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Operator
Good morning and welcome to the Sun Life Financial Q2 2023 conference call. My name is Michelle and I'll be your conference operator today. All alarms have been placed on mute to prevent any background noise. The host of this call is David Garg, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Mr. Garg.
Michelle
Thank you and good morning, everyone. Welcome to Sun Life's earnings call for the second quarter of 2023. Our earnings release and the slides for today's call are available on the investor relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, 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 are also 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 will turn things over to Kevin.
Kevin Strain
Thanks, David, and good morning to everyone on the call. Turning to slide four, we delivered good performance during the second quarter. Our results demonstrate the continued resilience of our diversified business mix, the value we are realizing from our recent acquisitions and strategic partnerships, our ability to execute on our strategy, and the positive impact we continue to deliver for our clients. We achieved strong underlying earnings for the quarter of $920 million, representing 14% growth over the prior year. The earnings growth was driven by strong results in our group health and protection businesses and our individual protection businesses, alongside of resilient wealth and asset management performance. Sun Life Canada achieved record earnings this quarter, driven by strong investment results and favorable insurance experience. Sun Life U.S. also had a strong second quarter for results, reflecting balanced contributions across the business. Notably, Dentiquest recorded the largest Medicare Advantage sale in its history, bringing sales for the U.S. dental business to approximately $580 million since closing our acquisition in June 2022. Sales in the second quarter are expected to add approximately 700,000 Medicare and Medicaid members over the next year, supporting our commitment to improve preventive care and oral health outcomes for our clients. We made good progress in Sun Life Asia, with individual sales up 51% year-over-year. Most notably, Hong Kong insurance sales grew nearly four times over last year, partially driven by pent-up demand with the reopening of the border with mainland China. This includes contributions from new quality agency teams and the newly opened Sun Gateway Prestige Client Center. The fundamentals of our asset management businesses remain strong. MFS long-term retail fund performance was strong, with 98% and 92% of fund assets ranked in the top half of their respective Morningstar categories based on 10- and 5-year performance. while SLC fee-related earnings increased 19% driven by higher AUM, reflecting strong capital raising and deployment across the platform and the AAM acquisition. Asset under management are now $1.37 trillion and are up 9% over last year, supported by increases from both MFS and SLC. Underlying ROE for the quarter of 17.7% continues to trend towards our medium-term financial objective of 18% plus, reflecting our disciplined capital management and sustained emphasis on capital light businesses. We also ended the quarter with a strong capital position with a LICAT ratio of 148%. Given our strong capital position and capital generation, we announced our intention to launch a normal course issuer bid to purchase up to 2.9% of our outstanding common shares or 17 million shares, subject to regulatory approval. We will continue to maintain flexibility for other potential capital deployment opportunities. Turning to slide five, this quarter we delivered on several key business initiatives that drove our client impact strategy, helping clients achieve the healthcare and coverage they need to remain a top priority. And we are leveraging our digital capabilities and recent acquisitions and strategic partnerships to make this happen. In Canada, we continue to make progress in building a health ecosystem with holistic solutions and services for our clients. Last month, we announced an agreement to acquire Dialogue Health Technologies, Canada's leading integrated health and wellness virtual care platform that provides clients with access to affordable, on-demand quality care. We've been in partnership with Dialogue since 2020. and see the incredible growth potential, but more importantly, this acquisition will allow us to play a larger role in Canada's health ecosystem and help Canadians navigate and receive care. Sun Life Canada also launched Luminal Health Pharmacy, provided by Pillway, an online pharmacy app that helps clients access knowledgeable pharmacists by chat or phone and have medications delivered right to their door. This service helps clients monitor their medications, usage, and refills, allowing them to easily access and manage care from the comfort of their home. In our U.S. dental business, we expanded Advantage Dental Plus by opening two new dental care practices in Texas. We opened these offices in areas where access to quality oral health care is a challenge for children with Medicaid coverage. In Asia, we continue to leverage our digital capabilities and product innovation to help clients live healthier lives. In Hong Kong, we introduced eSunPro, a new digital healthcare platform that offers one-stop comprehensive care. Clients have access to advanced treatment and support from the point of diagnosis to post-treatment, all in support of helping our clients focus on recovery and safeguard their health. We're using our distribution capability to build lifetime financial security for our clients. Last quarter, we announced an exclusive bank insurance partnership with Dossing Bank in Hong Kong. We're pleased with the early sales momentum and progress in July, demonstrating early traction from our new partnership and our commitment to leveraging quality distribution to meet the protection, savings, and investment needs of our clients. In SLC, Advisors Asset Management, a U.S. retail distribution affiliate, which we acquired last quarter, announced it will distribute BGO iREIT, a non-traded real estate investment trust launched by BGO, supporting the needs of high net worth individuals. We're also embracing our responsibility to create a more sustainable, brighter future. In line with our commitment to sustainable investing, this quarter we announced our second sustainability bond, issuing $500 million. We intend to invest an amount equal to the net proceeds of this offering into green and our social assets as defined by our sustainability bond framework. Additionally, SLC management continues to invest in assets that generate a stable and attractive yield with a positive environmental impact. For example, Infrared recently announced an investment in Jolt, an e-mobility company. Infrared's investment in Jolt's rapid electric vehicle charging infrastructure supports a low-carbon future and contributes to its target of achieving 50% of AUM invested in climate solutions by 2025. Finally, we continue to maintain our position as an empowered and inclusive workplace, This quarter, Sun Life was recognized as one of Corporate Night's best 50 corporate citizens in Canada for the 18th time since 2002, driven in part by strong scores on executive gender diversity and board racial diversity. In closing, we're encouraged to see our business continue to grow as we emerge from the pandemic. We're seeing accelerated growth in Asia, mortality experience being less impacted by COVID, and morbidity experience improving. We continue to monitor the macroeconomic environment closely with interest rates remaining high, particularly at the short end of the curve. But inflation is showing some signs of moderating, the credit environment remains very stable, and equity market performance overall was good in the quarter. Real estate has been a headwind for us and for the industry recently, but we continue to benefit on a relative basis from a rebalanced portfolio reflecting actions taken over the past five years. Asset management and wealth flows remain challenging, but we continue to outperform our competitors. We continue to generate capital to support our organic growth, a healthy shareholder dividend, the ability to execute on the right acquisitions or strategic partnerships like Dialogue and Dossing Bank, while also supporting the buyback we announced this quarter. Overall, we continue to deliver a positive impact for our clients, whether it's making healthcare more accessible, creating strong investment performance, or providing protection. Put simply, helping our clients achieve lifetime security and live healthier lives. With that, I will turn the call over to Manjit, who will walk us through the second quarter financial results.
David
Thank you, Kevin.
Kevin
Underlying net income of $920 million and underlying earnings per share of $1.57 were up 14%. Our strong market positions and attractive business mix across wealth and asset management, group health and protection, and individual protection helped to generate an underlying ROE of 17.7%. Wealth and asset management, which includes contributions from MFS, SLC management, group retirement services, individual wealth, and asset management businesses in Asia and Canada, generated 40% of underlying earnings. Wealth and asset management underlying earnings were in line with the prior year. Lower fee-based income reflecting the impact of declining global equity markets was largely offset by higher investment income driven by volume growth and higher yields. Group health and protection, which comprise 35% of Q2 underlying earnings, continue to deliver strong earnings growth. This includes our Canadian group health business as well as our U.S. stop-loss, employee benefits, and dental businesses. Underlying earnings were up $122 million driven by good premium growth, favorable insurance experience, as well as a full quarter contribution from DentaQuest. Group sales maintained good momentum, more than doubling from the prior year. Individual protection represented 25% of our Q2 earnings and includes our longer-term protection businesses in Canada and Asia, as well as our runoff businesses in the U.S. Individual protection underlying earnings were up 23% year-over-year. This was driven by improved insurance experience in Canada and the U.S., as well as good sales momentum over the past year in Asia. Total individual protection sales were up 45% from the prior year. We also generated new business CSM of $270 million during the second quarter, up 43% year over year. Earnings and surplus assets increased across our businesses, reflecting higher net interest income and higher realized investment gains. Reported net income for the quarter was $660 million, down 29% from the prior year. Reported earnings for the quarter included market-related impacts, acquisition-related costs, and amortization of acquired intangibles. Market impacts were primarily driven by unfavorable interest rate experience reflecting a non-parallel shift of the yield curve. Given our current positioning, as the yield curve normalizes, we expect to see favorable interest-related market impacts in reported net income. Real estate returns were relatively flat in the quarter versus our long-term expectations of approximately 2%. We continue to view real estate as a key component of our diversified portfolio. Over the last 10 years, our North American real estate portfolio has generated annualized total returns of over 9%, above our long-term expectations. Our balance sheet and capital position remains very strong. SLF like out of 148% was in line with the prior quarter. The leverage ratio of 23% remains low. Local cash for $2 billion increased by $1 billion from the last quarter in line with our prior guidance. And we continue to expect capital generation of 25% to 30% of underlying earnings over the medium term. This is after payment of common share dividends and organic investments. Our strong capital position provides Sun Life with the ability to execute on attractive opportunities as well as the resilience to absorb potential impacts from more volatile market conditions. These are valuable attributes in this environment. Now let's turn to our business group performance starting on slide nine with MFS. MFS underlying net income of US 187 million was down 5% from the prior year. This was driven by lower average net assets as well as a higher tax rate. Reported net income of US 187 million was down 18% year over year driven by an increase in the fair value of share based compensation. Pre-tax net operating margin of 37% was up one point from the prior year. AUM of US $589 billion was up 3% from Q1, the third consecutive quarter of sequential growth. Retail net outflows of US $1.7 billion and institutional net outflows of US $2.3 billion both moderated from the prior quarter. Turning to slide 10, SLC management generated fee-related earnings of $62 million, up 19% year-over-year. This reflects good capital raising as well as deployment of capital into fee-earning AUM over the past year. Underlying net income of $44 million was down modestly from the prior year, as higher fee-related earnings and seed income was offset by favorable, non-recurring items in the prior year. Reported net loss at SLC management was $3 million, primarily driven by mark-to-market losses on real estate held in the surplus account and acquisition-related costs. Capital raising of $2.1 billion was resilient in a challenging environment. Total AUM of $218 billion was up 13% year-over-year. This includes $21 billion that is not yet earning fees. Once invested, these assets are expected to generate annualized fee revenue of more than $180 million. Turning to slide 11, Canada delivered record underlying net income of $372 million, driven by strong disability experience and higher investment income. Reported net income of $210 million was down year over year due to market-related impacts. Wealth and asset management underlying earnings were in line with the prior year, as higher investment income was offset by higher expenses. Group health and protection underlying earnings increased $48 million year-over-year, driven by improved disability experience from lower claim volumes and shorter claims durations. Individual protection was up $25 million, driven by improved insurance experience and higher investment contribution. And earnings and surplus was up from prior year, reflecting higher investment income and realized investment gains. Turning to slide 12, U.S. underlying net income of U.S. $160 million was up $58 million from last year. Reported net income of U.S. $133 million was up $20 million year-over-year. Group health and protection underlying earnings were driven by strong premium growth, a full quarter contribution from the DentalQuest acquisition, favorable but moderating insurance experience, and higher investment contributions. The combined after-tax profit margin for group benefits and health and risk solutions of 10.2% was a new high watermark for the business. We're very pleased with the contributions of DentiQuest. We are winning new business, are on track with our integration milestones, and are confident that we will achieve our synergy targets. Individual protection underlying earnings increased 12 million year-over-year, benefiting from improved mortality experience and the inclusion of the retained portion of our UK business. Slide 13 outlines Asia's results for the quarter. Underlying net income of $150 million was up 25% year-over-year on a constant currency basis. Reporting net income of $122 million was up from last year due to lower market-related impacts. Wealth and asset management underlying earnings were down slightly, reflecting lower fee-based earnings. Individual protection earnings increased 33% year-over-year on a constant currency basis. The increase reflects higher premiums from good sales momentum during the past year, as well as improved expense and lapse experience in our joint ventures. Individual protection sales were up 50%, primarily driven by strong sales growth in Hong Kong, China, and India. New business CSM for Asia was $118 million, up 64% from the prior year. This was a good quarter to end the first half of the year. We are entering the second half with positive business momentum. While the operating environment remains uncertain, our core strengths of a diversified and attractive portfolio of businesses, a strong capital position, and a talented team supported by a great culture which serve as well as we focus on delivering on our purpose for our clients and driving future growth. With that, I'll turn the call back to David for Q&A.
Michelle
Thank you, Manjit. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then re-queue with any additional questions. I will now let the operator poll participants.
Operator
Thank you. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, press star 1-1 again. Your first question comes from Minnie Grauman of Scotiabank. Your line is open.
spk25
Hi, good morning. I wanted to ask about the big increase in underlying experience gains, very positive, both sequentially in year over year. And if I look at the limited history, it would suggest that this is sort of at the upper end of the range, a more normalized level would be lower. So really what I want to understand is how sustainable this number is. Is it reasonable for it to head lower? And if I think about earnings from a run rate perspective, are there any offsets this quarter that you would highlight? on the opposite side to consider as well, not just focus on the very strong experience.
Kevin Strain
Manny, we're going to let Jacques start because a lot of the experience comes from the group benefits businesses, and then Dan to follow up on the experience in the U.S.
spk35
Thank you, Kevin, and Manny, thank you for your question. Indeed, very good experience in morbidity, in particular on the group side. Just as a quick reminder, I would say Important to focus three main items when we talk about morbidity experience. First is the claims volume, the durations, and also the pricing actions, which as you might remember, we started taking in 2019. So the claims volume was indeed lower than our expectations and the durations were shorter. So one of the things to keep in mind is we don't typically fully control the claims volume, but I would point out that there is some seasonality, and Q2 is usually a little bit lower among the four quarters. On the duration side, we've put in place many a number of items or solutions to help both plan sponsors and plan members. As an example, we provide a mental health coach to plan members in Canada, and what we've noticed is that durations are shorter for people who use a mental health coach, and sometimes they don't even go on disability to start with. So, you know, in terms of how sustainable is it all, I mean, I did a little bit of an exercise looking at the last five years and what the experience is on volumes and durations. And, you know, and we're not that far from what the five-year experience is like. So, I would expect that we're able to continue that. That being said, it's tough to predict. The main item I would leave you with is what I said earlier. The key driver for us to moderate this is the pricing actions we've taken. It's something we continue to remain very vigilant and stay very close to. And when needed, we make short-term adjustments. So as I said, we're probably not going to repeat 24% every single quarter from here on. But, you know, we feel pretty good on how we're managing claims overall in morbidity. And I would suggest that, you know, we feel very confident about our MTOs, of course. Dan?
Kevin
Thanks, Jacques. And good morning, many. This is Dan Fishbein. You know, first of all, I would say that experience gains, especially in businesses like disability, stop loss, and dental, are often an indicator of good business results, better pricing than expected, better claims management, and we've invested in our businesses to improve our capabilities, and we're certainly starting to see the results of that. As far as specifically in the quarter, the story of the quarter is this is a more normalized result, really the first quarter since the pandemic began, that we've seen what we would consider more normalized results. Mortality was on expectations for the first time, and then morbidity, as you noted, was quite strong. In our stop-loss business, I'm sure you've noted that the prior quarter and the fourth quarter of last year had exceptional results. As an example, we had a 63% loss ratio in the first quarter. We priced the 72.5%. So we've seen some moderation, as you would expect, in that result in the second quarter. And in fact, the second quarter was still favorable, but more close to our pricing target, so a more sustainable level. In the group business, we had one of the best results that we've ever had in the second quarter. And we've said throughout the pandemic that the group business had undergone great improvements, It was just hard to see it through the mortality experience of COVID. And now we're seeing that, excuse me, emerge really quite clearly. So a very strong quarter in disability especially and the group business. And then a strong quarter in dental as well. Now there's some seasonality in the dental results. The first quarter is a high utilization quarter, people using their benefits. Second quarter is a more moderate quarter. quarter. So you see some higher results in dental. But overall, I would characterize this as a more normalized result, and you certainly could interpret that as more indicative of future patterns.
Kevin
And Manny, maybe I'll chime in on your last part of your question around other items that you should think about relative to these results. So I'd note a couple of things. So obviously, as Jacques and Dan mentioned, the businesses have done a lot of work to generate the favorable experience that you're seeing, and that's generating good results. So that's also factoring into our compensation accruals. So that shows up in our expense line. The other part of that would be that given the strong results we're seeing in Canada and the U.S. this year, which are higher tax jurisdictions, that's resulting in a higher tax rate. You'll note that in the quarter this year. And the third thing just to remember about this quarter is that we've also had the sale of the UK business this quarter, and so that's showing up on different elements of the DOE this quarter.
Kevin Strain
And, Manny, I'm just going to outline one last thing. If you look at this experience, again, it's primarily coming from the group businesses in Canada and the U.S., In Canada, we're a market leader and have scale and great digital capabilities, and I think Jacques talked about how to think about that. And in the U.S., we're a top four player. If you look across our businesses and Dan's, all of his businesses now, with the addition of DentaQuest, we saw having scale and performing well. So, again, we have great digital capabilities in the U.S. and added things like PinnacleCare on top. So it's really driven by the work that Jacques and Dan are doing to drive the business.
Manny
That's good detail. That's it for me. Thank you.
Operator
Thank you. Our next question comes from Gabriel DeShane of National Bank. Your line is open.
Gabriel DeShane
Hi. Good morning. Just on the CRE negative experience this quarter, it's a pretty big number, and we've had four quarters in a row. And you alluded to the long-term track record of generating 9% returns and all that. I'm just wondering if you can give us a sense of what kind of marks have you applied, you know, so far, you know, over the past several quarters and how conservative are they and what the, you know, is it at all possible to give an outlook for, you know, what kind of investment experience we could see from the CRE book in coming quarters?
spk28
Sure. Gabriel, it's Randy Brown. Thank you for the question. So the negative you're seeing, as you indicated, is the difference between the long-term expected return and the actual economic return. So we sell value in aggregate on the portfolio down about 1% on the quarter, but the total return essentially was flat because it incorporates income into the total return. So we do have a large and diversified real estate portfolio and different parts of it move in different ways. So as you would expect, we did see price declines in office, but we did see industrial up, again, really driven by rental growth increases. Multi-family retail were essentially flat. If you look at from peak, U.S. office, we've marked down about 24%. and Canadian office down about 16% because those two markets have different dynamics, as you would expect. If you think about the second part was really the outlook. I guess I'd start there by saying we like commercial real estate a lot long-term for our portfolio and continue to believe that it's an integral part of a large diversified investment portfolio like ours. We've invested in the asset class for decades. and really use it to back long-dated liabilities. As I mentioned on prior calls and mentioned in the opening here, we have actively repositioned our real estate portfolio over the last five years to prepare for a market downturn and have delivered returns well above our long-term expectations over the last decade. All that being said, like all asset classes, bonds, stocks, and others, Prices go up and prices go down. Right now we're on the downward part of that cycle. It is hard to predict future returns, but we do expect a little bit more weakness in office as the impact of COVID and varying return to office policies play out. So one thing to keep in mind, we are not for sellers. We are not levered in our real estate. Our average hold periods are between 10 and 20 years. for our buildings in North America. And as a cash buyer, we have the ability to weather these changes in valuation and actually can benefit from our position of strength. So we're long-term investors. We believe in real estate. We have a well-balanced, diversified portfolio and expect it to perform well, especially when you compare us to the broader market.
Gabriel DeShane
Okay, great. That's a fulsome response. Just wondering, were there any defaults in the mortgage book? Because we don't, I believe if there were, that would be in the net investment results.
spk28
Yeah, so the answer there on CML, the portfolio has held up remarkably well. So for the 12th consecutive quarter, we have no, so average LTV of 53%, debt service coverage about 1.7%.
Gabriel DeShane
no impairments no arrears um so we have we have a well diversified uh portfolio okay great and just shifting over to asia i i heard you know the sales momentum is improving there you know a couple things what kind of products are you know taking off first i guess and then historically i believe sunlight maybe less than 15 of your sales had come from mainland chinese i i'm wondering what your strategy is now and in the immediate future and why or why not that may have changed.
spk46
Are you targeting more?
Gabriel
Hi, this is Cindy Johnson from Asia in Hong Kong. So in terms of the products, we're seeing it's similar as in the past where they're typically traditional life insurance offerings that are oriented towards retirement and legacy planning. If we then look at the actual underlying momentum, this is what we'd hoped for and had made preparation, anticipation of the border reopening with mainland China. So in terms of our pre-pandemic level of sales, it was roughly around 10% to 15%, as you observe. We're now seeing this being more than double that. with still good momentum. And as Kevin mentioned, the Dashing Bank Assurance Relationship Agreement is also activated, and we're seeing good momentum, together with the opening of our Sun Life Gateway Center in Tsim Sha Tsui. So generally, we've looked at also innovative products just to make sure that we're relevant for the society we serve. And then we're seeing momentum in the other markets, principally India and China.
Gabriel DeShane
So why that shift in mainland Chinese product sales? The strategy has obviously changed.
Gabriel
The strategy hasn't changed. We're better positioned to be able to take advantage of that.
Kevin Strain
All right. It's Kevin, Gabe. I was in Asia pre the COVID time, and we've been building capabilities the last two, three, four years to tap into this market as it opened. We probably lacked those capabilities we wish we would have had five years ago that we have today, and that's helped us to gain more mainland Chinese visitor business.
Gabriel DeShane
Okay. I'll follow up on that offline. Thanks.
Operator
Thank you. Our next question comes from Doug Young with Desjardins. Your line is open.
Doug Young
Hi. Good morning. First question is just for Dan. Obviously, with the dental quest and the boost in sales this quarter, I mean, how are you feeling relative to your accretion expectations from that business? It seems like things are performing potentially better than expected, is there an opportunity to get more than you had originally anticipated?
Kevin
Well, thanks. We're feeling very good about our original projections, but there's various puts and takes and some things a bit different than we had initially projected, as you would expect. Probably the biggest headwind, and this is well documented, is the end of the public health emergency that occurred on May 11th and the recertification by all the states of their Medicaid membership. We had projected losing a certain amount of Medicaid membership as a result of that, but over a two-year period, it does appear that the states are processing those recertifications more quickly than had been anticipated. The overall projections for membership loss are about the same so far, although a bit hard to predict as what we had projected, but there could be some short-term pressure there. On the integration side, the integration is going very well. We actually are now projecting having more expense synergies than we had built into the model. And on the sales side, as you noted, we're really getting some extraordinary results. In the first 13 months since the acquisition closed, we've had $580 million in new sales. The vast majority of that, although not all of it, is government programs. And we've essentially had no lapses on the government program side. And just to put it into perspective, that $580 million in new sales is more than 20% of the revenue that was in place as of the date of the close. So we think any issues related to PHE would likely be made up with the very good sales results.
Doug Young
Well, I appreciate the color. And then maybe just sticking with you, Dan, I mean, the U.S. group benefit margin, like, it's just below 10% this quarter. It's down from the last few quarters, but your target is 7%. It seems like we're migrating down towards that 7%. You know, Is that the trajectory that we should be anticipating, you know, given the normalization potentially in stop-loss as you renew next year? Like, how do we think about that U.S. group benefit margin relative to the target over the next year to two years?
Kevin
Yeah, well, the group benefits margin that we report does not include dental, right? It historically doesn't include the DentalQuest government programs. So it's really a stop loss in group margin. And actually, that was 10.2% on a trailing 12-month basis, which is the highest that we've ever seen. We are considering whether or not we should recast that at some point to include all of the dental business, some changes, minor puts and takes under IFRS 17. So more to come on that. But I think the story this quarter is that we've seen the emergence of very strong margins in the group business, meaning group life, disability, and voluntary. As I mentioned earlier, with the relaxation of COVID mortality impacts, we're now seeing the impact of all the great improvements that that team has been making to the business, and it's starting to make a significant contribution to our results, including the margin. The stop loss margin, obviously, this quarter has moderated some versus the prior quarter. We would have expected that. But in the aggregate, it drove the margin up to 10.2 with the improvements in the group business.
spk04
Okay. I'll leave it there. Thank you.
Operator
Thank you. Our next question comes from John Aiken of Barclays. Your line is open.
John Aiken
Thanks. I wanted to follow along Gabriel's line of questioning, Ingrid, if I may. Two things specifically about Hong Kong. Can you talk about the bank assurance agreement and in terms of, I know it's early days, but what products are actually being sold through the bank assurance channel and if that's what you want or if you want to ultimately move to a different channel? set of products. And secondly, the Gateway Client Center, you mentioned the region. I apologize. I'm not familiar with that. Is this specifically for mainland China visitors, or do I actually have the intentions for that client center incorrect?
Gabriel
John, hi. Good evening from Hong Kong. So yes, on the products, we made sure with our bank assurance agreement or in the relationship that we'd have products relevant for different client segments and that they would cover the full range of what clients would need from savings, protection, legacy planning. So it's a combination of those products that we're finding are being sold and it's through all of the branches that we are present. So we're really pleased with that. And then from the Sunset Choi is actually on the Kowloon side and it is positioned to attract the mainland Chinese visitors and individuals that are here, but also high-net-worth clients. And we have a dedicated team of on-site financial advisors and client support representatives. So this is a very nice presence that we haven't had before.
John Aiken
And with the client center, is this something that your competitors also have, or is this something innovative that is a different percentage?
Gabriel
So it's something that our competitors have had, but we've raised the bar because ours is really beautiful.
spk36
Great. Thank you very much.
Operator
Thank you. Our next question comes from Tom McKinnon with BMO Capital. Your line is open.
Tom McKinnon
Yeah, thanks very much. Just a couple questions. First one is to start off with a line that's called other expenses. Just looking at these things just quarter over quarter, Asia is where you had a lot of growth. It's only up 4%. But if I look in Canada, it's up 6%. The U.S. is up 20% in Canadian. In U.S. dollars, just quarter over quarter. And in the corporate segment, it's up about 11% quarter over quarter. So I think, Manjit, you mentioned comp accruals. But are there any other items that are driving that number to be up so much sequentially? And probably the highest it's been over the last six quarters, of course. So just some color there, and I have a follow-up. Thanks.
Kevin
Sure. So maybe I'll just first of all start with highlighting what's in that other line. So there's really four main components that go into that other expense line. So the first is non-directly attributable expenses. And these are expenses that are generally related to expenses or initiatives that support the entire business group. and therefore are not included in the insurance services, asset management, or other fee income lines of the DOE. So some examples of that would include marketing and support advertising, you know, functional support for the business group, and strategic initiatives that are cut across all the business units within the business group. The second item would be sort of corporate costs that we have, and so those would be costs for groups like enterprise finance, risk, legal, strategy, et cetera. Next would be performance later compensation that you mentioned, Tom, and the fourth would be debt costs. So if you kind of look at the increased quarter of a quarter, most of that increases quarters related to compensation-related factors. And that was really driven by the fact that we have equity-related compensation, and one of the main drivers of that is Sun Life's relative share price performance versus our peer. And for the first half of the year, we were outperforming.
Tom McKinnon
And is this a true-up that happens kind of more seasonal, or are we just establishing a new trend here?
Kevin
Well, we look at it regularly, Tom, and when there's an amount that we think we need to true up for, we do.
Tom McKinnon
Okay, thanks. And then thanks for the additional disclosure here on capital generation. That's great. So if I put that together with your 148 LICAT that includes $2 billion in whole co-cash, you've just launched a buyback. The fund hasn't done a buyback in a while, and I seem to recall that when they've had one, they've been active. So let's take a look. Take us through your thinking with respect to the buyback. And is it just a buyback for window dressing purposes or do you plan on being pretty active here?
Kevin Strain
Tom, it's Kevin. We certainly wouldn't announce a buyback that we weren't planning to execute. So we plan to execute on the buyback over the next 12 months. subject to regulatory approval, as I mentioned in my earlier notes. So that is, as you mentioned, if you look at what we did in the past, we were active on our buybacks.
Tom McKinnon
And what about still sitting on a lot of capital? That's not going to probably chew through too much of it, and you're generating so much. How should we be thinking about that? I mean, a high class problem to have, but thoughts there?
Kevin Strain
Well, you make a good comment. I mean, we continue to think that we can do the buyback, as we've announced, and have capital to give us flexibility to add scaling capabilities through M&A when we need to and to support organic growth and our dividends. So, you know, we've sort of tried to balance all of these factors, and that's how we've determined the amount of the buyback. We're obviously looking at our pipeline, and we see everything that happens in terms of M&A in all of our businesses. And we think we've left ourselves with enough flexibility to continue to be active if there's things that we need to do to add either scale or capability, of course, with our financial discipline. So we don't do M&A unless it's going to add to our MTOs and unless we think we can execute. So if you look at the past few years, we think we've been pretty disciplined in our deployment of capital.
spk45
Okay, thanks.
Operator
Thank you. Our next question comes from Mario Medanco. With TD Securities, your line is open.
Mario Medanco
Good morning. Sort of along the same lines as Tom is going at, the last time Sun Life had an NCIB and actually executed on it was back in 2019. Kevin, has something changed more recently that would encourage you to have an NCIB and act on it? Is it just that Sun Life's producing capital at a better clip than it has in the past? What caused the changes?
Kevin Strain
Well, you remember that during COVID, you were not allowed to do a buyback program. So that was part of it. And then we were implementing IFRS 17. And as we came through IFRS 17, you can see our LICAT and capital strength numbers. And so that's got us to the place that As we look at the pipeline and where we're at, I should also mention we did the DentaQuest acquisition during COVID as well, which was a significant user of capital. So the combination of, again, when we deploy capital, we step back and look at what do we need for organic growth, what do we need to support the dividend and our dividend growth, and what's our M&A pipeline look like. So that's the discipline we have, and that's sort of where we stand at this point.
Mario Medanco
And then maybe for Manjit, you referred in your opening comments to when the yield curve normalizes, you'd expect to see some kind of reversal of those market charges. When you say normalizing, do you mean when the yield curve steepens further? Is that what you're getting at?
Kevin
So maybe I'll let Kevin Morrissey comment on that.
Kevin Morrissey
Sure, Mario. It's Kevin Morrissey here. Our exposure really is to the yield curve inversion, and what we saw this quarter was more – inversion so the shorter rates went up by about 50 base points more than the longer rates so what what uh majit was referring to in his opening remarks were if the yoker flattens from here or normalizes to upward sloping based on our current risk exposure we would see those gains reflected in reported earnings thank you
Operator
Thank you. Our next question comes from Paul Holden with CIBC. Your line is open.
Paul Holden
Thank you. Good morning. The first question is regarding advisors' asset management. Wondering if it's starting to make a contribution to the sales for SLC, and if it hasn't yet, when should we expect the contribution to start?
spk18
Paul, it's Steve Peacher. Thanks for the question. So there's been a lot of activity since we closed with the different affiliates getting new products launched. So most specifically, Bento Green Oak BGO has gone live with what they're calling their iREIT, which is an industrial non-traded REIT that is through the SEC. We've still got to get through some states on the blue sky. Meetings have started. And the process from here, once you get the product live, and we're working on one with Crescent that's a few – few months behind a potentially private BDC where we're actually already acquiring assets. Then you really start working with the different platforms, the wire houses, the RIAs, the independent broker-dealers, to get those products approved on their platforms. You can't really go out and start talking actively to the financial advisors on those platforms until you get the product approved at the home office. We start that process before they're live, or I would say AAM does with the affiliate, but those platforms don't really engage until they've got a product that is kind of ready to go. So we are right in the thick of that now with those different platforms in the wirehouses, RIAs, IBDs. That usually takes longer at the wirehouses, tends to be quicker at the RIAs. I think that's going to take us pretty much the balance of the year. And then I think next year we can really start to see assets moving into those funds. And the other comment I'll make is the IREAP, the BGO product, that's a seed portfolio that's over a billion dollars. It's already bought. It's a great portfolio focused on the industrial sector. So that's ready to go. And as I mentioned with Crescent's product, we're in the market of building a portfolio now, and we're a few months behind BGO in terms of getting that product for the SEC. So we haven't been raising money yet in those products. A few more months to go to kind of get the approval process going. I think it's a 2024 event in terms of money flowing.
Paul Holden
That's helpful. Thank you. And then my second question also related to SLC. I mean, we continue to see pretty good AUM growth and you're well on track to hit your 2025 target. But I don't really see the same momentum in underlying net income. Can you give us a sense of when we should expect that to start inflecting higher. And maybe it's related to the first answer and just have to get work through some of these additional expenses on getting the product approvals. But I'd like to understand that a little bit better.
spk18
Yeah. What I would point you to, Paul, I mean, is I think the best earnings measure to follow to follow the health of the business. And you see it in the supplement. I think it's on page 13. is we report fee-related earnings. And fee-related earnings are really a very common measure in the business, you know, for these kind of alternative businesses. And that's going to flow, and that's kind of the purest demonstration of our earnings, and that's before minority interest, it's before taxes. It's also importantly before seed income and the cost of that, you know, the financing cost of that seeding. all of which flows to underlying net income. So I would first say look at fee-related earnings. If you look at that this year, we're up double digits over last year, and that will track generally fee-related revenue. On underlying net income, I think you're going to see a little bit more volatility in that number because it includes seed income, which I think this quarter is a much more normalized number, but that's going to bounce around a little bit. It includes, we have some share-based compensation that's going to include that. It's going to include minority interest. It's going to include taxes. So, you know, some of those things are going to move that number around a little bit. And I think, you know, we saw that this quarter. If you look at underlying net income from a year ago, it looks like it was flat. You know, there were a couple one-time positive benefits in the last year's number if you normalize For that, underlying net income this quarter over last year was up probably close to 20%. So I hope that wasn't too convoluted an answer, but I would really focus on fee-related earnings to really track the earnings progress.
Paul Holden
Let me ask a different way, because I think the guidance you sort of said was based on underlying income for 2025, and you brought in AUM target plus an underlying income target. And it just looks like the profitability, if I simply take underlying income relative to AUM, is not tracking to those objectives. So has something changed in the profitability of the business? Or again, is it just a matter of, you know, maybe execution against strategy and getting past certain costs to improve those profit margins? I guess that's what I'm trying to understand or really, yeah.
spk18
Well, I would say our targets and our expectation that we're well on track to hit those targets that we set on Investor Day, we feel very good about those. And I think in terms of the expansion of the margin, you know, as we've been growing the top line, AUM's up a lot, fee-related revenues up, fee-related earnings are up. But at the same time, we have been investing to grow this business. And generally in this business, that means some investment in systems, but it means a lot of investment in people, salespeople, investment people. I mean, our expectations for the potential of SLC are very, very high. And we want to make sure we've got that foundation. I think you're going to start to see margins improve over the next couple of years as we can scale back some of those investments to make sure we're set up for the future and the revenue from growing AUM starts to increasingly fall to the bottom line. So I think you're going to see margin improve as we don't have to invest as much to make sure we have the foundation for future growth.
Paul Holden
Okay, that's great. Thanks for your answers.
Operator
Thank you. Our next question comes from Juho Kim of Credit Suisse. Your line is open.
Juho Kim
Hi, good morning, and thanks for taking my questions. My first one is with MFS, and I'm wondering if you could comment on the next flows at MFS throughout the quarter and whether there were any changes in the flows given that equity markets sort of gradually improved over the quarter. So I'm wondering if you saw any improvements in flows as we move through month to month in that business.
spk05
Hey, good morning. This is Mike Roberge. You know, the biggest driver this year in relative flows has been what's going on in the retail channel, and this is true in the industry. And so relative to last year where redemptions were elevated given the challenges in both fixed income and equity products, we've seen redemption rates normalize, but what we've not seen yet is sales normalize. And so industry sales are down substantially relative to a couple of years ago, and we have not seen those normalized. And where we see that money going is given where cash rates are around the world. In the U.S., 5 plus percent in cash. In Europe, less than that. His clients are sitting on cash, relatively safe cash at relatively high levels. We've seen this historically. The market's pricing the Fed to begin to lower rates next year. If, in fact, that plays out, we think some of that cash is going to make its way back into investment products. We've just got to wait for that cycle to kind of play out. But It's less around what's happening in MFS and more around what we see happening in the industry. We track, and this is in the U.S. where we have data, we track our share of active assets in the U.S. relative to our flows. And our relative net flows are running well below our share of assets, which means we are outperforming relative, particularly on the international equity and fixed income side. And so what's driving that is industry. We think that's not going to normalize back to those levels until the Fed begins to bring policy rates down.
Juho Kim
Thank you. And just on other expenses this quarter again, and I apologize if I missed it, but just specifically for that variable compensation, I think accruals there. I'm curious if you could attribute that to different lines of businesses. I'm wondering if there's any major drivers or results from certain segments. And what are some, I guess more importantly, what are some levers that you have to sort of pull down or dial down expenses in that other expense line overall going forward?
Kevin
So good morning, Juho. It's Manjit. So I would say that it's really across all the business groups. We've had very good performance across all of the businesses, as you've heard this morning. And the second factor, as I mentioned, is also related to our equity performance, which would also cut across all groups. In terms of just general approach to expenses, I would comment that we have been and are focused on discipline expense management. That really reflects our owner's mindset philosophy that we have in the way that we run our business. But at the same time, you know, we're investing to support our business growth, ensuring that we are also investing to ensure that we have good business controls and capabilities and also making sure that we're attracting and retaining the best talent. So all those show up on the expense line, but they're also helping to support the business growth that you're seeing. So, you know, we feel very good about the investments we're making and the business growth that they're driving. But at the same time, we are also keeping a very close eye on expense growth.
Juho Kim
Perfect. Thank you. That's it for me.
Operator
Thank you. Our next question comes from Lamar Prasad with Cormark. Your line is open.
Lamar Prasad
Thanks. I want to start off on CSM here. So one of the points on CSM growth year-over-year was 8% from inorganic growth, mostly from management action.
spk22
Can you break down exactly what you're referring to there?
spk30
Kevin Morrissey, are you on?
Kevin Morrissey
Yes. Lamar, I'll take that question, Kevin Morrissey. What we saw in the inorganic is mostly related to the assumption and method changes, and that's where there was a change in Hong Kong where we had an adjustment to our pricing philosophy, and that resulted in an extension of the contract boundary. And as a result of that, we set up more CSM for that business, and that piece alone was about $240 million but it didn't have an impact on income because there was an offsetting change on the other actual liabilities. So no impact from that change on earnings, but a significant increase in the inorganic CSM movement for the court.
Lamar Prasad
Okay, thanks. And then sticking with the CSM, I want to start off by saying thanks again for the segment of disclosure. I found it helpful. On a new business CSM growth, so $270 million, Can you talk to how much of that was driven by the strong sales growth and how much of that was the mixed changes in Asia? Sales growth part we can see, but the mix is still a bit tougher to understand. So I'm just wondering, really, is there anything one time in nature there that we should consider seasonality in that $118 million that went through in Asia?
spk22
Or is that a good starting point for Asia for Q3 and Q4? Sure.
spk39
Are you ready for me? Go ahead, Manjit.
spk29
No, you go ahead, Ingrid.
Gabriel
So I was just going to comment on Asia and then Manjit can bring to the whole of the group. So in Asia, we really have been focused on quality products where we've been looking at margin expansion, which have been the one contributor, and that's principally in the high net worth business. The second is on sales volumes, where you're absolutely right, that has driven the underlying momentum, and clearly the strong growth in Hong Kong has contributed to that. And then we're also affected by the mix. So you can reverse engineer to see a margin of roughly between 40% to 55%, just depending on the mix in the particular quarter. But we do see very strong underlying momentum, and the new business, CSM, growth will be reflective of the sales momentum.
Lamar Prasad
Okay, that's helpful. And then you guys didn't call out Canada specifically, but there was some good growth in new business CSM in Canada as well. Can you provide some color on what drove that?
spk35
I'll take that question. And yes, there's good growth. In new business, it's predominantly driven by our power products, but there's also a little bit in universal life and in some of our individual wealth insurance products, but it's a lot of it is power.
Lamar Prasad
Okay, thank you. And then just for Dan on my next question, that 10.2% profit margin, we've seen that number climb quite consistently over the past year. I would have thought that competition would serve to erode some of that 10% profit margin in group, but it continues to go higher. It sounds like you refer to some management actions in that profit margin. Can you talk to what some changes you guys made from a management action perspective in the in the stop loss business? And, you know, yeah, just how how material is that the margin?
Kevin
Sure. We continue to build out capabilities in both the stop-loss business and the group benefits business. In stop-loss, and Kevin mentioned this earlier, we added Pinnacle Care Advisors, for example. Pinnacle Care is a healthcare navigation business that really differentiates our stop-loss business from others because instead of just reimbursing claims, we're actually helping people in those situations that lead to stop-loss claims. We've also continued to enhance our digital capabilities and our sales capabilities in the stop-loss business. So we continue to earn above market margins. But this quarter, the biggest impact was in the group business, group life, disability, and voluntary. We've seen really strong growth over the past year, 13-plus percent, and that's the result of improved claims management capabilities. new industry-leading digital capabilities, particularly to help employers when they set up with us as a new account, including APIs that integrate us with a number of the leading payroll systems. And we've also added staff and expertise to claims management to help get people back to work. So all of these things contribute to favorable experience and strong margins.
Kevin
Thanks for the time, guys.
Operator
Thank you. Our last question comes from Nigel D'Souza with Veritas Investment Research. Your line is open.
Nigel D'Souza
Hi, good morning. Thank you for taking my question. Just wanted to touch again on CSM balance at the segment level. When I look at the rate of CSM amortization, so the amount of CSM amortized relative to CSM balance, it looks like that rate has drifted lower, particularly for Canada and Asia. Wondering if there's anything that you would point to that's driving that, or is that simply just a function of CSM balance growth?
spk07
Kevin Morrissey, do you want to take that question?
Kevin Morrissey
Sure, Nigel. It's Kevin. I think when you look at the CSM amortization, the thing to keep in mind there is that that amortization varied quite a bit by the product mix, and so we see quite a variability across the business groups, and so based on The changes in mix and the sales that are coming in, you might see a bit of volatility in that from quarter to quarter. However, we do expect to see that pretty stable in that range of about 8% to 10% that we quoted.
Nigel D'Souza
Okay, that's helpful. And the last question was more conceptual, just trying to understand the outlook for experience gains. If that's expected to be sustainably favorable, just wondering why that wouldn't eventually show up either as a change in the actuarial assumptions and update the actuarial risks or show up in premium pricing and kind of lowering premium rates to the market share. Just trying to understand longer term if there are payable experience gains, why it wouldn't show up in one of those two items.
Kevin Strain
Kevin, it's Kevin Strait. I was going to say, I wonder if you could answer that, but I do think that both Jacques and Dan gave really good answers in terms of how to think about it for the group benefits business. So I wouldn't want to repeat that, but maybe, Kevin, you could talk about some of how we look at experience gains.
Kevin Morrissey
Sure, Nigel. It's Kevin Morrissey. I think you have the right concept there that ultimately over time, the experience is going to get updated in either the actual assumptions that go into the liabilities or through the pricing when that gets renewed. So I think that is the right way to think about it. I think maybe the difference there is just the time horizons. Usually the experience studies are done, we do them every year, but we look over a time horizon of multiple years, and they can get updated periodically from time to time based on that experience. So over time, I think you're right, but I think over the short to medium term, I think it's probably best to think about it in the way that it was described by both Dan and Jacques.
Kevin Strain
Yeah, I would add to that that the group businesses are shorter-duration businesses. They're repriced on a different sort of way than individual businesses. So you have to think about group and individual differently.
Nigel D'Souza
Okay, and just a minor point of clarification. The experience gains, is that specific to Sun Life as in your managing stakeholder risk veteran and the claims process?
Kevin Morrissey
experience is more favorable because of something that's specific to you or is that just reflective of industry experience just trying to get a sense of you know what's driving the favorability yeah Nigel start off commenting from a high level across all the businesses I think it's it's really a combination probably of a number of factors which you measured mentioned you know one of them is the overall experience that could cross the industry some of it is related to your specific risk selection and risk management And the other dimension is the pricing as well that's been mentioned that factors into the experience. So I think it's really all three of those that have worked in our favor.
spk14
That's really helpful. Thank you.
Operator
Thank you. We have no further questions at this time, and I will turn things over to Mr. Garg for closing remarks.
Michelle
Thank you, Operator. This concludes today's call. A replay of the call will be available on the Investor Relations section of our website. Thank you everybody and have a good day.
Operator
Thank you for your participation. This does include the program. You may now disconnect. Everyone have a great day. you Thank you. Thank you. Thank you. music music Good morning and welcome to the Sun Life Financial Q2 2023 conference call. My name is Michelle and I'll be your conference operator today. All alarms have been placed on mute to prevent any background noise. The host of this call is David Garg, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Mr. Garg.
Michelle
Thank you and good morning, everyone. Welcome to Sun Life's earnings call for the second quarter of 2023. Our earnings release and the slides for today's call are available on the investor relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, 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 are also 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 will turn things over to Kevin.
Kevin Strain
Thanks, David, and good morning to everyone on the call. Turning to slide four, we delivered good performance during the second quarter. Our results demonstrate the continued resilience of our diversified business mix, the value we are realizing from our recent acquisitions and strategic partnerships, our ability to execute on our strategy, and the positive impact we continue to deliver for our clients. We achieved strong underlying earnings for the quarter of $920 million, representing 14% growth over the prior year. The earnings growth was driven by strong results in our group health and protection businesses and our individual protection businesses, alongside of resilient wealth and asset management performance. Sun Life Canada achieved record earnings this quarter, driven by strong investment results and favorable insurance experience. Sun Life U.S. also had a strong second quarter for results, reflecting balanced contributions across the business. Notably, Dentiquest recorded the largest Medicare Advantage sale in its history, bringing sales for the U.S. dental business to approximately $580 million since closing our acquisition in June 2022. Sales in the second quarter are expected to add approximately 700,000 Medicare and Medicaid members over the next year, supporting our commitment to improve preventive care and oral health outcomes for our clients. We made good progress in Sun Life Asia, with individual sales up 51% year-over-year. Most notably, Hong Kong insurance sales grew nearly four times over last year, partially driven by pent-up demand with the reopening of the border with mainland China. This includes contributions from new quality agency teams and the newly opened Sun Gateway Prestige Client Center. The fundamentals of our asset management businesses remain strong. MFS long-term retail fund performance was strong, with 98% and 92% of fund assets ranked in the top half of their respective Morningstar categories based on 10- and 5-year performance. while SLC fee-related earnings increased 19% driven by higher AUM, reflecting strong capital raising and deployment across the platform and the AAM acquisition. Asset under management are now $1.37 trillion and are up 9% over last year, supported by increases from both MFS and SLC. Underlying ROE for the quarter of 17.7% continues to trend towards our medium-term financial objective of 18% plus, reflecting our disciplined capital management and sustained emphasis on capital light businesses. We also ended the quarter with a strong capital position with a LICAT ratio of 148%. Given our strong capital position and capital generation, we announced our intention to launch a normal course issuer bid to purchase up to 2.9% of our outstanding common shares or 17 million shares, subject to regulatory approval. We will continue to maintain flexibility for other potential capital deployment opportunities. Turning to slide five, this quarter we delivered on several key business initiatives that drove our client impact strategy, helping clients achieve the healthcare and coverage they need to remain a top priority. And we are leveraging our digital capabilities and recent acquisitions and strategic partnerships to make this happen. In Canada, we continue to make progress in building a health ecosystem with holistic solutions and services for our clients. Last month, we announced an agreement to acquire Dialogue Health Technologies, Canada's leading integrated health and wellness virtual care platform that provides clients with access to affordable, on-demand quality care. We've been in partnership with Dialogue since 2020. and see the incredible growth potential, but more importantly, this acquisition will allow us to play a larger role in Canada's health ecosystem and help Canadians navigate and receive care. Sun Life Canada also launched Luminal Health Pharmacy, provided by Pillway, an online pharmacy app that helps clients access knowledgeable pharmacists by chat or phone and have medications delivered right to their door. This service helps clients monitor their medications, usage, and refills, allowing them to easily access and manage care from the comfort of their home. In our U.S. dental business, we expanded Advantage Dental Plus by opening two new dental care practices in Texas. We opened these offices in areas where access to quality oral health care is a challenge for children with Medicaid coverage. In Asia, we continue to leverage our digital capabilities and product innovation to help clients live healthier lives. In Hong Kong, we introduced eSunPro, a new digital healthcare platform that offers one-stop comprehensive care. Clients have access to advanced treatment and support from the point of diagnosis to post-treatment, all in support of helping our clients focus on recovery and safeguard their health. We're using our distribution capability to build lifetime financial security for our clients. Last quarter, we announced an exclusive bank insurance partnership with Dossing Bank in Hong Kong. We're pleased with the early sales momentum and progress in July, demonstrating early traction from our new partnership and our commitment to leveraging quality distribution to meet the protection, savings, and investment needs of our clients. In SLC, Advisors Asset Management, a U.S. retail distribution affiliate, which we acquired last quarter, announced it will distribute BGO iREIT, a non-traded real estate investment trust launched by BGO, supporting the needs of high net worth individuals. We're also embracing our responsibility to create a more sustainable, brighter future. In line with our commitment to sustainable investing, this quarter we announced our second sustainability bond, issuing $500 million. We intend to invest an amount equal to the net proceeds of this offering into green and our social assets as defined by our sustainability bond framework. Additionally, SLC management continues to invest in assets that generate a stable and attractive yield with a positive environmental impact. For example, Infrared recently announced an investment in Jolt, an e-mobility company. Infrared's investment in Jolt's rapid electric vehicle charging infrastructure supports a low-carbon future and contributes to its target of achieving 50% of AUM invested in climate solutions by 2025. Finally, we continue to maintain our position as an empowered and inclusive workplace, This quarter, Sun Life was recognized as one of Corporate Night's best 50 corporate citizens in Canada for the 18th time since 2002, driven in part by strong scores on executive gender diversity and board racial diversity. In closing, we're encouraged to see our business continue to grow as we emerge from the pandemic. We're seeing accelerated growth in Asia, mortality experience being less impacted by COVID, and morbidity experience improving. We continue to monitor the macroeconomic environment closely with interest rates remaining high, particularly at the short end of the curve. But inflation is showing some signs of moderating, the credit environment remains very stable, and equity market performance overall was good in the quarter. Real estate has been a headwind for us and for the industry recently, but we continue to benefit on a relative basis from a rebalanced portfolio reflecting actions taken over the past five years. Asset management and wealth flows remain challenging, but we continue to outperform our competitors. We continue to generate capital to support our organic growth, a healthy shareholder dividend, the ability to execute on the right acquisitions or strategic partnerships like Dialogue and Dossing Bank, while also supporting the buyback we announced this quarter. Overall, we continue to deliver a positive impact for our clients, whether it's making healthcare more accessible, creating strong investment performance, or providing protection. Put simply, helping our clients achieve lifetime security and live healthier lives. With that, I will turn the call over to Manjit, who will walk us through the second quarter financial results.
David
Thank you, Kevin.
Kevin
Underlying net income of $920 million and underlying earnings per share of $1.57 were up 14%. Our strong market positions and attractive business mix across wealth and asset management, group health and protection, and individual protection helped to generate an underlying ROE of 17.7%. Wealth and asset management, which includes contributions from MFS, SLC management, group retirement services, individual wealth, and asset management businesses in Asia and Canada, generated 40% of underlying earnings. Wealth and asset management underlying earnings were in line with the prior year. Lower fee-based income reflecting the impact of declining global equity markets was largely offset by higher investment income driven by volume growth and higher yields. Group health and protection, which comprise 35% of Q2 underlying earnings, continue to deliver strong earnings growth. This includes our Canadian group health business as well as our U.S. stock loss, employee benefits, and dental businesses. Underlying earnings were up $122 million driven by good premium growth favorable insurance experience, as well as a full quarter contribution from DentaQuest. Group sales maintained good momentum, more than doubling from the prior year. Individual protection represented 25% of our Q2 earnings and includes our longer-term protection businesses in Canada and Asia, as well as our runoff businesses in the U.S. Individual protection underlying earnings were up 23% year-over-year. This was driven by improved insurance experience in Canada and the U.S., as well as good sales momentum over the past year in Asia. Total individual protection sales were up 45% from the prior year. We also generated new business CSM of $270 million during the second quarter, up 43% year over year. Earnings and surplus assets increased across our businesses, reflecting higher net interest income and higher realized investment gains. Reported net income for the quarter was $660 million, down 29% from the prior year. Reported earnings for the quarter included market-related impacts, acquisition-related costs, and amortization of acquired intangibles. Market impacts were primarily driven by unfavorable interest rate experience reflecting a non-parallel shift of the yield curve. Given our current positioning, as the yield curve normalizes, we expect to see favorable interest-related market impacts in reported net income. Real estate returns were relatively flat in the quarter versus our long-term expectations of approximately 2%. We continue to view real estate as a key component of our diversified portfolio. Over the last 10 years, our North American real estate portfolio has generated annualized total returns of over 9%, above our long-term expectations. Our balance sheet and capital position remains very strong. SLF like out of 148% was in line with the prior quarter. The leverage ratio of 23% remains low. Local cash for $2 billion increased by $1 billion from the last quarter in line with our prior guidance. And we continue to expect capital generation of 25% to 30% of underlying earnings over the medium term. This is after payment of common share dividends and organic investments. Our strong capital position provides Sun Life with the ability to execute on attractive opportunities as well as the resilience to absorb potential impacts from more volatile market conditions. These are valuable attributes in this environment. Now let's turn to our business group performance starting on slide nine with MFS. MFS underlying net income of US 187 million was down 5% from the prior year. This was driven by lower average net assets as well as a higher tax rate. Reported net income of US 187 million was down 18% year over year driven by an increase in the fair value of share based compensation. Pre-tax net operating margin of 37% was up one point from the prior year. AUM of US $589 billion was up 3% from Q1, the third consecutive quarter of sequential growth. Retail net outflows of US $1.7 billion and institutional net outflows of US $2.3 billion both moderated from the prior quarter. Turning to slide 10, SLC management generated fee-related earnings of $62 million, up 19% year-over-year. This reflects good capital raising as well as deployment of capital into fee-earning AUM over the past year. Underlying net income of $44 million was down modestly from the prior year, as higher fee-related earnings and seed income was offset by favorable, non-recurring items in the prior year. Reported net loss at SLC management was $3 million, primarily driven by mark-to-market losses on real estate held in the surplus account and acquisition-related costs. Capital raising of $2.1 billion was resilient in a challenging environment. Total AUM of $218 billion was up 13% year-over-year. This includes $21 billion that is not yet earning fees. Once invested, these assets are expected to generate annualized fee revenue of more than $180 million. Turning to slide 11, Canada delivered record underlying net income of $372 million, driven by strong disability experience and higher investment income. Reported net income of $210 million was down year over year due to market-related impacts. Wealth and asset management underlying earnings were in line with the prior year, as higher investment income was offset by higher expenses. Group health and protection underlying earnings increased $48 million year-over-year, driven by improved disability experience from lower claim volumes and shorter claims durations. Individual protection was up $25 million, driven by improved insurance experience and higher investment contribution. And earnings and surplus was up from prior year, reflecting higher investment income and realized investment gains. Turning to slide 12, U.S. underlying net income of U.S. $160 million was up $58 million from last year. Reported net income of U.S. $133 million was up $20 million year-over-year. Group health and protection underlying earnings were driven by strong premium growth, a full quarter contribution from the DentalQuest acquisition, favorable but moderating insurance experience, and higher investment contributions. The combined after-tax profit margin for group benefits and health and risk solutions of 10.2% was a new high watermark for the business. We're very pleased with the contributions of DentiQuest. We are winning new business, are on track with our integration milestones, and are confident that we will achieve our synergy targets. Individual protection underlying earnings increased 12 million year-over-year, benefiting from improved mortality experience and the inclusion of the retained portion of our UK business. Slide 13 outlines Asia's results for the quarter. Underlying net income of $150 million was up 25% year-over-year on a constant currency basis. Reporting net income of $122 million was up from last year due to lower market-related impacts. Wealth and asset management underlying earnings were down slightly, reflecting lower fee-based earnings. Individual protection earnings increased 33% year-over-year on a constant currency basis. The increase reflects higher premiums from good sales momentum during the past year, as well as improved expense and lapse experience in our joint ventures. Individual protection sales were up 50%, primarily driven by strong sales growth in Hong Kong, China, and India. New business CSM for Asia was $118 million, up 64% from the prior year. This was a good quarter to end the first half of the year. We are entering the second half with positive business momentum. While the operating environment remains uncertain, our core strengths of a diversified and attractive portfolio of businesses, a strong capital position, and a talented team supported by a great culture which serve as well as we focus on delivering on our purpose for our clients and driving future growth. With that, I'll turn the call back to David for Q&A.
Michelle
Thank you, Manjit. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then re-queue with any additional questions. I will now let the operator poll participants.
Operator
Thank you. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, press star 1-1 again. Your first question comes from Minnie Grauman of Scotiabank. Your line is open.
spk25
Hi, good morning. I wanted to ask about the big increase in underlying experience gains, very positive, both sequentially in year over year. And if I look at the limited history, it would suggest that this is sort of at the upper end of the range, a more normalized level would be lower. So really what I want to understand is how sustainable this number is. Is it reasonable for it to head lower? And if I think about earnings from a run rate perspective, you know, are there any offsets this quarter that you would highlight? on the opposite side to consider as well, not just focus on the very strong experience.
Kevin Strain
Manny, we're going to let Jacques start because a lot of the experience comes from the group benefits businesses, and then Dan to follow up on the experience in the U.S.
spk35
Thank you, Kevin, and Manny, thank you for your question. Indeed, very good experience in morbidity in particular on the group side. Just as a quick reminder, I would say Important to focus three main items when we talk about morbidity experience. First is the claims volume, the durations, and also the pricing actions, which as you might remember, we started taking in 2019. So the claims volume was indeed lower than our expectations and the durations were shorter. So one of the things to keep in mind is we don't typically fully control the claims volume, but I would point out that there is some seasonality, and Q2 is usually a little bit lower among the four quarters. On the duration side, we've put in place many a number of items or solutions to help both plan sponsors and plan members. As an example, we provide a mental health coach to plan members in Canada, and what we've noticed is that durations are shorter for people who use the mental health coach, and sometimes they don't even go on disability to start with. So, you know, in terms of how sustainable is it all, I mean, I did a little bit of an exercise looking at the last five years and what the experience is on volumes and durations. And, you know, and we're not that far from what the five-year experience is like. So, I would expect that we're able to continue that. That being said, it's tough to predict. The main item I would leave you with is what I said earlier. The key driver for us to moderate this is the pricing actions we've taken. It's something we continue to remain very vigilant and stay very close to. And when needed, we make short-term adjustments. So as I said, we're probably not going to repeat 24% every single quarter from here on. But, you know, we feel pretty good on how we're managing claims overall in morbidity. And I would suggest that, you know, we feel very confident about our MTOs, of course. Dan?
Kevin
Thanks, Jacques. And good morning, many. This is Dan Fishbein. You know, first of all, I would say that experience gains, especially in businesses like disability, stop loss, and dental, are often an indicator of good business results, better pricing than expected, better claims management, and we've invested in our businesses to improve our capabilities, and we're certainly starting to see the results of that. As far as specifically in the quarter, the story of the quarter is this is a more normalized result, really the first quarter since the pandemic began, that we've seen what we would consider more normalized results. Mortality was on expectations for the first time, and then morbidity, as you noted, was quite strong. In our stop-loss business, I'm sure you've noted that the prior quarter and the fourth quarter of last year had exceptional results. As an example, we had a 63% loss ratio in the first quarter. We priced the 72.5%. So we've seen some moderation, as you would expect, in that result in the second quarter. And in fact, the second quarter was still favorable, but more close to our pricing target, so a more sustainable level. In the group business, we had one of the best results that we've ever had in the second quarter. And we've said throughout the pandemic that the group business had undergone great improvements, it was just hard to see it through the mortality experience of COVID. And now we're seeing that, excuse me, emerge really quite clearly. So a very strong quarter in disability, especially in the group business, and then a strong quarter in dental as well. Now there's some seasonality in the dental results. The first quarter is a high utilization quarter, people using their benefits. Second quarter is a more moderate quarter. quarter. So you see some higher results in dental. But overall, I would characterize this as a more normalized result, and you certainly could interpret that as more indicative of future patterns.
Kevin
And Manny, maybe I'll chime in on your last part of your question around other items that you should think about relative to these results. So I'd note a couple of things. So obviously, as Jacques and Dan mentioned, the businesses have done a lot of work to generate the favorable experience that you're seeing, and that's generating good results. So that's also factoring into our compensation accruals. So that shows up in our expense line. The other part of that would be that given the strong results you're seeing in Canada and the U.S. this year, which are higher tax jurisdictions, that's resulting in a higher tax rate. You'll note that in the quarter this year. for this quarter. And the third thing just to remember about this quarter is that we've also had the sale of the UK business this quarter, and so that's showing up on different elements of the DOE this quarter.
Kevin Strain
And, Manny, I'm just going to outline one last thing. If you look at this experience, again, it's primarily coming from the group businesses in Canada and the U.S., In Canada, we're a market leader and have scale and great digital capabilities, and I think Jacques talked about how to think about that. And in the U.S., we're a top four player if you look across our businesses, and Dan's all of his businesses now with the addition of DentaQuest, we saw having scale and performing well. So, again, we have great digital capabilities in the U.S. and added things like PinnacleCare on top. So it's really driven by the work that Jacques and Dan are doing to drive the business.
Manny
That's good detail. That's it for me. Thank you.
Operator
Thank you. Our next question comes from Gabriel DeShane of National Bank. Your line is open.
Gabriel DeShane
Hi. Good morning. Just on the CRE negative experience this quarter, it's a pretty big number, and we've had four quarters in a row. And you alluded to the long-term track record of generating 9% returns and all that. I'm just wondering if you can give us a sense of what kind of marks have you applied, you know, so far, you know, over the past several quarters and how conservative are they and what the, you know, is it at all possible to give an outlook for, you know, what kind of investment experience we could see from the CRE book in coming quarters?
spk28
Sure. Gabriel, it's Randy Brown. Thank you for the question. So the negative you're seeing, as you indicated, is the difference between the long-term expected return and the actual economic return. So we sell value in aggregate on the portfolio down about 1% on the quarter, but the total return essentially was flat because it incorporates income into the total return. So we do have a large and diversified real estate portfolio and different parts would move in different ways. So as you would expect, we did see price declines in office, but we did see industrial up, again, really driven by rental growth increases. Multi-family retail were essentially flat. If you look at from peak, U.S. office, we've marked down about 24%. And Canadian office down about 16% because those two markets have different dynamics, as you would expect. If you think about the second part was really the outlook. I guess I'd start there by saying we like commercial real estate a lot long-term for our portfolio and continue to believe that it's an integral part of a large diversified investment portfolio like ours. We've invested in the asset class for decades. and really use it to back long-dated liabilities. As I mentioned on prior calls and mentioned in the opening here, we have actively repositioned our real estate portfolio over the last five years to prepare for a market downturn and have delivered returns well above our long-term expectations over the last decade. All that being said, like all asset classes, bonds, stocks, and others, Prices go up and prices go down. Right now we're on the downward part of that cycle. It is hard to predict future returns, but we do expect a little bit more weakness in office as the impact of COVID and varying return to office policies play out. So one thing to keep in mind, we are not poor sellers. We are not levered in our real estate. Our average hold periods are between 10 and 20 years. for our buildings in North America. And as a cash buyer, we have the ability to weather these changes in valuation and actually can benefit from our position of strength. So we're long-term investors. We believe in real estate. We have a well-balanced, diversified portfolio and expect it to perform well, especially when you compare us to the broader market.
Gabriel DeShane
Okay, great. That's a fulsome response. Just wondering, were there any defaults in the mortgage book? Because we don't, I believe if there were, that would be in the net investment results.
spk28
Yeah, so the answer there on CML, the portfolio has held up remarkably well. So for the 12th consecutive quarter, we have no, so average LTV of 53%, debt service coverage about 1.7%. no impairments, no arrears. So we have a well-diversified portfolio.
Gabriel DeShane
Okay, great. And just shifting over to Asia, I heard the sales momentum is improving there. A couple of things. What kind of products are taking off first, I guess? And then historically, I believe Sun Life, maybe less than 15% of your sales had come from mainland Chinese. I'm wondering what your strategy is now and in the immediate future and why or why not that may have changed.
spk46
Are you targeting more?
Gabriel
Hi, this is Cindy Johnson from Asia in Hong Kong. So in terms of the products, we're seeing it's similar as in the past where they're typically traditional life insurance offerings that are oriented towards retirement and legacy planning. If we then look at the actual underlying momentum, this is what we'd hoped for and had made preparation, anticipation of the border reopening with mainland China. So in terms of our pre-pandemic level of sales, it was roughly around 10% to 15%, as you observe. We're now seeing this being more than double that. with still good momentum. And as Kevin mentioned, the Dashing Bank Assurance Relationship Agreement is also activated, and we're seeing good momentum, together with the opening of our Sun Life Gateway Center in Tsim Sha Tsui. So generally, we've looked at also innovative products just to make sure that we're relevant for the society we serve. And then we're seeing momentum in the other markets, principally India and China.
Gabriel DeShane
So why that shift in mainland Chinese product sales? The strategy has obviously changed.
Gabriel
The strategy hasn't changed. We're better positioned to be able to take advantage of that.
Kevin Strain
All right. Yeah, it's Kevin, Gabe. I was in Asia pre the COVID time, and we've been building capabilities the last two, three, four years to tap into this market as it opened. We probably lacked those capabilities we wish we would have had five years ago that we have today, and that's helped us to gain more mainland Chinese visitor business.
Gabriel DeShane
Great. I'll follow up on that offline. Thanks.
Operator
Thank you. Our next question comes from Doug Young with Desjardins. Your line is open.
Doug Young
Hi. Good morning. First question is just for Dan. Obviously, with the debt request and the boost in sales this quarter, I mean, how are you feeling relative to your accretion expectations from that business? It seems like things are performing potentially better than expected, is there an opportunity to get more than you had originally anticipated?
Kevin
Well, thanks. We're feeling very good about our original projections, but there's various puts and takes and some things a bit different than we had initially projected, as you would expect. Probably the biggest headwind, and this is well documented, is the end of the public health emergency that occurred on May 11th and the recertification by all the states of their Medicaid membership. We had projected losing a certain amount of Medicaid membership as a result of that, but over a two-year period. It does appear that the states are processing those recertifications more quickly than had been anticipated. The overall projections for membership loss are about the same so far, although a bit hard to predict as what we had projected, but there could be some short-term pressure there. On the integration side, the integration is going very well. We actually are now projecting having more expense synergies than we had built into the model. And on the sales side, as you noted, we're really getting some extraordinary results. In the first 13 months since the acquisition closed, we've had $580 million in new sales. The vast majority of that, although not all of it, is government programs. And we've essentially had no lapses on the government program side. And just to put it into perspective, that $580 million in new sales is more than 20% of the revenue that was in place as of the date of the closing. So we think any issues related to PHE would likely be made up with the very good sales results.
Doug Young
Well, I appreciate the color. And then maybe just sticking with you, Dan, I mean, the U.S. group benefit margin, it's just below 10% this quarter. It's down from the last few quarters, but your target is 7%. It seems like we're migrating down towards that 7%. You know, Is that the trajectory that we should be anticipating, you know, given the normalization potentially and stop loss as you renew next year? Like, how do we think about that U.S. group benefit margin relative to the target over the next year to two years?
Kevin
Yeah, well, the group benefits margin that we report does not include dental, right? It historically doesn't include the DentalQuest government programs. So it's really a stop loss in group margin. And actually, that was 10.2% on a trailing 12-month basis, which is the highest that we've ever seen. We are considering whether or not we should recast that at some point to include all of the dental business, some changes, minor puts and takes under IFRS 17. So more to come on that. But I think the story this quarter is that we've seen the emergence of very strong margins in the group business, meaning group life, disability, and voluntary. As I mentioned earlier, with the relaxation of COVID mortality impacts, we're now seeing the impact of all the great improvements that that team has been making to the business, and it's starting to make a significant contribution to our results, including the margin. The stop loss margin, obviously, this quarter has moderated some versus the prior quarter. We would have expected that. But in the aggregate, it drove the margin up to 10.2 with the improvements in the group business.
spk04
Okay. I'll leave it there. Thank you.
Operator
Thank you. Our next question comes from John Aiken of Barclays. Your line is open.
John Aiken
Thanks. Wanted to follow along Gabriel's line of questioning, Ingrid, if I may. Two things specifically about Hong Kong. Can you talk about the bank assurance agreement and in terms of, I know it's early days, but what products are actually being sold through the bank assurance channel and if that's what you want or if you want to ultimately move to a different channel? set of products. And secondly, the Gateway Client Center, you mentioned the region. I apologize, I'm not familiar with that. Is this specifically for mainland China visitors, or do I actually have the intentions for that client center incorrect?
Gabriel
John, hi. Good evening from Hong Kong. So yes, on the products, we made sure with our bank assurance agreement or in the relationship that we'd have products relevant for different client segments and that they would cover the full range of what clients would need from savings, protection, legacy planning. So it's a combination of those products that we're finding are being sold and it's through all of the branches that we are present. So we're really pleased with that. And then from the Sunset Choi is actually on the Kowloon side and it is positioned to attract the mainland Chinese visitors and individuals that are here, but also high-net-worth clients. And we have a dedicated team of on-site financial advisors and client support representatives. So this is a very nice presence that we haven't had before.
John Aiken
And, Ingrid, the client center, is this something that your competitors also have, or is this something innovative that is a different percentage?
Gabriel
So it's something that our competitors have had, but we've raised the bar because ours is really beautiful.
spk36
Great. Thank you very much.
Operator
Thank you. Our next question comes from Tom McKinnon with BMO Capital. Your line is open.
Tom McKinnon
Yeah, thanks very much. Just a couple questions. First one's to start off with a line that's called other expenses. Just looking at these things just quarter over quarter, Asia is where you had a lot of growth. It's only up 4%. But if I look in Canada, it's up 6%. The U.S. is up 20% in U.S. dollars just quarter over quarter. And in the corporate segment, it's up about 11% quarter over quarter. So I think you mentioned comp accruals, but are there any other items that are driving that number to be up so much sequentially and probably the highest it's been over the last six quarters, of course. So just some color there, and I have a follow-up. Thanks.
Kevin
Sure. So maybe I'll just first of all start with highlighting what's in that other line. So there's really four main components that go into that other expense line. So the first is non-directly trivial expenses. And these are expenses that are generally related to expenses or initiatives that support the entire business group. and therefore are not included in the insurance services, asset management, or other fee income lines of the DOE. So some examples of that would include marketing and support advertising, you know, functional support for the business group, and strategic initiatives that are cut across all the business units within the business group. The second item would be sort of corporate costs that we have, and so those would be costs for groups like enterprise finance, risk, legal, strategy, et cetera. Next would be performance later compensation that you mentioned, Tom. And the fourth would be debt costs. So if you kind of look at the increased quarter of a quarter, most of that increases quarters related to compensation-related factors. And that was really driven by the fact that we have equity-related compensation, and one of the main drivers of that is Sun Life's relative share price performance versus our peer. And for the first half of the year, we were outperforming.
Tom McKinnon
And is this a true-up that happens kind of more seasonal, or are we just establishing a new trend here?
Kevin
Well, we look at it regularly, Tom, and when there's an amount that we think we need to true up for, we do.
Tom McKinnon
Okay, thanks. And then, thanks for the additional disclosure here on capital generation. That's great. So if I put that together with your $148,000 LICAT that includes $2 billion in whole co-cash, you've just launched a buyback. Sun hasn't done a buyback in a while, and I seem to recall that when they've had one, they've been active. So let's take a Take us through your thinking with respect to the buyback. Is it just a buyback for window dressing purposes, or do you plan on being pretty active here?
Kevin Strain
Tom, it's Kevin. We certainly wouldn't announce a buyback that we weren't planning to execute, so we plan to execute on the buyback over the next 12 months. subject to regulatory approval, as I mentioned in my earlier notes. So that is, as you mentioned, if you look at what we did in the past, we were active on our buybacks.
Tom McKinnon
And what about still sitting on a lot of capital that's not going to probably chew through too much of it and you're generating so much? How should we be thinking about that? I mean, a high-class problem to have, but thoughts there?
Kevin Strain
Well, you make a good comment. I mean, we continue to think that we can do the buyback as we've announced and have capital to give us flexibility to add scaling capabilities through M&A when we need to and to support organic growth and our dividends. So, you know, we've sort of tried to balance all of these factors and that's how we've determined the amount of the buyback. We're obviously looking at our pipeline and we see everything that happens in terms of M&A in all of our businesses. And we think we've left ourselves with enough flexibility to continue to be active if there's things that we need to do to add either scale or capability, of course, with our financial discipline. So we don't do M&A unless it's going to add to our MTOs and unless we think we can execute. So if you look at the past few years, we think we've been pretty disciplined in our deployment of capital.
spk45
Okay, thanks.
Operator
Thank you. Our next question comes from Mario Medanco. With TD Securities, your line is open.
Mario Medanco
Good morning. Sort of along the same lines as Tom is going at, the last time Sun Life had an NCIB and actually executed on it was back in 2019. Kevin, has something changed more recently that would encourage you to have an NCIB and act on it? Is it just that Sun Life's producing capital at a better clip than it has in the past? What caused the changes?
Kevin Strain
Well, you remember that during COVID, you were not allowed to do a buyback program. So that was part of it. And then we were implementing IFRS 17. And as we came through IFRS 17, you can see our LICAT and capital strength numbers. And so that's got us to the place that as we look at the pipeline and where we're at, I should also mention we did the Dentiquest acquisition during COVID as well, which was a significant user of capital. So The combination of, again, when we deploy capital, we step back and look at what do we need for organic growth, what do we need to support the dividend and our dividend growth, and what's our M&A pipeline look like. So that's the discipline we have, and that's sort of where we stand at this point.
Mario Medanco
And then maybe for Manjit, you referred in your opening comments to when the yield curve normalizes, you'd expect it. you see some kind of a reversal of those market charges. When you say normalizing, do you mean when the yield curve steepens further? Is that what you're getting at?
Kevin
So maybe I'll let Kevin Morrissey comment on that.
Kevin Morrissey
Sure, Mario. It's Kevin Morrissey here. Our exposure really is to the yield curve inversion. And what we saw this quarter was more inversion. So the shorter rates went up by about 50 base points more than the longer rates. So what Manjit was referring to in his opening remarks were if the yield curve flattens from here or normalizes to upward sloping, based on our current risk exposure, we would see those gains reflected in reported earnings.
Mario
Thank you.
Operator
Thank you. Our next question comes from Paul Holden with CIBC. Your line is open.
Paul Holden
Thank you. Good morning. The first question is regarding advisors' asset management. I wonder if it's starting to make a contribution to the sales for SLC, and if it hasn't yet, when should we expect the contribution to start?
spk18
Well, it's Steve Peacher. Thanks for the question. So there's been a lot of activity since we closed with the different affiliates getting new products launched. Most specifically, Bento Green Oak BGO has gone live with what they're calling their iREIT, which is an industrial non-traded REIT that is through the SEC. We've still got to get through some states on the blue sky. Meetings have started. And the process from here, once you get the product live, and we're working on one with Crescent that's a few months behind, a professionally private BDC where we're actually already acquiring assets, then we're then you really start working with the different platforms, the wire houses, the RIAs, the independent broker-dealers, to get those products approved on their platforms. You can't really go out and start talking actively to the financial advisors on those platforms until you get the product approved at the home office. And we start that process before they're live, or I would say AAM does with the affiliates. but those platforms don't really engage until they've got a product that is kind of ready to go. So we are right in the thick of that now with those different platforms in the wirehouses, RIAs, IBDs. That usually takes longer at the wirehouses, tends to be quicker at the RIAs. I think that's going to take us pretty much the balance of the year, and then I think next year we can really start to see assets moving into those funds. And the other comment I'll make is the IREIT, the BGO product, That's a seed portfolio that's over a billion dollars. It's already bought. It's a great portfolio focused on the industrial sector. So that's ready to go. And as I mentioned with Crescent's product, we're in the market of building a portfolio now, and we're a few months behind BGO in terms of getting that product for the SEC. So we haven't been raising money yet in those products. A few more months to go to kind of get the approval process going. I think it's a 2024 event in terms of money flowing.
Paul Holden
That's helpful. Thank you. And then my second question also related to SLC. I mean, we continue to see pretty good AUM growth and you're well on track to hit your 2025 target, but I don't really see the same momentum and underlying net income. Can you give us a sense of when we should expect that to start inflecting higher. And maybe it's related to the first answer and just have to get work through some of these additional expenses on getting the product approvals. But I'd like to understand that a little bit better.
spk18
Yeah, what I would point you to, Paul, I mean, is I think the best earnings measure to follow to follow the health of the business. And you see it in the supplement. I think it's on page 13. is we report fee-related earnings. And fee-related earnings are really a very common measure in the business, you know, for these kind of alternative businesses. And that's going to flow, and that's kind of the purest demonstration of our earnings, and that's before minority interest, it's before taxes. It's also importantly before seed income and the cost of that, you know, the financing cost of that seeding. all of which flows to underlying net income. So I would first say look at fee-related earnings. If you look at that this year, we're up double digits over last year, and that will track generally fee-related revenue. On underlying net income, I think you're going to see a little bit more volatility in that number because it includes seed income, which I think this quarter is a much more normalized number, but that's going to bounce around a little bit. It includes, we have some share-based compensation that's going to include that. It's going to include minority interest. It's going to include taxes. So, you know, some of those things are going to move that number around a little bit. And I think, you know, we saw that this quarter. If you look at underlying net income from a year ago, it looks like it was flat. You know, there were a couple one-time positive benefits to last year's number if you normalize for that underlying income quarter. This quarter over last year was up probably close to 20%. So I hope that wasn't too convoluted an answer, but I would really focus on fee-related earnings to really track the earnings progress.
Paul Holden
Let me ask a different way, because I think the guidance you sort of said was based on underlying income for 2025, and you brought in AUM target plus an underlying income target. And it just looks like the profitability, if I simply take underlying income relative to AUM, is not tracking to those objectives. So has something changed in the profitability of the business? Or again, is it just a matter of, you know, maybe execution against strategy and getting past certain costs to improve those profit margins? I guess that's what I'm trying to understand or really, yeah.
spk18
Well, I would say our targets and our expectation that we're well on track to hit those targets that we set on Investor Day, we feel very good about those. And I think in terms of the expansion of the margin, you know, as we've been growing the top line, AUM's up a lot, fee-related revenues up, fee-related earnings are up. But with the same time, we have been investing to grow this business. And generally in this business, that means some investment in systems, but it means a lot of investment in people, salespeople, investment people. I mean, our expectations for the potential of SLC are very, very high. And we want to make sure we've got that foundation. I think you're going to start to see margins improve over the next couple of years as we can scale back some of those investments to make sure we're set up for the future and the revenue from growing AUM starts to increasingly follow the bottom line. So I think you're going to see margin improve as we don't have to invest as much to make sure we have the foundation for future growth.
Paul Holden
Okay, that's great. Thanks for your answers.
Operator
Thank you. Our next question comes from Juho Kim of Credit Suisse. Your line is open.
Juho Kim
Hi, good morning, and thanks for taking my questions. My first one is with MFS, and I'm wondering if you could comment on the net flows at MFS throughout the quarter and whether there were any changes in the flows given that equity markets sort of gradually improved over the quarter. So I'm wondering if you saw any improvements in flows as we move through month to month in that business.
spk05
Hey, good morning. This is Mike Roberge. You know, the biggest driver this year in relative flows has been what's going on in the retail channel, and this is true in the industry. And so relative to last year where redemptions were elevated given the challenges in both fixed income and equity products, we've seen redemption rates normalize, but what we've not seen yet is sales normalize. And so industry sales are down substantially relative to a couple of years ago, and we have not seen those normalized. And where we see that money going is given where cash rates are around the world. In the US, 5 plus percent in cash. In Europe, less than that. His clients are sitting on cash, relatively safe cash at relatively high levels. We've seen this historically. The market's pricing the Fed to begin to lower rates next year. If, in fact, that plays out, we think some of that cash is going to make its way back into investment products. We've just got to wait for that cycle to kind of play out. But It's less around what's happening in MFS and more around what we see happening in the industry. We track, and this is in the U.S. where we have data, we track our share of active assets in the U.S. relative to our flows. And our relative net flows are running well below our share of assets, which means we are outperforming relative, particularly on the international equity and fixed income side. And so what's driving that is industry. We think that's not going to normalize back to those levels until the Fed begins to bring policy rates down.
Juho Kim
Thank you. And just on other expenses this quarter again, and I apologize if I missed it, but just specifically for that variable compensation, I think accruals there. I'm curious if you could attribute that to different lines of businesses. I'm wondering if there's any major drivers or results from certain segments. And what are some, I guess more importantly, what are some levers that you have to sort of pull down or dial down expenses in that other expense line overall going forward?
Kevin
So good morning, Juho. It's Manjit. So I would say that it's really across all the business groups. We've had very good performance across all of the businesses, as you've heard this morning. And the second factor, as I mentioned, is also related to our equity performance, which would also cut across all groups. In terms of just general approach to expenses, I would comment that we have been and are focused on discipline expense management. That really reflects our owner's mindset philosophy that we have in the way that we run our business. But at the same time, you know, we're investing to support our business growth, ensuring that we are also investing to ensure that we have good business controls and capabilities and also making sure that we're attracting and retaining the best talent. So all those show up in the expense line, but they're also helping to support the business growth that you're seeing. So, you know, we feel very good about the investments we're making and the business growth that they're driving. But at the same time, we are also keeping a very close eye on expense growth.
Juho Kim
Perfect. Thank you. That's it for me.
Operator
Thank you. Our next question comes from Lamar Prasad with Cormark. Your line is open.
Lamar Prasad
Thanks. I want to start off on CSM here. So one of the points on CSM growth year-over-year was 8% from inorganic growth, mostly from management action.
spk22
Can you break down exactly what you're referring to there?
spk30
Kevin Morrissey, are you on?
Kevin Morrissey
Yes. Lamar, I'll take that question, Kevin Morrissey. What we saw in the inorganic is mostly related to the assumption and method changes. And that's where there was a change in Hong Kong where we had an adjustment to our pricing philosophy. And that resulted in an extension of the contract boundary. And as a result of that, we set up more CSM for that business. And that piece alone was about 240 million. but it didn't have an impact on income because there was an offsetting change on the other actual liabilities. So no impact from that change on earnings, but a significant increase in the inorganic CSM movement for the court.
Lamar Prasad
Okay, thanks. And then sticking with the CSM, I want to start off by saying thanks again for the segment disclosure. I found it helpful. On a new business CSM growth, so $270 million, Um, can you talk to how much of that was driven by the strong sales growth and. How much of that was the, uh, the next changes in, in Asia sales growth part we can see, but the mix is still a bit tougher to understand. So I'm just wondering really, is there anything one time in nature there that we should consider seasonality in that 118 million that went through in Asia?
spk22
Or is that, you know, a good, uh, starting point for Asia for, uh, Q3 and Q4?
spk39
Are you happy for me? Go ahead, Manjit.
spk29
No, you go ahead, Ingrid.
Gabriel
So I was just going to comment on Asia, and then Manjit can bring to the whole of the group. So in Asia, we really have been focused on quality products where we've been looking at margin expansion, which have been the one contributor, and that's principally in the high net worth business. The second is on sales volumes, where you're absolutely right, that has driven the underlying momentum, and clearly the strong growth in Hong Kong has contributed to that. And then we also are affected by the mix. So you can reverse engineer to see a margin of roughly between 40% to 55%, just depending on the mix in the particular quarter. But we do see very strong underlying momentum, and the new business, CSM, growth will be reflective of the sales momentum.
Lamar Prasad
Okay. That's helpful. And then you guys didn't call out Canada specifically, but there was some good growth in new business CSM in Canada as well. Can you provide some color on what drove that?
spk35
Lamar, this is Jacques. I'll take that question. And yes, there's good growth. In new business, it's predominantly driven by our PAR products, but there's also a little bit in Universal Life and in some of our individual wealth insurance products. But a lot of it is PAR.
Lamar Prasad
Okay, thank you. And then just for Dan on my next question, that 10.2% profit margin, we've seen that number climb quite consistently over the past year. I would have thought that competition would serve to erode some of that 10% profit margin in group, but it continues to go higher. It sounds like you referred to some management actions in that profit margin. Can you talk to what some changes you guys made from a management action perspective in the stop loss business? And, you know, yeah, just how material is that to the margins?
Kevin
Sure. We continue to build out capabilities in both the stop-loss business and the group benefits business. In stop-loss, and Kevin mentioned this earlier, we added Pinnacle Care Advisors, for example. Pinnacle Care is a healthcare navigation business that really differentiates our stop-loss business from others because instead of just reimbursing claims, we're actually helping people in those situations that lead to stop-loss claims. We've also continued to enhance our digital capabilities and our sales capabilities in the stop loss business. So we continue to earn above market margins. But this quarter, the biggest impact was in the group business, group life, disability, and voluntary. We've seen really strong growth over the past year of 13 plus percent. And that's the result of improved claims management capabilities. new industry-leading digital capabilities, particularly to help employers when they set up with us as a new account, including APIs that integrate us with a number of the leading payroll systems. And we've also added staff and expertise to claims management to help get people back to work. So all of these things contribute to favorable experience and strong margins.
Kevin
Thanks for the time, guys.
Operator
Thank you. Our last question comes from Nigel D'Souza with Veritas Investment Research. Your line is open.
Nigel D'Souza
Hi, good morning. Thank you for taking my question. Just wanted to touch again on CSM balance at the segment level. When I look at the rate of CSM amortization, so the amount of CSM amortized relative to CSM balance, it looks like that rate has drifted lower, particularly for Canada and Asia. Wondering if there's anything that you would point to that's driving that, or is that simply just a function of CSM balance growth?
spk07
Kevin Morrissey, do you want to take that question?
Kevin Morrissey
Sure, Nigel. It's Kevin. I think when you look at the CSM amortization, the thing to keep in mind there is that that amortization varied quite a bit by the product mix, and so we see quite a variability across the business groups, and so based on The changes in mix and the sales that are coming in, you might see a bit of volatility in that from quarter to quarter. However, we do expect to see that pretty stable in that range of about 8% to 10% that we quoted.
Nigel D'Souza
Okay, that's helpful. And the last question was more conceptual, just trying to understand the outlook for experience gains. If that's expected to be sustainably favorable, just wondering why that wouldn't eventually show up either as a change in the actuarial assumptions and update the actuarial risks or show up in premium pricing and kind of lowering premium rates to the market share. Just trying to understand longer term if there are payable experience gains, but I wouldn't show up in one of those two items.
Kevin Strain
Kevin, it's Kevin Strait. I was going to say, I wonder if you could answer that, but I do think that both Jacques and Dan gave really good answers in terms of how to think about it for the group benefits business. So I wouldn't want to repeat that, but maybe, Kevin, you could talk about some of how we look at experience gains.
Kevin Morrissey
Sure, Nigel. It's Kevin Morrissey. I think you have the right concept there that ultimately over time, the experience is going to get updated in either the actual assumptions that go into the liabilities or through the pricing when that gets renewed. So I think that is the right way to think about it. I think maybe the difference there is just the time horizons. Usually the experience studies are done, we do them every year, but we look over a time horizon of multiple years, and they can get updated periodically from time to time based on that experience. So over time, I think you're right, but I think over the short to medium term, I think it's probably best to think about it in the way that it was described by both Dan and Jacques.
Kevin Strain
Yeah, I would add to that that the group businesses are shorter-duration businesses. They're repriced on a different sort of way than individual businesses. So you have to think about group and individual differently.
Nigel D'Souza
Okay, and just a minor point of clarification. The experience gains, is that specific to Sun Life as in you're managing the actual risk veteran and the claims management?
Kevin Morrissey
experience is more favorable because of something that's specific to you or is that just reflective of industry experience just trying to get a sense of you know what's driving the favorability yeah nigel start off commenting from a high level across all the businesses i think it's it's really a combination probably of a number of factors which you measured mentioned you know one of them is the overall experience that could cross the industry some of it is related to your specific risk selection and risk management And the other dimension is the pricing as well that's been mentioned that factors into the experience. So I think it's really all three of those that have worked in our favor.
spk14
That's really helpful. Thank you.
Operator
Thank you. We have no further questions at this time, and I will turn things over to Mr. Garg for closing remarks.
Michelle
Thank you, Operator. This concludes today's call. A replay of the call will be available on the Investor Relations section of our website. Thank you everybody and have a good day.
Operator
Thank you for your participation. This does include the program. You may now disconnect. Everyone, have a great day.
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