, reflecting a small number of large claims in Canada, and COVID-19 related claims in the U.S. group benefits business, mostly offset by favorable mortality impacts in the U.K., which is reported in our corporate segment. Morbidity was favorable on lower incidents in Canada and the U.S., and credit experience was also favorable in the quarter. The $60 million pre-tax of ACMA in the quarter was predominantly in the U.S. Earnings on surplus were flat year-over-year as lower AFS gains were offset by fair value gains on investment properties and surplus and gains on seed investments. Slide 12 shows fourth quarter insurance and sales by business. We continue to benefit from our investment in digital capabilities as we grew total company insurance sales by 2% year-over-year despite a challenging backdrop. Insurance sales grew in the U.S. and in Asia, up 4% and 11% respectively on a constant currency basis. U.S. sales were driven by growth in both employee benefits and stop loss, while Asia had sales growth across most markets. The Philippines continues to recover from the impact of COVID-19 restrictions, with a 46% growth in sales compared to Q3, though still lower than the prior year. Hand insurance sales were down 18%, from the prior year due to lower group benefit sales as fewer sales have come to market. Wealth sales increased 15% compared to Q4 2019, with 19% growth in asset management from higher sales in both MFS and SLC. During the quarter, MFS had positive net flows of US $1.5 billion, while SLC management had positive net flows of $900 million. Asia wealth sales also increased up 61% year-over-year from fixed income sales in India, higher money market sales in the Philippines, and growth in the Hong Kong pension business. Canada wealth sales are down 18% from the prior year, reflecting lower defined benefit solution sales in the quarter, partially offset by higher mutual fund sales in our individual wealth business. Value of new business was $293 million in Q4, an improvement over the prior quarter, but down 13% year-over-year, driven by lower sales volumes in Canada group benefits and group retirement services businesses. Mix of business in Asia and the impact of lower interest rates also impacted BNB. Turn to slide 13. Our year-to-date operating expenses increased 4% on a constant currency basis over the prior year, while controllable expenses were up a modest 2%. Removing the impact of acquisitions, which added new run rate expenses, as well as higher contractual volumes from the sales compensation and commissions, full-year operating expenses were up only 2% from the prior year on a constant currency basis. We continue to focus on expense discipline across our businesses while benefiting from lower discretionary spend such as travel and conferences related costs due to COVID-19. This has allowed us to accelerate our investment in digital capabilities across the company. During the quarter, we recorded a restructuring charge of approximately $20 million after taxing corporate related to simplifying our organizational structure and driving efficiencies. We anticipate annual run rate savings from these initiatives to be roughly $25 million pre-tax, which we expect to reinvest in the business. We've also been deploying a strategy for our workforce and redefining the role of the office in a post-COVID environment. Starting this quarter, we began reducing and consolidating our real estate footprint across Canada and the U.S. and expect to take a further charge of $40 to $60 million after tax in Q1 to reflect vacating and reconfiguration of existing workplaces, which we anticipate will generate gross annualized savings of roughly $20 million. Turning to slide 14, we show our 2020 full-year progress against our medium-term financial objectives, as well as a five-year review. Underlying EPS grew 6% in 2020. On a five-year basis, underlying EPS has grown at a rate of 8% per annum, meeting our growth objective of 8% to 10%. Underlying ROE was 14.4% in 2020 and averaged 13.5% over the past five years. And finally, the dividend ratio for the year has remained just inside of our target range. Our client strategy has been the center of our focus with all four pillars growing underlying net income in 2020. Throughout the year, we deployed capital for organic investments, including investments made in advancing our digital capabilities. We also completed the acquisition of infrared, entered into strategic partnerships, including two new bank assurance arrangements in Vietnam, and shortly after the end of 2020, we closed the Crescent Capital acquisition at SLC Management. As a reminder, we're looking forward to hosting you virtually at our SLC Management Investor Day on March 18th. In closing, our focus on the client, investments in digital, and strong balance sheet have helped us perform well through the pandemic, and we remain confident about our financial position and our operating models. 2021 should see the world emerging from the pandemic conditions, and we are starting the year from a position of capital strength and a continuation of our growth agenda. With that, I'll turn the call back to Leigh for the Q&A portion of the call.
Lee Chalmers
Thank you, Kevin. To help ensure that all our participants have an opportunity to ask questions on today's call, I would ask each of you to please limit yourselves to one or two questions and then re-queue with any additional questions. With that, I will now ask Blue to please poll the participants for questions.
Operator
Thank you. Ladies and gentlemen, if you have a question, please press the star, then the number one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Humphrey Lee from Delding and Partners. Your line is now open.
Humphrey Lee
Good morning, and thank you for taking my questions. My first question is for Mike regarding MFS. The margin of 41% was clearly very strong, and I think last quarter you talked about the margin kind of expectation to be in the mid to high 30% range in normal markets. But based on where we are today and assuming a cooperative market, Is there any reason why we shouldn't expect margin to stay at current level or maybe even a little stronger as your net asset growth?
Mike
Good morning, Humphrey. It's Mike Roberge. As we've indicated historically, we think through the cycle in normal conditions, the margin should be in the mid to high 30s. In the last year, really off the market bottom with the S&P up over 75%, pretty good growth in the third quarter of markets, that you're going to be at the higher end of that when the markets are sort of maybe a little bit more extended relative to what we see normally. That's true on the other side of it. If we get a correction of 20%, you may see it down below that guidance that we've provided as well. So we continue to be comfortable that through the cycle, we're going to be in that 30% to 35%. If the margin stays strong, we're going to be at the higher end of that. On weaker margins, we'll be at the lower end of that. And beyond that, I wouldn't give any more guidance.
Humphrey Lee
Okay, thank you. And then in U.S. group benefits, can you talk about the various impacts that you've seen across the product lines from COVID-19? It seems like you are one of the outliers in the marketplace in terms of still seeing strong margins kind of through the year at 8%. I know there are still a lot of uncertainty, but can you just talk about some of the moving pieces in 2020 and how you think about that going into 2021?
spk08
Sure. Good morning, Humphrey. This is Dan Fishbein. Yeah, let me talk first about mortality and morbidity impacts. We've certainly seen mortality, especially in our group life business. There also has been mortality in our closed-block individual life business. But that business has a different impact on the bottom line because of the older ages in that group. It's already very well-reserved. Plus, we have reinsurance, and a significant portion of that is a par block. But in our group life business, we have seen mortality both in the fourth quarter and throughout the year. From a morbidity perspective, we have not seen significant impacts in the LTD business. We have seen some impacts on short-term disability. There certainly is more frequency of short-term disability claims caused by COVID. As you noted, of course, stop loss is an important part of our business mix, and very strong results in stop loss have helped to mitigate some of the negative impacts such as mortality. The other aspect of this is sales. Sales have remained strong for us. They were up year over year and strong in all of our businesses. And that is somewhat unique in the U.S. group industry over the past year. And we attribute that to our very strong digital capabilities and our experience working virtually. And that has distinguished us somewhat in the market. So we've been able to grow market share during this period of time.
Humphrey Lee
Got it.
Operator
Thank you. Your next question comes from John Aiken from Barclays. The line is now open.
John Aiken
Good morning. The success that you've had growing SLC management is obviously quite apparent with the growth and earnings contribution. But again, on a quarterly basis, it's been a little bit volatile. I was wondering if you could give us a little bit of color in terms of how the acquisitions have been performing against expectations, specifically infrared and butyl green oak, please.
Dean Connor
Hi, John. It's Steve Peacher, and I can answer that. Yeah, you know, just to comment on this quarter, obviously $34 million of underlying net income is a strong quarter for us. That was bolstered a bit by some strong fundraising at Bentall Green Oak in the fourth quarter, which led to something called catch-up fees, which are common in private equity style real estate funds when you have final closings, and that helped us in the quarter. You're going to see those from time to time in certain quarters, and these are going to be episodic and a bit lumpy, but you'll potentially see catch-up fees as some of our underlying businesses close on, have final closings on a fund, or you'll see performance fees as those come due. So that'll add a, you know, every now and then we're going to get the benefit of that. It won't be every quarter. If I look at the different businesses, obviously, infrared closed in the summer of 2020. The Green Oak deal closed a year before that, the summer of 2019. We feel like everything is on plan. All of our businesses are growing. In terms of sale, new commitments, we raised $3.5 billion across the platform in the fourth quarter of new commitments. And if you look at where we're winning business, it's across fixed income, private credit, real estate, infrastructure. And, of course, Crescent didn't close until January, but they're off to a bang in January with a close on their latest direct lending fund as well as pricing a new CLO. So, you know, it's always a competitive market, but we feel like each business is performing well.
John Aiken
Thanks for that, Steve. I'll reach you.
Operator
Your next question comes from the line of David Multimaden from Evercore. Your line is now open.
David Multimaden
Hi, thanks. Good morning. I guess just a question for Kevin and Dean. Congrats on the retirement, I guess, a bit early. But for Kevin, I guess, do you foresee any big changes to the strategy and also specifically around capital allocation once you take the reins during the summer?
Leigh
You know, I've worked with Dean closely on the strategy since he became the CEO, actually. I was one of the team members below the executive team at that point in time that had worked on the strategy with him, and now as the CFO for three and a half years, I feel like I've had a big input on the strategy. I do see us really emphasizing digital, We rolled out a project called Digital Enterprise, which was really about how working more agile, working more like a digital company, bringing IT and the business closer together, but also on the what side of doing more on digital and continuing to be aggressive. You can see just the impacts on digital through COVID and how quickly we pivoted, so we'll continue to emphasize that. Sustainability. I think it's a big topic for every company now, including diversity and inclusion, and Dean started his comments at the start of the the call on sustainability and ESG, and I think that's going to be an important topic. Obviously, my time in Asia had a big influence on me, and Asia has been a big priority for us in terms of capital deployment, and I see that continuing to happen. So, you know, I've had the great honor to work really closely with Dean on the strategy. I feel like I've had input on the strategy and that, you know, we're going to build on that success and the strategy we put in place.
David Multimaden
Great. And then just a quick follow-up on that. Do you see yourself in Asia? Do you see you guys entering into new regions, new countries there? Or do you foresee it just being more of a kind of bulking up where you currently have a footprint?
Leigh
I think we've got a great footprint. We're in the two biggest economies and the two biggest markets with China and India. We've got a great business in Hong Kong. We've got a really good footprint in the ASEAN region. We're building out high net worth. So my focus would be the same as it's been the last few years is building scale. So you saw us do two transactions on the bank assurance side in Vietnam and And I was quite involved in those, as was Dean and Leo, of course, and Larry Madge, who's the CEO there. But those types of transactions where we're building distribution capability, we're building partnerships, and we're building in a market that we think has huge potential, I think those are good examples of the types of things that will be our focus.
David Multimaden
Okay, that makes sense. And then just another question, Kevin, just on free cash flow generation and sort of an update there. I think in the past you've said in the $800 million range per year, earnings have clearly grown, I think, since you last gave that update. So how are you thinking about cash flow these days, Kevin? in terms of cash flow above the dividend that you guys are generating. And I guess also just wondering how to think about that going forward. Is that something you see just growing in line with IFRS earnings as we sort of go forward?
Leigh
Yeah, we're roughly in that range, and it's been, as you know, the capital drives off of reported income, which has been stressed by the economic conditions. So I would say that roughly in that same range, we're also investing in new businesses and those types of things. So I would have that number in mind. As we get closer to IFRS 17, we'll spend some more time on how to think about the business post-IFRS 17.
Operator
Okay, great. Thank you. Your next question comes from the line of Scott Chan from Catacord Genuity. Your line is now open.
Scott Chan
Good morning, Kevin. You just recently talked about building out the high net worth in Asia and maybe just talk about international hubs which kind of supported insurance sales in the quarter. Not talked about too much in the past, but just maybe broadly just on the progression of that new segment and perhaps an outlook that you see on the insurance and wall side over the next few years.
Dean
Scott, it's Dean. I think we'll ask Leo Greffen to take that question.
Scott
Good morning, Scott. It's Leo here. I can go through a little bit of where we're at with international hubs. And as you said, it was another strong quarter for that business segment. The results are the outcome of our strategy with that business over the last few years. We've obviously been in the international offshore business for a long time. But over the last three years, we made an explicit decision to make high net worth in Asia a strategic focus for us. And one of the early parts of that strategy was to bring the international business into Asia. Subsequently, we ended up bringing together the international business with our Hong Kong business under the International Hubs banner. And what that's allowed us to do is to really start to operate these two businesses much more closely, bringing together our broker relationships across the region. And so you can imagine a much better alignment of relationships, much better orchestration, much better service for these brokers. It's also allowed us to leverage our capabilities in terms of product development. We've made significant investments in digital and technology capabilities as well, which have also improved our operations and ease of doing business for brokers. And just generally positioned us more strongly with more significant scale, for example, from a balance sheet and reinsurance standpoint. And so what you're seeing in terms of results is really the byproduct of that focus in a business that requires a lot of expertise and where there's barriers to entry. So we're benefiting from that right now. Now, you know, in terms of what's happening with COVID-19, there is some uncertainty because this is a business that has a long lead time. It takes, you know, six to 12 months. to go through an onboarding process with a client. Up until now, we have strongly benefited from the pipeline that we started to build a year ago, and so we've seen that momentum. Q4 sales continue to be strong, but I would say there's been some softening of the pipeline given travel restrictions.
Scott Chan
Just a quick follow-up, you talked about expansion into the Singapore market. Is there any other expansion opportunities into other regions? And maybe you can comment on Singapore specifically.
Scott
Yeah, with our presence in Bermuda, now our Singapore presence and our Hong Kong presence, we believe we've really covered the big international financial centers of Asia. So I think in terms of footprint, we feel like we have all of the geographies that we need. Specifically in terms of Singapore, we acquired our license last year, in the middle of last year. And we've been preparing the launch of the office since then. It's been going well. We're establishing a network of distributors in Singapore, and that's proceeding apace. And then we're also preparing for regulatory approval of our first product in Singapore. And so all that's on schedule, and we expect to start this business as soon as we get the required regulatory approvals on our product.
Scott Chan
Great, thank you very much.
Operator
Your next question comes from the line of Tom McKinnon from BMO Capital. Your line is now open.
Tom McKinnon
Yeah, thanks very much. Good morning. Two questions. The first is with respect to investment experience gains. You mentioned there was some asset repositioning in the quarter. So I guess that meant... You may have sourced assets, but you didn't have any kind of significant yield enhancement activities. As a result of this asset repositioning, what does that imply for the outlook for investment experience gains going forward?
Leigh
Yeah, Tom, it's Kevin. Most of that was in Canada and was sort of a reloading of the balance sheet. You would have seen that we took advantage of the strong balance sheet early in the COVID and ran some pretty strong gains. And in the fourth quarter, as spreads came in, we saw a chance to sort of reload the balance sheet and sort of prepare us for it puts us in a good position for next year.
Tom McKinnon
Okay, so is there any kind of metric for a run rate that we could look at? Because this is sort of bounced all over the place in this quarter. You know, is $25 million a quarter or something? I mean, I'm trying to give us, do you have any indication as to how we should be looking at that going forward?
Leigh
Yeah, we've given a run rate for investing activity in the past in the neighborhood of $10 to $20 million after tax. And for AFS gains, $30 million. I would say that that's still roughly in line with where we'd expect to be, $30 million after tax for AFS.
Tom McKinnon
Okay. And the $30 million after tax AFS gains are not in that category.
Leigh
No, that's not an investing activity. I'm just kind of answering both because they kind of relate to each other and sort of the balance sheet strength.
Tom McKinnon
Okay, that's great. And the second question has to do with the international hubs. And I know you made a decision earlier in 2020 to move your Hong Kong business in there. And it sounds like, you know, you know, Hong Kong used to be part of Asia, but now it's part of your international hubs business. But I think that was an effort to build out more high net worth business in Hong Kong. Correct me if I'm wrong. And then when I think of high net worth business, I think of like pretty big face amount policies. And I think about pretty big face amount policies. I think of paramedical testing. And when I think of paramedical testing, I think that's pretty tough to do in a COVID-19 environment, especially in Hong Kong where it's locked down. So are the sales you're getting in this international hubs in Hong Kong, are they largely related to a pipeline? And maybe you can talk about what's happening with respect to these big high net worth policies in Hong Kong, which would probably need some paramedical testing, and how that's working in light of COVID-19.
Dean
Tom, it's Dean. Leo is going to take that one. And, Leo, I'd suggest as you do, also comment on the local Hong Kong business because it's a significant business in part of those results and an important contributor to our growth.
Scott
Yeah. Yeah, thanks, Dean. Tom, good morning. So, you know, as I mentioned a little bit earlier on international hubs, It is a business that is complicated, that has a long lead time, right? We have kind of six to 12 months pipelines for that business. And so up until now, we have benefited from business that started, you know, pre-COVID-19 or in the early days where travel was still possible. We're now reaching the end of that pipeline, and the brokers are, you know, talking to us and sharing with us that there is a softening of the pipeline. However, there's a couple of mitigating factors to that. The first one is that if you look at the international hubs business overall, it's got our Bermuda business, our Singapore presence, and Hong Kong itself. You have high net worth clients in Singapore and in Hong Kong that are offshore clients. There is potential for sales of people who are currently living in those geographies and who are able to do medical exams without traveling. We are benefiting from that still and I think that will continue. The brokers that we're talking to are proving very resourceful in tapping into their existing client base for upsell and cross-sell and reactivating dormant pipelines of clients that are geographically able to go through the process. So they are working on the pipeline, but we think new client pipelines are going to be more difficult in 2021 if travel restrictions continue.
Leigh
It's Kevin. I just might add that just for clarity, so the International Hubs business is made up of what we used to have in Hong Kong, which is our agency business, which has performed quite well, and we pivoted to digital quite quickly. A broker business that does do high net worth, but it does go deeper into the market, and our MPF business in Hong Kong. And then we brought in the Bermuda business, which is the international side, and added Singapore into to leverage kind of the thinking around the high net worth and to leverage the relationships that we have with the brokers. So there's a bunch of components that are inside of the international hubs.
Tom McKinnon
Okay, so it sounds like international hubs is really a mixed bag, and the decision to move Hong Kong into it was really from an operational perspective to try to get more high net worth business. And it may... but there may not be a lot of paramedical testing with respect to the business in international hubs. Am I correct in that? You didn't address it.
Scott
I'd say there's different segments, Tom. So the high-net-worth business itself would have underwriting requirements, medical underwriting requirements. But there's other segments of the business. For example, we have a strong local broker business in Hong Kong, which is more mass market or affluent, which, depending on the product, may or may not require medical testing. And then we have our NPF business, where we're the second fastest growing NPF business in Hong Kong and the third largest in terms of AUM. That also contributes significantly to our growth. And then we have our agency business, which also is more of a mass affluence type of business with a strong savings component, retirement components, health components, and so on, which may or may not have complicated underwriting requirements. And for that local business, hospitals are open in Hong Kong. Today we had seven unlinked cases. People are going about their business. So if there's a medical exam required for a local client, they're doing their medical underwriting.
Tom McKinnon
Okay, and then the last one is, which one of those Asian segments, the local markets or international hubs, would have the more positive impact on new business on a sale? Like, are the margins the same in those two Asian businesses, but you get more of a gain on sale in international hubs?
Scott
It's fairly similar.
Tom McKinnon
Okay.
Scott
High net worth is a slightly bigger contribution to our new business gains, but in a similar ballpark.
Tom McKinnon
Okay. Thanks for that.
Operator
Your next question comes from the line of Manny Roman from Scotiabank. Your line is now open.
Manny Roman
Hi, good morning. I just wanted some more clarity on the consolidation of real estate in North America. You talk about a $40 million to $60 million charge. I'm just wondering how bold you're going to be in this issue in terms of how much square feet are we really talking about? Is this a big change? Do you expect a big percentage of the workforce to work from home at least part of the time? What's your thinking here in terms of the outlook for your corporate real estate footprint and how significant is this decision?
Leigh
It's Kevin. And if you looked at our footprint for our own use real estate across North America, including financial centers, it's just under 15% of our space. And I think it's a number of things. It's our ability to work from home effectively, which we've been able to demonstrate the past 10 or 11 months. It's also, you know, if you went back and you looked at our office usage and run rate usage, which is something we look at really closely, we did have an opportunity even before COVID to shrink a bit. And, you know, we took the opportunity this quarter to bring both of those pieces together. The financial centers are in the charge. We took this quarter of 20, and the additional office space is coming through in the next quarter. But we think that's a reasonable place to land. You know, there's still lots of work to think about in terms of the future of work and how people are going to work and those types of things. But we thought that this sort of reduction positioned us well.
Manny Roman
And I think you talked about the expense savings for the fees you took this past quarter. But for the charge that you're signaling in 21, what kind of expense savings are there?
Leigh
It's roughly $20 million, and it may seem smaller on a per-dollar basis, and it's partially to do with future lease costs and those types of things, and also reinvesting into the space to create a different sort of workspace for the offices.
Manny Roman
Okay, and then just as a follow-up, what are the implications in your view for the investment side of your business? Obviously, you hold a lot of real estate investments. this kind of decision that you're making at the corporate level, how does that inform where you think real estate valuations are going? Does it have any implications?
Dean
Penny, it's Dean Connor. I'm going to ask Steve Peacher to take that one on.
Dean Connor
Thanks, Dean. Hi. Yeah, thanks, Penny. Yeah, you know, certainly, you know, every business is thinking about how they'll be working post-COVID. We're certainly seeing announcements from some companies vacating space, and that obviously raises questions about office. I would say it would emphasize that you have to keep in mind that the institutional real estate markets are huge, they're global, and they include many different property types. So it's difficult to have just one outlook for real estate broadly. For instance, there are many areas where in real estate they're doing extremely well. For example, Bentall Green Oaks European funds have generated great returns for investors even during the pandemic because they've been so focused on industrial properties. which continue to show fantastic returns, and they're now moving into areas like cold storage, which are seeing incredibly strong demand. It's certainly reasonable to be concerned about the near-term outlook for office, but even there, it's heavily dependent upon property and location, and for instance, the office market in Tokyo is very strong, and our team there continues to generate high double-digit returns by focusing on that asset class. At the same time, there are office properties that are facing vacancy issues and have fallen in value So, I think it's by property type, by location. I will say, you know, final comment that institutional investors are still very interested in the asset class. We had a, for example, we had a first closing on our Benton Green Oak Core Plus Fund in June of last year, squarely in the middle of the pandemic, and we had higher than target fundraisings in our European and Asian funds just in the fourth quarter. And one other anecdote, you know, I know there have been a lot of articles recently about companies vacating space. You're also seeing the opposite in some instances. I mean, I'm in Boston. Just an announcement last week that Amazon signed a lease for 630,000 square feet in the Seaport District. So, you know, it's a big sector with a lot of different puts and takes.
Dean
Thanks for that, Steve.
Operator
Your next question comes from the line of Gabriel DeShane from National Bank Financial. Your line is now open.
Gabriel DeShane
Just a quick one on the reinsurance transaction. I'm sorry if this got asked before, but you mentioned that one of the ACMA charges this quarter was on that reinsurance transaction in the life runoff business there in the States. Can you tell me what you're aiming to get out of that and what and if it's some sort of reaction to indirect impacts from COVID that you're anticipating?
Leigh
So, Gabe, it's Kevin. We'll turn that to Kevin Morrissey.
Gabe
Yeah, thanks, Gabriel. This is Kevin Morrissey. In the quarter, the reinsurance transaction that you noted, there was a cost of $53 million that came through in the ACMA. The purpose of that was really twofold. One was to ensure some of the large case mortality exposures. You would have heard over the past year or so some of the volatility that we've had in the US related to ISM from large claims. So we've taken the opportunity to re-insure some of the large exposures. So we do expect a reduction in volatility. We also got a capital benefit from this. So that's also noted in our disclosures. There was a one point improvement in terms of the diversification benefit broadly, so that was another benefit. I should note as well that on an economic basis, so when we look at our best estimate assumptions, this was positive. So the strain is really coming from the PFAS, which we expect to come back into income over time.
Gabriel DeShane
Okay. And on the capital management front, understanding that there's some restrictions on distributions, if those restrictions were lifted tomorrow, Would you be looking at raising the dividend? It looks like you're going to be at the low end, if not below the low end of your payout ratio this year, if we don't see any big noise in the world. How do you view that?
Dean
Gabriel, it's Dean. When OSFI lifts the moratorium on dividend increases, whenever that happens, we do expect to resume a pace of regular dividend increases. And our intent will be to land the dividend payout ratio in that 40% to 50% range. As you noted, I think for the year we were at the lower end of that range. I think in the quarter we slipped a little bit below it. And those MTOs do apply over the medium term. So, you know, you can expect to see us get back to that range over some period of time, and that period of time is to be determined.
Gabriel DeShane
Right.
Dean
Thank you.
Operator
Your next question comes from the line of Paul Holden from CIBC. Your line is now open.
Paul Holden
Thanks. Good morning. Two questions. First is related to U.S. Group, but maybe just an update on pricing conditions both within stop loss and employee benefit plans with the January renewals.
spk08
Thanks, Paul. We did see some intensification of price competition, especially in the fourth quarter. As was noted earlier, some of our competitors really did not have great sales results during the year, and it seemed that some of them were trying to make up for that toward the end of the year. We had had good sales results throughout the year, so we were able to stick to our guns and price within our pricing targets. overall on both new business and renewals. But in both stop loss and group, we did see some increase in price competition in the fourth quarter.
Paul Holden
Thank you for that. Second question is related to runoff business. I guess it applies to both US and UK. And I know, Dean, you've been very consistent in answering questions on this in the past. in terms of unlocking future profits and cash flows by optimizing those businesses. But we're seeing an increased activity in transactions and increased appetite through new players. I'm wondering if that's swaying the economics at all that might put a transaction in a more favorable light than it has been historically.
Dean
Thanks, Paul. It's Dean here. You're right in that our focus, job one, has been to really run those runoff businesses well, to optimize them for tax and capital and use of reinsurance and expenses and so on, investments. And you're right to note that in some places, there's been an uptick in activity to acquire closed blocks, including private equity, getting increasingly involved in that space. But I would say to you, for over a number of years, there's been a lot of transactions going on, both in the UK market and in the US market, around closed block business. You know, back in 2013, we sold our annuity business, as you recall, and there was a robust process at that time. So, I think there is good demand out there. It's good to have that optionality if and when we take advantage of it. But for now, we're going to continue to try to optimize those businesses.
Paul Holden
Great. Thank you.
Operator
Your next question comes to the line of Doug Young from Data Team Capital.
Doug Young
Good morning. I'll try to keep this quick. Just lapse experience was negative 18 million this quarter. If I go back, I mean, it's been negative quite consistently for many quarters. I know you did an ACMA charge on lapse, and we're still seeing the negative experience. I'm hoping to just forget if you can flush out a little bit more of what you're seeing on the lapse side. And whether you think is this just a temporary item around COVID, or is there something more behind this?
Leigh
Doug, it's Kevin Stringer. We'll let Kevin Morrissey address that one.
Dean
Kevin Morrissey might be on mute.
Leigh
If Kevin's dropped, I'll take a crack at it and see if he comes back on, Doug. I've got it.
Gabe
Sorry, I've got it now. Yeah, my phone froze up. Thanks for the question, Doug. Yeah, we did have 18 million of losses in the quarter, so that was a bit disappointing. Looking across the business, we had single-digit losses across about eight lines. So it wasn't concentrated in any one business. As well, it wasn't just lapse. So looking into it, deep dive a bit, investigating the sources, we had about half of it was from lapses. Half of it was from other policyholder behavior like resets on options, take-up rates on some annuitization guarantees, reinstatements, conversions, and the like So after investigating the sources of our Q4 experience, I would say I'm not concerned at this point, despite the fact that the result in aggregate was disappointing. So I guess to answer your question directly, I'm hopeful that this is one of those quarters where everything seems to just go against us and we'll have to look in the future to see how that will turn around. Hopefully we'll see something different for the next quarter.
Doug Young
Okay, and then just second on Asia, the 20 million impairment to the JV in India. Can you just maybe talk a little bit more about what that's related to? Leo, you want to take that?
Scott
Yeah, I'll take that one. Thanks, Doug. So the impairment is related to an investment we made in a fund with our joint venture partner in India to support the development of the business. And given what's happening right now with market conditions and COVID-19, the funds underperformed, and we've needed to take this $20 million write-down based on current valuations.
Doug Young
So do you still own that? Could that be written back up again? Are we going to see that level of volatility?
Scott
Yeah, possibly.
Leigh
Yeah, just to be clear, we do still own that investment. Okay. Yeah, you have to look at the real estate market in India, which India is a fast-growing economy, right? They're expecting close to 10% GDP growth next year.
Doug Young
Yeah. Okay, great. Thank you.
Operator
Your next question comes from Nigel D'Souza. From Veritas Investment Research, your line is now open.
Nigel D'Souza
Thank you. Good morning. I had a quick question for you on earnings on surplus. I noticed this quarter you had a nice rebound in investment income. I was wondering if you could speak to the drivers there. I know you mentioned leveraging SLC. And on a go-forward basis, do you expect earnings on surplus to stabilize at current levels, or do you see a pathway for generating higher earnings on surplus?
Leigh
Yeah, so the earnings and surplus, as you know, were 114, so a bit above our run rate, and I would say that this was a fairly strong quarter for earnings on surplus. In fact, the lower AFS gain that we – or the hit to the Indian real estate assets, which resulted in lower AFS gains we just talked about, came through the surplus line. It was offset by some higher seed capital returns, you may remember, from the – First quarter, we had some seed capital losses, and we continue to see some of that come back, and we had some higher LP distributions. Overall, I would say that at $114 million, that's probably on the higher side of what we would expect surplus to be, and it's been coming down with yields coming down over the past few years. So, you know, if I was thinking about a number there, I'd think closer to 100.
Nigel D'Souza
That's very helpful. Appreciate the call, Eric.
Operator
Your next question comes from the line of Darko Mihalik. Your line is now open.
Darko Mihalik
Hi, thank you. Good morning. I think my question is for Kevin and Kevin. And I'm going to use annual numbers to sort of explain what I'm looking at here, which is expected profit growth in Canada and Asia. So when I look at 2018 in Canada, 5% expected profit growth. That accelerated to 10% in 2019 and now 14% in 2020. When I look at Asia, the opposite trend was at 17% in 2018, fell to 6% in 2019, and now below 4% in 2020. So the question is, are these trends expected to continue in terms of growth of EPF? What caused it? But more to the point, what I'm looking for really is a sort of general view on expected profit growth for each of these business lines in 2021 and beyond. Thanks.
Dean
Darko, it's Dean. Thanks for that question. I think why don't we start, we'll just break it into Asia and Canada. We'll start with Leo to comment on the trajectory in Asia and how we're thinking about that, and then Jacques can comment on Canada.
Scott
Yeah, good morning, Darko. If you look at the trend in Asia, you're right, Q4 expected profit was at about 5% versus prior year. What's happened in this quarter is that we had business growth, which was offset by higher planned expenses in our regional office to support the growth of the business. Now, the planned regional office expenses were actually reduced or deferred this year, given the general market environment and our expense discipline, which resulted in a favorable expense experience. So, there's an accounting geography here component. Kevin alluded to that earlier. If you account for the savings we experienced in our planned expenses in the regional office, expected profit would have been up 9% year over year. Now, if you look at our business in Asia, we have a number of markets that are not yet at scale. So in terms of our growth, we've got to look at expected profit, but we also look at new business gain. And if you combine expected profit and new business gain together, the gross rates of these two components would have been in the mid-teens. And if you account for the geography of the savings in the regional office expenses, you'd actually be a few percentage points higher than that. So, from the fundamentals of the business, if you look, expected profit plus new business gains, we are seeing this double-digit growth in the business.
Dean
In Canada, I would say it's not one thing. It's many things in a way. It's a big focus on expense and discipline. It's the looking for a better mix. It's pricing properly. It's continuing to invest in digital to give you an idea. I think you know, we've talked about before our digital coach Ella. Ella is getting smarter and smarter. So in 2020, we gave clients something like 15 million nudges that led to $700 million of deposits and a billion dollars of additional coverage and insurance. So You know, it's a number of things. One of the things I would say and point out is, you know, I put it to about half of it is business growth, half of it is expense discipline. I mean, of course, as you can imagine, the expense discipline, at some point in time, it will stabilize. But when you look back at it, I would say, you know, it sort of speaks to the underlying strength of all of our businesses. We are the leader. in GB and GRS, as you know. We're leaders in individual insurance, and we're just running the business very well, and it speaks to the earning power of the division, and it's certainly in line with the MTO.
Darko Mihalik
And just a quick follow-up on that, if I may, with respect to the business growth, and you mentioned the digital. Is it safe to say that this is still early days, or... you know, was the business growth somewhat at a high pace and you expect it to moderate now that, you know, these nudges have sort of, like will the nudges sort of slow down and should I expect business growth to slow a little bit going forward, you know, now that it's a little more mature?
Dean
Well, it's tough to say, Darko, because in a way, in a number of our businesses where things are still early, Kevin, in his remarks, talked about the acceleration of digital investments. So I would say Canada has been on that path for a number of years, but we are continuing to really put a lot more focus on digital. We're playing a greater role in health. For example, you saw the investment we made in virtual care halfway through last year. I would point you out also to some of our growth engines, are coming to a nice level of maturity. So one example I give you is SLGI. As you know, it's a business that we started 10 years or so ago, and it's contributing nicely in terms of momentum now because we crossed the path of profitability. So, you know, there's lots of runway ahead of us when it comes to our growth engines.
Darko Mihalik
Great. Thank you.
Operator
We have no further questions at this time, and I will turn things to Ms. Chalmers for closing remarks.
Lee Chalmers
Thank you, and I would like to thank all of our participants today. If there are any additional questions, we will be available after the call. Should you wish to listen to the broadcast, it will be available on our website later this afternoon. Thank you, and have a good day.
Operator
This concludes today's call. Thank you for your participation. You may not disconnect.
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