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Operator
Secrets are ready to begin. Oh, ready to start now. Thank you. I'm transferring you over. And then I'll give my introduction.
Kevin Strain
Please transfer us over to the call and meet the music.
Operator
Good morning, everyone. My name is Justin, and I will be your conference operator today. At this time, I would like to welcome everyone to Sun Life Financial Q4 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The host of the call is Yaniv Bitton, Vice President, Head of Investor Relations and Capital Markets. Please go ahead, Mr. Bitton.
Yaniv Bitton
Thank you, Justin, and good morning, everyone. Welcome to Sun Life's earnings call for the fourth quarter of 2021. Our earnings release and the slides from today's call are available on the investor relations section of our website at sunlife.com. We will begin today's call with an overview of the fourth quarter and full year results from Kevin Strain, President and Chief Executive Officer. Following Kevin's remarks, Manjit Singh, 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 will also be available to answer your questions this morning. 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. With that, I'll now turn things over to Kevin.
Kevin Strain
Thanks, Genevieve. Turning to slide four, we delivered solid fourth quarter results with reported net income up 45% to approximately $1.1 billion and underlying net income up 4% to $898 million. Growth in underlying net income was strong across asset management in Asia, both up 18% on a constant currency basis, and also in Canada, which was up 9% over the prior year. U.S. underlying earnings were down approximately 50%, mostly reflecting adverse COVID-19 mortality experience. U.S. infection and mortality rates related to COVID-19 remained elevated, and as a result, we continued to see significantly higher than expected mortality in the working-age population. We also saw elevated mortality in Asia, mostly in the Philippines. Our capital position remained strong, ending the year at 145% LICAT for SLF and cash at the holding company of $4.7 billion. In November, following the lift of regulatory restrictions for all federally regulated institutions, we announced a 20% increase to our common share dividend, reinforcing our commitment to provide strong returns to shareholders. Turning to slide five, we had strong full-year results in 2021, closing the year with reported net income up 64% to $3.9 billion, driven by favorable market-related impacts, and a $297 million gain on the IPO of our India Asset Management joint venture. Underlying net income was up 10% to $3.5 billion at the high end of our medium-term objective of 8% to 10% growth. 2021 underlying ROE of 15.4% was also strong, moving towards our 16% plus medium-term objective. And we ended the year with $1.4 trillion in assets under management, We also had strong growth across our businesses in 2021. SLC management had $32.5 billion of net inflows in the year, and MFS ended the year with record AUM of US $693 billion. Individual insurance sales grew 36% in Canada, and US group benefit sales grew 13% in constant currency. Sales in Asia were strong outside of international hubs, and total Asia wealth sales were up 51% in constant currency. These results were achieved while managing through profound impacts from the COVID-19 pandemic. Since the start of the pandemic, we have paid almost $900 million in COVID-related claims. We are proud to be there for our clients when they needed us the most. The pandemic has also had significant impacts on mental health, and we continue to identify ways to help our clients and our people work through these issues. We also demonstrated resilience through lockdowns and movement restrictions in the various geographies that we do business in, and we are constantly innovating to bring new digital solutions to our clients. And of course, the pandemic is not over. As Omicron spreads around the world, we continue to see higher COVID incident rates, and unfortunately, in cases where vaccine rates are lower, we are also seeing continued mortality. The pandemic has also disrupted supply chains and drove unprecedented stimulus from governments. These factors, among others, are driving higher inflation rates. Our diversified business mix is well-suited to manage in an inflationary environment through continued business growth, disciplined expense management, and pricing actions. Inflation is also usually followed with higher interest rates. Steadily rising interest rates, particularly at the long end of the curve, are good for insurers and should provide profitability support over the medium term. Turning to slide six, our purpose is more important now than it has ever been. People are focused on their health and long-term financial security like never before. This quarter, we delivered on key elements of our strategy. MFS maintained strong performance for clients with 97%, 96%, and 80% of MFS U.S. retail mutual funds assets ranked in the top half of their Morningstar categories based on 10-, 5-, and 3-year performance, respectively. Canada continued to deliver on health outcomes, expanding our partnership with CloudMD and to help clients manage their mental health with our new mental health coach. Many Canadians continue to struggle with mental health, yet a Sun Life study found that over half are not seeking care. CloudMD and our mental health coach use data analytics to identify at-risk clients and proactively reaches out to guide them to the right resources and support. In the U.S., we continue to enhance our digital capabilities to make it easier for clients to get the benefits they need. In 2021, This support supported record U.S. group benefit sales of U.S. $1.2 billion. In Asia, we're delivering on distribution excellence, where bank-assured sales in Vietnam have more than tripled compared to the prior year, while continuing to invest in health solutions like Bowtie, Hong Kong's first digital insurer, positioning it to expand across Asia. Sustainability is an imperative for Sunlight, and 2021 was a pivotal year for us. We achieved carbon neutrality across our global operations. And for the 13th consecutive year, Sun Life was recognized among the global 100 most sustainable corporations in the world, sharing the number one position among insurance companies globally. BGO is a great example of the type of investments we are making in sustainability. BGO was recently awarded the 2021 Outstanding Building of the Year Award for industry leadership and excellence in building management, weighted to one of our retail and office complexes in Toronto. This 10-story building uses state-of-the-art artificial intelligence analytics that generated energy savings equivalent to the annual energy use of 442 North American homes. It also reduced carbon emissions by approximately 3.8 million kilograms over the course of 2020. Finally, Sun Life was recently certified as a great place to work in Canada and the U.S., adding to our previous certifications in the Philippines and our Asia Service Center in India. Turning to slide seven, digital leadership is a key priority for Sun Life, and we continue to shift the organization to think and act like a digital company. Our digital strategy is centered on three areas, digital experiences, digital capabilities, and digital ways of working. In Canada, our digital coach, Ella, continues to deliver meaningful outcomes for our clients, driving nearly $700 million in additional wealth deposits and $950 million in insurance coverage sold this year. This is another example of how we are helping Canadians save for their future and ensure their families and loved ones have the protection and financial security they need. In the U.S., we launched Sun Life Link, a broad portfolio of digital connection solutions to enable easier interactions with plan sponsors, reducing manual work, and increasing operational efficiencies, allowing employers to spend more time on things that matter to their employees. Digital adoption is also a focus in Asia, with 71% of new business applications submitted digitally in 2021, up 48 percentage points compared to the prior year. We're making it easier for clients to do business with us, especially during times where face-to-face connections are more difficult. We are empowering our people to support the digital journey by providing flexibility through a hybrid work model and increasing the number of Agile practitioners by 63% over last year. These are just some of the ways we continue advancing digital experiences and capabilities across our businesses, and we will be sharing more on our progress throughout the year. Finally, reflecting on this past year and my first six months as CEO, I'm extremely proud of what we've accomplished. We are well positioned for growth, and we have a clear, compelling strategy with a strong track record of execution. we continued to effectively manage capital with over 10 strategic transactions in 2021, including the acquisition of Pinnacle Care, the IPO of our India Asset Management joint venture, and our intention to purchase DentaQuest. And we remain committed to our purpose and to creating positive financial and health outcomes for our clients. I also want to thank all of our employees and advisors around the world for everything they have done this year to help our clients achieve lifetime financial security and live healthier lives. With that, I will now turn the call over to Manjit, who will take us through the fourth quarter financial results.
Genevieve
All right. Well, thank you, Kevin, and good morning, everyone. Slide 9 provides an overview of our fourth quarter results. The results, once again, demonstrate the resilience of our diversified business model. Our wealth and asset management businesses delivered strong results driven by good net flows and favorable market conditions. On the protection side, fundamental business activity was strong. while COVID-19-related mortality and morbidity experience remained elevated in the quarter. Reported net income in the quarter was nearly $1.1 billion. This included higher investment property valuations, reflecting the value our investment team has created from repositioning the portfolio over the past few years. Reported net income also included a $297 million gain from the IPO of our India Asset Management joint venture. This was partially offset by an increase to acquisition-related liabilities at SLC Management, largely reflecting higher expected earnings at the time of buy-up of the remaining interest in affiliates. Underlying net income of $898 million and underlying earnings per share of $1.53 increased 4%, driven by broad-based growth across our business groups. COVID-19-related impacts of approximately $110 million per quarter was largely offset by a lower effective tax rate reflecting higher tax-exempt income and the release of a tax provision on resolution of prior year's tax matters. Underlying return on equity is 15% in the quarter and 15.4% for the full year, marking the first time our underlying ROE has crossed 15% on a full year basis. Assets under management grew to over $1.4 trillion, reflecting market value growth and another strong quarter of net flows at SLC Management. For the year, SLC Management assets under management were up nearly $70 billion, driven by strong net flows and the crescent acquisition. Our wealth and asset management businesses in Canada and Asia also delivered strong AUM growth, up $14 billion from the prior year. Book value per share increased 8% over the prior year. Excluding impacts and other comprehensive income, book value per share was up 12%. Our capital position remains strong, with LICAT ratios of 145% at SLF and 124% at SLA. The financial leverage ratio increased to 25.5%, and cash at the holding company increased to $4.7 billion, both reflecting the $2 billion subordinate debt offering we did in the quarter. Slide 10 outlines the performance of our business groups. Asset management reported net income of $140 million was down from the prior year, reflecting a $153 million charge for SLC management acquisition-related liabilities. The increase in the liability largely reflects higher growth expectations. Accordingly, we are increasing our investor day target for 2025 underlying net income by approximately $10 million to $235 million. Asset management delivered record underlying net income of $382 million, driven by a 14% increase at MFS and an 18% increase at SLC management. Canada's reported net income of $356 million was driven by higher real estate valuations and equity market growth. Underlying net income of $266 million was up 9%, reflecting strong expected profit growth and favorable expense experience. This was partially offset by a $20 million investment impairment and unfavorable disability experience. U.S. reported net income of U.S. $68 million was up slightly from the prior year as gains on real estate investments were mostly offset by lower underlying net income. Underlying net income of U.S. $56 million was down from U.S. $112 million in the prior year. The fourth quarter results included U.S. $66 million of COVID-19-related impacts as the working-age population infections and mortality remained elevated. We expect pandemic-related headwinds to persist for the first quarter of 2022. That being said, the core fundamentals of the U.S. group business are strong. We have maintained high persistency level and are generating good premiums growth. We have enhanced our product and digital capabilities. Pricing for new business remains firm, and we've added key talent to support our growth strategy. In Asia, reported net income was $446 million, which includes the gain from the India Asset Management IPO. Underlying net income of $130 million was up 18% on a constant currency basis. While we continue to face challenging conditions in some markets, overall business fundamentals were strong. Total expected profit and new business gains were up 20% on a constant currency basis. This was partially offset by $12 million of COVID-19-related experience, primarily in the Philippines. Reported and underlying net income in corporate were both up, driven by a lower effective tax rate in the quarter partially offset by higher expenses. On slide 11, we included an updated view of our sources of earnings, reflecting two changes we made to provide more meaningful information. We have included the sources of earnings on an underlying net income basis, and we have reflected the asset management pillar on a separate line in the sources of earnings. Expected profit increased 6% on a constant currency basis, reflecting business growth and market-driven gains. Notably, Canada expected profit grew 9%, and Asia expected profit grew 14% in constant currency. Experience gains on a reported basis improved by $126 million, driven by favorable market impacts that were partially offset by experience losses. On an underlying basis, higher experience losses were primarily driven by COVID-19-related mortality and morbidity. Earnings on surplus was down from the prior year, driven by lower AFS and seed investment gains. Slide 12 outlines insurance and wealth sales on a constant currency basis. Insurance sales were up 16%, primarily driven by a 26% increase in U.S. group benefit sales. The fourth quarter is an important sales period for the U.S. business, and we're very pleased with the record sales results for the quarter. Canada individual insurance sales were also strong, increasing 36% from the prior year. Asia local markets individual insurance sales grew 23% in constant currency, with double-digit growth across most markets. And while international hub sales declined from the prior year, we have good momentum in the sales pipeline heading into 2022. Wealth sales increased 13% on a constant currency basis, driven by higher defined benefit solution sales in Canada and higher wealth sales in the Philippines and India. Asset management growth flows were up 12%. SLC management delivered strong net flows of $9.7 billion. MFS had U.S. $1.2 billion of net outflows as retail inflows were offset by institutional outflows. Value of new business generated in the fourth quarter was up 19% on a constant currency basis, reflecting strong sales and higher margins across most businesses. Turning to slide 13, which outlines our 2021 full-year progress, on medium-term objectives as well as a five-year view. We are pleased with our 2021 results, especially in a year where we had to manage through pandemic-related challenges across our geographies. The combination of our diversified business mix and global footprint allowed us to effectively navigate through a more challenging operating environment to deliver impactful health and financial outcomes for our clients. As we look ahead to 2022 and beyond, we are well-positioned to build on a strong track record of performance supported by our premier asset management franchises at MFS and SLC Management, leading wealth and insurance market positions in Canada, a shift towards more capital-like businesses in the U.S., and an established presence in attractive markets in Asia. And a strong capital position allows us to pursue attractive growth opportunities and provide strong returns for shareholders. With that, I'll turn the call back to Yannick for a question-and-answer period.
Yaniv Bitton
Thank you, Manjit. To help ensure that all of our participants have an opportunity to ask questions this morning, I would ask you to limit yourselves to one or two questions and then re-queue with any additional questions. I will now ask Justin to poll the participants.
Operator
Thank you. As a reminder to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Humphrey Lee from Downwind Partners. Your line is now open.
Humphrey Lee
Good morning, and thank you for taking my questions. My guess, my first question is on U.S. group benefits underwriting results. The dramatic normalization of stop-loss claims experience was a big surprise to me, especially since other stop-loss players still had relatively favorable performance. Can you just talk a little more in terms of your stop-loss underwriting experience and compare that to the favorability that we've seen in previous quarters?
Dan
Yes. Thanks, Humphrey. This is Dan Fishbein. We continue to have favorable stop loss results in the fourth quarter. What we've seen is a gradual wearing off of the favorable impact that we were seeing from the slowdown and reductions in care during the pandemic. As you know, those were very significant both in 2020 and the first half of the year. And in the third and fourth quarters, we've returned largely to normal hospital utilization, which then starts to impact the stop loss results. But the stop loss results actually remain favorable. We have estimated that about 60% of the favorable stop loss results we've seen during the year were due to the delays in care due to COVID, but 40% was due to favorable underwriting and pricing results. And those continue and continued in the fourth quarter.
Humphrey Lee
So just to kind of thinking more like for this quarter's results, since you don't provide the underlying net income for group benefits, but just thinking about on a net income basis, the $9 million versus the $15 million last quarter, like is that delta just the – The COVID claims was a little bit more unfavorable. Is the Delta just simply the normalization of the stop loss, or is there anything kind of running through the numbers?
Dan
No, the Delta was essentially entirely or almost entirely the COVID claims. We've indicated that we experienced $66 million in the fourth quarter in unfavorable COVID claims, mostly mortality, some disability as well. So the difference between the fourth quarter and the third quarter is largely due to the COVID claims. You know, if we think about what's been happening in the U.S., during the third quarter and especially the fourth quarter, we were experiencing the Delta variant, which was quite severe in terms of mortality. And now we've begun, you know, very late in the fourth quarter and into the first quarter experiencing the Omicron variant, which is less severe, but far, far more contagious and more common. So I think what you're seeing playing out here is the overall population mortality in the U.S. from COVID, which has, in the second half of the year, migrated much more into the working age population than Whereas earlier in the pandemic, it was largely in the above 65 population.
Humphrey Lee
But for the third quarter, COVID impact, was it like 50 million U.S.? So it's not a big increase from 4Q to 3Q.
Dan
I believe our COVID mortality and morbidity that we reported in the third quarter was 27 million U.S., But it's significantly higher, though, in the fourth quarter. And that follows the incidence of deaths, unfortunately, in the U.S. in those time periods.
Humphrey Lee
Okay. All right. Thank you.
Operator
And thank you. And our next question comes from Gabriel Deshane from National Bank of Financials. Your line is now open.
Gabriel Deshane
Thank you. Yeah, I'm more curious about the outlook. You talked for the U.S. group business and Canada as well, for that matter. But I see, you know, some headwinds that may appear transient, like the mortality rate from COVID-19 and, you know, hopefully transient anyway. Um, but they may be replaced by other issues like mental health claims and medical cost inflation. Uh, and you know, I'm just wondering how you see those trends evolving over the next year, really such that, you know, this quarter was particularly weak, but there's still some, uh, headwinds on the horizon for the group business that we have not really fully seen yet. Uh, or. Alternatively, do you think, all right, you saw these things coming, you priced for it, and we won't see an impact? Canada and the U.S., please.
Kevin Strain
Dan, do you want to start with the U.S., and then maybe Jock can talk about the Canadian group benefits business?
Dan
Sure, sure. So, you know, very good question as to what, you know, second-order impacts may be. In the U.S., we... are not as exposed to mental health claims. In our stop-loss business, of course, remember what that business is, is very large claims, generally above in a catastrophic kind of threshold. So those are typically not where our mental health claims would fall. Mental health can certainly have an impact on our disability business, on the morbidity. But in the U.S. environment, which is quite different than Canada, mental health benefits and disability are limited to a two-year term. So while we may see some claims in that category, the reserve impacts, because we, of course, set up a reserve based on the expected duration of the claim, are much smaller there. We're obviously very concerned about that issue for our members, and we've put additional capabilities in place to help members in these difficult times, especially because of our disability business with return to work, including looking at alternative approaches, which are now more feasible in this more virtual work environment, at least for many roles. So we have more tools at our disposal to manage that. But again, I think the impact in the U.S. is more modest simply because of the products that we are offering.
Gabriel Deshane
What about medical cost inflation? Is that any concern?
Dan
Well, medical cost inflation would potentially impact our stop-loss business. That's the one area that it could impact. Our stop-loss business fully reprices every year, and when we set our pricing factors, we take expected medical cost inflation into account, and we actually work with leading actuarial consulting firms to project medical inflation, which is a pretty widely shared number in the U.S. and, of course, amongst the health insurers as well and public sources. So we price prospectively for medical trend, and we would have that in our pricing going forward. And if for some reason that expectation was incorrect, we would be able to react very quickly and as the business reprices each year. In fact, I mean, not that we're hoping for medical inflation, but the primary impact for medical inflation on our stop loss business would be at more premium.
Gabriel Deshane
Okay. I'm sorry, Jacques, I cut you off.
Jacques
No, it's okay. So the situation in Canada, as you probably know, is a little bit different from what Dan is experiencing. COVID has actually not had a material impact on our mortality here. And as you probably know, there's a bit of a natural hedge in the Canadian business because we also have a large annuity block, as you know. The mental part is an issue, and you've addressed that before, but let me give you a bit more context this time around. You might recall, we saw an increase in mental health cases and the impact on visibility actually from a number of years before COVID, and it's accentuated through COVID. But Starting in May 2019, we started putting some price increases through the book. And in fact, as of now, we've done 97% of it. So we think we're in a good place. And the incidence of disability is in line with what we expect from the pricing. But the issue is, at the moment, is actually getting people back to work. It's the return to work variable that is a bit of a challenge. And that is in part driven by COVID because people need access to care, and access to care has been an issue during COVID. So we actually think when it comes to mobility in Canada, we're in the right place in terms of pricing incidents. And the return to work aspect of it, we view it as, in fact, something that's more transient, as you were saying earlier.
Gabriel Deshane
Okay, so duration of view. You've priced for some of these trends in Canada, but the one that might be a little bit – Uncertain now is the duration of claim.
Jacques
Yeah, and due to the difficulty, and as you know, it's well known, it's been in the media, access to care has been a problem during COVID, but we expect that as COVID recedes, this will come back to normal.
Operator
Okay. Thank you. Thank you. And our next question comes from David Motimadam from Evercore. Your line is now open.
David Motimadam
Hey, good morning. Kevin, I'm wondering if you could just talk about how you're thinking about share repurchases now and maybe putting another NCIB out there now that it's allowed.
Kevin Strain
Yeah, thanks, David. As you can see from the quarterly results, we're in a strong capital position, but we do have the DentaQuest acquisition that's coming up. We expect that to to close in the May-June timeframe still, and that will be using about $2.6 billion US of cash and capital. What we do with the NCIB is we look at opportunities for M&A activity to support growth and building capabilities and our capital position. So we'll be assessing that as we get closer to the back half of the year and get the DentaQuest acquisition closed. So it's a matter of looking sort of at our pipeline. We're still pretty active. You would have saw in my opening remarks that we did 10 strategic initiatives in 2021, and we've got lots that we see on the go and lots of opportunity to invest in our businesses. So it's a balance of those two things, and we'll be assessing that as we get closer to the back half of the year.
David Motimadam
Okay, great. Thanks for that. And then maybe a question just on cash flow, free cash flow. Where did that come in for the year? I think last year we were talking about an $800 million level net of the dividend. I guess obviously COVID is an impact this year, but maybe just talk about what you think free cash flow was this year and the outlook going forward given growth in the underlying businesses.
Genevieve
Hi, David. Good morning. Thank you for your question. It's Manjit. As you know, we've sort of outlined the $800 million you're referencing as sort of a capital generation range over the medium term. In 2021, we were broadly in line with that, and given the mix of our businesses and our growth potential, we expect to be in that range going forward.
David Motimadam
Got it. And I guess why hasn't that grown? I think the last time you first gave that, I believe it was 2019. I mean, obviously, COVID is a headwind, but the underlying earnings have grown since 2019, despite the headwind from COVID. So just wondering why the free cash flow generation hasn't increased.
Genevieve
I think there's a couple of things. So number one, as Kevin mentioned, we're continuing to invest organically in our businesses. and looking at some of the opportunities we have there. And then obviously there's been some market impacts as we've seen changes in some of the market factors like interest rates. And like I said, the 800 is kind of a medium-term target over a cycle.
Kevin
Okay, thank you.
Operator
And thank you. And our next question comes from Tom McKinnon From BMO Capital, your line is now open.
Tom McKinnon
Yeah, thanks very much and good morning. I have a question for Dan here. Fourth floor is big time for new business activity in U.S. group business, and you had 26% growth, I think, in sales there. So on one end, you're growing your sales 26%, and on the other end, you're experiencing higher than expected mortality claims. both in the same quarter. So maybe you can help us go through your, explain your thought process in terms of pricing when these groups came up for renewal. Did you try to, to what extent are you repricing in this elevated mortality? And how much of this elevated mortality do you think could go away through repricing?
Dan
Yes, thanks, Tom. This is Dan. So, you know, first of all, the increase in sales in the fourth quarter, which, as you noted, was substantial, was mostly in our stop-loss business. We had strong sales results in the group business as well, but largely consistent with the prior year. The increase was mostly in stop-loss. And the dynamics there is that we saw a much more rational pricing environment emerge in the fourth quarter, especially in the last two months of the fourth quarter, which, of course, are the two biggest sales months of the year because most of that business is on a one-one renewal and sales cycle. So our very strong stop-loss products and team really carried the day in the fourth quarter. as some earlier irrational pricing, quite frankly, that we had seen earlier in the year largely evaporated in the fourth quarter. So we ended up finishing the year very, very strong and having a nice strong close ratio, especially in those last two months. So that bodes well for this year because we've had some nice business growth in the stop-loss business. Your comment, of course, on pricing is related specifically to the group life business. And, of course, that is COVID-driven. In fact, we believe that's entirely COVID-driven. So we are not pricing fully for the current COVID mortality because that's not expected to persist long-term. However, we have taken pricing actions, some of which occurred in the fourth quarter, to adjust both our group life and our disability pricing upwards to reflect what we think will be some long-term elevated experience. And we observe that in the marketplace. The entire marketplace appears to have moved modestly upward in the fourth quarter and moving into the first quarter. I would point out, as we've talked about in the past, that pricing changes don't click in immediately. most business on the group side as opposed to the stop-loss side is on two- and three-year contracts. So it does take a while for those price increases to cycle through the book of business.
Tom McKinnon
Okay, thanks. And then for the second question, you've had really good sales growth in Asia, excluding the international hubs. And this is the first time I've seen, correct me if I'm wrong, but pretty good new business gains in Asia. So what is happening here? Is this business coming more to scale? Is it much more profitable? And how should we be looking at new business games in Asia going forward? Is what we saw in the fourth quarter an anomaly, or should we be looking for continued new business games in Asia going forward? Thanks.
Kevin Strain
Tom, it's Kevin. Ingrid's on the call this quarter. She's on the ground in Hong Kong now, and so I'm going to turn that question to Ingrid.
Tom
Kevin, thanks very much. Good morning. So just a little bit that blanks out, but I think I did get the question overall in terms of spend line. On the new business gains, we've done a tremendous effort on actually addressing product profitability, ensuring we're writing quality sales. So while you've actually seen some of the trend lines perhaps be a little bit irregular, some of that has been COVID effects. But interestingly, on the local markets, look back over the past nine quarters, this past quarter four has actually been our best quarter in the previous nine. And then if you look at the international hubs, there's actually been a restoration of some of the momentums. that this quarter was just probably 5, 6% off the first quarter. So we are seeing that coming through as on rebuild. So you should actually look at the expected profit and new gains as the line which shows the line. And we do remain optimistic, but clearly there are some uncertainties around travel restrictions and the implications of the Omicron virus on government responses. that then does actually flow through into lower sales. We remain cautious. Obviously, then we also need to track through and see the implications of mortality.
Kevin Strain
Tom, it's Kevin. I might just note that we've been, of course, investing in distribution for a number of years now in Asia. You know, we see that the ASEAN countries, the Philippines, Vietnam, Indonesia, Malaysia, with this growing middle class as being a great opportunity. We're, of course, number one in the Philippines. We have a very strong agency force there and a good bank insurance relationship. We've grown significantly in Vietnam this year. We did a bank insurance transaction with ACB last year and then one the year before with TP Bank. So we're well positioned on the bank side and we've got a nice agency that continues to grow and a new CEO there. So I'm quite excited about Vietnam. And in Indonesia, we saw really strong results. We've got some good banker relationships there. CNB Niagara is one, and we've got a good, strong agency force and continue to see growth there. And Malaysia, we've got a relationship with CIMB in Malaysia and are building out a high-quality agency force there as well. And then, of course, China and India are seeing the growth related to the emerging middle class as well. So that's why you're seeing strong results there. I think Ingrid's point around COVID is a good one, though, because COVID's impacted at different times in different ways across those countries, and it's really a question of country by country as you think about the COVID. But I would say overall, our investments in distribution are paying off, and that's what you're seeing in the results this quarter, particularly with the emergence of the middle class.
Tom McKinnon
And is the takeaway that the new business gains that you got in the quarter in Asia, that you expect those things to continue or to be significantly better than the new business losses that you traditionally had in Asia? Is that the takeaway?
Kevin Strain
I think, Tom, you're right that the scale is helpful in Asia because it controls the expenses, the bigger your distribution channel is. and also the work we've done on the mix of business that Ingrid discussed earlier. So the combination of both of those is what you're seeing in the results.
Tom McKinnon
Okay, thanks. I do like the new SOE disclosure. Thanks for that.
Kevin Strain
Yeah, you're welcome, Tom.
Tom
But it is more variable. Don't expect just a positive trajectory. It will be variable through the quarters.
Operator
Thank you. And our next question comes from Doug Young from Desjardins Markets. Your line is now open.
Doug Young
Good morning. So just back to you, Dan. You know, the question I guess that I'm getting a lot is on the U.S. group business, and I think you've answered a lot of the questions, but maybe I'll just throw this out there. The question is, is the policyholder experience that you're seeing, whether it's stop loss or on the employee benefit side, do you see this as transitory? Do you see it more as permanent? And why? And how do you feel about being able to achieve that 7% plus margin on your group side that you've thrown out there? You've obviously been in excess of that. Is that margin still realistic given the pressures that you're seeing?
Dan
Yeah, thanks, Doug. Great questions. I think there's a number of different pieces there to go through. So first of all, on the stop-loss experience, as I said earlier, we think that about 60% of the favorable experience in 2021 was from the impact of delays in care due to COVID, but about 40% of it was due to ongoing just really strong underwriting results. So in the fourth quarter, utilization returned, and this is based on overall population statistics as well as what we see in our book of business, utilization returned very close to normal. So it's that underlying part of favorable experience that we would expect to continue, but the tailwind from delays in care would not. Now, I should caveat that. You know, there was a period of time, especially in January in the first quarter, where there were, you know, hospitals were, you know, very overburdened. That's thankfully getting a little better now. So we might see some anomalies in the pattern versus a straight linear path back to complete normal utilization. As far as the mortality, what we experienced in the fourth quarter was If you look at loss ratios or mortality as a relative portion of the book of business, our experience was middle of the pack compared to peer companies in the U.S. So nothing unusual in our book of business. Obviously, though, very unusual in that we're having a once-in-a-century pandemic. As you know, with both the Delta variant in the fall and then the Omicron variant extending into January and February, we are in a very difficult part of the pandemic. At the same time, things are starting to get better. Caseloads, hospitalizations, and now even deaths are starting to fall nationwide. So our belief and our hope, but of course we can't predict what will happen, especially with the emergence of new variants. But barring another dramatic new variant, we would expect the COVID impacts to subside soon. after the first quarter. There will still be significant impacts in the first quarter, but we're hoping that we get to a much more of an endemic kind of level of impact beyond the first quarter.
Doug Young
And just around the margin?
Dan
Yeah, on the margin, thank you. The margin obviously had peaked at around 8%, which was actually well above our target Remember, it's a trailing 12-month measure, so we have to look back at all four quarters, and it will take a while for the COVID impacts to fully wear off. I will say the group business is actually in the best condition that it's ever been in, with the exception, the very notable exception, of the COVID mortality, but it's obviously hard to see through the fog of that right now. But in terms of where we are on pricing, on sales momentum, on growth in the book of business, on persistency, on products that we've put in the market, new digital capabilities. I can sincerely say that business has never been in better condition than it is now. So as the COVID impacts fade, which hopefully they will, we should see the group business as a significant source of earnings growth in the U.S. as its underlying earnings power reemerges. Now, one other comment just on the margin. The dental business, which will become a very big part of our business when DentaQuest closes, is by its nature a somewhat lower margin business because it's a business that requires very little capital. So lower margins generate very strong return on equity. So that's the nature of that business. So we are thinking about is margin and the current target that we have out there the right metric going forward, considering the role that DentaQuest will play in our total book of business going forward.
Doug Young
Good color. And then just my second question, I don't know if Steve's on the line, but just on SLC, net inflows $10 billion in the quarter. We just wanted to get a little color of what you're seeing from a flow perspective. And obviously, it sounds like you increased your earnings target for 2025 by 10 million to 235. Just trying to get a sense of what drove that increase, and is there more gas in the tank on that side?
Steve
Yeah. Hi, Doug. It's Steve. Thanks for the question. Yeah, you know, we feel like we're seeing really good momentum in the business. And one of the things that I – feel really good about in our fundraising for the fourth quarter, but also for the full year, is the diversity of those flows. We're seeing growth across the platform. If you think of the fourth quarter, for instance, that number includes over a billion dollars for Crescent Mezzanine Fund, almost a billion for a European real estate fund at BGO, almost over half a billion for a cold storage real estate fund $500 million for our private fixed income business in the U.S., almost $500 million for our lending, you know, increase in assets for our U.K. lending business at BGO. So it's very widespread, and the same thing is true for the year. So, you know, we feel good about that, and we expect that to continue into this year. And I would say that in terms of the increase in liability and the increase in our guidance that we had given out at Investor Day, that's primarily due to – an increase in outlook at Bentall Green Oak. And I would say that's because we're seeing new funds launch there that we hadn't originally included. And a good example of that is a cold storage fund. So that's a niche within industrial. That was a fund idea that came, you know, that kind of started to germinate in the fourth quarter of 2020. And today we've raised over a billion dollars. And we've also, you know, another example at BGO is they bought a very small business from Carlyle in the secondaries business now called BGO Strategic Partners. They're out fundraising. That's going gangbusters. So, you know, that's some of the things driving the increased outlook there. Appreciate the comment. Thank you.
Operator
And thank you. And our next question comes from Manny Grauman from Scotiabank. your line is now open.
Manny Grauman
Hi, good morning. We talked about some of the headwinds to the group business, but I want to talk potentially about some of the positives here. Dan, you touched on a little bit, but lots of discussion on what people are calling the golden age of benefits and just wondering if that's just a headline or there's something more material there that's really going to make an impact. I don't know if we look at the results so far. I don't know if we see that coming through just yet? I'm just wondering your perspective on that, given on both sides of the border, really.
Dan
Yeah, so I'll start and then maybe turn it over to Jacques. It's a really interesting dynamic. And as you noted, there's a lot of speculation on that. Clearly, the labor market at the moment has become hyper competitive. So employers are competing in whatever way they can for talent. In fact, we're doing that ourselves. and obviously one very obvious way is with overall compensation and benefit packages. It's hard for us to tease out the specific drivers, you know, as to whether or not an employer is increasing the number of benefits and the, you know, the amount they pay for them. We do see anecdotes. That's scary. As well, our number of products has been going up steadily. although in a fairly modest way over an entire book of business. It does appear, and this may be more opinion than data, that employers are using the compensation side versus benefits side as the bigger lever to attract talent in this environment. But certainly the general direction and the pressure is to preserve and expand benefits versus to reduce benefits at this time. So that certainly bodes well for the business, and indeed, you know, again, we can't exactly ascribe cause and effect. We are seeing nice growth in our group business and in our system also.
Jacques
Yeah, Manny, this is Jacques here. I would agree with everything that Ben has said. Certainly benefits are becoming more and more important. One example I might give you in Canada is virtual care or telemedicine. It's become a little bit of a must, if you like, if you want to have a modern and competitive benefits program in your organization. Lots of emphasis on mental health and the benefits that come with that. So the last point I might mention, you may have seen the announcement from Ontario where they're looking to expand benefit coverage to cover what we call gig workers. It's something that we obviously welcome. We think that increasing benefits coverage, have more people covered, is the right thing to do. So, yeah, I fully agree with Don, and I think that benefits remain and are increasingly strategic for employers.
Manny Grauman
Thanks for that.
Operator
And thank you. And our next question comes from Scott Chan from Canaccord Genuity. Your line is now open.
Scott Chan
Good morning. Steve, I just wanted to go back to this little seed for a moment because you talked about many different product launches. And if I kind of put it together, looking back at your investor day, you had $13 billion of net flows in 2020. You got to $23 billion in 2021. And with almost 10 this quarter, you certainly exceeded it. So it sounds like you've got good visibility one year ahead on the platform. So just wondering, Steve, with the pipeline you're seeing, is 21 repeatable or is it something that was just an obscure year just based on the timing of certain products?
Steve
Well, I would say, oh, thanks for the question, Scott. I would say that there is some lumpiness quarter to quarter, and we've seen it and we'll continue to see it. The reason is that we've got a number of different product types, but across the businesses, we do raise private equity-style funds. So as you know, those get raised periodically You have two or three closings, typically have a couple big closings, and then that product, you won't raise another fund for a couple years. And so there's some lumpiness to it. And we saw some of that this year. We had a big, we're in the middle of a big fund, a mezzanine fundraise for the eighth mezzanine fund at Crescent. They had a closing of their U.S. direct lending fund that was large this year. So there were some lumpy fundraisers this year. Having said that, You know, we've got a number of things on the docket next year. As an example, Crescent will be in the market with their third European direct lending fund. They'll be in the market with a couple of different BGO products. So I don't think there was anything that would be anomalous in this year beyond just kind of some normal lumpiness. So, you know, I don't think we're putting out a specific projection for next year, but, you know, we think it will be another strong fundraising year in the same zip code.
Scott Chan
Okay, that's helpful. And maybe my second question for Manjit. Just on earnings on surplus, it got affected this quarter by lower AFS and unseen investment gains. And in the past, you've kind of guided near-term to that number, and I think it's been, you know, in the low $100 million range. I was just wondering with the rise in interest rates or the projected rise in interest rates, if you've got any near-term guidance you could provide on that line.
Genevieve
Yeah, thanks for the question, Scott. As you mentioned, you know, we have a $100 million sort of rough target, you know, plus or minus per quarter. And as you mentioned, this quarter we had the impact of the AFS impairment. But overall, we think the $100 million range for earnings and surplus remains the right level. But you might sort of see it bouncing around from quarter to quarter.
Scott Chan
Okay. Thank you very much.
Operator
And thank you. And our next question is, comes from Paul Holden from CIBC. Your line is now open.
Kevin
Thanks. Good morning. So Mike LaBerge normally gets a number of questions on the call, but none directed his way so far this morning, so let's get Mike involved. There was a lot of volatility in the market clearly in January, and MSS, as you've messaged in the past, tends to benefit from these periods of volatility. So I'm wondering if you can give us some thoughts around fund performance sort of during this period and what it might mean particularly for fund flows as well.
Mike LaBerge
Good morning. This is Mike. Thanks, Paul. I was getting lonely here. I mean, you know, it's such a short period of time. I would say from where we saw some of the parts of the market peak in terms of the really high valuation stocks in the fall into the early part of the year. And some of our strategies that had struggled, you know, we've seen, you know, some pickup in performance. I just, I guess the way I'd frame it is, you know, we think this is a year where the markets are going to be more volatile. We think that we're going to have bouts of downside, just given the fact that for the first time in a number of years, the central bank is in play around the world. Central banks are in play around the world. starting valuations are high and there continue to be a number of risks, whether they be inflation and what the impact of interest rates, geopolitical risks, and a number of things. So, you know, having emerging and newer emerging and more risks at the same time valuations are high, I think it is going to create some challenges for the market. Our platform historically through cycle has performed well. You know, historically we've done well in more difficult environments. And I would say that being those tied to the economic cycle. And so we'll see how that plays out, but we do feel comfortable through an economics-like cycle. In terms of flows, you see it quarter to quarter, and we saw that in U.S. retail in the fourth quarter, is when the markets get more volatile, you do tend to see flows for the industry come down some. And I would expect that's probably what we'll see this year. If the market remains volatile, people will sit on the sidelines and Cash actually is going to have an additional yield this year, so people are likely to sit in cash relative. And so, you know, our view is, you know, we've got to think through the cycle. We're investing in those things that we think will drive growth through the cycle, and we've been preparing over the last several years by not adding too much in terms of headcount discretionary costs, and we think we're prepared for a more difficult environment. Great.
Kevin
Thanks for that context. And then second question, and maybe this one's either for Manjit or Kevin, is just, Related to the DentaQuest acquisition, you gave us an update on expected close. Maybe you can give us an update on any work you're able to do ahead of close to help realize on expected benefits and synergies.
Kevin Strain
Yeah, it's Kevin. I'll start with that. And I would ask Dan to speak to this, but he's actually had to step away for a funeral at 11. And I'm mentioning that so that He does step away and know that Manjit and I and Kevin Morrissey and David Healy have his questions covered. So keep the U.S. questions coming, but I want to make sure that Dan does leave. His dad passed away earlier this week, and he needs to make it to the funeral. So on DentaQuest, as I said earlier, there's a number of states still to approve it. There's a number of steps to be taken. We still expect it to close in May or June. There are restrictions in how involved we can be, but we've been watching and the business has been performing well. So we're as close as we can be, but there are restrictions in terms of how much we can do in this interim period. But we're expecting that it will still at least maintain what we thought it would in our original business case and pricing. So we're excited. I hope that it closes as soon as it can, and I think it's going to be a great addition to the business still. Got it. Okay.
Operator
Thank you. Thank you. And our next question comes from Lamar Persaud from Cormart Securities. Your line is now open.
Lamar Persaud
Great. Thanks. My question is for Mike, just flipping back to MSX here. So margin just keeps grinding a little bit higher. Is this entirely due to the shift in mix to retail? Or is there something else in this 43% pre-tax margin? I remember in the not too distant past talking about margins in the kind of upper 30% range. So just any comments on that would be helpful.
Mike LaBerge
Yeah, good morning. Thanks for the question, Lamar. Yeah, obviously pretty good print in the quarter. But you got to, you know, the market backdrop and the beta backdrop obviously has contributed to that. So our costs aren't going to rise at the same level. You get some operating leverage that's going to drive the market higher. We would continue to stay in that 35% to 40% through the cycle and Just to remind you, the first half of the year where we've got amortization of deferred compensation and stock compensation here tends to bring the margin lower, and then we get better margin in the back half of the year. So for the year where the market is at an all-time high, we printed a little over a 40% margin, and that's the guidance that we've provided. So I don't think there's anything different that I would provide.
Lamar Persaud
Okay, thanks, Len. Just to get your answer on the earlier question, should we – think that with increased volatility and some of the challenges in the market, would it be fair to suggest that the net outflows in the institutional business might normalize?
Mike LaBerge
It's possible, you know, because that book is primarily an equity book. So as the market continues to make all-time highs, you see clients rebalance. In addition to that, you get de-risking and DB plans. And so that's definitely been a headwind for us as the market makes all-time highs. And so, you know, we're hopeful. We're not hopeful of volatility, but I guess the offside to that is it probably brings some redemption activity down in that. The longer-term strategy in that book is to diversify into fixed income so we can, you know, be on the other side of those allocations where people go out of equities into fixed income. And that's a clear part of the strategy here. And so, again, as we think over the next several years – We would expect the redemption activity in that book hopefully to come down, but we do need to sell more, particularly in fixed income. Great. Thank you.
Operator
And thank you. And our next question comes from Nigel D'Souza from Veritas. Your line is now open.
Nigel D'Souza
Thank you. Good morning. I had a quick follow-up question for you first on your question. U.S. group benefits exposure. I'm just trying to understand the relative risk on morbidity and mortality experience. Could you give us a sense of the vaccination rates in your group policies versus the general U.S. population? Is it higher, lower, roughly the same, just to get a sense of how experience could play out?
Kevin Strain
Yeah, it's Kevin. I'm going to take a crack at this, but at a higher level, Nigel. You know, if you And there's been a lot of discussion around mortality on this call for obvious reasons, and I think it's appropriate discussion. If you look at the death rates and the hospitalization rates where we do business and where you see them spiking, you see us having COVID death claims and you see us having more morbidity claims. And that happened to us this quarter in the U.S. and in the Philippines, and it's happened to us in other quarters nationally. in India and in Indonesia as well. And it does relate back to vaccine rates. It relates back to lockdown approach by country and those types of things. And so COVID is not going to be with us forever. That we know. But it's not ending now either. I mean, Omicron is taking hold. So I would say that In general, if you look at death rates and hospitalization rates in the countries where we do business, that gives you a good indication of mortality and morbidity when it's spiking. And I think that's the best way to look at it. This is what we're here for. These claims are important because they help protect our clients, and it is why we're in business. It's part of why we're in business, and I think that COVID is obviously challenging different areas. I don't know if we can give you the vaccination rates that our group benefits business versus the general population, but what I would say is that this quarter, when we talked to Dan, we saw consistent to industry and spiking death rates in terms of our mortality and morbidity claims. Kevin Morrissey may want to add a comment, though.
Kevin
Yeah, thanks, Kevin. Maybe the only thing I'll add to that is when we think about the claims, when we think of individual life insurance that's individually underwritten, we see a benefit in terms of that underwriting effect. And we've seen that across all the geographies where generally the mortality rates are lower for the insured population than the uninsured. So that's generally a positive. But when you switch to group business, that's much more broad-based. We don't have individual underwriting done. And I think it probably more accurately reflects the profile of the population.
Nigel D'Souza
Okay, that's helpful. And my second question was on your effective tax rates. You ran lower this quarter, and I understand that a mix of a benefit from tax-exempt income and tax items from the prior year that were resolved. I was wondering if you could just provide more color on that. How much of the decrease was for tax-exempt income versus prior? your issues and maybe some specificity on what exactly drove it and some color on where you expect that tax rate to run at going forward.
Genevieve
Good morning, Nigel. It's Manja. Thanks for your question. So as you know, the tax rate can move around from a quarter-on-quarter basis for many reasons, the jurisdictional mix of our earnings, true upper-prior tax matters, and the nature of the income that we generate. In the quarter, as I mentioned in my prepared remarks, the two main items that drove the lower tax rate this quarter was sort of the increase in the tax-exempt income and the resolution of prior year tax matters. And we've disclosed that in our financial statements, but to give you a rough estimate, it's about two-thirds of that is related to higher tax-exempt income and about a third of that is related to resolution of prior year matters. And then in terms of your last point, in terms of how we think about it going forward, we think about the 15% to 20% range for the full year is still a good way to think about it, but on a specific quarter, you can't have differences for the reasons I mentioned.
Nigel D'Souza
Okay, and just a clarification on that. Are these items that are essentially automated where there's a marker that triggers a recognition, or is there any elective nature of when you can recognize these tax items?
spk01
No, there's no sort of, you know, you don't get to pick when these things happen.
Nigel D'Souza
Okay, that's all. So thank you.
Operator
And thank you. And I am showing no further questions. I would now like, we have no further questions at this time, and I would now like to turn things to Mr. Bitten for closing remarks.
Yaniv Bitton
I would like to thank all of our participants today. Should you wish to listen to the rebroadcast, 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 participating. You may now disconnect.
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